1. FASAB Update: Improving Federal Financial Reporting 1 May 13, 2015

2. Disclaimer Views expressed are those of the speaker. The Board expresses its views in official publications. 2

3. OVERVIEW Review of Current Projects ◦Reporting Model ◦Leases ◦Public-Private Partnerships ◦Risk Assumed ◦Implementation Guidance ◦Tax Expenditures 3

4. Reporting Model Which is Better? 4

5. Reporting Model Objective ◦Better achieve  Users’ needs  Reporting objectives 5

6. Reporting Model Input to the Board: ◦User needs surveys, focus groups, and roundtables ◦FASAB Task Force on Government-wide Financial Reports (Dec 2010) ◦CFO Act 20-Year Report ◦Input from task forces focusing on agency level reporting on cost, budget and performance ◦Statement of spending pilots ◦Study of other sovereign government practices ◦NAPA Study ◦Expert presentations  Budget  Component Level Reporting 6

7. Reporting Model ◦Cost Information  Cost of programs or functions ◦Budget Information  More understandable  Budget to Actual Comparison ◦Performance Information  What were the results? ◦Integration  Cost, Budget, and Performance 7 Users sought

8. Reporting Model Presently… Financial statements ◦highly aggregated ◦Static ◦Present cost by strategic goals Multiple sources of information available through websites ◦GAAP ◦Non-GAAP Multiple measurement bases ◦Accrual, budget, projections Spending is mostly mandatory not discretionary 8 However… Users also looking to ◦Review functions or programs ◦Make comparisons ◦Drill-down ◦Access data ◦Create their own reports ◦Identify trends, patterns ◦Analyze performance ◦Compare budgeted to actual Challenges observed

9. Reporting Model 9 How should financial reporting… Relate GAAP and non-GAAP sources Help users understand ◦Differences between government-wide and component financing ◦The relationship among the different measurement bases ◦Mandatory vs. discretionary spending Facilitate multi-dimensional analyses

10. Reporting Model Given the variety of issues the model can take different paths 10

11. Reporting Model - Example 11

12. Reporting Model - Example 12

13. Reporting Model - Example 13

14. Reporting Model – Example 14

15. Reporting Model - Example 15

16. Reporting Model – Example 16

17. Reporting Model Project Status ◦Board developing concepts statement ◦Concepts should guide development of ideal reporting model 17

18. Leases FASAB partnering with GASB to develop standards for governmental organizations. Tentative decision to establish a single model (with exceptions for short-term arrangements). ◦Leases create assets consisting of the “right to use” a resource. ◦Leases create liabilities consisting of the obligation to pay for the resource. The focus may be on the interest cost associated with leases. Intragovernmental exceptions. 18

19. Tentative Timelines GASB – ED expected early 2016 and final standard early 2017 FASB/IASB – Final standards expected late 2015 FASAB – ED expected early 2016 and final standard early 2017 (to align with GASB’s timeline) Leases 19

20. Public-Private Partnerships Due to budget pressures, federal agencies have increasingly turned to public-private partnerships (e.g., PPPs, P3s) to accomplish goals. ◦In some cases P3s are off-budget and off-balance sheet. Overall objective - Transparency of the full costs and disclosure of risks. Specific objectives include: ◦Phase 1 - Establishing a P3 definition, exclusions, risk-based characteristics and disclosures. ◦Phase 2 - Providing guidance for the recognition and measurement of:  assets and liabilities,  revenues and expenses, and risks. Current status – Phase 1 ED comments are in & Board is re-deliberating. 20

21. RISK ASSUMED (RA) Project objectives are to: Determine what risks the federal government assumes when implementing policy initiatives to provide safety and stabilize financial markets and the economy. Update current standards that are limited to insurance contracts and explicit guarantees (other than loan guarantees). Account for and report all significant risks assumed in order to meet the stewardship and operating performance objectives of federal financial reporting. 21

22. RISK ASSUMED (cont) -Three Phases- Phase I: Insurance Programs Phase II: Entitlement Programs, including:  National Defense,  Security and Disaster response  Other potential effects on future outflows: ◦ regulatory actions, ◦ Government Sponsored Enterprises (GSEs), etc. Phase III:  Commitments  Obligations  Other risk areas 22

23. Risk Assumed Developing exposure draft to: Define federal Insurance programs Improve terminology Address measurement uncertainty regarding estimated losses on open contracts ◦Potentially use expected value ◦Improve disclosures Disclose risk assumed for insurance programs with: ◦Narrative including risk factors ◦Coverage in force (maximum loss) 23

24. DoD Implementation Guidance Assisting DoD ◦Valuation of legacy inventory and operating material & supplies ◦Research & Development Costs (now focus w/AAPC Internal Use Software) ◦As needed with DoD FIAR (Financial Improvement and Audit Readiness) Deployed Assets- closed with no need for FASAB action 24

25. Drafting implementation guidance to: ◦Clarify standards ◦Provide practical examples of implementation Requires input ◦Agencies who have successfully undergone an audit of their IUS balances Internal Use Software 25

26. Tax Expenditures Objective ◦Explore what information users need to help them understand government financial operations What are tax expenditures ◦Revenue losses attributable to provisions of Federal income tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability. (Section 3(3) of Public Law 93-344) 26

27. Questions? 27

28. Contact and Website Information General inquiries can be directed to fasab@fasab.gov fasab@fasab.gov Phone: 202 512-7350 www.FASAB.gov ◦Listserv (sign up for emails) ◦Exposure Drafts ◦Active Projects – assigned staff Presenter’s Contact info: ◦simmsr@fasab.gov (202) 512-2512simmsr@fasab.gov 28