Extra information for GASB organizations: How to lessen information overload

Read this if you are a CFO or controller.

The Governmental Accounting Standards Board (GASB) recently provided much needed guidance for governmental organizations struggling to account for relief provided in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In their Technical Bulletin No. 2020-1, Accounting and Financial Reporting Issues Related to the CARES Act and Coronavirus Diseases, GASB addressed a number of pressing recognition and presentation questions that you should be aware of when preparing financial statements. The following is a summary of the guidance:

• Resources received under the Coronavirus Relief Fund (CRF) subject to restrictions should be recognized as voluntary nonexchange transactions, subject to eligibility rather than purpose restrictions. As such, the entity should recognize resources received from the CRF as liabilities until the applicable eligibility requirements are met, including the incurrence of eligible expenditures. When the eligibility requirements have been met, revenue should be recognized for CRF resources received.
• Provisions of the CARES Act that address the entity’s loss of revenue should be considered an eligibility requirement for purposes of revenue recognition. 
• Any possible amendments to the CARES Act issued subsequent to the statement of net position date but before the issuance of financial statements, even when enacted with retroactive provisions, do not represent conditions that existed as of the period-end being reported and should only be reported as a nonrecognized subsequent event.
• With the exception of CARES Act funds provided through the Provider Relief Fund's Uninsured Program (operating revenues), funds received under the CARES Act are subsidies and should be reported as nonoperating revenues and presented as noncapital finance activities in the statement of cash flows.
• Outflows of resources incurred in response to the coronavirus disease due to actions taken to slow the spread of the virus or the implementation of "stay-at-home" orders should not be reported as extraordinary items or special items.
• In addition to the guidance provided with the Technical Bulletin, the GASB also provides a number of additional stakeholder resources that may be useful during this period on its website, including an Emergency Toolbox that provides guidance on donated assets, management’s discussion and analysis (MD&A), asset impairment, and many more. 

Please contact Robert Smalley if you have questions on the latest GASB updates.
 

Recently, federal banking regulators released an interagency financial institution letter on CECL, in the form of a Q&A. Read it here. While there weren’t a lot of new insights into expectations examiners may have upon adoption, here is what we gleaned, and what you need to know, from the letter.

ALLL Documentation: More is better

Your management will be required to develop reasonable and supportable forecasts to determine an appropriate estimate for their allowance for loan and lease losses (ALLL). Institutions have always worked under the rule that accounting estimates need to be supported by evidence. Everyone knows both examiners and auditors LOVE documentation, but how much is necessary to prove whether the new CECL estimate is reasonable and supportable? The best answer I can give you is “more”.

And regardless of the exact model institutions develop, there will be significantly more decision points required with CECL than with the incurred loss model. At each point, both your management and your auditors will need to ask, “Why this path vs. another?” Defining those decision points and developing a process for documenting the path taken while also exploring alternatives is essential to build a model that estimates losses under both the letter and the spirit of the new rules. This is especially true when developing forecasts. We know you are not fortune tellers. Neither are we.

The challenge will be to document the sources used for forecasts, making the connections between that information and its effect on your loss data as clear as possible, so the model bases the loss estimate on your institution’s historical experience under conditions similar to those you’re forecasting, to the extent possible.

Software may make this easier… or harder.               

The leading allowance software applications allow for virtually instantaneous switching between different models, permitting users to test various assumptions in a painless environment. These applications feature collection points that enable users to document the basis for their decisions that become part of the final ALLL package. Take care to try and ensure that the support collected matches the decisions made and assumptions used.

Whether you use software or not there is a common set of essential controls to help ensure your ALLL calculation is supported. They are:

• Documented review and recalculation of the ALLL estimate by a qualified individual(s) independent of the preparation of the calculation
• Control over reports and spreadsheets that include data that feed into the overall calculation
• Documentation supporting qualitative factors, including reasonableness of the resulting reserve amounts
• Controls over loan ratings if they are a factor in your model
• Controls over the timeliness of charge-offs

In the process of implementing the new CECL guidance it can be easy to focus all of your effort on the details of creating models, collecting data and getting to a reasonable number. Based on the regulators’ new Q&A document, you’ll also want to spend some time making sure the ALLL number is supportable.  

