Governmental Auditing Topics

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Oklahoma Municipal State Laws

 Governmental Accounting Updates

 GASB Issues Statement No. 53 on Derivative Instruments

The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. This Statement is intended to improve how state and local governments report information about derivative instruments in their financial statements. Specifically, GASB 53 requires governments to measure most derivative instruments at fair value in their financial statements that are prepared using the economic resources measurement focus and the accrual basis of accounting. In addition, this standard addresses hedge accounting requirements.

GASB 53 is effective for financial statements for reporting periods beginning after June 15, 2009. Earlier application is encouraged.

A copy of a news release on the issuance of GASB 53 is available at: http://www.gasb.org/

A "Question and Answer Fact Sheet" on GASB 53 is available at:
http://www.gasb.org/project_pages/Derivatives_Final_Statement_Fact_Sheet.pdf 

 GASB Issues Statement No. 52, Land and Other Real Estate Held as Investments by Endowments

November 21, 2007—The Governmental Accounting Standards Board (GASB) has issued GASB Statement No. 52, Land and Other Real Estate Held as Investments by Endowments. The statement improves the quality of financial reporting by requiring endowments to report their land and other real estate investments at fair value, creating consistency in reporting among similar entities that exist to invest resources for the purpose of generating income.

Prior to the issuance of Statement 52, state and local government endowments were required to report land and other real estate held as investments at historical cost, which provides information on investment results only in the year the investments are sold. However, entities that perform investment functions similar to endowments–including pension plans, other post employment benefit (OPEB) plans, external investment pools, and Internal Revenue Code Section 457 deferred compensation plans–have been required to report their land and real estate investments at fair value. Reporting those investments at fair value provides more decision-useful information about their composition, current value, and recent changes in value.

In order to help users of financial statements better evaluate an endowment’s investment decisions and performance, Statement 52 requires governments to report the changes in fair value as investment income. It also requires them to disclose the methods and significant assumptions employed to determine fair value, and to provide other information that they currently present for other investments reported at fair value.

GASB Statement No. 52 is effective for financial statements for periods beginning after June 15, 2008. Governments that wish to implement earlier than that date are encouraged to do so.

 GASB Issues Statement 51 on Intangible Assets

Norwalk, CT, July 10, 2007—The Governmental Accounting Standards Board (GASB) today issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets. The Statement provides needed guidance regarding how to identify, account for, and report intangible assets.

The new standard characterizes an intangible asset as an asset that lacks physical substance, is nonfinancial in nature, and has an initial useful life extending beyond a single reporting period. Examples of intangible assets include easements, computer software, water rights, timber rights, patents, and trademarks.

Statement 51 requires that intangible assets be classified as capital assets (except for those explicitly excluded from the scope of the new standard, such as capital leases). Relevant authoritative guidance for capital assets should be applied to these intangible assets.

Statement 51 provides additional guidance that specifically addresses the unique nature of intangible assets, including:

• Requiring that an intangible asset be recognized in the statement of net assets only if it is considered identifiable
• Establishing a specified-conditions approach to recognizing intangible assets that are internally generated (for example, patents and copyrights)
• Providing guidance on recognizing internally generated computer software
• Establishing specific guidance for the amortization of intangible assets.

The requirements Statement 51 are effective for financial statements for periods beginning after June 15, 2009. The GASB made significant changes to the transition provisions, based on constituent response to the proposed version of the standards, to make it easier for governments to implement.

Statement 51 (Product Code GS51) can be ordered through the GASB’s order department at 800-748-0659 or via its website at www.gasb.org .

 GASB Issues Concepts Statement 4 - Elements of Financial Statements

Norwalk, CT, June 26, 2007—The Governmental Accounting Standards Board (GASB) has issued Concepts Statement No. 4, Elements of Financial Statements, defining the basic elements of state and local government financial statements. Together, the GASB’s Concepts Statements form a conceptual framework that provides a foundation to guide the Board’s development of accounting and financial reporting standards.

The Board has defined these fundamental building blocks of financial reporting in order to further develop the basic conceptual foundation for considering the merits of alternative approaches to financial reporting, and to help the GASB develop well-reasoned financial reporting standards. The concept of a resource—an item with a present capacity to provide service—is central to the definitions. Accordingly, the new Concepts Statement defines the elements of statements of financial position as:

• Assets—resources with present service capacity that the government presently controls
• Liabilities—present obligations to sacrifice resources that the government has little or no discretion to avoid
• A deferred outflow of resources—a consumption of net assets by the government that is applicable to a future reporting period
• A deferred inflow of resources—an acquisition of net assets by the government that is applicable to a future reporting period
• Net position—the residual of all other elements presented in a statement of financial position.

Concepts Statement 4 defines deferred outflows and inflows of resources as distinct financial statement elements for the first time. The Concepts Statement also defines elements of resource flows statements as:

• Outflow of resources—a consumption of net assets by the government that is applicable to the reporting period
• Inflow of resources—an acquisition of net assets by the government that is applicable to the reporting period.

