1. FASAB Update Baltimore AGA – September 16, 2015 Robin Gilliam, CPA, PMP 1

2. Views expressed are those of the speaker 2

3. Overview Leases Department of Defense (DOD) – Implementation Issues Internal Use Software (IUS) Risk Assumed (RA) Public-Private Partnerships (P3s) Reporting Model Tax Expenditures 3

4. LEASES 4

5. Leases FASAB collaborating with GASB to develop standards for governmental organizations. GASB’s preliminary views document should improve clarity of ultimate exposure draft. Each board will issue an exposure draft. 5

6. Leases Tentative decision to establish a single model (with exceptions for short-term arrangements – 24 months for federal). Leases create assets consisting of the “right to use” a resource. Leases create liabilities consisting of the obligation to pay for the resource. Treatment should help identify the interest cost associated with leases. 6

7. Leases- Intragovernmental Exceptions: Leases between two consolidation entities (based on assessment in SFFAS 47, page 13, par. 38-39) would be expensed by lessor when due and payable. Minimal disclosure requirements. 7

8. Leases Tentative Timelines FASB/IASB – Final expected late 2015 GASB – ED early 2016 and final early 2017 FASAB – ED early 2016 and final early 2017 8

9. Department of Defense - Implementation Issues - 9

10. DOD – Implementation Issue I “Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile Materials”- Exposed for Comments Statement would apply when presenting f/s for the first time or after a period when existing systems could not provide the information Respondents sought clarification but generally supported proposal. Deemed Cost Deemed cost is an acceptable valuation for establishing opening balances Several valuation bases permitted Flexible dates to allow components to establish opening balances at different dates Expect Issuance by March 2016. 10

11. DOD – Implementation Issue II Establishing opening balances for general property, plant, and equipment DoD sought guidance on detail needed for capital improvements to real property. Other issues were identified. Tentative decisions: Allow deemed cost (estimated historical cost, fair value, replacement cost) for all general PP&E. Provide prospective treatment for internal use software and land. Acres of land would be disclosed. Look for an exposure draft by the end of 2015. 11

12. INTERNAL USE SOFTWARE 12

13. Internal Use Software (IUS) - Recap of Events Feb /Mar 2014: Presented Working Group’s (WG) findings and recommendation to AAPC and FASAB Board requested that the WG peruse two concurrent avenues: 1. Perform research on information relevant to the users of the Financial Statements to determine if a change to the standard would be appropriate 2. Draft implementation guidance for IUS 13

14. IUS - Changes to the Standard TO DATE: Met with OMB to understand budgetary reporting requirements to align to the standard that costs associated with each software development phase should be reported Learned that OMB and GSA are moving toward agile development acquisition practices to focus on short- term software capability deliveries 14

15. IUS -Changes to the Standard TO DATE (cont.): Interviewed Program Managers from select agencies to understand goals and software investment decisions: PMs and leadership typically focus on total program / project costs, not just the development (capital) portion Working Group believes that a change to the standard that does not completely remove the reporting requirement within the financial statements and notes would cause agencies to incur costs that would exceed the expected benefit 15

16. IUS - Implementation Guidance February 2015:The IUS Working Group held a re- entrance meeting to re-engage agencies in drafting Implementation Guidance. Task force included industry representatives from several public accounting and consulting firms as well as representatives from 10 major federal agencies. 16

17. IUS - Implementation Guidance The guidance promotes an understanding of rapid changes related to software development practices that have evolved since the inception of SFFAS10 by: Highlighting the common issues identified across the federal government IUS process Clarifying terminology and introducing new terms Providing sample IUS practices across the federal government IUS process Exposure draft will be issued in the middle of September 17

18. RISK ASSUMED 18

19. RISK ASSUMED (RA) 19 Project objectives are to: Determine what risks the government assumes when implementing policy initiatives to provide safety and stabilize financial markets and the economy. Update current standards to include: Concise definitions and terminology Recognition and measurement for contingent liabilities Disclosures to provide clear information on fiscal health Account for and report all significant risks assumed in order to meet the stewardship and operating performance objectives of federal financial reporting.

20. RA – Three Phases: 20 Phase I: Insurance Programs including non-loan guarantee programs Phase II: Entitlement Programs, including: natural disaster relief; entitlement programs other than social insurance; national defense and security; and Other potential effects on future outflows, such as: regulatory actions, and/or Government Sponsored Enterprises. Phase III: Commitments and other risk areas

21. RA – Phase I: Insurance Program 21 Each federal insurance program: fills a gap to manage risk for a certain amount of time or money, where commercial insurance is not willing or able to; manages unique risk factors and complex certainties; will recognize risk assumed through a variety of liabilities, such as:  Liability for unpaid claims  Unearned premiums,  Liability for losses on remaining coverage, etc.

