Kansas City, MO – On July 15-16, 2008, GASAC members sat in on a GASB conference call for SEA performance (suggested guidelines document) and Annual Required Contribution (ARC) Adjustment (technical bulletin). During the conference call, the GASB members provided comments on wording. Particularly, the comments were on the readability and understandability of phrases, charts and tables.
After the GASB conference call, the GASAC meeting was called to order. The meeting was held in conjunction with the NaCO Conference.
The following are some of the highlights of the meeting.
Public/Private Partnership
This is a topic that is currently on the technical agenda. It is expected to be released in the first quarter of 2010. This project will address the complex arrangements for public and private sector entity partnerships. Particularly, it focuses on service concession arrangements. These arrangements are the partnership between a public sector entity and private sector entity whereby the private sector entity delivers a government asset or service. Initial research shows that the accounting and financial reporting for operation concessions and other types of arrangements are not clear.
There were issues raised about the scope of the project. Should the project have a narrow or broad scope? Overall there was general consensus that the scope of the project should include all of the different types of arrangements and that it not be narrowed to a few of the complex types of arrangements. Additionally, it was also the general consensus that the project includes public/public partnerships as well.
The discussion then turned to the types of approaches to reporting under the different types of arrangements.
The options included:
1. Risk and reward
2. Control
3. Rights and obligations
The first two approaches generally are all or nothing approaches in that the assets are assigned to either one entity based on which has the risk, reward or control. However, the third item takes into consideration rights and obligations and assigning assets accordingly to each entity. However, it was thought that this approach, while sounding positive in theory, would be difficult to implement.
Project Prioritization
At the previous meeting, a task force was established to develop a set of factors to consider when evaluating research proposals to add to GASB's research agenda.
The four factors developed were:
1. Significance of issue
2. Pervasiveness of issue
3. Feasibility
4. Cost/benefit
After some discussion, the GASAC task force reported that they will incorporate and address the comments and suggestions from the discussion and report back at the next meeting of changes made.
Chapter 9 Bankruptcy Research Proposal
The GASB staff reported on the importance and need to address Chapter 9 bankruptcy. The research project will look at the financial reporting of governments and the consequences for governments declaring Chapter 9 protection. The staff felt this was an important topic to address given the current economic situations faced by the Nation. The project will look at recognition and measurement for governments who have protection under Chapter 9, particularly the valuation of assets and liability. The consensus of GASAC members was to add this project to GASB's research agenda.
Effective dates
David Bean, Director of Research and Technical Activities, requested feedback on effective dates. Should the GASB coordinate effective dates of statements on a calendar year basis and allow phase in effective dates (like GASB statement 34) or should GASB have effective dates where up to four Statements are effective in any one year and wait two or three years before another effective date? The general consensus was that the calendar year/phase in approach was best (the current methodology). In general, the GASAC responded that, "It takes time to address new statements, Having four statements a year would be difficult to implement, Some statements result in needed policy decisions, so having them phase in or allowing time for policy decisions to be made would be the best approach."
Director of RTA report (David Bean)
Reporting from GASB’s technical agenda, David Bean touched on the following topics:
1. Fund Balance Reporting – He would still like to hear from the user community of financials on this topic.
2. Reporting Units – This will be further deliberated in September 2008.
3. AICPA Omnibus and GAAP Hierarchy – the FASAB (Federal) will have a joint meeting in August 2008 with GASB
4. ARC technical bulletin – This should be issued very soon. It was clarified that actual amounts can be used.
5. Comprehensive Implementation Guide – This should be issued by August or September 2008
6. Derivative Implementation Guide – This should be issued by February 2009.
(As a side note, the GASB reported that the new Casino guide will make some references to Tribal casinos.)
Research Projects included the following:
1. Codification of Pre-November 30, 1989
2. Economic Condition Reporting
3. Electronic Financial Reporting
4. Fair Value Measurements
5. Investment Omnibus
6. Chapter 9 bankruptcy
FAF Report by John Radford, FAF Trustee
The Bond assessment revenue report was positive. There was unexpected revenue of about $146,000. This resulted in the revenue exceeding its budget by $123,000. However, the Fair Share and Single Audit revenues were not as significant.
