Higher Education Accounting Workshop -...

Higher Education Accounting Workshop

GASB Track

Introductions

Brent StevensNational Practice Leader –Colleges & [email protected]

Corey RobinsonManagerColleges & [email protected]

Chester MoyerPartnerColleges & UniversitiesFormer Adjunct Faculty – Rockhurst [email protected]

“Start to Finish” Financial Statements for a Public University

Implementation of new GASB’s

Areas to watch out for from our experience

PLEASE share your stories throughout our discussion!

Agenda and Expectations

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Businesses vs. Exempt-Organizations

For-Profit, Not-for-Profit & Public Universities

FASB vs. GASB

Overview of the Industry

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Comparability of information – 2 year schools to Comprehensive research

Core activities

Communication flow at an institution of higher education

Utilization of ERP systems

Overview of the Industry

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What Entity’s Should be Included?

Who Uses this information?

Core components MD&A

Statement of Net Position

Statement of Revenues, Expenses and Changes in Net Position

Statement of Cash Flows

Notes to Financial Statements

Financial Statements

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MD&A Provide objective and easily readable analysis

Brief discussion on the basic financial statements

Significant differences and variances

Looking forward section

Financial Statements

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Some information was pulled directly from the GASB standards and implementation guides available online.

Additional sources include the following:

Governmental Accounting, Auditing, and Financial Reporting Blue Book

NACUBO Financial Accounting and Reporting Manual for Higher Education

Source of information

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Cash

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Cash and cash equivalents are defined as short-term, highly liquid investments that are both Readily convertible to known amounts of cash.

So near their maturity that they present insignificant risk of changes in value because of changes in interest rates.

Generally, only investments of original maturities of three months or less meet this definition. If your school had a June 30th year-end, how would you classify a Certificate of

Deposit (CD) at June 30th, 2018 that your school purchased on January 31st, 2018 and had a scheduled maturity of 6 months, maturing on July 31st, 2018?

GASB Definition

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Q—Most CDs are characterized in paragraph 8 of Statement 31 as nonparticipating interest-earning investment contracts. What disclosure requirements apply to nonparticipating interest-earning investment contracts?

A—A nonparticipating interest-earning investment contract is not negotiable and has redemption terms that do not consider market rates. That form of CD is a type of investment that is a deposit. The required disclosures for deposits, such as those about deposit policies and custodial credit risk (paragraphs 6 and 8 of Statement 40, respectively), should be made.

GASB Implementation Guide Question 2016-1: 4.5

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Cash transactions are among the most common transactions made by any entity.

Generally, accounting systems have automated functionality to track disbursements and some systems assist in tracking and applying cash receipts.

Often schools still have to make significant manual journal entries to account for electronic cash receipts or cash disbursements.

Accounting for Cash Transactions

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Bank reconciliations are generally completed at least monthly. Accounting standards require that cash be reconciled to include outstanding

disbursements and deposits in transit.

Most common errors in reconciliations of cash:

Exclusion of electronic disbursements from the general ledger.

Lack of evaluation of credit card transactions near month-end.

Common controls around cash include the following: Review of bank reconciliations by an appropriate supervisor.

Proper segregation of duties around cash processing

Robust policies around electronic transactions including wires

Adequate training on cash policies, procedures, and risk assessment

Should include evaluation of current industry fraud trends

Accounting for Cash Transactions

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Legal or contractual restrictions for deposits must disclose Legislation or contractual terms that governs the restricted cash

Restricted cash must also be presented separately on the Statement of Net Position

Custodial party criteria

Information about deposits as of the balance sheet date and during the period include: Deposits that are exposed to custodial credit risk

Includes evaluation of FDIC Insurance coverage or collateralization

Deposits that are exposed to foreign currency risk

Deposit policies related to custodial credit risk and foreign currency risk. If no policy exists, that fact must be disclosed.

Disclosures

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Investments

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Investments are defined as a security or other asset that is both Held by a government primarily for the purpose of income or profit.

Has the ability to generate cash or to be sold to generate cash.

The definition of whether an asset is an investment is generally determined at the time of acquisition. An asset that is used in operations and then later held for sale should not be

reclassified as an investment.

In addition, GASB establishes different reporting and disclosure standards for Investments other than external investment pools

External investment pools

GASB Definition

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Q—A university owns a five-story office building. Three floors are occupied by university departments, and two floors are leased to a retail merchant for the sole purpose of rental income. How should the building be classified?

A—The classification of the office building depends on the unit of account determined by the university’s accounting policy that reflects the level of aggregation or disaggregation of the university’s real estate properties for measurement, recognition, and disclosure purposes. If the unit of account is the building, the building would not meet the definition of an investment because the present service capacity of the building is not based solely on its ability to generate cash. In that circumstance, the building would be classified as a capital asset. If the unit of account is individual floors, the floors occupied by the city should be classified as capital assets, and the leased floors that meet the definition of an investment should be classified as such.


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An arrangement that commingles (pools) the moneys of more than one legally separate entity, and invests, on the participants’ behalf, in an investment portfolio; one or more of the participants is not part of the sponsor’s reporting entity.

An external investment pool can be sponsored by an individual government, jointly by more than one government, or by a nongovernment entity. State investment pools are common

External Investment Pools

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If a government sponsored pool includes only the primary government and its component units, it is an internal investment pool and not an external investment pool.

In the public college and university environment, a portion of an institution’s investment pool may be classified as an external investment pool when the institution pools investments of a related foundation, booster club, or alumni association in the common university pool and those related entities are not included in the college’s reporting entity as component units. Generally, the majority of foundations of public colleges and universities are

included as component units of the college and university.

External Investment Pools Cont.

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Investments held by external investment pools are generally reported at fair value unless they meet very specific criteria established by SGAS 79.

The criteria as specified in SGAS 79 to report external investment pools at amortized cost include a stable net asset value per share for participant contributions and redemptions, and stringent portfolio maturity, quality, diversification, and liquidity requirements.

External Investment Pools Cont.

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Q—A university has an investment position in an external investment pool. How should the university’s investment position be categorized within the fair value hierarchy for purposes of the note disclosure requirement in paragraph 81a(2) of Statement No. 72, Fair Value Measurement and Application?

A—If the external investment pool is compliant with paragraph 4 of Statement No. 79, Certain External Investment Pools and Pool Participants, and for financial reporting purposes elects to measure all of its investments at amortized cost, the university’s investment position should not be measured at fair value. Instead, it should be measured at amortized cost in accordance with paragraph 41 of Statement 79 and, thus, should not be categorized within the fair value hierarchy for purposes of paragraph 81a(2) of Statement 72.


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Purchased investments are recorded initially at cost, including brokerage and other transaction fees.

Contributed investments are recorded at the fair value as of the date of the gift. The initial recording of the investments must be made in the appropriate net position category if the investment’s purpose includes or excludes restrictions. An investment is purchased by a donor on August 1st, 2017 at a cost to the

donor of $100,000. On December 27th, 2017 the donor donates the investment to a university with a fair value of $110,000 at that date. Subsequently, the University sells the investment on March 31st, 2018 for $100,000. How would this contribution and sale be accounted for?

Assume the investment instead was held until the financial statement reporting date of June 30, 2018 and the donor specified that the proceeds from the investment must be used for construction of a new facility for which construction had not started. How should this be reported on the statement of net position?

Initial Recording of Investments

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Investment income is not required to be recorded by type, such as dividends, interest, rents, or royalties.

Generally, public colleges and universities are required to use accrual accounting. Accordingly, dividends are recognized when declared and interest income is recognized as earned. Often accrued interest noted on investment statements is not accounted

for appropriately.

In practice, however, many institutions account for dividends and interest on a cash basis. Often these items are tracked on the cash basis throughout the year and

then adjusted for accrual presentation of the statement of net position date.

Investment activity can be reconciled daily; however, many schools account for this activity on a monthly basis when statements are received.

Recording Investment Income

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Q—Can all investment income—interest, dividends, and changes in fair value—be aggregated and reported as investment income in the change statement, or should the components of investment income be reported separately?

A—All components of investment income may be presented as an aggregate amount, even for defined benefit pension plans, as provided for in paragraph 23 of Statement 67.


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With very few exceptions as noted below, investments are reported at fair value and unrealized gains and losses on such investments are reported together with realized gains and losses.

Investments covered under this requirement include: Debt securities

Equity securities, option contracts, stock warrants, and stock rights that have readily determinable fair values.

External investment pools

Interest-earning investment contracts

Life settlement contracts,

Land and other real estate held as investments by true and term endowments.

Open-end mutual funds

Measurement

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Investments not subject to fair value reporting requirements are: Ownership interests recorded using the equity method of accounting

Investments in life insurance contracts (reported at cash surrender value)

Nonnegotiable certificates of deposit with redemption terms not affected by market rates, provided that the value is not significantly impaired by the credit standing of the issuer or other factors.

Measurement Cont.

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Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” It is a measurement based on market conditions, not reporting-entity characteristics.

Per SGAS 72 ¶32 “Valuation techniques are used to determine fair value. A government should use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.”

Valuation

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The inputs used in various valuation techniques are categorized into a fair value hierarchy. Per SGAS 72 ¶32, the hierarchies are described as follows: Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in

active markets that a government can access at the measurement date.

Level 2 inputs are inputs–other than quoted prices included within Level 1–that are observable for an asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for an asset or liability.

Fair Value Leveling is required to be reported in the notes to the financial statements. Certain investments reported at Net Asset Value are not required to be included

in the leveling table.

Valuation Cont.

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Many of the deposits and investments that are subject to the disclosure requirements of Statements 3 and 40, as amended, and Statement 72 may be reported in the statement position/balance sheet using different titles. For example, some deposits and investments may be reported in the statement of net position/balance sheet as “cash and cash equivalents.” (See Question 1.26.6 in Implementation Guide 2015-1.) Others may be reported in the statement of net position/balance sheet using titles that do not identify their nature as deposits and investments. Regardless of how those securities are titled, if they meet the definition of an investment, they are subject to the measurement and disclosure requirements of Statements 3 and 40, as amended, and Statement 72.


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Q—Are cash equivalents subject to the fair value disclosure requirements of Statement 72?

A—Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, cash equivalents are measured at other than fair value (including amortized cost) and, consequently, are not subject to the fair value disclosure requirements of Statement 72. Specific exceptions to fair value measurement for some investments are described in paragraph 69 of Statement 72. Examples of such investments include certain money market investments and nonparticipating interest-earning investment contracts, such as certain nonnegotiable certificates of deposit (CDs). If a cash equivalent is measured at fair value, the fair value disclosure requirements of Statement 72 apply.


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Q—Can resources held as restricted assets or in sinking or reserve funds be considered investments under the provisions of Statement 31, as amended, and Statement 72?

A—Yes. The definition of an investment in paragraph 64 of Statement 72 applies to restricted assets, sinking funds, and reserve funds that include securities or other assets acquired for income or profit, even if those assets are specifically purchased for a dedicated purpose, such as a debt service obligation. (See also Question 6.4.4 in Implementation Guide 2015-1.)


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Q—If a debt security is not actively traded, should a government measure the security at fair value, or can it use a cost-based method?

A—A government should measure the security at fair value. Lack of market activity does not prevent the government from determining the fair value of those securities. The determination of the fair value of a thinly traded debt security should be based on the requirements in paragraphs 45–48 of Statement 72.


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Q—What is the “one-year option” for money market investments and participating interest-earning investment contracts? How does the one-year option affect the valuation of those investments?

A—The one-year option in paragraph 9 of Statement 31 relates to money market investments and participating interest-earning investment contracts that have a remaining maturity at time of purchase of one year or less, provided that the fair value of those investments is not significantly affected by the impairment of the credit standing of the issuer or by other factors. Statement 31, as amended, allows those investments to be reported at amortized cost. Governmental external investment pools are prohibited from applying the one-year option for money market investments and participating interest-earning investment contracts. (See also Question 6.40.3 in Implementation Guide 2015-1.)


