GASB issues statements on past transactions, use of hedge accounting

By Susanna Moon

Chicago, July 13 - The Governmental Accounting Standards Board issued two statements Wednesday to address accounting and financial reporting issues that affect other statements being implemented by governments, according to a press release.

Statement 63 provides information about how past transactions will continue to affect a government's financial statements in the future and is effective for financial statements for periods beginning Dec. 15, the release said.

This statement provides a new statement of net position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position. The statement requires that deferred outflows of resources and deferred inflows of resources be reported separately from assets and liabilities.

Statement 63 also amends provisions of Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, to reflect the residual measure in the statement of financial position as net position, rather than net assets, the board said.

In the second statement issued Wednesday, GASB Statement 64, the board clarifies the circumstances in which hedge accounting continues to be applied when a swap counterparty, or a swap counterparty's credit support provider, is replaced.

Statement 64 clarifies that when conditions are met, the use of hedge accounting should not be terminated. When all of the conditions exist, the GASB said it believes that the hedging relationship continues, and hedge accounting should continue to be applied.

Those conditions are the following:

• The collectability of swap payments is considered to be probable;

• The replacement of the counterparty or credit support provider meets the criteria of an assignment or in-substance assignment as described in the statement; and

• The counterparty or counterparty credit support provider - not the government - has committed the act of default or termination event.

Effective for financial statements for periods beginning June 15, Statement 64 is an amendment of GASB Statement No. 53, which provides for the use of hedge accounting for derivatives that are effective hedges, the release said.

Hedge accounting entails reporting fair value changes of a hedging derivative as either deferred outflows of resources or deferred inflows of resources, rather than recognizing those changes in investment income. When a hedging derivative is terminated, Statement 53 requires that hedge accounting cease and all accumulated deferred amounts be reported in investment income.

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