Transcript Slide 1

August 8, 2014
CLAconnect.com
©2014 CliftonLarsonAllen LLP
©2014 CliftonLarsonAllen LLP
GFOA Summer Conference
GASB Update
•
December 15, 2012 (June 30, 2014)
©2014 CliftonLarsonAllen LLP
Effective Dates – Years beginning after
– Statement 65 – Items Previously Reported as Assets and Liabilities
– Statement 66 - Technical Corrections - 2012 - an amendment of GASB
Statements No. 10 and No 62
•
June 15, 2013 (June 30, 2014)
– Statement 67 – Financial Reporting for Pension Plans - an amendment of
GASB Statement No. 25
– Statement 70 - Accounting and Financial Reporting for Nonexchange
Financial Guarantees
•
December 15, 2013 (June 30, 2015)
– Statement 69 - Government Combinations and Disposals of Government
Operations
•
June 15, 2014 (June 30, 2015)
– Statement 68 – Accounting and Financial Reporting for Pension Plans - an
amendment of GASB Statement No 27
– Statement 71 - Pension Transition for Contributions Made Subsequent to
Measurement Date - an amendment of GASB Statement No. 68
2
©2014 CliftonLarsonAllen LLP
GASB No. 65
Items Previously Reported as Assets and
Liabilities
• Certain items previously identified as assets and
liabilities are not really considered to be assets or
liabilities
• The use of the concept of deferred inflows and
outflows was established to handle these items
• This statement establishes those items which are
now to be recast as deferred inflows and outflows
©2014 CliftonLarsonAllen LLP
Background
• Previously restricted only to use in hedging and
Service Concession arrangements
• Deferred Outflows
– A consumption of net position that is applicable to a future
accounting period (e.g. dfd loss on refunding)
– Shown as a separate category below assets
• Deferred Inflows
– An acquisition of net position that is applicable to a future
accounting period (e.g. Unavailable revenue in a
governmental fund)
– Shown as a separate category below liabilities
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Deferred Inflows/Outflows
•
•
•
•
•
•
•
•
•
•
•
•
Refunding of Debt
Nonexchange transactions
Sales of Future Revenues
Debt issuance costs
Leases
Acquisition costs related to insurance activities
Lending activities
Mortgage Banking activities
Regulated Operations
Revenue recognition in governmental funds
Use of the term Deferred
Major Fund criteria - effects
©2014 CliftonLarsonAllen LLP
Areas of Specific Guidance
• Debt refunding
– Gain or Loss from a refunding resulting in a defeasance
◊ Deferred Inflow – Gain
◊ Deferred Outflow - Loss
• Nonexchange transactions
– Deferred inflows when resources are received or reported
as a receivable before:
◊ The period for which property taxes are levied
◊ The period when resources are required to be used or first
permitted
– Deferred outflows are reported for resources received
before time requirements are met, but eligibility
requirements have been met
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Specific Guidance
• Debt Issuance costs
– Report as a period expense when incurred, no longer
amortized over the life of the debt
• Sale of Future Revenues
– Transferor reports a deferred inflow for resources in both
the government-wide and fund financial statements
– Only exception is found in GASB 48, para. 14 and has to do
with revenue not previously recognized due to uncertainty
of inability to measure
– Intra-entity sales - recognize as deferred inflow and
outflow until all revenue recognition criteria met(GASB 48,
para. 15)
©2014 CliftonLarsonAllen LLP
Specific Guidance (continued)
• Leases
– Operating lease – lessor
◊ Record initial direct costs (acquisition, legal, etc) as a period cost
– Sale/-Leaseback transaction
◊ Gain/loss on sale/leaseback should be recorded as either a
deferred inflow or outflow, as applicable
• Revenue recognition in Governmental Funds
– Revenue not recognized because of availability criteria
should be reported as deferred inflows (e.g. property
taxes)
©2014 CliftonLarsonAllen LLP
Specific Guidance (continued)
• Use of the term Deferred in GASB financial
statements
– Limited only to use in connection with “Deferred Inflows”
and “Deferred Outflows”
• Major Fund Criteria
– Utilize deferred Outflows as part of assets and deferred
inflows as part of liabilities in the calculations in
determining major funds
©2014 CliftonLarsonAllen LLP
Specific Guidance (continued)
©2014 CliftonLarsonAllen LLP
GASB No. 66
an amendment of GASB No. 10 and 62
Technical Corrections – 2012
11
• GASB No. 54, removed the limitation on using
general fund or internal service fund for risk
financing activities
• GASB No. 62, 13, and 48. Clarified language on
issues related to:
©2014 CliftonLarsonAllen LLP
Fixed…
– Operating leases
– Recognition of premium or discount on purchase of loans
– Servicing fees for receivables that have been sold
12
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GASB No. 67
Financial Reporting for Pension Plans
