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Business and Policy Areas
Business and Policy Areas

GASB Addresses Government Guarantees

July 12, 2012

The Governmental Accounting Standards Board's (GASB) latest Exposure Draft covers financial guarantee arrangements between governments. The proposal addresses assurances of debt repayment and credit enhancements in which the guarantor government does not receive equal consideration in exchange for the guarantee.
  1. As defined in the proposal, a financial guarantee refers to a transaction that involves three legally separate parties:
  2. Guarantor—the entity providing the guarantee of a separate entity's legal obligation.
  3. Issuer—the entity that issues the obligation that is being guaranteed.
  4. Bondholder—the entities that purchase the obligation.

The proposed guidance would require a government guarantor to recognize a liability when qualitative factors or historical data indicate that it is more likely than not that the government will make a payment on the guarantee. Meanwhile, the government receiving the guarantee would continue to report a liability until legally released of the obligation; revenue would be recognized as a result of being legally relieved of the obligation.

The proposed statement does not apply to guarantees related to special assessment debt within the scope of Statement No. 6. Specifically, the proposal amends:

  • Paragraph 3 of Statement 10, "Accounting and Financial Reporting for Risk Financing and Related Insurance Issues."
  • Paragraph 5 of Statement 33, "Accounting and Financial Reporting for Non-exchange Transactions."
  • Paragraphs 98, 109, 110, and 124 of Statement 62, "Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements."

A government with outstanding obligations that have been guaranteed by another entity should disclose the following information:

  • The name of the entity providing the guarantee.
  • The amount of the guarantee.
  • The length of time of the guarantee.
  • The amount paid by the entity extending the guarantee on obligations of the government during the current reporting period.
  • The cumulative amount paid by the entity extending the guarantee on outstanding obligations of the government.
  • A description of requirements to repay the entity extending the guarantee.
  • The amount required to repay the entity providing the guarantee.

A government that extends non-exchange financial guarantees should disclose the following information:

  • A description of the obligations that are guaranteed.
  • For guarantees that become liabilities, a brief description of the timing of recognition and measurement of the liabilities and any changes in recognized guarantee liabilities.
  • The amount of outstanding guarantees.
  • Cumulative amounts of indemnification payments made and any expectations for recovery.

The Exposure Draft remains open for comment until September 28, 2012. NACUBO suggests that public institutions read the proposal and submit comments. Alternatively, institutions can submit reactions to NACUBO to inform the industry comment letter.


Sue Menditto
Director, Accounting Policy