It has become more commonplace in today’s environment for governments (for example, a city or county) to join together to form a consolidated government. Therefore, the Governmental Accounting Standards Board (GASB) issued an Exposure Draft titled, Government Combinations and Disposals of Government Operations, to address government mergers, government acquisitions, and transfers of operations.
The GASB proposal provides guidance on the criteria needed for each type of transaction; how the various financial elements should be measured; and the date on which the measurement should take place.
In its June 18, 2012 letter, the AICPA’s State and Local Government Expert Panel expressed its overall support of the concepts in the GASB proposal, while also offering suggestions for improvement. With regard to government combinations, the Panel requested that the Board clarify the principle of “service continuation” which is proposed as the precondition for such an arrangement. The Panel also suggested that further guidance in this area would assist preparers in implementing the standard and lead to more consistency in practice. The Panel also questioned several of the Board’s conclusions regarding “consideration” which is identified as a key concept in determining whether a transaction is to be considered a merger or a combination.
The Panel’s full comments and recommendations are available on the AICPA Financial Reporting Executive Committee website.
In a related comment letter, the AICPA PCPS Technical Issues Committee (TIC), which represents the views of local and regional CPA firms on many professional issues, also applauded the GASB’s efforts in addressing this topic and supported most of the conclusions in the Exposure Draft.
TIC echoed the Panel’s concern with the conclusions reached on the definition of “consideration” and also requested a number of clarifications, including the meaning of the new term that was introduced in the Exposure Draft relating to “acquisition value.”