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Q—Entities other than governmental external investment pools may report money market investments or participating interest-earning investment contracts at amortized cost if they have remaining maturities of one year or less at the time of purchase. If a money market investment has a remaining maturity at date of purchase of 18 months but only 3 months at the date of the statement of net position, can it be reported using amortized cost?

A—No. The option in paragraph 9 of Statement 31 applies only to money market investments and participating interest-earning investment contracts that have a remaining maturity of one year or less at the time of purchase. Statement 31, as amended, does not provide for entities other than governmental external investment pools to change the valuation of a money market investment for financial reporting purposes from fair value to a cost-based measure.


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Q—Treasury bills and commercial paper do not pay interest but instead are purchased at a discount. How does fair value accounting treat income from non-interest-bearing investments?

A—Fair value accounting limits interest income to an investment’s stated interest or coupon rate. After such an investment is measured at fair value, the market takes into account accreted discounts. Accordingly, accretion or amortization of discounts is not necessary; amortization has already been considered in the net increase (decrease) in the fair value of investments. Notwithstanding the foregoing, Statement 31, as amended, allows many non-interest-bearing investments to be reported at amortized cost. Amortized cost issues are discussed in Questions 6.14.1–6.14.3 in Implementation Guide 2015-1.


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Increases in fair value, as well as certain decreases, should be reported as changes in unrestricted net assets unless restricted by donor, contractual, or other legal requirements.

Although interest income and fair value adjustments are allowed to be reported in the Statement of Revenue, Expense, and Changes in Net Position combined, colleges and universities should track these changes separately for proper Statement of Cash Flows disclosures.

Fair Value Measurement Adjustments

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Required Investment policies related to investment risk

Custodial credit risk

Concentration of credit risk

Interest rate risk

Foreign currency risk

Commitments to resell securities under yield maintenance repurchase agreements

Fair value measurement at the end of the reporting period

Fair value leveling tables

Expanded disclosures for investments reported at NAV

Disclosures

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Required Except for investments that are measured at the NAV per share, the level of the

fair value hierarchy within which the fair value measurements are categorized in their entirety.

The majority of US Government Agency Obligations are disclosed as Level 2 investments unless an active market can be identified for the specific security held.

A description of the valuation techniques used in the fair value measurement

If there is a change in valuation technique that has a significant impact on the result, that change and the reason for making it

Disclosures Cont.

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Identify the improper items included in the fair value leveling table below:

Should external investment pools be disclosed at fair value?

Investments Questions

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Quoted Prices In Signficant Other SignificantTotal As Of Active Markets For Observable Unobservable

December 31, Identical Assets Inputs Inputs2017 Level 1 Level 2 Level 3

Investments By Fair Value LevelCommon Stock

Technology 887,493$ 887,493$ —$ —$ Financial services 976,090 976,090 — — Utilities 219,889 — 219,889 — Basic materials 288,572 288,572 — — Services 756,383 756,383 — —

Total Common Stock 3,128,427 2,908,538 219,889 —

Private Equity Partnerships 3,000,000 — — 3,000,000

US Government SecuritiesFHMA 5,100,000 — — 5,100,000 FHLB 10,200,000 — — 10,200,000

Total US Government Agency Obligations 15,300,000 — — 15,300,000

Investments By Fair Value Level 21,428,427$ 2,908,538$ 219,889$ 18,300,000$

Investments At Net Asset ValuePrivate Equity Partnerships 1,000,000$ Real Estate Commingled Funds 3,639,454

Total Investments Measured At NAV 4,639,454

Total Investments Value 26,067,881$

Fair Value Measurements Using:

Receivables

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A receivable is a financial instrument that gives the institution the right, and another party the obligation, to make a payment at a future date, generally of cash.

Student receivables arise from transactions related to tuition and fees.

Public institutions most commonly have the following typed of receivables Student accounts receivable

Student loans receivable

Pledges receivable

Grants and contracts receivable

GASB Definition

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The recognition of receivables frequently is driven by revenue recognition. Under the accrual basis of accounting, revenues are recognized when they have been earned and are measurable. This can include unbilled receivables. Excluding unbilled receivables is a common

error noted.

The initial measurement of receivables under GASB standards generally is equal to the revenue recognized or the carrying value of assets provided in exchange.

In situations involving nonexchange transactions, receivables should be recognized net of estimated uncollectible amounts. Examples would be pledges or grants for which an expectation that amounts are

uncollectible based on lack of resources from the donor or grantor.

Initial Recognition

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Generally collected within a fiscal year.

If receivables are outstanding when financial statements are prepared, the collectibility of the receivables should be determined and an allowance for doubtful receivables should be established or adjusted as necessary to reflect the impairment of the receivables. Adjustments to the allowance are recorded as a “scholarship discount and

allowance” and not as a bad debt expense.

Allowances are required to be reported in the notes to the financial statements.

Student accounts receivable are also often paid by federal student financial funding or other outside scholarships. G5 (federal drawdown system) and the universities accounts receivable related to federal funding should be reconciled monthly.

Student Accounts Receivable

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When a grant/scholarship is classified as an agency transaction, the institution will not record revenue for the funds received from the third party, or a revenue reduction or expense for the scholarship to the student. Instead, the funds received from the third parties as agent are recognized as a

liability until awarded to the student.

Generally, refunds are provided to students on a timely basis and minimal liabilities are required to be reported at the Statement of Financial Position date.

If a portion of tuition and fees are deferred because the instructional services were to be provided in a future fiscal year, a receivable would be recognized in the future period in which the classes were held. Example: Often schools are required to recognize a summer split

Student Accounts Receivable Cont.

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Common Question: What is an appropriate benchmark for an allowance on Student A/R?

Student Accounts Receivable Cont.

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Most institutional loan programs and certain federal loan programs operate as revolving funds. As loans are made and repayments are received, new loans are made with the

fund collected on the original loans.

Some programs allow for cancellation of the loans

A loan receivable is recognized and the student’s account receivable is reduced when the student signs the loan agreement.

Federal Loan Pool Programs: Federal Perkins Loan program (No disbursements can be made after June 30,

2018)

Health Professions and Nursing Student Loan

Student Loans Receivable

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Pledges receivable arise when donors voluntarily make promises to provide resources for use by public institutions without directly receiving value in exchange from the institution. Recognized when all eligibility requirements have been met.

Eligibility requirements include one or more of the following: Required characteristics of recipients

Time requirements

Reimbursements

Contingencies

Promised assets may include cash, securities, works of art and similar assets, real estate, equipment, and other kinds of capital assets and financial instruments.

Contributions Receivable

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Endowment pledges are not recognized by public institutions because, until the resources are received, the institution is unable to satisfy the time requirement that the endowment is maintained and not expended.

Other pledges are recognized as revenues and receivables when all eligibility requirements, including time requirements, have been met.

Accounting standards for public institutions neither require nor prohibit discounting pledges receivable for the time value of money.

Private and corporate pledges are often made through a school’s NFP foundation or related fundraising organization.

Contributions Receivable – Initial Recognition

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If a present value technique was used to measure an unconditional promise to give cash, the subsequent accruals of the interest element are accounted for as (contribution) revenue.

Receivables remain in accounting records at their original value, adjusted for expected uncollectibility. The uncollectibility of receivables should be reviewed at each reporting period

and the value of the allowance for doubtful accounts adjusted as necessary to ensure its adequacy.

Contributions Receivable – Measurement

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Higher education institutions routinely receive grants and contracts from the federal government and other entities to support research, training, or public service.

Grant and contract agreements must be reviewed individually to determine the correct reporting.

Most research grants are exchange transactions, but others are nonexchange transactions, and some have both exchange and nonexchange elements.

Grants and Contracts Receivable

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If the grantor stipulated that a school cannot qualify for resources without first incurring allowable costs under the grant program, the agreement is a reimbursement type or expenditure-driven grant. There is no receivable to be recognized until the school has met the grantor’s

requirements by incurring allowable costs.

For other grants and contracts that are nonexchange transactions, an institution recognizes a receivable when all eligibility and time requirements have been met. SGAS 33 provides the relevant guidance for these types of transactions.

The Federal Perkins Loan funding was accounted for by many public institutions as was allowed as a nonexchange transaction under this guidance.

Grants and Contracts Receivable – Initial Recognition

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An entry to recognize the uncollectibility of unbilled receivables reduces the grant and contracts revenue as the cost overruns, disallowed costs, and unfunded expenditures should never have been recognized as revenue.

Any expenses related to cost overruns, disallowed costs, and unfunded expenditures must also be moved from the grant or contract and charged to another funding source.

Uncollectable billed receivables for grants are recognized as bad debt expense as the amounts were originally deemed collectible. Some institutions charge the amounts written off due to uncollectibility to

academic or research departments; others charge the amounts to central administration.

Grants and Contracts Receivable –Measurements

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Receivables remain in the accounting records at their original value, adjusted for expected uncollectibility.

The collectibility of receivables should be reviewed at each reporting period and the value of the allowance for doubtful accounts adjusted as necessary to ensure its adequacy.

The allowance is increased when necessary to adjust the carrying value of receivables to the expected net realizable value.

Adjustments

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Often, uncollectible percentages are determined based upon historical estimates and are applied to accounts receivable to obtain an estimate of the allowance needed. This method is generally most acceptable when developing an allowance for

large numbers of similar accounts with small balances.

Often schools have developed historical allowance models based on collections of aged receivables.

When an individual account receivable balance is large or the account is unique, specific estimates of the collectibility are generally developed.

If after collection efforts are exhausted a specific receivable is identified as uncollectible, an entry is made to derecognize the receivable.

Adjustments Cont.

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Required: Disclosure of details of receivable balances and related allowances applied if not

disclosed within the statement of net position.

Disclosure of significant receivable balances not expected to be collected within one year from the date of financial statements

Disclosures

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Intangible Assets

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Assets that lack physical substance, are nonfinancial in nature, and have initial useful lives extending beyond a single reporting period.

Generally, intangible assets are classified as capital assets and subject to all recognition and disclosure requirements for capital assets.

GASB Definition

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Intangible assets are subject to amortization over the asset’s useful life. The useful life of an intangible asset arising from contractual or other legal rights is

limited to the expected life covered by contract or agreement.

Impairment Impairment for intangible assets is required to be evaluated at each reporting

date similar to the impairment evaluation required for capital assets. When impairment is evaluated, the intangible assets are reported at the lower of carrying value or fair value.

GASB Definition Cont.

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All intangible assets are generally required to be classified as capital assets.

An intangible asset must meet one of the following criteria before it is subject to recognition as a capital asset. It must be capable of being separated from the institution and sold, transferred,

rented, or exchanged, either individually or together with a related contract, asset or liability.

It must arise from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

Intangible Assets – Initial Recognition

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Capitalization of outlays for internally generated intangible assets is precluded unless the outlays are incurred after all of the following criteria have been met: Determination of a specific objective for the project and the nature of the service

capacity that is expected to be provided by the intangible asset upon the completion of the project

Demonstration of the technical or technological feasibility for completing the project so that the intangible asset will provide its expected service capacity

Demonstration of the current intention, ability, and presence of effort to complete or, in case of a multiyear project, continue development of the intangible asset.

Outlays incurred prior to meeting those criteria should be expensed as incurred.

Internally Generated Intangible Assets

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Additional recognition requirements apply to internally generated computer software.

The activities involved in creating software are grouped into three stages as follows: Preliminary Project Stage – The outlays during the preliminary stage are expensed.

Application Development Stage – Outlays during the application development stage are capitalized up to the point that the software is substantially complete and ready for its intended use. If data conversion is necessary to make the software operational, it is considered an activity of the application development stage and, therefore, capitalizable.

Post-Implementation/Operation Stage – Outlays in the post-implementation/operation stage are expensed as incurred. Data conversion that is not necessary to make the software operational should be expensed.

Internally Generated Computer Software

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Software Modifications Software modifications that increase the capacity or efficiency or extend the

application’s useful life are capitalized.

Other modification outlays are expensed as incurred, including outlays that do not

Result in upgrade or improvement or

Extend the useful life of internally developed software.