Next time, we’ll look at a lesser known section of the CECL guidance that could have a significantly negative impact on the size of the ALLL and capital as a result: off-balance-sheet credit exposures.

By now you have heard that the Financial Accounting Standards Board’s (FASB) answer to the criticism the incurred-loss model for accounting for the allowance for loan and lease losses faced during the financial crisis has been released in its final form. The Current Expected Credit Loss model (CECL), which was developed through an arduous (and sometimes contentious) process following the crisis, will bring substantial changes to the way community banks account for expected losses in their loan portfolios. 

Working closely with community banks in the years building up to final issuance, we recognized an uncomfortable level of uncertainty created by the ever-changing proposals and lack of concrete examples. Now that the guidance is final, we feel a strong sense of responsibility to provide our interpretations, thoughts and insights where we can. As the FASB has shown recently with its new revenue pronouncement, there is a good chance that updates to the guidance will occur as we move closer to the implementation dates. The banking regulators who have thus far been mostly silent on the guidance will also have their interpretations.

We find that with substantial new guidance breaking it down into bite size pieces can be the best approach to understanding and implementation. With that said, this is the first of a number of planned articles from BerryDunn to do just that.

Building your team

One of the first things your institution should do is create an implementation team. Building it now with staff from diverse backgrounds and experience including finance, lending and collections will bring significant rewards in the long run. This is also a good time to consider opportunities to include your auditor in the process. Ultimately, you will need them to perform audit procedures on your CECL allowance as part of your financial statement audit. That also means your model and the resulting estimate must be auditable. Including auditors in the early stages should also help your team think about implications the audit requirements may have for expectations related to retaining documentation and supporting assumptions. In addition, your auditor may be able to share observations based on how other institutions are implementing CECL that may be helpful for your team.  Auditors can do all this while maintaining independence if their services are structured properly.

When your team is assembled and is up-to-speed on the basics of what CECL is and isn’t, defining the team’s goals and creating a roadmap to get there will be your keys to success. And asking the right questions while creating the roadmap is a great place to start. 

Questions to consider:

What available method (under CECL) is the best fit for the institution?
We expect that largely most community institutions will start with a top-down approach using an adaption from their current loss-rate approach to reflect the change from the old incurred loss method to the “life of the loan” current expected credit loss method. We believe the following step-by-step model will be one practical approach that should fit most community banks and credit unions:

1. Determine which loans for specific reserves are appropriate, much in the same manner as you’re likely doing now. The notion of “impaired” loans goes away with CECL; a loan should be evaluated specifically if the institution becomes aware of loan-specific information indicating it has an exposure to loss that differs from other loans it’s been pooled with. In practice, we think that’ll be largely the same loans that are currently being identified as impaired.
2. Secondly, for the rest of the portfolio:
   1. Group loans by common characteristics – same as you are likely doing now. These groups can match your portfolio or class groupings used now in financial reporting, but can also be broken down further.
   2. For each group, create subgroups for each origination year. One of the disclosure requirements in the guidance suggests the current year and previous four years are the critical ones to focus on; anything older than five years could be combined together.
   3. For each subgroup:
      1. Establish economic and other relevant conditions for the average remaining term of loans in the subgroup. This will be a combination of forecasted conditions for the near future, probably based on the Fed’s three-year forecast, and long-term historical conditions for the remaining average loan term.
      2. Select an historical loss period that best approximates the conditions established in 2c(i).
      3. Determine average remaining lifetime losses for the historical loss period established in 2c(ii) for that loan type.
      4. Adjust the average determined in 2c(iii) for any current or expected conditions that you believe are different from this historical data. The regulators have indicated their expectation that these will likely be the types of items for which qualitative factors have been developed under the incurred loss model, or a subset thereof.

These adjustments should themselves be based on historical data, or peer historical data if institution-specific data isn’t available (for example, a new loan product); for example, a 25 basis point upward adjustment for actual and expected declines in real estate values beyond the average in the historical period in 2c(ii) should be supported by data that shows a 25 basis point increase in losses for this type of loan in previous periods in which real estate values had shown a similar decline.

