The Federal AccountingStandards Advisory Board

Back to the FutureBack to the Future

FASAB UpdateFASAB Update

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May 18, 2011May 18, 2011

Views expressed are those of the speaker. Official positions of the FASAB are determined only after

extensive due process and deliberations.

Disclaimer

Communication

10 5

Overview

• General information about FASAB

• Major Challenges

• Recently issued documents

• Documents under review

• Status of Current projects

• Other topics of interest

General Information

Mark RegerTreasury

Debra BondOMB

Bob DaceyGAO

Hal Steinberg

Alan SchumacherMichael Granof

Scott ShowalterNorwood Jackson

Tom AllenChairman

(Former GASB Chair)

Who is FASAB?

Bios available at www.fasab.gov

(Current as of May 18, 2011)

When does FASAB meet?

• Generally six times a year

For 2011:For 2011:• February 23 – 24 February 23 – 24 • April 27 – 28 April 27 – 28 • June 22 – 23 June 22 – 23 • August 24 – 25 August 24 – 25 • October 26 – 27 October 26 – 27 • December 19 – 20December 19 – 20

• Open to the public

• Agenda and briefing materials on www.fasab.gov

Where does FASAB meet?

Government Accountability Office

441 G Street, NW

Washington, DC 20548

Room 7C13 (Staats Briefing Room)

Major Challenges

Major Challenges

• The federal government’s financial health

• Primary focus of FASAB is not on one bottom line number

• Community involvement

• Cost/benefit considerations

“. . . The Nation must bring social insurance expenses and resources into balance before the deficit and debt reach unprecedented heights. Delays will only increase the magnitude of the reforms needed and will place more of the burden on future generations. . . “

Source: A Citizen’s Guide to the 2010 Financial Report of the U.S. Government, pg. x

Primary Focus of FASAB

• Stewardship--Information on whether:– the government’s financial condition

improved or deteriorated– programs are sustainable as currently

constructed

Primary Focus of FASAB (contd.)

• Operating Performance—Information to evaluate:– The service efforts, costs and

accomplishments of government– The manner in which these are financed– Management of the entity’s assets and

liabilities

Primary Focusof FASAB (contd.)

There is a need for more than just the bottom line numbers.

Community Involvement

• FASAB Community

– Preparers

– Auditors

– Users• Internal• External

Community Involvement (contd.)

• Formal Feedback

– AAPC

– Requests for comment

– Public Hearings

Community Involvement (contd.)

• Informal Feedback

– Task Forces / Roundtables

– Surveys / Polls / Questionnaires

– Field Testing

Cost/Benefit Considerations

• Costs not readily available

• Benefits difficult to quantify

• Balance in the eye of the beholder

• True user not always easy to pinpoint

How Does the Board Address Cost/Benefit?

• Agenda-setting

• Proposal development

• Staff communications

• Exposure Drafts

• Field Tests

Recently Issued Standards

Recently Issued Standards

SFFAS 34, GAAP Hierarchy Including Application of FASB

Effective

(FY 2009)

SFFAS 36, Reporting Comprehensive Long-Term Fiscal Projections

Fully Effective

(FY 2013)

SFFAS 35, Estimating Historical Cost of GPP&E

Effective

(FY 2010)

Recently Issued Standards (contd.)

SFFAS 39, Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the SAS

Effective

(Upon issuance)

SFFAS 38, Accounting for Federal Oil and Gas Resources

Effective

(FY 2012)

SFFAS 37, Social Insurance: Additional Requirements for MD&A and Basic Financial Statements

Effective

(FY 2010)

Recently Issued Standards(contd.)

SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes

Effective

(FY 2012)

SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by FASB (Issued July 28, 2009)

Fully Effective

(FY 2009)

• Identifies the sources of accounting principles and the framework for selecting them

– Incorporates GAAP hierarchy into the accounting literature

• Level a – FASAB Standards and Interpretations

• Level b – Technical Bulletins

• Level c – Technical Releases by AAPC

• Level d – Staff Implementation Guides and practice

– Addresses federal entities that currently apply FASB

SFFAS 35, Estimating the Historical Cost of General Property, Plant, and Equipment (Under Review)

Fully Effective

(FY 2010)

• Clarifies that reasonable estimates of original historical cost may be used to value G-PP&E

– Amends SFFASs 6 and 23

– Reduces implementation costs

– Effective for existing and new entities

SFFAS 36, Reporting Comprehensive Long-Term Fiscal Projections for the U.S. Government

Fully Effective

(FY 2013)

• Requires reporting that will help users determine whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due

– Resulted from social insurance project

– Applies to CFR only

– Requires a new basic financial statement and a number of disclosures

SFFAS 36 – Comprehensive Long-term Fiscal Projections (contd.)

• Basic Information (audited)– the present value of projected receipts and non-

interest spending under current policy without change with relationship to projected GDP

– changes in the present value of projected receipts and non-interest spending from the prior year

– the assumptions underlying the projections– factors influencing trends– significant changes in the projections from period

to period

SFFAS 36 – Comprehensive Long-term Fiscal Projections (contd.)

• Required Supplementary Information– the projected trends in:

• the relationship between receipts and spending• deficits or surpluses• Treasury debt held by the public as a share of GDP

– possible results using alternative scenarios– the likely impact of delaying corrective action

when a fiscal gap exists (“cost of delay”)

The Sustainability of Fiscal Policy

An important purpose of the Financial Report is to help citizens and policymakers assess whether current fiscal policy is sustainable and, if it is not, the urgency and magnitude of policy reforms necessary to make it sustainable. A sustainable policy is one where the ratio of debt held by the public to GDP[*] (debt to GDP) is stable over time. The discussion below focuses on balancing revenues and expenditures over time, and does not consider fairness or efficiency implications of the reforms necessary to achieve sustainability.

It is shown below that, under current policy, the ratio of debt to GDP is projected to rise continuously over the next 75 years, eventually exceeding 350 percent in 2085. If these projections were extended beyond 2085, the deficit excluding interest would continue as the population continues to age and if the other assumptions made for the 75-year horizon continue to hold. The persistence of the deficit excluding interest beyond the 75-year horizon implies that the ratio of debt to GDP would continue to grow beyond the 75-year horizon. The continuing rise in this ratio means that current policy is unsustainable.

* Gross domestic product

FY 2010 Financial Report of the U.S. Government, pp. 142-143

FY 2010 Financial Report of the U.S. Government, pg. 140

FY 2010 Financial Report of the U.S. Government

Costs of Delay

FY 2010 Financial Report of the U.S. Government, p. 146

SFFAS 36: Example Formats and Illustrations

• Preliminary Views issued October 23, 2006

• Exposure Draft issued November 17, 2008

• Board and respondents strongly divided on many aspects

• SI project spawned fiscal sustainability reporting project

SFFAS 37, Social Insurance: Additional Requirements for MD&A and Basic Financial Statements

Effective

(FY 2010)

Social Insurance (contd.)

• New requirements– Narrative in MD&A

– Table of key measures in MD&A

– Summary section for SOSI

– Statement of changes in SOSI

• Effective FY 2011

Example Formats and Illustrations

Example Formats and Illustrations

Example Formats and Illustrations

Natural Resources

• Natural Resources project initiated in July 1995

• Task force held first meeting in January 1997

• Task force issued discussion paper in June 2000

SFFAS 38, Accounting for Federal Oil and Gas Resources

Effective

(FY 2012)

• A schedule of estimated federal oil and gas petroleum royalties:

– the present value of future federal royalty receipts on proved reserves known to exist as of the reporting date

– the amounts to be distributed to others (state governments)

• Required supplementary information for three years

Natural Resources (contd.)