Internally Generated Computer Software –Cont.

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Deferred Inflows and Outflows of Resources

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Deferred Inflow An acquisition of net assets by the government that is applicable to a future

reporting period.

Deferred Outflow A consumption of net assets by the government that is applicable to a future

reporting period.

GASB Definition

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Per SGAS 63, public colleges and universities are to present deferred inflows of resources and deferred outflows of resources in separate sections within the statement of net position.

Contrasted with assets and liabilities, deferred outflows are resources consumed that do not have a present service capacity. Deferred inflows represent resources received that do not represent an obligation to perform in the future.

The use of the term deferred is limited to items reported as either deferred inflows and outflows. The term “unearned revenue” has replaced “deferred revenue”, and “prepaid expenses” is an acceptable substitute for “deferred expenses”.

Presentation

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Deferred Inflows Receipts of cash or other assets as contributions with stipulations that they be

used in future periods

Sale and leaseback transactions

Service concession arrangements when the public university is the transferor

Split-interest agreements (SGAS 81, effective FY18)

When the Public Institution is the intermediary and has a lead or remainder interest

When the Public Institution is not the intermediary, the agreement contains specific criteria, and the institution has a lead or remainder interest

Transactions or adjustments related to defined benefit pension or OPEB plans

Current or advance refunding of debt resulting in defeasance, the difference between the reacquisition price and the carrying amount of the old debt

Transactions that Generate Deferred Inflows and Outflows of Resources

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Deferred Outflows Current or advance refunding of debt resulting in defeasance, the difference

between the reacquisition price and the carrying amount of the old debt

Loan origination fees

Transactions or adjustments related to defined benefit pension or OPEB plans

Changes in fair value for derivatives that effectively hedge an identified financial risk associated with a hedgeable item.

Transactions that Generate Deferred Inflows and Outflows of Resources

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Disclosure related to deferred inflows/outflows related to net pension obligations:

Presentation in the statement of net position:

Deferred Inflows/Outflows Examples

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Deferred Outflows Deferred InflowsOf Resources Of Resources

Difference between actual and expected experience —$ 1,300,000$ Net differences between proejcted and actual

earnings on investments — 1,500,000 Changes in assumptions 150,000 450,000

150,000$ 3,250,000$

Deferred Outflows Of ResourcesDeferred outflow - pension 8,262,769Deferred amount on refunding 86,999

Total Deferred Outflows Of Resources 8,349,768

LiabilitiesAccounts payable 3,928,558Accrued interest payable 3,329,590Accrued compensation 735,750Other 22,105Due to other entities 378,103Long-term liabilities:

Due within one year 24,043,737 Due in more than one year 112,092,618Net pension liability 34,661,451

Total Liabilities 179,191,912

Deferred Inflows Of ResourcesDeferred inflow - pension 4,366,418

Total Deferred Inflows Of Resources 4,366,418

Q—If no trust (or equivalent arrangement) that meets the criteria in paragraph 3 of Statement 74 has been established for a defined benefit OPEB plan, is OPEB plan reporting required?

A—No. If the OPEB plan is not administered through a trust (or equivalent arrangement) that meets the criteria in paragraph 3 of Statement 74, there is no OPEB plan reporting (that is, a statement of fiduciary net position, a statement of changes in fiduciary net position, notes to basic financial statements, or RSI for the OPEB plan in accordance with the requirements in paragraphs 19–57 of Statement 74). However, paragraphs 58 and 59 of Statement 74, as applicable, establish reporting requirements for any assets accumulated for OPEB purposes. Specifically, those paragraphs require that such assets continue to be reported as assets of the employer or nonemployer contributing entity associated with the OPEB plan and provide that if a government holds such assets for others, they be reported in an agency fund.


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Q—Are workers’ compensation benefits considered OPEB for financial reporting purposes?

A—No. Workers’ compensation benefits are not provided as compensation for employee service. Therefore, they do not meet the definition of a postemployment benefit and should not be classified as OPEB for financial reporting purposes. Rather, for benefits that are not OPEB, Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, as amended, establishes requirements for insurance-related activities associated with risks of loss from “job-related illnesses or injuries to employees” (paragraph 1e of Statement 10). Therefore, workers’ compensation benefits should be accounted for in accordance with the requirements of that Statement, as amended.


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Capital Assets

71

Capital Assets – Land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure and all other tangible and intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period.

Infrastructure Assets – Long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. Roads, bridges, tunnels, drainage systems, water and sewer systems, dams and

lighting systems

Parking lots, fencing and gates, athletic fields, and yard lighting are considered land improvements not infrastructure assets

GASB Definition

72

Investment in capital assets, net of related debt consists of capital assets, as defined in SGAS 34, including restricted capital assets, reduced by accumulated depreciation and the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of

the debt attributable to the unspent proceeds should not be included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt should be included in the same net assets component as the unspent proceeds—for example, resources restricted for capital projects would be reported in restricted expendable for capital projects.

Debt service reserves and the related portion of the debt issuance from a capital related debt issuance should be reported as restricted expendable for debt service and not included in the calculation of net investment in capital assets.

Net Investment in Capital Assets

73

Consider the following: A University has $50,000,000 in capital assets net of accumulated depreciation.

The University currently has $25,000,000 in outstanding bond proceeds outstanding issued for construction of capital projects of which $20,000,000 has been spent on construction.

The remaining $5,000,000 in bond proceeds remains in a restricted cash escrow account.

No other capital assets or borrowings exist related to capital assets.

What amount should be reported as net investment in capital assets?

What amount would be reported as restricted for capital projects related to this transaction?

Net Investment in Capital Assets Question

74

The cost of capital assets, other than infrastructure and collections, acquired or constructed must be capitalized. Capitalized interest, freight, transportation costs, site preparation costs and

professional fees

If donated, capital assets should be recorded at their estimated fair market value at the date of the gift.

Capital assets can also be acquired through capital lease agreements.

Initial Recognition

75

Q—A historical treasure donated 10 years ago was not recorded. Its acquisition value, determined as of the date of the donation, was $500,000. If the treasure instead had been donated in the current year, it is estimated that its acquisition value would be $1,500,000. When this asset is initially reported in the current year as a correction of an error, should it be reported at $500,000 or $1,500,000?

A—Donated assets should be reported at acquisition value, which is determined as of the date of donation, as stated in paragraph 79 of Statement 72. The value of $500,000 is the appropriate amount at which to report the donated historical treasure in the current year.


76

Q—A university purchased land from another government for the sum of $1. How should the city report this acquisition?

A—The purchase price of $1 does not meet the definition of an exchange transaction as defined in paragraph 1 of Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. An exchange transaction is one in which each party receives and gives up essentially equal values. The substance of the transaction is that the city received a donation of land (a nonexchange transaction), and the city should report the land at acquisition value as required by paragraph 79 of Statement 72.


77

Equipment – Each institution should adopt a policy establishing the minimum amount at which equipment should be capitalized Uniform Administrative Requirements requires that institutions recovering costs

from the federal government through sponsored projects agreements capitalize all equipment costing more than $5,000; institutions may, however, choose to use a lower threshold.

Library Books – If deemed to be capital assets, library books should be capitalized at their purchase price plus transportation and any incidental costs.

Collections – Institutions should report collections acquired in exchange transactions at cost and those acquired through nonexchange transactions at fair value.

Initial Recognition Cont.

78

Works of art, historical treasures, or similar assets may or may not be capitalized depending upon institutional policy if they are Held for public exhibition, education, or research in furtherance of public service

rather than financial gain

Protected, kept unencumbered, cared for, and preserved and

Subject to organizational policy that requires the proceeds of items that are sold to be used to acquire other items for collections

Works of art, historical treasures, and similar assets that do not meet the above definition are not considered collections and must be capitalized.

Collections

79

A capital lease is a lease that, at its inception, meets any of the four following criteria The lease transfers ownership of the property to the lessee by the end of the lease

term.

The lease contains a bargain purchase option which SGAS 62 defines as “a provision allowing the lessee the option to purchase the leased property for a price that is sufficiently lower than the expected fair market value of the property at the date the option becomes exercisable.”

The lease term is equal to 75 percent or more of the estimated economic life of the leased property.

The present value at the beginning of the lease term of the minimum lease payments, excluding executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by or expected to be realized by the lessor.

Capital Leases

80

Capital lease agreements are accounted for as the purchase of an asset through the incurrence of debt financing. Both the asset and the obligation are recorded at an amount equal to the

present value at the beginning of the lease term of the minimum lease payments, excluding executory costs such as insurance, maintenance, an taxes and excluding the lessor’s profit.

The capitalized leased asset should be depreciated in a manner similar to other purchased fixed assets. However, the depreciable life should be either the lesser of the useful life or lease

term.

Capital Leases Cont.

81

Capital lease arrangements in which no stated interest rate exists require that interest be imputed.

Methodologies

Concept of imputed interest revolves around the idea that companies would not lease property with capital lease terms without factoring in a lease price that incorporates the time value of money.

Imputation of Interest

82

GASB Statement No. 87

Title: Leases

Effective Date: For reporting periods beginning after December 15, 2019

Establishes a single approach to accounting for leases that will eliminate the current operating and capital lease classifications


A contract that conveys the right to use a nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction

The lease “term” is defined as the period during which a lessee has a noncancellable right to use the asset plus any options to extend or terminate if it is reasonably certain that the lease will continue

Lease Definition

85

Recognize a lease liability and an intangible asset at the beginning of a lease

Lease liability measured at present value of lease payments over the lease term

Intangible asset measured at the value of the lease liability plus any prepayments and certain indirect costs

Lease liability reduced as payments are made

Interest is accrued on lease liability

Intangible asset amortized to expense over shorter of the life of the underlying asset or the lease term

Lessee Accounting

86

Recognize a lease receivable and a deferred inflow of resources at the beginning of a lease

Underlying capital asset is still recognized by lessor

Lease receivable measured at present value of lease payments to be received over the lease term

Deferred inflow of resources measured at the value of the lease receivable plus any prepayments

Receivable is reduced as payments are received

Interest is earned on lease receivable

Deferred inflow is amortized to revenue over the life of the lease

Lessor Accounting

87

Lease component and nonlease component (e.g. service provisions) should be accounted for as separate contracts

Use stated contract prices for individual components as long as they do not appear unreasonable based on professional judgment

If no stated contract prices for the separate components, use professional judgment to determine best estimate

If not practicable to develop a best estimate, treat as a single lease unit

Leases With Multiple Components

88

A general description of the lease arrangement

Total amount of assets recorded under leases, and the related accumulated amortization (lessee)

The cost of assets on lease or held for leasing, by major class, and the amount of accumulated deprecation (lessor)

The amount of expense (lessee) or revenue recognized (lessor) during the period

Schedule of future lease principal and interest payments to be made or received in each of the five subsequent years and in five-year increments thereafter

Note Disclosures

89

SGAS 62 requires public institutions to capitalize interest during construction. The objective is to obtain a measure of acquisition cost that more closely reflects

the institution’s total investment in the asset.

The amount of interest that should be capitalized is determined by applying a capitalization rate to the average accumulated expenditures for the assets during the period.

If a public institution’s financing plans associate a specific new borrowing with a qualifying asset, the institution may use the interest cost of that borrowing. Only to that portion of the average accumulated outlays for the asset that does

not exceed the amount of that borrowing.

Capitalization of Interest

90

How much interest should be capitalized in the following scenario? A University decides to construct a new athletic facility expected to cost $20 million. In order to do so, the

University issues $15 million of construction related debt at an interest rate of 5% with the remainder to be paid by funding from the University’s foundation.

Construction starts at the beginning of the fiscal year and at the end of the fiscal year $14 million has been constructed.

How much interest should be capitalized in the following scenario? A University decides to construct a new athletic facility expected to cost $20 million. The University has

recently obtained debt financing in the amount of $3 million that is not specific for construction at 4% and has average outstanding draws on the line of credit of $3 million during the year at 5%. Additional financing is not needed for the construction of the facility

Construction starts at the beginning of the fiscal year and at the end of the fiscal year $14 million has been constructed.

