GASB Addresses Accounting for Sales and Pledges of Receivables and Future Revenues

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October 19, 2005

The Governmental Accounting Standards Board (GASB) issued a September 30 exposure draft designed to clarify existing guidance on accounting for sales and pledges of receivables and future revenues. The draft addresses whether certain transactions should be regarded as a sale or a collateralized borrowing. Examples of such transactions would be the sale of student loans; mortgages; or future revenue agreements.

Historically, such transactions have not been authoritatively addressed by GASB. The draft would establish criteria that public institutions and governments would use to determine whether such transactions are sales or collateralized borrowings. Sales generate revenue and remove the assets, and collateralized borrowings result in liabilities.

In addition to clarifying guidance on accounting for sales and pledges of receivables and future revenues, the proposal will:

require enhanced disclosures pertaining to future revenues that have been pledged or sold;
provide guidance on sales of receivables and future revenues within the same financial reporting entity; and
provide guidance on recognizing other assets and liabilities arising from the sale of specific receivables or future revenues.

The requirements in the draft would improve financial reporting by establishing consistent measurement, recognition, and disclosure requirements applicable to both governmental and business-type activities. The requirements of this proposed statement would be effective for financial statements for periods beginning after December 16, 2005.

NACUBO plans to comment on the draft and we would like to hear from members who may be affected by the proposed statement. NACUBO encourages interested institutions to comment through written response to Sue Menditto, director, accounting policy. The deadline for submitting comments is December 30, 2005.