News Release 02-14-11


GASB Proposes Guidance for Applying Termination of Hedge Accounting Provisions

Norwalk, CT, February 14, 2011—The Governmental Accounting Standards Board (GASB) today issued its Exposure Draft (ED), Derivative Instruments: Application of Hedge Accounting Termination Provisions (an amendment of GASB Statement No. 53). The deadline for submitting written comments on the ED is April 15, 2011.

GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, provides for the use of hedge accounting for derivatives that are effective hedges. Hedge accounting entails reporting fair value changes of a hedging derivative as either deferred inflows or deferred outflows of resources, rather than recognizing those changes in investment income. The Statement requires that hedge accounting cease, and all accumulated deferred amounts be reported in investment income, when a hedging derivative is terminated.

Under Statement 53, questions have arisen regarding situations where a government has entered into a hedging interest rate swap or a hedging commodity swap and the swap counterparty or the swap counterparty’s credit support provider commits or experiences either an act of default or a termination event as both are described in the swap agreement. When a swap counterparty or a swap counterparty’s credit support provider is replaced through an assignment or an in-substance assignment, the Board concluded that the government’s economic position remains unchanged. Therefore, the Board is proposing that when certain conditions are met, the use of hedge accounting should not be terminated.

The provisions of the proposed Statement are limited to when a swap represents a liability of a government, the replacement of the counterparty or credit support provider meets the criteria of an assignment or in-substance assignment, and other swap terms are unchanged. When this is the case, the hedging derivative would not be considered to be terminated for accounting and financial reporting purposes, and hedge accounting would continue to be applied.

The provisions of this proposed Statement would be effective for financial statements for periods beginning after June 15, 2011. Earlier application would be encouraged.

Copies of the ED may be downloaded free of charge from

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