Office of Business and Finance
Office of Business and Finance
GASB 48 addresses whether the sale of receivables results in either a sale or a collateralized borrowing. The Statement addresses measurement, recognition, and disclosure requirements for these types of transactions. In addition, this Statement establishes accounting and reporting standards for intra-entity transfers of assets and future revenues.
Institutions sometimes exchange an interest in their receivables for immediate cash payments – usually, a single lump sum. These transactions should be reported as a collateralized borrowing unless the institution’s continuing involvement with the receivables is effectively terminated. An institution’s continuing involvement is considered effectively terminated when all of the following occur:
Determining that receivables have been isolated from the institutions should be based on the following criteria:
A transaction in which an institution receives proceeds in exchange for cash flows from specific future revenues should be reported as a sale if the institution’s continuing involvement with those revenues meets all of the following:
When considering whether an institution maintains an active involvement in the generation of specific future revenues, an institution should distinguish those activities that generate a specific revenue from those that are tangential, or incidental, or are undertaken to protect the revenue. Examples of an institution’s active involvement in the future generation of revenues include:
Activities that would not be considered examples of active involvement in the generation of specific revenues include:
If the criteria required for sales reporting are not met, a transaction should be reported as a collateralized borrowing. The receivables or future revenues should be considered for financial statement purposes as pledged rather than sold. Proceeds received should be reported as a liability in the statement of net assets.
Pledged receivables should continue to be recognized as assets in the statement of net assets. Pledged revenues should continue to be reported as revenue in accordance with recognition and measurement criteria appropriate to the specific type of revenue pledged. Collections of the pledged revenues or receivables that are subsequently paid to the transferee reduce the liability in the pledging institution’s statement of net assets. Those payments should also be reported as expenditures, rather than reductions of revenue, in the statement of revenues, expenses, and changes in net assets.
If the criteria for sale reporting are met, a transaction should be reported as a sale. In a sale of receivables, the transferor institution should no longer recognize as assets the receivables sold, removing the individual accounts at their carrying value. The difference between the proceeds and the carrying value of the receivables sold should be recognized as a gain or loss in the period of the sale.
In a sale of future revenues, the institution should report the proceeds as deferred revenue or revenue. Generally, revenue should be deferred and recognized over the duration of the sale agreement; however, there may be instances in which recognition in the period of sale is appropriate.
When accounting for the transfer of capital and financial assets and future revenues within the same financial reporting entity, the transferee should recognize the assets or future revenues received at the carrying value of the transferor. The difference between the amount paid and the carrying value of the receivables transferred should be reported as a gain or loss by the transferor and as a revenue or expense by the transferee in their separately issued statements, but reclassified as transfers in the financial statements of the reporting entity.
Deferred revenues and charges arising from a sale of future revenues should be amortized over the life of the sale agreement using a systematic and rational method.
For the purposes of the following disclosures, pledged revenues are those specific revenues that have been formally committed to directly collateralize or secure debt of the pledging institution, or directly or indirectly collateralize or secure debt of a component unit. For each period in which the secured debt remains outstanding, pledging institutions should disclose information about specific revenues pledged, including:
In the year of the sale, institutions that sell future revenue streams should disclose information about the specific revenues sold, including:
This Statement is effective beginning FY 2007-08. In the year of implementation, changes made to comply with this statement, except those that would result from applying the deferral provisions relative to sales of future revenues, should be treated as an adjustment of prior periods, and financial statements presented for the periods affected should be restated. The deferral requirements may be applied prospectively. If restatement for prior periods is not practical, the cumulative effect of applying this Statement should be reported as a restatement of beginning net assets.