Project Pages

Financial Guarantees

Project Description: The objective of this project is to establish additional guidance regarding the recognition and disclosure of financial guarantees made and received by state and local governments.

Status: Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, was approved in April 2013.

Financial Guarantees—Project Plan

Background: The staff’s research indicates that financial guarantees are primarily associated with commitments related to debt issued by other governmental entities, not-for-profit entities, and in certain cases for-profit entities. The guarantees, however, may take other forms, including statutory commitments. The current economic environment has resulted in a level of financial stress that has touched most entities, resulting in financial guarantees that have been made or received in the past that are now coming to light. Currently, generic and specific accounting and financial reporting guidance for these transactions derives from multiple sources, to the extent it exists. There is no single, comprehensive source of guidance. Due to the heightened importance of these guarantees and the potential for them to result in claims, the project staff believes that it is important to establish further recognition and disclosure requirements.

Many different types of state and local government entities issue and receive financial guarantees, including general purpose governments, special-purpose governments, and business-type activities. For example, one large state government guarantees the debt of local school districts; total debt guaranteed is currently $50 billion. Several states provide guarantees for investments made in venture capital organizations. Given the current challenging economic state of many entities, financial guarantees that have been made in the past are now receiving attention. Also, more financial guarantees may be made by governments to help nongovernmental organizations deal with economic difficulties.

Accounting and Financial Reporting Issues: The major topic to be addressed would be the forms of financial reporting display and disclosures that would meet essential financial statement user needs. As part of this topic, the project would consider the following issues:
  1. What types of financial guarantees are made and received by state and local governments?
     
  2. What specific user needs exist regarding a government’s financial guarantees and what decision-useful or accountability information would be needed to meet those needs?
     
  3. Are current accounting and financial reporting standards appropriate to meet essential financial statement user needs? What should be the measurement basis for guarantees made? Received?
     
  4. If current standards are not considered to be adequate, what additional potential requirements should be considered?

Project History: The project was added to the current agenda in April 2011. At its July 2011 teleconference, the Board discussed the definition of a financial guarantee as well as the scope of the Financial Guarantees project. The Board tentatively agreed that the definition of a financial guarantee should contain the following attributes: the guarantor is required to perform an action—indemnification—under specified conditions and the guarantor is an entity separate from the entities involved in the underlying transaction being guaranteed. The Board also tentatively agreed to the types of guarantees that would be within the project scope. Types of transactions that were discussed to be within the project scope include guarantees of debt issued by other governments, guarantees of economic development loans, guarantees of student loans, intercept programs, moral obligations, lines and letters of credit, and insurance.

At its August 2011 meeting, the Board tentatively decided that the focus of the financial guarantees project is on guarantees provided and received as a result of nonexchange transactions. The Board also discussed guarantees between a primary government and its component units, and tentatively agreed that both discretely presented and blended component units should be considered separate entities for the financial guarantees project. In addition, the Board reviewed measurement approaches that could potentially be applied to financial guarantee transactions but made no tentative decisions.

At the October 2011 meeting, the Board discussed issues regarding the recognition and measurement of financial guarantees of a government that extends a nonexchange-based financial guarantee. The Board discussed the incorporation of the recognition requirements of providers in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, for recognition of nonexchange-based guarantees extended by a government. The Board decided to consider these requirements after discussion of other recognition and measurement issues. The Board also discussed whether events should be specified that require a guarantor to recognize and measure a liability resulting from extending a nonexchange-based financial guarantee. Rather than requiring recognition and measurement as a result of certain events, the Board tentatively agreed to examine principles-based recognition and measurement requirements for guarantors that extend nonexchange-based financial guarantees. The Board also considered the effect of recoveries such as intercept programs on the measurement of a liability by a guarantor of a nonexchange-based financial guarantee. The Board tentatively agreed that intercept programs generally have characteristics that make them distinct from financial guarantees, although there could be intercept arrangements that resemble a financial guarantee.

