The Federal Accounting Standards Advisory Board FASAB Update FASAB Update 20th Annual Government Financial Management Conference August 4, 2010

Views expressed are those of the speaker. Official positions of the FASAB are determined only after extensive due process and deliberations. Disclaimer

Overview General information about FASAB Major Challenges Five recently issued documents One standard under review Active projects

General Information

Mark Reger Treasury Debra Bond OMB Bob Dacey GAO Hal Steinberg Alan Schumacher Michael Granof Scott Showalter Norwood Jackson Tom Allen Chairman (Former GASB Chair) Who is FASAB? Bios available at (Current as of August 1, 2010)

When does FASAB meet? Generally six times a year For 2010: February 24 – 25 February 24 – 25 April 28 – 29 April 28 – 29 June 23 – 24 June 23 – 24 August 25 – 26 August 25 – 26 October 27 – 28 October 27 – 28 December 16 – 17 December 16 – 17 Open to the public Agenda and briefing materials on

Where does FASAB meet? Government Accountability Office 441 G Street, NW Washington, DC Room 7C13 (Staats Briefing Room) Contact Charles Jackson at or to be added to the building access list.

Major Challenges

The federal government’s financial health Primary focus of FASAB is not on one bottom line number Community involvement Cost/benefit considerations

Source: A Citizen’s Guide to the 2009 Financial Report of the U.S. Government, pg. i

Source: A Citizen’s Guide to the 2009 Financial Report of the U.S. Government, pg. ii World War II peak of 109%

Source: A Citizen’s Guide to the 2009 Financial Report of the U.S. Government, pg. iv

Source: A Citizen’s Guide to the 2009 Financial Report of the U.S. Government, pg. x

Source: A Citizen’s Guide to the 2009 Financial Report of the U.S. Government, pg. xi

“... The nation must change course and bring social insurance expenses and resources in 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 2009 Financial Report of the U.S. Government, pg. xii

Example Formats and Illustrations

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 Focus of 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 –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 Documents

Recently Issued Standards SFFAS 37, Social Insurance: Additional Requirements for MD&A and Basic Financial Statements Effective (FY 2010) SFFAS 38, Accounting for Federal Oil and Gas Resources Effective (FY 2012)

Other Recently Issued Technical Bulletin , Deferral of the Effective Date of Technical Bulletin Effective (FY 2009) Technical Release 10 – Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment Effective (upon issuance) Technical Release 11 – Guidance on Cleanup Costs Associated with Equipment Effective (upon issuance)

SFFAS 37: Social Insurance 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

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

SFFAS 38: 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

Natural Resources (contd.) Original exposure draft on oil and gas released May 2007 Concurrent field test Revised exposure draft issued July 6, 2009 Final standard issued April 13, 2010

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 beginning in FY 2012 Natural Resources (contd.)

Technical Bulletin , Deferral of the Effective Date of Technical Bulletin Fully Effective (FY 2009) Defers effective date of Technical Bulletin , Recognition and Measurement of Asbestos- Related Cleanup Costs, for two years (now fiscal year 2012) Provides federal agencies with additional time to resolve implementation issues identified since Technical Bulletin was issued AAPC recently issued implementation guidance

Technical Release 10 – Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment Fully Effective (upon issuance) Provides implementation guidance for Technical Bulletin , Recognition and Measurement of Asbestos-Related Cleanup Costs Framework –Identifying 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

Standard Under Review

SAS → SFFAS At the request of ASB Guidance basically unchanged Expected to be issued August 2010 Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the AICPA Statement on Auditing Standards Effective (upon issuance)

Active 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 In-Process Phases: –Reporting Model –Federal Entity –Measurement Attributes 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.

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 fis cal 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 Supporting Role Secondary Near-Term Focus Evolving Laws & Administrative Directives Other Reports Fulfilling Objective Contribution of Current Standards Secondary Near-Term Focus Board’s Authority does not extend to Budgetary Measurement and Recognition Other Reports Fulfilling 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

Reporting Model Revisiting SFFAC 2, Entity and Display –Validate and explain each financial statement –Ensure all objectives are adequately addressed by the model –Concerns exist regarding benefits of accrual-basis financial statements relative to the cost of preparing them

Reporting Model (contd.) Project Approach –User Needs Study –Report on experiences in other countries –Alignment of Model with Needs Fill voids Adjust current requirements to improve alignment

Reporting Model (contd.) Cost Accounting –Evaluating the effectiveness of existing managerial cost accounting standards –Surveying federal agencies Learn more about practices Identify best practices –Focus on linking cost to performance and efforts to encourage that linkage –Is there a need for greater linkage between accrual based costs and the budget (or spending data)?

Reporting Model (contd.) Cost Accounting (contd.) –Research to Date Review of Literature 2008 CFO Roundtable Pre-Survey Questionnaire Interviews Agency Financial Reports

Reporting Model (contd.) Cost Accounting (contd.) –Preliminary Observations Lack of consistency in defining responsibility segments and outputs Inability to make meaningful comparisons of statements of net cost Lack of reporting on output costs and per unit costs Lack of link between cost and performance Lack of integration between budget and cost data Lack of compliance with FFMIA of 1996

Federal Entity Defined in SFFAC 2 –Conclusive criterion –Indicative criteria Revisiting –Questionable or unique entities –Consistency, completeness, and accountability –Material weakness

Federal Entity (contd.) Task Force Surveys –CFO –OIG –FFRDCs

Measurement Attributes Part of the FASAB’s reexamination and expansion of its conceptual framework Purpose: to provide guidance on the selection of measurement attributes in future federal financial reporting standards A measurement attribute is the aspect of an item that is measured (e.g., historical cost or replacement cost)

Measurement Attributes (contd.) Developing a statement of concepts to assist the board in establishing standards Identifying how initial amounts and re- measured amounts contribute to meeting reporting objectives Defining a suite of measurement attributes Considering needs in the federal environment, for example: –Value in use –Constant dollar reporting

Deferred Maintenance and Asset Impairment Deferred Maintenance –SFFAS 6 as amended results in RSI - experimental –Deferred maintenance viewed as critical management issue. –Task force formed –Exposure draft on definition of deferred maintenance Asset Impairment –SFFAS 6 covers complete impairment –How does deferred maintenance relate to: Depreciation Asset Impairment

Evaluating Existing Standards Why –Cost/benefit issues –Communication challenges –Expectations How –Outreach to preparers, auditors and users –Development of options

Evaluating Existing Standards (contd.) Grant Accrual –Exposure draft technical release issued March 2010 –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.) –Expect to issue final technical release August 2010 Earmarked Funds –SFFAS 27 had unintended consequences –Working to identify and resolve issues

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 by Federal 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 by Federal 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

Stay Informed FASAB listserv –Bi-monthly FASAB newsletter –Requests for comment –Press releases –Agendas –Invitations to serve on task forces Public meetings

Online Resources

Contact Information Julia Ranagan, CGFM, CPA Assistant Director

Questions?