• Replaces previous guidance under GASB No. 25, Financial
Reporting for Defined Pension Plans and Note Disclosures
• Establishes financial reporting standards for pension plans
administered through trusts in which:
– Contributions to the plans and related earnings are irrevocable
– Plan assets are dedicated to providing pensions to plan members in
accordance with benefit terms
– Plan assets are legally protected from creditors of employers,
nonemployer contributing entities and plan administrators
• Applicable for defined benefit plans and defined contribution
plans
• Does not include OPEB plans
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Scope and Applicability
• Recognition, measurement and presentation of the
financial statement amounts generally similar to
current guidance
– Incorporates deferred outflows of resources and deferred
inflows of resources, where applicable
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Defined Benefit Pension Plans
Required Financial Statements
• Statement of Fiduciary Net Position
– Assets + Dfd Outflows – Liabilities – Dfd Inflows = Fiduciary
Net Position
• Statement of Changes in Fiduciary Net Position
©2014 CliftonLarsonAllen LLP
Defined Benefit Pension Plans (continued)
• Notes to the Financial Statements:
– Plan description
– Allocated insurance contracts excluded from plan assets
– Plan investments, including investment policy, determination of
fair value, annual money-weighted rate of return and
identification of investments that represent 5% or more of plan
net position
– Receivables - terms of any long term contracts for contributions
to the plan
– Deferred retirement option program (DROP) balances
– Policy for reserves of plan net position
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Defined Benefit Pension Plans (continued)
• Notes to the Financial Statements:
– Components of the net pension liability, including
◊ Total pension liability
◊ Pension plan’s fiduciary net position
◊ Net pension liability
◊ Pension plan’s fiduciary net position as a percentage of total
pension liability
– Significant assumptions used to measure the total pension
liability
– Date of actuarial valuation and if applicable, disclosure that roll
forward procedures were used to roll forward the total pension
liability from the actuarial valuation date to the plan’s fiscal year
end
©2014 CliftonLarsonAllen LLP
Defined Benefit Pension Plans (continued)
• Required Supplementary Information:
– 10 year schedule of
◊ Changes in net pension liability
◊ Net pension liability
◊ Contributions
◊ Annual money –weighted rate of return
– Encouraged to present all years retroactively in implementation
year
◊ If retroactive information is not available for all 10 years, only include those
years where information is available in transition year and until 10 yrs of
such information is available
• Notes to the Required Schedules:
– Significant methods and assumptions used in calculating the
actuarially determined contributions
©2014 CliftonLarsonAllen LLP
Defined Benefit Pension Plans (continued)
Last 10 Fiscal Years
Schedules of Required Supplementary Information
SCHEDULE OF CHANGES IN THE SCHOOL DISTRICTS’
NET PENSION LIABILITY
Last 10 Fiscal Years
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Schedule of Changes in Net Pension Liability
Last 10 Fiscal Years
SCHEDULE OF THE SCHOOL DISTRICTS’ NET
PENSION LIABILITY
Last 10 Fiscal Years
(Dollar amounts in thousands)
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Schedule of Net Pension Liability
Last 10 Fiscal Years
SCHEDULE OF SCHOOL DISTRICTS’ CONTRIBUTIONS
Last 10 Fiscal Years
(Dollar amounts in thousands)
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Schedule of Contributions
Last 10 Fiscal Years
SCHEDULE OF INVESTMENT RETURNS
Last 10 Fiscal Years
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Schedule of Investment Returns
• Net Pension Liability
– Total pension liability, net of plan’s fiduciary net position
• Measurement of Total Pension Liability
– Timing and frequency of actuarial valuations
◊ As of plan’s most recent fiscal year end or
◊ The use of update procedures to roll forward to plan’s most recent fiscal
year end from actuarial valuation
◊ Actuarial valuation date can be no more than 24 months prior to plan’s
fiscal year end
©2014 CliftonLarsonAllen LLP
Defined Benefit Pension Plans (continued)
• Measurement of Total Pension Liability
– Discount rate
◊ Long term expected rate of return on investments that are expected to be
used to finance payment of benefits, to the extent that net position is
sufficient to make projected benefits and assets are invested using a
strategy to achieve that return,
◊ Yield or index rate for 20 yr, tax exempt general obligation municipal
bonds with an average rating of AA/Aa or higher to the extent the
conditions used for the long term expected rate of return are not met.
