Government Insights - GASB Statement No. 81 by Weaver

Government Insights GASB Statement

No. 81

GASB Statement No. 81 provides guidance for irrevocable split-interest agreements THROUGH A CHARITABLE REMAINDER TRUST or some other irrevocable split-interest agreement, a donor may wish to provide resources to various beneficiaries – including a government – without reserving or conferring the right to terminate the agreement. Government-supported colleges, libraries, zoos, museums and hospitals are common beneficiaries in these agreements. In response, the Governmental Accounting Standards Board (GASB) issued Statement No. 81 – Irrevocable Split-Interest Agreements – in March 2016 to provide more specific guidance for recognizing benefits from such agreements in financial statements. Statement No. 81 supersedes Implementation Guide No. 2015-1, Question 7.72.11. Statement No. 81 also amends provisions contained in Statement No. 31 – Accounting and Financial Reporting for Certain Investments and for External Investment Pools (paragraph 13); Statement No. 33 – Accounting and Financial Reporting for Nonexchange Transactions (paragraph 5); Statement No. 34 – Basic Financial Statements–and Management’s Discussion and Analysis– for State and Local Governments (paragraphs 16, 18, 22, 92 and 107); and, Statement No. 67 – Financial Reporting for Pension Plans (paragraph 24).

Effective Date STATEMENT NO. 81 takes effect for reporting periods beginning after December 15, 2016, and should be applied retroactively. The GASB encourages earlier application.

Anticipated Improvements STATEMENT NO. 81 enhances the comparability of government financial statements, thereby improving the statements’ usefulness and value for evaluating performance and assessing accountability. In particular, Statement No. 81 helps financial statement users more clearly identify available government resources.

Issues Addressed by Statement No. 81 STATEMENT NO. 81 addresses situations in which the government or a third party serves as the intermediary for an irrevocable split-interest agreement. Statement No. 81 also provides guidance for agreements in which the government may have a lead interest or remainder interest in receiving benefits.

Government Insights: GASB Statement No. 81 An intermediary is the party designated by the donor to hold and administer resources being disbursed. The intermediary may be a beneficiary in the split-interest agreement. A typical irrevocable split-interest agreement is comprised of lead interest and remainder interest beneficiaries. The lead interest beneficiary (or beneficiaries) receives periodic disbursements, while the remainder interest beneficiary (or beneficiaries) receives what is left after specified lead interest disbursements have been made. Lead interest disbursement amounts may be based on a percentage of total assets or some other measure. Fluctuations in investment values or other changes during the span of disbursements affect the total benefits received by both lead interest and remainder interest beneficiaries. All told, irrevocable split-interest agreements present numerous variables and Statement No. 81 provides guidance for addressing the conditions specified in a particular agreement.

Summary IRREVOCABLE SPLIT-INTEREST AGREEMENTS do not have the broad impact on government financial statements that other financial concerns have, but such agreements provide crucial resources and support for some government units. With Statement No. 81, the GASB provides greater clarity for recognizing such agreements in government financial statements. Statement No. 81 takes effect for reporting periods beginning after December 15, 2016, and should be applied retroactively. The GASB encourages earlier application.

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