GASB Updates – Elizabeth Thyer, Partner, CPA
The Governmental Accounting Standards Board (GASB) has issued two new statements that will be implemented for the fiscal year ending June 30, 2019.
The first is GASB Statement No. 83, Certain Asset Retirement Obligations (GASB 83). This statement establishes the accounting and financial reporting standards for legal obligations to retire certain assets. For this standard to be applicable, certain criteria must be met. The first criteria states there has to be an asset retirement obligation. This is a legally enforceable liability associated with the retirement of a tangible capital asset. The second criteria is the permanent removal of a capital asset from service. This could be a sale, abandonment, recycling or disposal of the capital asset.
The initial recognition of the liability happens when the liability has been incurred and is reasonably estimable. The liability is measured based on the best estimate of the current value of outlays expected to be incurred. A deferred outflow is also recognized in an amount identical to the asset retirement obligation liability. In subsequent years, the liability can be adjusted for general inflation or deflation. The deferred outflow of resources should be reduced and recognized as an outflow in a systematic and rational method over the life of the tangible capital assets and expensed immediately if the capital asset is abandoned.
The required disclosures for GASB 83 include: (1) a general description of the asset retirement obligation and associated intangible capital assets, including the source of the obligation, (2) the methods and assumptions used to estimate the liability, (3) the estimated useful life of the associated intangible asset, (4) funding and assurance requirements and how those requirements are met and (5) amounts of assets restricted for payment of the liability.
The second statement to be implemented for the fiscal year ending June 30, 2019 is GASB Statement No. 88 Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements (GASB 88). The goal of this statement is to improve the information that is disclosed in the notes to the financial statements related GASB Updatesto debt. GASB 88 defines debt for purposes of disclosure and establishes additional disclosure requirements related to debt obligations of governments.
This statement defines debt as a liability that arises from a contractual obligation to pay cash or other assets in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. For disclosure purposes, debt does not include leases or account payable. Governme nts should also summarize and disclose information about amounts of unused lines of credit, assets pledged as collateral for debt and terms specified in debt agreements. GASB 88 also requires governments to separate information in the debt disclosures regarding direct borrowings and direct placements of debt and other debt.