Government Regulatory Update

Overview

The Governmental Accounting Standards Board (GASB) has issued Statement No. 85 Omnibus 2017. The objective of this Statement is to improve consistency in accounting and financial reporting by addressing practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and post-employment benefits (pensions and other post-employment benefits [OPEB]).

When Is GASB 85 Effective?

The requirements of this Statement are effective for reporting periods beginning after June 15, 2017. Early application is encouraged and is permitted by topic to the extent that all requirements associated with a single topic are implemented simultaneously.

Changes to Existing Statements as a Result of GASB 85

Blending Component Units

  • For a primary government that is a business-type activity and uses a single column for financial statement presentation of its business-type activities, a component unit may be blended only if the component unit meets a criterion for blending in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended.

Goodwill

  • For acquisitions that occurred prior to the effective date of Statement No. 69, Government Combinations and Disposals of Government Operations, (a) paragraph 39 of Statement 69 should be applied for circumstances in which consideration provided exceeded the net position acquired and (b) “negative” goodwill should not be reported.
  • A government should include any existing
    negative goodwill balances as part of the restatement of net position in the
    earliest period instead of either reducing the values of non-current assets
    (other than financial assets) associated with the existing negative goodwill or
    recognizing a special item.

Fair Value Measurement and Application

  • Each unit of account of real estate held by insurance entities should be classified either as an investment or as a capital asset, based on whether the unit of account meets the definition of an investment in Statement 72.
  • The
    money market investments and participating interest-earning investment
    contracts described in paragraph 69c of Statement 72 may be measured at
    amortized cost to the extent permitted by paragraph 9 of Statement No. 31, Accounting
    and Financial Reporting for Certain Investments and for External
    Investment
    Pools.
  • Therefore, this Statement clarifies that the use of amortized costs to measure those investments continues to be permitted but is not required.

Post-Employment Benefits

For the timing of the measurement of pension or OPEB liabilities and expenditures recognized in financial statements prepared using the current financial resources measurement focus.

  • Measure the liability as of the end of the reporting period and expenditures for the reporting period.

For the recognition and measurement of on-behalf payments for pensions or OPEB in employer financial statements:

  • In financial statements prepared using the current financial resources measurement focus, an employer should recognize expenditures for on-behalf payments for pensions or OPEB equal to the total of (a) amounts paid during the reporting period by non-employer contributing entities to the pension or OPEB plan (or for benefits as they come due) and (b) the change between the non-employer contributing entities’ beginning and ending balances of amounts normally expected to be liquidated with expendable available financial resources. Both (a) and (b) include amounts for payables to a pension or OPEB plan.
  • In
    financial statements prepared using the current financial resources measurement
    focus, an employer should recognize revenue equal to the amount of expenditures
    determined.
  • For
    on-behalf payments that are not legally required to be made by a non-employer
    contributing entity for defined contribution pensions or defined contribution
    OPEB, an employer should apply the revenue recognition requirements of
    paragraph 8 of Statement 24.
  • For
    on-behalf payments for pensions or OPEB, paragraphs 9−12 of Statement 24, as amended, should not be
    applied.

For the presentation of payroll-related measures in required supplementary information by OPEB plans and employers that provide OPEB:

  • For single-employer defined benefit OPEB plans (single-employer OPEB plans) and cost-sharing multiple-employer defined benefit OPEB plans (cost sharing OPEB plans), the measure of payroll should be covered payroll.
  • For
    employers that provide OPEB through OPEB plans that are administered through
    trusts that meet the criteria in paragraph 4 of Statement 75, the measure of
    payroll should be one of the following, as applicable:
    -Covered
    payroll, if contributions to the OPEB plan are based on a measure of pay.
    -Covered-employee
    payroll, if contributions to the OPEB plan are not based on a measure of pay.

For the classification of employer-paid member contributions for OPEB:

  • For consistency, the requirements regarding employer-paid member contributions should be the same for all post-employment benefits (both pensions and OPEB).

For an alternative measurement method for OPEB:

  • The following specific modifications may be incorporated into application of the alternative measurement method:
    -Expected point in
    time at which plan members (employees) will exit from active service
    -Turnover

For OPEB provided through certain multiple-employer defined benefit OPEB plans:

  • A cost-sharing OPEB plan that meets the criteria in paragraph 4 of Statement 75 and that (a) is not a state or local governmental OPEB plan, (b) is used to provide defined benefit OPEB both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (c) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide OPEB through the OPEB plan).
  • OPEB
    expense should be recognized in an amount equal to the employer’s required
    contributions to the OPEB plan for the reporting period, and a payable should
    be reported for unpaid required contributions at the end of the reporting
    period. OPEB expense also should be recognized for separate liabilities to the
    OPEB plan that arise in the reporting period, and a payable should be reported
    for unpaid amounts at the end of the reporting period.
  • OPEB
    expenditures should be recognized in an amount equal to the employer’s required
    contributions to the OPEB plan that are associated with pay periods within the
    reporting period. In addition, for separate liabilities to the OPEB plan, OPEB
    expenditures should be recognized equal to the total of (a) amounts paid by the
    employer in relation to the payable and (b) the change between the beginning
    and ending balances of amounts normally expected to be liquidated with
    expendable available financial resources.
  • A payable should be recognized to the extent it is normally expected to be liquidated with expendable available financial resources.
What Should be Disclosed on the Notes to Financial Statements?

The following should be disclosed:

  • Name of the OPEB plan, identification of the entity that administers the OPEB plan, and identification of the OPEB plan as a cost-sharing OPEB plan
  • Whether
    the OPEB plan issues a publicly available financial report and, if so, how to
    obtain the report
  • A
    brief description of the benefit terms
  • A brief description
    of the contribution requirements
  • The following information about the employer’s payables, if any:
    -If not otherwise identifiable, the balance of payables
    -Significant terms related to the payables
    -A description of what gave rise to the payables
  • Required Supplementary Information:
    -A schedule of the employer’s required contributions for each of the 10 most recent fiscal years should be presented as required supplementary information. The schedule should separately identify amounts associated with each OPEB plan.
  • Notes to the required schedule:
    -Information about factors that significantly affect trends in the amounts reported
How Will GASB 85 Impact Your Financial Statements?

Changes made due to implementation of GASB 85 should be applied retroactively by restating financial statements for all prior periods presented.

Please note this summary of GASB 85 is not meant to substitute for reading it in its entirety.