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Deferred Compensation – GASB Issues New Statement on Certain Component Unit Criteria and Deferred Compensation Plans

Revenues and Expenses – GASB Issues Preliminary Views on Revenue and Expense Recognition Models

Cloud Computing – GASB Issues Statement No. 96 on Cloud Computing and Subscription-Based Information Technology Arrangements 

GASB Standards – GASB Issues Implementation Guide 2020-1 

Public-Private Arrangements – GASB Issues Statement No. 94 on P3s

GAO – GAO Publishes Professional Standards Update

GASB Standards – GASB Publishes New Statement No. 92: Omnibus 2020

Articles 

Deferred Compensation – GASB Issues New Statement on Certain Component Unit Criteria and Deferred Compensation Plans

Summary - The Governmental Accounting Standards Board (GASB) has issued Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. This new guidance is designed to reduce costs and increase the consistency and comparability of reporting state and local governments’ fiduciary component units.

A primary goal of Statement 97 is to mitigate costs associated with reporting certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and other employee benefit plans, such as certain Section 457 plans. Another important goal of the Statement is to improve the reporting of Section 457 deferred compensation plans that meet the definition of a pension plan and for benefits provided through those plans.

Statement 97 requires that, for purposes of determining whether a primary government is financially accountable for a potential component unit (except for a potential component unit that is a defined contribution pension plan, a defined contribution OPEB plan, or other employee benefit plan), the absence of a governing board should be treated the same as the appointment of a voting majority of a governing board if the primary government performs the duties that a governing board typically performs. Appointment of a voting majority is a criterion in existing standards used to determine whether a legally separate entity should be incorporated into the government’s financial statements.

Under certain circumstances, a financial burden on a government also is a criterion in existing standards used to determine whether a legally separate entity should be incorporated into the government’s financial statements. After further considering the perceived costs associated with applying existing standards (specifically, paragraph 7 of Statement No. 84, Fiduciary Activities), the GASB, in Statement 97, decided to limit the application of the financial burden criterion regarding contributions to postemployment benefit plans to only defined benefit pension plans and defined benefit OPEB plans that are administered through trusts.

Prior standards presumed that all Section 457 plans were not pension plans and, therefore, were not subject to pension plan reporting requirements; similarly, benefits provided through Section 457 plans were not reported as pension benefits. Under Statement 97, however, Section 457 plans should be classified as either a pension plan or other employee benefit plan, depending on whether the plan meets the definition of a pension plan. It also clarifies that Statement 84, as amended, should be applied to all arrangements organized under IRC Section 457 to determine whether those arrangements should be reported as fiduciary activities.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Revenues and Expenses – GASB Issues Preliminary Views on Revenue and Expense Recognition Models

Summary - The Governmental Accounting Standards Board (GASB) issued for public feedback the Preliminary Views, Revenue and Expense Recognition. Comments are due by February 26, 2021.

The GASB has added this project to its technical agenda to:

  • Develop guidance applicable to topics for which existing guidance is limited;
  • Improve existing guidance that has been identified as challenging to apply;
  • Consider inclusion of a performance obligation approach in the GASB’s authoritative literature; and
  • Assess existing and proposed guidance based on the conceptual framework.

The GASB intends this Preliminary Views to present its current thinking about the development of a comprehensive, principles-based model that establishes categorization, recognition, and measurement guidance applicable to a wide range of revenue and expense transactions, which, if adopted as standards, is expected to enhance the usefulness of information governments report on their revenues and expenses.

The GASB introduced in the Preliminary Views a new methodology for categorizing transactions, which is then used as a basis for applying recognition proposals. Determining the transaction category would be based on the assessment of specific characteristics that a binding arrangement may or may not contain. This categorization methodology is intended to identify transactions with performance obligations.

If a transaction is determined to have a performance obligation based on the categorization characteristics, the associated revenue or expense would be recognized based on the satisfaction of the performance obligation. For transactions that are determined not to have a performance obligation, the GASB proposed specific recognition guidance based on the various subcategories of transactions (for example, derived taxes, such as income and sales taxes and imposed taxes, such as property taxes).

The GASB has tentatively scheduled a series of public hearings and user forums on the Preliminary to enable stakeholders to share their views with the GASB.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Cloud Computing – GASB Issues Statement No. 96 on Cloud Computing and Subscription-Based Information Technology Arrangements

Summary - The GASB has issued Statement No. 96, Subscription-Based Information Technology Arrangements. Statement 96 providesnew accounting and financial reporting guidance for subscription-based information technology arrangements (SBITAs), which have become increasingly common among state and local governments in recent years.

Statement 96 is based on the standards established in Statement 87, Leases. Statement 96. It:

  • Defines a SBITA as a contract that conveys control of the right to use a SBITA vendor’s IT software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.
  • Requires governments with SBITAs to recognize a right-to-use subscription asset, an intangible asset, and a corresponding subscription liability (with an exception for short-term SBITAs, those with a maximum possible term of 12 months).
  • Provides guidance related to outlays other than subscription payments, including implementation costs, and requirements for note disclosures related to a SBITA.

Although existing GASB literature addresses computer software that is internally developed or commercially purchased through perpetual licensing agreements, stakeholders have raised questions regarding cloud computing and other subscription-based forms of software applications and data storage. The new guidance should remedy existing inconsistencies in accounting and financial reporting for SBITAs.