What data do we need to start collecting?
The clock has started! The CECL model requires analysis of loss rates and environmental factors. Detailed loss-rate calculations for as far back as you can get is your goal. The next step after collecting the historical data on your losses is to document other factors that were in play during each period. You will also need to consider the factors that affected charge-off rates for different periods. Changes in overall economic conditions, underwriting (both risk and quality), the legal environment and other factors need to be documented and correlated to trends in charge-offs. Remember one of the first steps in preparing a CECL model is to decide which time period of losses best matches the current environment. Without considering the full picture, including the external forces in play, it will be impossible to select an appropriate time period.

How do we retain and access that data?
Many core providers restrict access to older loan level data, and in some cases historical information is readily available only for very short time periods. Knowing the restrictions on your older data will be key in planning for CECL. The model suggests that a starting point for considering historical data needs is to consider what time periods matter. This may vary for different types of loans.

Some core providers have started reaching out to their institutions to discuss CECL and options for collection of data through webinars and one-on-one meetings. Consider reaching out directly to your provider to see what options in terms of data collection, retention and reporting will be available to your team.

What is the next step?
Build a simple model so that your team can better grasp and discuss the fundamentals of CECL. This can serve to solidify the concept of “life of loan losses” vs. the incurred loss method, as well as get your task force focused on what is important in collecting data.

Now that you’ve got your team assembled and have begun to tackle these questions, it’s time to look at other factors to consider. In our next installment, we’ll take you through how to implement CECL for loans obtained in a merger or acquisition. In the meantime, please call us if you have any questions.

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

Along with COVID-19 related accounting changes that require our constant attention, we need to continue to keep our eyes on the changes that routinely emerge from the Governmental Accounting Standards Board (GASB). Here is a brief overview of what GASB Statement No. 93, Replacement of Interbank Offered Rates, Statement No. 96, Subscription-Based Information Technology Arrangements, and Statement No. 97 Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, may mean to you. If you want more detail, we’ve included links to more analyses and in-depth explanation of what you need to know now.

GASB 93

We have all heard that by the end of 2021, LIBOR will cease to exist in its current form. In March 2020, the GASB provided guidance to address the accounting treatment and financial reporting impacts of the replacement of interbank offered rates (IBORs) with other referenced rates, while maintaining reliable and comparable information. Statement No. 93 specifically addresses previously issued Statement Nos. 53 and 87 to provide updated guidance on how a change to the reference rate impacts the accounting for hedging transactions and lease arrangements.  Read more in our article The Clock is Ticking on LIBOR. Now What?

GASB 96

GASB Statement No. 96 defines the term Subscription-Based Information Technology Agreements (SBITA) as “A contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (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.”

GASB Statement No. 96 determines when a subscription should be recognized as a right-to-use subscription, and also determines the corresponding liability, capitalization criteria, and required disclosures. Learn why this matters and what you need to do next: Our Take on SBITA: Making Accounting for Cloud-Based Software Less Nebulous.

GASB 97

GASB Statement 97 addresses specific practice issues that have arisen related to retirement plans. The standard is roughly divided into two parts—component units and Section 457 plans—each of which focus on a different aspect of governmental retirement plan accounting. Help your organization gain an understanding of the standard with our article GASB 97: What's new, what to do, and what you need to know.

If you have questions about these pronouncements and what they mean to your organization, please contact Grant Ballantyne.

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans (GASB 97) addresses specific practice issues that have arisen related to retirement plans. The standard can be roughly divided into two parts, each of which focus on a different aspect of governmental retirement plan accounting. 

Part 1: Component units

Over the years, GASB has wrestled with clarifying exactly what entities should be included in a set of stand-alone financial statements. In general, it defined a financial reporting entity as a stand-alone government and all entities for which it is financially accountable, known as component units. One of the many situations where the government is financially accountable for another entity is where the majority of the entity’s board is appointed by the government. 

GASB 97 clarifies that when the entity has no governing board and the government performs the functions that a board would normally perform, the consideration of consolidation should be the same as if the government appointed a voting majority of a hypothetical governing board. This portion of the standard is consistent with previously issued implementation guides. 

What is new is that GASB 97 creates an exception, allowing defined contribution pension plans, defined contribution OPEB plans, and certain Section 457 plans who do not have a board to be excluded from consideration as a component unit. While GASB believes that it would be appropriate to include them like other entities, they listened to stakeholders who voiced their concerns about the costs of presenting defined contribution plans as component units. Their research showed that most stakeholders do not use information related to defined contribution plans presented as component units of governments, although if the government controls the assets, such information is more valued. GASB decided to balance the costs of preparation with the usefulness of the information.  

