Slide 1

Report
GASB 63/65 Implementation
Presented By
Joel Knopp, CPA
Audit Manager
GASB 63/65 Implementation
• Concepts Statement No. 4 – Elements of
Financial Statements
• GASB 63 – Reporting Deferred Outflows,
Inflows and Net Position
• GASB 65 – Items Previously Classified as
Assets and Liabilities
2
Concepts Statement No. 4
3
Background to GASB 63 and 65
• Issued in June 2007
• Establishes definitions for 7 elements that make up
government financial statements:
1.
2.
3.
4.
5.
6.
7.
Assets
Liabilities
Deferred outflow of resources
Deferred inflow of resources
Net position
Outflow of resources
Inflow of resources
4
New Definitions
• New definitions focus on “Resources”
– Assets – resources with present service capacity that
the government presently controls
– Liabilities – present obligations to sacrifice resources
that the government has little or no discretion to
avoid
– Deferred outflow of resources – a consumption of net
assets by the government that is applicable to a
future reporting period
– Deferred inflow of resources – an acquisition of net
assets by the government that is applicable to a
future reporting period
5
Asset Definition
Assets – resources with present service capacity
that the government presently controls
a. Present service capacity – existing capability to
enable the government to provide services and
fulfill its mission
• Not associated with charges to recipients of the
service
• Does not need to be able to be sold
• May be tangible or intangible
• Regulatory powers of a government – a resource but
no present service capacity until exercised
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Asset Definition (Con’t.)
b. Control of an asset – ability of the government to
utilize the resource’s present service capacity and
to determine the nature and manner of the use
• Directly use the present service capacity to provide
services or benefit
• Exchange the present service capacity for another asset
• Generally arises from contractual rights or legal
ownership
• Sometimes a government can receive the benefit from
the present service capacity of a resource but does not
control the resource
7
Liability Definition
Liabilities – present obligations to sacrifice resources
that the government has little or no discretion to
avoid
 Present obligation – a duty or responsibility to
sacrifice resources that the government has little or
no discretion to avoid based on a past event
•
•
•
•
Legally enforceable from legislation (nonexchange)
Constructive liability arising from exchange transaction
Event must have occurred
Commitments to provide services or acquire assets in the
future do not constitute liabilities (ex., approval of budget,
establishment of grant program)
8
Outflow of Resources Definition
Outflow of Resources (expenses/expenditures) – a
consumption of net assets by the government
that is applicable to the reporting period
 Consumption of net assets results in:
1) a decrease in assets in excess of any related
decrease in liabilities (ex., use of cash to make
direct aid payments to recipients; loss of a
building through fire) or;
2) an increase in liabilities in excess of any related
increase in assets (ex., accrued payroll)
9
Inflow of Resources Definition
Inflow of Resources (revenues) – an acquisition of
net assets by the government that is applicable
to the reporting period
 Acquisition of net assets results in:
1) an increase in assets in excess of any related
increase in liabilities (ex., sale of taxable
merchandise by a vendor) or;
2) a decrease in liabilities in excess of any related
decrease in assets (ex., performing the eligibility
conditions of a grant received in advance)
10
Applicability of the Reporting Period
• Measurement focus is critical to determining the
nature and period to which an outflow or inflow
of resources is applicable.
• Concept of “interperiod equity”
– the state in which current period inflows of resources
equal current period cost of services so that the
burden of the cost of services is borne by present-year
taxpayers and revenue providers
– Economic resources focus (full accrual presentation)
– A relevant metric to assess accountability
11
Deferred Outflows of Resources Definition
Deferred Outflow of Resources – a consumption
of net assets by the government that is
applicable to a future reporting period
 Same definition as “outflows of resources,”
except that the outflow is applicable to a future
reporting period, rather than to the current
reporting period
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Deferred Inflows of Resources Definition
Deferred Inflow of Resources – an acquisition of
net assets by the government that is
applicable to a future reporting period
 Same definition as “inflows of resources,” except
that the inflow is applicable to a future reporting
period, rather than to the current reporting
period
13
Net Position Definition
Net Position – the residual of all other elements
included in the statement of financial position
 Difference between (a) assets and deferred
outflows of resources and (b) liabilities and deferred
inflows of resources
 Theoretically equals the cumulative total of all
resource flows statement activity from inception
 May be a positive or negative balance
14
Application of Definitions
• Recognition of deferred outflows of resources
and deferred inflows of resources should be
limited to those instances identified by GASB
in authoritative pronouncements
• Scope of resources measured may be
different, depending upon the measurement
focus (full accrual vs. modified accrual vs.
