Wiley GAAP for Governments 2011

Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments

Warren Ruppel

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781118076064
• Edition: 6
• Topic: Aides à l'étude
• Subtopic: Guides d'étude CPA

The most practical, authoritative guide to governmental GAAP

Wiley GAAP for Governments 2011 is a comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities. Designed with the needs of the user in mind, a "New Developments" chapter offers the important developments in governmental GAAP during the past year.

• Full coverage of authoritative accounting standards
• Extremely useful and user-friendly examples, illustrations, and helpful practice hints
• A comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities
• Provides a look ahead to the status of current and future Governmental Accounting Standards Board standards and projects
• Offers information on the very latest in standard-setting activities
• Also by Warren Ruppel: Governmental Accounting Made Easy

Wiley GAAP for Governments 2011 is a thorough, reliable reference financial professionals will consistently keep on their desks rather than on their bookshelves.

1

NEW DEVELOPMENTS

INTRODUCTION

The 2011 Governmental GAAP Guide incorporates all of the pronouncements issued by the Governmental Accounting Standards Board (GASB) through November 2010. This chapter is designed to keep the reader up to date on all pronouncements recently issued by the GASB and their effective dates, as well as to report on the Exposure Drafts, Preliminary Views, and Invitations to Comment for proposed new statements or interpretations that are currently outstanding. This chapter also includes relevant information on the GASB’s Technical Agenda for the upcoming year to give readers information as to potential areas for future GASB requirements.

RECENTLY ISSUED GASB STATEMENTS AND THEIR EFFECTIVE DATES

GASB Statement		Effective Date	Where in this book
51	Accounting and Reporting for Intangible Assets	Periods beginning after 6/15/2009	Chapter 14
52	Land and Other Real Estate Held as Investments by Endowments	Periods beginning after 6/15/2008	Chapter 12
53	Accounting and Financial Reporting for Derivative Instruments	Periods beginning after 6/15/2009	Chapter 13
54	Fund Balance Reporting and Governmental Fund Type Definitions	Periods beginning after 6/15/2010	Chapter 4
55	The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments	Effective upon Issuance	Chapter 2
56	Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards	Effective upon Issuance	Chapter 5
57	OPEB Measurements by Agency Employers and Agent Multiple-Employer Plans	Periods beginning after 6/15/2011 (provisions related to the use and reporting of the alternative measurement method are effective immediately)	Chapter 17
58	Accounting and Financial Reporting for Chapter 9 Bankruptcies	Periods beginning after 6/15/2009	Chapter 15
59	Financial Instruments Omnibus	Periods beginning after June 30, 2010	Chapters 12, 13, 22

EXPOSURE DRAFTS

The GASB has a number of Exposure Drafts that it has issued which will affect future accounting and financial reporting requirements. The following provides a brief synopsis of what is being covered by each Exposure Draft. Readers should always be aware that the GASB often modifies Exposure Drafts based upon its continuing deliberations and consideration of comments that it receives on each Exposure Draft.

Exposure Draft—Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements

The purpose of the Exposure Draft is to incorporate into the GASB’s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with GASB pronouncements:

• FASB Statements and Interpretations

• Accounting Principles Board Opinions

• Accounting Research Bulletins

Current guidance in this area is provided by GASB Statement 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting (GASBS 20), which would be superseded by the new statement. Additional information about this Exposure Draft and GASBS 20 is provided in Chapter 7.

Not only would it be convenient to have this information incorporated into GASB authoritative literature, the non-GASB pronouncements mentioned above have become nonauthoritative because of their incorporation into the FASB Accounting Standards Codification.

The statement resulting from this Exposure Draft is expected to be effective for financial statements for periods beginning after December 15, 2011.

Exposure Draft—Accounting and Financial Reporting for Service Concession Arrangements (Revised)

The purpose of this Exposure Draft is to establish accounting and financial reporting requirements for service concession arrangements (SCAs). SCAs are a type of public-private or public-public partnership arrangement, which is the name more commonly used for these arrangements.

The Exposure Draft defines an SCA as an arrangement between a transferor (a government) and an operator (governmental or nongovernmental) in which (1) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a “facility”) and (2) the operator collects fees from third parties.

NOTE: The example often used (based upon a number of these transactions actually having occurred) is a toll road. The government (transferor) would transfer the operation of a toll road (including all or most of the tolls collected) to a private enterprise in return for an up-front payment.

The primary issue for accounting and financial reporting is determining whether the transferor should report the facility subject to an SCA as its capital asset. The Exposure Draft has specific criteria to determine whether a transferor has control over the facility. If the transferor meets all control criteria, it would report the facility as its capital asset, subject to existing guidance for capital assets. Existing facilities would be reported at their current carrying amount; new or improved facilities would be reported at fair value along with a corresponding liability that would be amortized in a systematic and rational manner over the term of the arrangement.

