Government Combinations

Project Description: The primary objective of this project is to consider the financial reporting requirements for government combinations that are accomplished through mergers and acquisitions. This project includes the analysis of government combinations that have taken place in both the general governmental area (city/county consolidations and consolidated school districts, for example) and the business-type activities area (healthcare organizations, for example). In addition, the project addresses certain devolution (spin-off) issues; for example, accounting for a library district that was formerly a department in a primary government.

Status: Statement No. 69, Government Combinations and Disposals of Government Operations, was approved in January 2013.

• Project Plan
• Minutes for Deliberations
  
• Minutes of Previous Meetings 
• Major Tentative Decisions to Date
• Project staff:
  • Ken Schermann

Government Combinations—Project Plan 

Background: A project proposal was presented to the Board in December 2003. The Board concluded at that time that the project should be included on the research agenda. The project was transferred to the potential projects list in January 2006.

At its March 2009 meeting, the GASAC prioritized twenty-five potential projects that the Board could add to its current agenda. Government Combinations was ranked fourth, indicating a relatively high priority for the project in the GASAC’s opinion.

The project staff conducted its initial research to identify the accounting and financial reporting issues that potentially could be addressed in this project. The research included an in-depth analysis of the statutes and constitutions of all the states to determine under what conditions combinations and mergers of general or special-purpose local governments (including school districts) are permissible and the processes that the combining governments are required to undertake in accomplishing the combinations. The effort to identify combination/merger issues in the business-type activity sector (in the healthcare area, for example) included an outreach to specific groups and individuals in the audit community who are the most likely to have useful experiences and insights into those types of arrangements.

In April 2010, the GASAC was provided with a staff update on the research to date on the project and ranked it as one of its highest priorities.

Research to identify government combination issues continued and additional research findings were developed. At the October 2010 GASAC meeting, GASAC members ranked this project as one of its highest priorities of the five research and practice issue projects being considered at that time.

Accounting and Financial Reporting Issues: The major accounting and financial reporting issues that are expected to be considered in this project are as follows:

• What types of government combinations have occurred and what were the objectives of those  events? 
   
• How have government combinations been accounted for and reported? 
   
• If annexation involves recognition of assets or liabilities by the annexing government, what are appropriate measurement provisions for accounting and financial reporting?
   
• How should the assets, liabilities, deferred outflows, deferred inflows, and net position of combined or new governments be measured?
  
  
  1. For mergers, spin-offs, and shared service arrangements?
      
  2. For acquisition arrangements?
      
• Have the financial reporting display and disclosure principles that were used to report combinations provided financial statement users with adequate and sufficiently clear information to allow them to understand the effects of the combinations? 
   
• Should the measurement provisions for an acquisition include a goodwill notion, or should differences be eliminated in the year of acquisition as either a contribution or expense? What constitutes consideration for government acquisition arrangements?
   
• Are additional financial reporting or disclosure requirements necessary for combinations of governments? 

Project History: The project was added to the current technical agenda during the December 2010 Board meeting. At the March 2011 Board meeting, the Board considered the proposed scope of the project and tentatively agreed to the types of transactions that would be initially considered in the project. The Board also tentatively agreed to an overall approach to the project that is intended to consider government combinations based on the presence of consideration.

The Board considered several forms of government combination arrangements without the presence of financial consideration and tentatively decided on a definition of the term government consolidation to describe government combinations achieved by pure consolidation arrangements and dissolution arrangements. This term also is used to distinguish these combination activities from other forms of government combination activities such as annexations, shared service arrangements, and service spin-offs.

The Board considered whether a definition or specified criteria was necessary to distinguish government combination transactions from acquisitions or contributions of assets and liabilities and tentatively agreed that the basic principle that should guide the combination versus contribution or acquisition decision is whether governments will continue to provide services to their constituents that were provided formerly by predecessor governments.

The Board tentatively agreed upon use of a carryover method as the basis for measuring and reporting government combinations without financial consideration. The Board also tentatively decided that modifications to the carryover method may be necessary because the method may be applied differently for governments.

The Board considered other forms of government combinations arrangements, without the presence of financial consideration and tentatively agreed to include the following arrangements within the scope of the project:

• Annexations that include transfers of assets and liabilities between two or more legally separate governments.
   
