A GASB proposal would give new guidance on transactions in which only existing resources are placed in a trust for the purpose of extinguishing debt.
GASB standards currently provide guidance for accounting and reporting when the proceeds of refunding bonds are placed in a trust for the future repayment of outstanding debt. But those standards do not apply when only existing resources (resources other than bond proceeds) are placed in a trust to be used to repay outstanding debt in the future.
The exposure draft, Certain Debt Extinguishment Issues, is designed to provide uniform accounting and financial reporting guidance for debt that is "defeased in substance," regardless of the source of the resources that are placed in a trust.
"In-substance defeasance" occurs when the debt remains outstanding but sufficient resources—in the form of essentially risk-free monetary assets—have been placed into an irrevocable trust to make payments on the debt when they come due.
In addition, GASB is proposing guidance related to prepaid insurance on debt that is extinguished and notes to the financial statements for certain defeased debt. One proposal would require disclosure if a government is not prohibited from subsequently exchanging the essentially risk-free monetary assets in the trust with monetary assets that are not essentially risk-free.
Comments were to be accepted through Oct. 28 via email to firstname.lastname@example.org.