JE - Fair Value Measurements and Technical Corrections Sept 2011

Journal Entries

This recurring website feature highlights articles from The GASB Report, the GASB’s monthly newsletter. The current article appeared in the September 2011 issue.

Fair Value Measurements and Technical Corrections Projects Added to Current Technical Agenda

In August, after consultation with the Governmental Accounting Standards Advisory Council and the Board, GASB Chairman Robert Attmore added items addressing fair value measurements and technical corrections to the current technical agenda.

The fair value measurements and application project was elevated from the research agenda, and the technical corrections project arose from issues that were brought to the staff’s attention through the technical inquiry process. Projects on the current technical agenda are those for which active deliberations by the Board are expected to take place during the coming year.

Fair Value Measurements and Application

The objective of this project is to review and consider alternatives for the further development of the definition of fair value, the methods used to measure fair value, and potential application of fair value measurements.

The Board has issued fair value guidance in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans. Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, and its implementation guide also provide direction on fair value measurements. Issues related to fair value measurements came to the attention of the staff after the issuance of Statement 31 and Statements No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, and No. 40, Deposit and Investment Risk Disclosures. Since those statements were published, certain inconsistencies with other standards, a lack of guidance for specific areas, and diversity in application of the standards have been identified.

Board deliberations on the project are due to begin in October with a discussion of scope issues. Issuance of an Exposure Draft is scheduled for February 2013.

Technical Corrections

The objective of this narrowly scoped practice issue is to resolve conflicting accounting and financial reporting guidance that resulted from the issuance of two recent standards, Statements No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.

Under paragraph 63 of Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, if a single fund is used to account for an entity’s risk financing activities, that fund should be either the general fund or an internal service fund. The fund type definitions in Statement 54, however, appear to allow for some of those activities to be reported in a special revenue fund.

The second technical correction issue relates to how the difference between the proceeds and the carrying value of the receivables should be recognized. Paragraph 13 of Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, provides that the transferee government recognize receivables acquired at the purchase price. Statement 62, however, provides that in instances in which the purchase price of a loan differs from the related loan’s principal amount on the purchase date, the difference be recognized as an adjustment of yield over the life of the loan.

The final technical correction issue was identified as Board papers were being developed on this project. This issue arose as the result of the inclusion of literature related to certain operating leases that contain payment schedules that vary from a straight line. This guidance could be viewed as conflicting with Statement No. 13, Accounting for Operating Leases with Scheduled Rent Increases.

During the course of the project, the Board will review and consider alternative solutions for these issues, which currently could be considered as having an adverse effect on the consistency of financial reporting, and the related usefulness of impacted reports for financial statement users. The Board is scheduled to issue an Exposure Draft in the project in October.

Additional information about both projects is available on the GASB website,, on the Current Projects page of the Projects section.