GASB Update - Georgia

GASB Update - Georgia

GASB Update: The Hit Parade Continues GASB Update Where are we? 2019 Implementation Guide Update 2018-1 GASB-83 Asset Retirement Obligations GASB-88 Debt Disclosure and Direct Borrowing 2020 Implementation Guide Update 2019-1 - New GASB-84 Fiduciary Activities and Implementation Guide GASB-90 - Majority Equity Interests 2021(and beyond) GASB-87 Leases Implementation Guide ED GASB-89 Accounting for Interest Cost before the End of a Construction Period

GASB-91 Conduit Debt Obligations Implementation Dates First Fiscal Years Affected Effective Date Periods Beginning After Statement June 15, 2018 June 30th Sept. 30th

Decembe r 31st GASB-83 - Asset Retirement Obligations 2019 2019 2019 June 15, 2018 GASB-88 Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements

2019 2019 2019 June 15, 2018 IGU-2018-1 2019 2019 2019 December 15, 2018 GASB-84 Fiduciary Activities 2020

2020 2019 December 15, 2018 GASB-90 Majority Equity Interests 2020 2020 2019 June 15, 2019 IGU 2019-1 2020

2020 2020 December 15, 2019 GASB-87 Leases 2021 2021 2020 December 15, 2019 GASB-89Accounting for Interest Cost before the End of a Construction Period

2021 2021 2020 Recent exposure drafts Subscription-based Information Technology Arrangements (SBITA) Public-Private and Public-Public Partnerships and Availability Payment Arrangements (PPPPAPA) kidding, no acronym IRS 457 Plans meeting the definition of a pension plan and supersession of GASB 32 Quick word on IGU 2018-1 Only 9 new questions, 8 amended questions

New Questions Employer Accounting and Reporting Pensions (expected remaining service life calculation) Plan reporting OPEB Statistical Section GASB-62, (Regulatory Accounting) Tax Abatement Disclosures Amended Questions

Investments international mutual funds Cash flows reporting Pensions Plan and Employer Accounting and Reporting Capital Assets library books depreciable? Restricted net position and deferred inflows or deferred outflows of resources Statistical section Tax Abatement Disclosures Effective date now 2018-1 Question 4.7 Q - A government enters into an agreement with the owner of a landmark property in which it agrees to freeze the propertys assessed value for property tax purposes for a period of 10 years. In return, the property owner agrees not to change the propertys

existing purpose or use throughout the period. Does the property owners agreement not to modify the propertys purpose or use constitute a specific action for purposes of applying the Statement 77 definition of a tax abatement for financial reporting purposes? 2018-1 Question 4.7 A - Yes. The government has entered into this agreement to achieve a desired outcome for itself and its citizens. By maintaining the propertys existing purpose and use, the property owner is taking a specific action that creates a beneficial outcome for the government or the citizens of the government 2018-1 Question 5.3 Q A cost-sharing multiple-employer pension plan

covers only volunteer firefighters. Employer contributions are assessed as a dollar amount per active plan member. How does this affect requirements for presentation of information I schedules of required supplementary information (RSI) about measures of the net pension liability and contributions in relation to covered payroll? 2018-1 Question 5.3 A Employer contributions to the pension plan are not based on a measure of pay; as a result, there is no covered payroll. Therefore the requirement of pars. 32B and 32C of Statement no. 67.for ratios that present the net pension liability and contributions...as a percentage of covered payroll would not be applicable for this plan. Certain Asset

Retirement Obligations: GASB Codification Section A10 GASB 83: Certain Asset Retirement Obligations What: The Board issued Statement 83 to establish accounting and financial reporting standards for legal obligations to retire certain capital assets, such as decommissioning nuclear power plants, other radiation related capital assets, or removing sewage treatment plants Why: Statement 18 addressed only municipal landfills but governments have retirement obligations for other types

of capital assets. Diversity exists in practice. When: Effective for fiscal years beginning after June 15, 2018. Earlier application is encouraged. WHAT IS THE DEFINITION OF AN ARO? Asset retirement obligationA legal obligation associated with the retirement of a tangible capital asset: Retirement of a tangible capital assetThe otherthan-temporary removal of a capital asset from service (such as from sale, abandonment, recycling, or disposal): Doesnt matter if capital asset was acquired or constructed; May also occur when government is a lessor; Legal obligation must be enforceable. What Is the Scope of GASB-83 (Cod. Sec. A10)?