• Concurrent field test

– Original exposure draft on oil and gas released May 2007

– Evaluated comment letters along with results of field test

– Revised exposure draft issued July 2009

– Final standard issued April 2010

SFFAS 39, Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the AICPA Statement on Auditing Standards

Effective

(Upon issuance)

• AICPA SAS → FASAB SFFAS

• At the request of ASB

• Guidance basically unchanged

• Audit standards not included:– Related parties– Going concern

• Amended the definition only

• Repairs – clarify that deferred repairs are included

• Capital – clarify that deferred capital improvements are not included

• Preserves the notion that management determines acceptable condition

SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes

Effective

(FY 2012)

Other Recently Issued Documents

Other Recently Issued Documents

Technical Releases• 10 – Asbestos Cleanup Costs Associated with

Facilities and Installed Equipment• 11 – Cleanup Costs Associated with

Equipment • 12 – Accrual Estimates for Grant Programs

Effective

(Upon issuance)

(Upon issuance)

(FY 2012)

Financial Reporting Model Task Force Report to the FASAB

Effective

(N/A)

Technical Release 10 – Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment

Fully Effective (upon issuance)

• Provides implementation guidance for Technical Bulletin 2006-1, Recognition and Measurement of Asbestos-Related Cleanup Costs

• Framework

– Identify assets that contain asbestos

– Develop estimates of cleanup costs

Technical Release 11 – Guidance on Cleanup Costs Associated with Equipment

Fully Effective (upon issuance)

• Clarifies the accounting for cleanup costs associated with permanent or temporary closures or shutdown of equipment

• Also clarifies accounting for cleanup costs associated with ongoing operations

• Provides guidance supporting cost-effective development of reasonable estimates of accrued liabilities for grant programs

• Addresses numerous areas (e.g., materiality, internal controls, training, reasonableness, etc.)

Technical Release 12 – Accrual Estimates for Grant Programs

Fully Effective

(FY 2012)

Documents UnderReview

SFFAS 41, Deferral of the Effective Date of SFFAS 38, Accounting for Federal Oil and Gas Resources

Effective

(Upon issuance)

• Defers the effective date of SFFAS 38 for one year

• New effective date is for periods beginning after September 30, 2012 (fiscal year 2013)

• Expected to be issued in July 2011

Technical Bulletin 2011-1, Accounting for Federal Natural Resources Other than Oil and Gas

Effective

(FY 2014)

• Applies principles of SFFAS 38 to other types of natural resources

• Required implementation for nonrenewable resources

• Renewable and electromagnetic spectrum may implement, but not required

• Effective for periods ending after September 30, 2013 (fiscal year 2014)

• Expected to be issued in July 2011

SFFAC 7, Measurement of the Elements of Accrual-Basis Financial Statements in Periods After Initial Recording

Effective

(Upon issuance)

• A statement of concepts to assist the board in establishing standards

• Identifies how ‘initial amounts’ and ‘re-measured amounts’ contribute to meeting reporting objectives

• Defines a suite of measurement attributes • Considering unique information needs in the federal

environment, for example:– Value in use– Constant dollar reporting

Current Projects

Active FASAB Projects

• Revisiting Conceptual Framework

• Deferred Maintenance / Asset Impairment

• Evaluating Existing Standards

• Use of FASB by Federal Entities

Revisiting Conceptual Framework

• Completed Phases: Objectives Elements Measurement Attributes

• In-Process Phases: Reporting Model Federal Entity

• Review and Maintenance

Reporting Objectives

• Completed a review of the FASAB’s role and its environment

• Reviewed each of the four existing objectives from SFFAC 1

• Issued report, “Clarifying FASAB’s Near-Term Role in Achieving the Objectives of Federal Financial Reporting.” – Operating Performance and Stewardship are primary near-term

focus.

• Recently reviewed and confirmed the focus of FASAB remains the same; in the process of approving an addendum

FASAB’s Near-Term Focus

Operating Performance

Federal financial reporting should assist report users in evaluating the service efforts, costs, and accomplishments of the reporting entity; the manner in which these efforts and accomplishments have been financed; and the management of the entity's assets and liabilities.

Stewardship

Federal financial reporting should assist report users in assessing the impact on the country of the government's operations and investments for the period and how, as a result, the government's and the nation's financial condition has changed and may change in the future.

Budgetary Integrity

Federal financial reporting should assist in fulfilling the government's duty to be publicly accountable for monies raised through taxes and other means and for their expenditure in accordance with the appropriations laws that establish the government's budget for a particular fiscal year and related laws and regulations.

