The Governmental Accounting Standards Board said Thursday that a post-implementation review of two of its accounting standards for state and local governments had achieved their intended purpose.

The two standards examined were GASB Statements No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, which dates back to 1986, and No. 40, Deposit and Investment Risk Disclosures, which dates back a decade to March 2003.

The post-implementation review team concluded that the two standards, which had been established to improve the way state and local governments report their deposit and investment risks, and repurchase and reverse repurchase agreements, have achieved their purpose and provide decision-useful information to creditors and other financial statement users.

The next two standards slated for a post-implementation review are GASB Statements No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, dating back to 1989, and No. 30, Risk Financing Omnibus—an amendment of GASB Statement No. 10, dating back to 1996, which establish accounting and financial reporting standards for risk financing and insurance-related activities of state and local governments, including public risk pools.

The post-implementation reviews are based on surveys conducted by an independent survey firm on behalf of the Financial Accounting Foundation, which oversees GASB, the Financial Accounting Standards Board and the new Private Company Council. Stakeholders who would like to participate in the survey for the next post-implementation review should register online.

“The volume, diversity, and quality of the stakeholder feedback we received during our inaugural GASB post-implementation review project was extremely helpful in determining whether GASB Statements 3 and 40 are achieving their intended objectives,” said FAF president and CEO Teresa S. Polley in a statement. “On behalf of the FAF and the GASB, I want to thank all of the stakeholders who helped the PIR team assess the real-world application, usefulness, and effectiveness of the deposits and investments standards for state and local governments.”

The PIR team received input from creditors, analysts, citizen and taxpayer groups and other financial statement users, as well as preparers in state and local governments, auditors and academics. 

“I am pleased to see the post-implementation review of Statements 3 and 40 affirms the overall effectiveness of the standards in providing value to stakeholders of state and local governments,” GASB chairman Robert H. Attmore said in a statement. “The GASB will carefully consider all of the reported findings and provide our response in the coming weeks. We also are monitoring the Financial Accounting Standards Board’s (FASB) project on repurchase agreements and, when complete, will determine whether the GASB should consider any relevant issues identified in the FASB project.”

Based on its research, the review team concluded that in general, Statements 3 and 40 resolve the issues underlying their need. Overall, Statements 3 and 40 result in disclosure of risks that are common in deposit and investment transactions and risks that could affect a government’s ability to continue to provide services and meet obligations.

The standards provide the information needed to assess investment maturities and their fair value and the prudent use and management of resources, according to the PIR team. In addition, the disclosures are generally consistent with how entities manage resources.

On balance, governments are providing decision-useful information about deposit and investment risks to creditors and other financial statement users. The PIR team’s research indicates that users of financial statements view the deposit and investment risk disclosures as important to their analysis and they generally believe that the disclosures currently required are adequate for their purposes.

Users also believe the various types of repurchase transactions are reliably reported and that the reporting requirements reliably reflect the economics of the transactions. Some stakeholders believe the deposit and investment risk disclosures were inadequate during the period leading up to the financial crisis of 2008 and 2009. However, there is disagreement on whether compliance with, or the requirements of, the Statements was responsible.

In general, Statements 3 and 40’s requirements can be understood, applied as intended, and result in reliable deposit and investment risk information. The PIR research indicates that governments and their counterparties generally do not have a common understanding of the terminology and economics of repurchase transactions. Nevertheless, a majority of preparers, practitioners, and academics who participated in the PIR research believe that the disclosures depict the economic substance of repurchase transactions and that the transactions are reliably reported. The PIR research also revealed that most governments either do not use repurchase agreements or engage in only the simplest of these transactions.

The Statements did not result in significant changes to financial reporting or operating practices, nor did they have any significant economic consequences—as the Statements’ investment and deposit risk disclosures method is consistent with governments’ internal reporting.

Both the costs and the benefits associated with Statements 3 and 40’s disclosure and other reporting requirements are consistent with GASB’s and stakeholders’ expectations.

The Statements 3 and 40 review team concluded that the standard-setting process worked well overall and contributed to a successful standard. They had no significant standard-setting process recommendations.

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