5.1. ERMUSR 04-14-2015 - Laserfiche WebLink

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Future Accounting Standard Changes-Continued How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will eliminate the source of a potential significant understatement of restated beginning net position and expense in the first year of implementation of Statement No.68 in the accrual-basis financial statements of employers and nonemployer contributing entities.This benefit will be achieved without the imposition of significant additional costs. GASB Statement No.72-Fair Value Measurement and Application Summary This Statement addresses accounting and financial reporting issues related to fair value measurements.The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.This Statement provides guidance for determining a fair value measurement for financial reporting purposes.This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. Fair Value Measurement Fair value is described as an exit price.Fair value measurements assume a transaction takes place in a government's principal market,or a government's most advantageous market in the absence of a principal market.The fair value also should be measured assuming that general market participants would act in their economic best interest.Fair value should not be adjusted for transaction costs. To determine a fair value measurement,a government should consider the unit of account of the asset or liability.The unit of account refers to the level at which an asset or a liability is aggregated or disaggregated for measurement,recognition,or disclosure purposes as provided by the accounting standards.For example,the unit of account for investments held in a brokerage account is each individual security,whereas the unit of account for an investment in a mutual fund is each share in the mutual fund held by a government. This Statement requires a government to use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value.The techniques should be consistent with one or more of the following approaches:the market approach,the cost approach,or the income approach.The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets,liabilities,or a group of assets and liabilities.The cost approach reflects the amount that would be required to replace the present service capacity of an asset.The income approach converts future amounts(such as cash flows or income and expenses)to a single current(discounted)amount. Valuation techniques should be applied consistently,though a change may be appropriate in certain circumstances.Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. This Statement establishes a hierarchy of inputs to valuation techniques used to measure fair value.That hierarchy has three levels. Level 1 inputs are quoted prices(unadjusted)in active markets for identical assets or liabilities.Level 2 inputs are inputs— other than quoted prices—included within Level 1 that are observable for the asset or liability,either directly or indirectly. Finally,Level 3 inputs are unobservable inputs,such as management's assumption of the default rate among underlying mortgages of a mortgage-backed security. A fair value measurement takes into account the highest and best use for a nonfinancial asset.A fair value measurement of a liability assumes that the liability would be transferred to a market participant and not settled with the counterparty.In the absence of a quoted price for the transfer of an identical or similar liability and if another party holds an identical item as an asset,a government should be able to use the fair value of that asset to measure the fair value of the liability. This Statement requires additional analysis of fair value if the volume or level of activity for an asset or liability has significantly decreased.It also requires identification of transactions that are not orderly.Quoted prices provided by third parties are permitted, as long as a government determines that those quoted prices are developed in accordance with the provisions of this Statement. People +Process® Going Beyond Numbers 119