GASB 59 – Financial Instruments Omnibus
Posted 2-10-2011 | By David Mol | Download Article
The Governmental Accounting Standards Board (GASB) issued its Statement No. 59, Financial Instruments Omnibus, in June 2010. The effective date of GASB 59 is for fiscal periods beginning after June 15, 2010. The scope of this Statement covers four main topics: 2a7-like external investment pools; interest rate risk disclosures for debt investment pools; unallocated insurance contracts; and certain amendments to GASB 53 on derivatives. Below is a summary of the two topics that are most likely to impact Minnesota Cities. We will keep you informed of next steps as required implementation approaches next year.
2a7-like External Investment Pools
GASB Statement No. 31 requires external investment pools to be reported at fair value. GASB 31 also provided an exception for 2a7-like external investment pools to report on a basis other than fair value, such as the amortized cost method.
Many external investment pools report their investments using the amortized cost method, so the GASB 31 exception is convenient. However, GASB was concerned that some entities were reporting their investment in external pools as a 2a7-like pool even though the external investment pool was not conforming to SEC rule 2a7.
So GASB 59 does two things - one, it elevates the definition of 2a7-like pools to category (a) in the hierarchy of GAAP (previously 2a7-like was defined in the Comprehensive Implementation Guide which is category (d)) and two, it emphasizes the attributes of a 2a7-like pool investment which are limited to very high credit quality and short maturity, and emphasizes that investment policies of a 2a7-like pool are set by a group of individuals that fulfill the functions of a board of directors.
A common external investment pool used by Minnesota governmental entities is the League of Minnesota Cities' 4M Fund. The value of each investment in the fund is determined using the amortized cost method. Per discussion with 4M Fund, the Fund is 2a7-like and qualifies for the GASB 31 exception to fair value reporting. The Fund invests in securities and instruments as permitted by MS 118A (high credit quality), maintains a weighted average maturity of ninety days or less (short maturity), and is governed by a board of directors.
Interest Rate Risk Disclosure for Debt Investment Pools
GASB 59 amends paragraph 15 of GASB 40 to clarify that interest rate risk disclosures for external investment pools should be limited to debt mutual funds and debt external investment pools. Interest rate risk disclosures for mutual funds and external investment pools that hold a mix of debt and equity investments is not required. This change primarily affects organizations such as fire relief associations.
For more information, please contact David Mol, CPA at dmol@hlbtr.com or Peggy Moeller, CPA at pmoeller@hlbtr.com.