 Concepts Statement 4 (Product Code GC04) can be ordered through the GASB’s order department at 800-748-0659 or via its website at www.gasb.org .

 GASB Issues Statement No. 50 and Reconciles Disclosure Requirements for Governmental Pensions and Retiree Healthcare

The GASB has issued Statement No. 50, Pension Disclosures, which more closely aligns current pension disclosure requirements for governments with those that governments are beginning to implement for retiree health insurance and other post-employment benefits.

Specifically, Statement 50 amends GASB Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers, by requiring:

• Disclosure in the notes to the financial statements of pension plans and certain employer governments of the current funded status of the plan—in other words, the degree to which the actuarial accrued liabilities for benefits are covered by assets that have been set aside to pay the benefits—as of the most recent actuarial valuation date.
• Governments that use the aggregate actuarial cost method to disclose the funded status and present a multi-year schedule of funding progress using the entry age actuarial cost method as a surrogate; these governments previously were not required to provide this information.
• Disclosure by governments participating in multi-employer cost-sharing pension plans of how the contractually required contribution rate is determined.

The provisions of Statement 50 generally are effective for periods beginning after June 15, 2007, with early implementation encouraged. The requirements relating to governments using the aggregate actuarial cost method are effective for financial statements and required supplementary information that contains information from actuarial valuations as of June 15, 2007, or later.

Statement 50 (Product Code GS50) can be ordered through the GASB’s order department at 800-748-0659 or via its website at www.gasb.org.

 GASB Issues Statement No. 49 that Requires Governments to Come Clean on Pollution Remediation Costs

Reflecting its intention to ensure that costs and liabilities not specifically addressed by current governmental accounting standards are included in financial reports, the GASB today issued a standard that will require state and local governments to provide the public with better information about the financial impact of environmental cleanups. 

To provide governments with better accounting guidance and consistency, GASB Statement No. 49, Pollution Remediation Obligations, identifies the circumstances under which a governmental entity would be required to report a liability related to pollution remediation. According to the Statement, a government would have to estimate its expected outlays for pollution remediation if it knows a site is polluted and any of the following recognition triggers occur:

• Pollution poses an imminent danger to the public or environment and a government has little or no discretion to avoid fixing the problem
• A government has violated a pollution prevention-related permit or license
• A regulator has identified (or evidence indicates a regulator will do so) a government as responsible (or potentially responsible) for cleaning up pollution, or for paying all or some of the cost of the clean up
• A government is named in a lawsuit (or evidence indicates that it will be) to compel it to address the pollution
• A government begins to clean up pollution or conducts related remediation activities (or the government legally obligates itself to do so).

• Liabilities and expenses would be estimated using an “expected cash flows” measurement technique, which will be employed for the first time by governments. Statement 49 also would require governments to disclose information about their pollution remediation obligations associated with clean-up efforts in the notes to the financial statements.

Statement 49 will be effective for financial statements for periods beginning after June 15, 2007.

 GASB Issues Statement No. 48 to Clarify Guidance on Accounting for Sales and Pledges of Receivables and Future Revenues

Norwalk, CT, September 29, 2006—The Governmental Accounting Standards Board (GASB) has issued Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues. This Statement establishes criteria that governments will use to ascertain whether certain transactions should be regarded as a sale or a collateralized borrowing. Such transactions are likely to comprise the sale of delinquent taxes, certain mortgages, student loans, or future revenues such as those arising from tobacco settlement agreements.

This Statement also includes a provision that stipulates that governments should not revalue assets that are transferred between financial reporting entity components.

Guidance for reporting the effects of such transactions in governmental financial statements have been provided in several standards or, in certain cases, has not been authoritatively addressed. This has resulted in considerable diversity in practice in the manner that such transactions have been reported.

In addition to clarifying guidance on accounting for sales and pledges of receivables and future revenues, the Statement:

• Requires enhanced disclosures pertaining to future revenues that have been pledged or sold
• Provides guidance on sales of receivables and future revenues within the same financial reporting entity
• Provides guidance on recognizing other assets and liabilities arising from the sale of specific receivables or future revenues.

• The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2006.

Statement 48 (Product Code GS48) can be ordered through the GASB’s order department at 800-748-0659 or via its website at www.gasb.org.

 GASB Issues White Paper Identifies Key Differences between Financial Reporting for Governments and For-Profit Business Entities

Norwalk, CT, March 16, 2006—According to a white paper released today by the Governmental Accounting Standards Board (GASB), individuals and organizations who are interested in the financial performance of state and local governments have substantially different information needs than those who follow the financial performance of for-profit entities.

These different and more diverse needs result from basic environmental differences between governments and businesses. According to the paper, the primary purpose of governments is to enhance or maintain the well-being of citizens by providing services in accordance with public policy goals. In contrast, for-profit business enterprises focus primarily on wealth creation, interacting principally with those segments of society that fulfill their mission of generating a financial return on investment for shareholders.

A copy of the white paper is downloadable from the GASB web site www.gasb.org

Governmental Auditing Topics

Governmental Accounting Topics

Oklahoma Municipal State Laws