WHAT IS EXCLUDED FROM THE SCOPE OF THE GASB-83 (COD. SEC. A10)? Obligations associated with: Plan to sell or otherwise dispose of a tangible capital asset. Preparation of a tangible capital asset for an alternative use. Asbestos removal or pollution remediation (GASB-49) [GASB Cod. Sec. P40]. Maintenance of a tangible capital asset.

Cost of replacement part that is a component of a capital asset. Landfill closure and postclosure care obligations. Conditional obligations to perform asset retirement activities Recognition of Liabilities Similar to GASB-49: Liability has to be incurred and reasonably estimable. Must be external and internal events to obligate the government (Two events) EXTERNAL EVENTS

EXAMPLES Federal, state, local laws / regulations; Legally binding contracts; Court judgment imposing legally enforceable liability. INTERNAL EVENTS EXAMPLES For contamination related events occurrence; Non-contamination:

Pattern of incurrence based on use (mine excavation); Placing of capital asset into service; Abandonment before use (permanent construction stoppage). Acquisition of a capital asset with existing ARO. Recognition & Measurement Initial ARO liability when incurred and Recognition reasonably estimable. Incurrence manifested by both external and

internal obligating events. Deferred outflow of resourcessame amount as the ARO liability Measured based on the best estimate of the current value of outlays expected to be incurred. Subsequen At least annually, adjust for t general inflation or deflation Recognition At least annually, evaluate An outflow of resources (such as expense) in a relevant factors to determine if systematic and there is a significant change in

rational manner over the estimated outlays; remeasure the estimated useful liability when significant life of the capital asset. Immediately expense if capital asset is abandoned. 17 Disclosures General description of ARO and associated tangible capital

assets Include source of AROs (federal, state, or local laws and regulations, contracts, or court judgments) Methods and assumptions used to measure ARO liabilities Estimated remaining useful life of tangible capital assets How financial assurance requirements, if any, are being met Amount of assets restricted for payment of ARO liabilities, if not separately displayed in financial statements If a government has an ARO (or portions of an ARO) that is incurred but not yet recognized because it cannot be reasonably estimated, that fact and the reasons therefor 18 Certain disclosures related to debt, including direct borrowings and direct placements Amends GASB Codification sections 1500, 2300

GASB 88: Certain Disclosures related to Debt Effective: The effective date for this standard is for reporting periods beginning after June 15, 2018 Purpose: To improve consistency in debt related disclosures including direct borrowings and direct placements. Debt is actually defined in this standard for the first time Debt does not include in its definition the net pension liability or the net or total OPEB liability (those are long-term obligations, but are not defined as long-term debt for the disclosure purposes of this standard

What is the NEW Definition of Debt? For purposes of disclosure in notes to financial statements: A liability that arises from a contractual obligation: To pay cash (or other assets that may be used in lieu of payment of cash); In one or more payments; To settle an amount that is fixed at the date the contractual obligation is established. Interest to be accrued and subsequently paid such as variable rate debt, or interest to be added to the principal amount of the obligation (capital appreciation bonds) does not preclude the amount from being fixed (meaning debt). For disclosure purposes, debt does not include: Most Leases (see GASB-87)

Leases that are financed purchases are still debt. Accounts payable. Based on the Definition of Debt Disclosure Will Then Be: SUMMARIZED Information (Not Details) on the following: Amount of unused lines of credit; Assets pledged as collateral for debt; Terms specified in debt agreements related to significant: Events of default with finance-related consequences or termination events with finance-related consequences; Subjective acceleration clauses. Debt disclosures separated into the following

categories: Direct borrowings and direct placements of debt; Other Debt. Some terminology / jargon to know Direct Borrowing -when a government enters into a loan agreement with a lender (any financial institution) Direct Placement - when a government issues a debt security directly to an investor. Typical Direct Borrowings / Direct

Placements, Lines of Credit Lines of credit are different from letters of credit. A letter of credit is more of a guarantee of payment. A line of credit is a full agreement to receive resources that are available to draw. Assets pledged as collateral different than GASB-48 provisions which are revenue pledges GASB 89 Construction period interest costs Removes the requirement to capitalize construction period interest costs in proprietary funds and BTA Prospective application only

Perhaps the only GASB Statement Ive ever seen that you can implement by doing NOTHING No restatements, no reclassifications, no capitalization, no lookback period An easy target if you wish to early implement; in fact, we recommend it Exposure draft Subscription-based information technology arrangements (SIBITA) SIBITA Think Prince More than just Cloud-Computing

Most common models are: Software as a Service (SaaS) Platform as a Service (PaaS) Infrastructure as a Service (IaaS) Data Warehouse as a Service (DwaaS) Diversity in practice due to structure of contracts and arrangements: Could have multiple components Could be an intangible asset (similar to GASB-87 leases) or an outflow Components/Elements of SIBTAs Common elements include:

Maintenance Startup / transition / conversion Business analysis and development Communication and outreach Delivery Application customization Training deployment Many others! User Acceptance Testing Data conversion

support Post-implementation support Architectural design Cloud labor Advanced wireless cloud services Tentative conclusions Definition of a SBITA: A contract that conveys control of the right to use hardware, software, or a combination of both, including IT infrastructure, as specified in the contract for a period of time in an exchange or exchange-like transaction. Sound familiar??

