National Association of State Auditors, Comptrollers and Treasurers New Standards and the Latest on SEA The views expressed in this presentation are those.

National Association of State Auditors, Comptrollers

and Treasurers

New Standards and the Latest on SEA

The views expressed in this presentation are those of The speakers. Official positions of the GASB are determined only after extensive due process and deliberation.

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Topics for Discussion

• Recent FAF trustee actions

• Service efforts and accomplishment reporting project

• Derivative instruments standard

• Current GASB projects, including fund balance reporting

• GASB research projects

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Recent FAF Actions

SEA Reporting Project

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Project Has Two Phases

Phase 1 – Amendments to Concepts Statement No. 2, Service Efforts and Accomplishments Reporting

Phase 2 – Request for Response, Suggested Guidelines for Voluntary Reporting of SEA Performance Information

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Concepts Statement 2—Amendments

Exposure Draft issued on April 4, 2008Comment deadline was July 3, 2008Public Hearing – July 29, 2008 – 9:00AM

Association of Government Accountants’ Professional Development Conference

Atlanta, GeorgiaAMENDMENTS INCLUDE - Elimination of

one section and the modification of four sections

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AmendmentsSection on Developing Reporting Standards for SEA

Information – deleted

Sections on Limitations of SEA Performance Information and Usefulness of SEA Performance Information – clarifying revisions only

Section on Purpose and Scope – clarification that it is beyond the scope of the GASB to establish the goals and objectives of state and local government services, to develop specific nonfinancial measures or indicators of service performance, or to set standards for service performance.

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Elements of SEA Performance Measures

Section on Elements of SEA Performance Measures – proposes to separate the elements of SEA performance measurement from related factors as follows:Measures of service efforts (costs),Measures of service accomplishments,Measures that relate service efforts to service

accomplishments,Discussion of other factors – expanded to include

comparisons, secondary effects, and the concept of demand for services. Focus shifted to factors that influenced results.

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Feedback to Proposed Concepts Amendments—To Date

Summary of comments received include: Global issues Specific issues

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Response to Date—Global Issues

• Many in agreement with the amendments and support the Board’s role

• Disagreement with the fact that developing “specific” nonfinancial measures or indicators is outside of the GASB role

• SEA is not under the purview of the GASB• Opposition to any inclusion of SEA in the CAFR or

other GPEFR – should be in policy documents like the budget

• Concepts are important but guidance should be voluntary in nature

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Feedback to Date—Specific Issues

• Expand the purpose section as it lacks adequate context – performance reporting is only as good as the measures which are only as good as the management system

• Concern with word “integral” implying that governments are required to report SEA

• Measures of service efforts are not properly described• Inputs should not be included as measures of

performance• Surrogate measures should be directly related to the

performance of the government or not be included• More examples of measures are needed and from

different programs and services other than just roads• Government to government comparisons can be

misleading

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Suggested Guidelines Ballot draft approved by Board – July 15, 2008

“Suggested Guidelines for Voluntary Reporting of SEA Performance Information” composed of two parts:

Four essential components of an effective SEA report Six qualitative characteristics that are appropriate for reporting SEA

performance information

Suggested guidelines, although voluntary, will assist governments in improving the quality of their reported SEA performance information

Traditional financial statements provide information about fiscal and operational accountability but not the degree to which the government was successful in helping to maintain or improve the well-being of its citizens by providing services

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Sole Focus

Of GASB

Efforts

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EXTERNAL

REPORTING

Internal

Reporting

Evaluating Performance

Managing Work Processes

Performance- Based

Budgeting

Selecting

Performance Measures

Program or

Activity Planning

Strategic Planning

Government Performance Management

System

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Four Essential Components

Provide guidance to assist preparers of SEA reports in effectively communicating SEA performance information to users

Purpose and ScopeMajor Goals and ObjectivesKey Measures of SEA PerformanceDiscussion and Analysis of Results and

Challenges

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ESSENTIAL COMPONENTS AND USER NEEDS

Essential Components User Needs

Purpose and Scope The knowledge of why the information is being reported and what portion of a government

the information relates to.

Major Goals and Objectives A basis for determining whether the reported SEA performance measures are relevant

measures of what a government intended to accomplish (that is, the measures are associated

with the goals and objectives of the program or service).

Key Measures of SEA Performance The ability to focus on the key measures of SEA performance that are most important to

report users.

Discussion and Analysis of Results

and Challenges

The ability to understand what has been achieved and what has affected the level of

achievement.

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ELEMENTS OF SEA PERFORMANCE MEASURESElements of SEA

Performance Measures

Definition Example

Measures of service efforts

Inputs Measure the amount of financial and

nonfinancial resources that are applied to a

service

Financial—cost of road maintenance

Nonfinancial—total lane-miles of roads

Measures of service accomplishments

Output measures Measure the quantity of services provided. A

quality requirement may be included.

