The User's Perspective

December 2013


GASB Project Update

This article summarizes major projects on the GASB’s technical agenda that are currently being deliberated by the Board and addresses their potential implications for financial statement users. Major projects are those that may result in significant changes to current accounting and financial reporting standards or the establishment of significant new standards.

Conceptual Framework: Measurement

Concepts projects do not establish standards; rather, they provide a foundation to guide future standards setting by the Board. This project is developing measurement concepts—how to determine the amount that should be reported when a financial statement element is recognized. Measurement concepts provide the foundation for the Board to determine whether, for instance, an asset or other element should be reported at its cost when acquired or at an amount that is measured anew as of the date of each year’s financial statements.

The project will ultimately lead to a Concepts Statement on measurement. The GASB issued a Preliminary Views that addressed this topic in June 2011. After considering public feedback, the GASB released an Exposure Draft of a proposed Concepts Statement in June 2013.

Impact on the financial report: Initially minimal. Once published, the Concepts Statement will help to ensure the uniformity of the Board’s future standards-setting decisions regarding measurement concepts for assets and liabilities in the financial statements. A benefit to users is the expectation of enhanced consistency over time and comparability across governments.

Status: The Board is redeliberating issues raised by respondents to the June 2013 Exposure Draft on measurement. A final Concepts Statement is expected to be issued in March 2014

Contacts:
Roberta Reese (rereese@gasb.org)
Ken Schermann (krschermann@gasb.org)

More information:

Fair Value Measurement and Application


The notion of fair value has been used for many years in the governmental accounting environment to measure some assets and liabilities, predominantly investments. The GASB approved a Preliminary Views, Fair Value Measurement and Application, laying out its initial thinking on this topic, in June 2013. The document proposes new standards regarding how fair value should be determined (measurement), which assets and liabilities should be measured at fair value (application), and what information about fair values should be included in the notes to the financial statements (disclosure).

Under the Preliminary Views, fair value would be 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. In the Board’s view, fair value is a market-based measurement and represents an exit price (as opposed to an entry price at which a government can purchase an asset, which is sometimes different).

The proposal would continue the requirement to report most investments at their fair value. It defines an investment as “a security or other asset that a government holds primarily for the purpose of income or profit, and its present service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry.”

Impact on the financial report: The primary result of the fair value project should be improved comparability and consistency of governments’ measures of fair value. It clarifies certain issues that are important to pinpointing fair value but which may be uncertain at present. The fair value definition currently being contemplated by the Board is consistent with the Financial Accounting Standards Board’s (FASB) definition of fair value—one that many users are already familiar with. The clarification of the definition of an investment may result in certain assets that are currently reported as investments at fair value being reported in the future at their historical cost, though this is not likely to be widespread. Likewise, a capital asset now being reported at historical cost might be owned solely for the purpose of generating rental income (and not to carry out a government program, such as providing low-cost housing); under the proposal, it would be considered an investment and reported henceforth at its fair value as of the date of the financial statements.

Status
: The Board is redeliberating issues raised by respondents to the June 2013 Preliminary Views. An Exposure Draft of proposed new standards is expected in the second quarter of 2014.

Contacts:
Randy Finden (rjfinden@gasb.org)
Jialan Su (jsu@gasb.org)
Deborah Beams (dbeams@gasb.org)

More information: 

Fiduciary Responsibilities


The Board added a project on Fiduciary Responsibilities to the current technical agenda in August 2013 after research activities were conducted and the Governmental Accounting Standards Advisory Council was consulted.

One of the reasons a government may have to include a separate legal entity or a particular activity in its financial statements is that the government has a fiduciary responsibility for the entity or activity—the government acts as a trustee or agent for the resources associated with the entity or activity. The concept of what constitutes fiduciary responsibility, however, is not well understood. GASB research and technical inquiries from constituents have indicated inconsistency in the current reporting of various types of fiduciary activities. Research also has indicated a general inconsistency between governments that perform only business-type activities (such as colleges, utilities, and hospitals) and general purpose governments (such as states and cities) in the reporting of fiduciary activities.

