Articles from the GASB Report
Board Meeting HighlightsThe GASB held a public meeting January 21 and 22, 2014, to discuss issues associated with its projects on Other Postemployment Benefits (OPEB), Leases, Conceptual Framework—Measurement, Fair Value Measurement and Application, and Fiduciary Responsibilities. This article addresses key decisions made by the Board during its deliberations on these projects. (For complete minutes of the Board meeting, visit the project pages devoted to each project on the GASB website.)
Other Postemployment Benefits
The Board’s discussion of OPEB focused primarily on reviewing first drafts of the standards sections of two Exposure Drafts for (1) accounting and financial reporting by employers for OPEB and (2) accounting and financial reporting by employers for pensions that are not administered through trusts. (Statement No. 68, Accounting and Financial Reporting for Pensions, applied only to pensions administred through trusts or equivalent arrangements.) In December 2013, the Board had reviewed a draft standards section for third Exposure Draft, on financial reporting by OPEB plans in their separately issued financial reports.
The Board directed the project staff to proceed with the preparation of preballot drafts for consideration at the March 2014 Board meeting. A preballot draft is generally the second-to-last version of a proposed or final pronouncement that the Board reviews prior to issuance.
Proposed effective dates for employer OPEB standards
Prior to reviewing the drafts, the Board continued a discussion from its December meeting on the effective date for the implementation of the proposed Statement on accounting and financial reporting for OPEB. The Board considered a proposal from a Board member that an effective date for employers that administer OPEB outside of qualifying trusts (or equivalent arrangements) that would be one year earlier than for those employers that administer OPEB through trusts. However, the Board tentatively decided that the proposed Statement for OPEB accounting and financial reporting would be effective for all employers for fiscal years beginning after December 15, 2016 (with earlier implementation encouraged), regardless of whether or not a trust (or equivalent arrangement) is used to administer the OPEB.
This tentative effective date would therefore be for fiscal years starting 18 months or more after the expected issuance of final Statements in June 2015. The Board believes that this is a sufficient period to prepare for implementing the standards while ensuring that financial statement users receive this important new information about OPEB as soon as is practicable. Many governments also should already have the experience of implementing similar changes in accounting and financial reporting when applying the new pension standards.
Proposed effective dates for OPEB plan standards
The Board modified its previous tentative decision for the effective date of the proposed Statement for OPEB plans from fiscal years beginning after June 15, 2016, to fiscal years beginning after December 15, 2015 (with earlier implementation encouraged). This change is consistent with the timing of the new pension standards that governments are currently implementing—Statement No. 67, Financial Reporting for Pension Plans, has an effective date one year earlier than the standards for employers, Statement 68.
Proposed effective dates for pensions administered without trusts
Lastly, the Board tentatively decided that the proposed Statement for accounting and financial reporting for pensions that are not administered through trusts (or equivalent arrangements) would be effective for fiscal years beginning after June 15, 2016, with earlier implementation encouraged.
Leases
The Board’s deliberations on accounting and financial reporting for leases covered several topics, including a lease expenses and presentation of lease assets and liabilities.
Lease expenses
The Board tentatively decided to propose that the existing guidance related to the accounting treatment for operating leases with scheduled rent increases be superseded. The Board also tentatively decided that payments for short-term leases that have a rent holiday or rent reduction provisions would be recognized as expenses based on the terms of the contract. Furthermore, the Board tentatively decided that lease payments not included in the liability measurement would be recognized as expense in the accrual-based flows statements (such as the government-wide statement of activities) in the period in which the obligation for those payments is incurred.
Lease assets and liabilities
The Board tentatively decided to propose that the lease asset—which represents a right to use an underlying asset, such as a building—is an intangible asset that would be accounted for in accordance with existing authoritative guidance for capital assets.
The Board also tentatively concluded that if there are indicators that the underlying asset is impaired (for instance, because of physical damage to the asset), it could mean the lease asset is impaired as well. This is because of the relationship between the underlying asset and the lease asset. The Board discussed further how a lessee would recognize and measure impairment of a lease asset, and requested the staff to provide a more detailed discussion at the February teleconference.
Regarding the presentation of lease assets and liabilities in financial statements, the Board tentatively decided to propose that existing guidance on presentation of capital assets would apply to the lease asset. The Board also tentatively decided that existing guidance on presentation of general long-term liabilities would apply to the lease liability and that the liability would be referred to as a long-term liability in a proposed Statement.
