GASB Update and Other Important Topics MSBO ANNUAL CONFERENCE 2016 ERIC FORMBERG, CPA CGFM PARTNER, PLANTE MORAN

Transcription

1 GASB Update and Other Important Topics MSBO ANNUAL CONFERENCE 2016 ERIC FORMBERG, CPA CGFM PARTNER, PLANTE MORAN

2 GASB Update and Other Important Topics Topics Review New GASB s and Their Impact Focus Discussion on GASB 68 Year 2 Other Accounting Issues Impacting 2016 To Do List 2

3 Review New GASB s and Their Impact GASB s in play GASB 69 Government Combinations (currently effective) GASB 72 Fair Value Measurement and Application (YE 6/30/2016) GASB 75 Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (YE 6/30/2018) GASB 77 Tax Abatement Disclosures (YE 6/30/2017) GASB 78 Pensions Provided through Certain Multi Employer Defined Benefit Pension Plans (PBA 6/30/17) GASB 79 Certain External Investment Pools and Pool Participants (YE 6/30/16) GASB 80 Blending Requirements for Certain Component Units (YE 6/30/17) GASB 68, 82 Pensions (68 currently effective, 82 YE 6/30/2017) 3

4 GASB 69, Government Combinations 4

5 Government Combinations & Disposals Differentiates between the following types of combinations: Merger, Acquisition, or Transfer of Operations Is there significant consideration? Yes No Does the combination involve the entire legal entity? Entire entity A portion of its operations Acquisition Merger Transfer of Operations To date, K12 transactions have not involved consideration 5 5

6 Mergers and Transfers of Operations In general, assets and liabilities (and deferred inflows and deferred outflows) would come forward at their originally reported values Subject to any corrections for misapplication of GAAP, or to bring differing accounting principles into alignment In a transfer of operations, the government would report a special item for the amount of assets and liabilities (and deferred inflows/ outflows) received 6 6

7 Acquisitions In general, the acquiring government should recognize all assets and liabilities, regardless of whether the acquired government had recognized them, at acquisition value (FMV); Exceptions are: Prior goodwill recorded by the acquired entity (or deferred outflows resulting from previous acquisitions) should not be recognized; Employment benefit liabilities can come forward; so can landfill closure; pollution remediation; investments, derivatives and deferred inflows & outflows If Consideration paid is greater than recordable amounts the difference (goodwill) is a deferred outflow; If less than, the difference should be used to reduce carrying value of noncurrent assets acquired. Likely rare in K12 but who knows what might be next! 7 7

8 Disposals of Operations Transferor Governments (whether in an acquisition or in a transfer of operations) should recognize a gain or loss on disposal of operations as a special item 8 8

9 K12 Application and Implications Ypsilanti Community schools new district created where 2 existed previously Inkster and Buena Vista liquidation and transfer of operating assets Muskegon Hts/Highland Park old plus new charter DPS? Old Co/ New Co Other Options merger/consolidation of districts, annexation, transfer of operations Sure Thing These changes create substantial legal, accounting and reporting questions. 9 9

10 GASB 72, Fair Value Measurement and Application, Fair Value Measurement and Application 10

11 GASB 72 Fair Value Measurement and Application Generally requires investments to be measured at fair value. Investment is defined as a security or other asset that: a government holds primarily for the purpose of income or profit, and service capacity based on ability to generate cash or sold to generate cash. Investments not measured at fair value continue to include, for example: Money market investments, 2a7 like external investment pools, investments in life insurance contracts, equity method common stock, unallocated insurance contracts, synthetic guaranteed investment contracts ISSUE will K12 2a7 like investments be allowed to continue to report at amortized cost (and apply GASB 79)? Use of Acquisition Value (an entry price): donated capital assets, donated works of art, historical treasures, similar assets and capital assets received in service concession arrangement. Previously measured at fair value. 11

12 GASB 72 Fair Value Measurement and Application Fair Value price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Guidance applying fair value to certain investments and disclosures related to all fair value measurements. Unit of Account: Investments held in a brokerage account is each individual security Investment in a mutual fund is each share in the mutual fund held by a government (NAV Net Asset Value) 2a7 like plans may need to be reported at NAV, depending on application of SEC rules 12

