By Jason Bramwell
The Government Accounting Standards Board (GASB) is seeking public comment on a proposed concepts statement it issued on June 20 that would guide the GASB when establishing standards regarding the measurement of assets and liabilities for US state and local governments.
The GASB also issued its preliminary views regarding the measurement and application of fair value, including note disclosures.
A plain-language supplement, Measurement Concepts for Assets and Liabilities and Fair Value Measurement and Application, which was also released on June 20, addresses both proposals and is intended to solicit feedback from nonaccountant financial statement users.
The GASB is encouraging stakeholders to review the proposals and provide comment by September 30. The GASB also is planning to host a public hearing on both proposals at 8:30 a.m. EST on November 1 in Flushing, New York.
The exposure draft, Measurement of Elements of Financial Statements, proposes concepts that will inform the GASB's decisions when establishing future standards for how state and local governments would determine the dollar amount at which to report assets and liabilities.
"The proposed concepts statement would establish concepts for both measurement approaches and measurement attributes", GASB Chairman Robert Attmore said in a written statement. "Measurement is a necessary component of a complete GASB conceptual framework, which will enhance consistency in future standards setting for state and local governments."
The GASB is proposing two approaches to measuring assets and liabilities: initial amounts and remeasured amounts. Initial amounts are determined at the time an asset is acquired or a liability is incurred. Remeasured amounts are determined anew as of the date of each year's financial statements.
The GASB also is proposing four measurement attributes – the characteristic of an asset or liability that is being measured – that include the following:
- Historical cost – The price paid to acquire an asset or the amount received when a liability is incurred in an actual transaction.
- Fair value – The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Replacement cost – The price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the measurement date.
- Settlement amount – The amount at which an asset could be realized or a liability could be liquidated with the counterparty, other than in an active market.
"These proposed concepts, when finalized, also may benefit preparers and auditors when evaluating transactions for which there are not existing standards or in implementing existing standards", the GASB states in the exposure draft.
Fair Value Measurement and Application
The preliminary views, Fair Value Measurement and Application, describes how fair value should be defined and measured, what assets and liabilities should be measured at fair value, and what information about fair value should be disclosed in the notes to the financial statements.
"In conjunction with the proposed concepts statement, the proposed changes to GASB's fair value standards are intended to increase consistency and comparability in governments' fair value measurements and related disclosures", Attmore said. "The goal is to enhance financial statement users' ability to assess a government's financial health and accountability."
According to the GASB, investments generally should be measured at fair value. An investment would be defined as "a security or other asset that a government holds primarily for the purpose of income or profit and the present service capacity of which is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry."
Certain investments would be excluded from measurement at fair value and should continue to be measured according to existing GASB standards, such as investments in money market instruments with remaining maturity at time of purchase of one year or less.
Under current accounting standards, state and local governments are required to disclose how they arrived at their measures of fair value if they are not based on quoted market prices. The GASB has proposed expanding those disclosures to include the levels of inputs a government uses to measure fair value and the judgments made to arrive at those inputs.