Local government investment pools (LGIPs) are often discussed as if they are interchangeable with other investment pool products. In practice, subtle differences in accounting framework and audit standards can materially change how these pools look, how they’re audited and how stakeholders interpret their financial statements.
Understanding these distinctions is essential not just for accountants and auditors, but also for treasury professionals, governing boards and policymakers who rely on LGIPs as mission critical cash management tools. Clear reporting frameworks help these stakeholders compare pools appropriately and avoid drawing conclusions that don’t match a pool’s strategy or legal structure.
GASB 79 vs. Fair Value: Two Valid Models, Different Stories
At the heart of most confusion is the distinction between GASB 79 accounting and fair value accounting. Although both are acceptable in the right circumstances, they communicate different priorities to readers of the financial statements.
GASB 79 allows qualifying external investment pools to measure investments at amortized cost and transact at a stable net asset value (NAV). This approach is intentionally conservative and liquidity focused, aligning with how most governments use LGIPs: as extensions of cash, not as vehicles for market timing or total return.
Fair value accounting, by contrast, reflects mark to market valuation, with changes in interest rates and credit spreads flowing directly through the financial statements. This model is typically used when pools extend duration, take on additional risk or pursue strategies beyond daily operating liquidity.
Critically, neither approach is “better.” Each tells a different story: GASB 79 emphasizes stability, compliance and liquidity, whereas fair value emphasizes transparency, market risk and return volatility. The accounting choice should follow the investment strategy, not the other way around.
