In early 2017, the Governmental Accounting Standards Board (GASB) issued two new accounting standards in order to clarify how governmental entities report fiduciary activities and to address various miscellaneous accounting issues related to blending component units, goodwill, fair value measurement and postemployment benefits.
The first of the two standards, GASB Statement No. 84, Fiduciary Activities (GASB 84), will primarily affect local governments and will improve guidance regarding the identification of a government’s fiduciary activities and how those activities should be reported.
Under current guidance, GASB Statement No. 34 (Basic Financial Statements – And Management’s Discussion And Analysis – For State And Local Governments) mandates that governments should report fiduciary activities within fiduciary funds but never truly defined what constitutes fiduciary activity; GASB 84 clarifies that activities will be considered fiduciary activities if all of the following criteria are met:
- The government controls the assets associated with the activity
- The assets associated with the activity are not derived either from the government’s own-source revenues or from government-mandated or voluntary non-exchange transactions (with an exception for certain pass-through grants)
- The assets associated with the activity meet one of the following criteria:
- The assets are administered through a trust in which the government itself is not a beneficiary and which holds assets that are legally protected from the creditors of the government
- The assets are for the benefit of the individuals and the government does not have administrative or direct financial involvement with the assets
- The assets are for the benefit of organizations or other governments that are not part of the government’s financial reporting entity
Additionally, pension and other-post employment benefit (OPEB) trust funds meeting the criteria set forth in GASB Statements No. 67 and 74, respectively, and component units that are fiduciary in nature, will also be reported in fiduciary trust funds.
GASB 84 then sets forth the financial statement presentation requirements for fiduciary funds. The four types of fiduciary funds are:
- Pension (and other employee benefit) trust funds
Investment trust funds
- Private-purpose trust funds
- Custodial funds
The standard also establishes two significant reporting requirements that were unnecessary under GASB Statement No. 34. First, governments will be required to report a statement of fiduciary net position for custodial funds (which replace agency funds under the current model and are to be used for fiduciary activities that are not structured in a trust as required to be reported under another type of fiduciary fund). Governments should record liabilities to beneficiaries of the fiduciary activity when an event (such as the collection of taxes on behalf of another government) has occurred that requires the government to disburse fiduciary resources.
Second, governments will now be required to report a statement of changes in fiduciary net position for custodial funds. The statement of changes in fiduciary net position for custodial funds should disaggregate additions by source (e.g. investment income) and deductions by type (e.g. investment costs). For both reporting changes noted, an exception exists for funds with resources that are expected to be held for three months or less.
The standard is effective for reporting periods beginning on or after December 15, 2018, and GASB encourages early implementation.
The second of the two standards, GASB Statement No. 85, Omnibus 2017 (GASB 85), seeks to clarify existing guidance governing various topics, the first of which is blending component units. For governments engaged only in business-type activities that use a single column for financial statement presentation, a component unit may be blended only if the component unit meets a criterion for blending as described within GASB Statement No. 14, The Financial Reporting Entity, as amended (specifically, if either the governing bodies of the two entities are substantially the same, or the component unit provides services entirely or almost entirely to the primary government).
The next two topics, goodwill and fair value measurement, received minor adjustments within the new statement. Regarding goodwill, for acquisitions that occurred prior to the effective date of GASB 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 (meaning that the difference between the consideration and net position acquired to be recorded as a deferred outflow and amortized to future periods), and (b) “negative” goodwill should not be reported. With regards to fair value, GASB 85 mandates that each unit of account of real estate used in operations by insurance entities should be classified either as an investment or as a capital asset used in operations, based on whether the unit of account meets the definition of an investment within GASB Statement No. 72, Fair Value Measurement and Application.
Lastly, GASB 85 addresses a number of different issues surrounding pensions and other postemployment benefits (OPEB). The standard clarifies that governmental funds reflecting the liabilities and expenditures related to pension and OPEB should measure the liabilities and expenditures for the reporting period (which contrasts with government-wide financial statements, which could be reported based on a measurement date of up to one year prior to the financial statement date).
Subsequent paragraphs address:
- The recognition and measurement of on-behalf payments for pensions or OPEB in employer financial statements (which are measured on the current financial resources measurement focus)
- The presentation of payroll-related measures in RSI for OPEB plan and employer financial statements (distinguishing between when covered payroll and covered-employee payroll should be used)
- The classification of employee-paid member contributions for OPEB as either plan member contributions (for plans under GASB Statement No. 74) or employee contributions (for employers under GASB Statement No. 75)
- Accounting and financial reporting for OPEB provided through certain multi-employer defined benefit OPEB plans that are not state or local governmental OPEB plans, and where OPEB is provided to both governments and non-governments with no predominant state or local governmental employer participating
The standard is effective for reporting periods beginning on or after June 15, 2017, and GASB encourages early implementation. If you have questions regarding these new changes in reporting, please contact one of RubinBrown’s Public Sector Services professionals.
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