GASB Statement No. 88 – Required Updates to Debt Footnote Disclosures

by Joshua Jumper, CPA, CGFM, Audit Manager

Posted on August 21, 2019

Is your government ready to implement potential changes to your debt footnote disclosures? For fiscal years beginning after June 15, 2018, Governmental Accounting Standards Board number 88 is applicable. This pronouncement requires the disclosure of additional essential debt-related information for all types of debt, including amounts of unused lines of credit and assets pledged as collateral for debt.

First, there are new disclosures required for certain terms specified in debt agreements related to:

  • Significant events of default with finance-related consequences
  • Significant termination events with finance-related consequences
  • Significant subjective acceleration clauses

For these items, the goal is to enhance the disclosures for readers of the financial statements and their understanding of “other” debt items that a government may have. This will require going back through those original agreements and reading the fine print to see if any of these items are relevant and applicable. It is recommended that the verbiage in the disclosures include negative confirmations, such as “There are no specific provisions regarding default on the XXX debt”.  Additionally, there are required updates to existing debt disclosures if there are direct borrowing or direct placements. These will now have to be separated out in the footnote for the following items:

  • Changes in long term debt schedule
  • Repayment schedules
  • Collateral secured for debt
  • Significant events of default with finance-related consequences
  • Termination events with finance related consequences
  • Subjective acceleration clauses

In many cases, this will only require a change in formatting of the footnote disclosure tables. Again, the goal is that these breakouts in footnote disclosure tables will clearly distinguish debt that is privately issued versus debt that is publicly issued. The long-term debt schedules will now include bonds, notes and loans. Other long-term liabilities in the changes in long term debt disclosure will still include compensated absences, leases payable and claims and judgments. Keep in mind that there are no eliminations of disclosures as the result of GASB 88. Required disclosure still include:

  • Debt service to maturity (principal and interest) (for the first five years individually and aggregations of five years thereafter)
  • Short-term debt instruments and liquidity
  • Debt extinguishments, defeasances, refundings and troubled debt restructuring
  • Special assessment debt
  • Conduit debt obligations
  • Derivatives and hedging of variable rate debt

So as most of you begin your fiscal year 2018-19 annual audits and preparation of your annual financial statements, it is key to analyze the types of debt your government has, analyze your current disclosures, and make the required updates as applicable.