GASB Report - March 2014

Articles from the GASB Report

Board Meeting Highlights

The GASB held public meetings February 10 (via teleconference), March 3–5, and March 25, 2014 (via teleconference), to discuss issues associated with its projects on Conceptual Framework—Measurement, Other Postemployment Benefits (OPEB), Fair Value Measurement and Application, Fiduciary Responsibilities, Tax Abatement Disclosures, and Leases. 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.) In addition, the Board discussed a potential project addition to its current technical agenda at its March 25 meeting (see related article).

Conceptual Framework—Measurement

The Board reviewed a “preballot” draft of a Concepts Statement on the measurement of assets and liabilities. The Board directed the staff to prepare a ballot draft. At the March teleconference, the Board voted to approve the Concepts Statement by a 5-2 vote. The final Concepts Statement will be available on the GASB website in mid-April. (More information about this project can be found here.)

Other Postemployment Benefits

The Board’s discussion of OPEB focused on three issues: the alternative measurement method; cost-benefit analysis, and potential amendments to Statement No. 67, Financial Reporting for Pension Plans and Statement No. 68, Accounting and Financial Reporting for Pensions. The Board also reviewed preballot drafts of three Exposure Drafts prepared for this project and directed the staff to prepare ballot drafts of each. These ballot drafts are expected to be voted on by the Board at its May meeting. If approved, the Exposure Drafts are expected to be posted to the GASB’s website late in the second quarter of 2014 and will have a 90-day comment period. Public hearings are planned in conjunction with the Exposure Drafts; details can be found in the front of the documents.

Alternative Measurement Method

Under the existing OPEB standards, governments in single-employer and agent multiple-employer OPEB plans with fewer than 100 members may employ an “alternative measurement method” to measure their OPEB liability, rather than obtain an actuarial valuation. Previously in this project, the Board had tentatively decided to retain the alternative measurement method for these small OPEB plans. (The Board’s tentative decisions thus far in the OPEB project can be viewed here.) At its March meeting, the Board discussed what governments using the alternative measurement method should do if experience data on the covered group is not available. The Board tentatively agreed that, as a default for assumptions about employee turnover, these governments should use withdrawal rates by gender, age, and years of service in the most recently available annual report of the Civil Service Retirement and Disability Fund.

Cost-Benefit Considerations

A part of the analysis that supports the individual decisions made by the Board throughout a project is a consideration of the associated costs and benefits. The Board’s guiding principles require that it set standards only when the benefits are expected to outweigh the costs. Prior to issuing a proposed or final document, the Board also discusses the overall balance of the expected costs and benefits for complete proposed or final standards the document contains. The Board separately discussed the expected benefits and perceived costs related to the three Exposure Drafts it is preparing to issue on (1) accounting and financial reporting for OPEB, (2) financial reporting for OPEB plans, and (3) accounting and financial reporting for pensions and financial reporting for pension plans that are not administered through trusts that meet specified criteria. The Board tentatively agreed that subject to additional information that will be obtained as the result of due process, including a scheduled field test, the expected benefits of information to stakeholders from the proposed standards exceed the anticipated costs to preparers and users.

Amendments to the Pension Standards

The Board tentatively agreed to propose clarifying amendments to Statements 67 and 68 addressing requirements related to: (1) notes to required supplementary information schedules for pension plans; (2) payables to the pension plan; (3) employers that have a special funding situation and receive support from nonemployer contributing entities that are not in a specific special funding situation; and (4) revenue recognition for the support of nonemployer contributing entities that make contributions that are not legally required.

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 fair value disclosures in the notes to the financial statements. The Board also deliberated issues surrounding transition, effective date, and cost-benefit considerations.

Note Disclosures

The Board tentatively agreed to propose that fair value disclosures should be organized by type or class of asset or liability, as discussed and using the criteria set forth in the Preliminary Views. Regarding recurring measurements of fair value, the Board tentatively reaffirmed its preliminary view that governments should disclose the following: the fair value measurement at the end of the reporting period, the level of the fair value hierarchy within which the fair value measurements are categorized (Level 1, 2, or 3 as defined in the Preliminary Views), a description of the valuation techniques, if there has been a change in valuation technique, and the reason for making the change. For nonrecurring measurements, governments also would be required to disclose the reason for the measurement.

Level 3 inputs into the measurement of fair value are derived by a government and are not publicly observable (such as quoted prices on a stock exchange). Consequently, fair value measurements that are based on Level 3 inputs are considered less reliable and require additional disclosures that explain how the government determined the fair value. The Board reviewed its proposed disclosures from the Preliminary Views and tentatively decided to eliminate two of its proposals based on stakeholder feedback.