• School district reorganizations that result in the consolidation of two or more legally separate entities or that include transfers of assets and liabilities between two or more legally separate entities.
   
• Shared service arrangements in circumstances that governments jointly agree to provide discontinued services and create new legally separate entities or contribute resources to existing legally separate entities in order to provide those services.

The Board tentatively agreed to propose that base measurement of these combinations also should use a carryover method.

The Board considered several topics about accounting and financial reporting for government combination arrangements without consideration (mergers).

Presumption of GAAP Reporting by the Combining Entities—The Board tentatively agreed that the proposed guidance should contain an explicit requirement that separate financial statements of combining governments be reported in conformity with GAAP as of the combination date.

The Initial Reporting Period for the Combined Government—The Board considered the initial reporting period for newly combined governments and tentatively agreed that for combination arrangements in which the combined government is substantively a new separate entity, presentation should be based upon the effective date of the combination. For combination arrangements in which a substantively new separate entity is not created, presentation should be based upon existing guidance for combinations, which requires restating the financial statements as of the beginning of the reporting period.

Adjustments to Conform Differences in Accounting Policies—The Board discussed whether modifications to conform the accounting policies of combining governments should be allowed when applying a carryover approach in reporting government combinations arrangements and tentatively agreed the proposed standard should be permissive with regard to changes to conform differences in accounting principles. The Board tentatively concluded that any changes to conform or modify accounting estimates should be made on a post-combination basis.

Effects of Pre-Combination Intra-Equity Transactions—The Board tentatively decided that the proposed guidance need not require the elimination of the effects of pre-combination intra-entity activities and balances. Pre-combination intra-entity transactions and balances between the combining governments could be considered for elimination based on the eliminations guidance provided in Statement 34.

Impairment of Capital Assets Resulting from Combination Activities—The Board tentatively agreed that that if circumstances of a government combination indicate that decisions to dispose of capital assets are part of the combination plan, but the government will continue to use those assets as originally intended until a future sale occurs, then the combined government should recognize those capital assets at their carrying amounts. However, if intent to sell capital assets is part of the combination plan and the capital assets will no longer be used by the combined government, then the capital assets identified should be evaluated for impairment. The amounts carried forward should be adjusted for combination related to capital asset impairment by use of a two-step process that first carries forward previously reported amounts, followed by adjustments within the context of a restatement disclosure (similar to the process described previously for adjustments to conform accounting principles). Similarly, if a government combination plan includes a decision about manner or duration of use of specific capital assets, then those assets also should be evaluated for impairment and the initial amounts of carried forward capital assets should be adjusted accordingly in a restatement disclosure.

Component Units—The Board discussed how the financial reporting entity and component units would be addressed in a government combination. Because some government combinations may result in formations of new legally separate entities, new governments will have to evaluate the former component unit relationships of the combining governments to determine if they meet the criteria to be included in the new financial reporting entity. In addition, new governments also will have to evaluate former joint ventures, jointly governed organizations, and related organizations of the combining governments to determine whether those relationships still exist. The Board tentatively agreed that a discussion in the proposed guidance for evaluation of component unit and other relationships is unnecessary because the requirements of Statement No. 14, The Financial Reporting Entity, as amended, are sufficient for making determinations about reporting entities.

At the October and November 2011 meetings, the Board considered several topics related government combinations achieved by the acquisition by a government of another organization in exchange for financial consideration. The reached tentative conclusion on the following topics:

Identifying the Acquiring Government in an Acquisition Arrangement—The proposed standards need not address the determination of an acquiring government because the requirements of Statement 14 are sufficient for making determinations about reporting entities and control.

Determining the Acquisition Date—The acquisition date should be specified for government acquisition arrangements for purposes of accounting measurements and financial reporting and that the acquisition date should be the date on which a government acquires assets and assumes liabilities.

Distinguishing Combination Activities—The same service continuation principle should be applied as used to distinguish mergers from contributions for distinguishing between acquisitions and purchases of assets.

