New guidance on capital-related debt.

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

New guidance recently released by the Governmental Accounting Standards Board may affect the amount that governments with blended component units report as net investment in capital assets on their government-wide statement of net position and on their proprietary fund statement of net position.

BACKGROUND

A government-wide or proprietary fund statement of net position presents assets, liabilities, deferred outflows of resources, and deferred inflows of resources as of the end of the fiscal year. The difference between these amounts is reported as net position, which is subdivided into three components: net investment in capital assets, restricted, and unrestricted. The first of these components, net investment in capital assets, represents the amount by which the carrying value of capital assets exceeds capital-related debt, which comprises "the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets" (GASB Statement No. 34, Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments, paragraph 33).

Typically, long-term borrowings for purposes of capital acquisition involve a party outside the primary government. Occasionally, however, the source of the long-term borrowing may be a fund of the primary government itself. For some years now, the GASB's Comprehensive Implementation Guide has made it clear that "Internal advances are not considered debt or other borrowing for purposes of calculating the net position components" (7.23.11). Likewise, GASB Statement No. 61, The Financial Reporting Entity: Omnibus, explains that "for financial reporting purposes, funds of a blended component unit have the same financial reporting requirements as a fund of the primary government." Accordingly, until now, the argument has often been made that debt to a blended component unit would not qualify as capital-related debt for purposes of calculating the amount to be reported as net investment in capital assets.

NEW GUIDANCE

Each year the GASB issues an updated version of its Comprehensive Implementation Guide. The most recent update (2013-2014) was...