Fair Value for Governments
T he Governmental Accounting Standards Board issued a standard requiring governments to report their investments at fair value in their annual financial statements. Statement no. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools , applies to all investments held by government external investment pools. Such pools-usually sponsored by one government-invest the funds of other participating governments.
Fair value is the amount, such as the current price of a five-year U.S. treasury bond, at which an investment could be exchanged between two willing parties. Randy Finden, GASB project manager, said the GASB believed fair value was the best measure of the resources available to finance operations. "Fair value provides financial statement users with information that can help them assess the government's accountability, the level of services it can provide and its financial position and condition," said Finden. "These are all the objectives of financial reporting."
For governments that are not sponsoring external investment pools, Statement no. 31 establishes fair value standards for investments in
- Participating interest-earning investment contracts.
- Their participation in external investment pools.
- Open-ended mutual funds.
- Debt securities.
- Equity securities.
The statement permits governments to report certain short-term money market investments at amortized cost, provided the investments have-at the time of purchase-a year or less before they mature. External investment pools also are permitted to report short-term debt investments at amortized cost if the investments' fair values are not significantly changed. For that purpose, the statement defines a pool's short-term investments as those with remaining maturities of up to 90 days.
All investment income, including changes in the investment's fair value, should be reported as revenue in the operating statement. Statement no. 31 also establishes reporting and disclosure requirements for the separate financial reports of government external investment pools.
Statement no. 31 is effective for periods beginning after June 15. A
copy is available for $10.50 by calling the GASB order department at
203-847-0700, ext. 10.