Identifying Assets Acquired and Liabilities Assumed—In order to qualify for recognition in a government acquisition, the assets acquired and liabilities assumed by the acquiring government should meet the definitions of assets and liabilities in Concepts Statement 4 and that the proposed guidance should explicitly require the acquiring government to identify the assets acquired and the liabilities assumed.

Identifying Deferred Outflows of Resources and Deferred Inflows of Resources—The proposed guidance should require the identification of deferred outflows of resources and deferred inflows of resources of acquired governments for carryover.

Measurements of Acquired Assets and Liabilities—The identified assets acquired and liabilities assumed should be measured at their fair values as of the acquisition date. Liabilities for employee benefits, municipal solid waste landfill closure/post-closure care liabilities, and pollution remediation obligations should be determined using existing GAAP when accounting for government acquisitions versus the application of fair value. The “goodwill” that an acquired organization may have previously recognized should have no value and should be excluded from recognition and measurement for government acquisitions.

Consideration—A description of “consideration” is necessary to clarify the items that constitute consideration for government acquisition arrangements. Consideration transferred could be measured as the sum of the acquisition-date fair values of the assets transferred and liabilities incurred to the former owners of the acquired organization. The assumption of significant liabilities of another organization also could be regarded as a form of consideration (providing relief from debt); however, in that situation, the arrangement would not qualify for accounting and financial reporting as an acquisition. The description for consideration should contain characteristic of being “significant consideration” in order to qualify for classification as a government acquisition. Contingent consideration arrangements should be recognized and disclosed in accordance with the contingency and liability recognition provisions in Statement 62.

Recognition and Measurement of the Difference between the Consideration Transferred and the Net Assets Acquired—Circumstances in which the consideration transferred exceeds the amount of the net assets acquired (and the net carrying amounts of deferred outflows of resources and deferred inflows of resources), the acquiring government should recognize differences as a deferred outflow of resources that would be attributed to future periods in a systematic and rational manner. The acquiring government would recognize the difference as an inflow of resources in the period of acquisition for situations in which fair values of the net assets acquired exceed the value of the consideration transferred. Deferred outflows of resources recognized in acquisitions should be attributed to future periods in a systematic and rational manner based on the relevant circumstances of the acquisition and determined by professional judgment.

Acquisition Costs—Acquisition-related costs should be recognized as an outflow of resources in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt securities would still be recognized in conformity with other application of GAAP.

Acquisitions Achieved in Stages—Acquisitions achieved in stages should not be addressed in the proposed standards because the financial reporting consequences of changes in control are within the scope of Statement 14, as amended.

Terminology—The previously defined term “government consolidation” should be replaced with the term “government merger.” In addition, working definitions for the following were discussed:


At the December 2011 meeting, the Board discussed disposals of operations and recognition and financial reporting for operations that are discontinued. The Board discussed the situation in which only a particular service, operation, or activity might be “spun off” to create a separate entity, sold to another government, or merged with similar activities of another entity. The Board tentatively agreed that “spin offs” should be incorporated into the proposed standard as the transfer or sale of an operation. The Board also tentatively agreed that the definition of operations should include reference to assets and liabilities and that the transfer or sale of operations should be incorporated into the working definitions of government mergers and government acquisitions rather than described separately in the proposed guidance. The Board tentatively agreed on a working definition of the term operation as follows:

An operation is an integrated set of activities, with assets or liabilities that is being conducted and managed for the purpose of providing identifiable services to a specific group of constituents.

Next, the Board considered and tentatively agreed that transfers and sales of operations should be accounted for in a manner that is consistent with government mergers. The Board tentatively agreed that purchases of operations by governments outside of the financial reporting entity should be regarded as government acquisitions and should apply the similar recognition and measurement guidance. The Board also considered the accounting and financial reporting issues related to transfers or sales of operations when they occur within the same financial reporting entity and tentatively agreed that transfers or sales of operations within the same financial reporting entity should be accounted for in a manner that is consistent with the intra-entity transfers of assets guidance in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues.