– Actuarial cost method
◊ Entry age actuarial cost method should be used to attribute the
actuarial present value of projected benefit payments to periods
©2014 CliftonLarsonAllen LLP
Defined Benefit Pension Plans (continued)
• Footnote disclosures should include:
– Identification of the pension plan as a defined contribution
pension plan
– Classes of members covered
– Number of plan members
– Participating employers for multiple-employer plans
– Nonemployer contributing entities, if applicable
– The authority under which the plan is established or may
be amended.
©2014 CliftonLarsonAllen LLP
Defined Contribution Plans
• GASB Toolkit (available at the GASB website)
– Guide to Implementation of GASB Statement 67 on
Financial Reporting for Pension Plans
– Podcast discussing the types of pension plans affected by
Statement 67 and most significant changes
– Article on the key implementation issues
– Summary and Full Text of Statement 67
©2014 CliftonLarsonAllen LLP
Additional Resources
©2014 CliftonLarsonAllen LLP
GASB No. 70
Accounting and Financial Reporting for
Nonexchange Financial Guarantees
• Investors are looking for more credit enhancements
and assurances on obligations
– Minimize the possibility of nonpayment
• Government often provide guarantees and receive
guarantees for free
– Belief nonpayment is not likely
• Currently, a liability is recorded when
– It is probable the government will be required to pay and
amount can be reasonability estimated
©2014 CliftonLarsonAllen LLP
Background
• Government provides a financial guarantee as a
nonexchange transaction
• Government receives a financial guarantee as a
nonexchange transaction
• Key considerations
– Three legally separate entities (component units qualify)
– Not deemed guarantees for this statement
◊ Withholding or garnishing revenues
◊ Pledges of future revenues
◊ Joint-and-several obligations
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Scope and Applicability
Obligation
Holder
Guarantor
Issuer
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Three Legally Separate Entities
• Assess the issuer’s ability to pay using qualitative
factors
• If the government is more likely than not required to
pay the issuer’s debt, then “book it”
– More than 50% likelihood
• Book – The discounted present value of expected cash flows as
the result of the guarantee, or
– If cash flows are within a range, the discounted present
value of the minimum expected cash flows (low part of the
range)
©2014 CliftonLarsonAllen LLP
Government as the Grantor
• Bankruptcy or financial reorganizations
• Breach of debt contract
– Covenants
– Coverage ratios
– Default
• Other financial difficulty indicators
– Loss of major revenue source
– Debt holder concessions
– Using earmarked funding to pay debt
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Qualitative Factors
• Journal entry
– DR: Expense/Expenditures
– CR: Nonexchange Financial Guarantee
• Government-wide Financial Statements, and
• Fund Financial Statement to the extent the liability is
normally expected to be liquidated with expendable
available financial resources.
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“Book It”
• You could analyze individually, or
• You could analyze as a group using qualitative factor
of the group – Historical trends
– Economic factors
– Etc.
• May book a liability similar to an allowance on bad
debt, historical trends
©2014 CliftonLarsonAllen LLP
Government as a Guarantor to a Group
• The process should be ongoing and the books and
records should be adjusted when the government
becomes more likely than not to pay the debt of the
issuer.
©2014 CliftonLarsonAllen LLP
Practical Timing Issue
©2014 CliftonLarsonAllen LLP
Disclosures
• Footnote disclosure explaining the guarantee
• If the government is required to repay the guarantor,
then the liability should be reclassified as a liability to
guarantor when the guarantor begins to pay the
debt.
• If the government is legally released from the debt, a
revenue is recognized for guarantor’s assumption of
the liability.
