It’s time to pay closer attention to two standards issued by the Governmental Accounting Standards Board (GASB):
- Statement No. 63 – Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position
- Statement No. 65 – Items Previously Reported as Assets and Liabilities
What are the effective dates for Statements 63 and 65?
- GASBS 63 is effective for periods beginning after December 15, 2011; earlier application encouraged
- GASBS 65 is effective for periods beginning after December 15, 2012; earlier application encouraged
It is best to implement GASBS 63 and 65 at the same time.
What is the purpose of these changes?
To put it succinctly, GASB is using one of its conceptual statements (specifically Concepts Statement 4) to make revisions to reporting requirements (to include deferred outflows and deferred inflows).
Prior to GASBS 63 and 65, debit balances were reported on the statement of net position (balance sheet) as assets; similarly, all non-equity credits were reported as liabilities. The new standards add deferred outflows and deferred inflows to the mix.
All debit balances in the statement of net position will be reported as:
- Deferred Outflows
Assets represent present service capacity to the government; deferred outflows (e.g., prepaid bond insurance) represent the consumption of net position applicable to future reporting periods.
Liabilities represent amounts to be paid; however, some amounts previously reported as liabilities (e.g., deferred property taxes) involve no future payment. Consequently, with the implementation of GASB 63, all non-equity credits in the statement of net position will be reported as:
- Deferred Inflows
The difference in liabilities and deferred inflows is primarily resources that are going out and resources that are coming in. Liabilities normally represent a future surrender of resources; deferred inflows do not.
What are the main points of GASBS 63?
This statement distinguishes assets from deferred outflows of resources and liabilities from deferred inflows of resources.
Additionally, many of your financial statement titles (e.g., Statement of Net Position), categories (e.g., Assets and Deferred Outflows of Resources), and notes will change. Net Assets will now be labeled Net Position.
The five elements of the statement of net position are:
- Deferred Outflows of Resources
- Deferred Inflows of Resources
- Net Position
The three categories of net position are:
- Net Investment in Capital Assets
Note – The requirement to change to a statement of net position (rather than a statement of net assets) – a GASBS 63 change – occurs one year earlier than the requirements of GASBS 65; you are required to change the term net assets to net position even though you may not have any deferred outflows or inflows until GASBS 65 is implemented – possibly a year later. Again it is easier to simply implement both GASBS 63 and 65 at the same time (both can be early adopted).
What are the main points of GASBS 65?
- It identifies the specific items to be categorized as deferred inflows and deferred outflows.
- It clarifies the effect of deferred inflows and deferred outflows on the major fund determination.
- It limits the use of the term deferred in financial statements.
What are some examples of specific items to be categorized as deferred inflows and deferred outflows?
- The gain or loss from current or advance refundings of debt (the gain or loss will no longer be netted with the related debt but will be shown separately as a deferred outflow or a deferred inflow)
- Prepaid insurance related to the issuance of debt
- Property taxes received or accrued prior to the period in which they will be used
How should debt issuance costs be treated?
Debt issuance costs should be expensed when incurred. GASB concluded that debt issuance costs do not relate to future periods, and, therefore, should be expensed.
If your government has debt issuance costs (recorded as assets), you will need to remove them as you implement these standards (using a prior period adjustment).
How should cash advances related to expenditure-driven grants be recorded?
Cash advances from expenditure-driven grants should be recorded as unearned revenue (a liability). The key eligibility requirement for an expenditure-driven grant is the use of funds (which does not occur until funds are spent). Any grant funds received prior to meeting eligibility requirements will be shown as a liability. It is improper to use the word deferred for this line item; for example, deferred revenue is not appropriate. The more appropriate title is unearned revenue.
How do these standards affect the determination of major funds?
Assets should be combined with deferred outflows of resources and liabilities should be combined with deferred inflows of resources for purposes of determining which elements meet the criteria for major fund determination.