22. RA – Government Cost of Federal Crop Insurance (Source: CRS R40532) Fi g ur e 1 0. G o v er n m e nt C o st of F e d er al C ro p In s ur a n c e S o ur c e: C R S u si n g d at a fr o m U. S. D e p ar t m e nt of A gr ic ul tu re, Ri sk M a n a g e m e nt A g e n cy, ht tp :// w w w. r m a. u s d a. g o v/ a b o ut r m a/ b u d g et /c o st s o ut la ys.h t m l. ht tp :// w w. r m a. u s d a. g o v/ a b o ut r m a/ b u d g et /c o st s o ut la ys.h t m l 22

23. RA – Phase I: Insurance Program Updated standards will: Define insurance programs into t hree Categories Exchange Transaction Insurance Programs Other Than Life Insurance Nonexchange Transaction Insurance Programs Life Insurance Improve terminology 23

24. RA – Phase I: Insurance Program 24 Updated standards will (CONT.): Address measurement uncertainty regarding estimated losses on open contracts Determine best measurement model Improve disclosures Disclose risk assumed for insurance programs with: Narrative including risk factors Coverage in force (maximum loss) Provide exposure draft in early 2016

25. PUBLIC-PRIVATE PARTNERSHIPS 25

26. Public-Private Partnerships Increased use of public-private partnerships (P3s) to accomplish goals. Sharing of risks and rewards. Alternative financing arrangements. May be off-budget and off-balance sheet. Overall project objective: Transparency of the full costs and disclosure of all risks including those deemed remote. 26

27. Public-Private Partnerships Phase 1 Disclosures: Develop a P3 definition with exclusions Must be greater than 5 years Exclude: Non-lease PP&E FAR acquisitions, GSA delegated unbundled leases, partnerships that don’t share risks/rewards, grants to state/local governments, and P3s with foreign governments. ID riskiest P3s by using conclusive & suggestive risk-based characteristics: 27

28. #AICPAgaac Public-Private Partnerships Conclusive Risk Characteristics 1. Conveyance or creation of a long- lived asset or long-term financing liability. 2. The federal entity participates in, helps sponsor, or is party to a Special Purpose Vehicle. 3. Covers a significant portion of the economic life of a project or asset. 4. The principal arrangement or transaction is exempt from either the FAR (contracts) or OMB requirements (grants). Suggestive Risk Characteristics 1. A Value for Money (VfM) analysis is performed. 2. Consideration or items given up are not readily apparent. 3. Significant work force duties, activities, or knowledge are cross- shared between public and private sector P3 parties. 4. Focus more on collaboration and informal, real-time, resolution processes than on formal, contractual, administrative processes. 5. Entity relies on private sector partner’s or a third party’s determination of a P3’s performance or return on investment/equity without performing its own verification. 28

29. Public-Private Partnerships 29

30. Public-Private Partnerships Phase 1 Disclosures (cont.) : Disclose qualitative and quantitative information For example: purpose of P3, funding mix and amount, benefits/revenues exchanged, payment terms, related risks. 30

31. Public-Private Partnerships Status: Balloting process to begin in September 2015 Statement to become effective FY19; effective date subject to change. 31

32. #AICPAgaac Public-Private Partnerships Phase 2: Measurement & Recognition Guidance: To include : Deferred revenue implications, in-kind payments and donated contributions, nonmonetary exchanges, balance sheet presentation, asset capitalization/valuation. Board has deferred Phase 2 pending other priorities and to allow for consideration of Phase 1 results 32

33. REPORTING MODEL 33

34. Reporting Model Which is Better? 34

35. Reporting Model Objective Better achieve Users’ needs Reporting objectives 35

36. 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 36

37. Reporting Model Cost Information Users seek cost of programs or functions Budget Information Users expect understandable budget Performance Information Users expect to know program results Integration Users expect integrated cost, budget, and performance information 37 Key Take-A-Ways

38. 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 38 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

39. Reporting Model 39 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

40. Reporting Model Project Status Board developing concepts statement Concepts should guide development of ideal reporting model 40

41. TAX EXPENDITURES 41

42. Tax Expenditures What are they? Income tax code provisions that decrease tax liabilities or direct cash (credits) to taxpayers engaging in desirable activities or facing certain circumstances. Who gets them? What do you think – more tax expenditures for corporations or individuals? 42

43. Tax Expenditures Source: Concord Coalition 43

44. Questions/More Information For more information on FASAB and active projects please see: http://www.fasab.gov/ http://www.fasab.gov/projects/ Robin Gilliam, CPA, PMP Assistant Director – Risk Assumed Project Lead (202) 512-7356 44