So far this year, the Governmental Accounting Standards Board (GASB) has issued three new final statements: GASB Statement No. 80, Blending Requirements for Certain Component Units, GASB Statement No. 81, Irrevocable Split-Interest Agreements, and GASB Statement No. 82, Pension Issues. This article summarizes the key guidance to be found in these three new standards.
BLENDING REQUIREMENTS FOR CERTAIN COMPONENT UNITS
GASB Statement No. 80 addresses a special issue raised by not-for-profit component units for which the primary government is the sole corporate member (that is, the only board member with the legal power to make corporate decisions). Such units logically ought to be blended rather than discretely presented, because they function for all practical purposes as part of the primary government. However, the existing criteria for blending are not broad enough to include them. GASB Statement No. 80 remedies this defect by adding an additional criterion that will henceforth allow such units to be blended.
GASB Statement No. 80 will not apply to component units that are included within the financial reporting entity pursuant to the criteria set forth in GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units.
The new standard will first take effect for fiscal years ending June 30, 2017, with earlier implementation encouraged.
IRREVOCABLE SPLIT-INTEREST AGREEMENTS
GASB Statement No. 81 offers guidance for governments that benefit from inevocable split-interest agreements (typically colleges, universities, and hospitals).
An irrevocable split interest agreement is an arrangement whereby a donor irreversibly places resources in trust for the benefit of two or more parties, one of which is typically the donor. For example, a wealthy retired couple who wish to help their alma mater might place their retirement investment portfolio into a special trust fund that is administered by an intermediary, with the couple entitled to regular payments for the rest of their lives and the university entitled to the balance of the portfolio upon the death of both spouses. The couple's right to receive payments during the term of the agreement is described as a lead interest; whereas the university's right to receive whatever resources are left over at the end of the agreement is described as a remainder interest. The intermediary that administers a split-interest trust can be either the government itself or a third-party