Project Pages

Items Previously Reported as Assets and Liabilities

Project Description: The objectives of this project are (1) to identify, in the existing authoritative literature, requirements to recognize balances that may appear to meet the definitions in Concepts Statement No.4, Elements of Financial Statements, of deferred outflows of resources or deferred inflows of resources, and (2) to determine whether those balances should continue to be recognized as assets or liabilities or reclassified for financial reporting purposes as deferred outflows of resources or deferred inflows of resources, respectively.

Status:
GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, was issued in March 2012.

Items Previously Reported as Assets and Liabilities—Project Plan

Background: The authoritative literature currently provides for recognizing as assets or liabilities amounts that may appear to meet the definition of deferred outflows or deferred inflows of resources in Concepts Statement 4. However, paragraph 38 in Concepts Statement 4 states that recognition of deferred outflows and deferred inflows of resources should be limited to those instances identified by the GASB in authoritative pronouncements after applicable due process procedures. Recognition of deferred outflows and deferred inflows of resources has been specifically required thus far only in Statement No. 53, Accounting and Financial Reporting for Derivative Instrument, and Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. In Statement 53, deferred outflows and deferred inflows of resources are required to be recognized for the changes in the fair value of hedging derivative instruments. In Statement 60, deferred inflows of resources are required to be recognized by a transferor in a service concession arrangement (SCA) for (1) the difference between the fair value of a new facility or improvement when placed in operation and any contractual obligations if the facility associated with an SCA is a new facility purchased or constructed by the operator or an existing facility the has been improved by the operator and (2) the difference between the up-front payment or present value of installment payments and any contractual obligations if the SCA requires up-front or installment payments from the operator. As a result of the constraint implied in Concepts Statement 4, governments are not permitted to reclassify amounts as deferred outflows or deferred inflows of resources until required to do so by a GASB pronouncement. The objective of this project is to issue a pronouncement that would provide that reclassification guidance for transactions and other events addressed in previous pronouncements.

Accounting and Financial Reporting Issues: The major accounting and financial reporting issues that would be addressed are:

  • Determining if balances currently recognized as assets or liabilities should be reclassified as a deferred outflow of resources or an outflow of resources or a deferred inflow of resources or an inflow of resources,
     
  • Considering changes, if any, to the major fund determination, and
     
  • Establishing the order of liquidity and classification between current and non-current of deferred outflows or deferred inflows of resources.
Project History: The project was added to the current agenda at the December 2010 meeting.

At the January and March 2011 meetings the Board reached the following tentative conclusions.

  • The Board reconfirmed the overall approach that it will apply in determining whether or not to reclassify certain balances. This approach involves first reviewing the balances to see if they meet the definition of an asset or a liability as defined in Concepts Statement No. 4, Elements of Financial Statements. If the items do not meet the definition of an asset or a liability, then the items will be reviewed to see if they meet the definition of a deferred outflow or deferred inflow of resources.
     
  • The Board determined that an item may be reclassified as an outflow or inflow of resources of the current period if the item does not meet the definition of an asset or a liability, and it is not applicable to future periods.
     
  • The Board tentatively determined that the following items should be classified in the listed categories:

    Assets
     
    1. Advance payments made by a provider (excluding any time requirements) in government-mandated and voluntary nonexchange transactions (Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions)
       
    2. The cost of acquisition of future revenues incurred by a transferee outside of the financial reporting entity (Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues)
       
    3. Initial subscriber installation costs related to cable television systems (Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements)
       
  • The Board decided to postpone the discussion on modified accrual basis of accounting in governmental funds to the April 2011 meeting to allow the staff the opportunity to interpret those transactions relative to the preballot draft of the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches, which the Board reviewed at the March 2011 meeting.
     
  • The Board also agreed to postpone discussions on initial direct costs for operating leases, issue costs for debt, and acquisition costs for insurance contracts, to allow the staff the opportunity to receive feedback from the taskforce that will assist in the Board’s deliberations.
     
  • The Board decided to not address food stamps in Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, as the guidance may not be applicable to current practices.
At the August 2011 meeting, the Board approved an Exposure Draft of a Proposed Statement, Reporting Items Previously Recognized as Assets and Liabilities.