The Board discussed accounting and financial reporting requirements for a government transferor or seller and tentatively agreed that governments should recognize disposals of operations during the period in which they occur based on the effective date of the transfer or sale of an operation to another entity. In addition, the Board considered accounting and financial reporting requirements for certain additional costs associated with the disposal of operations. The Board tentatively agreed that governments should recognize as an expense, the cost of goods and services received related to the disposal of an operation up to the effective date of discontinuation. The Board discussed the presentation of gains or losses and separate activities of discontinued operations and tentatively agreed that gains or losses on the disposal of discontinued operations should be reported as a special item. The Board tentatively agreed the transferor or selling government should disclose basic information about operation it has disposed of including information about its expenses, revenues, and non-operating items.

Next, the Board considered disclosure requirements for government combinations. The Board tentatively concluded that for all government combinations disclosures should include a general description of the combination transaction, including the name of the combining entities, a description of the combination, the reasons for the combination and to whom services will go, the date of the combination. In addition, the Board also discussed and tentatively agreed on certain specific disclosures applicable to government mergers and government acquisitions.

The Board tentatively decided that the Exposure Draft should propose that governments eliminate the excess net position received by reducing the acquisition values assigned to the noncurrent assets unless there is evidence that the seller’s intent is to accept a lower price in order to provide economic benefit without directly receiving equal value in exchange. In the latter situation, the acquiring government should recognize a contribution equal to the excess net position received.

The Board reviewed a pre-ballot draft of the Exposure Draft at the January 2012 meeting and provided staff with instructions to create “stand-alone” standard sections within the exposure draft for each type of government combination. In addition to these changes, the Board also considered requirements for government acquisitions for which the measurement of specific assets or liabilities is either uncertain or incomplete as of the acquiring government’s fiscal year-end. The Board tentatively concluded, in those situations, that the acquiring government would report estimates in its financial statements as provisional amounts. The Board tentatively agreed that the Exposure Draft should propose measurement adjustments for items previously reported on a provisional basis to be recognized prospectively, in the period in which they occur. The Board observed that such adjustments are analogous to changes in accounting estimates that also are required to be accounted for prospectively. The Board also reviewed the additional sections added to the pre-ballot Exposure Draft that described accounting and financial reporting of government mergers and government acquisitions for governmental funds.

In March 2012, the Board considered a proposed terminology change for the Exposure Draft and concluded that replacing the term discontinued government operations with the term disposals of government operations was needed to avoid misunderstandings about the nature of such items because of the differences that exist between the for-profit reporting criteria for reporting discontinued operations and the requirements of the proposed Statement that are more broadly applicable to accounting for a disposal resulting from a government combination.

The Board reconsidered the definition for a government merger. Specifically, the Board considered whether transfers of operations should be reclassified from the definition of a government merger as a separate type of government combination. The Board concluded that transfers of operations, as a type of government combination, includes other combinations such as shared service arrangements, annexations, redistricting, reorganizations, and spin-offs. The Board tentatively agreed to propose the following definitions for government mergers and for transfers of operations:

1. A government merger is a government combination of legally separate entities in which no significant consideration is exchanged and either:
   
   
   1. Two or more governments, or a government(s) and a nongovernmental entity, cease to exist as legally separate entities and are combined to form one or more new governments
       
   2. One or more legally separate governments or nongovernmental entities cease to exist and their operations are absorbed into, and provided by, one or more continuing governments.
       
2. A transfer of operations is a government combination involving the operations, as defined in paragraph 4 of this Statement, of a government or nongovernmental entity, rather than a combination of legally separate entities, in which no significant consideration is exchanged. A transfer of operations is either a transfer of operations to a continuing government or a transfer of operations to form a new government.
   
   
   1. A transfer of operations to a continuing government occurs when a government transfers operations, for example, a public safety function, to another existing government. A transfer of operations to a continuing government also may result from arrangements such as reorganizations, redistricting, and annexations in which operations are combined through jurisdictional changes in boundaries. Similarly, a transfer of operations to continuing governments may be present in shared service arrangements in which governments agree to combine operations.
       
   2. A transfer of operations to form a new government occurs in shared service arrangements in which governments agree to combine operations and transfer assets and liabilities to form a new government. Similarly, the transfer of operations to form a new government occurs in arrangements in which an operation of a government is transferred to a new governmental entity created to provide those services, for example, the formation of a library district that was formerly a department of a general purpose government.
       