Additionally, for the purposes of determining component units, the government is not considered to have a financial burden for defined contribution pension plans and defined contribution OPEB plans that are administered through trusts. 

What should you do? 

First, the intended impact is that there will be fewer defined benefit plans presented as component units. If you currently present a defined benefit plan as a component unit, you may be able to save money by excluding them from the government-wide financial statements. 

Second, if you currently report a defined contribution plan that is administered through a trust as a component unit, you should reassess whether that is still considered a component unit. Remember, even if it is not a component unit, GASB Statement No. 84 Fiduciary Activities may still require it to be included in the financials if the primary government controls the assets. 

When does this apply? 

These changes are effective immediately. 

Part 2: Section 457 plans

Back in 1997 when GASB Statement No. 32 was issued, GASB did not believe it likely that plans established under Internal Revenue Code (IRC) section 457 would be pension plans because at that time, most Section 457 plans did not have employer contributions. In the more than twenty years that have passed since then, the IRC and characteristics of some of these plans have changed, forcing GASB to reconsider their classification. With the issuance of GASB 97, the board stated that it believes Section 457 plans could indeed be pensions. Therefore, Section 457 plans which fit the definition of a pension trigger the same reporting requirements of any other pension plan. 

What should you do? 

If your governmental organization has an employee benefit plan under Section 457, you should take the following steps: 

First, determine whether the plan is a “pension plan” or not. Pension plans provide retirement income or other postemployment benefits such as death benefits, life insurance, and disability benefits. Pensions do not include postemployment healthcare benefits and termination benefits. 

Despite the common usage of “pension” to mean only defined benefit plans, the statement is clear that the term “pension plan” includes defined contribution plans as well.

If the plan fits this definition, proceed to the next step. If not, this statement does not impact you. 

Second, if your Section 457 plan meets the definition of a pension plan and either issues its own standalone financial statements or is included in the financial statements of another government, those financial statements should include all financial reporting requirements that are relevant to pension plans. 

Generally, this means that GASB Statement No. 68 Accounting and Financial Reporting for Pensions (GASB 68) and all its related disclosure requirements are applicable, although there are some plans that don’t fall within GASB 68’s scope where GASB 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 applies instead. The additional requirements will not look the same for all entities; defined benefit and defined contribution plans have different reporting requirements and their footnote disclosures will differ. 

When does this apply? 

The requirements related to Section 457 plans apply to fiscal years beginning after June 15, 2021. Some stakeholders requested that GASB delay the adoption due to COVID-19, but the GASB believes that the adoption date they set provides sufficient time for adoption. 

What else do you need to know? 

If your retirement plan falls within the scope of this pronouncement, you may have new costs to deal with, including potentially having to consult with an actuary to develop a model to prepare the new disclosures if you have a defined benefit pension. Fortunately, the GASB believes that most of the additional disclosures will relate to defined contribution pensions which have simpler note disclosures. 

If you would like more information or have questions about your specific situation, please contact Nathan Dunlap or Grant Ballantyne. We’re here to help.
 

Read this if your organization, business, or institution has leases and you’ve been eagerly awaiting and planning for the implementation of the new lease standards.

Ready? Set? Not yet. As we have prepared for and experienced delays related to Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 842, Leases, and Governmental Accounting Standards Board (GASB) Statement No. 87, Leases, we thought the time had finally come for implementation. With the challenges that COVID-19 has brought to everyone, the FASB and GASB recognize the significant impact COVID-19 has had on commercial businesses, state and local governments, and not-for-profits and both have proposed delays in effective dates for various accounting standards, including both lease standards.

But wait, there’s more! In response to feedback FASB received during the comment period for the lease standard, the revenue recognition standard has also been extended. We didn’t see that coming, and expect that many organizations that didn’t opt for early adoption will breathe a collective sigh of relief.

