Deferred Inflows and Outflows of Resources Under GASB 65
By Todd Bickford, BNN Audit Department
In 2007, the Governmental Accounting Standards Board (GASB) released Concepts Statement No. 4 Elements of Financial Statements which provides a framework for determining the nature of a financial accounting or reporting issues. Since the release of the framework, GASB has been looking at the assets and liabilities on the balance sheet to determine if they should continue to be reflected as such. GASB has concluded that, in order to improve financial reporting, there are assets and liabilities that no longer should be reflected as assets and liabilities. These changes are included in the recently-issued GASB Statement No. 65, Items Previously Reported as Asset and Liabilities.
While GASB Statement No. 65 covers such transactions as leases, nonexchange transactions, and sales of future revenues, we anticipate the most common impact will be on debt issuance costs (other than prepaid insurance), lending and mortgage banking activities. This pronouncement will remove the deferral of such costs and activities and will require the governmental entity to expense the costs in the period incurred, except for certain defined transactions. In regards to the certain other transaction types, the pronouncement requires the transaction to be reflected as deferred inflows of resources or deferred outflows of resources.
The most common deferred inflows and outflows of resources are gain/loss on debt refunding and imposed nonexchange transactions, such as when taxes are levied for property taxes and received or recognized as a receivable. Government-mandated and voluntary exchange transactions will be reported as an inflow or outflow in the period unless the resources are provided or received in advance of time requirements being met.
GASB Statement No. 65 is specifically limited to the transactions provided in the pronouncement and the concepts and reasoning for classification of said assets and liabilities should not be applied to other transactions. GASB Statement No. 65 is effective for periods beginning after December 15, 2012 and is to be applied retroactively; early adoption is allowed.
GASB has also issued GASB Statement No. 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position which sets forth the financial presentation of deferred inflows and outflows. GASB Statement No. 63 provides guidance on the presentation of deferred inflows and outflows of resources. Effectively, deferred inflows and outflows will be reflected below total assets and total liabilities and the balance sheet will be renamed to Statement of Net Position. The change in geography of the deferred inflows and outflows will allow the readers to see the impact the deferred resources have on the financial statements.
The preferred and traditional report layouts under GASB Statement No. 63 are:
- Preferred statement presentation – assets +deferred outflows – liabilities – deferred inflows = net position
- Traditional statement presentation – assets + deferred outflows = liabilities + deferred inflows + net position
There are minor wording changes to the elements of the net assets; however, there is no change in the definition of the components other than including the impact of deferred inflows and outflows. The following table shows reflects the wording changes.
|ELEMENTS||PREVIOUS WORDING||REVISED WORDING|
|Title of section||Net Assets||Net Position|
|Capital assets||Invested in capital assets, net of related debt||Net investment in capital assets|
The traditional statement presentation is the required presentation for governmental funds. This fund will also retain the “balance sheet” designation.
GASB Statement No. 63 is effective for periods beginning after December 15, 2011 and is to be applied retroactively.
For the full GASB Statement No. 65 or GASB Statement No. 63, please visit the GASB website here for GASB Statement No. 65 and here for GASB Statement No. 63. If you would like to discuss these pronouncements further, please call Todd Bickford or your BNN contact at 800.244.7444.
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