The Federal Accounting Standards Advisory Board Back to the Future Back to the Future FASAB Update AGA Denver 24th Annual Professional Development Conference March 10, 2010

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 Five recently issued documents Two standards currently under review Active projects Other topics of interest

General Information

Nancy Fleetwood 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 March 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)

Recently Issued Documents

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)

Other Recently Issued Technical Bulletin , Deferral of the Effective Date of Technical Bulletin Effective (FY 2010) SIG 31.1, Guidance for Implementation of SFFAS 31 Effective (FY 2009)

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 (Under Review) 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”)

Example Formats and Illustrations

Technical Bulletin , Deferral of the Effective Date of Technical Bulletin (Issued September 22, 2009) 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 currently working on implementation guidance that will be issued as a technical release

SIG 31.1, Guidance for Implementation of SFFAS 31, Accounting for Fiduciary Activities (Issued March 19, 2009) Fully Effective (FY 2009) Provides guidance for implementing the related standard –Q&A format –Addresses questions raised by federal preparers –Does not establish new requirements

Standards Under Review

Recently Completed Activity Under Review Social Insurance: Additional Requirements for MD&A and Basic Financial Statements Effective (FY 2010) Accounting for Federal Oil and Gas Resources Effective (FY 2012)

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

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 expected to be 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.)

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

Reporting Model (contd.) Cost Accounting –What are your thoughts?

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 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

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.) Advantages to Conversion –Consistency, completeness, and accountability –Consolidation –Avoid two sets of information –Avoid year-end manual processes

Use of FASB by Federal Entities (contd.) Disadvantages to Conversion –Costs to convert –Costs passed on to users –Comparability to sector (e.g., utility) –FS differ from SEC submission –Perceived benefit only at CFR level

Disadvantages to Conversion (contd.) –Indirect impact on legislative and judicial branches –Potential for OCBOA or less than unqualified opinions –Loss of comparison to historical reporting Use of FASB by Federal Entities (contd.)

Project Status –Survey –Workgroup –Tentative Decisions No entities required to convert to FASAB at this time CFR can include two sources of GAAP Exception for material intragovernmental eliminations

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 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

“Roads? Where we’re going, we don’t need roads.” -- Doc Brown, Back to the Future

Questions?