If the transferor does not meet the service-related control criteria, it would derecognize any existing facility and report only a residual interest in the facility. The amount of the residual interest in an existing facility would be determined based on its carrying amount, but the amount of the residual interest in a new or improved facility would be determined based on its fair value. If the SCA requires the operator to provide the transferor with up-front or installment payments, the transferor would consider these payments in determining the gain or loss on derecognition of the facility.

The Exposure Draft also provides guidance for governments that are operators in an SCA. The governmental operator would report an intangible asset at cost for its right to access the facility and collect third-party fees; it would amortize the intangible asset over the term of the arrangement in a systematic and rational manner. For existing facilities, a governmental operator’s cost may be the amount of an up-front payment. For new or improved facilities, a governmental operator’s cost may be its cost of improving an existing facility or constructing or acquiring a new facility.

The Exposure Draft would also require that, for revenue sharing arrangements, governmental operators report all revenues and expenses, unless they are functioning as an agent for the transferor.

There are also certain disclosure requirements about SCAs that would be required to be included in the notes to the financial statements.

In June 2010 the GASB issued a revised version of this Exposure Draft to adjust the scope of the proposed statement. The following summarizes the changes in the revised Exposure Draft.

• The original Exposure Draft used the control criteria to determine the appropriate accounting treatment (i.e., for when control is transferred or retained). The scope of the revised Exposure Draft has been modified so that if control has been transferred to the operator in a service concession arrangement, that arrangement would not be subject to the requirements of the proposed statement.

• The original Exposure Draft proposed that transferors report a liability upon commencement of a service concession agreement for consideration received up front (or in installments) from an operator. The revised Exposure Draft would report these payment as a deferred inflow of resources.

• The original Exposure Draft proposed that either the transferor or the governmental operator report the revenues and expenses for the service provided, depending on which entity was accountable for the services. The revised Exposure Draft would require a governmental operator to report all revenue and expenses associated with the operation of the facility and the transferor would recognize only its portion of the shared revenues.

The statement resulting from this Exposure Draft is expected to be effective for financial statements for periods beginning after June 15, 2011, with retrospective application generally required for all periods presented.

Exposure Draft—The Financial Reporting Entity—an amendment of GASB Statements No. 14 and No. 34

The accounting guidance for determining what entities should be included in a government’s financial reporting entity and how those entities should be presented has not been addressed by the GASB since implementation of the financial reporting model promulgated by GASBS 34. Accordingly, this Exposure Draft addresses those issues. If a final statement includes similar provisions as the Exposure Draft, a “fine-tuning” of the requirements is likely to result, rather than a massive change in reporting entities and presentation.

The proposed statement resulting from the Exposure Draft would change certain requirements for inclusion of component units in the financial reporting entity. Specifically,

• For organizations that were previously required to be included as component units by meeting the fiscal dependency criterion, a financial benefit or burden relationship would also have to present between the primary government and the organization for it to be included as a component unit.

• For organizations that do not meet the financial accountability criteria for inclusion but that should be included because the primary government’s management determines that it would be misleading to exclude them, the proposed statement clarifies the manner in which that determination should be made and the types of relationships that generally should be considered in making that determination.

The proposed statement resulting from the Exposure Draft would also amend the criteria for reporting component units as blended component units (i.e., as if they were part of the primary government). Specifically,

• For component units that are currently blended based upon the “substantively the same governing body” criterion, the Exposure Draft would require that

1. The primary government and the component unit have a financial benefit or burden relationship, or

2. Management below the level of elected officials of the primary government have the operational responsibility (as defined) for the activities of the component unit.

• New criteria would be added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government.

• Funds of a blended component unit have the same characteristics and the same reporting options as a fund of a primary government. The general fund of a blended component unit should be reported as a special revenue fund.

• Additional reporting guidance would be proved for blending a component unit if the primary government is a business-type activity that uses a singlecolumn presentation for financial reporting. The component unit may be blended by consolidating its financial statement data within the single column of the primary government and presenting combining information in the notes to the financial statements.

The proposed Statement would also require a primary government to report its equity interest in a component unit as an asset, with the asset being eliminated in the blending process if the component unit meets the blending criteria.

Effective Date

A final Statement resulting from this Exposure Draft is expected to be effective for financial statements for periods beginning after June 15, 2012, with earlier application encouraged.

Exposure Draft—Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position

The GASB issued this Exposure Draft in February 2011 to provide guidance ...