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Financial Reporting and Regulatory Update

First Quarter 2020

From the GASB

Final standards

Omnibus 2020

On Feb. 5, 2020, the GASB issued Statement No. 92, “Omnibus 2020,” which addresses various accounting and financial reporting practice issues identified during the implementation and application of certain GASB statements.

The statement covers the following issues:

  • Modifying the effective date of Statement 87, “Leases,” and associated implementation guidance, to fiscal years beginning after Dec. 15, 2019, to address concerns about interim financial reports
  • Reporting intra-entity asset transfers between a primary government employer and a component unit defined benefit pension plan or defined benefit other postemployment benefit (OPEB) plan
  • Applying Statement 73, “Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68,” as amended, and Statement 74, “Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans,” as amended, to reporting assets accumulated for pensions and OPEB
  • Applying certain requirements of Statement 84, “Fiduciary Activities,” to pension and OPEB arrangements
  • Measuring liabilities and assets, if any, related to asset retirement obligations in a government acquisition
  • Reporting by public entity risk pools for amounts that are recoverable from reinsurers or excess insurers
  • Referencing nonrecurring fair value measurements of assets or liabilities in authoritative literature
  • Using updated terminology when referring to derivative instruments

Effective dates

  • Requirements of the statement that relate to the effective date of Statement 87 and its associated implementation guidance are effective upon issuance.
  • Provisions related to the application of Statement 84 are effective for periods beginning after June 15, 2020.
  • Provisions related to intra-entity transfers of assets and applicability of Statements 73 and 74 are effective for fiscal years beginning after June 15, 2020.
  • The remaining requirements related to asset retirement obligations are effective for government acquisitions occurring in reporting periods beginning after June 15, 2020.

Earlier application is encouraged and is permitted by topic.

Replacement of interbank offered rates

On April 2, 2020, the GASB issued Statement 93, “Replacement of Interbank Offered Rates,” which addresses accounting and financial reporting implications that result from the replacement of an interbank offered rate (IBOR).

The statement addresses the following issues:

  • “Providing exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is replaced as the reference rate of the hedging derivative instrument’s variable payment
  • “Clarifying the hedge accounting termination provisions when a hedged item is amended to replace the reference rate
  • “Clarifying that the uncertainty related to the continued availability of IBORs does not, by itself, affect the assessment of whether the occurrence of a hedged expected transaction is probable
  • “Removing LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap
  • “Identifying a Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap
  • “Clarifying the definition of reference rate, as it is used in Statement 53 [“Accounting and Financial Reporting for Derivative Instruments”], as amended
  • “Providing an exception to the lease modifications guidance in Statement 87 [“Leases”], as amended, for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend.”

Effective dates

The removal of LIBOR as an appropriate benchmark interest rate is effective for reporting periods ending after Dec. 31, 2021. All other requirements of this statement are effective for reporting periods beginning after June 15, 2020.  Early application is encouraged.

Public-private and public-public partnerships and availability payment arrangements

On April 20, 2020, the GASB issued Statement 94, “Public-Private and Public-Public Partnerships and Availability Payment Arrangements,” to provide guidance to improve accounting and financial reporting for public-private and public-public partnership arrangements (both referred to as PPPs) and availability payment arrangements (APAs).

The statement applies to PPPs that are outside of the scope of the GASB’s existing literature for these types of transactions, specifically Statement 60, “Accounting and Financial Reporting for Service Concession Arrangements,” and Statement 87, “Leases.” The statement makes certain improvements to the guidance currently included in Statement 60 and provides accounting and financial reporting guidance for APAs.

PPPs

The statement defines a PPP as an arrangement in which a government transferor contracts with a governmental or nongovernmental operator to provide public services by conveying control of the right to operate or use an infrastructure or other nonfinancial asset, the underlying PPP asset, for a period of time in an exchange or exchangelike transaction. Some PPPs meet the definition of a service concession arrangement (SCA). The statement carries forward the definition and financial reporting requirements for SCAs that currently are included in Statement 60.

Statement 94 includes the following financial reporting requirements:

  • PPPs that meet the definition of an SCA should apply the financial reporting requirements of Statement 60.
  • PPPs that meet the definition of a lease, but not the definition of an SCA, should apply the financial reporting requirements of Statement 87.
  • For all other PPPs that are not SCAs and are not leases, a transferor generally should recognize an asset for the underlying PPP asset and a deferred inflow of resources for consideration received or to be received as part of the PPP.
  • A governmental operator should report an intangible right-to-use asset related to the underlying PPP asset that either is owned by the transferor or is the underlying asset of an SCA.

APAs

The statement defines an APA as an arrangement in which a government compensates an operator for services that might include designing, constructing, financing, maintaining, or operating an underlying infrastructure or other nonfinancial asset for a period of time in an exchange or exchangelike transaction.

