The Governmental Accounting Standards Board (GASB) under Concepts Statement No. 4, Elements of Financial Statements (2007) and Statement No. 65, Items Previously Reported as Assets and Liabilities (2012) identified two new balance sheet elements not previously used in government or private-sector financial reporting. The two elements are deferred outflows of resources and deferred inflows of resources. Of interest in the current study is whether the information provided by these unfamiliar elements are impounded by users in their analyses of new debt issue costs. Given the extremely large size of the municipal bond market and that the FASB has also considered changes to conceptual elements, it is important to have a greater understanding of how changes to the conceptual framework influence markets.
Our results indicate that the disaggregation created by these unfamiliar balance sheet elements results in the increased information provided being impounded into interest costs of new issues. Our findings should be useful to the GASB, other standard-setting and regulatory bodies, and the extremely large municipal bond market. Overall our findings counter arguments made at the time of GASB adoption that the elements would create complexity and confusion.
