The Governmental Accounting Standards Board has proposed new guidance to clarify debt-related disclosures in notes to financial statements, including disclosures pertaining to direct borrowings and direct placements, for state and local governments.

In an exposure draft, GASB is suggesting new guidance to describe which liabilities governments should include in their note disclosures related to debt. For purposes of note disclosure, the proposed standard would define debt as a liability arising 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. Leases and trade accounts payable would be excluded from the definition of debt for purposes of note disclosure.

“Stakeholders have expressed concerns related to the potential risks of debt, including bank loans, other forms of direct borrowings, and private placements of bonds that may affect a government’s credit profile.” said GASB chairman David A. Vaudt in a statement.

The proposal would partly address those concerns by requiring some existing and proposed extra information in the notes to present direct borrowings and direct placements of debt separately from other debt.

The proposal also would require the disclosure of some other important debt-related information, including the amounts of any unused lines of credit; collateral pledged as security for debt; subjective acceleration clauses; and terms specified in debt agreements related to significant events of default with finance-related consequences and termination events with finance-related consequences.

GASB is asking for feedback on the proposal by Sept. 15, 2017.

GASB chairman David Vaudt
GASB chairman David Vaudt Courtesy of GASB

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