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Future Accounting Standard Changes - Continued <br />GASB Statement No. 70 - Accounting and Financial Reporting for Nonexchnage Financial Guarantees <br />Summary <br />Some governments extend financial guarantees for the obligations of another government, a not -for -profit organization, a private <br />entity, or individual without directly receiving equal or approximately equal value in exchange (a nonexchange transaction). As a <br />part of this nonexchange financial guarantee, a government commits to indemnify the holder of the obligation if the entity or <br />individual that issued the obligation does not fulfill its payment requirements. Also, some governments issue obligations that are <br />guaranteed by other entities in a nonexchange transaction. The objective of this Statement is to improve accounting and financial <br />reporting by state and local governments that extend and receive nonexchange financial guarantees. <br />This Statement requires a government that extends a nonexchange financial guarantee to recognize a liability when qualitative <br />factors and historical data, if any, indicate that it is more likely than not that the government will be required to make a payment <br />on the guarantee. The amount of the liability to be recognized should be the discounted present value of the best estimate of the <br />future outflows expected to be incurred as a result of the guarantee. When there is no best estimate but a range of the estimated <br />future outflows can be established, the amount of the liability to be recognized should be the discounted present value of the <br />minimum amount within the range. <br />This Statement requires a government that has issued an obligation guaranteed in a nonexchange transaction to report the <br />obligation until legally released as an obligor. This Statement also requires a government that is required to repay a guarantor for <br />making a payment on a guaranteed obligation or legally assuming the guaranteed obligation to continue to recognize a liability <br />until legally released as an obligor. When a government is released as an obligor, the government should recognize revenue as a <br />result of being relieved of the obligation. This Statement also provides additional guidance for intra-entity nonexchange financial <br />guarantees involving blended component units. <br />This Statement specifies the information required to be disclosed by governments that extend nonexchange financial guarantees. <br />In addition, this Statement requires new information to be disclosed by governments that receive nonexchange financial <br />guarantees. <br />The provisions of this Statement are effective for reporting periods beginning after June 15, 2013. Earlier application is <br />encouraged. Except for disclosures related to cumulative amounts paid or received in relation to a nonexchange financial <br />guarantee, the provisions of this Statement are required to be applied retroactively. Disclosures related to cumulative amounts <br />paid or received in relation to a nonexchange financial guarantee may be applied prospectively. <br />How the Changes in This Statement Will Improve Financial Reporting <br />The requirements of this Statement will enhance comparability of financial statements among governments by requiring <br />consistent reporting by those governments that extend nonexchange financial guarantees and by those governments that receive <br />nonexchange financial guarantees. This Statement also will enhance the information disclosed about a government's obligations <br />and risk exposure from extending nonexchange financial guarantees. This Statement also will augment the ability of financial <br />statement users to assess the probability that governments will repay obligation holders by requiring disclosures about obligations <br />that are issued with this type of financial guarantee. <br />-9- <br />People <br />+Process. <br />Going <br />Beyondthe <br />Numbers <br />