GASB Issues New Standard on Sales and Pledges of Receivables
September 29, 2006
On September 29, 2006 the GASB issued Statement No. 48, "Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues." The new standard provides guidance to help public institutions ascertain whether certain transactions are considered sales or collateralized borrowings. Such transactions might include transfers of mortgages, student loans, or future revenue streams.
In addition to clarifying guidance on accounting for sales and pledges of receivables and future revenues, the statement:
- requires enhanced disclosures pertaining to future revenues that have been pledged or sold,
- provides guidance on sales of receivables and future revenues within the same financial reporting entity,
- provides guidance on recognizing other assets and liabilities arising from the sale of specific receivables or future revenues, and
- includes a provision that stipulates that governments should not revalue assets that are transferred between financial reporting entity components.
Also noteworthy is that the final standard contains several modifications from the exposure draft, including:
- Statement 48 supersedes guidance regarding future revenue sales provided in Technical Bulletin 2004-1, "Tobacco Settlement Recognition and Financial Reporting Entity Issues." However, in response to concerns expressed by several respondents to the 2005 exposure draft, the statement transition provisions were modified to allow for prospective, rather than retroactive, application of the requirements that pertain to sales of future revenues.
- The criteria for distinguishing a borrowing transaction from a sale transaction were clarified for both receivables and future revenues.
- The definition of "active involvement" was sharpened. Active involvement is a key consideration in determining whether a transaction transferring the right to a future revenue stream could qualify as a sale.
- The detailed accounting and reporting guidance proposed in the exposure draft was expanded and enhanced, especially for governmental funds.
- The requirements for disclosures about pledged revenues were clarified and an exemption from those disclosure requirements was granted for legally separate entities that report as stand-alone business-type activities, the operations of which are financed primarily by a single major-revenue source.
The requirements of this statement are effective for financial statements for periods beginning after December 15, 2006 – meaning fiscal years ending in 2008. Please see the GASB Web site for information on ordering the standard.
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