GASB Exposure Draft Offers Guidance on Debt: The GASB has received feedback from users of state and local government financial statements that governments may face risks with debt agreements that are not disclosed in the financial statements--risks that could affect their credit profiles.

• Author: Buikema, Todd
• Position: The Accounting Angle

The Governmental Accounting Standards Board (GASB) released an Exposure Draft (ED) in late June 2017, titled Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements.

The GASB has received feedback from users of state and local government financial statements that governments may face risks with debt agreements that are not disclosed in the financial statements--risks that could affect their credit profiles. For example, one of the requirements of GASB Statement No. 38, Certain Financial Statement Note Disclosures, is to disclose principal and interest repayment schedules for its debt to maturity; however, there may be an accelerated repayment of the debt under certain circumstances. Currently, the event and the accelerated repayment are not required to be disclosed in the notes to the financial statements. In the Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements ED, the GASB has proposed that state and local governments provide the following additional disclosures regarding debt in the notes to the financial statements:

* Amount of unused lines of credit.

* Collateral pledged as security for debt.

* Terms specified in debt agreements related to significant:

** Events of default with finance-related consequences.

** Termination events with finance-related consequences.

** Subjective acceleration clauses.

Due to the inherent differences between direct borrowings and direct placements of debt, and debt sold in the public markets, the ED also requires governments to provide...