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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

Specialized Accounting

External Investment Pools

GASB 79 establishes criteria that enhances comparability of financial statements among governments for an external investment pool to determine if the agency can use an amortized cost exception to fair value measurement for financial reporting purposes. The criteria provide qualifying external investment pools, and participants in those pools, with consistent application of an amortized cost-based measurement for financial reporting purposes. That measurement approximates fair value and mirrors the operations of external investment pools that transact with participants at a stable net asset value per share.

Amortized Cost Criteria

For financial reporting purposes, an agency with an external investment pool may elect to measure all of its investments at amortized cost if it meets all of the following criteria:

  • Transacts with its participants at a stable net asset value per share (for example, all contributions and redemptions are transacted at $1.00 net asset value per share)
  • Meets the portfolio requirements for maturity, quality, diversification and liquidity from GASB 79, paragraphs 8–38
  • Meets the shadow pricing requirements from GASB 79, paragraphs 39–40

For financial reporting purposes, an agency with an external investment pool that is significantly noncompliant with any of the criteria above during the fiscal year:

  • Should not measure all of its investments at amortized cost for that fiscal year
  • Must apply the provisions in GASB 31, paragraph 16 (as amended)
  • May still report short-term debt investments (with remaining maturities of up to 90 days at fiscal year-end) at amortized cost — provided that the fair value of those investments is not significantly affected by the impairment of the credit standing of the issuer or by other factors

All agencies must use professional judgment to determine if the noncompliance (individually or in the aggregate) is significant. For financial reporting purposes, when an agency with an external investment pool did not measure all of its investments at amortized cost in the previous fiscal year, the agency may make an election to change from fair value measurement to amortized cost-based measurement in the subsequent fiscal year — but only if the agency with the pool meets all the amortized cost criteria and justifies a change in accounting principle as recommended in GASB 62, paragraphs 73–74.

Pool Participants

For financial reporting purposes, if an agency with an external investment pool:

  • Meets the amortized cost criteria and measures all of its investments at amortized cost — the pool’s participants must also measure their investments in that external investment pool at amortized cost.
  • Does not meet the amortized cost criteria — the pool’s participants must measure their investments in that pool at fair value as provided in GASB 31, paragraph 11 (as amended).

Disclosure Requirements

Qualifying External Investment Pools

For financial reporting purposes, an agency with a qualifying external investment pool that measures all of its investments at amortized cost must disclose:

  • The disclosures required for fair value measurements in GASB 72, paragraphs 80–82, as they relate to the disclosures of the fair value of investments required by GASB 31, paragraph 17f
  • The presence of any limitations or restrictions on participant withdrawals such as:
    • Redemption notice periods
    • Maximum transaction amounts
    • Agency’s qualifying external investment pool’s authority to impose liquidity fees or redemption gates

Participants in External Investment Pools

For financial reporting purposes, participants in an agency’s qualifying external investment pool that measures all of its investments at amortized cost must disclose the presence of any limitations or restrictions on withdrawals (such as redemption notice periods, maximum transaction amounts and the agency’s qualifying external investment pool authority to impose liquidity fees or redemption gates).

For additional information on external investment pools and participants in those pools, see GASB 79.