GASB Statement No. 79 provides criteria for consistently measuring external investment pool holdings

STATE AND LOCAL GOVERNMENTS participate in external investment pools that function in a similar manner to money market investment funds. To enable governments and such pools to continue measuring investments at amortized cost amid regulatory change, the Governmental Accounting Standards Board (GASB) issued Statement No. 79 – Certain External Investment Pools and Pool Participants – in December 2015.

Governments and external investment pools followed guidance similar to Security and Exchange Commission (SEC) provisions contained in Rule 2a7. The GASB determined, however, that SEC rule changes effective April 2016 could pose compliance difficulties for governments and external investment pools. Statement No. 79 establishes standards for applying amortized cost measurements similar to the Rule 2a7 provisions that were in effect prior to April 2016.

Effective Date

STATEMENT NO. 79 takes effect for reporting periods beginning after June 15, 2015, except for certain provisions regarding portfolio quality, custodial credit risk and shadow pricing. Those provisions take effect for reporting periods beginning after December 15, 2015. The GASB encourages earlier application.

Anticipated Improvements

STATEMENT NO. 79 is designed to enhance the comparability of financial statements among governments participating in external investment pools by establishing specific criteria to determine whether that pool may use amortized cost measurements. That will result in more consistent application of amortized cost measurements for financial reporting. Such measurements approximate fair value and reflect the practices of external investment pools that base transactions on a stable net asset value per share basis.

Criteria for Applying Amortized Cost Measurement

AN EXTERNAL INVESTMENT POOL may elect to measure investments at amortized cost if the pool:

• Transacts with participants at a stable net asset value per share,• Meets specified portfolio maturity requirements,• Meets specified portfolio quality requirements,• Meets specified portfolio diversification requirements,• Meets specified portfolio liquidity requirements, or• Meets specified shadow pricing requirements.

GovernmentInsightsGASB Statement

No. 79

An external investment pool deemed significantly noncompliant with those criteria should follow provisions contained in paragraph 16 of GASB Statement No. 31 – Accounting and Financial Reporting for Certain Investments and for External Investment Pools.

Disclosure Notes to Financial Statements

A QUALIFYING EXTERNAL INVESTMENT POOL must disclose the following in financial statement notes:

• Disclosures required for fair value measurements as specified by GASB Statement No. 72 and Statement No. 31

• Any limitations or restrictions on participant withdrawals, including redemption notice periods, maximum transaction amounts, and the pool’s authority to impose liquidity fees or redemption gates

Participants in an external investment pool need to likewise disclose such limitations or restrictions on withdrawals.

Summary

STATEMENT NO. 79 gives governments and external investment pools necessary guidance to continue measuring investments at amortized cost amid regulatory rule changes. Overall, Statement No. 79 enhances the comparability of financial statements issued by governments and investment pools by providing guidance for consistent application of amortized cost measurements.

Most Statement No. 79 provisions take effect for reporting periods beginning after June 15, 2015, and remaining provisions take affect for reporting periods beginning after December 15, 2015.

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Government Insights: GASB Statement No. 79