The comment period on the Exposure Draft of the Proposed Statement, Reporting Items Previously Recognized as Assets and Liabilities, ended on November 18, 2011. The staff will provide an analysis of the respondent comments to the Board for its deliberations during the December 2011 Board meeting.

Items Previously Reported as Assets and Liabilities—Minutes for Deliberations

Minutes of Meeting, March 6-8, 2012

The Board reviewed the ballot draft of Statement No. 65, Items Previously Reported as Assets and Liabilities, and discussed minor clarifying changes that will be reflected in the final Statement. Six members of the Governmental Accounting Standards Board approved the issuance of a final Statement. Mr. Fish abstained.

Minutes of Teleconference, February 9, 2012


The Board reviewed the preballot draft of the final Statement, providing minor clarifying changes that will be incorporated into the ballot draft. The Board also tentatively agreed to change the title of the document to Items Previously Reported as Assets and Liabilities. Finally, after considering the number of pronouncements that will become effective for periods beginning after June 15, 2012, the Board tentatively decided to change the effective date of the Statement and determined the new effective date will be for periods beginning after December 15, 2012.

Minutes of Meeting, January 24-26, 2012

The Board continued deliberations on the Exposure Draft, Reporting Items Previously Recognized as Assets and Liabilities, based on comments received from respondents. This included completing its deliberations on government-mandated nonexchange transactions and voluntary nonexchange transactions. The Board also addressed comments related to the effective date of the final standard and comments on topics considered to be outside the scope of project. The Board tentatively decided to carry forward the provisions of these topics in the Exposure Draft to a final Statement with little or no modification, other than clarifying changes.

The Board reviewed the draft Standards section, providing clarifying changes.

Minutes of Meeting, December 13-15, 2011

The comment period for the revised Exposure Draft, Reporting Items Previously Recognized as Assets and Liabilities, ended on November 18, 2011. The Board commenced deliberations on the Exposure Draft based on comments received from respondents. The Board addressed comments that were categorized into four sections: Issues with Deferred Outflows of Resources and Deferred Inflows of Resources, Comments on the Reporting of Certain Items as Proposed in the Exposure Draft, Use of the Term Deferred, and Major Fund Criteria.

The Board tentatively decided to carry forward the provisions in the Exposure Draft with little or no modification, other than minor clarifications, with the exceptions of government-mandated nonexchange transactions and voluntary nonexchange transactions, the effective date, and concerns considered to be outside the scope of the project. Those issues will be discussed in a future meeting.

Minutes of Meeting, August 17-19, 2011

The Board redeliberated fees received for a commitment to originate or purchase a loan or group of loans. The Board tentatively concluded that when the likelihood of the commitment being exercised is remote, the proposed guidance should provide that the commitment fee be recognized as revenue in the period received.

After reconsidering this issue, the Board reviewed and unanimously approved the ballot draft of the Exposure Draft of a proposed Statement, Reporting Items Previously Recognized as Assets and Liabilities.

Minutes of Teleconference, July 26, 2011

The Board continued deliberations on the reclassification project related to deferrals: reporting balances previously recognized as assets and liabilities. The Board reviewed the staff’s analysis related to the circumstances in which a pension plan’s net position exceeds the total pension liability. In addition, the Board discussed the preballot draft of the Exposure Draft, Reporting Balances Previously Recognized as Assets and Liabilities.

The Board tentatively concluded to change the name of the Exposure Draft (and project) to Reporting Items Previously Recognized as Assets and Liabilities.

The Board discussed the circumstance in which a pension plan’s net position exceeds the total pension liability. The Board tentatively concluded that in this circumstance, the resulting debit balance represents a prepayment of the employer and, therefore, should be classified as an asset consistent with the notion of other prepayments.

The Board also reconsidered its discussion on loan origination fees and concluded the receipt of payment for points should be accounted for separately. The Board tentatively decided that, like all origination fees, the receipt of payment for points does not represent a present obligation to sacrifice resources and, therefore, should not be classified as a liability. The Board believes points represent fees charged to a borrower as prepaid interest or to reduce the loan’s nominal interest rate, such as interest buy-downs. Based on this interpretation, the Board tentatively concluded that the receipt of payment for points is an acquisition of net assets that is applicable to a future reporting period and, therefore, represents a deferred inflow of resources and should be recognized as revenue in a systematic and rational manner over the life of the loan. All other loan origination fees will continue to be considered inflows of the period as previously tentatively concluded by the Board.

