The Federal Accounting Standards Advisory Board Back to the Future FASAB Update AGA Richmond Chapter Seminar Holiday Inn Koger Conference Center May 18, 2011 Disclaimer Views expressed are those of the speaker. Official positions of the FASAB are determined only after extensive due process and deliberations. Communication 10 5 Overview • General information about FASAB • Major Challenges • Recently issued documents • Documents under review • Status of Current projects • Other topics of interest General Information Who is FASAB? (Current as of May 18, 2011) Tom Allen Chairman (Former GASB Chair) Bios available at www.fasab.gov Mark Reger Debra Bond Treasury OMB Hal Steinberg Bob Dacey GAO Michael Granof Alan Schumacher Norwood Jackson Scott Showalter When does FASAB meet? • Generally six times a year For 2011: • February 23 – 24 • April 27 – 28 • June 22 – 23 • August 24 – 25 • October 26 – 27 • December 19 – 20 • Open to the public • Agenda and briefing materials on www.fasab.gov Where does FASAB meet? Government Accountability Office 441 G Street, NW Washington, DC 20548 Room 7C13 (Staats Briefing Room) Major Challenges Major Challenges • The federal government‘s financial health • Primary focus of FASAB is not on one bottom line number • Community involvement • Cost/benefit considerations “. . . The Nation must bring social insurance expenses and resources into 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 2010 Financial Report of the U.S. Government, pg. x 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 / Polls / Questionnaires – 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 Standards Recently Issued Standards SFFAS 34, GAAP Hierarchy Including Effective Application of FASB (FY 2009) SFFAS 35, Estimating Historical Cost of Effective GPP&E (FY 2010) SFFAS 36, Reporting Comprehensive Fully Effective Long-Term Fiscal Projections (FY 2013) Recently Issued Standards (contd.) SFFAS 37, Social Insurance: Additional Effective Requirements for MD&A and Basic Financial (FY 2010) Statements SFFAS 38, Accounting for Federal Oil and Effective Gas Resources (FY 2012) SFFAS 39, Subsequent Events: Codification Effective of Accounting and Financial Reporting (Upon Standards Contained in the SAS issuance) Recently Issued Standards (contd.) Effective SFFAS 40, Deferred Maintenance and (FY 2012) Repairs: Definitional Changes Fully Effective SFFAS 34, The Hierarchy of Generally Accepted Accounting (FY 2009) Principles, Including the Application of Standards Issued by FASB (Issued July 28, 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 Fully Effective SFFAS 35, Estimating the Historical Cost of General (FY 2010) Property, Plant, and Equipment (Under Review) • 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 Fully Effective SFFAS 36, Reporting Comprehensive Long-Term (FY 2013) Fiscal Projections for the U.S. Government • 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‖) FY 2010 Financial Report of the U.S. Government, pp. 142-143 The Sustainability of Fiscal Policy An important purpose of the Financial Report is to help citizens and policymakers assess whether current fiscal policy is sustainable and, if it is not, the urgency and magnitude of policy reforms necessary to make it sustainable. A sustainable policy is one where the ratio of debt held by the public to GDP[*] (debt to GDP) is stable over time. The discussion below focuses on balancing revenues and expenditures over time, and does not consider fairness or efficiency implications of the reforms necessary to achieve sustainability. It is shown below that, under current policy, the ratio of debt to GDP is projected to rise continuously over the next 75 years, eventually exceeding 350 percent in 2085. If these projections were extended beyond 2085, the deficit excluding interest would continue as the population continues to age and if the other assumptions made for the 75-year horizon continue to hold. The persistence of the deficit excluding interest beyond the 75-year horizon implies that the ratio of debt to GDP would continue to grow beyond the 75- year horizon. The continuing rise in this ratio means that current policy is unsustainable. * Gross domestic product FY 2010 Financial Report of the U.S. Government, pg. 140 FY 2010 Financial Report of the U.S. Government FY 2010 Financial Report of the U.S. Government, p. 146 Costs of Delay SFFAS 36: Example Formats and Illustrations Effective SFFAS 37, Social Insurance: (FY 2010) Additional Requirements for MD&A and Basic Financial Statements • 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 Example Formats and Illustrations 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 Effective SFFAS 38, Accounting for Federal (FY 2012) Oil and Gas Resources • 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 Natural Resources (contd.) • Concurrent field test – Original exposure draft on oil and gas released May 2007 – Evaluated comment letters along with results of field test – Revised exposure draft issued July 2009 – Final standard issued April 2010 Effective SFFAS 39, Subsequent Events: (Upon Codification of Accounting and Financial issuance) Reporting Standards Contained in the AICPA Statement on Auditing Standards • AICPA SAS → FASAB SFFAS • At the request of ASB • Guidance basically unchanged • Audit standards not included: – Related parties – Going concern Effective SFFAS 40, Deferred Maintenance (FY 2012) and Repairs: Definitional Changes • Amended the definition only • Repairs – clarify that deferred repairs are included • Capital – clarify that deferred capital improvements are not included • Preserves the notion that management determines acceptable condition Other Recently Issued Documents Other Recently Issued Documents Technical Releases Effective • 10 – Asbestos Cleanup Costs Associated with (Upon issuance) Facilities and Installed Equipment • 11 – Cleanup Costs Associated with (Upon Equipment issuance) • 12 – Accrual Estimates for Grant Programs (FY 2012) Financial Reporting Model Task Force Effective Report to the FASAB (N/A) Technical Release 10 – Guidance on Asbestos Fully Effective Cleanup Costs Associated with Facilities and (upon issuance) Installed Equipment • Provides implementation guidance for Technical Bulletin 2006-1, Recognition and Measurement of Asbestos-Related Cleanup Costs • Framework – Identify assets that contain asbestos – Develop estimates of cleanup costs Technical Release 11 – Guidance on Cleanup Fully Effective Costs Associated with Equipment (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 Technical Release 12 – Accrual Fully Effective Estimates for Grant Programs (FY 2012) • 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.) Documents Under Review Effective SFFAS 41, Deferral of the Effective Date (Upon of SFFAS 38, Accounting for Federal Oil issuance) and Gas Resources • Defers the effective date of SFFAS 38 for one year • New effective date is for periods beginning after September 30, 2012 (fiscal year 2013) • Expected to be issued in July 2011 Effective Technical Bulletin 2011-1, Accounting for (FY 2014) Federal Natural Resources Other than Oil and Gas • Applies principles of SFFAS 38 to other types of natural resources • Required implementation for nonrenewable resources • Renewable and electromagnetic spectrum may implement, but not required • Effective for periods ending after September 30, 2013 (fiscal year 2014) • Expected to be issued in July 2011 Effective SFFAC 7, Measurement of the Elements (Upon of Accrual-Basis Financial Statements in issuance) Periods After Initial Recording • A statement of concepts to assist the board in establishing standards • Identifies how ‗initial amounts‘ and ‗re-measured amounts‘ contribute to meeting reporting objectives • Defines a suite of measurement attributes • Considering unique information needs in the federal environment, for example: – Value in use – Constant dollar reporting Current 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 Measurement Attributes • In-Process Phases: Reporting Model Federal Entity • 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. • Recently reviewed and confirmed the focus of FASAB remains the same; in the process of approving an addendum FASAB’s Near-Term Budgetary Integrity Operating Performance Stewardship Systems and Control Federal financial Federal financial Focus Federal financial Federal financial reporting should reporting should reporting should reporting should assist report users assist in fulfilling the assist report users in assist report users in in understanding government's duty to evaluating the service assessing the impact whether financial be publicly efforts, costs, and on the country of the management accountable for accomplishments of government's systems and monies raised the reporting entity; operations and internal accounting through taxes and the manner in which investments for the and administrative other means and for these efforts and period and how, as a controls are their expenditure in accomplishments result, the adequate… accordance with the have been financed; government's and the appropriations laws and the management nation's financial that establish the of the entity's assets condition has government's budget and liabilities. changed and may for a particular fis cal change in the future. year and related laws and regulations. Supporting Role Direct Role Direct Role Supporting Role Primary Secondary Near-Term Secondary Near-Term Focus Near-Term Focus Focus Board‘s Authority does Mission Evolving Laws & not extend to Budgetary Administrative Directives Measurement and Comparative Advantage/ Recognition Other Reports Fulfilling GAAP Standards Setter Objective Other Reports Fulfilling Objective Language from Concepts 1 Contribution of Current Standards Contribution of Current Standards FASAB‘S ROLE Elements • SFFAC 5 defined five elements of accrual-basis financial statements: – Assets, liabilities, net position, revenues and expenses • Recognition criteria • Uncertainty Federal Reporting Model • Concerns exist regarding the benefits of accrual- basis financial statements relative to the cost of preparing them – FASAB conducting a user needs study – Federal CFO Council preparing a proposal – Developing a report on experiences in other countries • FASAB Task Force report issued December 22, 2010 Federal Reporting Model CFR Recommendations • Web delivery model • Government-wide performance information • Net cost and spending by function • Statement of spending requirements • Intergovernmental financial dependency • Improved reconciliation of deficit and operating cost • Reclassify the reconciliation of cash and debt changes • Re-orient the balance sheet and improve stakeholder link • Explain the difference between net liabilities and fiscal gap • Establish a Web site for reports and to raise awareness in the near-term Federal Reporting Model Next Steps • Consider implications of user needs study and task force recommendations for existing concepts • Study of component entity reporting model Federal Entity • FASAB established concepts in mid-90‘s • Standards now being developed • Questions: – What to include in CFR (all entities ―established by‖ the federal government or a subset)? – How to present information (all consolidated, some separately displayed or disclosed)? – Boundary between ―related‖ parties, core and non- core entities? Deferred Maintenance and Asset Impairment • Deferred maintenance viewed as critical management issue • Experimental reporting has been underway since 1998 • Definitions – revised definition and title (deferred maintenance and repairs) • Open Issues: – Measurement techniques – Relevant metrics to report (dollars and/or condition) • Task force of facilities managers, accountants, and auditors formed to assist Evaluating Existing Standards • Why – Cost/benefit issues? – Communication challenges – Expectations • How – Outreach to preparers, auditors and ―users‖ – Development of options • Earmarked funds – assessing implementation and adjusting reporting requirements 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 Emerging Issues • Risk Assumed • Leases • Investments in non-federal securities • Public Private Partnerships • AAPC – Determining the full cost of PP&E – Capacity challenges in a more constrained environment… Other Topics 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 • www.fasab.gov • FASAB listserv – Bi-monthly FASAB newsletter – Requests for comment – Press releases – Agendas – Invitations to serve on task forces • Public meetings Online Resources www.fasab.gov Contact Information Julia Ranagan, CGFM, CPA Assistant Director 202.512.7377 firstname.lastname@example.org www.fasab.gov Follow @usfasab on Twitter Questions?