This podcast examines the impact on airports of pronouncements issued by the Government Accounting Standards Board (GASB). Cherry Bekaert is honored to have one of the Firm’s Directors, Scott Anderson, currently serving as one of two Practice Fellows with GASB. This discussion features Scott’s review of key GASB accounting standards currently being implemented that affect airports. Greg Miller, Leader of Cherry Bekaert’s Government Transportation Group, and Lauren Strope, Director with the Firm’s Government Services Group, lead the conversation that offers listeners a rare opportunity to hear an insider’s view of current and future GASB pronouncements.
Disclaimer: Scott’s views expressed in this presentation are his own. Official positions of the GASB are reached only after extensive due process and deliberations. We are not providing accounting, financial report or tax advice on this podcast. Please consult with your accounting and tax advisors or Cherry Bekaert for more guidance.
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GREG MILLER: Welcome to Cherry Bekaert's podcast on the impact of future GASB pronouncements affecting government airport sponsors. I'm Greg Miller, leader of Cherry Bekaert's Government Transportation Group.
LAUREN STROPE: I'm Lauren Strope, a director with our Government Transportation Group at Cherry Bekaert.
SCOTT ANDERSON: Glad to be here. I'm Scott Anderson, a director with Cherry Bekaert's Government Services Group, currently serving as one of two practice fellows with GASB.
GREG MILLER: Thanks to both of you for being here today. As mentioned, today's topics are upcoming GASB pronouncements and their impact on airport sponsors. Lauren will ask Scott several questions about specific GASB pronouncements and their impacts on airports.
LAUREN STROPE: Scott, thank you for taking time away from your GASB duties to talk with us. Let's start with GASB Statement 87, as we're in the year of implementation. Are there any key issues that airports need to consider or address?
SCOTT ANDERSON: Statement 87 was a significant undertaking, probably disproportionately so for airports, and many airports were involved early and helped shape the final pronouncement. Statement 87 requires that leases be recognized and measured using the facts and circumstances as of the beginning of the period of implementation.
SCOTT ANDERSON: For all governments, that period of implementation has begun, so Statement 87 is now live. The number of technical inquiries we have received from airports has dropped significantly over the last year, which indicates that those affected are ready to implement. There could still be questions as financial statements are prepared and audited, but from our standpoint, airports appear to be in good shape.
LAUREN STROPE: As airports finish their implementation of Statement 87 and move on to other pronouncements, can you talk about Statement 94? How did this one come about and what is the possible impact on airports?
SCOTT ANDERSON: Statement 94 addresses P3s, meaning public-public partnerships and public-private partnerships. There is no single standard definition of a P3 in the industry; in the broadest sense, a lease arrangement or vendor relationship could be a P3, and in the strictest sense, a P3 must include construction of infrastructure.
SCOTT ANDERSON: Part of Statement 94 is determining what a P3 is for accounting purposes and re-examining Statement 60 on service concession arrangements. Statement 60 provided a narrowly defined P3 and did not have a significant impact on airports. GASB research found that the prior definition was too narrow.
SCOTT ANDERSON: Statement 94 supersedes Statement 60, brings the service concession arrangement guidance into Statement 94, and expands coverage to more P3 scenarios, including arrangements outside the scope of Statement 87 and outside the prior scope of Statement 60. The good news is Statement 94 follows the same template as Statement 87, so those familiar with 87 will find this guidance familiar.
SCOTT ANDERSON: We expect more governments to use P3s to share project risks with the private sector, so Statement 94 may not have a large immediate implementation impact but will have substantial impact going forward.
LAUREN STROPE: That makes sense and highlights the go-forward impact. Statement 96 was written following the same template as 87 and 84. Do you think it will have the same impact on airports?
SCOTT ANDERSON: Probably not. Statement 87 was disproportionately impactful for airports, and I don't expect 96 to be the same. However, any government with cloud-based services or other software-as-a-service subscription-based information technology arrangements will be impacted.
