Proposed new GASB standard for accounting and reporting for investments.

• Author: Atwood, E. Barrett, Sr.
• Position: Governmental Accounting Standards Board - Issues in Accounting

In March 1996, the Governmental Accounting Standards Board (GASB) issued an exposure draft of a proposed statement on Accounting and Financial Reporting for Certain Investments and for External Investment Pools. How would the proposed new GASB standard affect the finances and budgets of an individual jurisdiction? The short answer depends on several factors. However, most governments and governmental investment pools would need to value and report investments at "fair value" in their balance sheet. Also, investment income reported in the operating statement most likely would need to include the net change in fair value between balance sheet dates. That is to say that by including unrealized gains and losses, investment income would be measured on a total-return basis.

What Is the Scope of the Standard?

For most governments, the proposed standard would provided guidance for investment in

* debt securities,

* external investment pools,

* interest-earning investment contracts,

* open-end mutual funds,

* equity securities

* option contracts, and

* stock warrants and stock rights.

It also would establish accounting and financial reporting standards for all investments held by governmental "external investment pools." An investment pool is an external investment pool if it includes participation by a legally separate entity that is not part of the same reporting entity as the government that sponsors the investment pool. A sponsoring government is one providing investment services either though an investment pool or individual investment accounts.

The proposed standard also would provide guidance for certain investment transactions of defined benefit pension plans and deferred compensation plans.

Major Provisions

The balance sheet of governmental entities, including governmental external investment pools, would report investments at "fair value." Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. The operating statement or other statement of activities of all entities and funds would report all investment income, including changes in the fair value of investments. The proposed statement also would provide guidance to measure the fair value of and disclose information about investments in open-end mutual funds and external investment pools.

The amortized cost method still would be allowed for the following.

* A governmental...