©2014 CliftonLarsonAllen LLP
Government as Issuer
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Disclosure
• Primary government guarantees a blended
component unit’s debt
• Blended component unit guarantees a primary
government's debt
• Blended component unit guarantees another
blended component unit
• A receivable should be booked in the amount of the
liability booked by the guarantor
©2014 CliftonLarsonAllen LLP
Intra-Entity
©2014 CliftonLarsonAllen LLP
GASB No. 68
Accounting and Financial Reporting for
Pension Plans
41
• Part of the effort which goes back to GASB 34 to
make government statements more usable,
comparable and on par with the corporate world
– Investors understand full accrual accounting and get
confused with multiple levels of government reporting
• Gives a better perspective as to both financial
position and financial condition
©2014 CliftonLarsonAllen LLP
Background
• Applies to:
– Employers in single-employer and agent multipleemployer defined benefit plans
– Employers in cost-sharing plans
– Special funding situations
◊ One government makes payments on behalf of another
– Employers in defined contribution plans
©2014 CliftonLarsonAllen LLP
Scope and Applicability
• Employer liability
– Current: Difference between the annual required
contribution (ARC) and actual contributions = Net pension
obligation
◊ Only record a liability if required funding not made
– New: Difference between the total pension liability and
the fiduciary net position = Net pension liability
◊ Record net liability of the governmental entity
– Measured as of a date no earlier than the end of the
employer’s prior fiscal year (measurement date)
©2014 CliftonLarsonAllen LLP
Defined Benefit Pensions
• Changes in the pension liability –
– Service cost, interest on the pension liability and changes
in benefit terms
◊ Recorded as pension expense immediately
– Changes in economic and demographic assumptions and
differences between economic and demographic
assumptions and actual experience
◊ Amortized over a closed period equal to the average remaining
service period for plan members
◊ Current portion recorded as pension expense
◊ Remaining portion recorded as deferred outflows or deferred
inflows of resources
©2014 CliftonLarsonAllen LLP
Defined Benefit Plans (continued)
• Changes in the pension liability (continued) –
– Differences between expected and actual rates of
investment returns
◊ Amortized over a closed 5 year period (including current period)
◊ Current portion recorded as pension expense
◊ Remaining portion recorded as deferred outflows or deferred
inflows of resources
• Employer contributions made subsequent to the
measurement date of the net pension liability are
recorded as deferred outflows of resources
©2014 CliftonLarsonAllen LLP
Defined Benefit Plans (continued)
• Actuarial valuations
– Required at least every two years
– Total pension liability should be determined by
◊ An actuarial valuation as of the measurement date which must be
within 1 year and 1 day of the report date or
◊ The use of update procedures to roll forward from the actuarial
valuation to the measurement date no more than 30 months and
1 day before employers year end
– Entry age method only
◊ Consistency –multiple methods no longer accepted
◊ No tie to actuarial method used for funding
◊ Service cost determined as a percentage of pay
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Defined Benefit Plans (continued)
Pension Expense
(measurement period)
Employer
Prior
Year-End
Plan
Prior
Year-End
Deferred
Outflows of
Resources
Plan
Current
Year-End
Employer
Current
Year-End
Measurement
Date
June
2014
December
2014
June
2015
December
2015
Measurement date will most likely correspond to year-end of plan. Employer
contributions made directly by the employer subsequent to the measurement date of
the net pension liability and before the end of the employer’s fiscal year should be
recognized as a deferred outflow of resources.
