David Bean, Director of Research and Technical Activities for GASB, has a saying: “Don’t give up on GASB because GASB hasn’t given up on you”. In these times of change and uncertainty, GASB has put this into action by issuing GASB 95, Postponement of the Effective Dates of Certain Authoritative Guidance that defers the effective date of many pronouncements that were to be effective for years ended June 30, 2020 through June 30, 2023. While this deferral gives us all some much needed breathing room, it is still important to know what new standards will have to be implemented in the near future. Here is a summary of the issued standards and the deferred implementation dates:
GASB 83 – Certain Asset Retirement Obligations – Revised implementation date for fiscal years beginning after June 15, 2019
This standard was originally effective for periods beginning after June 15, 2018, which means most of you already implemented the requirement for fiscal year ended June 30, 2019.
An Asset Retirement Obligation (ARO) is a legally enforceable liability that is associated with the retirement of a capital asset, disposal of a replaced part of a capital asset or environmental remediation that resulted from the normal use of a capital asset when it is retired. This standard only applies to proprietary fund statements and government-wide statements. It is important to note that these must be legally enforceable. This means if new laws, regulations, contracts or judgments create a legally enforceable liability related to existing capital assets, an ARO should be recorded. The amount of the ARO should be equal to the amount that would have to be paid currently if the asset was retired now. Accordingly, the ARO will need to be reevaluated annually for changes in regulations and changes in projected costs.
There are 2 parts to recording this liability. First there is the easy part as you record the liability, but what is the offset to this liability? The offset is to a deferred outflow of resources. When initially recorded, the liability and the deferred outflow will be equal, but that is where that ends. Subsequently, the deferred outflow is amortized over the life of the related asset, however, the liability should be adjusted annually for inflation and changes in the estimated outlays as an expense.
In our audits for the year ended June 30, 2019, we considered whether the operation of wastewater treatment plants would result in an ARO. Based on information we received from Oregon DEQ we determined that there are no specific legally enforceable requirements that would give rise to an ARO for wastewater treatment plants in Oregon.
Another asset that should be considered to have potential ARO’s would be X-ray machines as there are specific requirements for their disposal.
While this standard was effective for fiscal year end June 30, 2019, you should maintain your awareness for any new ARO’s that may be incurred.
GASB 84 – Fiduciary Activities – Revised implementation date for fiscal years beginning after December 15, 2020
This standard refines and clarifies what should be reported in the fiduciary funds. The most significant change is that Agency Funds are renamed Custodial Funds and a statement of changes in fiduciary net position will be required for all fiduciary funds.
GASB 87 – Leases – Revised implementation date for fiscal years beginning after December 15, 2020
This standard significantly changes the accounting for leases. In a nutshell, if a lease is for more than 1 year, lessees will:
- Record a lease liability based on the present value of future lease payments
- Record a “right to use” asset equal to the liability
- Depreciate the “right to use” asset
- Lease payments reduce the liability and have an interest expense component
The standard also changes the accounting if you are a lessor:
- Record a lease receivable based on the present value of future lease payments
- Record a deferred inflow equal to the lease receivable
- Depreciate the asset
- Recognize revenue over the term of the lease
There are many minute differences in lease agreements that can impact these calculations. GASB has issued a separate implementation guide (2019-3) to provide additional guidance and examples.
If you have not begun the process of implementing this standard it is important that you start now. With the additional time allowed, due to the deferred implementation date, you should:
- Take an inventory of all existing lease agreements
- Term, including possible extensions
- Amounts, including any escalation clauses
- Develop a system to capture pertinent data for any new leases
GASB 89 – Accounting for Interest Cost Incurred before the End of a Construction Period – Revised implementation date for fiscal years beginning after December 15, 2020
This standard clarifies that interest incurred during the period of construction of a capital asset should be reported as an expense in the period incurred and should not be included in the historical cost of capital assets.
GASB 90 – Majority Equity Interests
This standard clarifies that if a majority equity interest in a separate legal entity meets the definition of an investment under GASB 72, then it should be treated as an investment and reported using the equity method. If the majority equity interest does not meet the definition of an investment, then it should be reported as a component unit. Per GASB 72, “An investment is a security or other asset that (a) a government holds primarily for the purpose of income or profit and (b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash.”
GASB 91 – Conduit Debt Obligations – Revised implementation date for fiscal years beginning after December 15, 2021
Conduit debt obligations occur when a government issues debt (the issuer) for another entity (the borrower) and the borrower is responsible for repayment of the debt.
