Tobacco Settlement Estimates
Agency: Attorney General
Under the terms of the Master Settlement Agreement (MSA), tobacco companies have agreed to make annual payments in perpetuity. The MSA includes a schedule of projected annual base payments, subject to certain adjustments based on future events or circumstances. The most significant factor affecting the annual payments is a volume adjustment, which creates a direct relationship between domestic shipments of cigarettes and the annual payments. Based on MSA the cigarette companies have no obligation to make settlement payments until cigarettes are shipped.
The event that results in the recognition of an asset and revenue by a settling government is the domestic shipment of cigarettes (sales). Therefore, the settling governments should recognize a receivable and revenue for Tobacco Settlement Revenues (TSRs) when that event occurs. Because annual TSR payments are based on cigarette sales from the preceding calendar year, governments should estimate accrued TSRs that drive from sales from January 1 to their respective fiscal year ends. Estimates for the accrual can be based on information from a variety of sources, including the projected payment schedule in the MSA adjusted for historical payment trends. Under the modified accrual basis of accounting, revenue should be recognized to the extent that the event occurs and resources become available.
INFORMATION TO BE REPORTED TO THE SAO CAFR GROUP
Please provide an estimate of the anticipated Tobacco Settlement Revenues expected to be received, in the month of April following the current fiscal year end. For example, for the fiscal year ending June 30, 2015, what would be the anticipated Tobacco Settlement Revenues to be received in April 2016 for the calendar 2015 sales?
Please have this information to us by October 15.
Thank you for your assistance in the production of the State’s Comprehensive Annual Financial Report. If there are any questions, please contact the CAFR Group at (307) 777-2460 or by email at firstname.lastname@example.org.