The Board reviewed and approved the ballot draft of the Exposure Draft, Government Combination and Disposals of Government Operations. As of the end of July, 27 comment letters were received.

At the July 2012 meeting, the Board reviewed a summary of feedback received from respondents to the proposed Statement and a proposed staff work plan to address the accounting and financial reporting points raised by respondents. No tentative Board conclusions were reached. At the August 2012 meeting, the Board discussed and reached tentative conclusions on the following specific points raised by respondents regarding the proposed Statement’s scope and applicability, types of government combinations and government mergers. The Board tentatively agreed that:

• The proposed Statement’s scope should be carried forward without modifications to include combinations of other entities when legal separation is maintained.
   
• The condition of service continuation should be utilized for determinations that entire transactions are not an acquisitions or contributions of assets. Additional language will be included in the standard section and the Basis for Conclusions to further clarify the purpose and application of service continuation.
   
• The consideration provided for government acquisitions need only to be significant in relation to the assets and liabilities acquired. Refinancing liabilities of an acquiree does not constitute consideration for purposes of qualifying as a government acquisition.
   
• The merger date is the beginning of the reporting period of a continuing government for continuing government mergers.
   
• Governments should have the option to conform accounting principles for government mergers.
   
• Capital asset impairment should be considered as of the merger date for capital assets of a dissolving government. Additional language will be included in the standard section to clarify the reporting guidance.
   
• The proposed Statement provisions for reporting government combinations in governmental fund financial statements should be carried forward without further modification.

The Board continued its redeliberations on issues raised by respondents during the October 2012 meetings. The Board tentatively agreed that the final statement should include:

• Language in the section standards section from paragraphs 115–117 in the Basis for Conclusions to clarify how costs directly associated with the disposal of operations should be accounted for.
   
• A description of the operations transferred or sold in the disclosure requirements
   
• Reporting guidance for disposals of operations for governmental fund financial statements.
   
• Language from paragraph 100 in the Basis for Conclusions to provide examples of consideration in the Standard section.
   
• Language in paragraph 40 to only reduce non-current assets other than financial assets to acquisition values.

At the November meeting, the Board reviewed the preballot draft of the final Statement.
 
Government Combinations—Minutes for Deliberations

Minutes of Meeting, January 8-9, 2013

The Board reviewed a ballot draft of Statement No. 69, Government Combinations and Disposals of Government Operations. After making minor clarifying changes, the Board voted unanimously to issue the final Statement.

Minutes of Meeting, November 28-30, 2012

The Board reviewed a preballot draft of Statement No. 69, Government Combinations and Disposals of Government Operations. Board members provided suggestions to the project staff for clarifying changes that will be incorporated into the ballot draft of the final Statement.

Minutes of Meeting, October 2-4, 2012

The Board discussed several matters raised by respondents to the Exposure Draft, Government Combinations and Disposals of Government Operations, with regard to the proposed Statement’s provisions for government acquisitions.

The Board considered whether the final standard should carry forward the provision of the Exposure Draft to measure acquired assets and liabilities using acquisition value. The Board tentatively decided to carry forward the provision to use acquisition value for measurements of acquired assets and liabilities.

Next, the Board discussed respondents’ comments about the proposed Statement’s measurement exception for post-employment benefits. Certain respondents sought further guidance beyond existing applicable accounting and financial reporting for employee postemployment benefits.

The Board reaffirmed that liabilities (or assets) for employee benefits, including post employment benefits, should be measured using existing authoritative guidance for state and local governments rather than acquisition value.

Some respondents sought clarification on the measurement of deferred outflows of resources and deferred inflows of resources in a government acquisition. The Board tentatively agreed to carry forward provisions for measurement of deferred outflows of resources and deferred inflows of resources without modification.

Next, the Board discussed respondents’ comments with regard to the description of “consideration” in the Exposure Draft. The Board tentatively agreed to proposed edits to the Standards and Basis for Conclusions sections intended to further clarify the proposed Statement’s description of consideration.

