Statement No. 69 Government Combinations and Disposals of Government Operations

The Governmental Accounting Standards Board (GASB) recently issued Statement No. 69 to provide guidance to state and local governments for combinations and disposals of government operations. This Statement will enable governments to determine if a combination is a government acquisition, a government merger, or a transfer of operations.

Governments have historically accounted for mergers, acquisitions, and other similar combinations by relying on guidance established for the private sector; however, Statement No. 69 provides accounting and financial reporting guidance to address the unique conditions and circumstances of governments.

Statement No. 69 establishes three types of government combinations: government mergers, government acquisitions, and transfers of operations.

The Statement defines a government merger as a situation where:

Two or more governments, or a government(s) and a nongovernmental entity, cease to exist as legally separate entities and are combined to form one or more new governments.
One or more legally separate governments or nongovernmental entities cease to exist and their operations are absorbed into, and provided by, one or more continuing governments.
In a merger, both new and continuing governments would measure the assets, deferred outflows of resources, liabilities, and deferred inflows of resources as of the merger date at the carrying values as reported in the separate financial statements of the merging entities.

However, governments may elect to adjust some carrying values to bring the accounting principles of the merging entities into alignment. Governments also may be required to adjust certain carrying values of capital assets for impairment as a result of the merger.

The Statement defines a government acquisition as a government combination in which a government acquires another entity, or the operations of another entity, in exchange for the payment of significant consideration. The acquired entity or operation becomes part of the acquiring government’s legally separate entity.

The acquiring government would measure the acquired assets, deferred outflows of resources, liabilities, and deferred inflows of resources—with certain exceptions—at a market-based entry price. For circumstances in which the consideration provided exceeds the net position acquired, the acquiring government would report the difference as a deferred outflow of resources.

Finally, the Statement defines a transfer of operations as a government combination involving the operations of a government or nongovernmental entity, rather than a combination of legally separate entities, and in which no significant consideration is exchanged. Because transfers of operations are entered into by governments for similar reasons as government mergers, similar measurements (that is, carrying values) would be applied for these arrangements.

The Statement also provides guidance for disposals of government operations that have been transferred or sold. Upon the disposal of operations, governments would recognize a gain or loss, which would be reported as a special item in the period in which the disposal occurs.

Statement No. 69 is effective for periods beginning after December 15, 2013 and should be applied on a prospective basis. Early application is encouraged by the GASB.

The full text of Statement No. 69 is available by clicking here.