Journal Entries

This recurring website feature highlights articles from The GASB Report, the GASB’s monthly newsletter. The current article appeared in the December 2010 issue.

GASB Adds Two Projects to Current Technical Agenda

In December, GASB Chairman Robert Attmore added projects to the GASB’s current technical agenda that address government combinations, and deferred inflows of resources and deferred outflows of resources.

Before adding these projects to the agenda, the chairman considered the views of the other Board members and input from the members of the Governmental Accounting Standards Advisory Council (GASAC) where the project was highly ranked in a recent survey.

Government Combinations

The project on government combinations and spin-offs was moved from the GASB’s research agenda to its current agenda. Projects on the current agenda are those for which active deliberation by the Board is expected to take place during the coming year.

The project will consider the financial reporting requirements for government combinations that occur when one government annexes another, when there is a consolidation of governments or of governmental functions, when an acquisition takes place, when shared services agreements between governments exist, and in certain other circumstances. The analysis will encompass general governmental combinations including, for example, city/county consolidations and consolidated school districts, as well as business-type activities, which could involve public utilities or healthcare organizations. The project also will consider devolution—or spin-off—issues, like accounting for a library district that was once a department in a primary government.

Though government combinations are becoming an increasingly popular means of reducing both duplication in the provision of services and in the associated costs, there is currently much uncertainty regarding how they should be accounted for and reported. While most states have statutes addressing general purpose government and school district combinations, fewer have guidance addressing business-type activities. In addition, the current authoritative literature does not address the accounting and financial reporting for the combination of assets and liabilities.

Considering these factors, the need for specific guidance is becoming increasingly necessary. Establishing authoritative guidance for government combinations and spin-offs would help reduce uncertainty in this area while increasing consistency and comparability across the governmental environment.

A project proposal on government combinations was first presented to the Board in late 2003, at which point, after review, the Board determined that it should be added to the research agenda.

At this early stage in the project, preparations are being made to select and confirm task force members, with whom an initial set of project issues will be discussed beginning early next year.

Looking ahead, the Board anticipates the issuance of an Exposure Draft by mid-2012. Issuance of a final Statement is projected for the following year.

Deferred Inflows and Outflows of Resources

Not all projects that reach GASB’s current agenda are the result of previous research efforts. The addition of the deferred inflows of resources and deferred outflows of resources omnibus project—a narrow-scope practice issue—to the current agenda arose from the recognition that governments report assets and liabilities in the statement of financial position that appear to meet the definitions of deferred inflows of resources and deferred outflows of resources as they appear in Concepts Statement No. 4, Elements of Financial Statements.

Because that Concepts Statement specifies that recognition of deferred inflows and deferred outflows should be limited to those instances identified in GASB authoritative pronouncements, a standard is needed to determine which, if any, of these balances—for example, deferred charges and deferred revenues—should be reported as deferred outflows or deferred inflows rather than as assets or liabilities. If it is determined that certain balances should be reported as deferred outflows or deferred inflows, then reclassification guidance for those balances would be necessary.

Currently, only Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, requires the recognition of deferred inflows of resources and deferred outflows of resources in certain cases. Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, which was issued in December but is not yet effective, also will require the recognition of deferred inflows of resources in specific situations.

A net position project, Financial Reporting of Deferred Outflows and Deferred Inflows of Resources and Net Position, is currently underway that will provide statement presentation guidance for these elements; however, it would only apply to balances that have been specifically identified thus far as deferred inflows or deferred outflows.

The Board’s current project addressing pension accounting and financial reporting also may incorporate requirements for reporting deferred inflows and deferred outflows.

In addition, in October, the GASAC ranked this project at the top of its list of potential projects for addition to the GASB agenda.

The combination of these factors demonstrate the growing need for a project addressing balances that appear to meet the definition of deferred inflows of resources and deferred outflows of resources but are not specifically identified as such throughout the GASB’s authoritative literature.

Accounting and financial reporting issues expected to be considered include not only the determination of whether balances currently recognized as assets or liabilities should be reclassified as deferred outflows or deferred inflows, but also the potential impact on these reclassifications to the major fund determination.

Initial project activities scheduled to take place in early 2011 include the development of a project overview and background document for Board review. The Board will begin to deliberate initial project issues in early spring.

Looking ahead, the Board anticipates the issuance of an Exposure Draft in summer 2011. Issuance of a final Statement is projected for early the following year.