The Board then deliberated whether the proposed Statement should continue to regard the assumption of liabilities as an exception to the meaning of “consideration” for purposes of distinguishing a merger from a government acquisition. The Board reaffirmed its belief that a combination should not be treated as a government acquisition for situations in which a government combines with another organization and simply assumes the negative net position of the acquired entity.

Next, the Board discussed respondents’ comments regarding the provisions for reporting excess net position acquired. The Board tentatively agreed to proposed changes to the Standards and Basis for Conclusions sections intended to clarify the type of assets to be reduced in a bargain purchase acquisition.

Lastly, the Board considered respondents’ comments regarding provisions for acquisition costs in the Exposure Draft. The Board reaffirmed its belief that governments should expense acquisition-related costs in the period the costs are incurred and the services are received.

Minutes of Teleconference, September 10, 2012

The Board discussed several matters raised by respondents to the Exposure Draft, Government Combinations and Disposals of Government Operations, with regard to the proposed Statement’s provisions for disposals of operations.

The Board considered whether certain information in the Basis for Conclusions should be included in the standard to further clarify reporting requirements. The Board tentatively decided to modify paragraph 53 to clarify how costs associated with the disposal of government operations should be reported.

Next, the Board considered whether the proposed Statement addressed the relevant provisions for disposals of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The Board tentatively agreed that the proposed Statement includes relevant provisions from Opinion 30 for disposals; therefore, no changes to the standards section were needed regarding this issue.

The Board discussed the proposed note disclosure requirements for disposals of government operations and, based on constituent feedback, tentatively decided to modify the proposed Statement’s disclosure requirements to include a description of the operations transferred or sold.

The Board also discussed and tentatively agreed that the proposed Statement should include reporting guidance for disposals of operations for governmental fund financial statements and tentatively approved language to be added to the proposed Statement for this purpose.

The Board reviewed and tentatively agreed to clarify both the proposed Statement and Basis for Conclusions for the items discussed at the September teleconference meeting.

Minutes of Meeting, August 22-24, 2012

The Board discussed several matters raised by respondents to the Exposure Draft, Government Combinations and Disposals of Government Operations, with regard to the proposed Statement’s scope and applicability, types of government combinations, and the accounting provisions for government mergers.

The Board considered whether the scope of the proposed Statement should be expanded to include accounting and financial reporting guidance for acquisitions of other entities when legal separation is maintained. The Board tentatively decided to carry forward the proposed Statement’s scope without modifications to include acquisitions of other entities when legal separation is maintained. The Board agreed that the accounting and financial reporting issues related to acquisitions of entities that retain legal separation should be identified as a separate potential project in the next technical plan so that it can be considered for addition to the technical plan as a practice issue.

Next, the Board discussed respondents’ comments about the proposed Statement’s service continuation provision. Certain respondents sought clarification about the purpose and application of this provision. The Board reaffirmed its belief that the condition of service continuation should be utilized for determinations that transactions are not acquisitions or contributions of assets. The Board tentatively approved certain edits to the Standards and Basis for Conclusions sections intended to further clarify the purpose and application of the proposed Statement’s service continuation provision.

Some respondents sought clarification about the meaning of significant consideration for purposes of distinguishing between types of government combinations. The Board tentatively agreed that the consideration provided for government acquisitions need only to be significant in relation to the assets and liabilities acquired. Additionally, the Board discussed and tentatively agreed that refinancing the liabilities of an acquiree should not constitute consideration for purposes of qualifying as a government acquisition.

Next, the Board considered respondents’ comments with regard the merger date for continuing governments. The Board tentatively agreed that the merger date provisions for continuing government mergers should be carried forward without modification. The Board then considered comments about the proposed Statement’s option to conform accounting principles for government mergers and tentatively agreed to carry forward the proposed Statement’s provision.

The Board then considered respondents’ comments regarding adjustments of capital assets for impairment for government mergers having a continuing government. The Board tentatively agreed that capital asset impairment should be considered as of the merger date for capital assets of a dissolving government.

Lastly, the Board considered whether further guidance should be included in the proposed Statement for reporting government combinations in governmental fund financial statements and tentatively agreed that the proposed Statement’s guidance should be carried forward without further modification.

