Statement of Net Position
Primary Objective: The objectives of this practice issue project would be (1) to operationalize the introduction of the deferred inflows and deferred outflows financial statement elements through display guidance and (2) to consider the effects of these changes on other elements presented in the existing statement of net assets. The project would determine what amendments, if any, should be made to the requirements of Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments.
Status: Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, was approved in June 2011.Background
- Accounting and Financial Reporting Issues
- Major Tentative Decisions to Date
- Project staff:
Statement of Net Position—Project Plan
Background: Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, issued in June 2008, was the first pronouncement to specifically refer to deferred inflows and deferred outflows. The Board currently is considering two projects, pension accounting and financial reporting and service concession arrangements, which also may incorporate deferral inflows and deferred outflows.
The concept of deferred inflows and deferred outflows was introduced in Concepts Statement No. 4, Elements of Financial Statements, in June 2007. Transactions that were not immediately recognized as revenue or expense/expenditure in applying the interperiod equity objective of financial reporting (for example, bond issuance cost in Statement 34 and sales of future revenues in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues) have been classified as assets and liabilities by default. These transactions are often referred to by terms such as deferred charges and deferred revenue.
With the effective date of Statement 53 approaching, constituents requested that the Board address how the deferred inflows and deferred outflows elements should be displayed in the basic financial statements. Staff has responded to questions raised in technical inquiries by governments that implemented Statement 53 early; however, those responses were made within the context of the current display guidance found in Statement 34.
The Concepts Statement 4 refers to the residual element that also takes into consideration deferred inflows and outflows as net position. Therefore, if deferrals are separately displayed, consideration needs to be given to renaming the residual element and even changing the title of the existing statement of net assets.
Accounting and Financial Reporting Issues: This project is intended to establish display guidance for transactions specifically identified as deferred inflows and deferred outflows. If the deferred inflows and deferred outflows are classified as separate display elements, consideration also should be given to the term used to articulate the residual element presented that represents the difference between assets, deferred outflows, liabilities, and deferred inflows.
In the separate, but related project, Deferred Inflows of Resources and Deferred Outflows of Resources: Omnibus, the Board is reviewing currently effective standards to determine if other transactions classified as deferred revenue and deferred charges should be reclassified.
The major issues being addressed by the Board in considering amendments to Statement 34 are as follows:
- Should deferred inflows and deferred outflows be displayed as separate elements?
- If deferrals are separately displayed, should the GASB prescribe the order in which the elements should be arrayed?
- If the order of elements is prescribed, in what order should assets, liabilities, and deferrals be displayed?
- If deferrals are separately displayed, should the net position element be presented?
- If the net position element is presented, should the title of the statement also be renamed?
Statement of Net Position—Recent Developments
Minutes of Teleconference, June 14, 2011
The Board reviewed the ballot draft of the final Statement, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and agreed to certain clarifying changes. At the end of the discussion, the Board members voted to unanimously approve Statement No. 63 for issuance.
Minutes of Meeting, May 23-25, 2011
The Board reviewed and discussed the preballot draft of a final Statement. The draft highlighted the changes that were agreed to at the prior meeting, and the Board generally agreed that the modifications were appropriate. Board member concerns about the disclosure described in paragraph 14 of the draft, which requires an explanation of the effect of significant deferrals on net position classifications, was discussed. The Board tentatively agreed that the focus of the disclosure should be on the net effect of the deferral transaction, rather than solely on the deferral balance itself. As a follow-up to that decision, the Board then discussed how the illustrative disclosure in Appendix C of the draft should be modified to reflect the updated requirement in paragraph 14. Other clarifying suggestions throughout the draft also were discussed.
Minutes of Meeting, April 12-14, 2011
The Board began its redeliberations of the issues raised by respondents to the Exposure Draft by agreeing that it would not be necessary or appropriate to redeliberate conclusions reached in other pronouncements that gave rise to this project. Specifically, the establishment of the separate elements of deferred outflows of resources and deferred inflows of resources in Concepts Statement No. 4, Elements of Financial Statements, and the requirements to report deferred outflows and deferred inflows of resources in Statements No. 53, Accounting and Financial Reporting for Derivative Instruments, and No. 60, Accounting and Financial Reporting for Service Concession Arrangements.
The Board tentatively agreed to make certain clarifications for the final Statement, including:
- Adding a specific indication in the standards section that reporting deferred outflows and deferred inflows of resources is limited to those items that “are required to be reported” as such.
