GASB 61, The Financial Reporting Entity Purpose & Objective

Transcription

1 GASB Statement N. 61, The Financial Reprting Entity: Omnibus An Amendment f GASB Statements N. 14 and N. 34 Presented by Andrew Richards, CPA, Partner Christpher Telli, CPA, Senir Manager Nvember 13, 2012 Purpse & Objective Amends GASB Statement 14 & 34 t imprve financial reprting fr a gvernmental financial reprting entity Clarifies/Amends Financial Accuntability Cncept Misleading t Exclude criteria Blending criteria Reprting f equity interest in legally separate rganizatins 4 1

2 Purpse & Objective Imprves guidance relating t cmpnent units & equity interest transactins, making financial statements mre relevant Allws users t better assess accuntability f elected fficials Imprves fcus f the financial reprting entity n the primary gvernment & allws fr better distinctin f primary gvernment (PG) & cmpnent unit (CU) Helps ensure PG desn t understate financial psitin fr equity interests 5 Effective Date Prvisins f this Statement are effective fr financial statements fr perids beginning after June 15, 2012 Earlier applicatin is encuraged 6 2

3 Scpe Primary gvernments Stand-alne gvernments Separately issued financial statements f gvernmental cmpnents Nngvernmental cmpnent units when included in a gvernmental financial reprting entity 7 Cmpnent Unit Definitin Cmpnent unit: Legally separate rganizatins fr which elected fficials f the primary gvernment are financially accuntable. In additin, a cmpnent unit can be anther rganizatin fr which the nature and significance f its relatinship with a primary gvernment is such that exclusin wuld cause the reprting entity's financial statements t be misleading 8 ⁰ Can be gvernmental rganizatin, nnprfit f fr-prfit crpratin 3

4 Amended Inclusin Criteria GASB 14 requires inclusin f a legally separate entity if it s fiscally dependent n the primary gvernment GASB 61 amends this t ALSO require a financial benefit r burden relatinship, in additin t being fiscally dependent If the financial accuntability cncept is met, the rganizatin shuld be reprted as part f the primary gvernment s financial reprting entity 9 Amended Inclusin Criteria Fiscally dependent: A gvernment that cannt d ne r mre f the fllwing withut the substantive apprval f anther gvernment: (a) determine and mdify its budget, (b) levy taxes r set rates r charges, r (c) issue bnded debt A financial benefit r burden relatinship exists if the primary gvernment is Legally entitled t r can access the rganizatin s resurces Legally bligated r has therwise assumed the bligatin t finance deficits f, r prvide financial supprt t the rganizatin Obligated in sme manner fr debt f the rganizatin 10 4

5 Amended Inclusin Criteria The primary gvernment is financially accuntable if it appints vting majrity f the rganizatin s gverning bard & 1. It is able t impse its will n the rganizatin, OR 2. There is ptential fr the rganizatin t prvide specific financial benefit t, r burden n, the primary gvernment 11 Amended Inclusin Criteria Primary gvernment may be financially accuntable fr a fiscally dependent gvernment even if that gvernment has a: 1) Separately elected gverning bard (elected schl bard but fiscally dependent n lcal gvernment) 2) Gverning bard appinted by a higher level f gvernment (schl bard appinted by State fficials but fiscally dependent n lcal gvernment) 3) Jintly appinted bard (bard appinted jintly by several lcal gvernments but fiscally dependent n ne) 12 5

6 Questin #1 It is pssible fr a cmpnent unit f a municipality t be which f the fllwing a) anther gvernmental rganizatin b) a fr-prfit crpratin c) a nt-fr-prfit crpratin d) all f the abve e) Nt sure 13 Amended Inclusin Criteria Ptential fr dual inclusin Organizatin culd meet financial accuntability criteria fr ne primary gvernment, but fiscally dependent n anther Can nly be cmpnent unit in ne reprting entity Requires careful judgment Generally, fiscal dependency will gvern, but nt always 14 6

7 Misleading t Exclude Criterin Paragraphs 12, 20, 39 and 66 f Statement 14 allwed fr legally separate entities t be included as cmpnent units, even if they d nt meet criteria fr inclusin, if exclusin wuld make the financial statements misleading r incmplete GASB 61 eliminates incmplete & amends GASB 14 t clarify the manner in which misleading t exclude prvisins shuld be applied in making this determinatin 15 Misleading t Exclude Criterin Fr rganizatins nt meeting the financial accuntability criteria Management may include if prfessinal judgment determines exclusin is misleading Determinatins based n nature & significance f rganizatin s relatinship t primary gvernment Shuld be applied fr all separately issued financial statements 16 7

