Accounting Update: New Guidance Impacts a Broad Range of Practice Issues

March 27, 2017

Introduction

On March 20, 2017, the Governmental Accounting Standards Board (GASB) issued guidance addressing several different accounting and financial reporting issues identified during the implementation and application of certain GASB pronouncements. GASB Statement 85, Omnibus 2017, addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and pensions and other postemployment benefits (OPEB). The provisions of Statement 85 are effective after June 15, 2017, though earlier application is encouraged.

The following sections provide details on Statement 85’s guidance.

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 Statement 14, The Financial Reporting Entity.

Goodwill

For acquisitions that occurred prior to the effective date of Statement 69, Government Combinations and Disposals of Government Operations, Statement 69 should be applied for circumstances in which consideration provided exceeded the net position acquired and “negative” goodwill should not be reported.

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, Fair Value Measurement and Application. The money market investments and participating interest-earning investment contracts described in Statement 72 may be measured at amortized cost to the extent permitted by Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools.

Postemployment Benefits

Timing of the Measurement

In financial statements prepared using the current financial resources measurement focus, liabilities to employees for defined benefit pensions or defined benefit OPEB should be measured as of the end of the reporting period. All expenditures for defined benefit pensions or defined benefit OPEB should be measured for the reporting period.

Recognition and Measurement of On-Behalf Payments

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.

Except for the following circumstances, in financial statements prepared using the current financial resources measurement focus, an employer should recognize revenue equal to the amount of expenditures determined above.

  • 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 Statement 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance.
  • For on-behalf payments for pensions or OPEB, Statement 24 should not be applied.

Presentation of Payroll-Related Measures

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 that is required by Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, to be presented in schedules of required supplementary information (and used in ratios that are presented in required supplementary information) should be covered payroll. Covered payroll is the payroll on which contributions to the OPEB plan are based. If contributions to the OPEB plan are not based on a measure of pay, no measure of payroll should be presented.

For employers that provide OPEB through OPEB plans that are administered through trusts that meet the criteria in Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, the measure of payroll to be presented in schedules of required supplementary information (and used in ratios that are presented in required supplementary information) should be one of the following, as applicable:

  • Covered payroll (as defined above), if contributions to the OPEB plan are based on a measure of pay
  • Covered-employee payroll (as defined in Statement 75), if contributions to the OPEB plan are not based on a measure of pay

Classification of Employer-Paid Member Contributions for OPEB

In some circumstances, payments are made by the employer to satisfy contribution requirements that are identified by the OPEB plan terms as plan member contribution requirements. For purposes of applying Statement 74, those amounts should be classified as plan member contributions. For purposes of applying Statement 75, including for purposes of determining a cost-sharing employer’s proportion, those amounts should be classified as employee contributions. An employer’s expense and expenditures for those amounts should be recognized in the period for which the contribution is assessed and classified in the same manner as the employer classifies similar compensation other than OPEB (for example, as salaries and wages or as fringe benefits).

Alternative Measurement Method for OPEB

The following specific modifications may be incorporated into application of the alternative measurement method in accordance Statement 74 or Statement 75:

  • Expected point in time at which plan members (employees) will exit from active service. The assumption should reflect past experience and future expectations for the covered group. For active plan members (employees) covered under the terms of the OPEB plan, the assumption may incorporate (1) a single assumed age at which plan members (employees) will exit from active service or (2) an assumption that plan members (employees) will exit from active service upon attaining a certain number of years of service.
  • Turnover. The requirements of Statement 74 or Statement 75 may be applied to determine the assumed probability that an active plan member (employee) will remain employed until the assumed age at which the plan member (employee) will meet employment-related eligibility requirements to receive benefits.

If the alternative measurement method is used, the following should be recognized in expense in the current reporting period:

  • The change in proportion described in Statement 75.
  • The difference between (1) contributions (or amounts that are paid for OPEB as the benefits come due) during the measurement period and (2) the proportionate share of contributions (or amounts that are paid for OPEB as the benefits come due), described in Statement 75.

OPEB Provided through Certain Multiple-Employer Defined Benefit OPEB Plans

The following sections address defined benefit OPEB provided through a cost-sharing OPEB plan that meets the criteria in 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).

The following sections also apply to the financial statements of state and local governmental employers whose employees are provided with defined benefit OPEB through cost-sharing OPEB plans that have the characteristics described above. Those requirements apply whether the government’s financial statements are presented in stand-alone financial reports or are included in the financial reports of another government.

Recognition and Measurement

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 (for example, for amounts assessed to an individual employer upon joining a cost-sharing OPEB plan), 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 (that is, for (a) the unpaid required contributions that are associated with pay periods within the reporting period and (b) the portion of any separate liabilities to the OPEB plan that is due and payable pursuant to contractual arrangements or legal requirements).

Notes to Financial Statements

For each cost-sharing OPEB plan that has the characteristics described above through which the employer provides OPEB, 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 that has the characteristics described above
  • 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, including:
    • The number of the government’s employees covered
    • The types of benefits provided
    • The authority under which benefit terms are established or may be amended
  • A brief description of the contribution requirements, including:
    • The basis for determining the employer’s contributions to the OPEB plan (for example, pursuant to a collective-bargaining agreement)
    • Identification of the authority under which contribution requirements of the employer and its employees are established or may be amended
    • The required contribution rates of the employer and its employees for the reporting period
    • The amount, in dollars, of the employer’s required contributions for the reporting period
    • The expiration date(s) of the collective-bargaining agreement(s) requiring contributions to the OPEB plan, if any
    • A description of any minimum contributions required for future periods by the collective-bargaining agreement(s), statutory obligations, or other contractual obligations, if applicable
    • Whether the employer is subject to any provisions regarding withdrawal from the OPEB plan
  • 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 (for example, required contributions to the OPEB plan or a contractual arrangement for contributions to the OPEB plan related to past service upon entrance into the arrangement).

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. In addition, information about factors that significantly affect trends in the amounts reported (for example, changes in the size of the population covered by the benefit terms or changes in required contribution rates) should be presented in notes to the schedule.

Effective Date and Transition

The provisions of Statement 85 are effective for periods beginning after June 15, 2017. Earlier application is encouraged.

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