GASB Proposal Identifies Deferred Outflows and Inflows of Resources
September 21, 2011
The latest Exposure Draft issued by the Governmental Accounting Standards Board (GASB) identifies deferred outflows of resources and deferred inflows of resources. Such items are defined in Concepts Statement No. 4,“Elements of Financial Statements,” but have not been specifically acknowledged as deferrals throughout the GASB’s authoritative literature. In fact, only two recent standards distinguish these fairly new financial statement elements (Statement No. 53, “Accounting and Financial Reporting for Derivative Instruments”and Statement No. 60, “Accounting and Financial Reporting for Service Concession Arrangements”).
Concepts Statement No. 4 defines deferred outflows of resources as a consumption of net assets by the government that is applicable to a future reporting period and deferred inflows of resources as an acquisition of net assets by the government that is applicable to a future reporting period. Deferred outflows of resources have a positive effect on net position that is similar to assets, but are not assets, and likewise deferred inflows of resources have a negative effect on net position, but are not liabilities.
Although GASB Statement No. 63, “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position,” clarifies how to report these elements, there is a growing need for authoritative guidance that identifies and helps preparers understand the categorization of elements as deferred outflows of resources, deferred inflows of resources, assets, liabilities, outflows of resources (expenses), and inflows of resources (revenue).
Since the issuance of Concept Statement No. 4, it has been a challenge for many accountants to grasp with certainty the difference between assets and liabilities and deferred outflows of resources and deferred inflows of resources, respectively. What makes certain deferrals assets or liabilities and others deferred inflows or outflows of resources? To answer this question, public colleges and universities should consider service or performance obligations within the context of the familiar financial elements of prepaid insurance and deferred tuition revenue. An asset or liability exists, rather than a deferred outflow or inflow of resources, when an entity is obligated to perform or receive a service. Deferred tuition is a liability because revenue is not earned until the institution performs a service. Prepaid insurance is an asset because the insurers have an obligation to perform in accordance with contract over the insurance service period.
The Exposure Draft, “Reporting Items Previously Recognized as Assets and Liabilities,” provides examples of item classification. When the proposal becomes a standard the examples can be classified as deferrals in the external financial statements in accordance with the presentation requirements in GASB 63. The requirements of this proposed statement would be effective for periods beginning after June 15, 2012, or FY13 for public colleges and universities.
The following is a list of several classification examples contained in the exposure draft:
Transactions in which the resulting item should continue to be reported as an asset:
- Resources advanced to another government in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when eligibility requirements other than a time requirement have not been met
Transactions in which the resulting item should be reported as a deferred outflow of resources:
- Deferred debit amounts resulting from the refunding of debt
- The gain on the sale of property that is accompanied by a leaseback of all or any part of the property for all or part of its remaining economic life
Transactions in which the resulting item should be reported as an outflow of resources:
- Debt issuance costs
- Initial direct costs of an operating lease
Transactions in which the resulting item should continue to be reported as a liability:
- Resources received in advance of an exchange transaction, such as deferred tuition revenue
Transactions in which the resulting item should be reported as a deferred inflow of resources:
- Deferred credit amounts resulting from the refunding of debt (Statements 23 and 62)
Transactions in which the resulting item should be recognized as an inflow of resources:
- Net credit balance of certain loan origination fees
The requirements of this proposed statement would be effective for periods beginning after June 15, 2012, or FY13 for public colleges and universities. Copies of the exposure draft can be downloaded and the comment deadline is November 18, 2011.
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