The Statement is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Early application is encouraged. In order to give state and local governments and other stakeholders additional time to deal with circumstances arising from the COVID-19 pandemic, this date is one year later than what the GASB proposed in the Exposure Draft.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

GASB Standards – GASB Issues Implementation Guide 2020-1

Summary - The Governmental Accounting Standards Board (GASB) issued Implementation Guide 2020-1, Implementation Guidance Update—2020. Implementation Guide 2020-1 includes questions and answers intended to clarify, explain, or elaborate on the implementation and application of certain GASB pronouncements.

Questions Addressed by Implementation Guide 2020-1

Implementation Guide 2020-1 addresses new questions about application of the GASB’s standards on multiple topics, including but not limited to:

  • The financial reporting entity;
  • Fiduciary activities;
  • Leases;
  • Conduit debt obligations;
  • Asset retirement obligations; and
  • External investment pools.

Implementation Guide 2020-1 also includes amendments to previously issued implementation guidance. In addition, it delays the effective date of certain questions and answers that were originally published in Implementation Guide No. 2019-2, Fiduciary Activities, pending the completion of the GASB’s project on Certain Component Unit Criteria and Accounting and Financial Reporting for Section 457 Plans.

Effective Dates

The requirements of Implementation Guide 2020-1 are primarily effective for reporting periods beginning after either June 15, 2021 or December 15, 2021. Those effective dates are one year later than is typical for an Implementation Guidance Update, consistent with the GASB’s proposed Statement, Postponement of the Effective Dates of Certain Authoritative Guidance. Early application is encouraged for guidance related to standards that already have been implemented. Please see the guide’s Effective Date and Transition section for additional details.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Public-Private Arrangements – GASB Issues Statement No. 94 on P3s

Summary - The Governmental Accounting Standards Board (GASB) has issued new Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. Statement No. 94 includes guidance to improve accounting and financial reporting for public-private and public-public partnership arrangements (commonly referred to as P3s) and availability payment arrangements (APAs).

Statement 94 includes guidance for P3 arrangements, including those that are outside of the scope of the GASB’s existing literature for those transactions, namely Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, and Statement No. 87, Leases. The Statement also makes certain improvements to the guidance previously included in Statement 60 and provides accounting and financial reporting guidance for APAs.

P3s

Statement 94 defines a P3 as an arrangement in which a government transferor contracts with a governmental or nongovernmental operator to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset, the underlying P3 asset, for a period of time in an exchange or exchange-like transaction.

Some P3s meet the definition of a service concession arrangement (SCA). The Statement carries forward the financial reporting requirements for SCAs that were included in Statement 60, with modifications to apply the more extensive requirements related to recognition and measurement of leases to SCAs.

P3s that meet the definition of a lease should apply the guidance in Statement 87, if existing assets of the transferor that are not required to be improved by the operator as part of the P3 arrangement are the only underlying P3 assets and the P3s do not meet the definition of an SCA.

This Statement provides specific guidance for all other P3s from the perspective of both a government that transfers rights to another party and governmental operators that receive those rights.

APAs

Statement 94 defines an APA as an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying infrastructure or other nonfinancial asset for a period of time in an exchange or exchange-like transaction.

The Statement requires governments to account for APAs related to those activities and in which ownership of the asset transfers by the end of the contract as a financed purchase of the underlying infrastructure or other nonfinancial asset. It also requires a government to report an APA that is related to operating or maintaining a nonfinancial asset as an outflow of resources (for example, expense) in the period to which payments relate.

Effective Date

The Statement is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Earlier application is encouraged. In light of the ongoing COVID-19 pandemic and the GASB’s newly added project to consider postponing the effective dates of certain pronouncements, the GASB extended the effective date for Statement 94 by one year from the date proposed in the Exposure Draft.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

GAO – GAO Publishes Professional Standards Update

Summary - The GAO has published Professional Standard Update (PSU) No. 76 which discusses changes in professional standards. The purpose of these updates is to “highlight the issuance and some key points of recent standards. PSUs do not contain a complete summary of the standards. Those affected by a new standard should refer to that standard for details. This PSU highlights the effective dates of selected standards reported previously that are expected to affect auditors at the time of or shortly after issuance of the most recent update.”

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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GASB Standards – GASB Publishes New Statement No. 92: Omnibus 2020

Summary - The Governmental Accounting Standards Board (GASB) has issued new Statement No. 92, Omnibus 2020. Statement 92 includes guidance addressing various accounting and financial reporting issues identified during the implementation and application of certain GASB pronouncements.

Omnibus 2020
The issues covered by GASB Statement No. 92, Omnibus 2020, include:

  • Modification of the effective date of Statement No. 87, Leases, as well as associated implementation guidance, to fiscal years beginning after December 15, 2019, to address concerns regarding interim financial reports;
  • Reporting intra-entity transfers of assets between a primary government employer and a component unit defined benefit pension plan or defined benefit other postemployment benefit (OPEB) plan;
  • The applicability of Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, as amended, and Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, to reporting assets accumulated for pensions and OPEB;
  • The applicability of certain requirements of Statement No. 84, Fiduciary Activities, to pension and OPEB arrangements; and
  • Measurement of liabilities and assets, if any, related to asset retirement obligations in a government acquisition.

Effective Dates:
The effective dates of the amendments made by Statement 92 vary, as follows:

  • The requirements of Statement 92 that relate to the effective date of Statement 87 and its associated implementation guidance are effective upon issuance.
  • The provisions related to the application of Statement 84 are effective for periods beginning after June 15, 2020.
  • The amendments related to intra-entity transfers of assets and applicability of Statements 73 and 74 are effective for fiscal years beginning after June 15, 2020.
  • The remaining requirements related to asset retirement obligations are effective for government acquisitions occurring in reporting periods beginning after June 15, 2020.

Earlier application is encouraged and is permitted by topic.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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