At the November 2011 meeting, the Board continued discussions on issues regarding the recognition of financial guarantees of a government that extends a financial guarantee as a result of a nonexchange transaction. The Board tentatively agreed that a guarantee that is legally enforceable or is a constructive commitment meets the definition of an obligation. The Board also tentatively agreed that a guarantee becomes a liability of a government extending the guarantee when qualitative factors indicate that it is more likely than not that a payment will be made as a result of the guarantee. The Board also discussed potential qualitative factors that could be included in a government’s assessment that a payment will more likely than not be made and will continue deliberations on guidance for this assessment at future meetings.

At the December 2011 meeting, The Board discussed recognition and measurement issues for a single guarantee extended by a government as a result of a nonexchange transaction and for groups of guarantees extended by a government as a result of nonexchange transactions. As part of that discussion, the Board considered qualitative factors that may indicate that an indemnification payment is more likely than not and agreed that depending on whether the guaranteed obligation is secured by an issuing entity’s general credit or a specific pledged revenue source, the qualitative factors used may vary. The Board tentatively agreed that for a single guarantee extended as a result of a nonexchange transaction for which qualitative factors indicate that it is more likely than not an indemnification payment will be made, the amount of the liability should be measured using a cost accumulation approach. The measured amount would be:

  1. The best estimate of the amount expected to be incurred to settle the liability, or
     
  2. The minimum amount in a range of estimated values when no amount in the range is better than any other amount in the range.
The Board also tentatively decided that for multiple guarantees with similar characteristics extended as a result of nonexchange transactions, a government should use the same recognition and measurement requirements as would be applied to a single guarantee.

At the January 2012 meeting, the Board continued to discuss recognition and measurement issues of governments that in the context of a nonexchange transaction (1) issue obligations that have been guaranteed by another entity or (2) hold obligations that have been guaranteed by an entity other than the issuer of the obligation. The Board also discussed recognition and measurement of a contractual obligation to receive reimbursement for an indemnification payment that is made by a government extending a financial guarantee.

The Board tentatively decided to propose that a government that issues an obligation that is guaranteed as a result of a nonexchange transaction should recognize a reduction in its liability for the obligation when a guarantor makes an indemnification payment or legally assumes all or a portion of the obligation from the issuing government. The amount recognized should be measured as the amount of the indemnification payment made or the amount of the obligation assumed by the guarantor.

The Board also tentatively decided to propose that when an issuer government is required to repay a guarantor for an indemnification payment made, the issuer government should reclassify its liability as being due to the guarantor or, when the guarantor purchased the obligation from the obligation holder, should continue to report the obligation as a liability until legally released as an obligor.

The Board considered recognition and measurement issues of governments that are holders of obligations that have been guaranteed by an entity other than the issuer of the obligation. The Board tentatively agreed that recognition and measurement guidance need not be addressed in the financial guarantees project for governments holding an obligation that is guaranteed by an entity other than the issuer.

At the March 2012 meeting, the Board discussed issues regarding the recognition of financial guarantees resulting from nonexchange transactions when both the government extending the guarantee and the government whose obligation is guaranteed are a part of the same reporting entity. The Board tentatively agreed to propose that liabilities for guarantees extended on obligations within the same reporting entity should not be recognized until the government extending the guarantee is required to make a payment on the guarantee or has legally assumed the liability for the obligation.

The Board also considered whether the financial guarantees project also should include guarantees resulting from exchange transactions. The Board tentatively agreed to propose that the scope of the financial guarantees project should be limited to guarantees provided and received as a result of nonexchange transactions.

