A Message From GASB Chairman Tom Allen Regarding a Proposed GASB Technical Bulletin, Disclosure Requirements for Derivatives Not Presented at Fair Value on the Statements of Net Assets

The MSRB is publishing a recent message from GASB Chairman Tom Allen seeking public comments on proposed GASB guidance designed to increase the public’s understanding of the significance of derivatives to a government’s financial security.  The proposed technical bulletin can be found at http://www.gasb.org/ .  The proposal contains instructions on how you can submit comments.  The deadline for comments is May 16, 2003.

 

Dear Colleague,

In recent years, a rapidly growing number of state and local governments have been using an expanding array of increasingly complex derivative instruments to manage debt and investments. At the same time, they may also be assuming significant risks. A new proposal from the Governmental Accounting Standards Board (GASB) would help to ensure that governments communicate those risks to financial statement users. It would also clarify existing accounting guidance so that more consistent disclosures can be made across all governments.

The proposed Technical Bulletin, Disclosure Requirements for Derivatives Not Presented at Fair Value on the Statement of Net Assets, is designed to increase the public's understanding of the significance of derivatives to a government's financial well-being and would provide key information about future cash flows. Governments would be required to disclose the objectives of the derivatives, their terms, fair value, and risks-including credit risk, interest rate risk, basis risk, termination risk, rollover risk, and market access risk. This Technical Bulletin would be effective for fiscal years ending after June 15, 2003.

Your assistance is needed to ensure that the GASB's proposal will result in governments providing the information that you need to make assessments about a government's financial health and to inform your decisions. The proposed Technical Bulletin is available to download from the GASB's website at https://www.gasb.org:443/ . The proposal includes illustrations of the information a typical government would disclose about their derivatives. Please look at these illustrated disclosures and let us know if this information is understandable and useful. Do the disclosures provide information that you need? How would you use the information? How could the disclosures be improved?

The proposal contains instructions on how you can share your thoughts and suggestions. The deadline for comments is May 16, 2003.

Thank you in advance for your input. Your assistance with this important project is greatly desired.

Sincerely,

Tom L. Allen
Chairman, GASB