Question
Municipal bond analysts calculate a variety of ratios when analyzing the creditworthiness of governmental debt issuers. Many of these ratios include asset and liability amounts,
Municipal bond analysts calculate a variety of ratios when analyzing the creditworthiness of governmental debt issuers. Many of these ratios include asset and liability amounts, such as assets divided by liabilities, liabilities divided by net position, and liabilities divided by revenues. What do you think the effect wason ratio analysis when governments implemented GASB Statement 65? Please explain your answer.
Main Question: What is the opinion on this student's response? Please see below.
According to GASB Statement No. 65 which requires that when an asset is recorded in governmental fund accounting before the revenue is available the government should report a deferred inflow of resources until the revenue becomes available. With GASB 65 implementation debt issuance costs no longer meet the definition of an "asset". GASB 65 requires it to now be recognized as an expense in the period incurred rather than when paid. The implementation of GASB 65 in ratio analysis will result in using more accurate financial statements that will portray a fair financial position, financial and economic condition of an organization. Where the financial position focuses on assets and liabilities that require cash or are normally converted to cash in the short-term (liquidity). And financial condition refers to a government's ability to meet its financial obligations to creditors and others as they become due, as well as its service obligations. The economic condition of government is current financial position and its ability and willingness to meet its financial obligations and services to the communities. Having accurate financial statements and correct ratios helps municipal bond analysts when assessing the current financial condition and long-term solvency of a government entity.
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