The Governmental Accounting Standards Board on Monday approved a proposed exposure draft on measurements for government financial statements and a preliminary views document on fair value accounting measurements.
The exposure draft establishes a framework that the board will use to determine how assets and liabilities should be measured in the future, David Bean, director of research and technical activities with GASB, said here at the annual Government Finance Officers Association annual meeting. This would not have any immediate impacts for state and local governments.
However, if it is approved as a final statement, the board would rely on it to make judgment calls on whether assets should be reported at historical costs or fair value. It would provide tools the board could use in establishing measurement standards in the future.
The preliminary views document establishes principles for what governments need to consider when establishing fair value measurements. It also includes a new application for investments, which would be reported at fair value. Many government investments are already reported at fair value but this would provide GASB with a more comprehensive standard, Bean said.
The document also provides a consistent definition of fair value for all accounting standards-setters. The fair value document is aimed at enhancing government disclosures “so that users of financial statements will get a much better understanding about how fair value is determined,” Bean said.
It will ultimately result in a broader application of fair value for investments if approved as a final standard, Bean said.
Fair value measurement investment types include: equity securities, stock warrants and stock rights that do not have readily determinable fair values, intangible assets that meet the proposed definition of investments, real estate that meets the definition of an investment asset and commingled investment pools that are not government sponsored, according to the GASB.
Some exceptions include money market investments that mature in 90 days or less reported by external investment pools.
The concepts statement has been in the works with the GASB for nearly a decade. The fair value measurement and application project began in 2008 and was added to the GASB’s agenda in 2011.
On June 20, GASB will post the exposure drafts on its website. There will be a comment period through Sept.30. On Nov. 1, GASB will hold a public hearing on the two items. The final statements are expected to be released in 2014.
