GASB Addresses Bankruptcy

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July 30, 2009

The Governmental Accounting Standards Board (GASB) has proposed a new standard to assist governments with issues relevant in today's economic environment. The exposure draft, "Accounting and Financial Reporting for Chapter 9 Bankruptcies," would provide guidance for governments that have petitioned for protection from creditors by filing for bankruptcy under Chapter 9 of the United States Bankruptcy Code. Comments on the proposal are due to GASB by August 28, 2009.

GASB currently has no authoritative literature for governments filing bankruptcy. Although it is rare for governmental entities to file bankruptcy, such a circumstance would require the government to look to standards that may take an approach to recognition and measurement that is not consistent with governmental accounting and reporting.

The proposal would require governments to remeasure liabilities that are subject to adjustment in bankruptcy. The measurement would consider the new payment plans that result from the bankruptcy proceedings. The proposal also notes that existing authoritative guidance should be followed when remeasuring leases, pollution remediation liabilities, and liabilities for pension and other postemployment benefit plans.