WASHINGTON – With state and local governments increasingly using direct borrowing and direct placements instead of issuing bonds in public offerings, the Government Accounting Standards Board is wading in to provide some guidance on disclosures in their financial statements.

GASB released its exposure draft on Wednesday requiring governments to disclose information about these kinds of debt in the notes to their financial statements.

GASB Chairman David Vaudt recently told The Bond Buyer in a podcast that his advisory board recommended this guidance as well as GASB’s recent guidance on leases.

“We want to hear from all our stakeholder groups,’’ said GASB Chairman David Vaudt, referring to the proposed guidance for debt disclosure related to direct borrowings and placements. Photograph: Brian Tumulty, The Bond Buyer
GASB Chairman David Vaught
“We want to hear from all our stakeholder groups,’’ said GASB Chairman David Vaudt, referring to the proposed guidance for debt disclosure related to direct borrowings and placements. Photograph: Brian Tumulty, The Bond Buyer

Last month GASB released Statement 87 which provides one approach to all leases of tangible assets such an office building, fleet vehicles or heavy equipment.

The new draft addresses direct borrowings and placements because they often contain provisions not associated with other types of debt.

The proposal would require the disclosure of unused credit lines, collateral pledged as security, terms specifying a declaration of default, how a termination event is determined and subjective acceleration clauses.

“We want to hear from all our stakeholder groups,’’ Vaudt said. “The more input we get, the more ideas we have to lay on the table and hopefully make the best selections that we can from the alternatives that are there.’’

The standards board asked for public comments to be submitted on the exposure draft through Sept. 15 at www.gasb.com.

Final action on the guidance is expected around March of next year. The guidance is anticipated to take effect June 15, 2018 for financial statements in fiscal years that end beginning June 30, 2019.

GASB standards are not binding on state and local governments but they must be adhered to in order for governments to receive clean opinions on audits of financial statements.

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