Municipal bond analysts calculate a variety of ratios when analyzing the creditworthiness of governmental debt issuers. Many
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, 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.
When governments implemented GASB 65, certain items that were previously recorded as assets are reported as deferred outflows of resources, and certain items recorded as liabilities are reported as deferred inflows of resources. By appropriately using the separated financial statement elements, it ensures consistency in the reporting (GASB, 2012). Therefore when municipal bond analysts use ratios to assess the governmental debt issuers' creditworthiness, it provided a more accurate ratio calculation. When using ratio analysis, a bond analyst compares the financial statements using several reporting periods and see the trend and measure the entities' efficiencies. The trend can identify financial difficulties and estimate future performance. After the implementation of GASB 65, bond analysts would be able to measure the actual condition but would have difficulties comparing the results to past reporting periods, as a portion of the assets and liabilities are no longer used in the ratio calculation. Therefore, the bond analysts must keep the implementation in mind when calculating the ratio so that any discrepancy from the prior year can be adjusted accordingly.