Debt Disclosure and GASB-88

December 5, 2019 | Article

The Governmental Accounting Standards Board’s Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements (GASB 88). GASB-88 was effective for reporting periods beginning after June 15, 2018. For many governments, the release of GASB-88 may streamline debt disclosure.

GASB-88 redefines the word “debt” for the purposes of disclosures in the notes to financial statements. The new provisions define “debt” as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. For disclosure purposes, debt does not include leases, except for contracts reported as a financed purchase of the underlying asset, or accounts payable.

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GASB-88 Additional Requirements
The standard adds requirements to disclose summarized information on the following:

  • Unused lines of credit,
  • Assets pledged as collateral for debt and terms specified in debt agreements related to significant events of default with finance-related consequences, and
  • Termination events with finance-related consequences and subjective acceleration clauses, in addition to existing required disclosures, as applicable.

Finally, information is separated in debt disclosures between direct borrowings and direct placements of debt from other forms of debt. An example of a direct borrowing is a loan from a bank to a government. An example of a direct placement is an investment provider purchasing all of a debt issuance of a government.

So, how do these requirements change a typical government’s debt disclosures?

Basics of Debt Disclosures in Accordance with GASB-88
In many situations, disclosures may not change solely due to the issuance of GASB-88. Required disclosure includes:

  • Debt service to maturity (principal and interest; for the first five years individually and aggregations of five years thereafter)
  • Short-term debt instruments and liquidity
  • Debt extinguishments, defeasances, refundings and troubled debt restructuring
  • Special assessment debt
  • Conduit debt obligations
  • Derivatives and hedging of variable rate debt

The long-term liabilities schedule may change upon the implementation of GASB-88. These changes bring clarity and consistency on what to include in a schedule. After implementation, long-term debt will include bonds, notes and loans. Other long-term liabilities in the schedule will include compensated absences, leases payable and claims and judgments. Beginning and end-of-year balances, increases and decreases separately presented, and the portions of each item that are due within one year of the statement date are included as well. (GASB-34, par. 119, as amended by GASB-88, par. 4) [GASB Cod Sec. 2300.120, as amended].

Potential long-term debt disclosures for a municipality in accordance with GASB-88 are indicated here. If you have any questions about how GASB-88 implementation may impact your debt disclosures, please feel free to reach out to your Eide Bailly professional.

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