Conceptual Framework—Measurement
The Board concluded its review of feedback received on the June 2013 Exposure Draft, Measurement of Elements of Financial Statements, at this meeting. Based on that feedback, the Board tentatively decided to include in the final Concepts Statement the following three views proposed in the June 2011 Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches:
- Initial amounts are more appropriate for assets that are used directly in providing services.
- Remeasured amounts are more appropriate for assets that will be converted to cash (for example, financial assets).
- Remeasured amounts are more appropriate for variable-payment liabilities, such as compensated absences or pollution remediation obligations.
Fair Value Measurement and Application
The Board continued its redeliberations of issues addressed in the June 2013 Preliminary Views, Fair Value Measurement and Application, concentrating on due process comments related to the application of fair value to assets and liabilities. Among the topics discussed were the definition of an investment and how to measure investments and certain other assets.
Definition of an investment
The Board tentatively reaffirmed its preliminary view that the definition of investment would be “a security or other asset that a government holds primarily for the purpose of income or profit, and its present service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry.” The last phrase was originally included because it was believed that some practitioners might not consider certain assets as investments if they were traded directly for goods or services, instead of sold for cash to pay for those goods or services. Some commenters and some participants in the field test of the Preliminary Views expressed confusion regarding the meaning of the phrase, and relevant examples of such an investment could not be identified. In response, the Board tentatively decided to delete the phrase “to procure services for the citizenry” because it is already encompassed in the remaining portion of the tentative definition.
Measurement of investments and other assets
The Board tentatively affirmed its preliminary view that investments generally should be measured at fair value (with certain exceptions). The Board tentatively affirmed its preliminary view that life settlement contracts would be measured at fair value. In response to a due process comment requesting clarification, the Board tentatively agreed that in a life settlement contract, the government would be the contract or policy holder. After considering due process feedback, the Board tentatively affirmed its preliminary view that the notion of a matched position or matched maturities should not be a basis for an exception to fair value.
Based on comments regarding limitations to the use of the equity method for measuring investments in common stock, the Board tentatively agreed that the equity method generally may be applied by governments and to investments in common stock, unless specifically excluded. For instance, governmental external investment pools and defined benefit pension OPEB plans are required to value investments in common stock at fair value. Investments in certain entities (such as hedge funds) that calculate net asset value per share (or its equivalent) also would not be eligible for the equity method of accounting.
The Board tentatively reaffirmed its preliminary view that fair value would be replaced by acquisition value for the measurement of assets in certain transactions. The Board received due process comments expressing concern that the cost of determining acquisition value is not justified by the perceived benefits. The Board tentatively concluded, however, that the cost of measuring acquisition value is similar to the cost of estimating fair value.
Fiduciary Responsibilities
The Board discussed several topics regarding the Fiduciary Responsibilities project, including how to define and report agency funds in general purpose external financial reports, how to report fiduciary activities for which no trust agreement is present, and whether commitments in a fiduciary fund should be reported as liabilities or restricted net position.
Classifying fiduciary activities
The Board tentatively decided that the classification of fiduciary activities would be based on whether a trust agreement or equivalent arrangement is present. If a trust agreement or equivalent arrangement is present, the fiduciary activities would be reported in a pension (or other employee benefit) trust fund, investment trust fund, or private-purpose trust fund, as appropriate. (Tenative definitions of these trust fund types can be found on the Fiduciary Responsibilities project page on the GASB website.)
To report fiduciary activities not governed by a trust agreement or equivalent arrangement, the Board tentatively decided to propose establishing a new fund type, “custodial funds.” This new fund type would include activities now reported in agency funds and certain funds previously classified as trust funds but for which there is no trust agreement or equivalent arrangement.
Custodial Funds
The Board tentatively decided that a government with custodial fund activities meets the Board’s tentative definition of a fiduciary. (See the project page for more details about how the Board has tentatively defined a fiduciary and fiduciary responsibility.) The Board also tentatively decided that governments meeting the proposed definition of a fiduciary would report their custodial funds in general purpose external financial reports.
Reporting commitments in fiduciary funds
The Board discussed whether fiduciary fund assets should be recognized with a corresponding restriction of net position or a liability. The Board tentatively decided to propose that a commitment in a fiduciary fund would be recognized and reported as a liability only when the event giving rise to the liability has occurred. Otherwise, the commitment would be recognized and reported as net position restricted for beneficiaries.