13 GASB 72 Fair Value Measurement and Application Valuation Techniques The market approach, the cost approach, or the income approach Hierarchy of inputs to valuation techniques: Level I quoted prices (unadjusted) in active markets Level II observable for the asset or liability, either directly or indirectly observable for the asset or liability, either directly or indirectly other than quoted prices Level III unobservable inputs, such as management s assumption of the default rate among underlying mortgages of a mortgage backed security Other fair value investments not classified but reported at NAV 13

14 GASB 72 Fair Value Measurement and Application Disclosures to be made about: Fair value measurements, The level of fair value hierarchy, Valuation techniques Disclosure similar to FASB disclosure Disclosure does not eliminate current cash and investment disclosures Requires District to determine which balance sheet items require fair value measurement and which are excluded Note, most operating investments likely at cost If 2a7 like pools reported at cost, unique withdrawal terms must be disclosed under 79 Key take away What is the treatment of 2a7 like pools similar to MiLAF? 14

15 GASB Active Agenda Certain Asset Retirement Obligations: Exposure Draft (ED) Fiduciary Activities: ED Leases: ED Certain Debt Extinguishments Using Existing Resources ED Coming Q Financial Reporting Model Coming Q OPEB Q&A Coming Q & Q

16 GASB 68 Year 2 Creating an Action Plan Michigan Public School Employees Retirement System And Michigan Schools 16

17 What does GASB 68 require review! GASB 68 requires the annual government wide financial statements of MPSERS reporting units to include: The proportionate share of Net Pension Liability The proportionate share of Pension Expense Additional pension related Notes to Financial Statement Additional pension related Required Supplemental Information 17

18 Proportionate Share: How is it calculated? Each plan year, ORS provides each reporting unit s proportionate share percent (%) and its total proportionate share of the net pension liability. Proportionate share is based on reporting unit s historical pension contributions to the system. Percent of total pension contributions required from all reporting units in the plan. Based on MPSERS plan fiscal year (Oct. 1 Sept. 30) 18

19 Date Definitions Fiscal year end (FYE) for MPSERS (the plan ) is different from the FYE for your reporting unit: MPSERSfiscal year ends September 30 GASB 68 calls this the measurement date Your reporting unit fiscal year ends June 30 GASB 68 calls this the reporting date Reporting unit must provide all information for the period subsequent to the measurement date (October 1 June 30). 19

20 Covered Employee Payroll GASB 68 definition: covered employee payroll is total payroll, not pensionable payroll* Total payroll (of covered employees) = gross wages Includes (for example) bonuses, stipends, other nonreportable compensation. See ORS Reporting Instruction Manual (RIM) Pensionable payroll = reportable compensation Defined in ORS RIM Chapter 4 (not required for GASB 68) SEE GASB 82 SLIDES covered payroll definition is changing! *GASB 68 Implementation Guide, Question 210, page 54 20

21 Will the data change each year? When will ORS provide it? The data will change every year (year 2 data has different facts and circumstances!): Liability is paid off over time Market value of assets fluctuates over time Reporting Unit proportionate share can change Amortization period can change ORS and its actuary will prepare data for all reporting units and provide it on our website and the Data Exchange Gateway in time to prepare fiscal year financial statements. Audited schedules target is approx. July 7, 2016 (vs October 15 in 2015) 21

22 OAG Audit OAG plan is same as last year Will audit some but not all data Nothing after the measurement date, 9/30/15 Some data audited at the reporting unit level Some data audited at the plan level only Opine on 2 schedules Schedule of Employer Allocations Proportionate share for 9/30/15 Totals on Schedule of MPSERS Collective Pension Amounts 9/30/15 balances for NPL, total deferred inflows/outflows, pension expense ORS does not plan to issue unaudited schedules 22

23 Implementing GASB 68: Employer Information Website The GASB 68 section of Employer Information website (michigan.gov/psru) similar to last year will provide Data Tables (universities and non universities) Sample language for Notes to Financial Statements (Notes 4 and 5: universities and non universities) Sample schedules for Required Supplemental Information (RSI) and some data for these schedules Additional resources (FAQ, glossary, links to resources provided by GASB) 23

