You are the finance officer of a county government whose board of supervisors has been expressing its confusion about deferrals. They don't understand what deferrals are, where they came from, and what their impact will be on the county's financial health as reported in its CAFR. Some of the supervisors, in their confusion, want to know why the county should have to follow these standards and are threatening to pass an ordinance prohibiting the county from reporting deferrals. To address their concerns and talk them down off the fence, develop a memorandum to the supervisors.

The memorandum will begin with abackground section. Explain that you have been asked by the board of supervisors to make a memorandum and why. You shouldbrieflypreview what the memo will cover and why it is important to the supervisors.

The next section will explainwhat deferred outflows of resources and deferred inflows of resources are.Having the ability to clearly define deferrals in a manner that the non-accountants on the board of supervisors will understand is key in this section.

The third section will explainwhy the county has begun to report deferrals.This explanation needs to be more than just, "because the GASB said so." The requirement to followGASB standardsis a pragmatic matter and should be addressed, but the more important aspect of the section should be to explain why it is important to report deferrals separately from assets and liabilities.

The fourth section will describewhat is required by Statements 63 and 65and how it differs from what the county currently is doing. The description of Statement 65 need not go through each of the asset and liability balances addressed by the pronouncement. Rather, this section should explain in broad strokes what Statement 65 does (in other words, certain items reported as assets and liabilities in the past will be reported as deferrals or current-period inflows or outflows in the future). To illustrate the general requirements, you should selecttwo examplesof items formerly reported as assets or liabilities that Statement 65 now requires be reported as deferrals or current-period inflows or outflows and explain why the change was made. Examples are on paragraphs 62-108 of Statement 65.

Please select two different types of elements; for instance, if one example you pick is item that Statement 65 requires to be reported as a deferred inflow of resources, then the other example should be a deferred outflow of resources or a current-period inflow or outflow of resources.

The last section will be aconclusion.This section will present the opinion of the requirements of GASB Statements 63 and 65. If you agree with them, explain why. If you disagree with them or some aspect of them, explain why. This section needs to emphasize, however, that regardless of your opinion about the Statements, it is important for the county to comply with them. Explain as succinctly but diplomatically as possible what the repercussions of non-compliance would be for the county.