The GASB has been busy issuing statements to improve financial reporting on topics including Service Concession Arrangements; the Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements; Deferred Inflows and Deferred Outflows of Resources, and Net Position; Accounting for Terminated Hedging Transactions; the Reporting Entity; the Financial Reporting Entity; and Items Previously Reported as Assets and Liabilities.
The following is a brief summary of the GASB Statements, including financial statement presentation and disclosure considerations that are required to be implemented either now (for periods beginning on or after December 15, 2011) or in the upcoming year.
GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements (effective for periods beginning after December 15, 2011) requires governments to account for and disclose any service concession arrangements (“SCA”). An SCA is a type of public-private or public-public partnership between a transferor (a government) and an operator (governmental or nongovernmental entity).
Financial Statement Reporting: A transferor reports the facility subject to an SCA as its capital asset and a liability is recognized for the present value of significant contractual obligations to sacrifice financial resources, along with a deferred inflow of resources. Revenue is to be recognized by the transferor in a systematic and rational material over the term of the arrangement.
Financial Statement Note Disclosure: The notes to the financial statements must disclose: (a) a description of the SCA, including management's objectives for entering into it and, if applicable, the status of the project during the construction period; (b) the nature and amounts of assets, liabilities, and deferred inflows of resources related to an SCA; (c) the nature and extent of rights retained by the transferor or granted to the governmental operator under the arrangement; and (d) for each period in which a related guarantee or commitment exists, the identification, duration and significant contract terms of the guarantee or commitment.
GASB Statement No. 62, GASB Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (effective for periods beginning after December 15, 2011) incorporates into the GASB’s accounting and financial reporting that is included in the FASB Statements and Interpretations, APB Opinions and Research Bulletins, which do not conflict with or contradict GASB statements, which were issued on or before November 30, 1989.
Financial Statement Disclosures: The implementation of this Statement will eliminate the need to disclose a statement in the SSAP footnote that proprietary fund types apply all applicable pronouncements of the Financial Accounting Standards Board (FASB) issued on or before Nov. 30, 1989 that are not in conflict with applicable GASB pronouncements. This also removes the requirement to disclose whether the entity has implemented any pronouncements subsequent to Nov. 30, 1989.
GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position (effective for periods beginning after December 15, 2011) requires governments to account for deferred outflows of resources, deferred inflows of resources, and net position elements in Concepts Statement No. 4 as it relates to GASB Statements 53 (derivatives) and 60 (SCA’s). Concepts Statement No. 4 indicates that reporting a deferred outflow of resources or a deferred inflow of resources should be limited to those instances identified by the Board in authoritative pronouncements that are established after applicable due process.
Financial Statement Presentation: Statement of Net Position. Governmental entities will now present a Statement of Net Position. The Statement of Net Position should report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. Governments are encouraged to present the statement of net position in a format that displays assets, plus deferred outflows of resources, less liabilities, less deferred inflows of resources, equals net position, although a balance sheet format (assets plus deferred outflows of resources equals liabilities plus deferred inflows of resources, plus net position) may be used.
Balances of deferred outflows of resources and deferred inflows of resources reported in a statement of net position or a governmental fund balance sheet may be aggregations of different types of deferred amounts. Governments should provide details of the different types of deferred amounts in the notes to the financial statements if significant components of the total deferred amounts are obscured by aggregation. Disclosure in the notes to the financial statements is required only if the information is not displayed on the face of the financial statements.
Financial Statement Presentation: Net Position. Represents the difference between all other elements in a statement of financial position and should be displayed in three components—net investment in capital assets; restricted (distinguishing between major categories of restrictions); and unrestricted. The calculation of net investment in capital assets is similar to the prior calculation of investment in capital assets, net of related debt; however, with the implementation of GASB Statement No. 63, the deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also should be included in this component of net position.
Financial Reporting for Governmental Funds: Deferred outflows of resources and deferred inflows of resources that are required to be reported in a governmental fund balance sheet should be presented in a format that displays assets plus deferred outflows of resources, equals liabilities plus deferred inflows of resources, plus fund balance.
Other Consideration: GASB Statement No. 63 only addresses deferred outflows of resources and deferred inflows of resources as relating to derivatives and SCAs. The Board has issued GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, to address other deferred outflows of resources and deferred inflows of resources. GASB Statement No. 65 is not required to be implemented until years beginning on or after December 15, 2012. However, many entities are considering early implementing GASB Statement No. 65 with their implementation of GASB Statement No. 63.GASB Statements No. 60, 62, 63 and 64 are required to be implemented for years beginning on our after December 15, 2011.
