GASB UPDATE Presented by: Brian A. Ritschel, CPA Manager

1. GASB UPDATE Presented by: Brian A. Ritschel, CPA Manager 1

2. GASB Current Developments TOPICS • GASB New Pronouncements • Statement No. 41, Budgetary Comparison Schedules- Perspective Differences (amendment of GASB No. 34) • Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries 2

3. TOPICS • GASB New Pronouncements • Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans • Statement No. 44, Economic Condition Reporting: The Statistical Section (an amendment of NCGA Statement 1) 3

4. TOPICS • Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions • Statement No. 46, Net Assets Restricted by Enabling Legislation (an amendment of GASB No. 34) 4

5. GASB STATEMENT NO. 42 ACCOUNTING AND FINANCIAL REPORTING FOR IMPAIRMENT OF CAPITAL ASSETS AND FOR INSURANCE RECOVERIES 5

6. EFFECTIVE DATE: Periods beginning after December 15, 2004 (Fiscal Year Ending June 30, 2006) Earlier application is encouraged 6

7. Asset impairment is a significant, unexpected decline in the service utility of a capital asset 7

8. Identifying Impairments • Events or changes in circumstance that indicate impairment should be prominent • Generally expected to have prompted discussion by governing board, management, or media 8

9. Common Indicators of Impairment • Evidence of physical damage • Enact or approval of laws or regulations or other Environmental factors • Technological development or evidence of obsolescence 9

10. A Change in the manner or expected duration of use of an asset • Construction stoppage 10

11. Impairment Test • The magnitude of the decline in service utility is significant • The decline in service utility is unexpected 11

12. Measurement of Impairment • Assets that are continuing to be used by the government: • Restoration cost approach for assets with physical damage • Service units approach for legal/environmental changes, technological obsolescence, and some changes in duration or manner of use • Deflated depreciation replacement cost for some assets with a change in duration or manner of use 12

13. Assets that are not being used and construction stoppage: • Lower of carrying value or fair value 13

14. Reporting Impairment Losses • As program or operating expense, special item, or extraordinary item per Statement 34 • Disclose general description, amount, and financial statement classification, if not evident from financial statements 14

15. Temporary Impairments • Impairments are assumed to be permanent, unless • Evidence is available to demonstrate impairment is temporary • Temporary impairments should not be recorded 15

16. Insurance Recoveries • Net impairment loss with insurance recovery • Replacement/restoration of asset is a separate transaction 16

17. Applies to all insurance recoveries, not only those related to impairment Governmental funds would not report an impairment loss. Insurance recovery would be Other Financing Source. Replacement would be expenditure 17

18. GASB STATEMENT NO. 43 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans 18

19. EFFECTIVE DATE: Earlier application is encouraged 19

20. Objectives • Uniform Standards of Financial Reporting for Other Postemployment Benefit Plans (OPEB Plans) • Postemployment Benefits “Other Than Pension Benefits” includes (a) Postemployment Healthcare Benefits and (b) Other Types 20

21. Approach Follows GASB Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans 21

22. SCOPE • Agreement between Employers and Plan Members and their Beneficiaries in which: • Employer contributions to the Plan are irrevocable • Plan Assets are dedicated to providing benefits to their retirees and their beneficiaries in accordance with the terms of the Plan • Plan Assets are legally protected from creditors of the employer(s) or the Plan administrator 22

23. Statement Provides: • Financial reporting of Plan Assets, Liabilities and Net Assets • Disclosure of Actuarial Information about the funded status and funding progress of the Plan and contributions made to the Plan in comparison to Annual Required Contributions (ARC) • This Statement includes Defined Benefit OPEB Plans and Defined Contribution Plans • Single-Employer, Agent Multiple-Employer or Cost-Sharing Multiple-Employer Plans 23

24. Financial Reporting Framework • The Financial Statements and Required Schedules are: • Statement of Plan Net Assets • Statement of Changes in Plan Net Assets • Schedule of Funding Progress - - Actuarially determined Funded Status 24

25. Schedule of Employer Contributions - - Contributions made by Employers in relation to the ARC • Notes to the Financial Statements • Required Supplementary Information 25

26. Actuarial Valuation • An Actuarial Valuation should be performed at the following minimum frequency: • Plans with total membership of 200 or more - - at least biennially • Plans with total membership of fewer than 200 - - at least triennially 56