This standard clarifies that the issuer should not recognize a liability for the debt. However, the issuer could recognize a liability associated with an additional commitment or a voluntary commitment to support debt service in some cases.
Additionally, the standard provides guidance on arrangements where capital assets are constructed or acquired with debt, the capital assets are used by the borrower, and payments by the borrower to the issuer are intended to cover the debt service payments. These types of arrangements should not be treated as leases.
GASB 92 – Omnibus 2020 – Revised implementation date for fiscal years beginning after June 15, 2021
This standard provides additional guidance on a variety of topics:
- Transfers of financial or capital assets to defined benefit pension or OPEB plans
- Reporting assets for defined benefit OPEB plans not administered through a trust
- Application of GASB 84 to pension or OPEB plans not administered through a trust
- Measuring ARO’s in a government acquisition
- Reinsurance recoveries
- Application of GASB 72 to nonrecurring fair value measurements
- Revising the terms used for derivative instruments
GASB 93 – Replacement of Interbank Offered Rates – Revised implementation date for fiscal years beginning after June 15, 2021
Some governments have entered into debt or lease agreements that refer to the London Interbank Offered Rate (LIBOR). LIBOR, as it exists today, will cease at the end of 2021. Accordingly those governments will have to change to some other reference rate. This standard provides guidance for those circumstances.
Other Guidance that is being Deferred
In addition to the standards above, GASB has also delayed guidance in Implementations Guides as follows:
- 2017-3 Questions 4.484 and 4.491 related to OPEB liabilities for measurement dates on or after June 15, 2019
- 2017-3 Questions 4.85, 4.103, 4.108, 4.109, 4.225, 4.239, 244, 4.245 and 5.1-5.4 related to actuarial valuations as of December 15, 2018 or later
- 2018-1 for fiscal years beginning after June 15, 2019
- 2019-1 for fiscal years beginning after June 15, 2020
As you can see, GASB has been responsive to the issues created by the COVID-19 Pandemic with the deferral of the effective dates for these standards, but wait, there’s more…
GASB has continued to work on various projects and has issued one standard whose effective date has not been deferred as follows:
GASB 94 – Private-Public and Public-Public Partnerships and Availability Payment Arrangements – Effective for fiscal years beginning after June 15, 2022
This standard supersedes GASB Statement 60 on Service Concession Arrangements.
These arrangements are referred to as PPP’s which are arrangements in which a government contracts with an operator to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset, for a period of time in an exchange or exchange-like transaction.
Consider the Applicability to Your Organization
Other than GASB 87 on Leases, most of the other standards will only apply in certain circumstances. Additionally, if your organization reports on the cash or modified cash basis most of these would not be applicable.
On the Horizon
GASB has been busy with various other projects that you should be aware of.
Exposure Draft on Disclosure Framework – This is a reexamination of footnote disclosure requirements focusing their attention to what is essential to users of the financial statements. To be considered essential, the information has to be utilized in users’ analysis for decision making or assessing accountability, or if information was available users would modify their analysis for decision making or assessing accountability. The comment deadline on this exposure draft is June 30, 2020 and GASB expects to issue a concept statement in 2021.
Exposure Draft on IRC 457 Plans – With the issuance of GASB 84 on Fiduciary Activities, questions arose regarding the treatment of 457 plans. The comment deadline on this exposure draft was April 10, 2020 and GASB expects to issue a standard in June 2020.
Exposure Draft on Subscription-Based Information Technology Arrangements – This will address cloud based computing and similar arrangements. The comment deadline on this exposure draft was August 23, 2019 and GASB is expected to issue a standard in 2020.
Now for the really fun things!
GASB has been reexamining the financial reporting model. A preliminary views document was issued in September 2018 and GASB has made the following tentative decisions:
- Management’s discussion and analysis should be improved to provide more analysis and less repetition of information
- Replace special or extraordinary items with items that are unusual in nature or infrequent in occurrence or both. Additionally, information should be presented regarding the program or function these are related to and whether they are within the control of management.
- Allows for combing statements of major discretely presented component units in the basic statements.
- Refines operating and nonoperating designations for certain revenues and expenses.
- Removes the option of presenting budgetary comparisons as part of the basic financial statements and expands the variance columns to be presented.
- The measurement period for recognition in governmental fund financial statements should be one year.
Expect to see more information on this as GASB moves forward to an exposure draft in 2020.
GASB has been and will continue to be very busy, and we at Boldt Carlisle + Smith will continue working with you to understand and implement new standards as they are issued.