GASB addresses investment pools and component units

By Ken Tysiac

GASB on Tuesday proposed accounting and financial reporting guidance related to external investment pools. And, in a separate exposure draft, the board proposed guidance for how certain component units should be presented in a state or local government’s financial statements.

Accounting and Financial Reporting for Certain External Investment Pools would permit qualifying external investment pools to measure pool investments at amortized cost for financial reporting purposes.

Reporting under the amortized cost basis reflects investment cost and adjustments made for premiums or discounts associated with the purchase price of the underlying investments in the pool.

Governments pool their resources into governmental investment funds to benefit in a variety of ways that include economies of scale and professional fund management. Under existing standards, external investment pools may measure their investments at amortized cost for financial reporting purposes if they follow substantially all the provisions of SEC Rule 2a7 for money market funds. Participants in these pools also are able to report their position in the pool at amortized cost per share.

In response to major changes to rule 2a7 that take effect next year, the proposal would replace the reference to Rule 2a7 in GASB’s literature with a reference to GASB’s own criteria. Under the rule changes, many government pools would no longer qualify for amortized cost reporting, and both pools and their participants would undergo a significant change from current practice.

In addition, the proposal would establish new note disclosure requirements for external investment pools. These disclosures would measure all of the pools’ investments at amortized cost for financial reporting purposes and for governments that participate in those pools. These disclosures would include information about limitations or restrictions on participant withdrawals. Comments are due Aug. 31 and can be emailed to

Component units

The other proposal, Blending Requirements for Certain Component Units, is intended to enhance existing guidance regarding the presentation of the financial reporting entity in the financial statements. The proposal would establish an additional blending criterion for financial statement presentation of component units of state and local governments.

This proposal addresses diversity in practice regarding the presentation of not-for-profit corporations in which the primary government is the sole corporate member. GASB proposes treating these component units as activities of a primary government through a financial presentation method known as “blending.”

According to the board, this approach would lead to more consistent application in financial reporting and lead to increased comparability across governments. Comments are due Oct. 2 and can be sent to

“These two proposals come in response to requests by stakeholders to resolve important practice issues,” GASB Chairman David Vaudt said in a news release. “The exposure draft on external investment pools should help avoid confusion ahead of forthcoming regulatory rule changes. The exposure draft on blending requirements will clarify reporting entity presentation of certain component units incorporated as not-for-profit corporations.”

Ken Tysiac ( is a JofA editorial director.


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