GASB 53 Disclosure Requirements

Governmental entities that report their financial statements beginning after June 15, 2009 are now required to satisfy GASB Statement No. 53. This statement issued by the independent non-profit Governmental Accounting Standards Board (GASB) is aimed at improving how state and local governments report information about derivative instruments in their financial statements.

GASB Statement No. 53, "Accounting and Financial Reporting for Derivative Instruments," covers how governments manage specific risks or make investments. GASB 53 requires governments to measure most derivative instruments at fair value in their financial statements.

"By requiring the fair values of derivative instruments to be reported on the face of financial statements prepared using the accrual basis of accounting, Statement 53 brings additional transparency to those transactions," said GASB chairman Robert Attmore in a statement.

The standard is intended to provide a clearer look into the risks that governments are sometimes exposed to when they enter into derivative transactions and how those risks are managed. The new standard includes specific criteria that governments will use to determine whether a derivative instrument will result in an effective hedge. Changes in fair value for effective hedges that are achieved with derivative instruments will be recognized in the reporting period to which they relate.

For more information on GASB 53 disclosures you can download the DerivActiv white paper.

Governments often enter into derivative instruments as hedges of financial risks associated with specific assets or liabilities, or expected transactions (that is, hedgeable items). Many of these hedges are meant to offset changes in interest rates or commodity prices. Although derivative instruments can be an effective risk management or investment tool, they also can expose governments to significant risks and liabilities.

Part of GASB 53 is how this information is disclosed. GASB 53 disclosures provide a summary of the government’s derivative activity, it justification for entering into the derivative instrument, the terms of the transaction and the risks associated with that transaction.

Professionals from DerivActiv can discuss what is required to satisfy GASB 53 disclosure requirements. They can be reached at 866-200-9012.