Debt Disclosure and GASB-88

September 2018 | Article

The Governmental Accounting Standards Board recently released Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements (GASB-88). GASB-88 became 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.

The new standard adds requirements to disclose summarized information on 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, 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.

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 still 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 changes in long-term liabilities schedule may change upon the implementation of GASB-88. For this schedule, long-term debt will now include bonds, notes and loans. Other long-term liabilities in the schedule will include compensated absences, leases payable and claims and judgments. These changes bring clarity and consistency to a schedule that may include things that it shouldn’t have. The schedule still will include 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. (GASB-34, par. 119, as amended by GASB-88, par. 4) [GASB Cod Sec. 2300.120, as amended].

Potential long-term debt disclosure for a municipality in accordance with GASB-88 are indicated here. Should you have any questions, please feel free to reach out to your Eide Bailly professional.

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