The Board also discussed note disclosures for both governments that extend financial guarantees and governments that issue obligations that have financial guarantees as a result of nonexchange transactions. The Board tentatively agreed to propose that governments should disclose the following information about the nature of guarantees extended:

  • Description of the obligations that are guaranteed for each type of financial guarantee extended
     
  • Legal authority and limits for providing financial guarantees
     
  • Relationship between the guarantor and the entity or entities issuing the obligations that are guaranteed
     
  • Summary of the events that would require indemnification payments
     
  • Description of recovery arrangements
     
  • Length of time of the guarantees.

In addition, the Board tentatively agreed to propose that governments should disclose the following information about the amounts of guarantees extended:

  • A schedule of changes in recognized liabilities, disclosing beginning- and end-of-year balances, increases, decreases, and adjustments
     
  • A brief discussion on timing of recognition and measurement
     
  • Amount of guarantees that are outstanding
     
  • Amount of commitments to extend guarantees
     
  • Cumulative amounts paid toward guarantees outstanding
     
  • Amounts expected to be recovered.

The Board also tentatively agreed to propose that governments that issue guaranteed obligations should disclose the following information in relation to the guarantee:

  • Name of the entity providing the guarantee
     
  • Summary of the events or circumstances that would require the guarantor to make payment
     
  • Dollar amount of obligations guaranteed
     
  • Length of time of the guarantee on the obligations
     
  • Amount paid by the guarantor toward obligations during the current reporting period
     
  • Amount paid by the guarantor on outstanding obligations
     
  • Description of requirements to repay guarantor
     
  • Commitments to receive guarantees for unissued obligations.

At the April 2012 meeting, the Board discussed issues related to recognition of liabilities resulting from extending financial guarantees as a result of nonexchange transactions in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Board tentatively agreed that liabilities resulting from the extension of financial guarantees as a result of nonexchange transactions should be recognized in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting in the period the liabilities are normally expected to be liquidated with expendable available financial resources.

The Board also discussed transition and effective dates for the proposed Statement. The Board tentatively agreed that the provisions of the proposed Statement should be applied retroactively except for requirements related to disclosure of cumulative payments made or received as a result of financial guarantees. For such disclosures, the Board tentatively agreed that prospective application would be permitted. The Board tentatively agreed the effective date of the proposed Statement should be for periods beginning after June 15, 2013, with early application encouraged.

The Board concluded its discussion with a review of a draft of the proposed Standards section and provided suggestions to the project staff for revisions.

At the May 2012 meeting, the Board discussed the current guidance for accounting and financial reporting for guarantees of special assessment debt. The Board tentatively decided that the financial guarantees project should not include guarantees for special assessment debt accounted for under Statement No. 6, Accounting and Financial Reporting for Special Assessments.

The Board also discussed whether a guarantor should be allowed to discount a financial guarantee liability. The Board tentatively decided to propose that the liability recognized by a government for a financial guarantee that is a nonexchange transaction should be measured at its present value.

The Board continued its discussion by considering issues related to the measurement of revenue recognized by a government that has issued a guaranteed obligation for payments made by the guarantor. The Board tentatively decided to propose that revenue recognized by a government that has issued a guaranteed obligation for the guarantee payments made by the guarantor should be limited to the reduction in the liabilities previously recognized by the guarantor. Interest expense/expenditures reported by the issuer of the guaranteed obligation should be reported net of interest-related payments made by the guarantor.

The Board continued its discussion by reviewing a preballot draft of a proposed statement, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions. During this review, the Board tentatively decided to eliminate specific guidance from the draft proposal related to a government extending a financial guarantee as a result of a nonexchange transaction associated with an obligation of another entity within the government’s own reporting entity.

At the June 2012 teleconference, the Board reviewed the ballot draft of the Exposure Draft, Accounting and Financial Reporting for Nonexchange Financial Guarantees. After offering further clarifying suggestions for changes to the document, the Board members unanimously approved the issuance of the proposed Statement.

At the November 2012 meeting, the Board deliberated issues raised by respondents related to the scope of the Exposure Draft, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions. The Board tentatively decided to exclude exchange transactions and exchange-like transactions from the scope of the final Statement.

