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Business and Policy Areas
Business and Policy Areas

Recent GASB Proposal Clarifies Combinations

May 3, 2012

The Governmental Accounting Standards Board (GASB) has issued an exposure draft that would provide state and local governmental entities with standards for reporting government combinations (mergers, acquisitions, and transfers) and disposals (sales and transfers) of operations. The GASB seeks public comment on the exposure draft titled, "Government Combinations and Disposals of Government Operations."

In the proposal, government combinations refer to mergers, acquisitions, and combinations that include transfers of operations to existing governments. Specifically:

A government merger is a government combination of legally separate entities in which no significant consideration is exchanged and either:

a. Two or more governments, or a government(s) and a nongovernmental entity, cease to exist as legally separate entities and are combined to form one or more new governments, or

b. One or more legally separate governments or nongovernmental entities cease to exist and their operations are absorbed into, and provided by, one or more continuing governments.

A government acquisition is a government combination in which a government acquires another entity, or the operations of another entity, in exchange for the payment of significant consideration. The acquired entity or operation becomes part of the acquiring government's legally separate entity.

A transfer of operations is a government combination involving the operations of a government or nongovernmental entity, rather than a combination of legally separate entities, and in which no significant consideration is exchanged. It is either a transfer of operations to a continuing government or a transfer of operations to form a new government.

The proposed Statement would require public institutions to:

  • Identify whether a combination is a government merger, government acquisition, or a transfer of operations.
  • Use carrying values to measure the assets and liabilities combined in a government merger or transfer of operations.
  • Measure acquired assets and liabilities based upon their acquisition values in a government acquisition.
  • Provide guidance for government operations that have been transferred or sold.

Over the years, as state appropriations have declined-and especially since the 2008 recession-many public institutions of higher education have been consolidating programs and administrative areas across state systems. Additionally some states are researching system consolidation in the interest of efficiency and cost reduction. As a result, public institutions will want to carefully consider what the GASB is defining and proposing with respect to operational consolidations. According to the proposal, transfers of operations may be present in shared service arrangements, reorganizations, redistricting, annexations, and arrangements in which an operation is transferred to a new governmental entity created to provide those services.

This proposed standard would also require disclosures about government combinations and disposals of government operations to enable financial statement users to evaluate the nature and financial effects of those transactions. The guidance in the proposal would be effective in FY 15 for the vast majority of public institutions and applied on a prospective basis.

The exposure draft remains open for comment until June 15, 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.

NACUBO's staff resource is Sue Menditto, director, accounting policy.


Sue Menditto
Director, Accounting Policy