48
©2014 CliftonLarsonAllen LLP
Timing of Measurement of Total Pension Liability
©2014 CliftonLarsonAllen LLP
Example – Impact of Using Prior Year Measurement Date
Deferred Outflows of
Resources
Pension Expense
(measurement period)
Employer
Prior
Year-End
Employer
Current
Year-End
Plan
Year-End
Plan
Year-End
Measurement
Date
June
2013
June
2014
49
June
2015
©2014 CliftonLarsonAllen LLP
Example – Impact of Using Current Year Measurement Date
Pension Expense
(measurement
period)
Employer
Prior
Year-End
Plan
Year-End
Plan
Year-End
Employer
Current
Year-End
Plan
Year-End
Measurement
Date
June
2014
June
2013
50
June
2015
• Projections Include:
– Automatic cost of living adjustments (COLAs) and other
automatic retroactive benefit changes
– Ad hoc COLAs and ad hoc retroactive benefit changes –
substantively automatic
– Projected future salary increases – if benefit formula is
based on future levels
– Projected future service credits (when determining
probability of eligibility for benefits and when formula is
based on years of service)
©2014 CliftonLarsonAllen LLP
Projection of Benefit Payments
• Single rate reflective of:
– Long-term expected rate of return to extent plan net
position for specified source is:
◊ Projected sufficient to make benefit payments
◊ Expected to be invested using long-term investment strategy
• Otherwise, index rate for a tax-exempt 20-year GO
rated AA/Aa (or equivalent) or higher
©2014 CliftonLarsonAllen LLP
New Blended Discount Rate
• Current Situation
– 8% discount rate, same as historical rate of return
– 75% funded plan
– 20 year GO rate is 4%
©2014 CliftonLarsonAllen LLP
Example Scenario- Discount Rate
New Calculation: Blended rate
Calculation Step
Example
Funded %
75%
X Historical Rate of Return X 8%
6%
Unfunded %
25%
X Tax Exempt 20yr Rate
X 4%
1%
Blended Discount Rate
6% + 1% = 7%
©2014 CliftonLarsonAllen LLP
Example Scenario- Discount Rate (cont’d)
©2014 CliftonLarsonAllen LLP
Discount rate calculation
Projected Benefit Payments
Year
(a)
Projected
Beginning
Fiduciary Net
Position
(b)
1
$ 1,431,956
2
1,500,197
116,500
116,500
-
100,811
-
105,088
3
1,565,686
123,749
123,749
-
99,613
-
106,019
4
1,628,547
131,690
131,690
-
98,610
-
107,154
5
1,687,890
140,229
140,229
-
97,678
-
108,370
6
1,742,722
149,168
149,168
-
96,655
-
109,487
7
1,792,194
158,466
158,466
-
95,516
-
110,468
8
1,835,463
168,332
168,332
-
94,384
-
111,450
9
1,871,402
178,591
178,591
-
93,150
-
112,302
10
1,898,930
189,069
189,069
-
91,735
-
112,918
26
547,880
322,779
322,779
27
316,985
326,326
-
28
64,800
328,997
-
29
-
330,678
-
30
-
331,266
96
-
97
-
Total
55
Actuarial Present Values of Projected Benefit Payments
Projected
Benefit
Payments
(c)
"Funded"
Portion of
Benefit
Payments
(d)
"Unfunded"
Portion of
Benefit
Payments
(e)
Present Value of
"Funded" Benefit
Payments
(f) = (d) ÷ (1 + 7.5%)(a)
Present Value of
"Unfunded" Benefit
Payments
(g) = (e) ÷ (1 + 4%)(a)
Present Value of Benefit
Payments Using the
Single Discount Rate
(h) = (c) ÷ (1 + 5.29%)(a)
$
109,951
$ 109,951
$
$
$
$
-
102,280
-
The sum of the present values of the
two benefit payment streams is
calculated.
104,427
-
49,236
-
84,503
326,326
-
113,175
81,140
328,997
-
109,713
77,694
330,678
-
106,032
74,168
-
331,266
-
102,135
70,567
1
-
1
-
-
-
-
-
-
$
2,109,333
+
$
1,724,534
=
$
3,833,867
• Cost Sharing Employers
– Current:
◊ Liability recorded only if the actual employer contribution is less than
annual required contribution
◊ Expense is equal to annual required contribution
– New:
◊ Liability is equal to the employers’ proportionate share of the total net
pension liability of all participating employers
• Will now allow readers to determine overall liabilities currently not easily
determinable
• More pressure to adequately fund
◊ Expense is equal to the employer’s proportionate share of the pension
expense of all participating employers
◊ Both liability and expense are reported as of the date reported by the plan
– No need to adjust/rollforward to actual report date of the government
©2014 CliftonLarsonAllen LLP
Cost Sharing Plans
• Employer’s recognize their proportionate share of
collective:
–
–
–
–
Net pension liability
Pension expense
Deferred outflows of resources
Deferred inflows of resources
• This will provide audit challenges
©2014 CliftonLarsonAllen LLP
Cost Sharing Plans (continued)
• Nonemployer entity legally responsible for making
contributions directly to a pension plan for the
employees of another entity and either:
– The amount of contributions for which the nonemployer
entity legally is responsible is not dependent upon one or
more events unrelated to pensions
or
– The nonemployer is the only entity with a legal obligation
