Debt Disclosures, including Direct Borrowing
Project Description: The primary objective of this project is to define debt, including direct borrowing, to distinguish it from other long-term liabilities in applying disclosure requirements for notes to financial statements. The project also will evaluate whether (1) the disclosures in notes to financial statements related to long-term debt also should be required for short-term debt and (2) whether additional disclosures for direct borrowings are essential to a user’s understanding of the basic financial statements.
Status:
Final Standard approved, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, approved March 2018
- Background
- Accounting and Financial Reporting Issues
- Project History
- Recent Minutes
- Tentative Board Decisions
- Project staff:
Debt Disclosures, including Direct Borrowing—Project Plan
Background: Existing guidance for notes to the financial statements requires two general disclosures for outstanding debt:
- Changes in the amount of outstanding debt during the reporting period, as part of the overall disclosure of changes in long-term liabilities (paragraph 119 of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments)
- Debt service requirements for each of the succeeding five fiscal years and in five year increments thereafter until maturity (paragraph 10 of Statement No. 38, Certain Financial Statement Note Disclosures).
- Changes in short-term debt during the reporting period (paragraph 12 of Statement 38)
- Short-term obligations (paragraph 44 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, as amended).
In the period since the existing standards for debt disclosures were issued, governments have continued to innovate and diversify with respect to their debt-issuance practices. In recent years, governmental borrowers have increasingly satisfied their financing needs by using direct loans from banks rather than issuing municipal bonds. Financial statement users—particularly credit ratings agencies, industry groups, and bond market regulators—have expressed concerns about this practice. Their concerns have centered upon governments that have either (1) provided inadequate or no disclosure regarding their direct borrowing arrangements, or (2) inappropriately classified direct loans as other types of debt in their financial statements.
Accounting and Financial Reporting Issues: The project is considering the following issues:
- Although existing standards require specific disclosures for long-term and short-term debt, debt is not defined for financial reporting purposes. Which liabilities should be considered debt for disclosure purposes?
- Current requirements for short-term debt include (1) providing a schedule of changes in short-term debt outstanding and (2) disclosing the purpose for which the short-term debt was issued. What additional disclosures, if any, should be required?
- Current requirements do not specifically address direct borrowings. Should specific disclosures related to direct borrowings be required?
- Pre-agenda research approved: April 2015
- Added to the current technical agenda: August 2016
- Deliberations began: October 2016
- Exposure Draft approved: June 2017
- Comment period: July–September 2017
- Redeliberations began: October 2017
Debt Disclosures, including Direct Borrowing—RECENT MINUTES
Minutes of Teleconference, March 26, 2018
The Board reviewed and provided clarifying edits on the ballot draft of the final Statement, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. The Board then voted unanimously to approve the issuance of Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements.
Minutes of Meetings, March 6-8, 2018
The Board reviewed a preballot draft of the final Statement, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, and provided clarifying edits on the draft document. The Board then agreed to move forward to a ballot draft of the final Statement.
Minutes of Meetings, January 23−24, 2018
The Board continued redeliberations of the proposals in the Exposure Draft, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. The Board tentatively decided that the requirement to separate information presented in debt disclosures related to direct borrowings and direct placements of debt from other types of debt as proposed in the Exposure Draft should be carried forward to the final Statement. The Board next tentatively decided that the terms direct borrowings and direct placements should not be specifically defined in the final Statement. The Board also tentatively decided that short-term debt should not be excluded from the requirement to separately present information in debt disclosures related to direct borrowings and direct placements of debt from other types of debt.
The Board then tentatively decided that the effective date and transition requirements as proposed in the Exposure Draft should be carried forward to the final Statement.
The Board also discussed whether the intended benefits of information to users and other stakeholders from the tentative decisions justify the anticipated costs to preparers and other stakeholders. The Board tentatively decided that the expected benefits associated with the reporting requirements justify the perceived implementation and ongoing costs.
The Board also discussed the characteristics of the financial information that would be provided as a result of the tentative decisions. The Board tentatively agreed that the accounting and financial reporting requirements would produce financial information that meets the needs of users, results from economic or financial events affecting the assessment of the governmental reporting entity, is relevant to reporting objectives, and falls within an appropriate information category in general purpose external financial reports.
Minutes of Meetings, December 12−14, 2017
The Board continued redeliberations of the proposals in the Exposure Draft, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements.
The Board first discussed respondent feedback on the definition of debt. The Board tentatively decided that the definition of debt for purposes of disclosure in notes to financial statements should be carried forward to the final Statement with an amendment to footnote to the word “fixed” instead of “established” for clarification of amounts being considered fixed at the date the contractual obligation is established. The Board also tentatively decided that the exclusion related to leases should be carried forward to the final Statement, except for contracts that transfer ownership that meet the definition of a lease but are accounted for as financed purchases. The Board also tentatively decided that the exclusion relating to trade accounts payable should be carried forward to the final Statement by referring to accounts payable rather than trade accounts payable. The Board then tentatively decided not to include an exclusion to the definition of debt for disclosure purposes related to employment contracts in the final Statement. The Board also tentatively decided not to add guidance to the definition of debt for disclosure purposes in the final Statement to clarify whether premiums and discounts should be included as debt. The Board then decided not to add guidance to the definition of debt for disclosure purposes in the final Statement to clarify whether conduit debt should be included as debt.
