GASB replaces net assets with net position.

• Author: Gautier, Stephen J.
• Position: The Accounting Angle

This past June, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. Henceforth, as a result of this new pronouncement, the statement of financial position for state and local governments will focus on net position rather than on net assets. Governments will be required to implement GASB Statement No. 63 starting with the fiscal year that ends December 31, 2012. Earlier implementation is encouraged.

BACKGROUND

Traditionally, a public-sector statement of position (balance sheet, statement of net assets) has presented three basic elements: assets, liabilities, and the difference between them (net assets, equity, fund balance). Recently, however, GASB Concepts Statement No. 4, Elements of Financial Statements added two additional basic financial statement elements: deferred outflows of resources and deferred inflows of resources. GASB Concepts Statement No. 4 defines a deferred outflow of resources as "a consumption of net assets by the government that is applicable to a future reporting period." It defines a deferred inflow of resources as "an acquisition of net assets by the government that is applicable to a future reporting period."

Thus far, the GASB has identified two specific instances where the use of these new financial statement elements would be appropriate:

* GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, directs that derivatives be reported at fair value. It also directs that changes in the fair value of derivatives normally be recognized as part of investment income of the period. An important exception to this general rule is a change in the fair value of a derivative instrument used in an effective hedge, which is properly reported as a deferred outflow of resources or a deferred inflow of resources (statement of position) rather than as part of investment income of the period (statement of resource flows).

* GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, prescribes that a government that transfers the operation of one of its facilities to an outside party pursuant to a service concession arrangement (public/private partnership) initially treat the consideration it receives from the counterparty as a deferred inflow of resources, rather than as revenue.

Meanwhile, the GASB has undertaken a project to identify...