GASB Issues Two New Accounting Standards
July 29, 2011
The Governmental Accounting Standards Board (GASB) has issued Statement No. 63, “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position,” and Statement No. 64, “Derivative Instruments: Application of Hedge Accounting Termination Provisions.”Both statements were needed to clarify issues resulting from existing GASB literature.
Statement No. 63
GASB Statement 63, “Financial Reporting of Deferred Outflow of Resources, Deferred inflows of Resources, and Net Position,” addresses how to report elements of financial statements that are deferrals, and explains that net position is the residual of all other elements presented in a statement of net position. Statement 63 amends Statement 34, “Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments,” and Statement 35, “Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities.” Accordingly, the new standard clarifies that amounts that are required to be reported as deferred outflows of resources or deferred inflows of resources should be reported in a separate section in a statement of net assets, following assets and liabilities, respectively. The statement of net position should report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position.
GASB Concepts Statement No. 4, “Elements of Financial Statements,” included definitions of deferred inflows and deferred outflows of resources as elements separate from assets and liabilities. A deferred inflow of resources is an acquisition of net assets that is applicable to a future reporting period, and a deferred outflow of resources is a consumption of net assets that is applicable to a future reporting period. Although two recent GASB standards have required the reporting of deferrals in the statement of net assets (Statement No. 53, “Accounting and Financial Reporting for Derivative Instruments”and Statement No. 60, “Accounting and Financial Reporting for Service Concession Arrangements”), no guidance existed for the presentation of the required elements until the issuance of Statement 63.
The provisions of Statement 63 are effective for financial statements for periods beginning after December 15, 2011, or FY13 for the majority of public institutions.
Statement No. 64
Statement 64 provides guidance for circumstances in which hedge accounting continues to be applied when a swap counterparty, or a swap counterparty’s credit support provider, is replaced.
Statement 64 clarifies that when certain conditions are met, the use of hedge accounting should not be terminated. Those conditions are: (1) the collectability of swap payments is considered to be probable; (2) the replacement of the counterparty or credit support provider meets the criteria of an assignment or in-substance assignment as described in the statement, and (3) the counterparty or counterparty credit support provider (and not the government) has committed the act of default or termination event. When all of these conditions exist, the GASB believes that the hedging relationship continues and hedge accounting should continue to be applied.
The provisions of Statement 64 are effective for financial statements for periods beginning after June 15, 2011, or FY12 for the majority of public institutions.
Both new standards will be sent to GASB literature subscribers or can be purchased from GASB.
More information is available about these issues in the Projects section of the GASB’s newly redesigned Web site.
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