to make contributions directly to the pension plan
• Nonemployer contributor accounting patterned on
accounting for employers in cost-sharing plans
©2014 CliftonLarsonAllen LLP
Special Funding Situations
• No significant changes
• Expense – Amount of contributions (employee and
employer) to the employee accounts, net of forfeited
amounts
• Liability – Difference between the amount of the
expense recorded and amount paid to the plan
©2014 CliftonLarsonAllen LLP
Defined Contribution Plans
• Description of the Plan
• Assumptions Used to Measure Total Pension Liability
• Brief Description of Changes in Benefit Terms and
Assumptions that Affect Measurement of Total
Pension Liability
©2014 CliftonLarsonAllen LLP
Note Disclosures
Single Employer Plan
SCHEDULE OF CHANGES IN THE COUNTY’S NET PENSION LIABILITY
AND RELATED RATIOS
Last 10 Fiscal Years
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
Single Employer Plan (continued)
SCHEDULE OF COUNTY CONTRIBUTIONS
Last 10 Fiscal Years
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
Cost-Sharing Employer Plan
SCHEDULE OF THE DISTRICT’S PROPORTIONATE SHARE OF THE
NET PENSION LIABILITY
Teachers Pension Plan
Last 10 Fiscal Years*
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
Cost-Sharing Employer Plan (continued)
SCHEDULE OF DISTRICT CONTRIBUTIONS
Teachers Pension Plan
Last 10 Fiscal Years
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
Special Funding Situation
SCHEDULE OF THE DISTRICT’S PROPORTIONATE SHARE OF THE
NET PENSION LIABILITY
Teachers Pension Plan
Last 10 Fiscal Years*
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
Special Funding Situation (Continued)
SCHEDULE OF THE DISTRICT CONTRIBUTIONS
Teachers Pension Plan
Last 10 Fiscal Years*
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
Special Funding Situation: Nonemployer Contributing Entity
SCHEDULE OF THE STATE’S PROPORTIONATE SHARE OF THE
NET PENSION LIABILITY
Teachers Pension Plan
Last 10 Fiscal Years*
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
Special Funding Situation: Nonemployer Contributing Entity
(continued)
SCHEDULE OF THE STATE CONTRIBUTIONS
Teachers Pension Plan
Last 10 Fiscal Years*
©2014 CliftonLarsonAllen LLP
Required Supplementary Information –
• AICPA White Paper: Governmental Employer Participation in
Cost-Sharing Multiple-Employer Plans: Issues Related to
Information for Employer Reporting
– Provides guidance on employer challenges related to
recognizing proportionate share of collective pension amounts
and related auditor issues
– Recommends cost-sharing plans calculate each employer’s
allocation percentage and collective pension amounts
◊ Prepare a Schedule of Employer Contributions and related Notes to the
Schedule
◊ Plan engage its auditor to form an opinion on the schedule in accordance
with AU-C section 805, Special Considerations – Audits of Single Financial
Statements and Specific Elements, Accounts, or Items of a Financial
Statement
©2014 CliftonLarsonAllen LLP
Additional Guidance
• GASB Toolkit (available at the GASB website)
– Guide to Implementation of GASB Statement 68 on
Accounting and Financial Reporting for Pensions
– Videos outlining key issues, discussing stakeholder
outreach, and top implementation issues
– Podcasts discussing the most significant changes to
accounting and financial reporting for pensions
– Background documents and fact sheets
– A “Setting the Record Straight” document addressing
common misperceptions about the new pension standards
©2014 CliftonLarsonAllen LLP
Additional Guidance (continued)
©2014 CliftonLarsonAllen LLP
GASB No. 69
Government Combinations and Disposal of
Government Operations
71
• APB Opinion No. 16, Business Combinations
– Pooling of interests
– Purchase method
– Superseded by FASB No. 141 – Business Combinations
◊ Did not apply to nonprofit organizations
◊ Eliminated pooling of interests
• FASB No. 164 – NFP Entities: Mergers and
Acquisitions
• Governments used superseded guidance in APB
Opinion No. 16
• Needed some GAAP for governments
©2014 CliftonLarsonAllen LLP
Background
• Establishes standards for government combinations
and disposals of government operations
– Government merger
– Government acquisition
– Transfer of operations
• Transactions
– Combinations of legally separate entities
◊ NFP, For profit, government (new or continuing government is
formed)
– Mergers and acquisition of activities less than the entire
legally separate entity
©2014 CliftonLarsonAllen LLP
Scope and Applicability
– “Operations” – integrated set of activities conducted and
managed for the purpose of providing identifiable services
with associated assets and liabilities
◊ Examples: fire department, golf course, parking garage, etc.
