GASB moved to preserve amortized cost accounting as an option for state and local government external investment pools ahead of SEC rule changes.
Governments use the pools to combine their cash, creating economies of scale and making professional fund management more accessible. Under existing standards, the pools may measure investments at amortized cost if they follow substantially all of the provisions of SEC Rule 2a7, and participants may report their investment at amortized cost per share.
However, changes to the rule scheduled for April were expected to push many state and local government external investment pools out of compliance with the amortized cost option, GASB reported. Losing the method would be a significant change from current practice.
GASB's new Statement No. 79, Certain External Investment Pools and Pool Participants, preserves the amortized cost option by removing the reference that connected GASB's standard to the SEC rule. Instead, the statement establishes new criteria that are similar to those of SEC's Rule 2a7.
The statement also establishes additional note disclosure requirements for qualifying pools and for governments that participate in those pools.
The new standard takes effect for reporting periods beginning after June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk, and shadow pricing. Those provisions take effect for reporting periods beginning after Dec. 15, 2015; GASB encourages early adoption.