The Board members provided additional clarifying comments that will be incorporated into the ballot draft of the proposed Statement that will be considered at the August meeting.

Minutes of Meeting, June 27-29, 2011

The Board continued deliberations on the reclassification project related to deferrals— reporting balances previously recognized as assets and liabilities. The Board reviewed the staff’s research on the notion of a performance obligation in the context of the FASB and IASB joint project on revenue recognition. The Board then reviewed the staff’s analysis of resources received in advance of an exchange transaction, taking into consideration the notion of a performance obligation.

The Board tentatively determined that, from a conceptual standpoint, resources received in advance of an exchange transaction create a performance obligation and, therefore, the resources associated with the performance obligation should be classified as a liability. The Board also concluded that, due to the various types of exchange transactions that a governmental entity could be engaged in and the volume of those transactions, the performance obligation should be measured at the original transaction price, as it is the most practical measurement approach for governments.

The Board then decided that the focus of the project should be on those transactions specifically identified in GASB pronouncements that the Board has discussed throughout deliberations, rather than including a principles-based approach in the standard. In conjunction with this decision, the Board reconfirmed the position taken in Concepts Statement No. 4, Elements of Financial Statements, determining that only those items which the Board has specifically identified in this project as deferrals should be reclassified as such.

Lastly, the Board reviewed previous decisions made on balances that may have warranted reclassification due to the Board’s recent decision about the treatment of a performance obligation. The Board determined that fees received for arranging a commitment directly between a permanent investor and a borrower create a performance obligation and, therefore, should be reclassified from a deferred inflow of resources to a liability.

Minutes of Meeting, May 23-25, 2011

The Board continued deliberations on the deferred inflows and deferred outflows of resources: omnibus project by reviewing the staff’s analysis of prepayments and resources received in advance of an exchange transaction. Additionally, the Board reviewed a draft Standards section of the proposed Statement and addressed additional topics including the title of the project, certain offsetting issues, and transition.

The Board deliberated whether prepayments and resources received in advance of an exchange transaction should continue to be classified as an asset or liability, should be reclassified as deferred outflows or deferred inflows of resources, or should be recognized as an outflow or inflow of resources in the current period.

The Board tentatively concluded that whether a prepayment is refundable or nonrefundable should not be the main determining factor in the classification of the balance; instead, the Board tentatively decided to propose an approach that places more emphasis on the notion of control, recognizing “refundability” as a potential manifestation of control. The Board also tentatively decided to postpone any decisions on resources received in advance of an exchange transaction to allow the project staff time to further research the revenue recognition criteria and the notion of a performance obligation that is currently being deliberated by the FASB and the IASB.

Based on these discussions, the Board tentatively decided to present the principles the Board has applied from Concepts Statement No. 4, Elements of Financial Statements, during deliberations at the beginning of the proposed Statement and then propose how those principles should be applied, similar to the approach taken in Statement No. 14, The Financial Reporting Entity.

The Board also tentatively concluded that, due to the change in scope of the project, the title of the Exposure Draft should be changed to Reporting Balances Previously Recognized as Assets and Liabilities. In addition, the Board tentatively determined that the provisions of the proposed Statement should be proposed to be retroactively applied.

The Board tentatively decided to propose that the resulting debit or credit due to a refunding or an advance refunding, as addressed in Statements No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, should be reported separately from the new debt, rather than as an offset against the balance of the new debt, on the statement of net position. Additionally, the Board tentatively concluded that transactions for both sales-type leases and direct financing leases should not be included in the scope of this project.

Lastly, the Board reviewed the draft Standards section, providing clarifying amendments.

Minutes of Teleconference, May 2, 2011

The Board continued deliberations on the deferred inflows and deferred outflows of resources—omnibus project by reviewing the staff’s analysis of regulated activities and other remaining issues including the major fund calculation, order of liquidity, classification of current versus noncurrent, the use of the term deferred, and the effective date of the Statement.