FASB details and a deeper dive

On May 20, 2020, FASB voted to delay the effective date of the lease standard and the revenue recognition standard. A formal Accounting Standards Update (ASU) summarizing these changes will be released early June. Here’s what we know now:

• Revenue recognition―for entities that have not yet issued financial statements, the effective date of the application of FASB Accounting Standards Codification (ASC) Topic 606, Revenue Recognition, has been delayed by 12 months (effective for reporting periods beginning after December 15, 2019). This does not apply to public entities or nonpublic entities that are conduit debt obligors who previously adopted this guidance.
• Leases―for entities that have not yet adopted the guidance from ASC 842, Leases, the effective date has been extended by 12 months (effective for reporting periods beginning after December 15, 2021).
• Early adoption of either standard is still allowed.

FASB has also provided clarity on lease concessions that are highlighted in Topic 842. 

We recognize many lessors are making concessions due to the pandemic. Under current guidance in Topics 840 and 842, changes to lease contracts that were not included in the original lease are generally accounted for as lease modifications and, therefore, a separate contract. This would require remeasurement of the new lease contract and related right-of-use asset. 

FASB recognized this issue and has published a FASB Staff Questions and Answers (Q&A) Document, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. Under this new guidance, if lease concessions are made relating to COVID-19, entities do not need to analyze each contract to determine if a new contract has been entered into, and will have the option to apply, or not to apply, the lease modification provisions of Topics 840 and 842.

GASB details

On May 8, 2020, GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. GASB 95 extends the implementation dates of several pronouncements including:
•    Statement No. 84, Fiduciary Activities―extended by 12 months (effective for reporting periods beginning after December 15, 2019)
•    Statement No. 87, Leases―extended by 18 months (effective for reporting periods beginning after June 15, 2021)

More information

If you have questions, please contact a member of our financial statement audit team. For other COVID-19 related resources, please refer to BerryDunn’s COVID-19 Resources Page.
 

Read this if your organization, business, or institution has leases and you’ve been eagerly awaiting and planning for the implementation of the new lease standards.

Ready? Set? Not yet. As we have prepared for and experienced delays related to Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 842, Leases, we thought the time had finally come for implementation. With the challenges that COVID-19 has brought to everyone, the FASB recognizes the significant impact COVID-19 has brought to commercial businesses and not-for-profits and is proposing a one-year delay in implementation, as described in this article posted to the Journal of Accountancy: FASB effective date delay proposals to include private company lease accounting.

But what about lease concessions? We all recognize many lessors are making concessions due to the pandemic. Under current guidance in Topics 840 and 842, changes to lease contracts that were not included in the original lease are generally accounted for as lease modifications and, therefore, a separate contract. This would require remeasurement of the new lease contract and related right-of-use asset. FASB recognized this issue and has published a FASB Staff Questions and Answers (Q&A) Document,  Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. Under this new guidance, if lease concessions are made relating to COVID-19, entities do not need to analyze each contract to determine if a new contract has been entered into, and will have the option to apply, or not to apply, the lease modification provisions of Topics 840 and 842.

Implementation of the lease accounting standard will most likely be delayed for Governmental Accounting Standards Board (GASB) entities as well. On April 15, 2020, the GASB issued an exposure draft that would delay most GASB statements and implementation guides due to be implemented for fiscal years 2019 and later. Most notably, this includes Statement 84, Fiduciary Activities, and Statement 87, Leases. Comments on the proposal will be accepted through April 30, and the board plans to consider a final statement for issuance on May 8. More information may be found in this article from the Journal of Accountancy: GASB proposes postponing effective dates due to pandemic.

More information

Whether you are a FASB or GASB entity, you can expect a delay in the implementation of the lease standard. If you have questions, please contact a member of our financial statement audit team. For other COVID-19 related resources, please refer to BerryDunn’s COVID-19 Resources Page.

While GASB has been talking about split-interest agreements for a long time (the proposal first released in June of 2015, with GASB Statement No. 81, Irrevocable Split-Interest Agreements released in March of 2016), time is quickly running out for a well-planned implementation. With the effective date looming on the horizon, (statement effective for periods beginning after December 15, 2016 unless early adopted), now is the time to start gathering needed information to record existing agreements under GASB 81.

We have learned from GASB’s not-for-profit FASB cousins that irrevocable agreements are rarely where they should be: in the hands of financial professionals. Compiling these agreements will require participation from many stakeholders. Your finance team will likely have to provide some education to avoid a great deal of confusion when asking the “do we have any irrevocable split-interest agreements?” question.

