Revisions to accounting for certain external investment pools
FINANCIAL REPORTING INSIGHTS |
For governments, external investment pools function much like money market mutual funds do in the private sector. Government investment funds pool the resources of participating governments and invest in short-term, high-quality securities permitted under state law. By pooling their cash together, governments benefit in a variety of ways, including from economies of scale and professional fund management.
Existing governmental accounting standards provide that external investment pools may measure their investments at amortized cost for financial reporting purposes if they follow substantially all of the provisions of SEC Rule 2a7 for money market funds. Likewise, participants in those pools are able to report their position in the pool at amortized cost per share. Major changes to Rule 2a7 are due to take effect in April 2016 under which many government pools would expect to no longer qualify for amortized cost reporting.
In response to the major changes to Rule 2a7, the Governmental Accounting Standards Board (GASB) recently issued Statement No. 79, Certain External Investment Pools and Pool Participants, which replaces the reference in GASB literature to Rule 2a7 with the GASB’s own set of criteria. The criteria permit qualifying external investment pools to elect to measure pool investments at amortized cost for financial reporting purposes.
The Statement also establishes additional note disclosure requirements for external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. These disclosures include information about limitations or restrictions on participant withdrawals.
The requirements of Statement No. 79 are effective for reporting periods beginning after June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk and shadow pricing. Those provisions are effective for reporting periods beginning after December 15, 2015.