The CPA Profession’s Call for Federal Fiscal Responsibility

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Presentation transcript:

The CPA Profession’s Call for Federal Fiscal Responsibility What's at Stake? The CPA Profession’s Call for Federal Fiscal Responsibility

The role of CPAs Serve as trusted advisors to a variety of organizations Help businesses and individuals achieve strong financial standing Protect the public interest Explain complex financial issues CPAs are trusted advisers to a variety organizations CPAs help businesses and organizations achieve strong financial standing. CPAs protect the public interest and help the public understand complex financial issues.

Today Overview of the federal budget Insights into the federal financial statements Nation’s deficit reality Today, I will provide an overview of the federal budget and insight into the financial statements as prepared by the US Department of the Treasury. You don’t need to be a CPA to understand the implications of these financial statements and the tangible impact the information contained within its pages will have on our future and generations to come.

Federal budget Establishes the fiscal goals envisioned by Congress Measured on a cash basis Tool to help guide spending decisions The President, in accordance with the “Budget and Accounting Act of 1921” must submit a budget to Congress each year. The budget is measured on a cash basis.  Congress uses the budget as a tool to help guide the House and the Senate appropriators with their spending decisions by setting a top-line allocation.  The budget shows what is bought and paid for in a given year.  

Federal financial statements Record of what has actually happened Prepared on an accrual basis Provide information about longer-term implications Greater insight into the fiscal health of this country can be garnered from understanding the financial statements, which are a record of what has actually happened.  The financial statements are prepared on an accrual basis, like all other public companies and many state and local governments. Because of that, financial statements provide significant information about the longer-term implications of the government’s operations. 

Cash Budget Compared to Financial Statement Loss (Most up to date info available) Source: A Citizen’s Guide to the 2016 Financial Report of the U.S. Government

Congressional Budget Office “CBO” Budget Deficit 2016 Budget Deficit Actual $587 billion 2017 Budget Deficit Estimate $559 billion 2017 to 2026 Cumulative Budget Deficit Estimate $8.6 trillion 2016 is the 1st increase in the annual deficit estimate since 2009 Source: CBO Budget Deficit Estimate

Just How Much is a Trillion? One trillion is $1,000,000,000,000 A million seconds is 11 ½ days, a billion seconds is 32 years, a trillion seconds is 32 thousand years Source: “Numb and number: Is trillion the new billion?” by Christine Romans CNN’s American Morning, 2009

Expenses exceeded revenue by $1.1 trillion Revenue = $3.3 trillion Expenses = $4.4 trillion 2016 Operations The financial statements report the revenue and expenses and assets and liabilities of the US government. The most recent financial report, for the fiscal year ended September 30th, 2016, showed that while the majority of revenue – 2.9 trillion dollars – came from taxes, the government ran a net operating loss, where expenses exceeded revenues by 1,047 billion dollars. Note to speaker: Revenue = $3.3T Expenses = $4.4T Net operating loss = $1.1T Expenses exceeded revenue by $1.1 trillion

2016 Revenues (most up to date info) Individual income tax and payroll tax with holdings 78% Corporate Income Tax 9% Other 13% Other revenues include excise, unemployment and customs duties. Source: A Citizen’s Guide to the 2016 Financial Report of the U.S. Government

2016 Expenses (Most up to date info) Source: A Citizen’s Guide to the 2016 Financial Report of the U.S. Government

Liabilities= $22.8 trillion Accumulated net deficit= $19.3 trillion 2016 Balance Sheet Assets= $3.5 trillion Liabilities= $22.8 trillion Accumulated net deficit= $19.3 trillion The financial report also shows that the US Government had: assets of 3.5 trillion dollars liabilities of 22.8 trillion dollars for a net accumulated deficit of 19.3 trillion dollars. This deficit is a result of spending more over the years than the U.S. government has taken in and puts an incredible strain on the US economy.

What We Own and What We Owe Assets: $1.3 trillion in loans receivable primarily student loans $980 billion in PPE Source: A Citizen’s Guide to the 2016 Financial Report of the U.S. Government

U.S. financial statements differ from other organizations Prepared using standards of the Federal Accounting Standards Advisory Board (FASAB) U.S. government’s balance sheet does not include obligations for Social Security and Medicare Included as footnote disclosure only (not reflected as liabilities on face of financial statements) New FASAB Reporting Entity Standard, is effective for periods after September 30, 2017 Will require consolidation of Government Sponsored Enterprises (“GSE’s”) like the Federal Reserve, Fannie Mae and Freddie Mac The federal financial statements different from those used by other organizations. Typically, obligations or liabilities are shown on the face of financial statements. That isn’t true with Social Security and Medicare. They're footnote disclosures and are not reflected as liabilities on the face of the balance sheet. New Reporting Entity Standard SFFAS 47 establishes principles to identify organizations for which elected officials are accountable. The Statement also guides preparers of government-wide general purpose federal financial report GPFFRs in determining what organizations to report upon, whether such organizations are considered “consolidation entities” or “disclosure entities,” and what information should be presented about those organizations. The Statement also requires information to be provided about related party relationships of such significance that it would be misleading to exclude information. SFFAS 47 is effective for periods beginning after September 30, 2017 and early implementation is not permitted. It is anticipated that central agencies will determine if there is a need for coordinated guidance to ensure government-wide consistency. Federal Reserve Liabilities at September 30, 2015 $4.4 trillion At December 31, 2007 before quantitative easing $877 billion

Social Security and Medicare Future Expenditures in Excess of Future Revenues (Closed Group) (9/30) Dollars - Trillions Social Security and Medicare obligations are not reflected as liabilities under FASAB standards but are a footnote disclosure. 75 year present value of expenditures in excess of pay roll tax receipts. Closed Group reflects only current participants.

U.S. Government Accountability Office Independent Auditor’s Report Source: U.S. Government Accountability Office 2016 Independent Auditor’s Report

U. S. Liabilities and Obligations Compared to U. S U.S. Liabilities and Obligations Compared to U.S. Household Net Worth (as of September 30, 2016) $ Closed group social insurance obligations ($65 trillion) Dollars in Trillions Household Net Worth ($90 trillion) U.S. Liabilities ($23 trillion) Liabilities & Social Insurance(1) Household Net Worth(2) Sources: 1) 2016 Financial Report of the U.S. Government; 2) Federal Reserve, Flow of Funds Accounts of the United States

What’s next Visit: aicpa.org/WhatsAtStake Watch What’s at Stake: The CPA Profession’s Call for Federal Fiscal Responsibility Policymakers: read the Financial Report of the U.S. Government Citizens: read A Citizen’s Guide to the Fiscal Year 2016 Financial Report of the U.S. Government Join the public dialogue to make the county’s fiscal health a national priority To learn more and engage in this important issue: Visit: www.aicpa.org/WhatAtStake Watch What’s at Stake: The CPA Profession on Federal Financial Responsibility I recommend that policymakers read the Financial Report of the US Government and that citizen read A Citizen’s Guide to the Fiscal Year 2012 Financial Report of the U.S. Government Finally, everyone should in a public dialogue to make the country’s fiscal health a national priority. The CPA profession stands ready to support this effort in any way we can. Thank you.

(Optional) (Add information about what you, your firm and/or your state society is doing in this area)

Thank you