Government and nonprofit accounting - Essay Example

A current issue in government and non-profit accounting is the sales and pledges of receivables and future revenues and intra-entity transfers of assets and future revenues. This issue is addressed in Statement no. 48. Governments sometimes exchange an interest in their expected cash flows from collecting specific receivables or specific future revenues for immediate cash payments-generally, a single lump sum. The financial reporting question addressed by this Statement is whether that transaction should be regarded as a sale or as a collateralized borrowing resulting in a liability (Government Accounting Standards Board, 2006).

This Statement establishes criteria that governments will use to ascertain whether the proceeds received should be reported as revenue or as a liability. The criteria should be used to determine the extent to which a transferor government either retains or relinquishes control over the receivables or future revenues through its continuing involvement with those receivables or future revenues. This Statement establishes that a transaction will be reported as a collateralized borrowing unless the criteria indicating that a sale has taken place are met.

If it is determined that a transaction involving receivables should be reported as a sale, the difference between the carrying value of the receivables and the proceeds should be recognized in the period of the sale in the change statements. If it is determined that a transaction involving future revenues should be reported as a sale, the revenue should be deferred and amortized, except when specific criteria are met. This Statement also provides additional guidance for sales of receivables and future revenues within the same financial reporting entity (Government Accounting Standards Board, 2006).

This Statement includes a provision that stipulates that governments should not revalue assets that are transferred between financial reporting entity components. Therefore, any assets (or future revenues) sold or donated within the same financial reporting entity should continue to be reported at their current carrying value when those assets or future revenues are transferred (Government Accounting Standards Board, 2006).This Statement also includes guidance to be used for recognizing other assets and liabilities arising from a sale of specific receivables or future revenues, including residual interests and recourse provisions.

The disclosures pertaining to future revenues that have been pledged or sold are intended to provide financial statement users with information about which revenues will be unavailable for other purposes and how long they will continue to be so. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2006 (Government Accounting Standards Board, 2006). The impact on municipality is that this statement will result in consistent measurement, recognition, and disclosure of sales and pledges or receivables and future revenues (Government Accounting Standards Board, 2006).

To determine if the proceeds received should be reported as revenue or as a liability, municipality should consider the key criterion of active involvement. For example, whereas a municipality previously reported the exchange of an interest in expected cash flows from a specific debtor as sales, under Statement no. 48, it now have to report it as collateralized borrowing if the municipality has the right to substitute another debtor for the debtor pledged. This is because the right to substitute another debtor for the debtor pledged now would be considered active involvement by the municipality.

REFERENCES Government Accounting Standards Board. (2006). Summary of Statement No. 48sales and pledges of receivables and future revenues and intra-entity transfers of assets and future revenues(Issued 09/06). Retrieved October 17, 2006, from http://www.gasb.org/st/index.html