The Board deliberated whether certain regulatory liabilities and regulatory assets should continue to be classified as an asset or liability, be reclassified as deferred outflows or deferred inflows of resources, or be recognized as an outflow or inflow of resources in the current period. The Board considered feedback and examples received from the deferrals project task force as well as input from a selection of auditors and preparers of financial statements for regulated business-type activities. The Board tentatively determined that the following items should be classified in the listed categories:

Assets

  • Capitalized incurred costs related to regulated activities (Statement 62)
Liabilities

  •  Refunds imposed by a regulator (Statement 62)
Deferred Inflows of Resources (to be proposed in the Exposure Draft)

  • Revenues generated by current rates intended to recover costs that are expected to be incurred in the future (Statement 62)
     
  • Gains or other reductions of net allowable costs intended to reduce rates over future periods (Statement 62).
The Board also tentatively concluded that the criteria for major fund determination should be proposed to be amended to combine deferred outflows of resources with assets and deferred inflows of resources with liabilities in the calculation of major funds. The combined total of deferred outflows of resources with assets and the combined total of deferred inflows of resources with liabilities of an individual governmental or enterprise fund would be compared to the corresponding total for all funds of that category or type (that is, total governmental or total enterprise funds) using the 10 percent threshold. In addition, the combined total of deferred outflows and assets and the combined total of deferred inflows of resources and liabilities of an individual governmental fund or enterprise fund would be compared to the corresponding total for all governmental enterprise funds combined using the 5 percent threshold.

In addition, the Board tentatively concluded that the proposal should not include specific guidance regarding the order of liquidity and classification of current versus noncurrent for deferred outflows and deferred inflows of resources . The Board also tentatively concluded to propose that the use of the term deferred be limited to the financial statement elements of deferred outflows and deferred inflows of resources.

Lastly, the Board tentatively concluded that the effective date of the project should be proposed for periods beginning after June 15, 2012.

Minutes of Meeting, April 12-14, 2011


The Board continued deliberations on the deferred inflows of resources and deferred outflows of resources—omnibus project by reviewing the staff analysis of the remaining balances and determining whether those balances should continue to be classified as an asset or liability, should be reclassified as deferred outflows or deferred inflows of resources, or should be recognized as an outflow or inflow of resources in the current period. The Board also considered the feedback received from the March 10, 2011 teleconference with the deferrals task force. The Board tentatively concluded that the following items should be proposed to be classified in the listed categories:

Assets
  1. Not applicable.
Deferred Outflows of Resources
  1. Deferred loss resulting from sale-leaseback transactions (Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements)
     
  2. The difference resulting from overpayment of the initial investment to purchase a loan or group of loans relative to the principle amount of the related loan or loans at the date of purchase (Statement 62)
     
  3. Net balance (debit) of direct loan origination costs for mortgage loans held for resale prior to the point of sale (Statement 62)
     
  4. Fees paid to permanent investors to ensure the ultimate sale of loans prior to the point of sale (Statement 62).
Outflows of Resources
  1. Acquisition costs for insurance entities and public entity risk pools (Statement 62 and Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues)
     
  2. Initial direct costs of operating leases (Statement 62)
     
  3. Debt issuance costs (Statement 62)
     
  4. Net balance (debit) of direct loan origination costs related to lending activities (Statement 62)
     
  5. Net balance (debit) of direct loan origination costs for mortgage loans held for investment (Statement 62)
     
  6. Net balance (debit) of direct loan origination costs for mortgage loans held for resale after the sale occurs (Statement 62)
     
  7. Fees paid to permanent investors to ensure the ultimate sale of loans after the ultimate sale occurs (Statement 62).
Liabilities
  1. Commitment fees charged for entering into an agreement that obligates the government to make or acquire a loan or to satisfy an obligation of the other party under a specified condition (Statement 62)
     
  2. Fees that are received for guaranteeing the funding of mortgage loans (Statement 62).
Deferred Inflows of Resources
  1. Deferred revenue related to special assessments and other unavailable revenue related to the application of modified accrual accounting (Statement No. 6, Accounting and Financial Reporting for Special Assessments, and Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions)
     
  2. Net investment in capital leases – Accounting for sales-type and direct financing leases by the lessor (Statement 62)
     
  3. Deferred gain resulting from sale-leaseback transactions (Statement 62)
     
  4. The difference resulting from underpayment of the initial investment to purchase a loan or group of loans relative to the principle amount of the related loan or loans at the date of purchase (Statement 62)
     
  5. Net balance (credit) of loan origination fees for mortgage loans held for resale prior to the point of sale (Statement 62)
     