It is still the goal of the FAF to seek long-term independent funding for GASB. Some organizations have stepped up to provide funding. Additionally, the outlook appears positive.
The FAF, NASACT, and GFOA have been working on a plan to have states support GASB. This plan would entail states possibly funding about $7.5 million per year. The amount would be allocated by a proposed 50/50 formula (50% split equally among states and 50% split by population). There is a chance some states may opt out of this plan; however John Radford believes they will get 100% participation. This state funded program may not be effective until July 2010. In the interim, the fair share program will continue.
GASB Chairman’s report
Girard Miller is stepping down as a GASB member. He is taking a position that will be working with OPEB issues. He will be involved with strategy with his new consulting position. He feels this will conflict with his duties as a GASB member.
There will be a public hearing in Atlanta Georgia for Service Efforts and Accomplishments (SEA) conceptual framework at the AGA annual meeting. Also, the Chairman reported that the suggested guidance document for SEA has the following components.
Part 1 – Essential components
1. Purpose Scope
2. Major goals and objectives
3. Key performance measures
4. Discussion and analysis of results
Part 2 – Qualitative Characteristics
1. Relevance
2. Understandability
3. Comparability
4. Consistency
5. Timeliness
6. Reliability
It is expected that this guidance only address separate documents communicating SEA. It doesn’t address SEA reported in other documents such as a CAFR.
Recognition and Measurement
This project addresses conceptual framework issues with the current financial resources measurement focus. The project will develop criteria for recognition and measurement for the current financial resources measurement focus.
However, the GASB staff had questions on the types of information that should come from fund based financial statements and whether it should include some interperiod equity. Lastly, they asked how budgeting plays a role in current financial resources measurement focus.
Some of the questions discussed and comments made and at most times were rhetorical are as follows:
1. How long do you extend accruals?
2. What about OPEB accruals?
3. Are fund based statements useful?
4. Long term debt is often not reported in fund statements, but should it?
5. It seems like the fund based statements are reconciled to Government wide for it to be useful to users, or reconciled to budget basis for budgetary purposes.
Post Employment Benefits
The premise for this project is to address post employment accounting and financial reporting issues in general. However, the most prominently discussed issue in the pension arena today relates to how pension obligations and assets should be valued for accounting purposes.
The project will include an invitation to comment.
Other Items
The next meeting for GASAC is November 6 and 7, 2008 at New York (LaGuardia)
GASAC accepted invitations for 2009 and 2010 annual meetings.
NASRA – July 31 through August 5, 2009 Savanna, Georgia.
ASBOI – September 24 through 27, 2010 Orlando, Florida
GASAC’s tentative meeting schedule for next year is as follows:
Norwalk, CT – March 12 and 13, 2009
Savanna, Georgia - August 3 and 4, 2009
New York – November 19 and 20, 2009
Thursday, July 17, 2008
Annual Required Contribution (ARC) adjustment Technical Bulletin
Norwalk, CT—The Governmental Accounting Standards Board (GASB) will expose a draft Technical Bulletin, Determining the Annual Required Contribution for Postemployment Benefits on July 21, 2008. This document is intended to clarify that the use of actual known amounts for purposes of calculating the annual required contribution (ARC) adjustment relating to pensions and other postemployment benefits (OPEB) is consistent with the intent of existing standards.
The Technical Bulletin will further make clear that use of the known amount in place of the estimation procedure in GASB Statements No. 27, Accounting for Pensions by State and Local Governmental Employers, and No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, is encouraged.
For accounting purposes, the portion of the ARC calculation related to past over- and underpayments already has been recognized in the financial statements, and an adjustment needs to be made to future ARCs to avoid counting that amount twice. Statements 27 and 45 assume that the amount is not known and therefore prescribe a method of estimation that governments are required to use. However, since it has come to the GASB’s attention that some actuaries do track that portion of the ARC separately, this Technical Bulletin clarifies that governments may base the ARC adjustment on the actual amount when it is known.
