Summary of Statement No. 23

Statement No. 23
Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities
(Issued 12/93)


This Statement establishes standards of accounting and financial reporting for current refundings and advance refundings resulting in defeasance of debt reported by proprietary activities-that is, proprietary funds and other governmental entities that use proprietary fund accounting. Refundings involve the issuance of new debt whose proceeds are used to repay previously issued debt. The proceeds may be used immediately for this purpose (a current refunding), or they may be placed with an escrow agent and invested until they are used to pay principal and interest on the old debt at a future time (an advance refunding).

For current refundings and advance refundings resulting in defeasance of debt reported by proprietary activities, this Statement requires that the difference between the reacquisition price and the net carrying amount of the old debt be deferred and amortized as a component of interest expense in a systematic and rational manner over the remaining life of the old debt or the life of the new debt, whichever is shorter. On the balance sheet, the deferred amount should be reported as a deduction from or an addition to the new debt liability.

In addition, this Statement makes the disclosures required by paragraphs 11-13 of GASB Statement No. 7, Advance Refundings Resulting in Defeasance of Debt, applicable to current refundings reported by proprietary activities.

The provisions of this Statement are effective for financial statements issued for periods beginning after June 15, 1994, with earlier application encouraged. Retroactive application is permitted but not required.

Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 3 discusses the applicability of this Statement.