GASB Clarifies Reporting Of Net Assets

The Governmental Accounting Standards Board (GASB) has issued Statement No. 46, Net Assets Restricted by Enabling Legislation, an amendment of GASB Statement No. 34. The purpose of Statement 46 is to help governments determine when net assets have been restricted to a particular use by the passage of enabling legislation and to specify how those net assets should be reported in financial statements when there are changes in the circumstances surrounding such legislation.


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A government’s net assets should be reported as restricted when the purpose for or manner in which they can be used is limited by an external party, a constitutional provision, or enabling legislation. Enabling legislation is a specific type of legislation that both authorizes the raising of new resources and imposes legally enforceable limits on how they may be used. Statement 46 is intended to alleviate difficulties in identifying enabling legislation restrictions by clarifying that “legally enforceable” means that an external party—such as citizens, public interest groups, or the judiciary—can compel a government to use resources only for the purposes stipulated by the enabling legislation.

Statement 46 confirms that the determination of legal enforceability is a matter of professional judgment, which may entail reviewing the legislation and determinations made for similar legislation, as well as obtaining the advice of legal counsel. The Statement indicates that governments should review the legal enforceability of enabling legislation restrictions when new enabling legislation has been enacted to replace existing legislation and when resources are used for purposes not specified by the enabling legislation. The Statement also requires governments to disclose in the notes to the financial statements the amount of net assets restricted by enabling legislation as of the end of the reporting period. Statement 46 is effective for periods beginning after June 15, 2005.

The Statement (Product Code GS46) can be ordered through the GASB’s order department at 800-748-0659 or via its website at

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