GASB Offers Uniform Guidance on Certain Debt Extinguishment

May 25, 2017

The latest Governmental Accounting Standards Board (“GASB”) Statement establishes uniform guidance regarding certain debt repayment methods. Issued on May 15, GASB Statement No. 86, Certain Debt Extinguishment Issues, stems from Exposure Draft No. 19-25E, Certain Debt Extinguishment Issues, which was released in August.

GASB Statement No. 86 offers state and local governments guidance pertaining to derecognizing debt defeased in substance. When debt is defeased in substance, debt and monetary assets placed in trust do not have to be disclosed in financial statements. However, governments must disclose information about debt defeased in substance in the financial statements’ notes. GASB Statement No. 86 also offers guidance concerning prepaid insurance on extinguished debt and financial statements notes regarding defeased debt.

Companies must apply the new guidance for reporting periods starting after June 15, 2017. Early application is encouraged.