Interpretation No. 4
Accounting and Financial Reporting for Capitalization Contributions to Public Entity Risk Pools—an interpretation of GASB Statements No. 10 and 14
This Interpretation applies to capitalization contributions made to and received by public entity risk pools--both with and without transfer or pooling of risk.
This Interpretation requires entities to report capitalization contributions made to public entity risk pools with transfer or pooling of risk as deposits if a return of those contributions is probable. Otherwise, entities should report the contributions as prepaid insurance (an asset) to be allocated as expenditures/expenses over future periods (not to exceed ten years under certain circumstances) or, alternatively, in governmental funds, as expenditures in the period made. In neither case should entities report those capitalization contributions (or any participation in those pools) as equity interests in joint ventures. Furthermore, entities should continue to report capitalization contributions to public entity risk pools without transfer or pooling of risk as deposits or reductions of claims liabilities. This Interpretation also provides guidance for public entity risk pools that make capitalization contributions to other pools (such as excess pooling arrangements) in which they participate.
This Interpretation requires public entity risk pools with transfer or pooling of risk to report capitalization contributions received as liabilities if a return of those contributions is probable. Otherwise, those pools should report the contributions as unearned premiums to be allocated as premium revenue over future periods (not to exceed ten years under certain circumstances). Public entity risk pools without transfer or pooling of risk should net capitalization contributions with other amounts and report assets or liabilities, as appropriate.
The provisions of this Interpretation are effective for financial statements for periods beginning after June 15, 1996. Earlier application is encouraged.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments, public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 2 discusses the applicability of this Interpretation.