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Accounting Chat

Accounting Chat is dedicated to discussions of the latest on governmental accounting topics and activities, including pronouncements of the Governmental Accounting Standards Board and resources of the Government Finance Officers Association.

Posted by on in Accounting Chat

A “lot of water has gone under the bridge”, so to speak, since we last talked about GASB pronouncements.  In case you didn’t know, I’m a huge Thunder fan.  And my last blog post is dated May 13, 2016.  At that time, we had just won the Western Conference semi-finals and were getting ready to face the Golden State Warriors in the Western Conference Finals.  And we all know what happened in the infamous Game 6 of that series.  Even though we were up 3-1 in the series and led most of Game 6, we lost not only that game, but the next one as well.  And then the most awful July 4th when the unthinkable happened—Kevin Durant leaves the Thunder to go play with the enemy.  Yep, our beloved KD is playing with the Golden State Warriors who are now up 3-1 against the Cleveland Cavaliers in the NBA Finals.  You can guess who I’m rooting for.

Anyway, I say all that to say, there’s been a lot of activity for GASB since that time as well.  So let’s get caught up.  We have four additional standards to implement in the near future.

Statement No. 83, Certain Asset Retirement Obligations – Some of you (like me) may be asking:  “What’s an Asset Retirement Obligation (ARO)?”  While it’s not anticipated that this will have a significant impact on most governments, we still need to be aware of what it pertains to, in case something like this ever comes up in your government or governmental client. 

There are GASB standards already in existence that address some types of AROs.  For example, Statement No. 18 related to accounting for landfill closure and postclosure care costs.  That’s a form of ARO.  Also Statement No. 49 that addresses pollution remediation activities also relates to ARO. 

But this standard addresses different kinds of AROs.  Here are some examples:  1) retirement of sewage treatment plants; 2) retirement of x-ray machines; 3) retirement of magnetic resonance imaging machines; 4) retirement of research facilities owned by public universities like nuclear research reactors.  These kinds of assets may have to be disposed in a certain way due to radioactive material or waste generated by equipment regulated by federal, state or local laws and regulations.  So while these transactions may not occur very frequently or at several governments, be aware there is now a standard that addresses accounting for these types of liabilities when they occur.

The technical definition of an ARO is:   “a legally enforceable liability associated with the retirement of a tangible capital asset”.  If your government has a legal obligation to perform future asset retirement activities related to a tangible capital asset, it should recognize a liability based on the guidance in this statement.

This statement must be implemented for periods beginning after June 15, 2018.  If you have a June 30 year end, that would be effective as of June 30, 2019.

Statement No. 84, Fiduciary ActivitiesThis new standard, unlike the previous one, will likely affect many governments.  That’s probably the reason for the extended required implementation date.  To allow governments plenty of time to identify and classify their fiduciary activities, the board permits governments to wait until periods beginning after December 15, 2018, to implement this standard.  For June 30 year ends, that would be effective June 30, 2020.

So here are the highlights of this standard:

  1. Criteria is established for identifying fiduciary activities of governments.
    1. Focus is on whether a government is controlling the assets of the fiduciary activity, AND
    2. The beneficiaries with whom a fiduciary relationship exists
  2. There are now additional considerations for classification as a component unit for fiduciary activities that are postemployment benefits—whether that be pension or OPEB.
  3. There are also criteria to be used to classify non-postemployment benefit component units as a fiduciary activity.
  4. If an activity is classified as fiduciary, then it should be reported in a fiduciary fund in the basic financial statements.
    1. A statement of fiduciary net position should be prepared AND
    2. A statement of changes in fiduciary net position should be prepared (for ALL fiduciary funds). You’ll recall under current standards, an agency fund is not required to present a statement of changes in fiduciary net position.
    3. There are 4 types of fiduciary funds
      1. Pension and OPEB trust funds
      2. Investment trust funds
  • Private-purpose trust funds, AND
  1. Custodial funds (no longer will there be agency funds) Basically this category should be used to report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria
  1. For fiduciary component units reported in the fiduciary fund financial statements of a primary government, it should combine its information with its component units that are also fiduciary component units and aggregate that combined information with the primary government’s fiduciary funds.
  2. Also provides for the recognition of a liability to beneficiaries and details when that liability should be recognized.

 

Statement No. 85, Omnibus 2017And no, we’re not talking about a bus that takes you to the Omniplex (grin).  We’re talking about a collection of practice issues that are clarified or corrected from previous statements.  So this one covers a myriad of topics.  And some of these may have already been implemented by some governments.  Here’s the list.  It’s rather long.

