GASB Improves Reporting for Nonexchange
Norwalk, CT, April 22,
2013—The Governmental Accounting Standards Board (GASB) today approved
a new Statement that provides accounting and financial reporting guidance to
state and local governments that offer nonexchange financial guarantees and for
governments that receive guarantees on their obligations.
No. 70, Accounting and Financial Reporting for Nonexchange Financial
Guarantees, requires a state or local government guarantor that offers a
nonexchange financial guarantee to another organization or government to
recognize a liability on its financial statements when it is more likely
than not that the guarantor will be required to make a payment to the
obligation holders under the agreement.
A nonexchange financial
guarantee is a credit enhancement or assurance offered by a guarantor without
receiving equal or approximately equal value in exchange. The guarantor agrees
to pay an obligation holder in the event that the issuer of the obligation is
not able to make its required payments to the obligation holder. Nonexchange
financial guarantees can include guarantees by a state for bonds issued by local
governments within that state or guarantees of mortgage loans to individuals, if
equal or approximately equal value is not received in
Nonexchange financial guarantees often are not reflected in the
financial statements or notes of either the government guarantor or the
government issuer of the obligation because such guarantees are typically
extended without any payment in return. Nonetheless, financial guarantees
represent potential claims on a government´s resources when it is the guarantor,
and a potential reduction of a government´s obligations when it is the issuer of
"In the current economic environment, investors are
increasingly seeking credit enhancements and assurances, including financial
guarantees, to minimize the possibility of nonpayment," said GASB Chairman
Robert H. Attmore. "Statement 70 responds to the need for consistent recognition
and disclosure guidance for nonexchange financial guarantees. This Statement
also will enable financial statement users to better assess the probability that
governments will repay obligation holders."
Statement 70 also
A government guarantor to consider qualitative factors when determining if
a payment on its guarantee is more likely than not to be required.
Such factors may include whether the issuer of the guaranteed obligation is
experiencing significant financial difficulty or initiating the process of
entering into bankruptcy or financial reorganization.
An issuer government that is required to repay a guarantor for guarantee
payments made to continue to report a liability unless legally released. When
a government is released, the government would recognize revenue as a result
of being relieved of the obligation.
A government guarantor or issuer to disclose information about the amounts
and nature of nonexchange financial guarantees.
The requirements of
this Statement are effective for reporting periods beginning after June 15,
2013. Early application of the standard is encouraged.
Statement 70 will
be available for download at no cost from the GASB
website in May. Printed copies of the Statement will be available for
purchase soon thereafter. A plain-language description of the new requirements
also will be available on the GASB
About the Governmental Accounting Standards
The GASB is the independent, not-for-profit organization
formed in 1984 that establishes and improves financial accounting and reporting
standards for state and local governments. Its seven members are drawn from the
Board´s diverse constituency, including preparers and auditors of government
financial statements, users of those statements, and members of the academic
community. More information about the GASB can be found at its website, http://www.gasb.org/.