Journal Entries

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

Project on Financial Guarantees Added to Current Technical Agenda

In April, after consultation with the Governmental Accounting Standards Advisory Council and the Board, GASB Chairman Robert Attmore moved an item addressing financial guarantees from the research agenda to the current technical agenda. Projects on the current technical agenda are those for which active deliberations by the Board are expected to take place during the coming year.

The objective of this project is to establish additional guidance regarding recognition and disclosure of financial guarantees made and received by state and local governments. Governments typically provide several types of financial guarantees, which are primarily associated with commitments to ensure payments on debt issued by other entities. Financial guarantees represent potential claims on a government’s resources when it is the provider of a guarantee. This project will address what related disclosures should be required and when the guarantor would recognize a liability.

The current economic climate has given rise to a level of financial stress that has impacted many entities and resulted in financial guarantees made or received in the past now coming to light. To the extent that it exists, related accounting and financial reporting guidance for such transactions derives from a variety of sources, including GASB Statements No. 53, Accounting and Financial Reporting for Derivative Instruments; No. 60, Accounting and Financial Reporting for Service Concession Arrangements; and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.

Due to the increased importance of guarantees and the potential for them to result in claims, the need for clear and consistent recognition and disclosure guidance has become more pressing.

Research conducted by the GASB indicates that numerous types of state and local government entities issue and receive financial guarantees, including general purpose governments, special-purpose governments, and governmental entities that engage in business-type activities. Ultimately, the project is designed to result in more useful information being available to users of governmental financial information, which would enable them to recognize and understand financial guarantees that are issued and received by state and local governments.

Board deliberations on the project are scheduled to begin with a discussion of recognition issues in August. Issuance of an Exposure Draft is scheduled to take place in June 2012.