8 Misleading t Exclude Criterin GASB 61 further clarifies what types f relatinships shuld be cnsidered when determining if misleading t exclude Clsely related r financially integrated Clsely related: Fcus n financial relatinships Financially integrated: Dcumented thrugh plicies, practices r rganizatinal dcuments f either primary gvernment r the rganizatin being evaluated 17 Majr Cmpnent Unit Requirement Clarifies types f relatinships that affect the determinatin f majr cmpnent units Eliminates requirement t cnsider each cmpnent unit s significance relative t ther cmpnent units Requires cnsideratin f nature and significance f relatinship t primary gvernment Services prvided Transactins Significant burden r benefit relatinship 18 8

9 Majr Cmpnent Unit Requirement Presentatin & reprting requirements 19 Majr cmpnent unit reprting requires ne f the fllwing Presenting each majr cmpnent unit in a separate clumn in the reprting entity s statements f net assets & activities Cmbining statements f majr cmpnent units in reprting entity s basic financial statements after the fund financial statements, r Presenting cndensed financial statements in ntes Nnmajr cmpnent units shuld be aggregated in a single clumn Cmbining statements allwed but nt required Questin #2 An rganizatin is included with a primary gvernment s reprting entity if that rganizatin is fiscally dependent AND a) A ptential financial benefit r burden relatinship exists b) The primary gvernment appints all f the bard members c) The entity is nt a cmpnent unit f anther gvernment d) the entity has a derivative instrument e) Nt sure 20 9

10 Blending Criteria Amends paragraph 53 f Statement N. 14 t include additinal prvisin when gverning bdies are substantively the same Adds prvisin fr cmpnent units whse ttal debt utstanding is expected t be repaid entirely r almst entirely with resurces frm primary gvernment 21 Blending Criteria Substantively the same Sufficient representatin f primary gvernment s entire gverning bdy n the cmpnent unit s gverning bdy s decisins f the primary gvernment cannt be verridden by cmpnent units Happens when primary gvernment s bard is essentially the same as cmpnent unit s bard Example: city redevelpment authrity is cmprised entirely, r almst entirely, f city cuncil members 22 10

11 Blending Criteria Blending methd shuld be used when gverning bdies substantively the same & There is financial benefit r burden relatinship OR Management f the primary gvernment has peratinal respnsibility fr cmpnent unit 23 Blending Criteria Operatinal respnsibility Management in this cntext are peple belw the gverning bard Respnsible fr day-t-day peratin Achieved if management manages activities f the cmpnent unit in essentially the same manner in which it manages its wn prgrams, departments r agencies 24 11

12 Blending Criteria Blending methd shuld als be used if Services prvided by cmpnent unit are entirely, r almst entirely, t primary gvernment r exclusively, r almst exclusively, benefits primary gvernment Similar t internal service funds Requirement still met if Services prvided t thers are insignificant t verall activities f cmpnent unit Services are prvided indirectly t primary gvernment (i.e. t emplyees) 25 Blending Criteria Blending als required fr cmpnent units whse ttal debt utstanding, including leases, is expected t be repaid entirely, r almst entirely, with resurces f primary gvernment New Requirement Repayment generally ccurs thrugh cntinuing pledge & apprpriatin by the primary gvernment t cmpnent unit 26 12

13 Blending Criteria Reprting Reprting blended cmpnent units Statement clarifies that funds f a blended cmpnent unit have the same financial reprting requirements as a fund f primary gvernment Included as part f primary gvernment s ther funds in fund statements &/r cmbining statements General fund f blended cmpnent unit is still reprted as a special revenue fund 27 Questin #3 Majr cmpnent units shuld be determined based n: a) The cmpnent unit's significance t ther cmpnent units b) The cmpnent unit's ttal assets c) The cmpnent unit's ttal net assets d) The cmpnent unit's significance t the primary gvernment e) Nt sure 28 13

