On June 29, 2017, the Governmental Accounting Standards Board (GASB) issued an exposure draft of a proposed statement outlining additional requirements for debt disclosures in financial statement notes. The GASB is currently seeking tribal input on these proposed changes.
Insufficient debt disclosures aren’t a common reporting concern for tribes and their enterprises because direct borrowing is prevalent and detailed debt disclosures are often already being made. However, the proposed statement includes disclosure considerations that may require expanding existing footnote disclosures for certain tribal entities—particularly disclosures relating to significant default and termination provisions that have financial consequences.
Unclear Debt Definition
The GASB found that determining which long-term liabilities are defined as debt and, therefore, subject to existing debt disclosure requirements is often inconsistently done. For example, several state and local governments have historically included disclosures in their financial statements pertaining to outstanding bonds but haven’t included direct borrowing or other debt obligations.
Insufficient Disclosure Requirements
The GASB also found that existing standards lack sufficient disclosure requirements regarding potential alternative sources for debt repayments and financial consequences associated with acceleration clauses, termination events, and debt defaults.
The proposed statement—Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements—is an amendment of GASB Statements No. 34 and 38. If adopted, its changes would take effect for reporting periods beginning after June 15, 2018, with early adoption encouraged.
Definition of Debt for Disclosure Purposes
The proposed statement defines debt for disclosure purposes as “a liability that arises from a contractual obligation to pay cash, or other assets in lieu of cash, in one or more payments, to settle an amount that’s fixed at the date the contractual obligation is established.” It also expands the definition to:
- Require the disclosure of liabilities recognized in an organization’s financial statements
- Exclude the disclosure of contractual obligations without an established liability or with an unknown liability amount
- Clarify that interest on the principal amount of an obligation doesn’t preclude it from being considered a fixed obligation
- Explain that debt doesn’t include leases or trade accounts payable
Additional Debt-Related Note Disclosures
Additional debt-related note disclosures will need to provide the following summarized information:
- Debt agreement terms that include significant default or termination events with financial consequences
- Significant subjective acceleration clauses
- Amount of unused lines of credit
- Collateral pledged as security for debt
Financial Statement Presentation
Direct borrowing and direct-placement debt disclosures will need to be presented separately from other debt, such as general obligation or revenue bonds, in the debt roll forward and maturity schedules.
How to Provide Comments
Tribes have the opportunity to provide feedback to the GASB regarding the proposed statement found on the GASB’s website. Written comments are due by September 15, 2017, and information on how to submit written comments can be found here.
We're Here to Help
If you have questions about how the proposed statement might affect your tribe, casino, or tribal enterprise, contact your Moss Adams professional.