Capitalization of Interest Question

91

Capital assets, other than infrastructure and except land, should be depreciated over their estimated useful lives unless they are inexhaustible.

Useful lives should be based upon the institution’s experience and plans for the assets. However, estimated useful lives also may be based on general guidelines provided by professional or industry organizations or similar public or private institutions. Estimated useful lives should also take into account the asset’s present condition

and the remaining time needed to meet service demands.

Under the modified approach, institutions are not required to depreciate eligible infrastructure assets. Instead, they may report all expenses as expenditures made on infrastructure in a period except for additions and improvements, which are capitalized.

Depreciation

92

When an asset’s ability to provide service is significantly reduced in a way that could not have been anticipated, that event should be recognized in the financial statements as an impairment loss.

An impairment loss has occurred if both The magnitude of the decline in services utility is significant

The decline in service utility is unexpected

Measurement Restoration Cost Approach – relies on estimates of the cost to restore the lost

utility of the asset

Service Units Approach – focuses on the historical cost of the lost service utility.

Deflate Depreciated Replacement Cost Approach – replicates the historical cost of the service produced.

Impairment

93

When property, plant, and equipment are disposed of, any gain or loss is calculated by comparing the undepreciated balance to the long-lived asset with any proceeds received.

Gains and losses on disposal would be shown as nonoperating gains or losses.

Derecognition

94

Required disclosures: Beginning and end-of-year balances with accumulated depreciation presented

separately from historical cost

Capital acquisitions

Sales or other dispositions

Current-period depreciation expense

With disclosure of the amounts charged to each of the functions if expenses are displayed on a functional basis in the statement of revenues, expenses, and changes in net assets

Disclosures

95

Accounts Payable and Accrued Liabilities

96

Public colleges and universities incur liabilities for goods and services in the same manner as other organizations.

Under accrual accounting when goods and services are received, a liability should be recorded, unless cash is paid immediately.

Public institutions should have procedures in place so that, at fiscal year end or whenever a statement of net position is prepared, accounts payable and accrued liabilities are recorded. Some institutions depending on size may track certain types of activities on a cash basis.

GASB Definition

97

Accrued Vacation

Accrued Payroll

Accrued Interest Payable

Accrued Employee Benefits Payable

Common Accrued Liabilities

98

Bonds and Notes Payable

99

Bonds and Notes Payable are generally long-term borrowings for which an institution borrows funds from another institution in order to fund certain operational or other costs of the institution.

Bonds and Notes Payable can be issued on short-term basis such as short term Notes Payable; however, issuance of short-term debt is not common for public universities and colleges.

GASB Definition

100

A public college or university may consider debt to be extinguished for financial reporting purposes when it: Repays or refinances its debt;

Is legally released from its primary obligation to pay the debt and it is probable that the institution will not be required to make future payments with respect to that debt under any guarantees; or

Completed an advance refunding that constitutes either a legal or an “in-substance” defeasance of the debt.

Repayment of debt is the most common method of extinguishment.

Extinguishment of Debt

101

Refundings involve the issuance of new debt whose proceeds are used to repay previously issued debt.

Current Refunding – Occurs when new debt proceeds are used to repay old debt immediately.

Advance Refunding – Occurs when the new debt proceeds are placed with an escrow agent and invested until they are used to pay principal and interest in the old debt at a future time. Most advance refundings will result in the defeasance of debt, either legally or in

substance, for public institutions that report as BTAs.

Debt Refundings

102

A legal defeasance occurs when debt is legally satisfied based on certain provisions in the debt instrument even though the debt is not actually paid. When debt is defeased, it is no longer reported as a liability in the statement of

net position; only the new debt is reported as a liability.

Debt is considered defeased in substance if the debtor irrevocably places cash or other assets in a trust with an escrow agent to be used solely for satisfying scheduled payments of interest and principal of the defeased debt.

The difference between the reacquisition price and the net carrying amount of the old debt should be deferred. This deferred amount should be amortized as an adjustment of interest expense

over the shorter of the remaining life of the old debt or the life of the new debt.

Defeasance

103

Bonds are sold at a premium when the effective interest rate in the market is lower than the stated interest rate on the bonds. Does not affect the amount paid in interest

Bond discounts result when the effective interest rate in the market is higher than the stated interest rate on the bonds. Increases interest expense

Premiums and Discounts

104

Bond issuance costs include various fees and commissions paid to investment banks, bond counsel, auditors, regulators and so forth. Those costs with the exception of prepaid insurance, should be recognized as an

expense when incurred.

Prepaid insurance should be recognized as an asset and an expense in a systematic and rational manner over the duration of the debt.

Bond Issuance Costs

105

Required disclosures: Beginning and end-of-year balances

Increases and decreases

The portion of each item that are due within one year of the statement date

Descriptions of individual debt issues including:

The general character and each type of debt

Interest rate

Date of maturity

Contingencies with respect to the payment of principal and interest

Debt service requirements to maturity and any significant financial bond covenants.

An indication of priority

Bonds authorized but unissued

Significant bond covenants and liquidity agreements

Disclosures

106

Unearned Revenues

107

Unearned revenue results from an exchange transaction in which resources haven been provided to an institution for services and goods that will be delivered in the future.

When advanced payments are received, a liability should be recorded until the institution provides the service. When the service is provided, the liability is eliminated and the revenue recognized.

GASB Definition

108

A common situation giving rise to unearned revenue exists for public institutions when instruction takes place over more than one fiscal year.

Determining when a public institution earns revenue from tuition remains a matter of professional judgement and institutional circumstances. The earnings process may be viewed as complete at several different points

during the semester.

The end of the drop-add period, the end of the refund period, or ratably over the semester.

An institution needs to review its circumstances to develop a rational policy that should be followed consistently and disclosed in the notes to the financial statements if material.

Measurement

109

An unearned revenue transaction that we see at many colleges and universities are “contributions” from food service providers in which the amount to be paid as a termination fee to the food service provider is amortized over the life of the contract based on the amount of the “contribution”.

In the above example, as the amount contributed is related to the continued use by the colleges and universities of the food service provider’s services, the transaction is considered to be an exchange transaction. Therefore the revenue would be considered to be earned over time as the amount of the termination fee declines.

Unearned Revenue Example

110

Net Position

111

Public colleges and universities are required to present an aggregated statement of net assets on an entity-wide basis. The purpose of the statement of net assets is to report the financial and capital resources of the entity. SGAS 34 requires that assets and liabilities be presented in a classified format distinguishing between current and noncurrent assets and liabilities. SGAS 34 also requires that public colleges and universities display net position in the statement of net position in three broad components. Invested in capital assets, net of related debt

Restricted (distinguishing between major categories of restrictions)

Unrestricted

Disclosures

112

Restricted net position represents the portion of net position subject to constraints placed on their use. Net position is reported as restricted when constraints placed on the use are either: Externally imposed by creditors (such as through debt covenants), grantors,

donors, or laws or regulations of other governments, or

Imposed by law through constitutional provisions or enabling legislation.

SGAS 34 also requires that net position be classified as restricted when restrictions on use change the nature or normal understanding of the availability of the asset. For example, if otherwise unrestricted resources are required to be segregated

and held in a separate bank account to be used only to pay debt service, the net position represented by such reclassification would be deemed to be restricted expendable.

Restricted Net Position

113

When an institution holds permanent endowments, restricted net position should be displayed in the statement of net assets in two components—expendable and nonexpendable. Restricted nonexpendable net position are those that are required to be retained

in perpetuity.

Restricted expendable net position include resources whose use is limited by external requirements.

Unless a donor specifies that net appreciation on endowments is to be added to principal, net position relating to such appreciation should be classified as restricted expendable. If applicable laws require a portion of net appreciation to be maintained in perpetuity (e.g., to maintain the endowment’s purchasing power), such appreciation is classified as restricted nonexpendable.

Restricted Net Position

114

Unrestricted net position consist of net position that do not meet the definition of restricted or invested in capital assets, net of related debt. In the governmental environment, net position often are displayed as designated to indicate that the governing body (e.g., the trustees) and/or management do not consider them available for general operations.

In contrast to restricted net position, these types of constraints on resources are internal, and governing bodies and management can remove or modify them. SGAS 34 prohibits the reporting of internal designations of net position on the face of the statement of net position, although it permits organizations to disclose those designations in the notes to the financial statements.

Unrestricted Net Position

115

Required disclosures: Net assets must be displayed in three broad categories:

Invested in capital assets, net of related debt

Restricted

Unrestricted

Restricted net assets must be reported when constraints placed on net asset use are either externally imposed by creditors, grantors, contributors, or laws and regulations

Institution must distinguish net assets between major categories of restrictions.

When permanent endowments are included in this component, restricted net assets must be further divided and displayed in two components

Expendable

Nonexpendable

Disclosures

116

Contingencies

117

Primary guidance related to accounting for contingencies by public institutions is provided by GASB Statement No. 62, paragraphs 96-113

GASB has provided guidance amplifying the requirements in two specific areas:1. Subsequent contravention of eligibility requirements or purpose

restrictions related to nonexchange transactions

2. Recourse and other obligations

Relevant GASB Guidance

118

An estimated loss from a contingency is recognized by a charge to net position if both of two conditions are met:

1. Information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements

2. The loss can be reasonably estimated

Gain contingencies are generally not recognized Exception – Insurance recoveries should be recognized when realized or

realizable

Initial Recognition & Measurement

119

Subsequent Contravention of Eligibility Requirements or Purpose Restrictions If eligibility requirements or purpose restrictions will not be met,

the institution should recognize a decrease in assets (or an increase in liabilities) and an expense equal to the amount expected to be canceled or reclaimed by the provider

Recourse and Other Obligations If knowledge of obligation existing as of the date of the

financial statements is obtained prior to the issuance of the financial statements, and the amount is easily estimable, the liability should be recognized

Initial Recognition & Measurement (con’t)

120

Various FASB and GASB pronouncements require disclosure of the existence of commitments and contingencies that could materially affect the financial condition of the entity

FASB Statement No. 5 sets standards for reporting contingencies

Disclosure is required if: There is at least a reasonable possibility that a loss has been incurred

for which no accrual has been made because the loss is not both probably and reasonably estimable, or

An exposure to loss exists in excess of the amount accrued

The institution is required to disclose the nature of the contingency and an estimate of the loss or range of loss or a statement that an estimate cannot be made

Required Disclosures

121

In addition to SFAS 5, public institutions are subject to additional disclosures, per GASB Statement No. 10 and Statement No. 30, which require disclosure of: Risks of loss to which the entity is exposes and the ways in which those risks of loss

are handled (e.g. purchase of commercial insurance, risk retention)

Significant reductions in insurance coverage from coverage in the prior year by major categories of risk

Whether the amount of insurance settlements exceeded insurance coverage for each of the past three fiscal years

If the entity participates in a public entity risk pool, a description of the nature of the participation, including the rights and responsibilities of the entity and the pool

A reconciliation of changes in the aggregate liabilities for claims in the current fiscal year and the prior fiscal year

Required Disclosures

122

Compensated Absences

123

GASB Statement No. 16 (SGAS 16) describes compensated absences as “absences for which employees will be paid, such as vacation, sick leave, and sabbatical leave.”

Under SGAS 16, a liability should be accrued for compensated absences that have been earned based on services already rendered and that are not contingent on a specific event outside the control of the employer or employee. The liability should be calculated based on the salary or pay rates in effect at the

balance sheet date, unless a lower amount is established by contract, regulation, or policy.

Other salary-related payments (Social Security, Medicare, employer contributions to pension plans) should also be accrued

Relevant GASB Guidance

124

Vacation Pay should be accrued as a liability if both of two conditions are met:

Employees’ rights to receive compensation are attributable to services already rendered.

It is probable that the employer will compensate the employees for the benefits through paid time off or some other means (i.e. cash payments at termination or retirement)

If a required vesting period is not met for certain employees, vacation pay should be accrued to extent that it is expected that benefits will be paid.


