On July 7, 2004, the Governmental Accounting Standards Board (GASB) issued an exposure draft of proposed standards intended to clarify for the preparers of state and local government financial statements the requirements for reporting net assets contained in GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments.

The proposal, Net Assets Restricted by Enabling Legislation, is intended to improve the comparability of net asset information by clarifying the circumstances under which net assets should be restricted because of enabling legislation enacted by a government.

Diversity in practice has developed over the requirement in Statement 34 that restrictions imposed by enabling legislation are required to be legally enforceable. The proposed Statement makes clear that a legally enforceable restriction is one that a party external to a government, such as citizens, public interest groups or the judiciary, can compel a government to honor.

The proposed standards also provide guidance regarding how to adjust financial reporting to reflect changes in the circumstances surrounding an enabling legislation restriction. In addition, governments would be required to display net assets restricted by enabling separately from other restricted net assets. If enacted, the proposed standards would become effective for periods beginning after June 15, 2005. The comment period concludes on August 31, 2004.

Communication Methods

Another exposure draft, published by GASB in late June, offers a proposed Statement of Governmental Accounting Concepts, Communication Methods, that would provide a conceptual basis for selecting communication methods to present items of information within general purpose external financial reports that contain basic financial statements.

These communication methods would include recognition in basic financial statements, disclosure in notes to basic financial statements, presentation as required supplementary information (RSI) and presentation as supplementary information. The comment period concludes on September 30, 2004.

The proposed concepts statement defines the communication methods commonly used in general purpose external financial reports, and develops criteria for each communication method. The definitions and criteria should help the GASB or, in the absence of authoritative guidance, a preparer of a financial report determine the appropriate methods to use to communicate an item of information. Using a consistent approach in the selection of communication methods should benefit users in understanding the location and nature of information in financial reports.

The exposure drafts can be ordered through the GASB’s order department at 800-748-0659 or online.

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