Systems and Control

Federal financial reporting should assist report users in understanding whether financial management systems and internal accounting and administrative controls are adequate…

Primary Near-Term Focus

Mission

Comparative Advantage/GAAP Standards Setter

Language from Concepts 1

FASAB’S ROLE

Supporting RoleDirect Role Direct RoleSupporting Role

Secondary Near-TermFocus

Evolving Laws & Administrative Directives

Other Reports Fulfilling Objective

Contribution of Current Standards

Secondary Near-TermFocus

Board’s Authority does not extend to Budgetary Measurement and Recognition

Other ReportsFulfilling Objective

Contribution of Current Standards

Elements

• SFFAC 5 defined five elements of accrual-basis financial statements:– Assets, liabilities, net position, revenues

and expenses

• Recognition criteria

• Uncertainty

Federal Reporting Model

• Concerns exist regarding the benefits of accrual-basis financial statements relative to the cost of preparing them– FASAB conducting a user needs study– Federal CFO Council preparing a proposal– Developing a report on experiences in other countries

• FASAB Task Force report issued December 22, 2010

Federal Reporting ModelCFR Recommendations

• Web delivery model• Government-wide performance information• Net cost and spending by function• Statement of spending requirements• Intergovernmental financial dependency• Improved reconciliation of deficit and operating cost• Reclassify the reconciliation of cash and debt changes• Re-orient the balance sheet and improve stakeholder link• Explain the difference between net liabilities and fiscal gap• Establish a Web site for reports and to raise awareness in the

near-term

Federal Reporting ModelNext Steps

• Consider implications of user needs study and task force recommendations for existing concepts

• Study of component entity reporting model

Federal Entity

• FASAB established concepts in mid-90’s• Standards now being developed• Questions:

– What to include in CFR (all entities “established by” the federal government or a subset)?

– How to present information (all consolidated, some separately displayed or disclosed)?

– Boundary between “related” parties, core and non-core entities?

Deferred Maintenance and Asset Impairment

• Deferred maintenance viewed as critical management issue

• Experimental reporting has been underway since 1998

• Definitions – revised definition and title (deferred maintenance and repairs)

• Open Issues: – Measurement techniques– Relevant metrics to report (dollars and/or condition)

• Task force of facilities managers, accountants, and auditors formed to assist

Evaluating Existing Standards

• Why– Cost/benefit issues?– Communication challenges– Expectations

• How– Outreach to preparers, auditors and “users”– Development of options

• Earmarked funds – assessing implementation and adjusting reporting requirements

Use of FASB by Federal Entities

• Background

– AICPA Rule 203 Status

– Current practice

– Revisiting newsletter guidance• Consistency, completeness, and

accountability • Consolidation issues

Use of FASB byFederal Entities (contd.)

• Issues

– What are user needs

– What requirements would address user needs and Treasury reporting needs

– What are the reporting costs, burdens, challenges

Use of FASB byFederal Entities (contd.)

• Project Status– Survey– Workgroup– Roundtable– Tentative Decisions

• No entities required to convert to FASAB at this time

• CFR can include two sources of GAAP• Exception for material intragovernmental

eliminations

Emerging Issues

• Risk Assumed• Leases• Investments in non-federal securities• Public Private Partnerships

• AAPC – Determining the full cost of PP&E– Capacity challenges in a more constrained environment…

Other Topics

Other Topics

• Open government initiative

• Future of PP&E

• Inter-period equity

• Accounting for green initiatives

• Convergence with international standards

Accounting for Green Initiatives

• Examples of initiatives

– Renewable or sustainable energy

– Shared savings contracts

– Cap and trade programs

– Treaties

– New projects such as retrofitting buildings

• How should they be reported?

Convergence with Other Standards-Setters

• Hold informed deliberations

• Identify opportunities for collaboration

• Maintain liaisons

• Annual joint meeting with GASB

Stay Informed

• www.fasab.gov

• FASAB listserv– Bi-monthly FASAB newsletter– Requests for comment– Press releases– Agendas– Invitations to serve on task

forces• Public meetings

Online Resourceswww.fasab.gov

New Design Coming Soon!

Contact Information

Julia Ranagan, CGFM, CPA

Assistant Director

202.512.7377

ranaganj@fasab.gov

www.fasab.gov Follow @usfasab on Twitter

Questions?