125

GASB considers sick leave taken because of illness to be outside the control of employee or employer. If a sick leave plan provides PTO for illness based on amount

accrued, but does not pay for accrued sick leave days upon termination/retirement – benefits are not accrued

If employees are to be paid some or all of their unused sick days at termination/retirement, benefits should be accrued based on estimates of what will be paid due to past performance.

Sick Leave & Other Compensated Absences with Similar Characteristics

126

SGAS 16 makes a distinction between sabbaticals provided for:

1. Service to be performed during the sabbatical (i.e. example research, public service, additional training) No accrual is made – payment during this type of sabbatical is

considered to be for services performed during the period

2. Unrestricted time off for past services This is considered for past services and should be accrued over time

Sabbatical Leave

127

Public colleges look to GASB No. 16 for guidance

Public institutions must look to the purpose of the leave to determine whether an accrual is required

If required, the amount should be based on the periods during which the rights to sabbatical leaves are earned and the probable amounts that will be paid to employees under the program

Sabbatical Leave

128

Pollution Remediation Obligations

129

Obligations to address the current of potentially harmful effects of existing and known pollution through participation in site assessments or cleanups

Ex) Obligations to clean up hazardous waste spills or remove contamination (such as asbestos)

Pollution remediation obligations can arise from both direct and indirect actions of an institution, as well as from actions from others (i.e. an institution may discover pollution on property previously acquired from another)

An institution that generates hazardous waste and engages a commercial concern to dispose of the waste may be found to be liable for actions of the commercial entity

If a problem is discovered at a disposal site, all entities utilizing the site can be deemed responsible parties, even if they complied fully with relevant regulations and exercised due care

GASB Statement No. 49 establishes guidance for recognition and measurement of pollution remediation obligations

Definition & Relevant GASB Guidance

130

Pollution remediation outlays include all direct disbursements attributable to pollution remediation activities

Ex) Payroll and benefits, equipment and facilities, materials, and professional services

Additionally, reasonable allocations of indirect outlays (general overhead) may be appropriate

The amount to include is a matter of professional judgment

Items specifically excluded: fines, penalties, toxic torts, workplace safety outlays, and litigation support related to potential recoveries


131

Liabilities for pollution remediation obligations are recognized at current value based on amounts expected to be incurred to settle the obligations

The current value should be based on reasonable and supportable assumptions about future events that may affect the eventual settlement of the liability

Expected cash flow technique is the prescribed method for measurement Ex. Estimated cash flow might be $300, $600, or $900 with probabilities of 10%, 60%,

or 30%.

The resulting liability would be $660 ($300 x 0.1) + ($600 x 0.6) + ($900 x 0.3)

Measurement of Liability

132

Institutions may opt to use only a limited number of scenarios (i.e. best case, worst case, and most likely case) even if they have access to considerable data about ranges of potential outcomes

If the institution is not able to identify the most likely potential cash flows, it may choose to use only two data points Ex. Assume a range of outlays from $4 million to $6 million, with no

amount being more likely than any other

In that case, the average of $5 million liability would be reported

Measurement of Liability (con’t)

133

Pollution remediation outlays are capitalized by public colleges and universities reporting only if the outlays are incurred under the following circumstances: To prepare property in anticipation of a sale

To prepare property for use when the property was acquired with known or suspected pollution expected to be remediated

To perform pollution remediation that restores a pollution-caused decline in service utility that was recognized as an asset impairment

To acquire property, plant, and equipment with a future alternative use

Capitalization

134

Remeasurement is required when new information indicates increases or decreases in estimated outlays

If remeasurement results in an increased liability, the increase would be capitalized or reported as an expense

If remeasurement results in a decreased liability, the decrease would be reported as revenue

Subsequent Recognition and Measurement

135

Split-Interest Agreements

136

GASB defines a split-interest agreement as a “specific type of giving arrangement used by donors to provide resources to two or more beneficiaries, including governments.”

An irrevocable split-interest agreement is one “in which the donor has not reserved, or conferred to another person, the right to terminate the agreement at will and have the assets returned to the donor or a third party.”

Beneficial interests to the institution are recorded as a deferred inflow of resources, and contribution revenue is recorded only when payment is received or the trust terminates.

Background Information

137

Charitable lead annuity trust – a trust in which a donor transfers resources to an institution with the stipulation that the resources be invested and that periodic payments be used for institutional purposes; the resources revert to the donor at the end of the specified trust term

Charitable lead unitrust – similar to charitable lead annuity trust, except that the amount to be used for institutional purposes is a certain percentage of the trust’s fair market value

Charitable remainder annuity trust – trust agreement in which a donor transfers resources to an institution with the stipulation that the resources be invested and that periodic payments be transferred to a beneficiary other than the institution; any remaining resources are available to the institution at the end of the trust term

Charitable remainder unitrust– similar to charitable remainder annuity trust, except the amount transferred to a beneficiary is a certain percentage of the trust’s fair market value

Types of Split-Interest Agreements

138

Charitable gift annuity – Similar to a charitable remainder annuity trust, except that no trust agreement exists. A donor transfers assets to a college/university with the stipulation that the institution will make payments to a designated beneficiary for a certain period of time until the death of the beneficiary. The assets are general assets of the institution and the liability to the beneficiary is a general liability of the institution

Pooled life income fund – A trust agreement whereby multiple donors’ assets are pooled and invested as a group. Donors are assigned a certain number of units (based on amount contributed) and income earned by the investments is paid to the beneficiaries based on number of assigned units. Upon death of the beneficiary, the value of the units is released to the institution.

Perpetual trusts held by others – If the trust has characteristics specified in SGAS 81, the beneficial interest can be recorded as an asset when the institution learns it is a beneficiary.

Types of Split-Interest Agreements (con’t)

139

The accounting treatment differs when the public institution is the intermediary, compared to when a third-party is intermediary. It also differs depending on whether the public institution is the lead beneficiary (paid first) or the remainder beneficiary (paid at end).

When the public institution is the intermediary, the initial recognition is as follows:

Record assets at fair value (for both lead beneficiary and remainder beneficiary)

When the remainder beneficiary: calculate and record a liability for the lead interest assigned to other beneficiaries and record a deferred inflow of resources for the unconditional remainder interest (net FV of assets less calculated liability)

When the lead beneficiary: record a liability for the remainder interest assigned to other beneficiaries and calculate and record a deferred inflow of resources for the public institution’s unconditional lead interest (net FV of assets less calculated deferred inflow)

Initial Recognition and Measurement

140

When a third-party holds the assets under the agreement, all of the following criteria are required for the transaction to be recorded by the public institution: The public institution is specified by name as beneficiary in the legal document

underlying the donation

The donation agreement is irrevocable

The donor has not granted variance power to the intermediary with respect to the donated resources

The donor does not control intermediary, such that the actions of the intermediary are not influenced by the donor beyond the specified stipulation of the agreement

The irrevocable split-interest agreement establishes a legally enforceable right for the government’s benefit (an unconditional beneficial interest)

Initial Recognition and Measurement (con’t)

141

When the public institution learns it is the beneficiary of an irrevocable split-interest agreement, and all criteria described in the previous slide are met, the transaction is recorded as follows: Record a beneficial interest asset (for both lead beneficiary and remainder

beneficiary)

When the remainder interest beneficiary, record deferred inflow of resources for the resources for the unconditional remainder interest recorded at fair value

When the lead interest beneficiary, record deferred inflow of resources for the government’s unconditional lead interest recorded at fair value.

The beneficial remainder interest or lead interest are both calculated on the terms of the agreement

Initial Recognition and Measurement (con’t)

142

When the public institution is the intermediary (holds the assets), the accounting transactions after initial measurement are as follows: Interest, dividends and changes in fair value – record as increase (decrease) in deferred

inflow of resources if the remainder interest beneficiary and record as increase (decrease) in liability if the lead interest beneficiary

Payments of lead interest – Record as reduction to liability (payment to others) if the remainder beneficiary and record as revenue and a reduction of the deferred inflow of resources if lead beneficiary

Annual Reporting – Investments are reported at FV at each reporting date (both for lead and remainder beneficiary)

As remainder beneficiary - the liability is remeasured based on established remeasurement technique and adjustments to either the investments or the liability affect the deferred inflow of resources

As lead Beneficiary - the deferred inflow of resources is remeasured based on an established remeasurement technique and adjustments to either the investments or the deferred inflow of resources affect the liability to the remainder beneficiary

Subsequent Recognition & Measurement

143

When a third-party is the intermediary (holds the assets), the accounting transactions after initial measurement are as follows: Payments of lead interest As remainder beneficiary - Not recorded by government/beneficiary

As lead beneficiary - record as revenue and a reduction of the deferred inflow of resources in the reporting period in which payment is due. Additionally, reduce the beneficial interest asset for the same amount (offset to cash or receivable)

Annual Reporting – Investments are reported at FV at each reporting date and adjustments to the asset are recorded as increase or decrease to the deferred inflow of resources (both for lead and remainder beneficiary)

Subsequent Recognition & Measurement (con’t)

144

Amounts Held for Others

145

Public colleges and universities are required to prepare aggregated statements of net position.

Therefore, amounts included in agency funds will be displayed on a statement of net position as amounts held for others or included in accounts payable or deposits as appropriate.

Amounts Held for Others

146

Perkins Loan Program

147

Revolving loan program that provides long-term, low-interest loans to students who demonstrate the need for financial aid to pursue their course of study

Loans are made through the institution’s financial aid offices to help undergraduate and graduate students pay for postsecondary education

Participating institutions have significant discretion in determining which students receive these loans and the amount they can borrow

Introduction

148

A revolving loan fund is established at institutions with and initial FCC and a matching ICC

The FCC is 75% of the funding for a loan made to a student; the ICC is one-third of the FCC (or 25%) These percentages have changed over time, and therefore each University may

have a different allocation generally between 75%-90% federal and 10%-25% institutional.

The institution is fully responsible for administering the program (i.e. approving, disbursing and collecting the loans) Once the institution transfers its funds to the program, the funds will

remain in the program, except for reimbursement of administrative expenses

Federal Capital Contribution (FCC) & Institutional Capital Contribution (ICC)

149

Under Perkins Loan program regulations, an institution is required to return the federal share of an institution’s Federal Perkins Loan revolving fund to the Department of Education when the amount in the fund exceeds what would be “required for loans or otherwise in the foreseeable future.”

This is applied to both excess liquid capital for on-going loan programs and to liquidation for institutions ending their participation in the Perkins Loan Programs

This will be the prescribed method to remit funds with the wind-down of the Perkins Loan Program.

Assignment of loans to the Department of Education is required if:

The school is closing

The school is withdrawing from the Federal Perkins Loan Program, or

The Department is terminating the school’s participation in the program”

Initial Recognition & Measurement (FCC)

150

Because amounts received from the federal government as FCCs will ultimately be returned to the government, the FCC is sometimes accounted for as a liability (i.e. a refundable advance) Many universities adopted the alternative approach available and accounted

for the funds as a restricted contribution to the loan pool and a corresponding increase to restricted net position.

GASB indicates informally that recognition as either a refundable advance or a net position is permitted If an institution is reporting the FCC as restricted net position – nonexpendable

because the FCC was originally reported as grant (nonexchange) revenue, GASB Statement No. 33, paragraph 26, provides guidance

Initial Recognition & Measurement (con’t)

151

That paragraph states, “After a nonexchange transaction has been recognized in the financial statements, it many become apparent that (a) the eligibility requirements are not longer met (the transaction was recognized as a government-mandated or voluntary nonexchange transaction) or (b) the recipient will not comply with the purpose restrictions within the specified time limit. In these circumstances, if it is probable that the provider will not provide the resources or will require the recipient to return all or part of the resources already received, the recipient should recognize a decrease in assets (or an increase in liabilities) and an expense . . . for the amount the provider is expected to cancel or reclaim.”

