Federal Accountability - Evolution Wendy Payne Executive Director

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

Overview ___________________________ Social Insurance Fiscal Sustainability Federal Financial Reporting Model Economic Stabilization Activities General PP&E Deferred Maintenance

Accounting for Social Insurance

When does a liability exist for future social insurance benefits? Liability: a present obligation of the federal government to provide assets or services to another entity at a determinable date, when a specified event occurs, or on demand. (SFFAC 5, par. 39)

Historical Controversy Liability debate centers on whether an obligation exists: –after work in covered employment occurs; –when fully insured status is reached; or –when a payment becomes due and payable. Liability debate impacts costs recognition: –Costs arise as a result of work; or –Costs arise as benefits are due. Evolving disclosure of information over the years.

Preserving and Enhancing Current SI Information – A Compromise ___________________________ Critical information in management’s discussion and analysis Closed group measure on the balance sheet but not totaled Summary section for the statement of social insurance presenting the closed and open group summary totals New basic financial statement explaining changes Disclose the accrued benefit obligation (future benefits attributable to work completed as of the balance sheet date)

Latest Developments Consensus support for: –Statement of Changes in Social Insurance –MD&A emphasis on critical information from statements. Some aspects of the compromise not well received. Debate regarding relationships between the balance sheet and projections remains open.

Fiscal Sustainability Reporting Reporting to help users assess the likelihood that future budgetary resources will be sufficient to sustain public services and meet obligations as they come due.

Illustrative Statement of Fiscal Sustainability Based on GAO’s Alternative Simulation 75 Year Projection Period FY FY Change PV dollars (in trillions) % of PV of GDP PV dollars (in trillions) % of PV of GDP PV dollars (in trillions) % of PV of GDP Receipts a $ % $ % $ % Spending Medicare$ % $ % $ 4.0(0.3%) Medicaid $ % $ % $ 1.4(0.2%) Social Security $ % $ % $ 4.4(0.2%) Rest of Federal Government $ % $ % $ % Total Spending $ % $ % $ 20.6(0.5%) Spending in excess of receipts $ (51.7)(6.4)% $ (49.5)(6.9)% $ (2.2)0.5% a This specific illustration does not include a breakdown of receipts as these amounts are not broken out in GAO’s model. However, disaggregated amounts for Social Security and Medicare would be reported under the ED. Source: GAO’s April 2008 and April 2007 simulations. Note: Numbers may not add to totals due to rounding.

Proposed Disclosures and RSI ___________________________ Narrative discussion of fiscal sustainability concepts and caveats— “Plain English” Major factors Trends Historical and projected annual cash flows Impact of delay Alternative scenarios/sensitivity Analysis of annual changes

Remaining Issues ___________________________ Amount of information Projection period –Finite/Infinite –Flexibility Understandability

Federal Financial Reporting Model ___________________________ Why? User needs inventory Voids or Overkill Link to audit and internal controls

Economic Stabilization Activities Raises Issues Regarding: –Valuation of assets and liabilities, particularly in illiquid markets Accounting basis Applicability of Credit Reform accounting and appropriate discount rates –Scope of federal reporting – Federal Reserve, GSEs, AIG, etc. FASAB believes the hierarchy can resolve immediate issues. Long- term these issues will be addressed in related projects.

General PP&E Proposal to extend guidance in SFFAS 23 regarding the use of estimates for general PP&E Accounting and Auditing Policy Committee task force developing implementation guidance –Acquisition of PP&E –Use of PP&E –Cleanup Cost –Record Retention Evaluation of Existing Standards –Replacement Cost?

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

Contact and Website Information General inquiries can be directed to Phone: –Listserv –Exposure Drafts –Active Projects