The User's Perspective

July 2011

Financial Guarantees Project Aims To Provide Clear and Consistent Guidance

          Earlier this year, GASB Chairman Robert Attmore moved a project addressing financial guarantees from the GASB’s research agenda to its current technical agenda. Projects on the current technical agenda are those expected to receive significant Board deliberation over the course of the year.

          The objective of the financial guarantees project is to consider establishing additional guidance regarding the recognition and disclosure of financial guarantees made and received by state and local governments. Governments typically provide several types of financial guarantees, which are primarily associated with commitments to ensure payments on debt issued by other entities. For example, a state government may guarantee the debt of local school districts. In the event that a local school district in that state was unable to pay its debt, the state would step in to make payment.

          When a government is the provider of a financial guarantee, the guarantee represents potential claims on its resources. When a government receives a guarantee, the guarantee represents potential resources. This project will address what related disclosures should be required and when the guarantor government would recognize a liability, and, if a government receives a guarantee, when it would recognize an asset. Due to the increasing prevalence of such guarantees and the potential for them to result in claims because of the current economic climate, there is a need for clear and consistent recognition and disclosure guidance that derives from a single source.

          Research conducted by the GASB indicates that numerous types of state and local government entities issue and receive financial guarantees, including general purpose governments, special-purpose governments, and governmental entities that engage in business-type activities, like a public electric utility or water district.

          While some relevant accounting and financial reporting guidance for financial guarantees does exist within GASB literature, it derives from a variety of sources, most notably GASB Statements No. 53, Accounting and Financial Reporting for Derivative Instruments; No. 60, Accounting and Financial Reporting for Service Concession Arrangements; and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This can lead to uncertain or inconsistent application of the guidance and, consequently, can undermine the comparability of the reported information.

          Issues the Board is slated to consider include:

  • The types of financial guarantees made and received by state and local governments
  • The specific decision-useful or accountability information necessary to meet user needs related to governmental financial guarantees
  • Whether current accounting and financial reporting standards are appropriate to meet essential financial statement user needs, or if additional requirements are necessary.

Status: Board deliberations on the project are scheduled to begin with a discussion of scope-related issues in July and recognition issues in August. Issuance of an Exposure Draft is scheduled to take place in July 2012.

Implications for users: This project is designed to result in more useful information being available to users of governmental financial information. Having access to this type of information would make it easier for users to recognize and understand the potential claims on a government’s resources related to financial guarantees issued by state and local governments. It will also help users understand the potential resources available to a government when it receives a financial guarantee.

Contacts: Scott Reeser (

More information: Financial Guarantees project page