The Board tentatively affirmed that the final Statement should include nonexchange financial guarantee transactions that are guarantees of obligations that are not recognized as liabilities by the legally separate entity that issued the obligation.

The Board tentatively affirmed that only nonexchange guarantees that require the guarantor to indemnify a third-party entity, the obligation holder, under specified conditions should be included in the scope of the final Statement. The Board tentatively decided that joint and several obligations should not be within the scope of the final Statement. The Board tentatively decided the final Statement should clarify that pledges of future revenues are not financial guarantees as they are contingent upon the collection of the future revenues.

At its January 2013 meeting, the Board discussed issues related to the consideration of qualitative factors in assessing the likelihood that a payment will be made in relation to a guarantee. The Board tentatively affirmed that the final Statement should retain the requirement to consider qualitative factors in relation to the issuer of a guaranteed obligation in assessing the likelihood that a payment will be made in relation to a nonexchange financial guarantee.

The Board deliberated issues related to the guidance in the Exposure Draft for the consideration of historical data in relation to groups of similar nonexchange financial guarantees. The Board tentatively decided to clarify that historical data is an additional qualitative factor to consider in assessing the likelihood that a government will make a payment in relation to the group of guarantees.

The Board discussed concerns raised by respondents related to the requirement in the Exposure Draft that guarantors recognize a guarantee liability when qualitative factors indicate that it is more likely than not that the guarantor will be required to make a payment on a nonexchange financial guarantee. The Board tentatively affirmed that the final Statement should retain the requirement to recognize a nonexchange financial guarantee liability when it is more likely than not that a payment will be made by the guarantor.

The Board deliberated issues related to the Exposure Draft’s requirement to measure a nonexchange financial guarantee liability extended as the best estimate or the minimum amount within a range if no amount within that range is a better estimate than any other amount. The Board tentatively affirmed the requirement to measure a nonexchange financial guarantee liability as the best estimate or the minimum amount within a range if no amount within that range is a better estimate than any other amount.

The Board discussed issues related to the Exposure Draft’s requirement to discount the best estimate of future outflows expected to be incurred in the measurement of a nonexchange financial guarantee extended. The Board tentatively affirmed that the final Statement should require the best estimate of future outflows expected to be incurred as a result of the guarantee to be discounted. The Board tentatively decided not to provide guidance on the selection of a discount rate to be used for this measurement.

The Board also discussed issues related to derecognition of previously recognized nonexchange financial guarantee liabilities. The Board tentatively decided that the final Statement should not include guidance for derecognition of nonexchange financial guarantee liabilities.

The Board then discussed issues related to reporting nonexchange financial guarantee expenses/expenditures. The Board tentatively decided to provide guidance to report guarantee payments in the same manner as grants or financial assistance payments to other entities.

The Board considered issues related to recoveries of nonexchange financial guarantee payments made. The Board also tentatively decided to add a reference in the Basis for Conclusions of the final Statement to the provisions of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, for recognition of collectability of receivables.

The Board also discussed issues related to the Exposure Draft’s requirements for recognition and measurement of nonexchange financial guarantees by a government that has issued a guaranteed obligation. The Board tentatively decided that the guidance in the Exposure Draft that a government that has issued an obligation that has received a nonexchange financial guarantee should not recognize revenue or a reduction its liabilities until legally released as an obligor from the guaranteed obligation should be carried forward to the final Statement, with amendments to accomplish the following:

  • Remove the guidance for reduction of interest expense/expenditures reported
     
  • Specify that the guidance applies to both financial statements prepared using the economic resources measurement focus and financial statements prepared using the current financial resources measurement focus.
At its February 2013 meeting, the Board deliberated issues raised by respondents to the Exposure Draft related to intra-entity guarantees. The Board also reconsidered previous tentative decisions related to scope and recognition.


