The Federal Accounting Standards Advisory Board (FASAB) has issued a new interpretation that clarifies that federal accounting standards provide that debt cancellation is a nonexchange activity that should be reported by federal entities on the statement of changes in net position.
The details are included in Interpretation 11, Debt Cancellation: An Interpretation of SFFAS 7, Paragraph 313. According to FASAB, Paragraph 100 of Statement of Federal Financial Accounting Concepts (SFFAC) 2, Entity and Display, provides that nonexchange activity is reported on the statement of changes of net position. Concepts related to debt cancellation are included in Paragraph 313 of SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting.
Interpretation 11 considers Paragraph 313 of SFFAS 7 and SFFAC 2 together. Interpretation 11 also clarifies that Paragraph 313 of SFFAS 7 should not be interpreted to require that a particular line item "gain" or "loss" be displayed on the statement of changes in net position.
Interpretation 11 does not provide guidance on budgetary accounting, but it notes that budgetary accounting should be considered. According to Paragraph 313 of SFFAS 7, the cancellation of debt requires an act of Congress, and each debt cancellation is governed by the particular language used in the enacted legislation canceling the debt.
FASAB Chairman George Scott said in a news release that Interpretation 11 provides clarification that will facilitate consistent reporting of debt cancellation on the statement of changes in net position.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director.