24 Implementing GASB 68: Employer Information Website The GASB 68 section of Employer Information website (michigan.gov/psru) similar to last year will provide (cont.) For 9/30/15 (June 30, 2016) ORS will also provide deferred inflow and outflow tables for each active year of deferrals Provided for each district Essential to track amortization of prior year and current year amounts Necessary to complete District journal entries This will be unaudited and must be validated as part of the District s audit process Data Exchange Gateway still plans to use to communicate certain pension expense information DEG time window is short pull communication when available 24

25 GASB 68 Footnotes ORS will continue to maintain the footnotes section of site District footnote content must be checked and updated More than just filling in numbers Some data elements must be calculated, some pulled from district records, some from ORS website and some from the OAG audit report Deferrals will require some assessment ORS will provide ending deferral balances. District must: Determine amortization of old balances and their ending balance Determine beginning balance of new deferrals and amortization in current year of those balances Reconcile records to ending deferrals reported by ORS on their web site. Deferrals are reported generally gross and not netted from year to year or with other deferrals Still must disclose OPEB plan separately. No changes until GASB 75 (YE 6/30/18) 25

26 RSI: Schedule of RU s Proportionate Share of Net Pension Liability o Based on the measurement period* (MPSERS FY Sept 30) o ORS provides some data (in the data tables) o Reporting unit must provide covered employee payroll information (gross wages) Note, GASB 82 change from gross wages to reportable compensation Data must be able to be validated by the auditor o See GASB 68 Implementation Guide, Illust. 3a, page 159 *GASB 68 Implementation Guide, Question 211, page

27 Schedule of Reporting Unit s Pension Contributions o Based on the reporting period the RU fiscal year: July 1 June 30 o Reporting Units provide (for this period): Covered employee payroll (gross wages) Definition changes under GASB 82! Required pension contributions not OPEB (Health) Actual pension contributions not OPEB (Health) o Data must be captured by the district and able to be tested 25 by the auditor 27

28 Completing GASB 68 Year 2 What needs to happen? ORS Data finalized OAG Audit Results issued Actuarial Assessment completed Census Testing auditor and OAG District Data comp data, census data and support for GASB 68 District Accounting and Reporting rolling information forward and reconciling to ORS/OAG 1022 Committee Guidance available June 1, 2016? 28

29 Completing GASB 68 Specific Elements Recording deferred inflows and outflows related to the Plan on the government wide statements Provided by ORS Balances are as of the end of the period and are NET of the first year of amortization. Must determine amortization recognized during the year to determine the beginning balance amounts to record. Must track/amortize balances from prior year. Allocation of NPL and deferred inflows/outflows Enterprise funds with reportable compensation Restricted net assets (governmentwide) reportable compensation (ex food service) 29

30 Completing GASB 68 Specific Elements After Measurement Date contributions Determining/recording ending deferred outflows for defined benefit plan MPSERS contributions (made by Districts) after September 30, 2015 measurement date Reversing beginning of year deferred outflow These amounts must be determined by each individual district and audited by district auditors. 30

31 Completing GASB 68 Specific Elements Updating RSI schedules related to the Plan and district activity Districts accumulate the gross payroll and contribution data for two different periods (measurement period and fiscal year) in order to populate the schedules, in addition to gathering the data from the ORS tables. Includes payroll information and statutory required contribution information GASB 82 changes the definition of covered payroll (GASB 82 slides) 31

32 Completing GASB 68 Specific Elements Updating MD&A descriptions moving from adoption of GASB 68 and 71 to comparison of amounts Likely continued negative net position at BOY and at EOY 32

33 Completing GASB 68 Specific Elements Updating pension disclosure ORS information on website helpful, but will not give you everything! Site also has some reference information which is not required to be disclosed Identification of specific data elements and agreeing to support and financial statements Understanding, tracking and recording deferred inflows/outflows 33

34 Completing GASB 68 Validation and Audit Tests Validation/Tests are prescribed by the 2015 AICPA audit guide. Key elements: Validation of amounts reported by ORS by the plan auditor (OAG Responsibility) Validation of proportionate share information by the plan auditor (OAG Responsibility) Completion of census testing (9/30/14 census period) for plan participants at the district Detail 2 reports maintained (District Responsibility) Test data, focus on changes(district Auditor Responsibility) 34

35 Completing GASB 68 Validation and Audit Tests cont. Key elements: Assessment of assumptions used in the plan and capability of actuary (OAG, District Auditor Shared Responsibility) Validation of District transactions outside the measurement date (District Auditor Responsibility) 35