Tentative conclusions Many aspects of P3 project (next section) and GASB-87 utilized. Many aspects of GASB Cod. Sec. 1400 (GASB-34, 42, 51) also used as a SBITA could be an intangible asset GASB-51 model applied: Timeline Exposure draft out imminently Comment period until July 31

Final Standard by March 2020 Tentative Implementation Date periods beginning after June 15, 2021 Retroactive restatement, if practicable Exposure Draft Public-private and Public-public partnerships (P3s) including reexamination of GASB-60 What are p3s? Proposed Definition of P3s Arrangements in which a government (transferor) contracts with another entity (public or private) (operator) to provide public services by conveying control of the right to operate or use infrastructure or other nonfinancial assets in an exchange or exchange-like transaction for a period of time

Multiple variations Design build Design build finance Build own operate Build own operate transfer Design build operate maintain Design build finance operate Design build finance operate maintain REMEMBER FROM WAY BACK SCAS ARE TRANSFEROR GOVERNMENT

Conveys the right (and related obligation) to provide public services through the use of a capital asset Receives significant consideration in exchange including Up-front / installment payments New capital asset Improvements on existing capital asset Determines or has the ability to modify / approve Services provided To whom operator provides

services Prices / rates charged Receives asset in return at end (reversion) OPERATOR GOVERNMENT / PRIVATE ENTITY Collects fees and is compensated by fees from third parties (except those remitted back to transferor) Where are p3s in practice?

Road networks Airports Public transit Healthcare Student services at public institutions Stadiums Jails Water / sewer Museums Any capital asset could be involved

Proposed guidance Decision-making hierarchy If the P3 meets the definition of a lease apply GASB-87. Otherwise, apply new provisions for P3s GASB-60 would be superseded [GASB Cod. Sec. S30] Includes guidance on availability payments (APAs) Payments not tied to usage and paid when facility is operational / tied to performance measures. Government retains risk APAs may have multiple components just like leases Could result in a financed purchase, otherwise, just outflows Comparing SBITA and P3 Project with leases

Leases Element SBITA P3 Project Lease Term Subscription Term same factors Same factors Terminations, modifications, combinations Same Same

Short term exception Same No provision in ED Right to use asset Same Same Liability measurement Same Same Interest rate use implicit or stated

Same Same Reassessment of rates Same Same Impairment of right to use asset Same Same Disclosure Almost all the same

Almost all the same Leases that are financings As applicable Slightly different SCA vs. P3 Transferor recognition and measurement meets definition of sca Existing Capital Asset Transferor continues to report capital asset Continues to apply all applicable GAAP to capital assets [GASB Cod. Sec. 1400, including impairment]

Transferor reports receivable and deferred inflow of resources New Capital Asset Purchased or Constructed Capital asset at acquisition value when placed in operation Receivable and deferred inflow of resources reported Transferor recognition and measurement DOES NOT meet definition of sca Receivable for underlying P3 Asset Acquisition value as of the future date of ownership

Receivable for installment payments and deferred inflows of resources Initial direct costs expensed Receivable calculation Very much like leases receivable includes (as applicable) Fixed payments Variable payments that are subject to a rate/index

Variable payments that are in substance fixed Residual value guarantee payments Residual value guarantee payments recognized as receivable / deferred inflow of resources if Guarantee payment is required Amount can be reasonably estimated Future payments are discounted using explicit or implicit interest rate [GASB Cod. Sec. I30] Receivable calculation Amortization of discount on receivable and interest adjusts interest revenue

Changes and modifications / terminations will adjust receivable Deferred inflow of resources amortized systematically Governmental operators Operator records liability for installment payments and intangible right to use asset (sound familiar)? P3 meets the criteria for an SCA: Liability for underlying P3 asset measured at acquisition value Liability for installment payments Right to use intangible asset

