What’s on your to-do list right now? Do you see change financial statement format on there? While your primary focus is probably getting through the rest of the school year, you should also be looking ahead to the next school year. Why? Because you will soon have another significant financial statement change to deal with.
Changing the Way Debt is Reported
You now have a bit more work cut out for you when it comes to reporting your school’s debt, and you can thank the Governmental Accounting Standards Board (GASB) Statement No. 65 (a.k.a Items Previously Reported as Assets and Liabilities) for that.
This statement applies to all fees associated with any type of debt issuance.. So what debt is impacted? While it covers a few different transactions, where it will impact you most is in the area of debt issuance costs.. Let’s say, for example, that your school has debt where you reported deferred charges for bond issuance costs, most likely for the purchase of a building. The new reporting requirement is applied to these kind of fees associated with a debt issuance.
Previously when you issued debt, you could amortize the issuance costs over the life of the bond or the shorter of the refunding. Now with GASB 65, you expense all of that in the year in which you issue the debt. So you will need to pay particular attention to your operating ratios if you have a covenant requirement of the bond that year in which you issue the debt.
Saying Farewell to “Deferred Revenue“
Another change that GASB 65 brings is the extinction of the term “deferred revenue.” In most cases the term will not be referred to as deferred revenue anymore. A good example of this is the deposit of a full year 2015 registration fee or supplies that you may require. Since you technically haven’t earned that money until the start of full year 2015, that would be labeled as unearned revenue on the statement of net position now.
Implementing Early
These items are required to be implemented during the 2014 school year. You should be planning for these changes now — June is quickly approaching. Know what changes are required and when you need to take action on them. If you need help, please contact us.
And make sure you begin explaining these changes to anyone who uses your financial statements. While things may look different to them, you want to be proactive in telling, and perhaps showing, them that the change is not as significant as it appears.
This article was originally published in Money Matter$, a Rea & Associates enewsletter, 4/1/2014.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.