- Specifically stating that the residual amount in a statement of financial position should be reported as net position, rather than net assets, fund balance, or equity.
- The proposal in the Exposure Draft to report deferred outflows of resources separately from deferred inflows of resources should be carried forward to the final Statement.
- Subtotals for assets and deferred outflows of resources and liabilities and deferred inflows of resources should be allowed to be presented.
- The option to use a balance sheet format should be reinstated for the final Statement.
- The description of the components of net position in paragraphs 10–12 in the Exposure Draft should be retained, modified as needed to accommodate additional deferred items that may be identified in the separate deferrals omnibus project.
- Progress should continue toward issuing a final Statement to provide guidance for reporting deferred outflows and deferred inflow of resources as soon as possible, rather than delaying this project and combining it with the separate deferrals omnibus project.
- The effective date of the Statement should be changed to periods beginning after December 15, 2011, rather than June 15, 2011, as proposed in the Exposure Draft.
Minutes of Teleconference, March 22, 2011
The Board received an overview of the responses to the Exposure Draft and engaged in a general discussion of feedback provided by respondents. No specific issues were deliberated, and no significant decisions were reached.
Minutes of Teleconference, November 17, 2010
The Board reviewed the ballot draft of an Exposure Draft, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and after making minor clarifying changes, voted unanimously to issue the Exposure Draft.
Minutes of Meeting, October 25, 26, and 28, 2010
The Board reviewed the preballot draft of a proposed Statement, Financial Reporting for Deferred Outflows and Deferred Inflows of Resources and Net Position, and discussed a variety of editorial and formatting modifications. The Board agreed to add a statement to the Summary to clarify that exemptions in previously issued standards, such as Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, relative to reporting deferred items in governmental funds would not be affected by this Statement. The Board also tentatively agreed to add a paragraph to the Basis for Conclusions to explain the Board’s decision to require a balance sheet format for governmental funds. It was also tentatively decided that the Exposure Draft should not include an illustration of the required disclosures because there is currently only a single requirement for recognizing deferred outflows and inflows of resources, and thus the value of such an illustration would be diminished. The Board acknowledged that other requirements likely will be in place before the final Statement is issued and that a more effective illustrative disclosure can be provided then.
Minutes of Meeting, September 14-16, 2010
The focus of the session was on the first draft of the Standards section of a proposed Statement. In the cover memo to the draft of the Exposure Draft, the staff raised two questions for the Board to consider. The first question was whether the Board preferred that the Exposure Draft propose a statement of net position format that would be required (referred to as the “net position” format), or whether governments would be permitted to use a “traditional balance sheet” format as an alternative. The Board discussed the issue at length and tentatively concluded that the Exposure Draft would establish the net position format as a requirement, except for governmental fund financial statements. The second question posed to the Board was whether disclosure about the effect of significant deferred inflows and deferred outflows on the three classifications of net position (invested in capital assets, restricted, and unrestricted) should be required. During the deliberation, an additional, but related, issue arose regarding the potential need for disclosures about the content of the deferred outflows and deferred inflows balances in a statement of net position. That is, whether the notes to financial statements should include disclosure of the various components of a total deferred inflows or outflows balance similar to the disclosures required about the components of significant receivable and payable balances. The Board tentatively concluded that such a disclosure should be required if the details are not evident on the face of the statement of net position. The Board also tentatively agreed that disclosure of the effects of significant deferrals on the three classifications of net position should be required. For the remainder of the session, the Board reviewed the draft Standards section of the Exposure Draft and suggested several clarifying changes.
Minutes of Meeting, August 3-5, 2010
In its initial discussion of this project, the Board addressed three issues. The first question posed by the project staff was how should the balances of deferred inflows and deferred outflows of resources be displayed in a statement of position. The Board concluded that deferred outflows should be displayed separately following assets, and deferred inflows should similarly be displayed separately following liabilities. With regard to the second question of whether net asset balances should continue to be presented as components of total net position, the Board determined that net asset information should not continue to be presented. In its place, the net position section would instead provide classifications similar to those currently provided for net assets and would incorporate the effects of deferred inflows and deferred outflows. The Board also agreed that the statement of net assets should be re-titled as the Statement of Net Position.
Statement of Net Position—Major Tentative Decisions to Date
Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, was approved in June 2011.