FASB Issues ASU on Subsequent Events
March 1, 2010
The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) clarifying that conduit debt obligors are required to evaluate subsequent events through the date their financial statements are issued. The ASU will affect many independent institutions that issue publicly available debt instruments.
The ASU, "2010-09 - Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements," amends FASB Codification topic 855, originally issued as FASB Statement 165, "Subsequent Events" (FAS 165). FAS 165 brought the principles established for subsequent events from the auditing literature into the accounting literature. It also made a distinction between "issuance date" and a date at which financial statements are "available to be issued." FAS 165 provided guidance on the date through which subsequent events are evaluated: either the "issuance date," or "the available to be issued date." ASU 2010-09 clarifies that conduit debt obligors must evaluate subsequent events through the issuance date. The ASU is effective for periods ending after June 15, 2010 - FY10 for most independent colleges and universities that are conduit debt obligors.
An independent institution is a conduit debt obligor if it issues tax-exempt debt that trades in the public market via state authorities. A public market is defined as a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets. Independent institutions that are conduit debt obligors must evaluate subsequent events through the date that the financial statements are issued. The issuance date is when the institution expects to widely distribute its financial statements. Examples of issuance include publishing financial statements on a website, distribution of an annual report or filing financial statements with a Municipal Securities Information Repository.
The requirement to evaluate subsequent events through the financial statement issuance date can be a concern for independent institutions because of variable practices or requirements that extend the issuance far beyond the date that the financial statements are final and available to be issued. Some independent institutions may have issuance requirements related to donor agreements, debt covenants (such as the requirement to file with the Electronic Municipal Market Access (EMMA, see http://emma.msrb.org/), etc. For other independent institutions, issuance may simply be a matter of practice, such as waiting for the annual report to be produced to post on the institution's website. Whether arbitrary or required, as the length of time between financial statement completion and an issuance increases, so does the risk that a non-recognized or significant subsequent event would not be disclosed or reported.
As a result of informal discussions with FASB staff, NACUBO recommends that affected institutions immediately post their completed (final) financial statements on their website if they would be subject to an otherwise lengthy issuance period. Such a posting is considered an issuance and stops the clock for the institution's responsibility to evaluate subsequent events.
Independent institutions that are not conduit debt obligors are required to evaluate subsequent events up through the date financial statements are available to be issued. Financial statements are available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained. These approvals typically come from management or the governing board. NACUBO recommends that such approvals be documented in internal files or meeting minutes.
Regardless of whether the institution is required to evaluate subsequent events through the issuance date or the date that the financial statements are available for issue, it must disclose 1) the date through which subsequent events were evaluated and 2) whether that date is the issuance date or the date the financial statements were available for issuance.
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