GASB Statement No. 65: Items Previously Reported as Assets and Liabilities

By David Gannon, Partner

In March 2012, the Governmental Accounting Standards Board issued GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement’s objective is to either (a) properly classify certain items as deferred outflows or deferred inflows of resources that were previously reported as assets or liabilities or (b) recognize certain items as inflows of resources (revenues) or outflows of resources (expenditures) that were previously reported as assets or liabilities. This standard compliments GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position. GASB Statement No. 63 created a new financial reporting model where assets, plus deferred outflows of resources, less liabilities, less deferred inflows of resources would equal a governmental entity’s net position.

Areas identified in this new standard that are common to public sector entities that will require significant changes in financial reporting include:

Losses on Refunding Debt 
When existing debt is refunded, the difference between the reacquisition price and the carrying amount of the refunded debt typically results in a loss on the refunding transaction. Currently this transaction is recorded as a contra liability and shown net against outstanding long-term debt. GASB has determined that this should be classified as a deferred outflow of resources since an entity must use current financial resources to obtain benefits in future periods through adjustments to interest rates or prepayment of terms. It should be noted that the balance will still be amortized as a component of interest expense over the shorter of the life of the old or new debt.

Debt Issuance Costs
GASB has concluded that the costs related to issuing debt are for services provided in the current period and thus they should be expensed in the current period, with the exception of prepaid insurance. This represents a significant change from current practice which is to record these as assets and amortize them over the life of the related debt issue.

Imposed Non-exchange Revenue Transactions
Deferred inflows of resources should be reported when resources associated with imposed non-exchange revenue transactions are received or reported as a receivable before (a) the period for which property taxes are levied or (b) the period when resources are required to be used or when use is first permitted for all other imposed non-exchange revenues in which the enabling legislation includes time requirements.

Government-mandated Non-exchange Transactions and Voluntary Non-exchange Transactions
Providers of resources in government-mandated or voluntary non-exchange transactions frequently establish eligibility requirements. Resources transmitted before the eligibility requirements are met (excluding time requirements) should be reported as assets by the provider and as liabilities by the recipient. Resources received before time requirements are met, but after all other eligibility requirements have been met, should be reported as a deferred outflow of resources by the provider and a deferred inflow of resources by the recipient.

Use of Term “Deferred”
This statement also restricts the use of the term “deferred” to only those items designated as deferred outflows or deferred inflows of resources. As a result, other items that do not qualify to be reported in these categories will need to be re-titled in an entity’s financial statements. For example deferred revenues will need to be renamed unearned revenues.

Who Will Be Affected?

All governmental organizations that follow generally accepted accounting principles would be required to implement this GASB Statement.


The provisions of Statement No. 65 are effective for financial statement periods beginning after December 15, 2012; however, early application is encouraged.
It should also be noted that the provisions for Statement No. 63 are applicable for most public sector organizations now or in the near future and will need to be implemented. The provisions of this Statement are effective for financial statement periods beginning after December 15, 2011.

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