  1. Blending a component unit in circumstances in which the primary government is a business-type activity that reports in a single column for financial statement presentation
  2. Reporting amounts previously reported as goodwill and “negative” goodwill.
  3. Classifying real estate held by insurance entities.
  4. Measuring certain money market investments and participating inter-earning investment contracts at amortized cost
  5. Timing of the measurement of pension or OPEB liabilities and expenditures recognized in financial statements prepared using the current financial resources measurement focus
  6. Recognizing on-behalf payments for pensions or OPEB in employer financial statements
  7. Presenting payroll-related measures in required supplementary information for purposes of reporting by OPEB plans and employers that provide OPEB
  8. Classifying employer-paid member contributions for OPEB
  9. Simplifying certain aspects of the alternative measurement method for OPEB
  10. And finally, (whew!), accounting and financial reporting for OPEB provided through certain multiple-employer defined benefit OPEB plans

So if any of these items apply to your government, read more in Statement 85.  This one is effective for reporting periods beginning after June 15, 2017.  That’s June 30, 2018 for June 30 fiscal year ends.  But as previously mentioned, some of these have already been implemented.   And that’s okay because earlier application is encouraged.

 

Statement No. 86, Certain Debt Extinguishment IssuesIf you’re one of those lucky governments that has cash available to pay off existing indebtedness and you place that cash in an irrevocable trust to extinguish that debt, then this statement is for you.  Current guidance for in substance defeasance of debt only applies when using refunding debt proceeds to defease the debt.  Now we have similar guidance in Statement 86 for defeasing debt with existing resources.  One big difference, though, is that in financial statements using the economic resources measurement focus, governments should recognize any difference between the reacquisition price (the amount required to be placed in the trust) and the net carrying amount of the debt defeased in substance using only existing resources as a gain or loss in the period of the defeasance.  This is recognized immediately and not amortized over a longer period.  There are also provisions for note disclosures related to these types of debt defeasance.

And there’s more in this statement that applies to all debt extinguishments, whether through a legal extinguishment or through an in-substance defeasance.  If you have any remaining prepaid insurance related to these extinguished debt, that should be included in the net carrying amount of debt for purpose of calculating the difference between the reacquisition price and the net carrying amount of the debt.

Another additional disclosure is required for all in-substance defeasance transactions.  One of the criteria for determining an in-substance defeasance is that the trust hold only monetary assets that are essentially risk-free.  If the substitution of essentially risk-free monetary assets with monetary assets that are not essentially risk-free is not prohibited, governments should disclose that fact in the period in which the debt is defeased in substance.  In subsequent periods, governments should disclose the amount of debt defeased in substance that remains outstanding for which that risk of substitution exists.

This Statement is effective for periods beginning after June 15, 2017.  That’s June 30, 2018 for those June 30 fiscal year ends.

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Posted by on in Accounting Chat

Well, the GASB has been busy at work since the last blog.  And so have I.  Here’s a summary of the new standards, listed by date of required implementation.  And early implementation is encouraged for these new standards.  So you don’t have to wait to implement these, for those eager beavers out there.

For periods beginning after June 15, 2015:

                GASB Statement No. 79, Certain External Investment Pools and Pool Participants – This is one standard that has multiple implementation dates.  Certain sections (paragraphs 18, 19, 23-26, and 40) have a later implementation date for periods beginning after December 15, 2016.  This standard establishes criteria for an external investment pool to qualify to making the election to measure all of its investments at amortized cost for financial reporting purposes.  Certain criteria have to be met in order to qualify for this type of reporting.  The criteria addresses 1) how the external investment pool transacts with participants; 2) requirements for portfolio maturity, quality, diversification, and liquidity, and 3) calculation and requirements of a shadow price.

                And if an external investment pool meets the criteria in this Statement and measure all its investments at amortized cost for financial reporting purposes, the pool’s participants should also measure their investments in that external investment pool at amortized cost for financial reporting purposes.

 

For periods beginning after December 15, 2016:

                GASB Statement No. 77, Tax Abatement Disclosures – Many governments offer tax abatements, particularly to encourage economic development.  When a government has an agreement between itself and an individual or entity where the government agrees to forgo tax revenues and the individual or entity promises to subsequently take specific action that contributes to economic development or otherwise benefits the government or its citizens, there will now be certain disclosure requirements to tell about these tax abatements.  This is one standard that doesn’t require additional accounting –only disclosures.

                GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans – This statement limits the scope and applicability of Statement 68.  This standard will apply in a case where pensions are provided to employees of state or local governmental employers in a cost-sharing multiple-employer defined benefit pension plan that meets these 3 points:

1.        Not a state or local governmental pension plan;

2.       Provides defined benefit pensions both to employees of state or local governmental employers AND to employees of employers that are NOT state or local governmental employers, AND

3.       Has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan)

For periods beginning after June 15, 2016:

                GASB Statement No. 80, Blending Requirements for Certain Component Units—An Amendment of GASB Statement No. 14 – This Statement amends Statement No. 14, The Financial Reporting Entity, as amended, to require blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member.  However, the additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units.