GASB Statement No. 33, Paragraph 26

152

The ICC should be classified as net position, unless it is probable that it will be relinquished by the institution

The net position should be classified as restricted-nonexpendable because they can only be used on a revolving basis for loans during the time in which the institution participates in the Perkins Loan program

The ICC belongs to the institution in situations involving cash on hand in the Perkins Loan fund due to repayment of loans. If the Perkins Program is discontinued, the institution is entitled to a portion of the cash related to its ICC

However, if outstanding loans are assigned to the DOE when the Perkins Loan program is discontinued, the institution relinquishes entitlement to its shares of any amount collected by the DOE after a loan is assigned to and accepted by the DOE

Initial Recognition & Measurement (ICC)

153

The FSA Handbook and the Blue Book should be used to determine whether interest payments, loan write-offs, administrative expenses, and so forth change the FCC, the ICC, or both

Annual adjustments to the general ledger are recommended For example, borrowers who undertake certain public, military, or

teaching service employment are eligible to have all or part of their loans cancelled

Generally, institutions are reimbursed 100% of the principal amount of the loan canceled. Thus, when a teacher cancellation is reflected in the accounting records, the ICC would not be reduced. Rather, the loan receivable from the student would be replaced with a receivable from the general government

Subsequent Recognition & Measurement

154

How to Implement GASB 75 and OPEB Accounting

Title: Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions

Effective Date: Fiscal years beginning after June 15, 2017 For 6/30 fiscal year ends – June 30, 2018

For 12/31 fiscal year ends – December 31, 2018


156

What are OPEB’s?

Benefits referred to as other postemployment benefits (OPEB) are governments whose employees (both active employees and inactive employees) are provided with postemployment benefits other than pensions


157

Applies to defined benefit OPEB and defined contribution OPEB that are provided to the employees of state & local governmental employers through OPEB plans that are administered through trusts or equivalent arrangements. contributions from employers and nonemployer contributing entities to the OPEB

plan and earnings on those contributions are irrevocable.

OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms.

OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members.

Also, applies to defined benefit OPEB and defined contribution OPEB that are provided to the employees of state & local governmental employers through OPEB plans that are not administered through trusts that meet the 3 criteria above.

GASB Statement No. 75 –Applicable Criteria

158

OPEB includes the following:

Postemployment healthcare benefits – including medical, dental, vision, hearing, and other health-related benefits – whether provided separately from or provided through a pension plan

Other forms of postemployment benefits – for example, death benefits, life insurance, disability, and long-term care – when provided separately from a pension plan

Note: OPEB does not include termination benefits or termination payments for sick leave. However, if terminating employee’s unused sick leave credits are converted to provide or enhanced defined benefit OPEB, the resulting benefit or increase in benefit should be accounted for under GASB 75.

GASB Statement No. 75 – Types of OPEB

159

Applies requirements similar to GASB Statement No. 68 to OPEB employers.

Single employer and agent employers would report a net OPEB liability equal to the present value of projected benefit payments less the OPEB plan’s fiduciary net position.

Cost sharing employers would report a liability equal to their proportional share of the plan’s net OPEB liability.

Note disclosures and RSI similar to GASB Statement No. 68 are also required.

GASB Statement No. 75 - Overview

160

Employer liability is a net liability and is not related to unfunded contributions

Employer expense is not related to how a government chooses to fund its OPEB plan

Governments participating in cost-sharing plans recognize a liability equal to its proportionate share of collective liability and expense

Fundamental Changes For Employers

161

Employers are classified in one of three categories:1) Single employers whose employees are provided with defined

benefit OPEB through single-employer OPEB plans

2) Agent employers where plan assets are pooled for investment purposes but separate accounts are maintained by employer so that each employer’s share of the pooled assets is legally available to pay the benefits of only its employees.

3) Cost-sharing plans where OPEB obligations are pooled and assets are used to pay the benefits of the employees of any employer

Defined Benefit OPEB—administered through a trust

162

Equals total OPEB liability less the OPEB plan’s fiduciary net position

Total OPEB liability must be based on an actuarial valuation, performed every 2 years (minimum) Alternative measurement allowed for small plans

Fiduciary net position comes from the plan financial statements Like pension plans, OPEB plans will implement new standards

before the employers

Net OPEB Liability

163

Measurement date NO earlier than the end of the employer’s prior fiscal year and no later

than the end of the employer’s current fiscal year or

use update procedures to roll forward to the measurement date from an actuarial valuation as of a date no more than 30 months and 1 day earlier than the employer’s most recent fiscal year-end.

Single discount rate (explained earlier)

Single actuarial method Entry age

Level percentage of pay

Actuarial Valuation

164

Components Of Expense

Changes in Net OPEB Liability OPEB Expense

Deferred Inflows/Outflows

1-Employee work and earn benefits (service costs) x

2-Interest on total OPEB liability x

3-Change in total OPEB liability

change in terms of OPEB benefits x

change in assumptions about economic & demographic factors Amortize over service period

actual economic & demographic results differing from assumptions Amortize over service period

4-Change in amount of OPEB plan net assets

projected investment earnings x

actual investment earnings differing from assumed earnings Amortize over 5 years

all other x

5-Change in proportionate share (cost sharing plan only) Amortize over service period

165

Recognize a liability equal to the net OPEB liability

Changes in the net OPEB liability during the year will either be reported as expense or deferred outflows/inflows of resources

Single And Agent Employers

166

Descriptive information about the plan

Components of net OPEB liability and related ratios

Significant assumptions and other inputs used to calculate the total OPEB liability

Date of valuation

Basis for determining employer contributions

10 years of select information in RSI, as it becomes available

Single and Agent Employers -Notes And RSI

167

Single and Agent Employers –Footnote Disclosures

GASB 75 GASB 68Footnote Disclosures Plan description Plan description

Significant assumptions and other inputs

Significant assumptions and other inputs

Discount rate information Discount rate information

Plan’s fiduciary net position Plan’s fiduciary net position

Changes in the net OPEB liability Changes in the net OPEB liability

168

Single and Agent Employers –Required Supplemental Information (RSI)

GASB 75 GASB 68Required SupplementaryInformation

10 year schedule - changes in the net OPEB liability

10 year schedule - changes in the net Pension liability

10 year schedule –total OPEB liability, OPEB plans fiduciary net position, net OPEB liability,OPEB plan’s fiduciary net position % of total OPEB liability, covered payroll, net OPEB liability as a % of covered payroll

10 year schedule –total pension liability, pension plans fiduciary net position, net pension liability, pension plan’s fiduciary net position % of total pension liability, covered payroll, net pension liability as a % of covered payroll

10 year schedule (if actuarial determined contribution) – the actuarial determined contribution, the amount contributed, difference between these amounts, covered payroll, % of contribution to covered payroll

10 year schedule (if actuarial determined contribution) – the actuarial determined contribution, the amount contributed, difference between these amounts, covered payroll, % of contribution to covered payroll

10 year schedule (if statutorily or contractually established contributions) - the statutorily or contractually required contributions, the amount contributed, difference between these amounts, covered payroll, % of contribution to covered payroll

10 year schedule (if statutorily or contractually established contributions) - the statutorily or contractually required contributions, the amount contributed, difference between these amounts, covered payroll, % of contribution to covered payroll

169

In governmental fund financial statements, a net OPEB liability is required to be recognized to the extent the liability is normally expected to be liquidated with expendable available financial resources

Fund Statements

170

Recognize a liability for its proportionate share of the collective net OPEB liability

Recognize OPEB expense and report deferred outflows/inflows of resources OPEB for its proportionate shares of those items

Notes and RSI requirements similar to single and agent employers

Cost-Sharing Employers

171

For employers that provide insured benefits through an arrangement whereby premiums are paid to an insurance company, OPEB expense/expenditures equals the amount of premiums

All other non-trust situations would follow the rules outlined in this Statement for OPEB plans that are administered through trusts that meet the specified criteria, modified for lack of OPEB plan assets

Defined Benefit OPEB—not administered through a trust

172

Generally, recognize OPEB expense equal to the amount of contributions

OPEB liability to the extent OPEB expense exceeds amounts paid by the employer to the plan

Notes include descriptive information about the plan, benefit terms and contribution rates

Defined Contribution Plans

173

Defined as circumstances in which a nonemployer entity is legally responsible for providing certain forms of financial support for OPEB of the employees of another entity

Adjustments are made for the involvement of the nonemployer

Recognition by the nonemployer contributing entity is similar to the approach required for cost-sharing employers (proportionate share)

Special Funding Situations

174

GASB Statement No. 75Example Journal Entries

175

Step 1 – Gather needed information

Step 2 – Calculate net OPEB liability

Step 3 – Compute changes in the net OPEB liability

Step 4 – Allocate changes in the net OPEB liability between pension expense and deferred inflows/outflows and develop amortization schedules

Step 5 – Develop journal entry for restatement of net position

Step 6 – Develop journal entry for OPEB expense

Step 7 – Develop journal entry for amortization of deferred inflow/outflows

Step 8 – Contributions made after the measurement date

Steps to Implement Statement No. 75

59

Obtain Actuarial report (make sure to get a report the year of implementation)

Obtain Plan’s financial statement information

Obtain the long-term rate of return

Projected investment earnings from the actuarial report is $1,316,371

Step 1 – Gather Information

177

Step 2 – Calculate Net OPEB Liability

Net OPEB Liability of the County - The components of the net OPEB liability of the County at June 30, 2018,were as follows:

Actuarial Information

Pension Plan Net Position

June30, 2018

Total OPEB liability $ 25,082,825

Plan fiduciary net position (19,035,462)

County's net OPEB liability $ 6,047,363

61

Step 3 – OPEB Information and Compute Change in Net OPEB Liability

A-Information from actuarial valuation reportB-Information from OPEB plan f/s - RSI

Total Plan NetOPEB Fiduciary OPEB

Liability Net Position LiabilityA B A-B

Beginning Balance 23,566,139 17,637,765 5,928,374

Changes for the year:Service Cost 615,369 615,369 Interest 1,760,601 1,760,601 Difference between expected and actual experience loss (gain) (103,589) (103,589)Changes in assumptions 42,586 42,586 Contributions - employer 653,665 (653,665)Contributions - employee 0 0 Net investment income 1,569,982 (1,569,982)Benefit payments, including refunds (798,281) (798,281) 0 Administrative expense (27,669) 27,669 Other changes 0 0

Net Change 1,516,686 1,397,697 118,989

Recomputed Ending Balance 25,082,825 19,035,462 6,047,363

179

Step 4 – Allocate Changes In The Net OPEB Liability Between OPEB Expense and Deferred Inflows/Outflows

Using information from previous slide, for each component of the change in net OPEB liability, determine the amount and if it is expense or deferred

Change in Net OPEB liability OPEB expense Deferred Outflow/(Inflow)

Service costs $ 615,369 $ 0

Interest 1,760,601

Difference between expected & actual experience (103,589)

Projected investment income (1,316,371)

Change in assumptions 42,586

Difference between projected & actual earnings oninvestments

(253,611)

Administrative expense 27,669

Sub-Total 1,087,268 (314,614)

Contributions (653,665)

Total $ 433,603 $ (314,614)

63

Step 4 – Develop Amortization Tables

Change of Assumptions - D/O 2018 2019 2020 2021 2022 2023 2024 2025 Total

Balance Amort. Yr2018 42,586 8.00 5,323 5,323 5,323 5,323 5,323 5,323 5,323 5,323 42,586

42,586 5,323 5,323 5,323 5,323 5,323 5,323 5,323 5,323 42,586

Balance 37,263 31,940 26,616 21,293 15,970 10,647 5,323 0

Difference Between Projected & Actual Investment Earnings-D/I 2018 2019 2020 2021 2022 2023 2024 2025 Total

Balance Amort. Yr2018 (253,611) 5.00 (50,722) (50,722) (50,722) (50,722) (50,722) (253,611)

(253,611) (50,722) (50,722) (50,722) (50,722) (50,722) (253,611)

Balance (202,889) (152,167) (101,444) (50,722) 0

Difference Between Expected & Actual Experience - D/I 2018 2019 2020 2021 2022 2023 2024 2025 Total

