Gary M. Caporicci is a partner with Pun & McGeady LLP in Irvine and chair of the California Committee on Municipal Accounting. He can be reached at gcaporicci@pm-llp.com.

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This article is intended to aid government officials and practitioners in the implementation of the following pronouncements issued by the Governmental Accounting Standards Board (GASB):

• Concepts Statement No. 4, Elements of Financial Statements; and
• Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position.

The Governmental Accounting Standards Board (GASB) is the standard-setter for accounting and financial reporting for state and local governments in the United States. From time to time, GASB issues accounting and financial reporting standards, concept statements and other technical materials.

In June 2007, GASB completed Concepts Statement No. 4, Elements of Financial Statements, which discussed, explained and offered conclusions about the elements of financial statements. Furthermore, in 2011 GASB issued Statement No. 63, Financial Reporting of Deferred Out Flows of Resources, Deferred In Flows of Resources, and Net Position. This article presents the requirements and implementation of GASB Statement No. 63.

Concepts Statement No. 4, Elements of Financial Statements  

This concepts statement is one in an ongoing series. These concepts statements are intended to provide a conceptual framework of interrelated objectives and fundamental concepts that can be used as a basis for establishing consistent financial reporting standards.

Concepts statements identify the objectives and fundamental principles of financial reporting that can be applied to address numerous financial accounting and reporting issues. They provide GASB with the basic conceptual foundation for considering the merits of alternative approaches to financial reporting and help GASB develop well-reasoned financial reporting standards. These statements also assist preparers, auditors and users in better understanding the fundamental concepts underlying financial reporting standards. Concepts statements are not used to prescribe the financial reporting standards that apply to a particular item or event.

Concepts Statement No.4 established definitions for seven elements of financial statements of state and local governments. Elements are the fundamental components of financial statements. The elements of a statement of financial position are defined as:

• Assets — resources with present service capacity that the government presently controls;
• Deferred Outflows of Resources — consumption of net assets by the government that is applicable to a future reporting period. Has a positive effect on net position similar to assets;
• Liabilities — present obligations to sacrifice resources that the government has little or no discretion to avoid;
• Deferred Inflows of Resources — acquisition of net assets by the government that is applicable to a future reporting period. This has a negative effect on net position similar to liabilities; and
• Net Position: residual of all elements presented in a statement of financial position; that is to say, assets plus deferred outflows minus liabilities minus deferred inflows = Net Position.

The elements of the resource flows statements are defined as:

• Outflow of Resources — consumption of net assets by the government that is applicable to the reporting period; and
• Inflow of Resources — acquisition of net assets by the government that is applicable to the reporting period.

Concepts Statement No. 4 improves financial reporting by defining some of the most central terms used in GASB pronouncements, which will enhance consistency in setting future standards. These defined terms include deferred outflows of resources and deferred inflows of resources, which will, for example, allow for better presentation of interperiod equity in certain financial statements. This concepts statement also may benefit preparers and auditors when evaluating transactions, in certain cases, for which there are no existing standards. Financial statement users also may benefit from understanding these definitions that identify the items and events that should be reported as specific elements of financial statements.

Below is an illustration of the Statement of Position:

XYZ Government Agency Statement of Position as of June 30, 2013
Primary Government
	Governmental Activites	Business-Type Activites	Total
Assets
Deferred Outflows of Resources
Liabilities
Deferred Inflows of Resources
Net Position

GASB Statement No. 63

GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position in June 2011, addressing the various elements of financial statements.

Financial Reporting for Deferred Outflows of Resources and Deferred Inflows of Resources. Amounts that are required to be reported as deferred outflows of resources should be reported in a statement of financial position in a separate section following assets. Similarly, amounts that are required to be reported as deferred inflows of resources should be reported in a separate section following liabilities. The total for deferred outflows of resources may be added to the total for assets, and the total for deferred inflows of resources may be added to the total for liabilities to provide subtotals.

Statement of Net Position reports all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and Net Position. The Statement of Net Position should report the residual amount as Net Position which represents the difference between all other elements in a statement of financial position and should be displayed in three components as follows:

1. Net Investment in Capital Assets;
2. Restricted (by major categories); and
3. Unrestricted

The components of net position are defined as follows.

• Net Investment in Capital Assets
  • The net investment in capital assets component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of bonds, mortgages, notes, or other borrowings that are related to those assets.
  • Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also should be included in this component of net position.
  • If there are significant unspent related debt proceeds or deferred inflows of resources at the end of the reporting period, the portion of the debt or deferred inflows of resources attributable to the unspent amount should not be included in the calculation of net investment in capital assets. Instead, that portion of the debt or deferred inflows of resources should be included in the same net position component (restricted or unrestricted) as the unspent amount.
• Restricted Component of Net Position
  • Consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets.
• Unrestricted Component of Net Position
  • Includes the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position.
• Financial Reporting for Governmental Funds
  • Deferred outflows of resources and deferred inflows of resources that are required to be reported in a governmental fund balance sheet should be presented in a format that displays assets plus deferred outflows of resources, equals liabilities plus deferred inflows of resources, plus fund balance. Governmental funds continue to report fund balance.
• Disclosures
  • Balances of deferred outflows of resources and deferred inflows of resources reported in a statement of net position or a governmental fund balance sheet may be presented in detail or as aggregations of different types of deferred amounts. Governments should provide details of the different types of deferred amounts in the notes to the financial statements if not separately presented.

Current GASB Statements Presenting Deferred  Outflows/Deferred Inflows

• Hedging Derivatives (GASB Statement No.53)
• Certain Service Concession Arrangements (GASB Statement No. 60)
• Items Previously Reported as Assets and Liabilities (GASB Statement No. 65)     
• Pension Plans (GASB Statements Nos. 67 and 68)
• Government Combinations (GASB Statement No. 69)

Effective Date

Statement No. 63 is effective for financial statements for periods beginning after Dec. 15, 2011. Earlier application is encouraged. 

In California
Year End	Effective Dates
Dec. 31	Dec. 31, 2012
June 30	June 30, 2013
Sept. 30	Sept. 30, 2013

How About Early Implentation of GASB Statement No. 65 ?

GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, is effective for financial statements for periods beginning after Dec. 15, 2012. In California, the effective dates are:

Year End                                   Effective Dates

Dec. 31                                      December 31, 2013

June 30                                      June 30, 2014

September 30                           September 30, 2014

Although early application is encouraged and GASB Statement No. 65 seems clearly related to GASB Statement No. 63, it is recommended not to implement early. The reasoning behind this recommendation is simply that government officials and practitioners need sufficient time to accurately reformat the financial statements for GASB Statement No. 63.

In early 2014, GASB will publish an article on Statement No. 65 with a detail matrix of assets and liabilities to be classified as Deferred Outflows and Deferred Inflows and other amounts put into the Resource Flows statement.

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This article appears in the November 2013 issue of Western City
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