Number of lane-miles of road repaired or number of lane-miles

of road repaired to a certain minimum satisfactory condition

Outcome measures Measure the results that occur because of

providing those outputs

Condition of roads in a community, or the residents’ rating of the

smoothness of the roads

Measures that relate service efforts to service accomplishments

Efficiency measures Measure the resources used or cost per unit

of output

Cost per lane-mile of road maintained or more specifically,

resurfaced or seal-coated

Cost–outcome measures Measure the resources used or cost per unit

of outcome or result

Cost per lane-mile of road maintained in good or better

condition

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Qualitative Characteristics

Provide further guidance in the application of the essential components – assist users in comprehending and assessing government programs and services

RelevanceUnderstandabilityComparabilityTimelinessConsistencyReliability

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QUALITATIVE CHARACTERISTICS AND USER NEEDS

Qualitative Characteristics User Needs

Relevance The ability to assess the level of accomplishment of a government’s goals and objectives with

potentially significant accountability or decision-making implications.

Understandability SEA performance information that is readily comprehendible.

Comparability A clear frame of reference for assessing the SEA performance of a government and its agencies,

departments, programs, and services.

Timeliness SEA performance information issued while it is still of value in assessing accountability and

making decisions.

Consistency A basis for comparing similar SEA performance information over time.

Reliability SEA performance information that is verifiable, free from bias and a faithful representation of what

it purports to represent.

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Accounting for Derivative Instruments

Issued in June 2008

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Basic Approach

Fair value with hedge accounting• Derivative instruments are measured on the

statement of net assets at fair value• Fair value changes are reported on the

statement of resource flows as investment income

• Scope Exclusion: Measurement of derivatives in government funds

• Exception: Effective Hedges– Changes in fair value of derivative instruments would

be reported on the statement of net assets as deferrals—either deferred inflows or deferred outflows

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Methods of Evaluating Effectiveness

Effectiveness is determined by using a specified method of evaluating hedges

• Qualitative method– Consistent critical terms

• Quantitative methods– Synthetic instrument– Linear regression– Dollar offset– Other methods

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Note DisclosuresNote Disclosures

• Summary of derivative instrument activitySummary of derivative instrument activity• Disclosures for Disclosures for HEDGINGHEDGING derivatives derivatives

– Significant termsSignificant terms– Risks: Credit, Interest Rate, Basis, Termination, Risks: Credit, Interest Rate, Basis, Termination,

Rollover, Market-access, Foreign CurrencyRollover, Market-access, Foreign Currency• Disclosures for Disclosures for INVESTMENTINVESTMENT derivatives derivatives

– Risks: Credit, Interest Rate, Foreign CurrencyRisks: Credit, Interest Rate, Foreign Currency• Contingencies (for example, collateral postings)Contingencies (for example, collateral postings)• Synthetic guaranteed investment contractsSynthetic guaranteed investment contracts

– Description and natureDescription and nature– Fair valuesFair values

• Wrap contractWrap contract• Underlying investmentsUnderlying investments

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What’s Next?

• The requirements of the Statement are effective for financial statements for periods beginning after June 15, 2009. Earlier application is encouraged.

• The Implementation Guide (Q + A) is currently in progress and is expected to be issued in February 2009.– The Implementation Guide will include examples and

clarifications for each section of the Statement, as well as illustrations with sample journal entries.

– Example topics: What does or does not qualify for the normal purchases and normal sales scope exclusion? What does or does not meet the definition of a derivative?

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Implementation Guide

• If you have a question that you would like to see addressed in the Implementation Guide, please contact the project staff:Randy Finden [email protected]

Emily Shafron [email protected]

Katherine Cancro [email protected]

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Fund Balance Reporting and Governmental Fund

Definitions

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Fund Balance Reporting

• Presentation hierarchy based primarily on spending constraints placed upon use of resources versus availability for appropriation

• Format:– Non-spendable—Inventory, long-term receivables– Spendable

• Restricted—Statement 34/46 definition• Limited—Formal action of governing body• Assigned—Similar to designations expressing intent• Unassigned

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Clarify Fund Type Definitions

• Special revenue– proceeds of specific revenue sources that are

restricted or limited to expenditure for specified purposes

• Capital projects

• Debt service—paragraph 30

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Project Timetable

• Invitation to Comment—October 2006

• Roundtable—February 2007

• Exposure Draft—February 2008

• Public hearing—July 2008

• Final Statement—December 2008

ARC Adjustment—Proposed TB

When the ARC adjustment amount is known, the use of the known amount—instead of an amount derived from application of the estimation procedures—wouldbe consistent with the purpose of the ARC adjustment and is encouraged.

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Other Current Projects

• Postemployment Benefit Accounting and Reporting

• Public and Private Partnerships• Reporting Units/Statement 14 Revisited• AICPA Omnibus—accounting guidance

currently presented only in the SASs • Recognition and Measurement Attributes –

Concepts Statement

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Research Agenda

• Economic Condition Reporting

• Electronic Financial Reporting

• FASB Pronouncements (pre-1989)

• Fair Value Measurement

• Investment Omnibus

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Effective Dates—June 30 Y/E

• June 30, 2008– Statement 43—OPEB Plans—Phase II– Statement 45—Employer’s OPEB—Phase I– Statement 48—Sales and Pledges – Statement 50—Pension Disclosures

• June 30, 2009– Statement 43—OPEB Plans—Phase III– Statement 45—Employer’s OPEB—Phase II– Statement 49—Pollution Remediation Obligations– Statement 52—Land Investments by Endowments

• June 30, 2010– Statement 45—Employer’s OPEB—Phase IIl– Statement 51—Intangible Assets– Statement 53—Derivative Instruments

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Questions?Telephone—(203) 847-0700Web site—www.gasb.org