New GASB Statements Will Address Clarity and Consistency in Reporting for Government Combinations and Financial Guarantees

By Attmore, Robert H. | The Journal of Government Financial Management, Winter 2012 | Go to article overview

New GASB Statements Will Address Clarity and Consistency in Reporting for Government Combinations and Financial Guarantees


Attmore, Robert H., The Journal of Government Financial Management


In the first quarter of 2013, the Governmental Accounting Standards Board (GASB) is scheduled to issue two final Statements that are designed to provide clear and consistent guidance on issues of growing importance in the government environment. The Board is expected to approve a final Statement on government combinations, and disposals of government operations in January and then approve a final Statement on nonexchange financial guarantees in March.

I will offer some perspective on how these issues arose and why guidance is needed.

Government Combinations

According to the U.S. Census Bureau, with 89,004 local governments on record in 2012, 472 fewer local governments exist in 2012 than in 2007, and the 2012 Census of Governments also found that ten states now have fewer local governments than in 2007 due to "combinations" among school districts, special districts and other governments.

The challenging economic and fiscal environment that governments have found themselves in for the past several years has caused decision makers to seek new means of continuing to provide government services in an atmosphere of resource and budget reductions. Though not entirely recent innovations, combinations among governments have become increasingly popular methods for achieving greater efficiencies and reduced costs while maintaining essential service levels.

Some states have either passed legislation or otherwise encouraged local governments to combine operations in order to eliminate layers of government and the inherent service and staffing redundancies that can accompany them. For example, a township's fire protection services might be combined with the county fire protection district, enabling essential services to continue to be provided while meeting the objectives of streamlining government and reducing related costs.

Governments currently account for mergers, acquisitions and other similar combinations by applying accounting and financial reporting guidance that was originally developed for the business environment in 1970. This guidance addresses notions that are common when dealing with public company combinations - such as exchanges of stock, the purchase of one company by another and the presentation of stockholders' equity - that are seldom encountered in the government environment.

GASB has been aware that interest in combined services has been building for many years. In 2003, staff presented the Board with a project proposal on government combinations accomplished through mergers and acquisitions, and the Board subsequently concluded the project should be added to its research agenda. Fast forward a few years to the project deliberations that led to the issuance of GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FAS ? andAICPA Pronouncements. Here, the Board decided not to bring forward the guidance addressing combinations in the business environment. Instead, GASB decided to address the issue through a separate project that would allow consideration of combinations focused on the distinct characteristics of the government environment. In 2010, a potential government combinations project ranked among the top of the Governmental Accounting Standards Advisory Council's suggested priorities for inclusion on the GASB's technical agenda, and the project was subsequently added to GASB's technical agenda thatyear.

This past June, GASB proposed new accounting and financial reporting standards for government combinations, which are commonly referred to as mergers and acquisitions. The Exposure Draft, Government Combinations and Disposals of Government Operations, also proposes accounting and financial reporting guidance for disposals of government operations that have been transferred or sold.

The Exposure Draft proposes appropriate guidance that is specifically intended for state and local governmental entities and addresses circumstances and conditions that commonly arise in public sector mergers. …

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New GASB Statements Will Address Clarity and Consistency in Reporting for Government Combinations and Financial Guarantees
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