statements of rev exp and changes in fund net assets
statement of cash flows
Interest paid=financing activity
Interest received=investing activity
Ramifications for other funds (for ISF)
Duplicate reported expenses
Transfer of depreciation to governmental funds
Detract from objectivity of financial statements (revs of ISF are not objective, and so too are changes in net assets for year, and expenditures of gen fund and any other funds; everything is subjective)
Obscure fund balance suprlus or deficits (gov transfer s or d to ISF, where not maintained).
when a gov self-insures, it retains the risk itself, irr of whether it accounts for the activity in ISF or gen fund. Therefore, self-ins=no insurance.
The cash flows are divided into four categories:
noncapital financing activities;
capital and related financing activities;
actuarial cost method
means of allocating total cost of expected benefits over total years of employee service; method to etermine amount that they should contribute to pension plan each year;
annual pensoin cost should be based mainly on annual required contribution (take into account interest on, and amortization of past deficiencies).
minimum criteria for acceptabl annual req contribution
contirbution=normal cost + provision for amortizing plan's uaal
actuarial assumptions in accord with act stds board
actuarial value of plan assets must be market related
assumptions as to investment earnings rates and future inflation should be based on long-term projectiosn
an uaal can result from
changes in actuarial assumptions
improvements in pension benefits
special termination benefits
reporting pension stuff
gov wide stmts report only on net plan assets; pension plans should reprot their actuarial information in notes to the basic financial statements and supplementary schedules
change between old method and new method?
before new pronouncements, costs were on a pay as you go basis. thterefore, their unfunded obligation may be substantial.
The decrease in plan assets is most likely attributable to
an overall decline in stock prices
9: What criteria should be used to distinguish business from governmental activities?
FASB: Interest paid is operating. GASB: Interest paid
3 vs 4 categories
What is the government amortizing?
The government would be amortizing the various deferrals – those resulting from changes in the terms of the plan,
changes in actuarial assumptions and in differences between actuarial assumptions and actual experience
What has been the main criticism of the GASB standard on which the 30 year amortization period is based and what alternative has the GASB proposed?
This range is far too broad and the max number of years too great. Max period is far longer than remaining working lives of most employees.
GASB has proposed immediate write-offs of changes in the plan, amortizing changes in actuarial assumptions over
the remaining average service life
of employees and amortizing differences
between actual and projected investment returns over a period of five years.
standards relating to the “discount rate” have been the subject of controversy
and criticism. What is meant by the
“discount rate” as it applies to pensions (i.e. what exactly is being
discounted and why)?
The discount rate is the rate applied to the
future payments to beneficiaries to determine their present value and to compute the actuarially required contributions to the pension fund and the unfunded liability.
past:Estimated rate of return on
current: A “blended” rate reflecting
the estimated rate of return on plan assets to the extent that plan assets areprojected to pay the required benefits and a tax-exempt municipal bond index
rate to the extent that they are not
What is meant by a “cost sharing plan.” In what major will the GASB exposure draft alter current practice in the way
members of a cost sharing plan account for their pension obligations
A cost sharing plan is one in which two or
more employers share the costs of:
providing benefits and
administering the plan and
common asset pool.
A single actuarial valuation is made for
all participating employer
What meant by a defined contribution plan and how does it differ from a defined
A defined contribution plan is one in which the employer specifies the contributions it will make to a retirement plan. In these plans, the employee bears the investment risk.
A defined benefit plan is
one in which the employer specifies the
benefits that an employee will receive as a retiree, typically expressed as
a percentage of the employee’s average compensation for 3-5 years. In these
plans, the employer bears the investment
Morgan City operates an electric utility which provides
services to homes and businesses within the metropolitan area. Consider the following transactions made by
When new customers first sign up for service,
Hill requires them to put an amount on deposit equal to the estimated charges
for one month’s service. If the customer
pays their bills in a timely manner for 24 months, the deposit plus 2% interest
is returned to them.
The debt covenant on revenue bonds issued by the
utility requires that $1M be set aside each year that the bonds are outstanding
to provide for the retirement of the bonds.
Discuss the treatment of these two items on the
utility fund’s Statement of Net Assets.
Both of these items are examples of restricted
resources. They are treated the same on
the asset side: the amounts are
segregated from unrestricted assets and shown separately as restricted assets,
possibly with a description of the restriction.
The resources related to customer deposits are offset
by a liability payable from restricted assets”
Customer Deposits Payable. As
long as the restricted assets are completely offset by the related liability,
there is no need to restrict a portion of net assets.
The resources related to the bond covenant are not
explicitly offset by a liability and consequently a portion of net assets equal
to the amount set aside for repayment of principal must be shown as restricted.
voting majority of board, but no impose of will and no financial dependency
diff b/w past and current:
Measurement of assets in plan
past: market related
current: fair value
diff b/w past and current:
Amount to be reported as expense in
Generally would be the
ARC (with an adjustment if the employer
has a net pension liability reported on its statement of net position)
Changes in the employer’s
net pension liability (i.e., total actuarial liability less plan assets). Some of the changes are recognized
immediately; others can be recognized (amortized) over time
diff b/w past and current:
Amounts to be reported by a cost
sharing employer as pension expense and liability
past: Report as an expense the
required contribution; report as liability only the cumulative difference
between required and actual contributions
current: Report as an expense
and liability its proportionate share of
the collective expense and liability
of all employers of the cost sharing plan
portion of present value of plan benefits that is allocated to a particular year by an actuarial cost method