GASB changes disclosures for deposits and investments. (The Accounting Angle).(Governmental Accounting Standards Board, includes related article)

GASB Statement No. 40 both modifies and expands the note disclosure requirements for deposit and investment risks under Statement No. 3.

In March, the Governmental Accounting Standards Board issued GA SB Statement No. 40, Deposit and Investment Risk Disclosure. The questions that follow summarize briefly the key features of the new standard.

What led the GASB to issue a new standard on disclosures for deposits and investments? For a number of years critics of accounting standards in both the public and the private sectors have sometimes complained about the seemingly ever-increasing volume of note disclosures. In response to such criticisms, the GASB undertook a systematic review of all extant note disclosure requirements. One of the pronouncements the GASB reviewed as part of that effort was GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements. GASB Statement No. 40 both modifies and expands the note disclosure requirements of GASB Statement No. 3.

GASB Statement No. 3 is perhaps best known for its requirement that deposits and investments be categorized. Is that requirement affected by GASB Statement No. 40? Yes. GASB Statement No. 3 called for deposits and investments to be classified into one of three categories of custodial credit risk. GASB Statement No. 40 will henceforth require only that the amount of deposits and investments in what has been known as "Category 3" be disclosed. That is, a government without any deposits or investments in Category 3 would no longer need to make any custodial credit risk disclosure. Accountants describe this type of approach to disclosure as exception reporting (i.e., say nothing at all unless there is a potential problem).

Does GASB Statement No. 40 affect any other GASB Statement No. 3 disclosures? Yes. GASB Statement No. 3 mandated certain activity disclosures to highlight differences between a government's position at year-end and its position during the year. Specifically, if a government had a significantly higher proportion of its deposits or investments in Category 3 during the year than at fiscal year-end, that fact had to be disclosed. Likewise, if a government had a position during the year in a type of investment that it did not hold at the end of the year, that fact also had to be disclosed. Statement No. 40 eliminates both of these disclosures.

Does GASB Statement No. 40 set any new disclosure requirements for deposits and investments? Yes. GASB Statement No. 40 mandates that governments disclose relevant information regarding credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. It also requires disclosure of a government's policies (or lack of policies) for each.

What disclosure will be required for credit risk? Governments will be required to disclose credit ratings for any debt securities they hold, unless these securities are explicitly guaranteed by the U.S. government. This requirement also will apply to positions in external investment pools, money market funds, bond mutual funds, and other pooled investments of fixed-income securities. If credit ratings are not available, that fact will need to be disclosed.