Norwalk, CT, April 2, 2003—In an effort to improve disclosures about the risks associated with derivative contracts, the Governmental Accounting Standards Board (GASB) has released for public comment accounting guidance that would provide more consistent reporting by state and local governments. The proposed Technical Bulletin, Disclosure Requirements for Derivatives Not Presented at Fair Value on the Statement of Net Assets, is designed to increase the public’s understanding of the significance of derivatives to a government’s net assets and would provide key information about the potential effects on future cash flows.
While state and local governments use a vast array of increasingly complex derivative instruments to manage debt and investments, they also may be assuming significant risks. Governments must communicate those risks to financial statement users and the proposed Technical Bulletin would help clarify existing accounting guidance so that more consistent disclosures can be made across all governments.
In commenting on why the GASB believes this issue is so important, GASB Project Manager, Randal J. Finden, remarked, “The market for derivative instruments has recently exploded for state and local governments as current financing needs have changed in connection with a more constrained budgetary environment. Some derivative contracts may pose substantial risks, and we want to help governments better disclose those risks in their financial statements.”
Governments would be required to disclose the derivative’s objective, its terms, fair value and risks. The proposed accounting guidance would require governments to disclose in their financial statements credit risk, interest rate risk, basis risk, termination risk, rollover risk and market access risk.
This Technical Bulletin would be effective for periods ending after June 15, 2003. The proposed Technical Bulletin is available from the GASB’s website. Comments on the proposed documents may be made through May 16, 2003.
About the Governmental Accounting Standards Board
The GASB is the independent, not-for-profit organization formed in 1984 that establishes and improves financial accounting and reporting standards for state and local governments. Its seven members are drawn from the Board's diverse constituency, including preparers and auditors of government financial statements, users of those statements and members of the academic community. More information about the GASB can be found at its website www.gasb.org.
Governmental Accounting Standards Board
Improving governmental accountability through better financial reporting