From the Chairman's Desk
By David A. Vaudt, GASB Chairman
I think it’s a good way to describe the GASB’s transition to a new year. Similar to our standards-setting process—one of ongoing improvement, without beginning or end—our 2015 accomplishments will be a continuum of the progress of 2014.
In this column, I’ll look ahead to our major project and research goals for the year.In this column, I’ll look ahead to our major project and research goals for the year—specifically, as they relate to our proposed OPEB standards, our research associated with the reexamination of the financial reporting model, and our look at external investment pools. I’ll also look at what we expect to achieve in important areas of fair value, tax abatement disclosures, and leases.
Other Postemployment Benefits (OPEB)
In 2015, the GASB will continue to focus on improving transparency around retirement benefit promises that state and local governments make to their employees.
In 2015, the GASB will continue to focus on improving transparency around retirement benefit promises that state and local governments make to their employees. During the first quarter of this year, we’ll conduct redeliberations on two proposed Statements intended to significantly improve financial reporting by state and local governments of other postemployment benefits (OPEB), such as retiree health insurance.
As part of this process, we will continue our thorough review of the significant input you provided, including 76 comment letters generated from the proposals we issued in mid-2014. Depending on the outcome of those redeliberations, we expect to approve final guidance by the end of the second quarter.
We also will be carefully considering your feedback as we look to establish requirements for pensions and pension plans that are outside the scope of the GASB pensions standards issued in 2012. We anticipate completing that work in the second quarter as well.
Financial Reporting Model
To ensure that GASB standards continue to meet the needs of the ever-changing government environment, we periodically evaluate existing guidance to consider where updates may be needed. In the coming months, we’ll conclude our research on a potential reexamination of GASB Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, which establishes the financial reporting model for governments.
A reexamination of the model could provide opportunities to simplify the standards in ways that contribute to more timely financial reporting by governments while maintaining—or improving—the relevance of the information it provides financial statement users.
Our pre-agenda research phase should conclude this summer. Based on what we learn, the Board will discuss in August whether it is necessary to add an agenda project to consider changes in this area.
External Investment Pools
For governments, external investment pools function much like money market funds do in the private sector. Current guidance allows some governments to use an amortized cost basis—that is, the cost of the investment plus or minus adjustments made for premiums and discounts associated with the purchase price—for their investments in these pools.
However, new rules issued by the U.S. Securities and Exchange Commission (SEC) will reduce governments’ ability to use amortized cost. Under those rules, which will take effect in 2016, it appears that many governments that presently use amortized cost will have to report their investments at fair value—a market-based price for financial reporting purposes.
To address related financial reporting issues, the GASB has fast-tracked a project that is considering revisions to the existing guidance in light of the SEC’s new rules.To address related financial reporting issues, the GASB has fast-tracked a project that is considering revisions to the existing guidance in light of the SEC’s new rules.
We plan to issue an Exposure Draft of proposed improvements by mid-year, followed by final guidance before year-end.
One of our priorities has been to identify areas where we can work with the FASB to leverage the work each Board has done in various areas of financial reporting. One area where the GASB has been able to benefit from the FASB’s efforts is in the area of fair value.
We expect to issue a final Statement in the coming weeks that harmonizes the definition of fair value with that of the FASB. The application of this Statement is expected to bring greater consistency to how governments determine the fair market value of their investments, especially those for which market values are not readily available.
Tax Abatement Disclosures
Another area of focus in 2015 will be tax abatements, which are tax reductions a state or local government offers to a business or other organization in return for a specified benefit to that government or its citizens. Many governments offer tax abatements, but information about these agreements—or the magnitude of their effects on future revenues—is sporadically made available to the public.
Recently, we concluded the exposure period for a proposed GASB Statement that would require governments to disclose information about the nature and dollar amounts related to these abatements. We expect to spend the first part of this year redeliberating the input we’ve received and to issue a final Statement in the third quarter of 2015.
We’re in the early stages of a project to improve how state and local government lease obligations are shown on financial statements and disclosed in their notes. Based on what we’ve heard from financial statement users—and leveraging the extensive work on leases performed by the FASB—we’re considering an approach that treats leases solely as a financing mechanism.
We currently are seeking comments on Preliminary Views we issued late last year. The comment period continues through March 6, 2015, with public hearings to be held in April in New York City; Irving, Texas; and Los Angeles. An Exposure Draft is planned for the first quarter of 2016. We encourage you to review the proposal and share your thinking with us.
As you can see, our plate is full for the coming year. But with the expertise and dedication of our Board and staff—and our dynamic new co-chair, Jan Sylvis—we expect to meet and exceed our goals—setting the foundation for a successful 2016 and beyond.
As always, I’ll end my column by encouraging you to actively participate in our process. We need your comments and thoughts throughout the year to develop standards that meet the needs of our stakeholders and bring state and local government financial statement users the best information possible.
David A. Vaudt