Balance Amort. Yr2018 (103,589) 8.00 (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (103,589)

(103,589) (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (103,589)

Balance (90,640) (77,692) (64,743) (51,795) (38,846) (25,897) (12,949) 0 Amortization year

obtained from actuarial report

5 years is mandated by GASB 75

64

Step 4 – Develop Amortization Tables

Summary - OPEB expense 2018 2019 2020 2021 2022 2023 2024 2025 Total

Deferred Outflow - Change In Assumptions 5,323 5,323 5,323 5,323 5,323 5,323 5,323 5,323 42,586 Collective DO 5,323 5,323 5,323 5,323 5,323 5,323 5,323 5,323 42,586

Deferred inflow-Investment Earnings (50,722) (50,722) (50,722) (50,722) (50,722) 0 0 0 (253,611)Deferred Inflow - Expected vs. Actual (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (12,949) (103,589)Collective DI (63,671) (63,671) (63,671) (63,671) (63,671) (12,949) (12,949) (12,949) (357,200)

Net Balances for Amortization Schedule (58,348) (58,348) (58,348) (58,348) (58,348) (7,625) (7,625) (7,625) (314,614)

Summary - End of Year Balances 2018 2019 2020 2021 2022 2023 2024 2025 Total

Deferred Outflow - Change In Assumptions 37,263 31,940 26,616 21,293 15,970 10,647 5,323 0 0 Collective DO 37,263 31,940 26,616 21,293 15,970 10,647 5,323 0 0

Deferred inflow-Investment Earnings (202,889) (152,167) (101,444) (50,722) 0 0 0 0 0 Deferred Inflow - Expected vs. Actual (90,640) (77,692) (64,743) (51,795) (38,846) (25,897) (12,949) 0 0 Collective DI (293,529) (229,858) (166,188) (102,517) (38,846) (25,897) (12,949) 0 0

Net Balances for Amortization Schedule (256,266) (197,919) (139,571) (81,224) (22,876) (15,251) (7,625) 0 0

Amortization Maturity Schedule 58,348 58,348 58,348 58,348 7,625 7,625 7,625 256,266

65

Journal entry to record net OPEB liability as of the beginning of the year – prior period adjustment for change in accounting principle (Government-Wide Financial Statements Only)

Note: If there was already a net OPEB obligation recorded pursuant to GASB Statement No. 45, then there should be an adjustment to remove the net OPEB obligation. In this example, there was no OPEB obligation recorded under GASB 45.

Step 5 – Develop Journal Entries-Restatement of Net Position

Description Debit Credit

Beginning net position 5,928,374

OPEB liability 5,928,374

66

Journal entry to record the changes in net OPEB liability(Government-Wide Financial Statements Only)

Step 6 – Develop Journal Entries- Record Changes in Net OPEB Liability During The Year

Description Debit Credit

Net OPEB liability 118,989

OPEB expense 1,087,268

OPEB expense - contributions 653,665

Deferred item – investment earnings 253,611

Deferred item – actual vs. expectedexperience

103,589

Deferred item – change in assumptions 42,586

Total 1,129,854 1,129,854

67

Journal entry to record yearly amortization of the deferred outflow / (inflows)

(Government-Wide Financial Statements Only)

Step 7 – Develop Journal Entries- Record Amortization of Deferred Inflows/Outflows

Description Debit CreditDeferred Inflow 63,671

OPEB expense 58,348

Deferred Outflow 5,323

Total 63,671 63,671

68

If the government makes a contribution to the plan after the measurement date but before the balance sheet date: The contribution should be recorded as a deferred outflow

of resources

The amount will be removed from deferred outflows of resources when the subsequent year’s GASB 75 entries are recorded

Step 8 – Contributions Made After Measurement Date

69

Example Footnotes and RSI from Implementation Guide for GASB Statement 75 for Single Employer

Please reference appendix 1

70

Revenues

188

Operating revenue are generally those that are classified as operating cash inflows in the statement of cash flows in accordance with GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting.

Reporting Revenues - Operating

189

Nonoperating revenues are those derived from nonexchange transactions or those that are not reported as operating activities in the statement of cash flows.

Reporting Revenues - Nonoperating

190

Revenues arising from exchange transactions should be reported gross of related expenses and net of any discount or sales allowance.

Reporting Revenues Cont.

191

Both AR 97-1 and AR 00-5 define scholarship allowances as: The difference between the stated charge for goods and services

provided by the institution and the amount that is billed to the student and/or third parties making payments on behalf of the student.


192

In considering what is revenue and what is a discount (i.e., a scholarship allowance), the following general rules apply: Only amounts actually received from students and third-party payers to

satisfy student tuition and fees (e.g. room and board) or bookstore charges are reported as revenue.

Institutional resources provided to students, as financial aid, are recorded as scholarship allowances in amounts up to and equal to amounts owed by the students to the institution.

Institutional resources provided in excess of amounts owed by the students to the institution and refunded to the students are recorded as an institutional expense (e.g., student aid, scholarships and fellowships).


193

The revenue foregone through scholarship allowances should not generally be assessed proportionately against both the educational and general budget and auxiliaries (e.g., room and board, institutional bookstore, etc.).

An institution may determine that it is appropriate to allocate the scholarship allowance proportionately against tuition and other mandatory fees. If the amount of an institutional scholarship exceeds billable tuition, the amount

exceeding billable tuition should be charged as a reduction to the relative room and board and/or institutional bookstore revenues charged to the student.


194

Expenses

195

A method of grouping expenses according to the purpose for which the costs are incurred.

The classification tells why an expense was incurred rather than what was purchased.

Reporting expenses by functional classification helps donors, granting agencies, creditors, and other readers of the financial statements to understand the various mission – related activities of the institution and their relative importance.

Functional Expenses

196

Both Public and independent institutions are expected and required to use these definitions for functional expense classifications when reporting expense information in the Integrated Postsecondary Education Data System (IPEDS) Finance Survey.

Functional Expenses

197

The current functional expenses categories are: Instruction

Research

Public Service

Academic Support

Student Services

Institutional Support

Scholarships and Fellowships

Auxiliary Enterprise

Hospitals

Independent Operations

Operations and Maintenance of Plant (Public Institutions only)

NACUBO Functional Category Definitions

198

Example:

NACUBO Functional Category Definitions

199

The instruction classification includes expenses for all activities that are part of an institution’s instruction program. Expenses for credit and noncredit courses; vocational and technical instruction; remedial and tutorial instruction; and regular, special, and extension sessions are included.

Expenses for departmental research and public service that are not separately budgeted also are included in this classification.

This classification excludes expenses for those academic personnel whose primary activity is administration – for example, academic deans.

Instruction

200

The research classification includes all expenses for all activities organized to produce research, whether commissioned by an agency external to the institution or separately budgeted by an organizational unit within the institution. Subject to those conditions, the classification includes expenses for individual and/or project research as well as that of institutes and research centers.

Department research that is not separately budgeted is included in the instructional category.

Research

201

The public service classification includes expense for activities established primarily to provide non-instructional services for the benefit of individuals and groups that are external to the institution.

Theses activities include community service programs (excluding instructional activities) and cooperative extension services.

Included in this classification are conferences, institutes, general advisory services, reference bureaus, radio and television, consulting, and similar non-instructional services to particular sectors of the community.

Public Service

202

The academic support classification includes expenses incurred to provide support services for the institution’s primary programs of instruction, research, and public service. It includes the following activities: The retention, preservation, and display of educational

materials, such as libraries, museums, and galleries

Technology, such as computing support

Academic deans

Academic Support

203

The student services classification includes expenses incurred for offices of admissions and the registrar and activities that, as their primary purpose, contribute to students’ emotional and physical well-being and intellectual, cultural, and social development outside the context of the formal instruction program.

This classification includes expenses for student activities, cultural events, student newspapers, intramural athletics student organizations, intercollegiate athletics (if program is not operated as an auxiliary enterprise), counseling and career guidance (excluding informal academic counseling by the faculty), student aid administration, and student health service (if not operated as an auxiliary enterprise).

Student Services

204

The institutional support classification includes expenses for central, executive-level activities concerned with management and long-range planning for the entire institution, such as the governing board, planning and programming operations, and legal services; fiscal operations, including the investment office; administrative information technology (when not accounted for in other categories); space management; employee personnel and records; logistical activities that provide procurement, storerooms, printing, and transportation services to institution; support services to faculty and staff that are not operated as auxiliary enterprises; and activities concerned with community and alumni relations, including development and fundraising.

Institutional Support

205

Generally, institutions report most scholarships and fellowships as tuition discounts and allowances (reductions of tuition and fees revenues).

If the applied and exceeds charges to the student (tuition and fees, dormitory, and food service), and the excess is disbursed to the student, the excess disbursed is reported as an expense in the financial statements.

The scholarships and fellowships classification excludes student awards that are made in exchange for services provided to the institution such as graduate and teaching assistantships and student work-study programs.

Scholarships and Fellowships

206

An auxiliary enterprise exists to furnish goods or services to students, faculty, staff, other institutional departments, or incidentally to the general public, and charges a fee directly related to , although not necessarily equal to , the cost of the goods or services.

The distinguishing characteristic of an auxiliary enterprise is that it is managed to operate as a self-supporting activity. Over time, the revenues will equal or exceed the expenses, although in any individual year there may be deficit or a surplus.

Auxiliary Enterprises, Auxiliary Enterprises – Other, and Other Self Supporting Enterprises

207

Example are residence halls, food services, intercollegiate athletics (if operated as essentially self-supporting), college stores, faculty clubs, parking, and faculty housing.

Student health services, when operated as an auxiliary enterprise, also are included. Hospitals, although they may serve students, faculty, or staff, are classified separately because of their financial significance.

Auxiliary Enterprises, Auxiliary Enterprises – Other, and Other Self Supporting Enterprises Cont.

208

Revenue bonds supported by the activity in Auxiliary Enterprises sometimes require separate segment information reported in the footnotes.

The segment information would require a condensed statement of net position, statement of changes, and cash flows. Practically speaking, a balance sheet and statement of changes is sufficient.

Segment Information

209

When depreciation expenses are reported by functional classification in the SRECNP, depreciation expense can be allocated to the other functional classifications (such as instruction, research and student services) or allocated only to operation and maintenance of plant expenses, or reported separately.

When depreciation expense is reported as its own functional classification, depreciation for all activities (educational and general, auxiliary enterprises, and hospitals) may be combined and reported as one amount in the SRECNP.

Generally, depreciation expense for buildings may be allocated based on the usage of the buildings.

This is accomplished by a periodic inventory of the usage of the space in each building.

Depreciation

210

Public institutions report interest as a non-operating expense in the SRECNP.

This classification includes interest expense on capital debt, payments on capital leases classified other as interest expense, and interest expense on other borrowings such as for working capital or student loans.

Interest

211

Accreditation – Since it pertains to the academic program, Academic Support is preferred.

Campus security – Operations and Maintenance of Plant.

Other

212

GASB 34 public institutions would typically report natural expenses on the face of their statements

NACUBO Advisory Report 2000-08, Suggested Footnote Disclosure for Information Reported on the Statement of Revenues, Expenses, and Changes in Net Position, in the financial statements of public institutions to display a matrix of expenses by functional and natural classes.

That recommendation still stands and the Advisory Report is available in Appendix F as AR 2000.08

Functional Classifications in Financial Reporting

213

A nonrandom sample of 20 public institutions’ 2008 financial statements indicate that half reported operating expenses by function and half reported operating expenses by natural classification.

Functional Expense Requirements for Public Institutions Cont.

214

The functional expense definitions in FARM reflect how institutions of higher education were organized decades ago; they don’t necessarily accommodate the complexity of programmatic functions within our institutions today.

