GASB looks at investment securities valuation.

The Governmental Accounting standards Board plans to issue a proposal in January 1996 on accounting for investments in debt and marketable equity securities. Except in limited areas, the GASB has not established valuation standards for investments. The project will cover all state and local government entities except defined benefit pension plans and Internal Revenue Code section 457 deferred compensation plans.

One problem auditors face when reporting investments in securities is determining where they should be recorded on the balance sheet. According to generally accepted accounting principles, government entities should report their securities investments at amortized cost, unless there has been a permanent decline in value. "The GASB received a number of questions in the past year on judging a decline in value as permanent," said Venita Wood, project manager at the GASB. "It is difficult to judge when considering situations similar to Orange County, California, and other derivatives losses. During declines in value, auditors are concerned about fairly presenting investments in debt and market securities on the balance sheet."

Wood said to help formulate alternative accounting methods to determine when securities investments should be reported, the GASB would look at Financial Accounting Standards Board Statement no. 115, Accounting for Certain Investments in Debt and Equity Securities; FASB exposure draft, Accounting for Certain Investments Held by Not-for-Profit Organizations; and GASB Statement no. 25, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans, which requires public entity retire en systems to value all investments, not just securities investments.

The GASB will form a task force to advise on investment securities valuation and plans to begin deliberations in late 1995.