News

GASB Moves to Reduce Confusion for External Investment Pools

by Ken Tysiac | Dec 29, 2015   ()

GASB issued a new standard Wednesday that will allow many state and local government external investment pools to continue to qualify for amortized cost accounting following rule changes the SEC is implementing.

The standard addresses how certain state and local government external investment pools—and participants in those pools—may measure and report their investments in response to an SEC rule scheduled to take effect in April.

Under GASB Statement No. 79Certain External Investment Pools and Pool Participants, qualifying external investment pools are permitted to measure pool investments at amortized cost for financial reporting purposes.

Governments pool their cash together in external investment pools to benefit from economies of scale and professional fund management. These investment funds pool the resources of participating governments for the purposes of investing in short-term, high-quality securities as permitted under state law.

Under existing standards, external investment pools may measure their investments at amortized cost for financial reporting purposes if they follow substantially all of the provisions of SEC Rule 2a7. Likewise, participants in those pools are able to report their investments in the pool at amortized cost per share.

The SEC’s Rule 2a7 regulations applying to money market funds were changed in 2014. GASB research indicated that many state and local government external investment pools would no longer be able to comply with the SEC’s revised rule. As a result, these governments and investment pools no longer would have qualified to measure their investments at amortized cost.

Losing the option to report under amortized cost would have represented a significant change from current practice for pools and pool participants.

Statement No. 79 removes the reference to Rule 2a7 in GASB’s standard. In its place, Statement No. 79 provides new criteria that are similar in many respects to the material in Rule 2a7.

Read more...

Source: Journal of Accountancy

News Archive