14 Blending Criteria Reprting Business-type activities Business-type activity (BTA) that reprts in a single clumn may blend cmpnent unit int single clumn Present cndensed cmbining infrmatin in ntes Cndensed infrmatin shuld include (minimum) Cndensed statement f net assets Cndensed statement f revenues, expenditures & changes in net assets Cndensed statement f cash flws May als shw blended cmpnent unit in separate clumn & cmbining primary gvernment ttal clumn Multi-clumn BTA may add additinal clumns as if fund f primary gvernment 29 Reprting Equity Interests in Cmpnent Unit The Statement clarifies reprting f equity interests in legally separate rganizatins Primary gvernment shuld reprt an asset fr its equity interest in a discretely presented cmpnent unit If gvernment s intent is t directly enhance its ability t prvide gvernmental services, it shuld be discretely presented as a cmpnent unit If gvernment s intent is t btain incme r prfit, it shuld reprt equity as investment Minrity interest in jint ventures are shwn in net assets as restricted, nnexpendable 30 14

15 Amendments t Nte Disclsures Clarifies that gvernments shuld disclse the ratinale fr including each cmpnent unit & manner in which it is included Additinally, ntes shuld include Brief descriptin f the cmpnent unit and its relatinship t primary gvernment If cmpnent unit is discretely presented, blended r included in the fiduciary fund financial statements Hw separate financial statements fr cmpnent units may be btained 31 Amendments t Nte Disclsures Ntes essential t fair presentatin in reprting entity s basis financial statements include Gvernmental & business-type activities, majr funds, nnmajr funds, including blended cmpnent units Majr discretely presented cmpnent units (DPCU) Selected DPCU disclsures thrughut ntes Use prfessinal judgment Determined n cmpnent unit by cmpnent unit basis 32 15

16 Impact Expected sme cmpnent units may n lnger meet inclusin criteria under new Standard Nt expecting the reverse All cmpnent units will need reevaluatin by primary gvernment Blending must be reevaluated under new criteria If n lnger meets requirements t blend, then discretely presented (de-blended) Change in reprting entity will result in restatement 33 Questin #4 The blending criteria f GASB 61 is met if the gverning bdies are substantively the same and a) A financial benefit r burden relatinship exists b) The entities are financially integrated c) The financial statements are nt therwise incmplete d) It's based slely n prfessinal judgment e) Nt sure 34 16

17 Transitin In first perid applied, treated as adjustment f prir perids & restatement f all prir perids If restatement is nt practical, cumulative effect shuld be reprted as a restatement f beginning net assets (r fund equity r fund balance, as apprpriate) fr earliest perid restated Financial statements shuld disclse nature f restatement & its effect 35 Cmpnent Unit Evaluatin Flwchart 36 17

18 Examples All examples taken frm GASB Cmprehensive Implementatin Guide 37 Examples Case 6 Case 6 Bard f Educatin with Appinted Members Facts: Lcal bards f educatin are created as bdies crprate. The cunty bard f cmmissiners appints members f the bard f educatin fr municipalities lcated within the cunty, but may remve members nly fr cause. The lcal bards f educatin select their wn management and cntrl their wn day-t-day peratins. State law gives the state legislature the respnsibility fr prviding a unifrm system f free public schls. Accrdingly, the state grants the cunty the fllwing budgetary authrity: Lcal schl bards submit their entire budget t the cunty cmmissiners. The cunty cmmissiners make apprpriatins t the lcal bards f educatin fr that prtin f the budget that is t be funded by the cunty. The cunty cmmissiners apprve the lcal schl bards' budgets, which are then adpted by the lcal schl bards. If the cunty bard allcates funds specifically t certain purpses r functins, the lcal bards f educatin are permitted t change the apprpriatin fr the intended prgram r purpse within certain limits. Changes in the schl budget reslutin, whether increases r decreases t prjects in (1) acquisitin f land r (2) building acquisitin and cnstructin, require cunty cmmissiner apprval