  6. Fees received for arranging a commitment directly between a permanent investor and a borrower (Statement 62).
Inflows of Resources
  1. Net balance (credit) of loan origination fees related to lending activities (Statement 62)
     
  2. Commitment fees realized upon exercise or expiration of the commitment (Statement 62)
     
  3. Net balance (credit) of loan origination fees for mortgage loans held for investment (Statement 62)
     
  4. Net balance (credit) of loan origination fees for mortgage loans held for resale after the sale occurs (Statement 62)
     
  5. Fees that are realized after the funding of mortgage loans has occurred or after the commitment to guarantee the funding of mortgage loans expires (Statement 62)
     
  6. Fees realized when a commitment is arranged directly between a permanent investor and a borrower (Statement 62).
Minutes of Meeting, March 1-3, 2011

The Board continued deliberations on the deferred inflows of resources and deferred outflows of resources—omnibus project, beginning its analysis of individual balances and determining whether those balances should continue to be classified as an asset or liability or reclassified as deferred inflows or deferred outflows of resources. The Board determined that, based on Concepts Statement No. 4, Elements of Financial Statements, an item also may be reclassified as an outflow or inflow of resources of the current period, if the item does not meet the definition of an asset or a liability, and it is not applicable to future periods.

The Board tentatively determined that the following items should be classified in the listed categories:

Assets
  1. Advance payments made by a provider (excluding any time requirements) in government-mandated and voluntary nonexchange transactions (Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions)
     
  2. The cost of acquisition of future revenues incurred by a transferee outside of the financial reporting entity (Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues)
     
  3. Initial subscriber installation costs related to cable television systems (Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements)
Deferred Outflows
  1. Payments made to other governments related to government-mandated and voluntary nonexchange transactions when time requirements are the only eligibility requirements that have not been met by the other government (Statement 33)
     
  2. Debit amount resulting from a refunding of debt (Statement No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities)
     
  3. Deferred charge previously recognized by the transferee in intra-entity transfers of future revenues (Statement 48)
Liabilities
  1. Advance payments received related to derived tax revenue nonexchange transactions (Statement 33)
     
  2. Advance payments received by a recipient (excluding any time requirements) through government-mandated and voluntary nonexchange transactions (Statement 33)
     
  3. Premium revenue related to short-duration insurance contracts (Statement 62 and Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues)
Deferred Inflows
  1. Payments received prior to the appropriate period related to imposed nonexchange transactions (Statement 33)
     
  2. Payments received from other governments related to government-mandated and voluntary nonexchange transactions when time requirements are the only eligibility requirements that have not been met (Statement 33)
     
  3. Credit amount resulting from a refunding of debt (Statement 23)
     
  4. Deferred revenue previously recognized by the transferor in sales of future revenues to parties outside the financial reporting entity and intra-entity transfers of future revenues (Statement 48)
     
  5. Initial hookup charges in excess of direct selling costs related to cable television systems (Statement 62).
Additionally, the Board decided to postpone the discussion on modified accrual basis of accounting in governmental funds to the April 2011 meeting to allow the staff the opportunity to interpret those transactions relative to the preballot draft of the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches, which the Board tentatively approved while reviewing the conceptual framework—recognition and measurement attributes project at the March 2011 meeting.

After deliberations, the Board also agreed to postpone discussions on initial direct costs for operating leases, issue costs for debt, and acquisition costs for insurance contracts, to allow the staff the opportunity to receive feedback from the task force that will assist in the Board’s deliberations.

Finally, the Board decided to not address food stamps in Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, as the guidance does not appear to be applicable to current practices.

Minutes of Meeting, January 18-20, 2011


The Board began deliberations on the deferred inflows and deferred outflows of resources—omnibus project. The Board tentatively agreed that the most pressing issue at this point of the project is determining which balances to reclassify as deferred outflows and deferred inflows of resources and the manner in which this process takes place. In addition, the Board reviewed and tentatively agreed with a list of balances currently classified as assets or liabilities that could potentially qualify as a deferred outflow or deferred inflow of resources, and the Board members suggested other balances for review.

Finally, the Board reconfirmed the overall approach that it will apply in determining whether or not to reclassify certain balances.

Items Previously Reported as Assets and Liabilities—Major Tentative Decisions to Date

Statement No. 65, Items Previously Reported as Assets and Liabilities, was approved in March 2012 .