The GASB has issued GASB Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. The objective of the Statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. It also clarifies which liabilities governments should include when disclosing information related to debt. The Statement therefore does not change the manner in which governments account for debt transactions but merely modifies existing disclosure requirements and adds new ones.
The GASB issued Statement No. 88 in response to research and feedback from stakeholders, which revealed concerns about the sufficiency of debt disclosures within the financial statements of governments. Specifically, some stakeholders expressed concerns about the absence of disclosures regarding provisions of debt agreements that expose governments to financial risk, such as accelerated repayments when certain events occur. Those provisions may affect a government’s credit profile. Additionally, the GASB’s research results also indicated some confusion as to whether certain types of long-term liabilities are regarded as debt and, therefore, subject to disclosure requirements for debt.
In response to these concerns, Statement No. 88 enacts a number of modifications to the required footnote disclosures for debt. First, the Statement defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. This definition excludes leases (except for contracts reported as a financed purchase of the underlying assets) and accounts payable. Thus, all required footnote disclosures for debt must be presented for any liability meeting this definition.
Second, in addition to existing requirements to disclose information related to debt in notes to financial statements, Statement No. 88 requires that a government disclose in notes to financial statements summarized information about the following items:
- Amount of unused lines of credit
- Assets pledged as collateral for debt
- Terms specified in debt agreements related to significant (1) events of default with finance-related consequences, (2) termination events with finance-related consequences, and (3) subjective acceleration clauses
Finally, Statement No. 88 requires that a government separate information in debt disclosures regarding (a) direct borrowings and direct placements of debt from (b) other debt. Direct borrowings include instances where a government enters into a loan agreement with a lender. Direct placements include instances where a government issues a debt security directly to an investor. Direct borrowings and direct placements have terms negotiated directly with the investor or lender and are not offered for public sale (unlike traditional tax-exempt government bonds).
The provisions of Statement No. 88 are effective for fiscal years beginning after June 15, 2018. Earlier application is encouraged. Statement No. 88 applies to notes to financial statements of all periods presented. If application for prior periods presented is not practicable, the reason for not applying the Statement to prior periods presented should be disclosed.
The full text of Statement No. 88 can be found here.
Readers should not act upon information presented without individual professional consultation.