GASB has issued for public comment a proposed GASB Statement titled Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions
. The proposal provides guidance to state and local governments that offer nonexchange financial guarantees and for governments that receive guarantees on their obligations.
A nonexchange financial guarantee is a credit enhancement or assurance offered by a guarantor (the government or organization that offers the guarantee) that is provided without receiving consideration of equal value. The guarantor agrees to repay an obligation holder in the event that the debt issuer is not able to fulfill the contractual obligation to make timely payments to the obligation holder. Financial guarantees represent potential claims on a government’s resources when it is the guarantor, and a potential reduction of a government’s obligations when it is the debt issuer.
The proposed statement requires a state or local government guarantor that offers a nonexchange financial guarantee to another organization or government to recognize a liability on its financial statements when it is “more likely than not” that the guarantor will actually make a payment to the obligation holders under the agreement.
Comments on the proposed statement are requested by Sept. 28.