GASB Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions (an amendment of GASB Statement No. 53) (effective for periods beginning after June 15, 2011) changes how governmental entities account for a termination of a hedge, when the hedged was swapped and an effective hedging relationship continues. This Statement clarifies when the application of hedge accounting should continue upon the replacement of a swap counterparty or a swap counterparty's credit support provider. GASBS No. 64 identifies three criteria for when an effective hedging relationship continues.
- Collectability of swap payments is considered to be probable.
- The swap counterparty of the interest rate swap or commodity swap, or the swap counterparty's credit support provider, is replaced with an assignment or in-substance assignment.
- The government enters into the assignment or in-substance assignment in response to the swap counterparty, or the swap counterparty's credit support provider, either committing or experiencing an act of default or a termination event as both are described in the swap agreement.
GASB Statement No. 61 The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34 (effective for periods beginning after June 15, 2012) requires governments to perform a reevaluation of current and potential component units. Some of the significant changes that could impact the determinations include: new financial benefit or burden criteria was added to the discretely presented component unit determination; there was clarification on the component unit inclusion based on the misleading to exclude determination; for blended components there were additional requirements added to the substantively same governing body; and added criteria to blend if component unit debt is expected to be repaid by the primary government.
For organizations that previously were required to be included as component units by meeting the fiscal dependency (financially accountable) criterion, a financial benefit or burden relationship is also required. An organization has a financial benefit or burden relationship with the primary government if, for example, any one of these conditions exists:
a) The primary government is legally entitled to or can otherwise access the organization's resources.
b) The primary government is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization.
c) The primary government is obligated in some manner for the debt of the organization.
There was clarification on the misleading to exclude them determination to address if the potential component units are closely related to, or financially integrated with the primary government. “Misleading to exclude them” has been removed from the standard. For component units that currently are blended based on the “substantively the same governing body” criterion, it additionally requires either (1) the primary government and the component unit have a financial benefit or burden relationship or (2) management (below the level of the elected officials) of the primary government have operational responsibility for the activities of the component unit.
New criteria also are added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government.
GASB Statement No. 65, Items Previously Reported as Assets and Liabilities (effective for periods beginning after December 15, 2012) requires governments to adopt provisions of Concepts Statement No. 4 for all other items reported as assets and liabilities, which were not addressed as part of GASB 63. The Statement also revises the major fund calculation so that assets are combined with deferred outflows of resources and liabilities should be combined with deferred inflows of resources.
GASB 65 also restricts the use of the term deferred to only deferred outflows of resources and deferred inflows of resources.
Some examples of transactions that will be impacted by the adoption of GASB 65:
- Bond Refunding: the difference between the reacquisition price and the net carrying amount of the old debt should be reported as a deferred outflow of resources or a deferred inflow of resources and recognized as a component of interest expense in a systematic and rational manner over the remaining life of the old debt or the life of the new debt, whichever is shorter.
- Debt Issuance Costs: debt issuance costs, except any portion related to prepaid insurance costs, should be recognized as an expense in the period incurred. Prepaid insurance costs should be reported as an asset and recognized as an expense in a systematic and rational manner over the duration of the related debt.
- Revenue Recognition in Governmental Funds - When an asset is recorded in governmental fund financial statements but the revenue is not available, the government should report a deferred inflow of resources until such time as the revenue becomes available.
What You Can Do Prior to Implementing GASBs
When implementing the GASB statements your government should apply the statements retroactively by restating net assets / fund balance for all prior periods presented.
Consider whether you want to early implement GASB 61 (for years ending Dec. 31, 2012) or GASB 65. A potential item to consider may be whether you will have any restatements in the current period or future period for implementation of the standards; it may be more efficient to early implement these standards and not have a restatement as the result of the implementation in the next year. Also, consider the impacts of GASB 63 and GASB 65 and how they both address deferred inflows of resources, deferred outflows of resources, and net position based on Concepts Statement No. 4.
For More Information
Contact Eide Bailly at 866.672.4767 with any questions. We can provide you with additional resources, such as access to the Government Audit Quality Center website to view archived webcasts and other information relating to the implementation of the mentioned GASB Statements.