Financial Guarantees—Minutes for Deliberations

Minutes of Meeting, April 22, 2013

The Board reviewed a ballot draft of Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. After making minor clarifying changes to the ballot draft, six Board members approved the issuance of a final Statement. Ms. Taylor dissented.

Minutes of Meeting, April 2–4, 2013

The Board reviewed the expected benefits to users from the proposed Statement and discussed the expected costs of preparers associated with the implementation of its provisions. The Board tentatively decided that the expected benefits were anticipated to exceed the expected costs.

The Board reviewed a preballot draft of a final Statement, Accounting and Financial Reporting for Nonexchange Financial Guarantees. Board members provided suggestions to the project staff for clarifying changes that will be incorporated into the ballot draft of the final Statement.

Minutes of Teleconference, March 11, 2013


The Board deliberated issues raised by respondents to the Exposure Draft, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions, related to disclosures and other miscellaneous topics.

The Board deliberated issues raised by respondents in regard to whether the disclosure requirements proposed in the Exposure Draft should be carried forward to the final Statement. The Board tentatively agreed to carry forward the disclosure requirements with minor clarifying changes to emphasize that certain basic disclosures are required even if the more-likely-than-not threshold for recognition of a liability is not met.

The Board discussed a respondent’s request to add a disclosure requirement for the discount rate and significant assumptions used in determining the rate. The Board tentatively decided that the final Statement should not include a specific disclosure requirement of the discount rate or other significant assumptions used in measuring the liability.

The Board deliberated adding a requirement to disclose the credit quality status of guaranteed obligations. The Board tentatively decided that the final Statement will not include a requirement to disclose the credit quality of guaranteed obligations.

The Board discussed the possible addition to the final Statement of a reference to existing related party disclosure requirements. The Board tentatively agreed that the Basis for Conclusions of the final Statement should note that related party disclosures may need to be considered based on current disclosure requirements.

The Board deliberated adding an additional disclosure requirement for “overlapping debt” in the case that one government may be responsible for making payments on another entity’s debt. The Board tentatively decided that no additional disclosures or guidance is necessary in this situation.

The Board discussed comments asking for clarification of the requirement to disclose guarantees by type. The Board tentatively decided to include example categories for guarantee types in the Basis for Conclusions discussion of this issue.

The Board discussed comments requesting clarification on what should be disclosed for the required description of the timing of recognition and measurement. The Board tentatively decided to modify the illustrative examples to clearly show disclosures regarding use of historical data and description of measurement of the liability.

The Board deliberated a respondent’s request for clarification on the requirement to disclose the amount of outstanding guarantees. The Board tentatively agreed on edits to clarify the disclosure requirement.

The Board discussed comments requesting an explanation of the calculation of the accrued guarantee liability within the illustrations in Appendix C. The Board tentatively decided not to modify the final Statement’s illustrations to include a detailed explanation of the calculation of the accrued liability.

The Board deliberated a request to add sample journal entries in the illustrations in the final Statement. The Board tentatively decided not to include sample journal entries in the illustrations.

The Board discussed whether adjustments should be made to the effective date and transition guidance presented in the Exposure Draft. The Board tentatively decided that the effective date and transition guidance of the final Statement should retain the effective date and transition guidance as originally proposed in the Exposure Draft.

Minutes of Meeting, February 19–21, 2013

The Board deliberated issues raised by respondents to the Exposure Draft, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions, related to intra-entity guarantees. The Board also reconsidered previous tentative decisions related to scope and recognition.

The Board discussed issues related to the recognition of a liability for a nonexchange financial guarantee extended by a government for an obligation of another unit within the same reporting entity. The Board tentatively decided that the final Statement should provide for symmetry in an intra-entity guarantee in limited situations by providing that the issuer of a guaranteed obligation that is a blended component unit should record a receivable when the guarantor records a liability, along with additional disclosures.

