NEWS RELEASE 04/20/06
Upcoming GASB Proposal Intends to Provide Public with Better Information to Understand, Assess Risks Associated with Derivatives
Norwalk, CT, April 20, 2006The Governmental Accounting Standards Board (GASB) has voted unanimously to issue a Preliminary Views document that would improve the accounting and financial reporting of derivatives by state and local governments.
There has been a substantial increase in both the number and dollar amounts of governmental derivative contracts. The Board believes the public needs access to better and more information about the risks these transactions pose and the impact they could have on government financial positions.
The proposal would require that the fair value of derivatives be reported in the financial statements, as well as the change in that fair value. If, however, a derivative is effectively hedging (reducing) the risk it was created to address, then the annual changes in the derivative’s fair value would be deferred and reported in a government’s balance sheet. Governments would also disclose additional information about their derivatives in the notes to the financial statements.
"To evaluate the inherent risks that derivatives potentially pose to the financial health of governments, the public needs to better understand the nature of these transactions, including how their value and cash flows change over time," said Robert Attmore, Chairman of the GASB. "We intend to make the reporting of derivatives and disclosure of related risks more transparent."
The Preliminary Views document will be available to download for free from the GASB Web site, www.gasb.org, at the end of April. It will be accompanied by a plain-language supplement that summarizes the proposed standards for financial statement users and others without an accounting background.
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.