Journal Entries

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

GASB Approves Statement 63 on the Statement of Net Position

In June, the GASB unanimously approved Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, which establishes guidance for reporting deferred outflows of resources, deferred inflows of resources, and net position in a statement of financial position.

While prior to the issuance of Statement 63 it was unclear where these elements should be reported in the statement of financial position, the GASB has now provided a framework that specifies where deferred outflows of resources and deferred inflows of resources—as well as assets and liabilities—should be displayed. The Statement also discusses how net position—no longer net assets—should be displayed. Ultimately, this new framework will serve to standardize the presentation of deferred balances and their effects on a government’s net position and address uncertainty related to their display.

Concepts Statement No. 4, Elements of Financial Statements, identifies and defines five elements that make up a statement of financial position: assets, liabilities, deferred outflows of resources, deferred inflows of resources, and net position. Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, however, which was issued several years prior to that Concepts Statement, requires the presentation of assets, liabilities, and net assets in a statement of financial position. Therefore, guidance was needed to address the presentation of deferred outflows of resources, deferred inflows of resources, and net position in a financial statement.

The need for this guidance is more urgent because GASB pronouncements have already addressed transactions requiring the use of deferred outflows of resources or deferred inflows of resources. Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, for example, provides for the reporting of deferred outflows of resources and deferred inflows of resources for the changes in fair value of hedging derivatives. In addition, the guidance on service concession arrangements in Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, requires that at least a portion of the up-front payment a government receives under a service concession arrangement be reported as a deferred inflow of resources and recognized over the length of the transaction, rather than reported as revenue immediately. The GASB also is deliberating other projects that may result in the recognition of deferred outflows of resources and deferred inflows of resources. For example, the reexamination of the GASB’s pension accounting and financial reporting standards may ultimately result in the reporting of deferrals.

Statement 63 establishes a framework detailing how these elements should be reported, which will result in standardizing the presentation of deferred balances and their effects on a government’s net position. This should address uncertainty regarding the role of these financial statement elements.

The Statement specifies that the statement of net position should report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position and identifies two formats that may be used. Use of the net position format is encouraged (assets plus deferred outflows of resources minus liabilities minus deferred inflows of resources equal net position); however, use of the balance sheet format (assets plus deferred outflows of resources equal liabilities plus deferred inflows of resources plus net position) also is permitted. Statement 63 also specifies that the statement of net position should report the residual amount as net position rather than net assets.

Under the Statement, net position should be displayed in three components similar to those currently required for net assets: net investment in capital assets, restricted, and unrestricted.

With respect to the disclosure requirements in the Statement, if multiple types of deferred outflows or deferred inflows are aggregated on the face of the financial statements, then governments are required to provide details about the different types of deferrals in the note disclosures. If the amount reported for a component of net position is significantly impacted by deferrals, a government will include a note explaining the effect of the deferred amounts on the net position balances.

Effective Date

The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2011, with earlier application encouraged.

How to Order Copies

Statement 63 (product code GS63) may be obtained through the GASB Order Department by calling (800) 748-0659 or through the GASB Store on the GASB website at www.gasb.org.