The Governmental Accounting Standards Board (GASB) created the financial reporting categories of deferred outflows of resources and deferred inflows of resources with GASB Concepts Statement No. 4. GASB Statement No. 63 introduced these categories into the financial reporting model with very limited use. Statement No. 65 is the result of GASB’s comprehensive review of common balances or transactions previously reported as assets or liabilities for which the board believes financial reporting needs to change. Statement No. 65 was issued in March of 2012 and will be effective for reporting periods ending on or after December 31, 2013.
Here are five simple steps to get started on implementation today:
- Identify items that will need to be reclassified as revenues or expenses in the period incurred.
The most common item which is no longer presented on the statement of net position is debt issuance costs. These will now be expensed in the year incurred, unless accounted for under regulatory accounting in which case they would become a regulatory asset. If regulatory accounting is not used, the utility needs to determine if the amount of unamortized debt issuance costs remaining is material – requiring retroactive application and a restatement of the earliest period presented.
- Ascertain items that will be reclassified as deferred outflows of resources or deferred inflows of resources.
Some of the more common items identified in Statement No. 65 include gains or losses on debt refunding, grant receipts or payments which apply to a future period (are limited by a time requirement only not eligibility requirements), property tax revenues levied for a future period or regulatory credits related to costs to be incurred in a future period. A complete review of items currently reported as assets and liabilities should be undertaken to ensure that items unique to your utility are considered and evaluated.
- Distinguish items that retain their classification as assets or liabilities but will need to be re-titled.
Statement No. 65 limits the use of the term "deferred" to those items properly classified as deferred outflows of resources or deferred inflows of resources. As such items such regulatory assets under Statement No. 62 (formerly FAS 71), grants received in advance of eligibility requirements or customer advances for construction cannot be referred to as deferred debits or deferred revenues.
- Document proposed treatment and obtain concurrence from the auditor.
While the treatment of some items is rather straightforward, other items such as unique long-term contracts with individual customers providing for a committed revenue stream tied to a long-term obligation may not be. It is important to document how each of these items is understood in relation to the definitions of the new financial reporting categories and the guidance provided in Statement No. 65. Ensuring that your auditor is in agreement with the proposed treatment as well as the evaluation of the materiality of unamortized debt issuance costs in advance should eliminate the potential for last minute changes at year end.
- Recast the prior year financial statements to reclassify the identified items and address terminology changes required in the footnotes as well as any additional disclosures required.
Your financial statements are an important document presenting information about the utility to the public. By recasting these now you allow additional time for all key members of management to review the reporting classifications, selected terms or labels for assets and liabilities that were called "deferred," and disclosures to obtain concurrence as well as identify concerns or additional references within other footnotes or the MD&A that need to be updated for consistency.
While GASB Statement No. 65 will impact your financial statements by starting the research and preparation now you can minimize the last minute changes and surprises which may delay the ultimate issuance of your statements.