A Look at GASB 84 and GASB 87
The GASB has issued GASB Statement 84, which provides guidance on the identification, accounting, and financial reporting of fiduciary activities. This standard has the potential of being more significant than originally anticipated and will require analysis of current fiduciary activities and potential fiduciary activities to ensure proper financial statement reporting moving forward.
The standard defines fiduciary activities, which had not been explicitly stated by GAAP. Pension and OPEB arrangements will often meet the definition of fiduciary activities. For arrangements that benefit individuals that aren’t pensions, OPEB, or administered through a trust, an entity will generally need to evaluate control, administrative involvement, and direct financial involvement to determine if the activity meets the new definition of fiduciary activities.
Control is established if the government holds the assets or may direct the use, exchange, or employment of the assets.
The government is considered to have administrative involvement if it monitors compliance of the activity with established requirements, determines eligibility of expenditures, or exercises discretion of use of allocation of the assets.
The government is considered to have direct financial involvement if it provides matching resources or is liable for disallowed costs.
In addition to establishing the parameters for recording an activity as fiduciary, the standard establishes several other key changes as well:
- A statement of fiduciary net position and changes in fiduciary net position is required and defined.
- Agency funds will now be considered custodial funds and a statement of changes in fiduciary net position will be required disaggregating additions by source and deductions by type. This may require changes to current accounting systems to track this activity and could result in additional audit focus as this will be included as part of financial statement reporting.
- A liability for fiduciary funds is recorded when a demand for resources has been made, or no further action, approval, or condition is required to be taken or met by a beneficiary to release assets. This guidance could result in custodial funds recognizing fiduciary net position.
This statement will require significant analysis and we
recommend preparing this as early as possible. Any changes to internal accounting should be in place prior to beginning of the fiscal year of implementation. In addition to helpful flowcharts within the standard, GASB has also released an implementation guide with numerous questions and answers that help to flush out some of the finer nuances of the standard.
This statement is effective for periods beginning after December 15, 2018.
The GASB has been monitoring and observing the FASB process for addressing lease accounting for nongovernmental entities for the past several years. Now that their process is complete, the GASB has released guidance for lease contracts for nonfinancial assets to improve accounting and financial reporting for leases by both lessors and lessees. The following definition for the term “lease” is included in the standard: “a contract that conveys the right to use a nonfinancial asset for a period of time in an exchange-like transaction.” It excludes contracts that transfer ownership.
The revised financial reporting for lessees with long-term leases (more than 12 months including options to extend) includes recording an intangible asset representing the right to use the leased asset, a corresponding liability for lease payments, amortization expense, and interest expense. For lessors with long-term leases, the standard now requires the recording of a receivable for the right to receive lease payments, a corresponding deferred inflow of resources, lease revenue, and interest revenue. This change will mostly affect the government-wide statements, not fund level.
The lease term would include the noncancelable term plus any extensions that are probable or less any termination periods that are probable. The lease term would only be reassessed if a probable event did not occur. This new accounting will require significant time to analyze individual lease structures and prepare the necessary calculations.
The Statement is effective for periods beginning after December 15, 2019.