cash)
15
GASB 63
16
GASB Statement No. 63
Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources and
Net Position
• Issued June 2011
• Effective for fiscal years beginning after
December 15, 2011
• Applies to Florida governments FYE 6/30/2013
and 9/30/2013
17
For Proprietary Funds
• Net approach is encouraged
• Balance Sheet approach is allowed
For Governmental Funds
• Balance Sheet approach still appropriate
• Difference is still called Fund Balance
18
Definitions
• Deferred outflows of resources
– A consumption of net assets by the government that is
applicable to a future reporting period
– Has a positive effect on net position, similar to assets
• Deferred inflows of resources
– An acquisition of net assets by the government that is
applicable to a future reporting period
– Has a negative effect on net position, similar to
liabilities
• Net position
– The residual of all elements presented in a statement of
financial position
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Statement of Net Position
Assets +
Deferred
Outflows =
Total Assets
and Deferred
Outflows
Liabilities +
Deferred
Inflows = Total
Liabilities and
Deferred
Inflows
Net
Position
20
Display Requirements
• Deferred outflows should be reported in a separate section
following assets
• Similarly, deferred inflows should be reported in a separate
section following liabilities
• Net position components resemble net assets components
under Statement 34, but include the effects of deferred
outflows and deferred inflows
• Governmental funds continue to report fund balance
21
Net Investment in Capital Assets
• Consists of capital assets, net of accumulated depreciation
reduced by the outstanding balances of bonds, mortgages,
notes, or other borrowings that are attributable to the
acquisition, construction, or improvement of those assets
• Deferred outflows/inflows attributable to the capital assets
or related debt should also be included in this component
• Unspent debt proceeds or deferred inflows should not be
included in the calculation
22
Net Investment in Capital Assets
• “Capital-related debt” also includes construction retainages
and accounts payable attributable to that construction
(Implementation Guide 7.23.14)
• Net investment in capital assets should not include the
portion of capital debt that was used to establish a bond
and interest reserve (Implementation Guide 7.24.25)
23
Restricted Net Position
• Consists of restricted assets reduced by liabilities and
deferred inflows of resources related to those assets
- What liability will be liquidated with the restricted assets reported?
• Restricted component of net position should include the
portion of capital debt that was used to establish a bond
and interest reserve (Implementation Guide 7.24.25)
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Example
Sample City has the following financial statement elements in
its Statement of Net Position:
Unrestricted Cash
$
2,000
Restricted Assets - Capital
4,000
Restricted Assets - Debt Service
1,000
Capital Assets, Net
15,500
Deferred Outflow - Derivative
1,000
Construction A/P and Retainage
(500)
Capital Improvement Bonds
(10,000)
Net Position
(13,000)
How do you calculate the net position components?
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Example (Con’t.)
Investment in
Capital
Sample City
Restricted
Unrestricted Cash
$
Restricted Assets - Capital
$
Restricted Assets - Debt Service
Capital Assets, Net
Unrestricted
$
2,000 $
Total
2,000
4,000
4,000
1,000
1,000
15,500
15,500
Deferred Outflow - Derivative
1,000
1,000
Construction A/P and Retainage
(500)
(500)
Capital Improvement Bonds
Total
(5,000)
$
11,000 $
(5,000)
-
$
-
(10,000)
2,000 $
13,000
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Disclosures
• Provide details of different types of deferred
amounts if components of the total deferred
amounts are obscured by aggregation on the face
of the statements
• If the amount reported for a component of net
position is significantly affected by the difference
between deferred inflows or outflows and their
related assets or liabilities, provide an explanation
in the notes
27
GASB 65
28
GASB Statement No. 65
Items Previously Classified as
Assets and Liabilities
Objective: Establishes accounting and financial
reporting standards so certain items previously
reported as assets and liabilities are now either:
a) Reclassified as deferred outflows of resources or
deferred inflows of resources
b) Recognized as outflows of resources (expenses/
expenditures) or inflows of resources (revenues)
29
Before Statement 65
• Recognition of deferred outflows of
resources and deferred inflows of resources
should be limited to those instances
identified by GASB in authoritative
pronouncements
• Before GASB 65, there was only:
– Statement 53 - Accounting and Financial
Reporting for Derivative Instruments
– Statement 60 - Service Concession Arrangements
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Scope and Applicability
• Amends or supersedes guidance for:
– Certain items previously required to be reported as
assets and liabilities
– Requirements for the determination of major funds
• Addresses other statement of net position and
governmental funds balance sheet presentation
issues
• Applies to full accrual statements only, with the
exception of specific paragraphs that also apply
to governmental funds
31
Refundings of Debt
For current and advance refundings:
• The difference between the reacquisition price and
the net carrying amount of the old debt should be
recognized as a deferred outflow or deferred inflow of
resources
• Previously reported as deferred amount on refunding
and reported as deduction or addition to new debt
• 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
32
Refundings of Debt (Con’t.)
For lease provision changes resulting from a refunding
by the Lessor of tax-exempt debt where:
a) The perceived economic advantages of the
refunding are passed through to the Lessee and
b) The revised lease agreement is classified as a
capital lease by the Lessee
Then, the Lessee should adjust the lease obligation to
the PV of the future minimum lease payments using
the effective interest rate under the revised lease
The difference is reported as a deferred outflow or
inflow of resources.