Alternate Groupings of Functional Expenses

215

FARM indicates the most common natural expense classifications used in a sample of fifty institutions who reported by natural class on the face of their statements or in the notes. Salaries and wages

Employee benefits

Student wages (and fellowships)

Faculty (or instructional) salaries

Staff (or non-instructional) salaries

Primary Natural Expense Classifications

216

Primary Natural Expense Classifications

217

Example:

GASB has several primary requirements for reporting expenses: Operating expenses are reported separately from non-operating expenses.

Certain expense information must be reported in management’s discussion and analysis, as required supplementary information for public institutions.

An institution must disclose its policy regarding whether to first apply restricted or unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available.

GASB permits expenses to be reported by either functional or natural classification in the statement of revenues, classifications. Instead, NACUBO provides industry classifications and definitions functional expenses in ¶ 701 and provides guidance and examples for natural classification of expenses in ¶ 704. NACUBO also encourages a matrix showing both functional and natural classification of expense. ¶ 703.3.

Financial Reporting of Expense

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In the GASB – prescribed format for that statement, non-operating revenues and expenses are to be reported after operating income.

Interest expense must be reported as a non-operating expense, regardless of whether operating expenses are reported by functional or natural classification.

Required Operating vs Non-operating Classification

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Examples

Below Operating and Non-operating

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GASB Statement No. 83, Certain Asset Retirement Obligations

GASB Statement No. 84, Fiduciary Activities

GASB Statement No. 85, Omnibus 2017

GASB Statement No. 86, Certain Debt Extinguishment Issues

GASB Statement No. 87, Leases

New/Upcoming GASB’s

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GASB Implementation Guides issued in 2017

GASB Proposal Stage Literature

Agenda

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Title: Certain Asset Retirement Obligations

Effective Date: For reporting periods beginning after June 15, 2018


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An asset retirement obligation is a legally enforceable liability associated with the retirement of a tangible capital asset Retirement includes sale, abandonment, recycling, and

other types of disposal

Results from the normal operations of the capital asset As distinct from pollution remediation obligations or capital

asset impairments

Examples include decommissioning nuclear reactors, dismantling sewage treatment plants, retiring certain types of medical equipment


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Statement No. 83 requires an asset retirement obligation to be recorded when the following three criteria have occurred: Liability is both incurred and reasonably estimable

Occurrence of an external obligating event Occurrence of an internal obligating event


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Existing laws and regulations

Legally binding contracts

Court judgments

External obligating events

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Occurrence of contamination from normal use

Placing the asset into operation and consumption If the obligation is based on use, e.g., a coal mine

Placing the asset into operation If the obligation is not based on use, e.g., a wind turbine

Internal obligating events

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Abandonment If the obligation is created by abandoning the asset before

it is ready for use

Acquiring an asset that has an existing ARO

Internal obligating events (Continued)

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A liability and a deferred outflow are recorded when the criteria discussed above are met Exception: expense is recorded instead of a deferred

outflow upon abandonment

Liability should be based on the best estimate of the current value of outlays expected to be incurred NOT present value

The deferred outflow is amortized to expense in a systematic and rational manner over the estimated useful life of the capital asset

Accounting Treatment

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Liability should be remeasured annually for: Effects of inflation/deflation

Change in price not attributable to inflation or deflation

Change in technology

Change in legal requirements

Change in type of equipment, facilities, or service

Remeasurement

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Title: Fiduciary Activities



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A government controls assets if: The government holds the assets, or

The government has the ability to direct the use, exchange, or employment of the assets

Use = expends or consumes an asset for the benefit of individuals, organizations, or other governments

Direct = designate a third party to perform a government’s fiduciary duties without assuming them

Control of Assets

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A government should report an activity as a fiduciary activity if: The government controls the assets of the activity “Control” as defined on prior slide

The assets of the activity are not derived solely from the government’s own-source revenue or from grants received by the government (other than pass-through grants for which the government has no administrative involvement), AND

One or more of the criteria on the next slide are met

Fiduciary Activities

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The assets are administered through a trust or equivalent arrangement of which the governments is not a beneficiary

The assets are to be provided to individuals and are not derived from the government’s provision of goods and services to those individuals

The assets are to be provided to organizations that are not part of reporting entity

Additional Criteria

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Pension and OPEB plans administered through qualified trusts, assuming that the government controls the assets of the arrangement “Control” is defined in a previous slide

Component units that are fiduciary in nature

Other Fiduciary Activities

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The application of Statement No. 84 potentially could result in: Activities currently reported in a fiduciary fund being

moved to a governmental or proprietary fund

Activities currently reported in a governmental or proprietary fund being moved to a fiduciary fund

Activities currently reported in a fiduciary fund not being reported in the financial statements at all

Activities currently not reported in the financial statements at all being reported in a fiduciary fund

Consequences of GASB 84

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Pension and OPEB trust funds

Investment trust funds

Private-purpose trust funds

Custodial funds

Types of Fiduciary Funds

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Replace agency funds under current model

For activity not held in a trust

Unlike agency funds, custodial funds will have an “income statement”

Unlike agency funds, custodial funds will have net position

Custodial Funds

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A liability is recognized by a fiduciary fund when it is compelled to disburse resources Demand for the resources has been made, or

No further action or condition is required to be met to be entitled to receive the resources

If the criteria for liability recognition are not met, the resources are recorded as part of net position

Liability Recognition

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Title: Omnibus 2017


Contains fixes or small modifications on a number of topics that did not each warrant their own Statement


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Blended Component Units: Governments utilizing the BTA model may blend a component unit only if the criteria in GASB 14, paragraph 53 are met Criteria relate to the governing bodies of the two entities being

substantially the same, or the component unit providing services almost entirely to the primary government

Goodwill: Addresses accounting for goodwill from transactions prior to GASB 69; results in this goodwill being moved to a deferred outflow and amortized

Topics Addressed

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Fair Value Measurement: Each unit of account of real estate used in operations by

insurance entities should be classified as an investment or capital asset based on definition of an investment in GASB 72, paragraph 64

Money market investments and participating interest-earning contracts described in GASB 72, paragraph 69c may be measured at amortized cost to the extent permitted by GASB 31, paragraph 9

Pensions and OPEB

Topics Addressed

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Governmental funds should measure liabilities and expenses associated with pensions and OPEB for the current reporting period (as opposed to the government-wide statements and proprietary funds, which may be based on a measurement date up to 12 months in advance of the balance sheet date)

Statement No. 85 also addresses timing and measurement of on-behalf payments in employer financial statements

Pensions and OPEB

246

Use of covered payroll vs. covered-employee payroll for RSI disclosures: Plan financial statements use covered payroll

Employer financial statements use covered payroll if contributions based on a measure of pay; otherwise, use covered-employee payroll

Employer-paid member contributions should be classified as employee contributions, similar to Statement No. 82 requirement for pensions

OPEB

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Statement No. 85 contains various amendments to the alternative measurement for measuring OPEB permitted for small employers by Statements No. 74 and 75

For governments participating in multi-employer plans containing governments and nongovernments, alternative guidance is provided similar to Statement No. 78 for pensions

OPEB

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Title: Certain Debt Extinguishment Issues


Contains various provisions to improve consistency in accounting and financial reporting for in-substance defeasance of debt by governments


250

When a government defeases outstanding debt using only existing resources by placing the resources in an irrevocable trust, GASB 86 requires that the resources and the outstanding debt should be removed from the financial statements Similar to treatment under GASB 7 for debt defeased by the

issuance of new bonds

Under GASB 86, the difference between the reacquisition price and the net carrying amount of the debt defeased should be reported as a gain or loss in the period of defeasance

Debt Defeased With Existing Resources

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Any remaining unamortized prepaid insurance on extinguished debt should be included in the net carrying value of the extinguished debt for purposes of determining the gain or loss

If the irrevocable trust associated with defeased debt permits risk-free monetary assets to be substituted with monetary assets that are not essentially risk-free, this fact should be disclosed in the footnotes

Other Debt Extinguishment Issues

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253

Title: Leases


Establishes a single approach to accounting for leases that will eliminate the current operating and capital lease classifications


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A contract that conveys the right to use a nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction

The lease “term” is defined as the period during which a lessee has a noncancellable right to use the asset plus any options to extend or terminate if it is reasonably certain that the lease will continue

Lease Definition

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Recognize a lease liability and an intangible asset at the beginning of a lease

Lease liability measured at present value of lease payments over the lease term

Intangible asset measured at the value of the lease liability plus any prepayments and certain indirect costs

Lease liability reduced as payments are made

Interest is accrued on lease liability

Intangible asset amortized to expense over shorter of the life of the underlying asset or the lease term

Lessee Accounting

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Recognize a lease receivable and a deferred inflow of resources at the beginning of a lease

Underlying capital asset is still recognized by lessor

Lease receivable measured at present value of lease payments to be received over the lease term

Deferred inflow of resources measured at the value of the lease receivable plus any prepayments

Receivable is reduced as payments are received

Interest is earned on lease receivable

Deferred inflow is amortized to revenue over the life of the lease

Lessor Accounting

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Lease component and nonlease component (e.g. service provisions) should be accounted for as separate contracts

Use stated contract prices for individual components as long as they do not appear unreasonable based on professional judgment

If no stated contract prices for the separate components, use professional judgment to determine best estimate

If not practicable to develop a best estimate, treat as a single lease unit

Leases With Multiple Components

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A general description of the lease arrangement

Total amount of assets recorded under leases, and the related accumulated amortization (lessee)

The cost of assets on lease or held for leasing, by major class, and the amount of accumulated deprecation (lessor)

The amount of expense (lessee) or revenue recognized (lessor) during the period

Schedule of future lease principal and interest payments to be made or received in each of the five subsequent years and in five-year increments thereafter

Note Disclosures

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Short-term leases A lease with a maximum possible term under the contract

of 12 months or less (including options to extend)

Lessee expenses payments as made

Lessor records revenue for payments as received

Leases Excluded from GASB 87

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Leases that transfer ownership A lease that transfers ownership of the underlying asset at

the conclusion of the contract

Contains no termination provisions

Lease is treated as the financed purchase of an asset

Leases Excluded from GASB 87

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Implementation Guides

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Implementation Guide No. 2017-1, Implementation Guidance Update – 2017 Issued April 2017

Effective for reporting periods beginning after 6/15/2017

Contains updates to the GASB’s comprehensive implementation guidance questions and answers covering a range of governmental accounting topics


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Implementation Guide No. 2017-2, Financial Reporting for Postemployment Benefit Plans Other Than Pensions Issued April 2017

Relates to OPEB plan financial reporting issues

Effective for reporting periods beginning after 12/15/16 for most questions. Some questions are effective for reporting periods beginning after 6/15/17


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Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (and Certain Issues Related to OPEB Plan Reporting) Issued November 2017

Relates to employer OPEB financial reporting issues

Effective for reporting periods beginning after 6/15/17 for most questions. Some questions are effective for reporting periods beginning after 12/15/17 or 6/15/18


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Proposal Stage Literature

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Invitation to Comment: Financial Reporting Model Improvements—Governmental Funds Addresses issues related to financial reporting model reexamination,

including: Measurement focus and basis of accounting for governmental funds

Presentation of governmental fund financial statements

Sets forth three possible recognition approaches for governmental funds: Near-term financial resources approach

Short-term financial resources approach

Long-term financial resources approach

Preliminary View expected in early 2018


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Exposure Draft: Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Clarifies what types of items are considered to be “debt”

for footnote disclosure purposes

Clarifies what types of footnote disclosures are required for debt (including unused lines of credit, collateral pledged, and certain important debt terms)

Requires that disclosures for direct borrowings and direct placements be presented separately from other debt


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Exposure Draft: Accounting and Financial Reporting for Majority Equity Interests Provides clarity regarding how governments should

account for a majority equity interest held in another entity

Depending on the circumstances, such interests will be presented as an investment, or alternatively as a component unit


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Exposure Draft: Implementation Guide No. 201Y-X: Implementation Guidance Update – 201Y Contains 2018 updates and amendments to the

comprehensive GASB implementation guidance questions

Exposure Draft: Accounting for Interest Cost during the Period of Construction Requires interest cost incurred during construction to be

expensed as incurred; no longer permits interest capitalization


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