Statement No. 63: Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net PositionSeptember 26, 2012
Emily A. Fournier, CPA
When issued in June 2007, Concepts Statement Number 4, Elements of Financial Statements, outlined seven elements of state and local government financial statements. Two of the seven elements are likely very familiar to any preparer or user of such statements – Assets and Liabilities. The remaining five elements below are likely unfamiliar and, until the issuance of GASB Statement Number 63, not often seen:
- Deferred outflow of resources
- Deferred inflow of resources
- Net position
- Outflow of resources
- Inflow of resources
Prior to GASB Statement Number 63, two recently issued standards did incorporate some of this terminology, GASB Statement Number 53, Accounting and Financial Reporting of Derivative Instruments, and GASB Statement Number 60, Accounting and Financial Reporting for Service Concession Arrangements. Both required that deferred amounts be reported but the guidance, it seemed, was not clear.
In answer to these new requirements, and the reporting questions that arose from them, GASB felt that clarification was necessary, and in June 2011 it issued GASB Statement Number 63. This statement does not, within its own confines, provide determinations regarding which amounts should be considered and reported as deferred inflows or outflows, nor does it define them. Instead, this statement’s purpose is purely to provide guidance regarding the financial reporting aspect.
The first step in understanding how these amounts must be reported is to understand the definitions, as outlined below, from the Concepts Statement regarding the deferred amounts:
Deferred outflow of resources – the current consumption of net assets that is applicable to a future reporting period.
- Deferred inflows of resources – the current acquisition of net assets that is applicable to a future reporting period.
The terminology “Net Assets” is being changed to “Net Position” due to the new definition and will be used in place of “Net Assets”, “Fund Balance” and “Equity”.
- Net position – the residual of assets, deferred outflows of resources, liabilities and deferred inflows of resources. This amount is broken out into three components, similar to net asset classifications:
- Net investment in capital assets
The net position presentation method focuses on the resources and claims against those resources that net to arrive at the net position of a government, and is the GASB’s preferred method. In this method, the statement of net position begins with assets, adds deferred outflows of resources, subtracts liabilities, then deferred inflows of resources and arrives at net position.
Also, terminology is being changed related to revenues and expenses/expenditures in order to account for the recognition of the deferred inflows and outflows as follows:
- Outflow of resources – a consumption of net assets that is applicable to the current reporting period.
- Inflows of resources – an acquisition of net assets that is applicable to the current reporting period.
In presenting the deferred outflows and inflows as distinct categories, the government must either present a detailed breakout of the different types of deferred amounts on the face of the statement or present an aggregate amount on the face of the statement to be broken out in the footnotes.
The remaining disclosure requirement involves situations in which the deferred inflow or the deferred outflow amount is vastly different from the amount of the related asset or liability, leading to an effect on net position. In this case, the government must provide information about the situation in the footnotes.
Although it was the imminent implementation of GASB Statement Numbers 53 and 60 that spurred the creation of GASB Statement Number 63, the GASB also began to contemplate, in a separate project, whether any other amounts classified as assets or liabilities at the time should be reclassified to deferred outflows of resources or deferred inflows of resources. The GASB ultimately issued Statement Number 65, Items Previously Reported as Assets and Liabilities, in March 2012. Among other balances, this statement determines that deferred losses on refunding transactions represent deferred outflows and should be reported in the manner discussed above.
GASB Statement Number 63 is effective for fiscal years beginning after December 31, 2011. In implementing this statement, governments must reclassify any deferred amounts into their appropriate categories for all years presented, and disclose in the footnotes the effect of any such reclassification.