The Board deliberated adding specific language to the scope section of the final Statement to specify that guarantees of obligations issued by component units are included in the types of transactions covered by the Statement. The Board tentatively agreed to clarify in the scope section that guarantees of obligations of component units are included in the scope.

The Board discussed concerns raised by a respondent related to the further guidance on recognition of due to/due from balances related to payments made on intra-entity guarantees. The Board tentatively affirmed that this subject should be covered by existing guidance in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, and the Board previously tentatively decided to include a reference to the provisions of this Statement in the Basis for Conclusions of the final Statement. The Board tentatively decided that no additional guidance specific to intra-entity guarantees is necessary.

The Board also deliberated a request for more guidance (for example, an illustration) on presentation of intra-entity guarantee transactions. The Board tentatively decided that the Basis for Conclusions of the final Statement should include language to clarify the treatment of guarantees extended for obligations of discretely presented component units.

The Board discussed whether to include additional illustrative guidance for treatment of intra-entity guarantees. The Board tentatively agreed that an additional illustrative example of this type of guarantee is not necessary to place the guidance in context.

The Board then reconsidered its prior tentative decisions to (1) exclude both exchange and exchange-like financial guarantees from the scope and (2) recognize a nonexchange financial guarantee liability when it is more likely than not that a payment will be made by the guarantor. The Board tentatively affirmed its prior decisions.

Minutes of Meeting, January 8–9, 2013

The Board continued deliberating issues raised by respondents related to recognition and measurement in the Exposure Draft, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions.

The Board discussed issues related to the consideration of qualitative factors in assessing the likelihood that a payment will be made in relation to a guarantee. The Board tentatively affirmed that the final Statement should retain the requirement to consider qualitative factors in relation to the issuer of a guaranteed obligation in assessing the likelihood that a payment will be made in relation to a nonexchange financial guarantee.

The Board deliberated issues related to the guidance in the Exposure Draft for the consideration of historical data in relation to groups of similar nonexchange financial guarantees. The Board tentatively decided to clarify that historical data is an additional factor to consider in assessing the likelihood that a government will make a payment in relation to the group of guarantees.

The Board discussed concerns raised by respondents related to the requirement in the Exposure Draft that guarantors recognize a guarantee liability when qualitative factors indicate that it is more likely than not that the guarantor will be required to make a payment on a nonexchange financial guarantee. After considering those concerns, the Board tentatively affirmed that the final Statement should retain the requirement to recognize a nonexchange financial guarantee liability when it is more likely than not that a payment will be made by the guarantor.

The Board deliberated issues related to the Exposure Draft’s requirement to measure a nonexchange financial guarantee liability extended as the best estimate or the minimum amount within a range if no amount within that range is a better estimate than any other amount. The Board tentatively affirmed the requirement to measure a nonexchange financial guarantee liability as the best estimate or the minimum amount within a range if no amount within that range is a better estimate than any other amount.

Next, the Board discussed issues related to the Exposure Draft’s requirement to discount the best estimate of future outflows expected to be incurred in the measurement of a nonexchange financial guarantee extended. The Board tentatively affirmed that the final Statement should require the best estimate of future outflows expected to be incurred as a result of the guarantee to be discounted. The Board tentatively decided not to provide specific guidance on the selection of a discount rate to be used for this measurement.

The Board also discussed issues related to derecognition of previously recognized nonexchange financial guarantee liabilities. The Board tentatively decided that the final Statement should not include specific guidance for derecognition of nonexchange financial guarantee liabilities.
The Board then discussed issues related to reporting nonexchange financial guarantee expenses/expenditures. The Board tentatively decided to provide guidance to report guarantee payments in the same manner as financial assistance payments to other entities.