33
Refundings of Debt – GFOA vs. GASB
GFOA Position
• Application of proceeds from current refunding
should be reported as debt service expenditures
(2012 GAAFR pgs 473-474, Q8.27b in General
Purpose Checklist)
GASB Position
• Payments to escrow agents associated with
current refundings should be reported as “other
financing use” (GASB Codification D20.601 and
AICPA A&A Guide, SLG, Paragraph 8.99)
34
Nonexchange Transactions
Imposed Nonexchange Revenue Transactions:
When resources or enforceable legal claim to
resources are received before:
a) The period for which property taxes are levied
b) The period when resources are required to be used
or use is first permitted by enabling legislation
Then, deferred inflow of resources should be
reported.
35
Nonexchange Transactions (Con’t.)
Government-mandated Nonexchange Transactions and
Voluntary Nonexchange Transactions:
– Resources transmitted before eligibility criteria are
met (excluding time requirements) should be
reported as assets by the provider and as liabilities by
the recipient
– Resources received before time requirements are
met but after all other eligibility criteria have been
met, should be reported as deferred outflows of
resources by the provider and deferred inflows of
resources by the recipient
36
Sales of Future Revenues
• When a government receives proceeds in exchange
for the right to cash flows from specific future
revenue sources, the transferor government should
report the proceeds as deferred inflow of resources
and recognize as revenue over the duration of the
sales agreement
• Previously reported as deferred revenue
37
Intra-Entity Transfers of Future
Revenues
When a sale/transfer of future revenues occurs within the
same financial reporting entity (ex., primary government
and component unit):
• Transferee government should report the amount paid
as a deferred outflow of resources
• Transferor government should report the amount
received as a deferred inflow of resources
• Recognized over the duration of the sales agreement
• Previously reported as deferred charge and deferred
revenue
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Debt Issuance Costs
• Old - GASB 62, para. 187, stated that “Issue costs
should be reported in the statement of net assets
as deferred charges”
• New - GASB 65, para. 15, states that “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 over the duration of the
related debt
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Initial Direct Costs of Operating Leases
• Old - GASB 62, para. 227c., stated that “Initial direct
costs should be deferred and allocated over the
lease term…”
• New - GASB 65, para. 17, states that “The Lessor
should recognize initial direct costs of an operating
lease as an expense/expenditure in the period
incurred.”
40
Sale-Leaseback Transactions
The gain or loss on the sale of property that is
accompanied by a leaseback of all or any part
of the property for all or part of its remaining
economic life should be recorded as a deferred
inflow of resources or deferred outflow of
resources.
41
Acquisition Costs Related to Insurance
Activities
• Old - GASB 62, para. 412 and 413, stated that
“costs that vary with and are primarily related
to the acquisition and renewal of insurance
contracts should be capitalized and charged to
expense in proportion to premium revenue…”
• New - GASB 65, para. 20, states that
“Acquisition costs should be recognized as an
expense in the period incurred.”
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Lending Activities
• Discussed in Paragraphs 431-451 of GASB 62
• Loan origination fees, except for points –
Recognize as revenue in period received
• Points received by government lender – Report
as deferred inflow of resources and recognize
over the duration of the related loan
• Loan origination costs – Recognize as expense in
the period incurred
43
Mortgage Banking Activities
• Discussed in Paragraphs 452-475 of GASB 62
• If loan is held for investment, loan origination fees except
for points, and loan origination costs – Recognize as
revenue or expense
• Points received by government lender – Report as
deferred inflow of resources and recognize over the
duration of the related loan
• If loan is held for sale, all origination fees and costs
should be reported as deferred inflows and deferred
outflows until the loan is sold
• Once loan is sold, deferred inflows/outflows are
recognized as revenues/expenses
44
Regulated Operations
Rate actions of a regulator can result in a liability or a
deferred inflow of resources being imposed on a
regulated business-type activity
• If the obligation is to the customers, then report as a liability
(ex., regulator requires refunds to customers)
• If an acquisition of nets assets from customers that is
applicable to a future reporting period, then report as
deferred inflow of resources (ex., regulator established
current rates intended to recover costs that are expected to
be incurred in the future)
• If gain or reduction of costs to be given to customers over
future periods, report as deferred inflow of resources
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Revenue Recognition in Governmental
Funds
• Governmental fund revenues are recognized
when they become both measurable and
available.
• When an asset is recorded in a governmental fund
but the revenue is not available, the government
should report a deferred inflow of resources until
the revenue becomes available.
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Use of the Term “Deferred”
• Use of the term “Deferred” should be limited to
items reported as deferred outflows of resources
or deferred inflows of resources
Major Fund Criteria
• Assets should be combined with deferred outflows of
resources and liabilities should be combined with
deferred inflows of resources for determining which
elements meet criteria for major fund determination
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Effective Date and Transition
• Effective for periods beginning after 12/15/2012 (FL FYE
6/30/14 and 9/30/14); earlier application is encouraged
• Accounting changes adopted to conform to the
provisions of GASB 65 should be applied retroactively by
restating for all periods presented, if practical
• If not practical, the cumulative effect, if any, should be
reported as a restatement of beginning net position or
fund balance for the earliest period restated
• Disclose the nature of the restatement and its effect
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QUESTIONS?
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