2019 & 2020-COH - DWS Financial Statements and Supplementary Information With Independent Auditor's Report

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County of Hawaii Department of Water Supply (A component unit of the County of Hawaii, State of Hawaii) NOTES TO FINANCIAL STATEMENTS June 30, 2020 and 2019 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (14) Contributions in Aid of Construction - Contributions in aid of construction represent cash or capital assets received by the Department to aid in the construction of infrastructure assets. It also includes the forgiveness of principal due on state revolving fund loans that were used to finance the costs of infrastructure needed to maintain the water system. Contributions in aid of construction are recognized when they are accepted by the Water Board and when all applicable eligibility requirements have been met. (15) Deferred Amounts on Advanced Refundings - For advanced refunding resulting in defeasance of debt, the difference between the reacquisition price and the carrying amount of the old debt is deferred. This amount is amortized as a component of interest expense using the bonds outstanding method over the remaining life of the old debt or the life of the new, whichever is shorter. The amount deferred is reported as a deferred inflow or outflow of resources. (16) Deferred Outflows of Resources and Deferred Inflows of Resources - Deferred outflows of resources represent a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expense) until that time. Deferred inflows of resources represent an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. (17) Use of Estimates - The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, deferred inflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of capital assets, valuation allowances for trade receivables, valuation of noncash contributions in aid of construction, accrued workers' compensation, pensions and postretirement healthcare and life insurance benefits. Actual results could differ from those estimates. (18) Reclassification - Certain balances in the prior year financial statements have been reclassified for comparative purposes to conform with the current year presentation. Such reclassification had no effect on the previously reported change in net position. (19) New Accounting Pronouncements - The GASB issued Statement No. 84, Fiduciary Activities. This Statement establishes specific criteria for identifying activities that should be reported as fiduciary activities and clarifies whether and how business -type activities should report their fiduciary activities. Management has not yet determined the effect this Statement will have on the Department's financial statements. 21