GASB Issues Proposal on Net Assets Restricted by Enabling Legislation

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The Governmental Accounting Standards Board (GASB) this week issued an Exposure Draft of proposed standards intended to clarify for the preparers of state and local government financial statements the requirements for reporting net assets contained in GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. The proposal, Net Assets Restricted by Enabling Legislation, is intended to improve the comparability of net asset information by clarifying the circumstances under which net assets should be restricted because of enabling legislation enacted by a government.

Diversity in practice has developed over the requirement in Statement 34 that restrictions imposed by enabling legislation are required to be legally enforceable. The proposed Statement makes clear that a legally enforceable restriction is one that a party external to a government, such as citizens, public interest groups, or the judiciary, can compel a government to honor. The proposed standards also provide guidance regarding how to adjust financial reporting to reflect changes in the circumstances surrounding an enabling legislation restriction. In addition, governments would be required to display net assets restricted by enabling separately from other restricted net assets. If enacted, the proposed standards would become effective for periods beginning after June 15, 2005.

The Exposure Draft can be ordered through the GASB’s order department at 800-748-0659 or online at


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