Minutes of Meeting, July 10-11. 2012

The Board reviewed a summary of feedback received from respondents to the proposed Statement. The Board also reviewed a proposed staff work plan to address the accounting and financial reporting issues raised by respondents. No tentative Board conclusions were reached.

Minutes of Meeting, March 6-8, 2012

The Board began the discussion of the ballot draft of a proposed Statement by considering the proposed terminology. The Board concluded that replacing the term discontinued government operations with the term disposals of government operations would avoid misunderstandings about the nature of such items because of the differences that exist between the for-profit reporting criteria for reporting discontinued operations and the requirements of the proposed Statement that are more broadly applicable to accounting for a disposal resulting from a government combination. Next, the Board discussed the proposed definition for a government merger. The Board considered whether transfers of operations should be reclassified from the definition of a government merger as a separate type of government combination. Transfers of operations as a type of government combination also would include other combinations such as shared service arrangements, annexations, redistricting, reorganizations, and spin-offs. The Board tentatively agreed upon the following definitions for government mergers and for transfers of operations:

1. A government merger is a government combination of legally separate entities in which no significant consideration is exchanged and either:
    
   1. Two or more governments, or a government(s) and a nongovernmental entity, cease to exist as legally separate entities and are combined to form one or more new governments
       
   2. One or more legally separate governments or nongovernmental entities cease to exist and their operations are absorbed into, and provided by, one or more continuing governments.
       
2. A transfer of operations is a government combination involving the operations, as defined in paragraph 4 of this Statement, of a government or nongovernmental entity, rather than a combination of legally separate entities, in which no significant consideration is exchanged. A transfer of operations is either a transfer of operations to a continuing government or a transfer of operations to form a new government.
    
   1. A transfer of operations to a continuing government occurs when a government transfers operations, for example, a public safety function, to another existing government. A transfer of operations to a continuing government also may result from arrangements such as reorganizations, redistricting, and annexations in which operations are combined through jurisdictional changes in boundaries. Similarly, a transfer of operations to continuing governments may be present in shared service arrangements in which governments agree to combine operations.
       
   2. A transfer of operations to form a new government occurs in shared service arrangements in which governments agree to combine operations and transfer assets and liabilities to form a new government. Similarly, the transfer of operations to form a new government occurs in arrangements in which an operation of a government is transferred to a new governmental entity created to provide those services, for example, the formation of a library district that was formerly a department of a general purpose government.

Finally, the Board reviewed and approved the ballot draft of the Exposure Draft, Government Combinations and Disposals of Government Operations. Six members of the Governmental Accounting Standards Board approved the issuance. Mr. Fish abstained.

Minutes of Meeting, January 24-26, 2012

The Board reviewed a preballot draft of the Exposure Draft, Government Combinations and Discontinued Government Operations. Individual Board members made recommendations and clarifying suggestions on the draft document. In addition, the Board discussed several topics related to government combinations and discontinued government operations.

At the December 2011 meeting, the Board agreed that the proposed Statement should include reporting alternatives for situations in which the acquiring government receives amounts of net position in excess of the consideration provided. The Board tentatively decided that the Exposure Draft should propose that governments eliminate the excess net position received by reducing the acquisition values assigned to the noncurrent assets unless there is evidence that the seller’s intent is to accept a lower price in order to provide economic benefit without directly receiving equal value in exchange. In the latter situation, the acquiring government should recognize a contribution equal to the excess net position received. In the first situation, if the values assigned to all noncurrent assets are eliminated, any remaining excess should be recognized as a special item.

Next, the Board discussed proposed requirements for government acquisitions for which the measurement of specific assets or liabilities is either uncertain or incomplete as of the acquiring government’s fiscal year-end. The Board tentatively concluded, in those situations, that the acquiring government would report estimates in its financial statements as provisional amounts. The Board tentatively agreed that the Exposure Draft should propose measurement adjustments for items previously reported on a provisional basis to be recognized prospectively, in the period in which they occur. The Board observed that such adjustments are analogous to changes in accounting estimates that also are required to be accounted for prospectively.

Minutes of Previous Meetings 

Government Combinations—Major Tentative Decisions to Date

Statement No. 69 , Government Combinations and Disposals of Government Operations, was approved in January 2013.