• Disposal of “operations”
• Statement does not apply to:
– Assets and liabilities not considered an operation
◊ Line items
– Organizations that remain legally separate (GASB 14)
– Equity interests in an organization (GASB 14)
©2014 CliftonLarsonAllen LLP
Scope and Applicability (cont.)
• Government merger – combination of legally
separate entities without significant consideration
exchanged
• Transfer of operations – combination of operations
without significant consideration
• Government acquisition - combination of legally
separate entities or operations with significant
consideration exchanged
©2014 CliftonLarsonAllen LLP
Definitions
75
• Assets
©2014 CliftonLarsonAllen LLP
Consideration
• Assumption of liabilities
• Contingent assets
• NOT assumption of negative net position
76
• Government merger – combination of legally
separate entities without significant consideration
exchanged
• Two or more are now one
–
–
–
–
©2014 CliftonLarsonAllen LLP
Merger
Pooled, but don’t use the word pooled.
No revaluations
Test for impairment
Eliminate transactions between the parties
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• Transfer of operations – combination of operations
without significant consideration
©2014 CliftonLarsonAllen LLP
Transfer
• “Pooling” with an equity modification
– Net position transferred is a special item
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• Government acquisition - combination of legally
separate entities or operations with significant
consideration exchanged
• Purchase method (sort of)
©2014 CliftonLarsonAllen LLP
Acquisition
– Intangible asset (i.e. goodwill-deferred outflow)
• Detailed measurement rules
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• Acquisition date
– Control of assets
– Obligated for the liabilities
• Acquisition value – market-based entry price
– Price that would be paid for acquiring similar assets, having similar
service capacity or discharging the liabilities assumed
• Exceptions
–
–
–
–
OPEB, pensions, compensated absences
Landfill, pollution remediation
Investments
Deferred inflows and outflows
©2014 CliftonLarsonAllen LLP
Measurement Rules
• Gain or loss should be recorded as a special item
©2014 CliftonLarsonAllen LLP
Disposals
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©2014 CliftonLarsonAllen LLP
GASB No. 71
Pension Transition for Contributions Made
Subsequent to the Measurement Date
• GASB 68 requires:
– Recognition of a net pension liability measured as of a
date no earlier than the end of its prior fiscal year
◊ If a contribution is made between the measurement date and the
end of the reporting period, its recognized as a deferred outflow
of resources
– Recognition of deferred outflows and inflows of resources
for other pension-related events
◊ Differences arising between expected and actual experience in
relation to economic and/or demographic factors
◊ Effects of changes of assumptions about future economic or
demographic factors
◊ Differences between projected and actual investment earnings
©2014 CliftonLarsonAllen LLP
Background
• At transition, if it’s not practical to determine the amounts of
all deferred inflows and outflows of resources related to
pensions, no beginning balances for deferred inflows and
outflows be reported
• Potential for significant misstatement of beginning net
position and subsequent expense in accrual based statements
if the employer does not recognize its contributions made
after the measurement date of the beginning net pension
liability as deferred outflows of resources at transition
©2014 CliftonLarsonAllen LLP
Background (continued)
• When it’s not practical to determine all amounts of
deferred inflows and outflows of resources related
to pensions, GASB 71 states:
◊ Employers should recognize a beginning deferred
outflow of resources for pension contributions, if any
made subsequent to the measurement date of the
beginning net pension liability
◊ No beginning balances for other deferred inflows and
outflows of resources related to pensions should be
recognized
©2014 CliftonLarsonAllen LLP
Summary
©2014 CliftonLarsonAllen LLP
©2014 CliftonLarsonAllen LLP
Dennis J. Osuch, CPA
Principal, State and Local Government
[email protected]
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