First, based on the feedback received from respondents to the Preliminary Views, the Board tentatively concluded that the benefits of the proposed disclosure of quantitative information about the significant unobservable inputs used in the fair value measurements of Level 3 investments do not exceed the related costs and therefore the disclosure should not be required. The Board believes that the risk disclosures required by Statement No. 40, Deposit and Investment Risk Disclosures, adequately address the need for certain of this information. Second, the Board considered stakeholder comments questioning the decision usefulness of disclosure of a narrative description of the sensitivity of fair value measurements to changes in unobservable inputs used in the measurements of Level 3 investments. The Board tentatively decided not to propose this disclosure when it issues an Exposure Draft.

Transition and Effective Date

The Board tentatively decided to propose that governments recognize the change in value when measuring an asset or liability at fair value for the first time due to adoption of the proposed Fair Value Statement as a cumulative effect restatement of beginning net position, fund balance, or fund net position, as appropriate, and that the nature of the restatement and its effect be disclosed. Most GASB pronouncements approach the transition from existing to new standards in this manner.

The tentative decisions made by the Board in this project would result in proposals that some assets and liabilities be measure differently than at present. The Board tentatively decided to propose the following:
  • Assets and liabilities that are currently measured at fair value but would be reported at historical cost based on the proposal may use fair value at transition if determining the actual historical cost is not practical.
  • Governments should recognize the change in value when an asset or liability currently measured at fair value is no longer required to be measured at fair value based on the proposal as a cumulative effect restatement.
  • The use of acquisition value in certain transactions should be applied prospectively to new transactions, and retroactive adjustment of transactions previously recognized at fair value is not necessary.
The Board tentatively decided to propose an effective date of periods beginning after June 15, 2015. The Board considered the timing of current standards that have not been implemented and other proposed standards when making this decision. In addition, the Board tentatively decided to propose that early application of the proposed Fair Value Statement be encouraged.

Cost-Benefit Considerations

The Board tentatively agreed that the expected benefits of its proposed standards on fair value outweigh the perceived implementation and ongoing costs. The Board considered due process comments regarding cost-benefit concerns on many issues throughout its deliberations of the proposed standards.

Fiduciary Responsibilities

The Board continued its deliberations of fiduciary responsibilities issues by discussing the reporting of pension and OPEB plans not administered through a trust agreement or equivalent arrangement. (The Board’s prior tentative decisions in this project can be found on the Fiduciary Responsibilities project page on the GASB website.)

The Board tentatively decided to propose that resources of pension and OPEB plans not administered through a trust agreement or equivalent arrangement set aside for the benefit of another government’s employees be reported in a custodial fund. The Board had previously tentatively decided that trust funds should be used only to report financial activities conducted in a trust agreement or equivalent arrangement; activities currently reported in a trust fund without such a trust agreement or in an agency fund would be reported in “custodial funds.”

Tax Abatement Disclosures

The objective of the Tax Abatement Disclosures project is to consider what disclosure guidance for governments that have granted tax abatements, if any, is essential to financial statement users. The Board received and discussed the results of staff research on the key issues of the project. Preliminary research findings were presented covering the following areas: nature and extent of tax abatements; commitments made in tax abatement agreements; user needs; and the availability of information. Formal deliberations are scheduled to begin in April. (For more information about the issues being considered in this project, visit the project page.)


The Board discussed leases both at the February teleconference and in March. The March discussion was conducted jointly with the members of the Federal Accounting Standards Advisory Board (FASAB) in Washington, DC. The topics considered included impairment of lease assets and the model for lessor accounting.


The Board had previously made a tentative decision that, when a government leases an asset, it should recognize an intangible asset related to its right to use the underlying asset. The Board tentatively decided to propose that if the asset underlying a lease is damaged and requires restoration or replacement, from the lessee’s perspective the time period during which the underlying asset is not usable generally is the relevant factor in assessing whether the intangible asset is impaired. This amended the Board’s previous tentative decision that a lessor’s responsibility to repair or replace an impaired underlying asset may indicate that impairment of the lease asset (right to use) will be temporary.

The Board also discussed how to measure and recognize the impairment of a lease asset. The Board tentatively decided to propose that, in general, a change in a lease liability should result in an equal adjustment in the lease asset. If the carrying value of the lease asset is reduced to zero, any further adjustments should be recognized in the flows statement. Specifically regarding impairment, the Board tentatively decided to propose that an impaired lease asset first be adjusted by any change in the corresponding lease liability, with any remaining adjustment recognized as the impairment loss.