So, where do you start?

1. Have you been tracking this information right along, nicely documented in a folder by your desk? Great! Do a quick check of others in your organization to be sure your file is complete and skip steps 2-5.
    
2. Dig into your general ledger. Have you been receiving regular distributions from a trust? Some of these trust agreements pay out on a quarterly or annual basis and your accounting staff should be able to identify these payors. It may require a quick call to the administrator for the trust agreement to be sure the agreement qualifies under GASB 81.
    
3. Look to your fundraising professionals. Development departments like to keep track of all types of donations. It helps to quantify their good fundraising work. Be clear about what you need from them. Remember, irrevocable split-interest agreements, often trusts or other legally enforceable agreements, are agreements wherein a donor irrevocably transfers resources to a third party to hold for the benefit of the government and at least one other beneficiary —the “split” in “split-interest agreement”!
    
4. Keep talking to your fundraising professionals. Many of the split-interest agreements we find are very old, often created well before your current development software was put into place. Do you have old files that track this kind of information? It may require some digging in the paper files. Remember those?
    
5. All hands on deck. While the finance and fundraising teams are scouring their records, look to others in the organization that might have record of these types of agreements. You know who holds the keys to historical knowledge at your organization, so be sure to include them in your search.

Once the finance department has collected all of the agreements, take one more look to be sure they meet the requirements of GASB 81.“Are they really irrevocable? Or do we just hope they are?” Then you can get down to the business of accounting for them. If you have questions about the accounting for these agreements, please contact me. I would love to chat. And that is irrevocable.

With the implementation of GASB 72 now in full force, GASB organizations are hard at work drafting their new fair value disclosures. The addition of a fair value hierarchy table in the footnotes will add a bit more thickness to a likely already hefty financial package. With this added material comes valuable information for many financial statement users, including a much better explanation of the valuation approach of assets and liabilities reported at fair value.

Since GASB 72 (formally Fair Value Measurement and Application, effective for financial statement periods beginning after June 15, 2015) comes a few years after a similar FASB implementation, most investment professionals have dealt with the growing pains of the FASB implementation, and are well poised to provide the information necessary for the new fair value disclosures.

However, there are a few other things we have learned from the FASB implementation that can be shared with the GASB financial statement preparers:

• The unit of account is a big deal. While investments held by organizations may be specific stocks regularly traded on the open market (here’s a tip: these are level 1); there are other investment vehicles where an organization’s investment share represents a portion of a fund that holds all kinds of other investments (level 1? Maybe, maybe not – you will need to dig deeper). The good news is, with these kinds of investments, the organization is disclosing the level within the fair value hierarchy of their investment - the share of the fund. This is not the same as the level of the investments held within the fund. This is an important distinction and should result in much less time and effort in determining the appropriate level for an investment. GASB 72 uses the example of a mutual fund. An organization owns a share of the mutual fund, not the underlying investments, therefore the disclosure requirement is for the share of the mutual fund, not the underlying assets.
• GASB 72 requires investments measured at net asset value to be reconciling items to the fair value disclosure, but does not require these assets to be listed by level in the table (a recent change to the FASB). Further, a roll forward of level 3 items from year to year was also excluded.
   
• If you have heard of GASB 72, then likely you have heard of the three levels. The required disclosure includes three categories of valuation to be disclosed (aptly named level 1, level 2 and level 3). With each level, comes more involvement (or even, difficulty) in determining the fair value that is recorded. The new disclosure will make it clearer to the users of the financial statements how fair value is being measured.
   
• GASB 72 does provide some guidance in determining fair value through the use of one or more of the following valuation approaches: market approach, cost approach, or the income approach. GASB 72 discusses each of these separately, but remember there can be more than one approach, and not all items are measured equally.
• When you think about fair value, don’t focus solely on the investments, or even only on the assets. Liabilities are in there too! Think of measuring a warranty liability, for example.

We have the advantage of hindsight after the FASB implementation. I have great hope, that as with FASB, after the initial pain of the GASB 72 implementation, once our tables are setup, and a process is in place for identifying levels, our financial statements will be much more transparent, giving us all a clearer picture of the organization.

Please contact Emily Parker if you have questions on the latest GASB updates.