Government


  GASB acknowledged the precarious fiscal condition of state and local governments as it issued an exposure draft concerning the effects of Chapter 9 bankruptcies. Chapter 9 of the U.S. Bankruptcy Code applies to filings by governmental entities. The standard setter also issued a proposal intended to improve consistency in the financial reporting and measurement of retiree health insurance and other postemployment benefits (OPEB).

 

“With the current economic environment putting stress on state and local government resources, it became necessary for the GASB to address the financial reporting issues associated with local governments filing for bankruptcy protection under Chapter 9,” GASB Chairman Robert Attmore said in a press release.

 

The proposed Accounting and Financial Reporting for Chapter 9 Bankruptcies would provide guidance to state and local governments that petition for protection from creditors. It would establish requirements for recognizing and measuring the effects of the bankruptcy process on assets and liabilities, and for classifying changes in those items and related costs.

 

The proposed OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans would address issues related to measurement of OPEB obligations by employers participating in agent multiple- employer OPEB plans. The proposal would amend GASB Statement no. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and Statement no. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. An agent multiple-employer plan calculates separate liabilities and keeps separate asset accounts for each participating government, as opposed to a cost-sharing plan, which is administered and accounted for as a single plan. The proposal addresses the circumstances in which certain agent employers are eligible to use the alternative measurement method; the requirement that a defined benefit OPEB plan obtain an actuarial valuation; and requirements in Statement no. 43 and Statement no. 45 regarding the frequency and timing of determining OPEB measures by agent multiple-employer plans and participating employers.

 

The comment period on each proposal ended Aug. 28. The EDs are available at gasb.org.

 

 

  GASB issued two exposure drafts of proposed statements, Accounting and Financial Reporting for Service Concession Arrangements and Financial Instruments Omnibus, which are intended to increase transparency.

 

The ED on service concession arrangements (SCAs) would set accounting and financial reporting requirements for partnership arrangements between governments and private entities and multiple governmental entities. In an SCA, the government (the “transferor”) conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a “facility”), and the operator collects fees from third parties. Examples of SCAs include long-term arrangements with toll roads. The proposal provides guidance on whether the transferor should report the facility subject to the SCA as its capital asset, and reporting guidance for addressing upfront or installment payments related to the SCA. It also provides reporting guidance for governments acting as operators in an SCA.

 

The financial instruments proposal is intended to update and improve standards regarding financial reporting and disclosure requirements of some financial instruments for which significant issues have been identified in practice. The amendments would:

 

  • Extend the use of fair value measurement to unallocated insurance contracts to improve the consistency of reporting by pension and other postemployment benefits (OPEB) plans.
  • Emphasize the applicability of SEC requirements to certain external investment pools—known as 2a7-like pools—to provide practitioners with improved guidance.
  • Limit interest rate risk disclosures for investments in mutual funds to bond mutual funds to eliminate disclosures that may not provide decision-useful information.
  • Address the applicability of Statement no. 53, Accounting and Financial Reporting for Derivative Instruments, to certain financial instruments to clarify which financial instruments are within the scope of that standard and provide greater consistency in financial reporting.

 

The drafts and instructions on submitting comments can be downloaded from gasb.org/exp. Comments on Accounting and Financial Reporting for Service Concession Arrangements are due Sept. 30, and a public hearing on the proposal is scheduled for Oct. 6. Written comments on Financial Instruments Omnibus are due Oct. 30.

 

 

  The Federal Accounting Standards Advisory Board (FASAB) is seeking comment on a Revised Exposure Draft, Accounting for Federal Oil and Gas Resources. The proposed standard would result in recognition of the estimated value of royalties from federal oil and gas leases and changes in those values over time as well as the amount of royalties designated for distribution to nonfederal entities such as state governments.

 

If the proposal is adopted, federal financial reports would also provide information about revenues and depletion expense attributable to production during the reporting period, related trend information, estimated quantities of federal oil and gas resources, and the estimated value of royalty relief on production during the period.

 

The proposed standards are similar in concept to those contained in the original exposure draft issued on May 21, 2007, but substantive changes to the valuation and disclosure requirements require re-exposure.

 

“I believe the end result of this exposure draft, if implemented, would be a more cost-effective standard that is sensitive to the lack of resources available to implement accounting standards,” FASAB Chairman Tom Allen said in a press release.

 

The FASAB press release accompanying the proposal notes that extensive federal oil and gas resources exist on public lands throughout the country and on the Outer Continental Shelf. Currently, there are no specific accounting standards for federal oil and gas resources, and there is no federal financial reporting about the quantity or value of these assets. In addition, royalty revenues are recognized, but expenses are not recognized for the asset exchanged to produce those revenues.

 

Written comments are due Sept. 8. FASAB encourages respondents to provide reasons for their positions. The ED and specific questions for respondents are available at fasab.gov/exposure.html.

 

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