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Business and Policy Areas
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GASB Proposes Standard on Land and Other Real Estate Held as Investments

April 2, 2007

The Governmental Accounting Standards Board (GASB) has issued an Exposure Draft that would require permanent and term endowment funds to report land and other real estate held as investments at fair market value. The proposal also requires disclosure of the methods and significant assumptions employed to determine fair value.  

Current accounting standards require permanent and term endowments to report land and other real estate held as investments at historical cost. On the other hand, entities, such as pension plans, which exist for a similar purpose–to generate income–report at fair value. The proposed statement would:

  • Apply to term and permanent endowments, not quasi-endowments.
  • Require that land and other real estate held as an investment be reported at fair market value at the reporting date.
  • Require that changes in fair value during the period be reported as investment income.
  • Establish consistent standards for the reporting of land and other real estate held as investments by similar entities and more closely align financial reporting with the objectives of endowments.
  • Be effective for financial statement periods beginning after June 15, 2008, with early implementation encouraged.

In January 2007, NACUBO surveyed its member public institutions on their practices of valuing land within their investment portfolios. Relevant to their responses, paragraph 19 of GASB 34 defines land as a "capital asset;" there is no provision for fair market value accounting for land held as an endowment asset by public institutions. Of the 117 public institutions that responded to the survey, only 19 reported that their institutions included land as part of the investment portfolio. Of the 19 institutions holding land, five were two-year institutions and 14 were four-year institutions. Nearly three quarters classify or categorize the land as capital assets for financial reporting and half classify land as endowments. Of those institutions that classify land as an endowment, seven reported that they value the land using an original cost basis and two use the fair market value.

A copy of the proposal may be downloaded from the GASB Web site. The GASB is seeking written comments on the proposal by June 29, 2007.  NACUBO encourages public institutions to read and respond to the Exposure Draft by the comment deadline. NACUBO plans to comment based on input from its Accounting Principles Council but encourages all members to provide insights for contribution to the comment letter.  For more information on this initiative or to provide feedback on the Exposure Draft, contact Sue Menditto, director, accounting policy.