On the Horizon

Debt Disclosures, including Direct Borrowing


The GASB is preparing to issue the Exposure Draft, Debt Disclosures, including Direct Borrowing. The key question of the project is: do current disclosure requirements convey the essential information about these transactions to users of financial statements?
The key question of the project is: do current disclosure requirements convey the essential information about these transactions to users of financial statements?

Since the GASB’s debt disclosures standards were issued, governments have continued to innovate and diversify their debt portfolios. As a result, related disclosures can be inconsistent. Specifically, concerns have been raised about the adequacy of the disclosures regarding direct borrowings, such a bank loans.

Governments are turning to direct borrowings in lieu of issuing bonds. GASB disclosure requirements for direct borrowings are just as rigorous as they are for other types of debt offerings including bonds; however, direct borrowings contain provisions that often are not associated with other forms of debt, but are essential for users to know about.

One feature of the Board’s proposal will be a definition of debt—including direct borrowings—to distinguish it from other types of long-term liabilities.
One feature of the Board’s proposal will be a definition of debt—including direct borrowings—to distinguish it from other types of long-term liabilities in applying disclosure requirements for notes to financial statements.

The Board in this project also considered potential new disclosures that financial statement users need related to debt and is expected to propose the following:
  • Unused lines of credit
  • Collateral pledged as security for the debt
  • Significant events of default or termination events and their significant finance-related effect as specified in the debt agreement, and
  • Subjective acceleration clauses.
What’s next: An Exposure Draft is expected to be approved in the later part of June 2017. A 90-day comment period will follow after which the Board will consider and then redeliberate due process feedback. A final Statement is planned for spring 2018.

More information about the debt disclosures project.