GASB PROPOSES CLARIFICATIONS TO GUIDANCE
ON
MAJORITY EQUITY INTERESTS
Norwalk, CT, November 9,
2017—The Governmental Accounting Standards Board (GASB) today proposed
guidance that would clarify the accounting and financial reporting for a state
or local government’s majority equity interest in an organization that remains
legally separate after acquisition.
A public hospital acquiring a
rehabilitation center that remains legally separate from the hospital after
acquisition is an example of the kind of situation the proposed guidance
addresses.
Under guidance proposed in the Exposure Draft, Accounting
and Financial Reporting for Majority Equity Interests, a government’s
majority equity interest in a legally separate organization would be reported as
an investment if that equity interest meets the GASB’s definition of an
investment. Except in certain specific circumstances, a majority equity interest
that meets the definition of an investment would be measured using the equity
method.
For all other majority equity interests in a legally separate
entity—those that do not meet the definition of an investment—a government would
report the legally separate entity as a component unit.
The document
also proposes guidance for remeasuring assets and liabilities of an acquired
entity that remains legally separate to be consistent with existing standards
that apply to acquisitions that do not remain legally separate.
The Exposure
Draft is available on the GASB website, http://www.gasb.org/. Stakeholders are
encouraged to review the proposal and provide comments by January 12,
2018.
About the Governmental Accounting Standards
Board
Established in 1984, the GASB is the independent,
private-sector organization based in Norwalk, Connecticut, that establishes
accounting and financial reporting standards for U.S. state and local
governments that follow Generally Accepted Accounting Principles (GAAP). These
standards are recognized as authoritative by state and local governments, state
Boards of Accountancy, and the American Institute of CPAs (AICPA). The GASB
develops and issues accounting standards through a transparent and inclusive
process intended to promote financial reporting that provides useful information
to taxpayers, public officials, investors, and others who use financial reports.
The Financial Accounting Foundation (FAF) supports and oversees the GASB. For
more information, visit http://www.gasb.org/.