MEMORANDUM No. SAD 98-56

To:                    Chief Fiscal Officers

From:                Edward Renfrow
                          State Controller

                          Don Waugh
                          Assistant State Controller
 

Subject:            Accounting for Securities Lending Transactions and the Fair Value of Investments
 

The Office of the State Controller (OSC) is planning for the implementation of GASB Statement Number 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, which is effective for our fiscal year ending June 30, 1998. Also, OSC will be making the accounting entries for GASB Statement Number 28, Accounting and Financial Reporting for Securities Lending Transactions in the North Carolina Accounting System (NCAS) on behalf of the State agencies. We have held discussions with the Office of the State Auditor and the Department of State Treasurer to discuss the implementation of both statements.

GASB Statement No. 31

The GASB made a major change in the accounting for investments by issuing GASB Statement No. 31 in March 1997. This new standard requires governmental entities to report most investments at fair value on the balance sheet and is effective for the fiscal year ending June 30, 1998. It applies to State agencies with investments in the State Treasurer’s Long-Term Investment Fund and to State agencies with investments outside the State Treasurer. The investments in the State Treasurer’s Short-Term Investment Fund (SFIF) do not need to be marked to fair value at June 30, 1998 since for STIF, the difference between cost and fair value will be immaterial. An overview of GASB Statement No. 31 is available on the Internet (http://www.osc.state.nc.us/OSC) in the North Carolina Accounting System Information Guide (SIG) under "News Bulletins". We added a new section entitled "Accounting Standards Update", which has PowerPoint slide shows of recently issued GASB pronouncements. Currently, slide shows for GASB Statements 31 and 32 are available.

The first step in implementing GASB Statement No. 31 is the calculation of the fair value of investments at the beginning of the year. This information will be used to record a prior period adjustment for the difference between the cost and fair value of investments on July 1, 1997. In addition, State agencies will need to record the investment activity for months one through twelve for purchases and sales. State agencies should account for investments at cost during the year, recognizing realized gains and losses for the differences between the sales price and original cost. The transaction accounting should be the same as in prior years. At the end of the year, State agencies should make the necessary accounting entries to adjust their investments from cost to fair value and should record the changes in the fair value of investments in a separate allowance account. State agencies should make the prior period adjustment and the adjusting entries during the thirteenth period. However, State agencies can compile the information for the prior period adjustment currently since this information is already available. For your convenience, we have enclosed a statement that shows the fair value of your participant equity in the Long-Term Investment Fund as of July 1, 1997. The Department of State Treasurer will provide this same information to State agencies as of June 30, 1998 as soon as it is available. Also, we have included illustrative journal entries for GASB Statement No. 31 for the first year of implementation and for the subsequent year (see Attachment A). The NCAS accounts and CAFR report placement needed for fair value reporting are listed below.
 
 

If you have any questions or comments about these issues, please contact Pam White at (919) 981-5473 (pwhite@controller.osc.state.nc.us), Clayton Murphy at (919) 981-5474 (cmurphy@controller.osc.state.nc.us) or Carmen Dixon at (919) 981-5475 (cdixon@controller.osc.state.nc.us). Your assistance and cooperation is most appreciated.

ER/WCM

Attachments