GASB Proposes Four New Standards: The GASB's Recent Exposure Drafts Are Intended to Lead to Four New Statements, Including Proposed Guidance on OPEB, Chapter 9 Bankruptcies, Financial Instrument, and SCAs

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In June 2009, the Governmental Accounting Standards Board (GASB) released exposure drafts (EDs) intended to lead to the eventual issuance of four new GASB statements:

* OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans,

* Accounting for Chapter 9 Bankruptcies,

* Financial Instruments Omnibus, and

* Accounting and Financial Reporting for Service Concession Arrangements.

OPEB MEASUREMENTS BY AGENT EMPLOYERS AND AGENT MULTIPLE-EMPLOYER PLANS

When the GASB deliberated the possibility of mandating the accrual of other postemployment benefits (OPEB), many questioned whether the cost of obtaining an actuarial valuation would outweigh the cost for smaller employers and smaller plans. In response, the GASB ultimately decided to offer smaller employers and plans (i.e., fewer than 100 total active employees, retirees, and other beneficiaries) the option of using an alternative measurement method that would eliminate the need for an actuarial valuation.

Many small employers participate in an agent multiple-employer OPEB plan (i.e., a grouping of separate plans under common administration). Participation in such a plan is functionally equivalent to sponsorship of a single-employer plan; however, current standards almost always preclude participating employers from selecting the alternative measurement option. The ED proposes to eliminate this anomaly. If the option were selected, however, measurement would be required no less frequently than once every two years (rather than just once every three years). Also, all participating employers would have to use the same measurement date.

ACCOUNTING FOR CHAPTER 9 BANKRUPTCIES

A Chapter 9 bankruptcy could require that a government adjust the reported value of assets and liabilities. The ED proposes specific guidance on how governments should proceed in that situation.

In the case of payables, notes, and other debt, the payment plan approved by the court may specify that debt service savings represent a reduction of interest, a reduction of principal, or a combination of both. If so, the ED proposes that the financial reporting reflect the terms of the payment plan: a reduction of principal (or accrued interest payable) would be treated as an extraordinary item, while a reduction in future interest payments would be treated as a change in interest rate (i.e., no effect on financial statement display). If not, the ED proposes that the carrying amount of the debt be adjusted to the present value of the new payments.

A bankruptcy payment plan could also reduce scheduled payments under a capital lease. If so, the ED proposes that the difference in present value between the originally scheduled payments and the amended payment schedule be recognized as an extraordinary item.

Postemployment benefits could also be reduced or eliminated entirely as the result of a bankruptcy The ED proposes that such changes generally be treated like any other change in postemployment benefit levels (amortized over a period not to exceed 30 years). However, if the plan was terminated, the employer would remove any benefit-related asset or liability and report instead the liability for payments pursuant to the judgment, with the difference between the two presented as an extraordinary item.

If a government was not expected to emerge as a going concern, the ED proposes that its assets be "written down" to the amount expected to be received upon disposition. All costs associated with a bankruptcy would be recognized when incurred. The ED also proposes to mandate disclosure starting as of the filing for bankruptcy

FINANCIAL INSTRUMENTS OMNIBUS

An omnibus pronouncement will typically address a number of finer technical points connected with the application of existing authoritative guidance on a particular topic. …