                GASB Statement No. 82, Pension Issues—an amendment of GASB Statements No. 67, No. 68, and No. 73 – You may wonder what happened to Standard No. 81.  Did they void one?  No, the implementation date is just later, perhaps because additional time is needed to implement that one.  Also, this statement is another one with multiple implementation dates.  All but paragraph 7 are required to be implemented for periods beginning after June 15, 2016. 

Paragraph 7 requirements are effective for the employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017.  Paragraph 7 relates to the selection of assumptions.

But this standard was written to address certain items in the new pension standards that needed “tweaking”.  The “tweaked” items relate to:

1)      Presentation of payroll-related measures in required supplementary information--In Statements 67 and 68, it required presentation of covered-employee payroll, which was the gross payroll of employees provided with pensions.  This Statement amends that to define covered payroll as the payroll on which contributions to the pension plan are based, and applies that to ratios that use that measure.

2)      Selection of assumptions and treatment of deviations from guidance in an Actuarial Standard of Practice for financial reporting purposes – the statement clarifies that a deviation (as that term is defined in Actuarial Standards of Practice issued by the Actuarial Standards Board), from the guidance in an ASOP 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.

3)      Classification of payments made by employers to satisfy employee (plan member) contribution requirements – Clarification was made to note that payments made by an employer to satisfy contribution requirements identified as plan member contribution requirements should be classified as plan member contributions for purposes of Statement 67 and as employee contributinos for purposes of Statement 68.  It also requires that an employer’s expense and expenditures for those amounts be recognized in the period for which the contribution is assessed and classified in the same manner as the employer classifies similar compensation other than pensions (for example, as salaries and wages or as fringe benefits).

For periods beginning after December 15, 2016:

                GASB Statement No. 81, Irrevocable Split-Interest Agreements – Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments.  In these types of agreements, a donor transfers resources to an intermediary to hold and administer for the benefit of a government and at least one other beneficiary.  Examples include charitable lead trusts, charitable remainder trusts, and life-interests in real estate.

                The Statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement.  It also requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests.  The government would recognize revenue when the resources become applicable to the reporting period.

 

Until next time….Thunder Up!

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The American Institute of Certified Public Accountants has released the latest edition of the Practice Aid Applying Special Purpose Frameworks in State and Local Governmental Financial Statements authored by firm Chairman Mike Crawford. Mike authored the original Practice Aid (formerly titled Applying OCBOA in State and Local Governmental Financial Statements) in 2003 and updated the Aid in 2012 and now again in 2015. The Practice Aid provides accounting, financial statement preparation and auditor reporting guidance for governmental entities electing or required to apply a special purpose framework, such as cash basis, modified cash basis or regulatory basis of accounting in the preparation of their financial statements.

The 2015 edition of the Practice Aid is available for purchase from the AICPA Store.  

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Posted by on in Accounting Chat

It’s that time of year when many people take vacations.  Mine is next week as a matter of fact.  But there’s no vacation for the Governmental Accounting Standards Board.  They are still hard at work.  Another accounting standard was approved in June that simplifies the “ladder of importance” of GAAP (generally accepted accounting principles) for governments.  GASB Statement No. 76 – The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments basically reduces the categories of authoritative GAAP from four down to two.  Those two categories are:  1)  GASB Statements and 2) GASB Technical Bulletins, GASB Implementation Guides, and AICPA guidance that is cleared by GASB.  Also, Statement No. 76 discusses what to do when a particular issue is not covered by those two categories of authoritative GAAP.  You can download this standard, as well as the other standards adopted in June, on GASB’s website:  www.gasb.org.  I already have my copy.  Be back in a week to read it—after vacation, of course.    

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Posted by on in Accounting Chat

The Governmental Accounting Standards Board (GASB) has issued three new statements that will improve accounting and financial reporting for postemployment benefits other than pensions (OPEB), mainly retiree health insurance, and pension plans outside the scope of GASB 67 and 68.  That brings the total statements issued by GASB up to 75.  The specific titles and effective dates of these new statements are:

 

                GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68 and Amendments to Certain Provisions of GASB Statements 67 and 68 – effective for fiscal years beginning after June 15, 2015—except those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68, which are effective for financial statements for fiscal years beginning after June 15, 2016.

 

                GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans – effective for fiscal years beginning after June 15, 2016.  This statement applies to OPEB plans and basically parallels GASB Statement 67 and replaces GASB Statement 43. 

 

                GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions – effective for fiscal years beginning after June 15, 2017.  This statement applies to government employers who provide OPEB plans to their employees and basically parallels GASB Statement 68 and replaces GASB Statement 45.

 

 

These standards will be available for download on GASB’s website, www.gasb.org, in late June 2015.  Stay tuned for more details as they become available.

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