The statement includes the following financial reporting requirements:

  • An APA related to activities previously defined and in which ownership of the asset transfers by the end of the contract should be accounted for as a financed purchase of the underlying infrastructure or other nonfinancial asset.
  • An APA that is related to operating or maintaining a nonfinancial asset should be accounted for as an outflow of resources in the period to which payments relate.

Effective date

The requirements of this statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Earlier application is encouraged.

Proposals

Financial statement disclosures criteria concepts statement

On Feb. 21, 2020, the GASB issued an exposure draft of a proposed concepts statement, “Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements.” The statement would provide enhanced guidance when the GASB establishes note disclosure requirements for state and local governments and would establish new criteria for state and local governments to follow in developing their disclosures for notes to financial statements.

The exposure draft describes the purpose of notes to financial statements and the intended users of notes. It addresses the types of information that are appropriate or not appropriate for note disclosures. In addition, the proposal addresses the degree of importance that information disclosed in the notes should possess and the characteristics that distinguish information that is considered essential to users in making economic, social, or political decisions or assessing accountability. Information is considered essential if it is distinguished by either of the following characteristics:

  • The information currently is being used in users’ analyses for making decisions or assessing accountability.
  • The information would be used if it became available.

Preparers and auditors could use these concepts when applying the GAAP hierarchy in assessing potential disclosure information in certain circumstances for which the GASB does not provide authoritative guidance. These concepts also might help stakeholders to better understand the fundamental concepts underlying future GASB standards.

Comments originally were due to the GASB by April 17, 2020; however, the comment deadline has been extended to June 30, 2020.

Certain component unit criteria and reporting for IRC Section 457 plans

On March 9, 2020, the GASB issued an exposure draft, “Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans,” that would increase consistency and comparability related to the reporting of fiduciary component units and IRC Section 457 deferred compensation plans.

The exposure draft is designed to mitigate costs of financial reporting associated with certain defined contribution pension plans, defined contribution OPEB plans, and other employee benefit plans when an organization does not have a governing board and the primary government performs the duties that a governing board typically performs.

The proposed statement also would enhance the relevance, consistency, and comparability of accounting and financial reporting for Section 457 plans that meet the definition of a pension plan and for benefits provided through those plans. In addition, for all Section 457 plans, it would supersede the remaining provisions of Statement 32, “Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans,” as amended.

Proposed changes include:

  • Considering the absence of a governing board the same as appointment of a voting majority of a governing board if the primary government performs the duties that a governing board typically performs, except in situations related to defined contribution pension and OPEB plans or Section 457 plans to which only employees contribute
  • Clarifying the financial burden criterion applies to only defined benefit pension and OPEB plans that are administered through trusts that meet the criteria in paragraph 3 of GASB Statements 67 and 74, respectively
  • Requiring all accounting and financial reporting requirements relevant to pension plans and related benefits be applied to Section 457 plans and related benefits that meet the definition of a pension plan

Comments were due to the GASB by April 10, 2020.

Statement and implementation guide effective dates

On April 15, 2020, the GASB issued an exposure draft, “Postponement of the Effective Dates of Certain Authoritative Guidance,” that would postpone the effective dates of provisions in almost all standards and implementation guides due to be implemented for fiscal years 2019 and later.

In light of the COVID-19 pandemic, the exposure draft is intended to provide relief to governments by postponing by one year the effective dates of provisions in the following pronouncements:

  • Statement 83, “Certain Asset Retirement Obligations”
  • Statement 84, “Fiduciary Activities”
  • Statement 87, “Leases”
  • Statement 88, “Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements”
  • Statement 89, “Accounting for Interest Cost Incurred Before the End of a Construction Period”
  • Statement 90, “Majority Equity Interests”
  • Statement 91, “Conduit Debt Obligations”
  • Statement 92, “Omnibus 2020,” paragraphs 6-10 and 12
  • Statement 93, “Replacement of Interbank Offered Rates,” paragraphs 13 and 14
  • Implementation Guide 2017-3, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting),” questions 4.85, 4.103, 4.108, 4.109, 4.225, 4.239, 4.244, 4.245, 4.484, 4.491, and 5.1-5.4
  • Implementation Guide 2018-1, “Implementation Guidance Update – 2018”
  • Implementation Guide 2019-1, “Implementation Guidance Update – 2019”
  • Implementation Guide 2019-2, “Fiduciary Activities”
  • Implementation Guide 2019-3, “Leases”

Comments were due to the GASB by April 30, 2020. The GASB is working under an expedited schedule to issue this guidance as quickly as practicable. The board is scheduled to review stakeholder feedback and consider a final statement for issuance on May 8.