19 Examples Case 6 (cnt.) Case 6 Bard f Educatin with Appinted Members (cnt.) The cunty may allcate part r all f each apprpriatin by purpse, functin r prject. The authrity f the cunty is limited by a statutry requirement that the cunty prvide adequate schl facilities. Hwever, the cunty has n authrity ver the administratin f the cnstructin. A lcal bard f educatin has legal recurse if it feels that the cunty is nt prviding adequate facilities r is nt fulfilling its statutry funding respnsibilities. A clerk f curt r a judge can rder a cunty t increase its financial supprt f a lcal bard f educatin. Cnclusin: The lcal bard f educatin wuld be discretely presented as a cmpnent unit f the cunty. The cunty bard f cmmissiners appints the members f each lcal bard f educatin and is able t impse its will thrugh its budgetary authrity, which grants the cunty apprval authrity ver the entire budget and thus is nt merely a cmpliance apprval required as a cnditin t receive financial aid. In additin, the cunty cmmissiners have apprval authrity ver the capital acquisitins f the lcal bard f educatin. 39 Examples Case 6a Case 6a Bard f Educatin with Elected Members Facts: Cnsider the same facts as in Case 6, except that the members f the lcal bard f educatin are separately elected. Cnclusin: If the members f the lcal bard f educatin are separately elected, the bard f educatin wuld be evaluated as a cmpnent unit f the cunties cunty based n the fiscal dependency criteria, which include the financial benefit r burden criteria. The bard f educatin is fiscally dependent n the cunty based n the cunty s budgetary apprval authrity. In additin, the lcal bard f educatin impses a financial burden because the cunty prvides resurces fr its peratins. The bard shuld be reprted as a discretely presented cmpnent unit

20 Examples Case 13 Case 13 Library Assciatin Facts: A library assciatin is a bdy crprate and plitic. It is gverned by a furteen-member bard, serving staggered seven-year terms. Seven f the furteen members are direct appintees f the twn. The remaining seven members are elected by the ther bard members. (Vacancies are filled by a majrity vte f the remaining thirteen members, seven f whm a vting majrity are direct appintees f the twn.) The twn may nt remve the members f the library's bard, except fr cause. The twn has n authrity ver the budget f the assciatin; hwever, the twn prvides funding fr apprximately 90% f the library's funding fr library peratins. The library als receives dnatins and des a substantial amunt f fund raising t finance capital imprvements. The library bard cntrls the management f the library's day-t-day peratins and hlds prperty in its wn name. Cnclusin: The library wuld be reprted as a discretely presented cmpnent unit f the twn. All f the library bard members are either appinted directly by the twn r selected by a grup that is cntrlled by appintees, which means that the twn des appint a vting majrity f the bard. The funding prvided by the twn fr the library's peratins impses a financial burden n the twn. 41 Examples Case 13a Case 13a Library Assciatin Facts: Cnsider the same facts as in Case 13, except that the tw bards are substantively the same and the library assciatin is managed in the same manner as a department f the twn. Cnclusin: The library wuld be reprted as a blended cmpnent unit f the twn because the tw bards are substantively the same and management f the twn has peratinal respnsibility fr the cmpnent unit

21 Examples Case 21 Case 21 Art Fundatin Facts: The Carl Sauer Art Fundatin was established as a legally separate, tax-exempt rganizatin t supprt fine arts in the greater Anytwn metr area. The fundatin has a histry f prviding substantial financial supprt t several different entities each year including XYZ Art Museum, Anytwn s public museum; cmmunity theatre grups; and ther rganizatins with bjectives cnsistent with the fundatin s charter. Occasinally, dnatins received by the fundatin are restricted fr the benefit f specific rganizatins, but generally, restricted dnatins are distributed currently, rather than held. An accumulatin f restricted resurces wuld nt be significant t any f the designated beneficiaries. The supprt given t XYZ Art Museum during the current year was significant t the museum. Hwever, depending n the nging needs f ther qualifying rganizatins and the fundatin s resurces available fr distributin, this level f supprt t the museum has varied cnsiderably ver the years. Cnclusin: The Carl Sauer Art Fundatin is nt required t be reprted as a cmpnent unit f XYZ Art Museum because at least ne f the three criteria is nt satisfied. The direct benefit criterin is nt met because the fundatin supprts several ther rganizatins, and the resurces it receives and hlds are nt entirely r almst entirely restricted fr the benefit f XYZ Art Museum. Because the first criterin is nt met, neither the entitlement/ability t access criterin nr the significance criterin needs t be cnsidered. Hwever, the incmplete r misleading t exclude cncept in paragraph 41 f Statement 14, as amended, shuld be cnsidered. 43 Andrew Richards, CPA Partner arichards@bkd.cm Christpher Telli, CPA Senir Manager ctelli@bkd.cm 21

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