In November 1989, the Governmental Accounting Standards Board issued Governmental Accounting Standards Board Statement 10: Accounting and Financial Reporting for Risk Financing and Related Insurance Issues .

Summary

This Statement established accounting and financial reporting standards for risk financing and insurance-related activities of state and local governmental entities, including public entity risk pools. The risks of loss that were included within the scope of this Statement included torts; theft of, damage to, or destruction of assets; business interruption ; errors or omissions; job-related illnesses or injuries to employees; acts of God; and any other risks of loss assumed under a policy or participation contract issued by a public entity risk pool. Also included were risks of loss resulting when an entity agrees to provide accident and health, dental, and other medical benefits to its employees.

This Statement generally required public entity risk pools to follow the current accounting and financial reporting standards for similar business enterprises, based primarily on FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. Pool premiums or required contributions were required to be recognized as revenue over the contract period in proportion to the amount of risk protection provided. Claims costs, including claim adjustment expenses and estimates of costs for claims relating to covered events that have occurred but have not been reported to the pool, should be recognized in the period in which the event that triggers coverage under the policy or participation contract occurs. Costs that vary with and are primarily related to the acquisition of insurance or pool participation contracts (acquisition costs) should be capitalized and charged to expense in proportion to premium revenue recognized. This Statement also required disclosure of certain ten-year revenue and claims development data as required supplementary information.

State and local governmental entities other than public entity risk pools were required to report an estimated loss from a claim as an expenditure/expense and as a liability if both of these conditions are met:

• Information available before the financial statements are issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. It is implicit in this condition that it must be probable that one or more future events will also occur, confirming the fact of the loss.
• The amount of the loss can be reasonably estimated.

If a governmental entity other than a pool uses a single fund to account for its risk financing activities, that fund should be either the general fund or an internal service fund . Both funds must use the method described above for calculating claims liabilities. However, if an internal service fund is used, the entity also may use an actuarial method, including a provision for future catastrophe losses, to calculate the amount that the internal service fund charges other funds of the entity. Charges made on that basis should be reported as revenue in the internal service fund and as expenditures/expenses in the other funds of the entity. Charges in excess of those amounts should be reported as operating transfers. Any surplus fund balance in an internal service fund resulting from use of a provision for catastrophe losses is required to be reported as a designation of equity for future catastrophe losses. If the general fund is used, the entity may use any method it chooses to allocate loss expenditures/expenses to the other funds of the entity.

This Statement was consistent with proposed provisions of the GASB's August 14, 1989 revised Exposure Draft , Measurement Focus and Basis of Accounting-Governmental Fund Operating Statements (MFBA ED), which would require governmental funds to report expenditures when incurred, regardless of when paid. The MFBA ED proposes standards only for governmental fund operating statements , not their balance sheets. The Board will resolve issues about the balance sheet effect of liabilities arising from these expenditure accruals in its financial reporting project. Accordingly, this Statement does not provide guidance on the display of claims liabilities reported by governmental funds.

Status

Effective Date

The requirements of this Statement that affect public entity risk pools were effective for financial statements for periods beginning after June 15, 1990. The requirements for entities other than pools are effective on the same date that the Board's final Statement on measurement focus and basis of accounting for governmental funds is effective. The transition date tentatively established by the MFBA ED is for financial statements for periods beginning after June 15, 1993, but later standards changed the effective year to 1994. However, earlier application is permitted. Entities other than pools that use an internal service fund to report their risk management activities should report all claims liabilities in that fund and report the transfer of liabilities previously reported in the general long-term debt account group as an adjustment of internal service fund beginning retained earnings.

Amends earlier standards

This Statement amended several earlier pronouncements. These included NCGAS 1, Summary Statement of Principles No. 12c and ¶46, ¶105, ¶122, ¶128, ¶129, ¶144, and ¶167, NCGAS 4, ¶9 and ¶14, NCGAI 6, ¶4 and ¶5, SOP 80-2, ¶4, and GASB 1, ¶8. It superseded NCGAS 4, ¶15 and ¶18-¶21 and NCGAI 11.

Amended by later statements

This Statement has been modified extensively by later pronouncements, including GASB 14 , GASB 17 , GASB 19 , GASB 30 , GASB 31 , GASB 34 and GASB 45 . Specifically, paragraph 2 will be amended by GASB 45 when effective, footnote 9 was amended by GASB 34 , ¶6, footnote 12 was amended by GASB 14 , ¶11 and ¶66 and by GASB 34 , ¶138 and ¶139, footnote 13 was amended by GASB 14 , ¶11, paragraph 19 was amended by GASBI 4, ¶11 and ¶12, paragraph 35 superseded by GASBS 30, ¶4, paragraph 36 was superseded by GASB 30 , ¶5, paragraph 37 was amended by GASBI 4, ¶10, paragraphs 40 and 41 were superseded by GASB 31 , ¶7-¶15, paragraph 44 was amended by GASB 31 , ¶6, paragraph 46 and fn8 were amended by GASB 31 , ¶13, paragraph 47 was superseded by GASB 31 , ¶7-¶13, paragraph 49 was amended by GASB 30 , ¶6, paragraph 50 was superseded by GASB 30 , ¶7, paragraph 52 was amended by GASB 34 , ¶6, paragraph 53 was amended by GASB 17 , ¶6 and GASB 34 , ¶6, paragraph 57 was superseded by GASB 30 , ¶9, paragraph 61 was amended by GASB 34 , ¶6, paragraph 63 was amended by GASB 19 , ¶4 and GASB 34 , ¶6, paragraph 64 was amended by GASB 17 , ¶6, GASB 19 , ¶4, GASB 34 , ¶79 and ¶112, and GASBI 6, ¶14, paragraph 65 was amended by GASB 34 , ¶6, paragraph 67 was amended by GASB 34 , ¶98, paragraph 68 was amended by GASB 34 , ¶112, paragraph 69 was amended by GASBI 4, ¶4-¶8 and GASB 34 , ¶6, paragraph 74 was amended by GASBI 4, fn1, paragraph 77 was amended by GASB 30 , ¶10 and GASB 34 , ¶6, paragraph 78 was amended by GASB 14 , ¶11 and ¶63 and GASB 34 , ¶6 and ¶113, paragraph 79 was amended was by GASB 14 , ¶65, paragraph 80 was amended by GASB 34 , ¶12, and paragraph 82 was superseded by GASB 17 , ¶6.

Discussion