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The Government Accounting Standards Board Statement 45 Essay example

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The Government Accounting Standards Board (GASB) issued Statement 45 (GASB 45), in June 2004, this statement establishes accounting and reporting standards for post-employment benefits other than pensions “other post-employment benefits (OPEB)” offered by state and local governments. Requiring local governments to actuarially determine their annual required contribution (ARC) to fund OPEB and to account for the unfunded amount as a liability on annual financial statements. Government employers required to comply with GASB 45 include all states, towns, education boards, public schools and all other government entities that offer OPEB and report under GASB. In this paper we will have an overview of this pronouncement and see how it will…show more content…
GASB believes that the “pay-as-you-go” method does not accurately reflect the accurate costs that governments are accumulating for future benefits of current employees. Because this method fails to recognize the cost of benefits in periods when the employer receives the related services, it also doesn’t provide certain information about the actuarial accrued liabilities for promised benefits associated with past services and whether and to what extent those benefits have been funded, and it doesn’t provide useful information to assess potential demands on the employer’s future cash flows.

From an accrual accounting perspective, the cost of OPEB, like the cost of pension benefits, generally should be associated with the periods in which the exchange occurs, rather than with the periods when benefits are paid or provided (usually many years later). When implementing GASB 45, many governments will report annual OPEB costs and the unfunded actuarial accrued liabilities (UAAL) for past service costs. Disclosure of this information will foster improved accountability and better informed policy decisions about the level and types of benefits provided by employers and potential methods of financing and managing those benefits.

The implementation of GASB 45 has been staggered in three phases, the first phase was for large governments with annual revenues of over $100 million, these governments were required to make the change from a pay-as-you-go accounting basis for OPEB
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