SCOTT ANDERSON: Statement 96 is part of the same suite of standards at the GASB as Statements 87 and 94, so if you are familiar with the provisions of 87, you will understand 96. One feature that makes Statement 96 easier is it provides guidance only from the subscriber standpoint, which is equivalent to the lessee in Statement 87, because few governments provide cloud services to other entities. It also brings some provisions from Statement 51 for developing internally developed software.
LAUREN STROPE: Got it. GASB Statement 91 on conduit debt goes into effect next year. What aspects of that pronouncement should airports be aware of?
SCOTT ANDERSON: Statement 91 is issued for the benefit of the issuer. There are three parties to any conduit debt transaction: the issuer, the third-party obligor, the recipient of the proceeds and the party responsible for repayment, and the debt holder. Statement 91 defines conduit debt more specifically and provides guidance from the issuer's standpoint.
SCOTT ANDERSON: Airports that are the obligor do not need to worry about this statement because it does not provide guidance for obligors. If you are an issuer acting on behalf of a third-party obligor, Statement 91 applies to you. In many cases, governments are already accounting for conduit debt as Statement 91 prescribes, but prior guidance was limited to Interpretation 2, which was primarily a disclosure requirement and led to divergence in practice.
SCOTT ANDERSON: Statement 91 also provides guidance for additional commitments an issuer can make, such as financial guarantees or moral obligation pledges, and it follows existing guidance, for example in Statement 70, regarding financial guarantees. Additionally, Statement 91 addresses conduit debt arrangements that involve capital assets used by the obligor but owned by the issuer and provides guidance on accounting for those arrangements.
LAUREN STROPE: Last year, the Financial Reporting Model Re-examination Project issued an exposure draft. What topics should airports be aware of?
SCOTT ANDERSON: The Financial Reporting Model Re-examination Project, or FRM, covers many topics. The areas that received the most stakeholder attention during due process are those affecting governmental funds, which typically do not affect airports. However, there are items in the exposure draft that affect enterprise fund-type entities, including airports.
SCOTT ANDERSON: FRM is addressing inconsistencies with operating and nonoperating classifications in proprietary fund financial statements. Current guidance in Statement 34 allows governments to determine their own policy for what is operating and nonoperating, leading to inconsistency across governments. The board's approach in the exposure draft is to define nonoperating, with operating defined as everything else.
SCOTT ANDERSON: The board considered industry-specific definitions but decided on a principle-based approach that applies to all industries within government. The exposure draft also proposes a change to the presentation of proprietary fund statements of revenue, expenses, and changes in net position, including a new section for noncapital subsidies in the nonoperating section. The exposure draft was issued last year, the board is re-deliberating topics, and the technical plan shows potential finalization early in 2023.
LAUREN STROPE: Thanks. Can you provide a quick update on the revenue and expense recognition project and its potential impact?
SCOTT ANDERSON: The revenue and expense recognition project has been ongoing for quite a while and still has a long way to go. There have been two exposure documents, field tests, public hearings, and user forums, so we have substantial stakeholder feedback. We are likely about two years away from an exposure draft.
SCOTT ANDERSON: The proposed model would use a performance obligation approach for what we now call exchange transactions, essentially following a model similar to FASB ASC 606 while incorporating the GASB's conceptual framework. Business-type activities would follow a performance obligation approach similar to the private sector for revenue recognition.
SCOTT ANDERSON: We've received a lot of feedback, and the performance obligation approach has generally been supported. Out of the proposed elements, this approach is one that may stick, but there remains significant work to develop the full model.
LAUREN STROPE: It's not every day you get to speak with a GASB fellow, so thank you. It was an honor.
SCOTT ANDERSON: Thanks for having me.
GREG MILLER: Thanks, Lauren, for leading this Q&A session. Scott, we appreciate you taking time away from the GASB to share your thoughts with us, and we look forward to your return to Cherry Bekaert with continued insights and relationships you've built at GASB.
GREG MILLER: A quick disclaimer: Scott's views expressed in this podcast are his own. Any official positions of GASB are reached only after extensive due process and deliberations. We are not providing specific accounting, financial reporting, or tax advice on this podcast. Please consult with your accounting or tax advisor or Cherry Bekaert for guidance.
HOST: For more information about GASB or any other topics that impact your airport, visit our website at cbh.com. Thank you for joining us.
