GASB Update for 2006
School Advisor, 2005 Issue No. 3

There are three new GASB pronouncements that potentially impact Michigan K–12 school districts for June 30, 2006. We thought we would give you a brief overview, so you can take whatever steps may be necessary to be ready to implement the changes.

GASB #42 — Capital Asset Impairment
This statement will require districts to report the effects of capital asset impairment in their financial statements when the impairment occurs, rather than as a part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset. The most likely impairment situation for a school district will be a school building taken permanently out of service as no longer needed in your operations. Under GASB #42, this situation will require the land and building to be written down to its fair market value if it is below net book value. So, if you have significant capital assets you are no longer using or they become damaged beyond repair (think of New Orleans), start planning on having a reasonable estimate of fair market value by June 30, 2006.

GASB #44 — CAFR Statistical Sections
This statement only applies to districts that prepare Comprehensive Annual Financial Reports (CAFR), which usually only happens if you are applying for the ASBO Certificate of Excellence in Financial Reporting. If you are still reading, your CAFR will be impacted by GASB #44. This statement is designed to improve comparability in the statistical sections. It identifies and gives guidance in the following five key areas:

• Financial trends
• Revenue capacity
• Debt capacity
• Demographic & economic information
• Operations information

It incorporates all the GASB #34 data and requires new disclosures regarding the sources of information, methodologies, assumptions, and the relationship of the data to other sections of the financial statements. If your district prepares a CAFR, you will definitely need to read GASB #44 and start accumulating the new information.

GASB #47 — Accounting for Termination Benefits
This statement only applies to full accrual financial statements. This means it only applies to the district-wide statement of net assets and proprietary funds (i.e., Internal Service Funds). It does not apply to governmental funds such as your General Fund.

The statement requires liabilities associated with payments provided as a condition of early employment termination (i.e., early retirement incentives [ERI]) be recorded using the discounted present value of the expected future benefit. Note: This does not apply to normal accrued compensated absence liabilities since these are intended to be in exchange for services received. So for most districts, only an ERI liability recorded in the district-wide statement of net assets (or perhaps in an internal service fund) will have to be recalculated. The statement also clarifies what events trigger the recognition of the liability. We are currently giving some thought to the easiest way to accomplish this and will share our ideas with you in a later addition of the School Advisor.

As always, if you have any questions, do not hesitate to call us.