Gasb Interpretation 5

GASB Interpretation 5 Property Tax Revenue Recognition in Governmental Funds

The GASB Interpretation 5 interprets the National Council on Governmental Accounting's (NCGA) Statement 1, Government Accounting and Financial Reporting Principles, and amends NCGA Interpretation 3, Revenue Recognition - Property Taxes. The GASB Interpretation 5 was issued on November 1997 and is effective for financial statements for periods beginning after June 15, 2000; however, earlier application is encouraged. It applies to all state and local governments that report property tax transactions in governmental funds.

The main reason for issuance of GASB Interpretation 5 was to insure consistency in application of modified accrual accounting.

First of all, NCGA Statement 1 contains basic rules governing modified accrual accounting. Paragraph 62 specifies that revenues should be recognized "in the period in which they become both measurable and available to finance expenditures of the fiscal period." Furthermore, paragraph 62 explains the meaning of the term “available” as "collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period."

Secondly, NCGA Interpretation 3 specifies how "availability" criterion should be applied to property taxes. Paragraph 8 of that pronouncement defines "available," in the context of property tax revenue recognition, as "due, or past due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period" (Gauthier). Moreover, NCGA Interpretation 3 imposes a limit on the timing of collections by setting forth that "such time thereafter shall not exceed 60 days." As a consequence, these two requirements, the "due-date criterion" and the "60-day rule", are unique to property taxes.

As a direct result of NCGA Interpretation 3, governments sometimes would not recognize property...