``When our pension standards were enacted, many governments had been funding their plans for years and it was believed that it would be necessary to estimate the ARC adjustment,’’ said Robert H. Attmore, chairman of the GASB. ``Since many governments are implementing the OPEB standards essentially with a blank slate, there is a higher likelihood that they will have the actual amounts from the start. We want to accommodate the use of actual numbers when governments have them.”
The Technical Bulletin will further make clear that use of the known amount in place of the estimation procedure in GASB Statements No. 27, Accounting for Pensions by State and Local Governmental Employers, and No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, is encouraged.
For accounting purposes, the portion of the ARC calculation related to past over- and underpayments already has been recognized in the financial statements, and an adjustment needs to be made to future ARCs to avoid counting that amount twice. Statements 27 and 45 assume that the amount is not known and therefore prescribe a method of estimation that governments are required to use. However, since it has come to the GASB’s attention that some actuaries do track that portion of the ARC separately, this Technical Bulletin clarifies that governments may base the ARC adjustment on the actual amount when it is known.
``When our pension standards were enacted, many governments had been funding their plans for years and it was believed that it would be necessary to estimate the ARC adjustment,’’ said Robert H. Attmore, chairman of the GASB. ``Since many governments are implementing the OPEB standards essentially with a blank slate, there is a higher likelihood that they will have the actual amounts from the start. We want to accommodate the use of actual numbers when governments have them.”
Girard Miller, GASB member, resigns
Norwalk, CT, July 14, 2008—Robert E. Denham, chairman of the Financial Accounting Foundation (FAF) Board of Trustees, announced that Girard Miller, one of six part-time members of the Governmental Accounting Standards Board (GASB) is resigning from the Board, effective July 31, 2008, to accept a senior strategic consulting position in the private sector.
The FAF is responsible for the oversight, administration, and finances of the GASB and the Financial Accounting Standards Board (FASB) and selecting their members.
Although part-time GASB members are able to hold other employment positions while serving on GASB, the organization’s code of conduct and ethical policies require that they avoid activities which may create the appearance of losing personal independence or objectivity or affect the confidence of the public in the integrity, independence, or objectivity of the GASB.
Because Miller’s future work could potentially overlap with GASB initiatives, Mr. Miller suggested his resignation from GASB was appropriate, and the FAF concurred with his decision.
The FAF is responsible for the oversight, administration, and finances of the GASB and the Financial Accounting Standards Board (FASB) and selecting their members.
Although part-time GASB members are able to hold other employment positions while serving on GASB, the organization’s code of conduct and ethical policies require that they avoid activities which may create the appearance of losing personal independence or objectivity or affect the confidence of the public in the integrity, independence, or objectivity of the GASB.
Because Miller’s future work could potentially overlap with GASB initiatives, Mr. Miller suggested his resignation from GASB was appropriate, and the FAF concurred with his decision.
GASB Statement 53 Issued
The Governmental Accounting Standards Board (GASB) has issued GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. Statement 53 is intended to improve how state and local governments report information about derivative instruments—financial arrangements used by governments to manage specific risks or make investments—in their financial statements. The Statement specifically requires governments to measure most derivative instruments at fair value in their financial statements that are prepared using the economic resources measurement focus and the accrual basis of accounting.
The changes in fair value of derivative instruments that are classified as hedging derivative instruments, because they are effective as hedges of a specific risk (s), are reported in the statement of net assets as deferrals.
The changes in fair value of derivative instruments that are used for investment purposes or that are reported as investment derivative instruments, because they do not qualify as effective hedges, are reported within the investment revenue classification in the statement of resource flows.
The guidance in this Statement also addresses hedge accounting requirements and is effective for financial statements for reporting periods beginning after June 15, 2009, with earlier application encouraged.
The changes in fair value of derivative instruments that are classified as hedging derivative instruments, because they are effective as hedges of a specific risk (s), are reported in the statement of net assets as deferrals.
The changes in fair value of derivative instruments that are used for investment purposes or that are reported as investment derivative instruments, because they do not qualify as effective hedges, are reported within the investment revenue classification in the statement of resource flows.
The guidance in this Statement also addresses hedge accounting requirements and is effective for financial statements for reporting periods beginning after June 15, 2009, with earlier application encouraged.
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