36 Completing GASB 68 Validation and Audit Tests cont. Key elements: Validation of District reported amounts, including deferred inflows and outflows new and prior year amortization and balance, net pension liability, footnote disclosures, and RSI (District Auditor Responsibility) Assessment of information communicated in MD&A (District Auditor Responsibility) 36

37 GASB 82 More Pension Updates! GASB Statement No. 82, Pension Issues addresses implementation issues for state and local governments. Specifically: Presentation of payroll related measures in required supplementary information Selection of assumptions and the treatment of deviations from guidance in Actuarial Standards of Practice for financial reporting purposes, and Classification of payments made by employers to satisfy plan member contribution requirements. GASB 82 goal: Improve consistency by clarifying or amending related areas of existing guidance. 37

38 GASB 82 More Pension Updates! Statements Impacted: No. 67, Financial Reporting for Pension Plans; No. 68, Accounting and Financial Reporting for Pensions; and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68. Generally effective for reporting periods beginning after June 15, 2016 (June 30, 2017), with earlier application encouraged. Note MPSERS 9/30/2015 already issued, earliest adoption 9/30/16 for Plan 38

39 GASB 82 More Pension Updates! Application issues: Payroll issues reportable comp vs gross comp Require presentation of covered payroll, defined as the payroll on which contributions to a pension plan are based, and ratios that use that measure. Prior year display should be restated if adopted in 2016, adjust 2015 table Deviation Term used in Actuarial Standards of Practice is not considered to be in conformity with the requirements of Statement 67, Statement 68, or Statement 73 for the selection of assumptions used in determining the total pension liability and related measures. That is, did the assumptions conform to standards of practice? Employer Paid Member Contributions Employer payments to satisfy plan member contribution requirements classified as employee contributions. Employer s expense and expenditures for those amounts be recognized in the period for which the contribution is assessed and classified similar to compensation other than pensions (Ex. Salaries, wages, or fringe benefits). Generally rare in MI K12 39

40 GASB 75 Cost Sharing Plans Overview Effective K12 year end 6/30/18, Plan Year 9/30/17 Basic concepts follow GASB 68 Proportionate Share of the Net OPEB Liability (of all employers for benefits provided through the OPEB plan) totaling the collective net OPEB liability An employer s proportion is determined on a consistent basis as the manner contributions to the OPEB plan are determined Recognize OPEB expense and report deferred outflows of resources and deferred inflows of resources related to OPEB for its proportionate share 40

41 GASB 75 Cost Sharing Plans Overview Amortize period equal to average of expected remaining service lives of all employees provided with OPEB through the plan Employer contributions subsequent to the measurement date of OPEB liability are reported as deferred outflows of resources Governmental fund financial statements, employer s proportionate share of the collective net OPEB liability is recognized to extent liability is normally expected to be liquidated with expendable available financial resources (no change at fund level!) 2016 financial statements disclose pending GASB and fact it likely will be material 41

42 Other Accounting Issues 147c Impairment Bond Refunding and refunding, refunding! Claims Labor Contracts ACH/Wire Transfers 42

43 State Aid Accounting Challenges Section 147a/c Answers The funding is considered a revenue, the cash is taken to reduce required contribution from the district for c Truing up c should follow the MDE guidance see memo. But is there an easier way? MPSERS fund level expense the gross expense is the expense. The net impact on the SD is the 25% a is just a revenue and has no impact on expense determination 43

44 State Aid Accounting Challenges Section 147a/c Answers (continued) Final Expenditure cash contribution to MPSERS, 147c appropriation, 6/30 accrued cash contributions (generally July and August for teachers) plus June 147c not paid until july. Actual EXPENDITURES may be higher than expected rate (35%) Accruals 147c due from the State of Michigan (receivable) July and August payment on state aid status report 147c due to ORS (payable) Equal to the July and August 147c state aid receivable, plus June if not paid until July July and August District paid retirement on 26 pay staff at the District rate they will PAY District paid Retirement due and unpaid on all staff for pay periods through June 30 44

45 Impairment What is My Building Worth? If impaired, how is the value determined? Closure If building is vacant, generally it is reduced to a salvage value or 0. Focus on building and contents. If contents are used elsewhere, then the contents are not impaired Land is not affected (not impaired) Sale value of land is not relevant to the impaired building 45

