U. S. Federal Accounting Standards Update OECD Accruals Symposium U. S. Federal Accounting Standards Update Tom Allen FASAB Chairman

Disclaimer Views expressed are those of the speaker. The Board expresses its views in official publications.

Primary Focus of FASAB Stewardship--Information on whether: the government’s financial condition improved or deteriorated programs are sustainable as currently constructed 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

FASAB Projects Fiscal Sustainability Reporting Social Insurance Revisiting Conceptual Framework Changes in Assumptions Oil and Gas Resources Source of GAAP Legacy PP&E Estimates AAPC – Technical Releases

Social Insurance Purpose Background Provide information on Impact on the government’s financial condition and position as a result of the programs Whether social insurance programs are sustainable Likelihood social insurance programs will be able to provide benefits to those planning on receiving them Background Social Insurance programs have high participation among citizens Fiscal challenges

Social Insurance Information that may be presented Issues Present value of program revenues and scheduled benefits Causes of the changes in present values during the reporting period Assumption changes Legislation Future amounts attributable to events during the period(?) RSI Cash flow projections as a percent of GDP and taxable payroll Dependence ratio Sensitivity analysis Italicized items are currently required by standards. Issues What is essential social insurance information? How should information be displayed? When expense and liability should be recognized?

Changes in Assumptions & Selecting Discount Rates Purpose Guidance for displaying changes in assumptions Provides more transparent and useful information prepared in a more consistent manner. Background Change in assumptions may exceed all other costs What Treasury rates should be used when calculating present values for expense and liability amounts Changes in assumption(s) create differences between the new estimate and the prior estimate. For example, the discount rates may change from 3 percent to 4 percent. The effect of such changes is a gain or a loss that sometimes exceed all other operating costs of the program. These gains and losses may cause extreme volatility in total annual costs.

Changes in Assumptions & Selecting Discount Rates Exposure Draft Proposed: Gains and losses from changes in assumptions displayed on the statement of net cost separate from other costs and exchange revenue Components of expenses associated with long-term liabilities disclosed in notes Guidance on what rate to use in present value measurements of long-term liabilities Discount rates for present value measurements of long-term liabilities should be interest rates on marketable Treasury securities of similar maturities to the cash flows of the payments for which the estimate is being made, unless the discount rate is specifically provided in other FASAB standards.

Oil and Gas Resources Purpose - recognizing assets and liabilities for federal oil and gas resources Background Federal government has extensive oil and gas resources throughout the country and on the Outer Continental Shelf. Quantity and value of these assets not provided

Oil and Gas Resources Recognizing asset for oil and gas proved reserves at current value Results in information on: Quantity of proved reserves Value of proved reserves Royalty revenue and depletion of reserves Extensive disclosure and RSI

Applicability of FASB GAAP Purpose Provide FASAB guidance regarding applicability of FASB GAAP to federal entities Background 1999 - AICPA recognized FASAB as standards-setter for federal entities Some entities follow FASB GAAP Federal government corporations US Postal Service Others

FASB GAAP Issues Status What are user needs What requirements would address user needs and Treasury reporting needs What are the reporting costs, burdens, challenges Status Surveying entities Staff plans to determine the user needs of the entities currently reporting under FASB, develop proposed reporting requirements that would incorporate those user needs with the needs of Treasury in compiling the consolidated financial report of the U.S. Government (CFR), and then prepare a draft survey to get feedback on the potential costs, burdens, and hurdles to providing the information necessary to satisfy the proposed reporting requirements. 

Estimating the Cost of Legacy PP&E Purpose: Reduce the cost of compliance through amendment to standards. Background: Some LARGE agencies do not have systems to capitalize cost as PP&E is acquired. The benefits of PP&E accounting are realized primarily through timely data derived from quality systems. The cost of estimating cost may exceed the benefits of doing so. Issue: When do you stop permitting estimation based on less rigorous documentation?

AAPC Status and Activities AAPC is the source for level D GAAP (Technical Releases). Representatives from central agencies, IG and CFO communities, and FASAB. Implementation guidance can be provided relatively quickly. Recently Completed efforts: Inter-entity cost implementation Stewardship Land/Heritage Assets Implementaton Active Effort – General PP&E Q&A staff forwarded both technical releases (8 & 9) to the FASAB on January 7, 2008 to start the 45-day review period that will end on February 20, 2008. This time frame will allow the Committee to meet the requirement that the 45-day review period include the FASAB meetings on February 13 & 14, 2008.

AAPC – Q&A regarding General PP&E Concerns raised regarding the level of precision sought during audits and continuing questions regarding permissible treatments. Questions expected regarding: Group and Composite depreciation methods Capitalization of indirect cost Spare parts Deployed assets

Recently Issued SFFAC 5, Definitions of Elements and Basic Recognition Criteria for Accrual- Basis Financial Statements Defines 5 elements Provides basic recognition criteria

Convergence with Public Sector Accounting Standards Setters FASAB monitors others’ progress on standards - seeking opportunities to collaborate Members attend meetings Staff track projects FASAB/GASB Collaboration on Measurement Attributes Planned Participation in IPSASB’s Fiscal Sustainability Project Planned Board considered options and barriers to convergence and decided that collaboration on particular issues would be better than pure convergence or adoption. For example, IPSASB standards have many options because some countries use cash accounting while others use accrual accounting. There is not much incentive for governments to use a single set of standards like in the private sector.

FASAB On-Line Resources www.fasab.gov All exposure drafts and final pronouncements. Electronic mailing list for updates. Active project pages include deliberative material.