P3 does not meet the criteria for an SCA: New asset purchased / constructed / improved P3 asset only recognized until transferred to the transferor Liability at acquisition value Liability for installment payments Liability for installment payments just like receivable calculation Where is the GASB tentatively headed Updated disclosure Based on Leases exceptions could be Managements objectives for SCA disclosure to be deleted from GASB-60 Other disclosure aspects of GASB-60 aligned to GASB87

Exposure draft due June 2019, 90 day comment period Final standard by March 2020? Tentative Implementation Date periods beginning after June 15, 2021 Retroactive restatement, if practicable Exposure Draft IRS 457 Deferred compensation plans Deferred compensation plans (457s) Current reporting is in flux existing guidance superseded by GASB-84 -

including IG exposure draft sound like pension but gaap says they are not! Problem employers frequently contribute to 457s in addition to employees Amount of benefits totally depends on contributions / earnings Employers still do not have risk of gains / losses Could make 457s more like defined contribution pension plans (GASB Cod. Sec. Pe6) Reminder on DC plans: Uses an irrevocable trust like DB plans Individual accounts for each member

Employer contributions / credits are defined by plan during members service Benefits received depend on Contributions / credits Earnings Effects of forfeitures of contributions or credits from other plan members Allocated administrative expense Exposure draft, 90 day comment period, final standard by December omnibus BREAKING NEWS OMNIBUS PROJECT

Eight Focus Areas What is the definition of a collection of historical treasures (change made by Museum Association) Effective date of GASB-87 to change from reporting periods to fiscal years Intra-entity transfers of assets (see question in IGU Exposure Draft) How should pension plans account for intra-entity transfers of capital assets from employer to the plan be careful.. Clarifications on GASB-84 with moderate inconsistencies between pensions and OPEB Clear up inconsistency between GASB and AICPA in the definition of available to be issued (subsequent events) Clarification of acquisition value on pensions / OPEB in government combinations Codification edits needed on fair value Reinsurance recoveries inconsistencies Exposure draft by June final Statement by January?

Secured overnight financing rate SOFR SOFA LIBOR = London Interbank Offered Rate a basket of 10 currencies and 15 maturities from overnight up to one year set by banks in London daily. But there is also TIBOR (Tokyo) and EURIBOR (Euros) Change impacts $350 TRILLION market Problem reference interest rates are going global LIBOR being phased out (some say due to Brexit)

GASB standards reference LIBOR especially GASB-53 (GASB Cod. Sec. D40) GASB may do a search / replace for LIBOR or GASB may describe what is an acceptable reference rate GASB may also provide guidance for what happens at LIBOR end does it result in a termination of a derivative? Exposure draft by August, 90 day comment period, Final standard by May 2020 (in time for 2021 sunset)

Implementation Guide 2019-1 Exposure Draft Q&A 4.2 QIf an index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher is used in the determination of the discount rate for purposes of measuring a total pension liability or total OPEB liability in accordance with Statement No. 67, Financial Reporting for Pension Plans, or Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as applicable, can an average of index rates at different dates be used? Exposure Draft Q&A 4.2 ANo. The index rate is an input into the

measurement of the total pension liability or total OPEB liability and, as such, is required to be a rate at the pension or OPEB plans fiscal year-end. Therefore, an average of rates at different dates is not permitted. Exposure Draft Q&A 4.5 QFor purposes of applying paragraph 159 or paragraph 199 of Statement 75, if benefit payments for OPEB are implicit in amounts paid by an employer for active employee benefits (sometimes referred to as an implicit rate subsidy), should the amount of the deferred outflow of resources related to OPEB reported for amounts paid by the employer for OPEB as the benefits come due subsequent to the measurement date of the (collective) total OPEB liability and before the end of the reporting period include the amount of the implicit payments made during that period?

Exposure Draft Q&A 4.4 A Yes. Consistent with the requirements of Statement 75 regarding the projection of benefit payments for purposes of measuring the employers liability to employees for defined benefit OPEB, benefit payments (which are amounts paid for OPEB as the benefits come due), should include the implicit rate subsidy. Exposure Draft Q&A 4.10 QA government owns a building that it reports as a capital asset. The building has a carrying value of $3 million and an appraised value of $10 million. If the government transfers ownership of the

building to a pension plan that it reports as a fiduciary component unit, how should the pension plan report the transaction in its separately issued financial statements? Exposure Draft Q&A 4.10 AIn accordance with paragraph 15 of Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, because the government and the pension plan are part of the same reporting entity, the pension plan should report a capital asset of $3 million (the governments carrying value of the building) and an addition (a contribution) of $3 million (the carrying value of the building, less the amount paid by the pension planin this case, zero). Questions

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