46 Impairment What is My Building Worth? If impaired, how is the value determined? Repurpose What is the value of a similar use building? Examples If an instructional building and it continues use as another instructional use building, likely no impairment If an instructional building is used as a storage building, likely adjust to value of a similar use warehouse What if only a portion of the building is used? Example Elementary school closed but a portion is used as a preschool, value of unused portion is impaired 46

47 Impairment What is My Building Worth? What part of the financial report is impacted? Events generally impact government wide financial statements Impacts recorded capital assets in statement of net assets and losses in statement of activities No direct impact on the fund level statements Additional disclosures in notes to the financial statements Note: multiple evaluation methods exist. If impairment occurs, select the best valuation method Key question: How material is the impairment to the government wide financial statements? 47

48 Bond Refunding Overview Bond Refunding What Occurs Issuance of new debt whose proceeds are used to repay previously issued ( old ) debt The new debt proceeds may be used to repay the old debt immediately (a current refunding); or the new debt proceeds may be placed with an escrow agent and invested until they are used to pay principal and interest on the old debt at a future time (an advance refunding). When bond refunding results in defeased debt When the bond refunded is considered an advance refunding. When debt is defeased, it is no longer reported as a liability on the face of the financial statements; only the new debt is reported as a liability. The old debt is disclosed in the footnotes 48

49 Bond Refunding Accounting Treatment Fund Level Accounting Treatment For current and advance refunding. Face amount of the new debt should be reported as an other financing source refunding bonds in the governmental fund receiving the proceeds. For advance refunding Payments to the escrow agent should be reported as an other financing use payment to refunded bond escrow agent. Payments to the escrow agent made from other resources of the entity should be reported as debt service expenditures. 49

50 Bond Refunding Accounting Treatment Government Wide Accounting Treatment For current refundings and advance refundings 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 over the remaining life of the old debt or the life of the new debt, whichever is shorter A premium or discount pertaining to the new debt is a separate item related to and amortized over the life of the new debt recorded in the LTD section. Reacquisition Price The amount required to repay previously issued debt in a refunding transaction. In a current refunding, this includes principal of the old debt and any call premium. In an advance refunding, it is the amount placed in escrow that, together with interest earnings, is necessary to pay interest and principal on the old debt and any call premium. Net Carrying Amount The amount due at maturity, adjusted for any unamortized premium or discount related to the old debt, as well as any deferred outflows of resources or deferred inflows of resources associated with the old debt. 50

51 Bond Refunding Accounting Treatment Government Wide Accounting Treatment Deferred Outflows Requires calculation Long Term Debt New debt is added to the long term debt section and old debt is removed from the long term debt section Can see the impact in the footnotes Disclose outstanding balance of defeased debt Key Take Away if you have one, double check accounting before the year is closed. o If wrong, Material Weakness? 51

52 Claims Prior Period Adjustments, Property Tax Appeals, Other Claims Other Claims using the due date method in governmental funds Self insurance July/August typically in next year s expense Note some districts switching form self insurance to premium insurance. Significant impact on expenditures in year of transition. Also potential for refunds from self insurance carrier. Legal judgments court order specifying a payment ERI s depends on ERI wording to create a claim Arbitrage payments based on when billed Unemployment generally billed 6 months behind, would record the bill received in July for claims experience through December 31 Full accrual funds/government wide financial statements, due date method does not apply. Liability based on Full accrual. 52

53 Labor Contract Changes and Impact Employee contributions to HC Reduces district expense Employee payments to MPSERS Similar to employee payments for HC 3% issue re FICA impact Change of contract period to July 1 start What really changed? Impact on July/August accrual Bonus, resource sharing or off schedule payments Where was it earned? Generally that s where liability recorded Due date rule generally does not apply to PR Comp reductions if fund balance not maintained Affect CY or NY compensation? Deferring pay to a future period Can delay payment but generally not expense 53

54 Cash and Wire Transfers Use is increasing Processes not modified Key issues: How is the transaction documented? How is the transaction approved? How is the wire documented? How is the wire approved? How is the activity reconciled? Checks and balances are essential! 54

55 Issues and Action Items Planning/Audit/Accounting Issues Response 55

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