The Board considered issues related to recoveries of nonexchange financial guarantee payments made. The Board also tentatively decided to add a reference in the Basis for Conclusions of the final Statement to the provisions of Statement 62 for recognition of collectability of receivables.
The Board also discussed issues related to the Exposure Draft’s requirements for recognition and measurement of nonexchange financial guarantees by a government that has issued a guaranteed obligation. The Board tentatively decided that the guidance in the Exposure Draft— that a government that has issued an obligation that has received a nonexchange financial guarantee should not recognize revenue or a reduction in its liabilities until legally released as an obligor from the guaranteed obligation—should be carried forward to the final Statement with the following changes:

  • Remove the guidance for reduction of interest expense/expenditures reported
     
  • Specify that the guidance applies to both financial statements prepared using the economic resources measurement focus and financial statements prepared using the current financial resources measurement focus.
Minutes of Meeting, November 28–30, 2012

The Board deliberated issues raised by respondents related to the scope of the Exposure Draft, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions. The first issue addressed was the exclusion of exchange transactions. After considering respondent comments on this issue, the Board tentatively affirmed that the final Statement should retain the exclusion of exchange transactions in the scope section.

The Board also discussed examples of financial guarantees that have characteristics of both nonexchange and exchange transactions that were raised by respondents. The Board tentatively decided that the final Statement also should exclude exchange-like transactions in the scope section.

The Board also discussed issues raised by respondents related to nonexchange financial guarantees of obligations of legally separate entities that are not recognized as liabilities by the legally separate entity. After considering those issues, the Board tentatively affirmed that the final Statement should retain the inclusion of nonexchange financial guarantee transactions that are guarantees of obligations that are not recognized as liabilities by the legally separate entity that issued the obligation.

The Board also discussed requests by respondents to include clarification of various transactions within the scope of the final Statement. These transactions included moral obligations, joint and several obligations, and pledges of future revenues. After considering the respondent comments, the Board tentatively decided that:

  • Only nonexchange guarantees that require the guarantor to indemnify a third-party entity, under specified conditions, should be within the scope of the final Statement. As moral obligations generally do not require the indemnification of a third-party, these obligations generally would not be included within the scope of the final Statement.
     
  • Joint and several obligations should not be within the scope of the final Statement.
     
  • The final Statement should clarify that pledges of future revenues are not financial guarantees as they are contingent upon the collection of the future revenues.
Minutes of Teleconference, June 18, 2012

The Board reviewed the ballot draft of the Exposure Draft, Accounting and Financial Reporting for Nonexchange Financial Guarantees. After offering further clarifying suggestions for changes to the document, the Board members approved the proposed Statement for issuance by a 6-1 vote.

Minutes of Meeting, May 30 – June 1, 2012

The Board discussed the current guidance for accounting and financial reporting for guarantees of special assessment debt. The Board tentatively decided that the financial guarantees project should not include guarantees for special assessment debt accounted for under Statement No. 6, Accounting and Financial Reporting for Special Assessments, as these guarantees are part of exchange transactions.

The Board also discussed whether a guarantor should be allowed to discount a financial guarantee liability. The Board tentatively decided that the liability recognized by a government for a financial guarantee that is a nonexchange transaction should be measured at its present value.

The Board continued its discussion by considering issues related to the measurement of revenue recognized by a government that has issued a guaranteed obligation for payments made by the guarantor. The Board tentatively decided that revenue recognized by a government that has issued a guaranteed obligation for the guarantee payments made by the guarantor should be limited to the reduction in the liabilities previously recognized by the guarantor. Interest expense/expenditures reported by the issuer of the guaranteed obligation should be reported net of interest-related payments made by the guarantor.

The Board continued its discussion by reviewing a preballot draft of a proposed statement, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions. During this review, the Board tentatively decided to eliminate specific guidance from the draft proposal related to a government extending a financial guarantee, as a result of a nonexchange transaction associated with an obligation of another entity within the government’s own reporting entity. The Board also provided suggestions to the project staff for clarifying revisions to the document.

Minutes Archive


Financial Guarantees—Major Tentative Decisions to Date

Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, was approved in April 2013.