Two new GASB Standards released.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle - Governmental Accounting Standards Board

This past spring, the Governmental Accounting Standards Board released two new final standards: GASB Statement No. 69, Government Combinations and Disposals of Government Operations (January 2013), and GASB Statement No. 70, Accounting and Financial Reporting for Non-exchange Financial Guarantees (April 2013). This article will briefly summarize the guidance to be found in both new standards.

COMBINATIONS AND DISPOSALS

Sometimes legally separate governments combine their operations, while continuing to offer a substantial portion of the services provided prior to the combination. In the process, one or more of the combining governments ceases to exist as a separate legal entity. For example, two separate governments may combine to form a single new government (A + B = C), or one of the governments could simply absorb the other(s) (A + B = A+). If the combination involves the exchange of significant consideration, it is described as an acquisition; if not, is classified as a merger.

Sometimes a discrete operation within a government is moved from one government to another, either by merger or acquisition, or "spun off" to form a new government in its own right. Such a restructuring is described as a transfer of operations. Some transfers of operations take the form of mergers, while others are acquisitions.

GASB Statement No. 69 provides guidance on how to account for acquisitions, mergers, and transfers of operations. The key issue, of course, is how the financial statement elements (assets, liabilities, and deferred outflows or inflows of resources) that are being "moved" to a different legal entity should be valued by that entity.

In the case of mergers, GASB Statement No. 69 directs that financial statement elements normally continue to be reported at their carrying value as of the date of the merger. In the case of acquisitions, the new guidance normally prescribes the use of acquisition value, defined as follows in paragraph 32:

For purposes of this statement, acquisition value is a market-based entry price. An entry price is assumed to be based on an orderly transaction entered into on the acquisition date. Acquisition value represents the price that would be paid for acquiring similar assets, having similar service capacity, or discharging the liabilities assumed as of the acquisition date. Differences between the amount of consideration received and the net position acquired in an acquisition normally would be treated as a deferred...