The project’s core objective is considering whether to develop additional guidance on how to decide if a government should report fiduciary activities in its general purpose external financial reports. The project also will address confusion about the proper uses of private-purpose trust funds and agency funds, and whether a stand-alone business-type activity engaging in fiduciary activities should present fiduciary fund financial statements.

Impact on the financial report: Uncertain at present because the project is still in its early stages.

Reporting of fiduciary activities principally supports assessments of a government’s accountability for its responsibilities as a fiduciary. The information in fiduciary fund financial statements generally is not considered as useful for making decisions as the information in other financial statements. This is because assets in fiduciary funds belong to others—such as investments in a public employee pension plan or fundraising proceeds in a student activity fund—and are therefore not available to the government to support its operations.

If guidance ultimately results from this project, it would improve a user’s ability to evaluate a government’s stewardship over assets that belong to others.

Status: The Board is currently deliberating the issues in this project. An Exposure Draft is scheduled for issuance in late 2014.

Contacts: 
Lisa Parker (lrparker@gasb.org)
Ken Schermann (krschermann@gasb.org

More information:

Leases


The current guidance for reporting leases originated in the standards of the FASB and requires that governments report a capital asset and corresponding long-term liability for leases that meet certain criteria; for instance, leases that last for 75 percent or more of the useful life of the asset being leased. Leases that meet the criteria are referred to as capital leases and all others are operating leases. The FASB standards were issued in 1976.

The objective of the Leases project is to reexamine the standards for lease accounting and to consider whether they continue to function well in the government environment and result in decision-useful information. This project also is considering whether revisions currently proposed by the FASB and the International Accounting Standards Board are appropriate for governments.

A major focus of the project is on whether the present requirements for financial reporting display and disclosure meet the essential needs of users. A key area of emphasis is the criteria that identify a lease as in the operating or capital category. The Board also will evaluate whether leases meet the definitions of assets and liabilities in the GASB’s conceptual framework.

Impact on the financial report: Uncertain at present because the project is still in its early stages. If the project results in revised guidance, the expectation is that users would have access to more consistent, comparable, and decision-useful information about leased assets and the related obligations to make payments. Status:  The Board is currently deliberating the issues in this project. An Exposure Draft is scheduled for issuance in late 2014.

Contacts:
Deborah Beams (dbeams@gasb.org)
Randy Finden (rjfinden@gasb.org)

More information:
 
Leases project page
 

Other Postemployment Benefits

The GASB issued the current standards related to other postemployment benefits (OPEB)—principally retiree health insurance—in June 2004. Those standards have made users more aware of the costs of providing OPEB, the size of the commitment made by governments, and the extent to which assets have been set aside to fund the commitment. The standards established accounting and reporting similar to pensions at the time—disclosure of the unfunded OPEB liability and other information about a government’s OPEB, such as the assumptions and methods used to measure the liability.

In June 2012, the GASB significantly revised its pension standards to require, among other things, recognizing the net pension liability (total liability minus net position in the pension plan) on the face of the financial statements. This project is considering whether similar changes should be made to the OPEB standards.

Impact on the financial report: If the OPEB standards are revised in the same ways as the pension standards, governments that offer OPEB would likely begin to report a significant long-term liability in the financial statements, which would greatly reduce a government’s reported unrestricted net position. Users also would receive more informative note disclosures and 10-year schedules tracking sources of changes in the OPEB liability and contributions by governments to their OPEB plans.

Status
: Deliberations began in July 2012. The Board is planning to propose revised standards for OPEB accounting and financial reporting in spring 2014.

Contacts:
Michelle Czerkawski (mlczerkawski@gasb.org)
Scott Reeser (sareeser@gasb.org)
Emily Clark (emclark@gasb.org)

More information:
OPEB project page