The Board then discussed respondent feedback on proposed disclosures. The Board tentatively decided that disclosures related to debt in the financial statement should not be contingent on an assessment of the probability of repayment or limited to debt exceeding a certain threshold of liabilities recognized. The Board tentatively decided that the disclosures related to unused lines of credit should not be limited to circumstances in which the line of credit only can be drawn upon to repay debt. The Board also tentatively decided that the disclosure related to unused lines of credit as proposed in the Exposure Draft should be carried forward to the final Statement. The Board tentatively decided that the disclosures related to collateral pledged as security for debt as proposed in the Exposure Draft should be carried forward to the final Statement by clarifying that it relates to assets pledged as collateral for debt. The Board tentatively decided that the terms significant, finance-related or finance-related consequences, subjective acceleration clauses, and events do not need to be defined in the final Statement. The Board tentatively decided that the disclosures proposed in the Exposure Draft related to terms specified in debt agreements related to significant
(1) events of default with finance-related consequences, (2) termination events with finance-related consequences, and (3) subjective acceleration clauses, should be carried forward to the final Statement. The Board also tentatively decided that additional disclosures related to debt not proposed in paragraph 5 of the Exposure Draft should not be included in the final Statement.
Minutes of Meetings, October 31−November 2, 2017
The Board began redeliberations on the Exposure Draft, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, by discussing general feedback from respondent comments. No specific issues were discussed or tentative decisions reached during the redeliberations.
Minutes of Meetings, June 28–29, 2017
The Board began redeliberations on the Exposure Draft, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, by discussing general feedback from respondent comments. No specific issues were discussed or tentative decisions reached during the redeliberations.
Minutes of Meetings, June 28–29, 2017
The Board discussed a ballot draft of an Exposure Draft and made clarifying edits on the draft document. The Board amended the proposed title to be Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. The Board voted unanimously to approve the issuance of the Exposure Draft.
Minutes of Teleconference, June 11, 2017
The Board discussed the title for the proposed Exposure Draft and tentatively decided it should be Certain Debt Disclosures, including Direct Borrowings and Direct Placements. The Board also tentatively decided to allow a 60-day period for comments on the Exposure Draft.
The Board reviewed a preballot draft of the proposed Exposure Draft and provided clarifying edits on the draft document. The Board then agreed to move forward with a ballot draft of the Exposure Draft, Certain Debt Disclosures, including Direct Borrowings and Direct Placements.
Minutes of Meetings, May 23–25, 2017
The Board discussed whether the intended benefits of information to users and other stakeholders from the tentative decisions to be proposed in the Exposure Draft justify the anticipated costs to preparers and other stakeholders. The Board tentatively agreed that the intended benefits associated with the requirements to be proposed in the Exposure Draft justify the anticipated costs of implementation and ongoing compliance.
The Board also discussed the characteristics of the financial information that would be provided as a result of the requirements to be proposed in the Exposure Draft. The Board tentatively agreed that the accounting and financial reporting requirements to be proposed in the Exposure Draft would produce financial information that meets the needs of users, results from economic or financial events affecting the assessment of the governmental reporting entity, is relevant to reporting objectives, and falls within an appropriate information category in general purpose external financial reports.
The Board reviewed a draft Standards section of the proposed Exposure Draft and discussed clarifying edits on the proposed guidance. The Board also tentatively decided to modify the proposed definition of debt for disclosure in notes to financial statements to “a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of payment of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established.”1
Minutes of Teleconference, May 1, 2017
The Board continued to discuss potential disclosures for debt, including information related to direct borrowing. The Board tentatively decided to propose that entities disclose a summary of termination events and events of default that have significant finance-related effects for both direct borrowings and other forms of debt. The Board also tentatively decided to propose that entities disclose subjective acceleration clauses for both direct borrowings and other forms of debt. The Board tentatively decided to propose that both existing and proposed disclosures be separated based on whether debt is a direct borrowing or not. The Board tentatively decided that the proposed standards should be effective for reporting periods beginning after June 15, 2018, with the proposed provisions applying to notes to financial statements for all periods presented. The Board also decided to propose that earlier application of the proposed standards be encouraged.
Minutes of Meetings, April 12–14, 2017
The Board continued to discuss potential disclosures for debt, including information related to direct borrowing. The Board tentatively decided to propose disclosures of additional lines of credit extended and information related to collateral. The Board also tentatively decided to not propose disclosures related to date of issuance, maturity date, amounts borrowed for individual borrowings, interest rates on individual borrowings, and weighted-average interest range for outstanding debt.
The Board instructed the project staff to further research potential disclosures related to covenants and other remedies, including termination events and accelerated payment clauses.
Minutes Archive
Debt Disclosures, including Direct Borrowing—TENTATIVE BOARD DECISIONS TO DATE
Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, was approved in March 2018.