Statement No. 31
Accounting and Financial Reporting for Certain Investments and for External Investment Pools
This Statement establishes accounting and financial reporting standards for all investments held by governmental external investment pools. For most other governmental entities, it establishes fair value standards for investments in (a) participating interest-earning investment contracts, (b) external investment pools, (c) open-end mutual funds, (d) debt securities, and (e) equity securities, option contracts, stock warrants, and stock rights that have readily determinable fair values. Participating investment contracts are investments whose value is affected by market (interest rate) changes. They participate because they are negotiable or transferable, or their redemption value considers market rates. For defined benefit pension plans and Internal Revenue Code Section 457 deferred compensation plans, this Statement provides guidance for applying fair value to certain investment transactions.
Governmental entities, including governmental external investment pools, should report investments at fair value in the balance sheet (or other statement of financial position). Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. However, governmental entities other than external investment pools are permitted to report certain money market investments at amortized cost, provided that the investment has a remaining maturity of one year or less at time of purchase. External investment pools are permitted to report short-term debt investments at amortized cost, provided that the fair value of those investments is not significantly affected by the impairment of the credit standing of the issuer, or other factors. For that purpose, a pool's short-term investments are those with remaining maturities of up to ninety days. This Statement also provides guidance for reporting the fair value of investments in open-end mutual funds and external investment pools.
All investment income, including changes in the fair value of investments, should be reported as revenue in the operating statement (or other statement of activities). For internal and external investment pools, this Statement requires the equity position of each fund and component unit of the reporting entity that sponsors the pool to be reported as assets in those funds and component units. It also provides reporting standards when income from investments associated with one fund is assigned to another fund.
Governmental external investment pools that are 2a7-like pools are permitted to report their investments at amortized cost. A 2a7-like pool is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. Rule 2a7 allows money market mutual funds to use amortized cost to report net assets. This Statement also establishes minimum requirements for the financial statements to be presented and the disclosures to be made in the separate financial reports of governmental external investment pools.
A governmental entity that sponsors one or more external investment pools should report the external portion of each pool as an investment trust fund that reports transactions and balances using the economic resources measurement focus and the accrual basis of accounting. This Statement establishes minimum requirements for the financial statements to be presented and the disclosures to be made in the sponsor's report concerning those pools, including expanded disclosure requirements if separate pool financial reports are not issued. It also provides standards for reporting individual investment accounts that a governmental entity provides to other entities.
The provisions of this Statement are effective for financial statements for periods beginning after June 15, 1997. Earlier application is encouraged.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments, public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraphs 2 through 6 discuss the applicability of this Statement.