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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 5 – Long-Term Liabilities
Direct Borrowings and Direct Placements

GASB 88 defines debt and establishes additional financial statement note disclosure requirements related to debt obligations of state agencies, including:

  • Direct Borrowings – Borrowers who use a direct borrowing usually do so by going directly to the lending source to avoid the high-interest rates associated with indirect lending (such as a public offering where the borrower has no relationship with the lender/investor) – for example, borrowing money from a bank. Direct borrowing is generally conducted without the use of an agent (such as a broker or investment banker) – for example, a state agency entering into a loan agreement with a lender.
  • Direct Placements – Use for the sale of an issue of debt securities to a single buyer or to a limited number of buyers without a public offering. Direct placement is generally conducted by an investment banker who acts as an agent in bringing together the seller and the buyer(s) – for example, a state agency issuing a debt security directly to an investor.

The primary difference between direct borrowings and direct placements (also referred to in financing as a private placement) is the instrument. A borrowing is usually a loan instrument. A placement is usually a security. Notes and loans payable or financed purchases are direct borrowing. Bonds (revenues or general obligation) are securities and may be a direct placement or through an offering (negotiated or competitively underwritten).

Caution: When referring to direct borrowings and direct placements, the term “notes” is used for specific securities (such as Tax and Revenue Anticipation Notes) as well as occasionally part of a loan structure (such as a secured promissory note) — therefore, the reporting agency needs to correctly identify each note.

Direct borrowings and direct placements have terms negotiated directly with the investor or lender and are not offered for public sale. The requirements of GASB 88 apply to the financial statements of all state agencies.

GASB 88 amends:

Scope and Applicability

For note disclosure to the financial statements, GASB 88 defines debt as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed* at the date the contractual obligation is established. Debt does not include:

  • Leases (except for contracts reported as a financed purchase of the underlying asset)
  • Accounts payable

COBJs and GLs for Reporting Direct Borrowings and Direct Placements

COBJs to Record Notes from Direct Borrowings and Notes from Direct Placements

COBJ Description
3846 Issuance of Direct Placements
3889 Issuance of Direct Borrowings
7816 Principal on Direct Placements
7817 Principal on Direct Borrowings
7818 Interest on Direct Placements
7819 Interest on Direct Borrowings

GLs to Record Notes from Direct Borrowings and Notes from Direct Placements in Governmental Funds

GL Description
1557 BC CL Direct Borrowings – Notes and Loans
1721 BC NC Direct Borrowings – Notes and Loans
1558 BC CL Direct Placements – Notes and Loans
1722 BC NC Direct Placements – Notes and Loans
1626 BC CL Direct Borrowing – Capital Leases
1716 BC NC Direct Borrowing – Capital Leases
1627 BC CL Direct Placements – Capital Leases
1717 BC NC Direct Placements – Capital Leases
1556 BC CL Direct Borrowing – GO Bonds
1801 BC NC Direct Borrowing – GO Bonds
1559 BC CL Direct Placements – GO Bonds
1802 BC NC Direct Placements – GO Bonds
1561 BC CL Direct Borrowing – Revenue Bonds
1761 BC NC Direct Borrowing – Revenue Bonds
1562 BC CL Direct Placements – Revenue Bonds
1762 BC NC Direct Placements – Revenue Bonds

GLs to Record Notes from Direct Borrowings and Notes from Direct Placements in Business-Type Activities

GL Description
1071 CL Direct Borrowings – Notes and Loans
1221 NC Direct Borrowings – Notes and Loans
1072 CL Direct Placements – Notes and Loans
1222 NC Direct Placements – Notes and Loans
1126 CL Direct Borrowing – Capital Leases
1216 NC Direct Borrowing – Capital Leases
1127 CL Direct Placements – Capital Leases
1217 NC Direct Placements – Capital Leases
1056 CL Direct Borrowing – GO Bonds
1301 NC Direct Borrowing – GO Bonds
1059 CL Direct Placements – GO Bonds
1302 NC Direct Placements – GO Bonds
1061 CL Direct Borrowing – Revenue Bonds
1261 NC Direct Borrowing – Revenue Bonds
1062 CL Direct Placements – Revenue Bonds
1262 NC Direct Placements – Revenue Bonds

Required Note Disclosures

For fiscal 2019, direct borrowings and direct placements are not separate line items in the LTLN, BRS and LNSS web applications. Agencies must disclose direct borrowings and direct placements in the GASB 88 – Direct Borrowings and Direct Placements Template and submit via the LTLN web application. The amounts entered into the template must match the agency’s Note 5, Note 6 and Note 8. All amounts (except for direct borrowings and direct placements) entered into the template must also match the LTLN, BRS and LNSS web applications.

GASB 88 requires agencies to disclose the following summarized information:

  • Amount of unused lines of credit
  • Assets pledged as collateral for debt
  • Terms specified in debt agreements related to significant:
    • events of default with finance-related consequences
    • termination events with finance related consequences
    • subjective acceleration clauses

Report notes from direct borrowings and notes from direct placements in debt service funds (fund type 03). Amounts previously reported in a fund type other than debt service funds (fund type 03) are restated in the current reporting period. For more information, see NOTE 14 – Adjustments to Fund Balances and Net Position.

*For purposes of this determination, interest to be accrued and subsequently paid (such as interest on variable-rate debt) or interest to be added to the principal amount of the obligation (such as interest on capital appreciation bonds) does not preclude the amount to be settled from being considered fixed at the date the contractual obligation is established.

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