Last month our blog began a discussion regarding the changes to governmental financial statements based on GASB Statements 63 and 65. This is the second part of that discussion.
GASB Statement 65:
GASB Statement 65 is going to be implemented for all governments with periods beginning after December 15, 2012. This means most governments with a year end of December 31, 2013 or June 30, 2014 will need to begin implementing the changes noted in this GASB Statement. However, you will see that the changes in this GASB relates in some ways to those in GASB 63 and because of this, it may be wise to implement this GASB Statement at the same time as your implementation of GASBS 63.
GASBS 65 has clarified the use of the term assets and liabilities for certain financial statement items to better serve the readers of the statements. Assets result in service capacity that the government presently controls and liabilities represent an obligation to sacrifice resources for an unavoidable and specific purpose. Some previously reported assets and liabilities are now being reclassified as deferred outflows and inflows, and in some cases are being recognized as revenues and expenses or expenditures. The later will cause a prior period adjustment to your statements as those previously reported assets and liabilities are now going to be expensed or recognized as revenue. Some of the more commonly seen items that will be affected by this statement are:
1. Refundings of Debt, such as deferred amounts on refundings which will be recognized as deferred outflows or inflows and amortized or recognized as a component of interest expense in a systematic and rational manner (such as straight-line) over the remaining life of the old debt or the life of the new debt, whichever is shorter.
2. Government-Mandated Nonexchange Transactions and Voluntary Nonexchange Transactions, such as monies received for grants before the eligibility requirements are met will be recorded as liabilities and resources claimed for reimbursement because the eligibility requirements have been met but the monies have not been received within the availability period will be recorded as deferred inflows. However, the Board has also required in this statement that the term “deferred revenues” cannot be used for both situations. Different terminology will be required for the instance where a liability is recorded above, and such terminology will be left to professional judgment as the Board concluded that GASBS 65 should not be prescriptive on such terminology.
3. Debt Issuance Cost, has been recorded as an asset in the past and will now be recorded as an expense or expenditure in the year the cost was incurred. Any prepaid insurance costs will continue to be recorded as an asset. Any debt issuance cost that has been incurred in prior years will need to be restated for those periods presented and cause a prior period adjustment to net position (as defined in GASBS 63) for the year this GASBS is implemented.
Many more situations, other than the ones noted above, have been more clearly defined in GASBS 65 and we encourage the readers to seek out that GASBS in its entirety. Furthermore, the major fund determination for a government will combine the assets and deferred outflows as well as the liabilities and deferred inflows in the 10% and 5% rule previously established by paragraph 76 of GASBS 34.
To learn more about GASBS 63 and 65 and read the GASBS in their entirety, go to http://www.gasb.org/ and navigate to “Pronouncements”. Also, Henry & Horne is presenting a free CPE event in late January to discuss more details of these GASB Statements. The CPE is expected to last two hours in the morning and other topics aside from the GASB Statements discussed will be presented as well, such as examples of CAFR presentation and how to read a CAFR. Free breakfast will be served. To sign up email firstname.lastname@example.org.
Brian Hemmerle, CPA, CFE