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Focus on Public Sector: GASB Issues Statement No. 53

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The use of derivatives in the Public Sector is becoming more common, specifically when it comes to issuing variable rate long-term debt. These financial arrangements are often highly complex and require specialized knowledge, but can be useful to governments by more effectively and predictably managing their exposure to a specific risk.
July 22, 2008

The use of derivatives in the Public Sector is becoming more common, specifically when it comes to issuing variable rate long-term debt. These financial arrangements are often highly complex and require specialized knowledge, but can be useful to governments by more effectively and predictably managing their exposure to a specific risk.

In 2003 the GASB issued a staff technical bulletin (SAB) which required state and local governments to disclose the value of their derivatives only in the notes to the financial statements as well as certain associated risks. Commercial entities have been required to value their derivatives at fair value for a number of years. As a result, on June 30, 2008 the GASB issued GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments.

Statement No. 53 is intended to improve how state and local governments report information about derivative instruments—financial arrangements used by governments to manage specific risks or make investments—in their financial statements. The Statement specifically requires governments to measure most derivative instruments at fair value in financial statements that are prepared using the economic resources measurement focus and the accrual basis of accounting. They are also required to continue to disclose in the notes certain associated risks. The guidance in this Statement also addresses hedge accounting requirements and is effective for financial statements for reporting periods beginning after June 15, 2009, with earlier application encouraged.

For additional information concerning Statement No. 53 visit the GASB web site at www.gasb.org.

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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