27. Alternative Measurement Method for Plans with fewer than 100 Members • Disclosure in Notes to Financial Statements the use of this method and all significant assumptions as listed in this Statement • Statement includes calculation methods and default values for use with the Alternative Measurement Method 27

28. GASB STATEMENT NO. 44 Economic Condition Reporting: The Statistical Section (an amendment of NCGA Statement 1) 28

29. EFFECTIVE DATE: Periods beginning after June 15, 2005 (June 30 Fiscal year in 2006) Earlier application is encouraged 29

30. Objectives • Amends NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, regarding the Statistical Section • The Statistical Section presents detailed information, generally in 10-Year trends, to aid users to better understand the Basic Financial Statements and Related Disclosures 30

31. The Statistical Section is a required part of Comprehensive Annual Financial Report (CAFR) • NCGA Statement 1 presented fifteen tables or schedules 31

32. The Statement presents five categories of information as follows: • Financial Trends Information • Net Assets • Change in Net Assets • Governmental Funds 32

33. Revenue Capacity Information • Revenue Base • Revenue Rates • Revenue Payers • Property Tax Levies and Collections 33

34. Debt Capacity Information • Ratios of Outstanding Debt • Ratios of General Bonded Debt • Direct and Overlapping Debt • Debt Limitation • Pledged-Revenue Coverage 34

35. Demographic and Economic Information • Demographic and Economic Indicators • Principal Employers • Operating Information • Government Employees • Operating Indicators • Capital Assets • Pension and OPEB Plans • Narrative Explanations 35

36. GASB STATEMENT NO. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions 36

37. EFFECTIVE DATE: Earlier application is encouraged Note: All component units to implement same year as the primary government 37

38. Objectives • Financial Accounting and Reporting for Other Postemployment Benefits (OPEB) • The Approach is consistent with GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers 38

39. Measurement • Single-Employer or Agent Multiple-Employer defined benefit OPEB Plans required to measure and disclose annual OPEB Cost On Accrual Basis of Accounting • Annual OPEB cost would equal employer’s Annual Required Contribution (ARC) with adjustments for Net OPEB obligation, if any 39

40. ARC includes: • Normal cost for the year, and • Amortization of unfunded actuarial accrued liabilities (or funding excess) not to exceed thirty years • Actuarial Valuation: • Frequency and timing • Methods • Assumptions • Alternative Measurement Method 40

41. Net OPEB Obligations • Cumulative difference between annual OPEB Cost and Employer’s Contributions to the Plan (including OPEB liability or Asset at Transition) • Employer’s are required to measure Net OPEB Obligation equal to: • ARC, • Year’s interest on Net OPEB Obligation, and • Adjustment to ARC to offset the effect of actuarial amortization of past under-or over contributions 41

42. Financial Statement Recognition and Disclosure • Employer to recognize OPEB Expenses in Government-Wide, Proprietary and Fiduciary Fund Financial Statements • Net OPEB Obligations are to be displayed as liabilities (or assets) in Government-Wide, Proprietary and Fiduciary Fund Financial Statements 42

43. Disclosures are required: • Descriptive information about each Plan, including funding policy, • Contributions made in comparison to annual OPEB Cost, • Change in Net OPEB Obligation, • Funded status as of most recent actuarial valuation date, and • Nature of actuarial valuation process and significant methods and assumptions used 43

44. Required Supplementary Information (RSI) • Schedule of funding progress for most recent actuarial valuation and two preceding valuations, together with notes regarding significant trends affecting the amounts presented 44

45. GASB STATEMENT NO. 46 NET ASSETS RESTRICTED BY ENABLING LEGISLATION (an amendment of GASB No. 34) 45

46. EFFECTIVE DATE: Periods beginning after June 15, 2005. (Fiscal Year Ending June 30, 2006) Earlier application is encouraged. 46

47. INTRODUCTION • Enhance the usefulness and comparability of net asset information. • Clarify the meaning of Legally Enforceability. • Specify the accounting and financial reporting requirements. 47

48. SCOPE AND APPLICABILITY • Establishes and modifies requirements related to restrictions of net assets resulting from enabling legislation. • Amends GASB No. 34. • Discuss examples of Programs restricted by enabling legislation. 48

49. DETERMINING LEGAL ENFORCEABILITY • A Government can be compelled by an external party to use resources created by enabling legislation only for the purposes specified by the legislation. 49

50. External Party include citizens, public interest groups or the judiciary. • “Generally, the enforceability of an enabling legislation restriction is determined by professional judgment.” 50