The Federal Accounting Standards Advisory Board. Federal Reporting. FASAB Update Government & Not for Profit Conference.

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1 The Federal Accounting Standards Advisory Board Federal Reporting FASAB Update 2010 Government & Not for Profit Conference Disclaimer Views expressed are those of the speaker. Official positions of the FASAB are determined only after extensive due process and deliberations. 1

2 Communication

3 Overview General information about FASAB Five recently issued documents Two standards currently under review Active projects General Information 3

4 Who is FASAB? (Current as of March 1, 2010) Tom Allen Chairman (Former GASB Chair) Bios available at Nancy Fleetwood Treasury Hal Steinberg Michael Granof Debra Bond OMB Bob Dacey GAO Alan Schumacher Norwood Jackson Scott Showalter When does FASAB meet? Generally six times a year For 2010: February April June August October December Open to the public Agenda and briefing materials on 4

5 Recently Issued Documents Recently Issued Standards SFFAS 34, GAAP Hierarchy Including Application of FASB Effective (FY 2009) SFFAS 35, Estimating Historical Cost of GPP&E SFFAS 36, Reporting Comprehensive Long-Term Fiscal Projections Effective (FY 2010) Fully Effective (FY 2013) 5

6 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 6

7 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 7

8 SFFAS 36 Comprehensive Long-term Fiscal Projections (contd.) Basic Information (audited) the present value of projected receipts and noninterest 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 ) 8

9 Illustrative Long-Term Fiscal Projections-75 Years Based on GAO s Alternative Simulation Receipts a 09/30/09 09/30/08 PV dollars PV dollars (in (in trillions) %GDP trillions) %GDP $ % $ % Change PV dollars (in trillions) %GDP $ % Spending Medicare Medicaid Social Security Rest of Federal Government Total Noninterest Spending $ % $ % $ (0.1) % Noninterest spending in excess of receipts $ (72.4) (8.5)% $ (59.5) (7.6)% $(12.9) (0.9)% 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 new standard. Source: GAO s January 2010 and March 2009 simulations. Note: Numbers may not add to totals due to rounding. Source: US Treasury FY2009 Financial Report of the US Government 80 Chart 9 Future Interest Costs Would Soar Without Future Policy Changes Percent of GDP Interest on New Debt Interest on Past Debt Medicare Medicaid Social Security Other Noninterest Defense Receipts

10 What This Means for Debt 800 Chart 2 U.S. Government Debt Held by the Public 700 Percent of GDP Extrapolation in the absence of policy changes Actual Federal Fiscal Gap and Cost of Delay Under GAO s Alternative Simulation Fiscal gap Trillions of present value dollars 76.4 Action taken today Percent of GDP 9.0 Percent increase in today s revenue 50.5 Percent decrease in noninterest spending 34.2 Percent of GDP 11.0 Action delayed 10 years Percent Percent increase in decrease in today s noninterest revenue spending Source: GAO analysis. GAO SP Long-Term Fiscal Outlook January

11 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 11

12 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) 12

13 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

14 Example Formats and Illustrations Example Formats and Illustrations 14

15 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

16 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 Natural Resources (contd.) 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

17 Active Projects Active FASAB Projects Revisiting Conceptual Framework Deferred Maintenance / Asset Impairment Evaluating Existing Standards Use of FASB by Federal Entities 17

18 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. 18

19 Operating Stewardship FASAB s Near-Term Performance Control Federal financial Federal financial reporting should reporting should assist report users in assist report users in evaluating Focus the service assessing the impact on the country of the 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 fiscal year and related laws and regulations. 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. 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. Systems and Federal financial reporting should assist report users in understanding whether financial management systems and internal accounting and administrative controls are adequate Supporting Role Direct Role Direct Role Supporting Role Secondary Near-Term Focus Board s Authority does not extend to Budgetary Measurement and Recognition Other Reports Fulfilling Objective Contribution of Current Standards Primary Near-Term Focus Mission Comparative Advantage/ GAAP Standards Setter Language from Concepts 1 FASAB S ROLE Secondary Near-Term Focus Evolving Laws & Administrative Directives 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 19

20 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 20

21 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? 21

22 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 22

23 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 remeasured 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 23

24 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 24

25 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 25

26 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 26

27 Use of FASB by Federal Entities (contd.) 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 27

28 Stay Informed FASAB listserv Bi-monthly FASAB newsletter Requests for comment Press releases Agendas Invitations to serve on task forces Public meetings Online Resources 28

29 Contact Information Julia Ranagan, CGFM, CPA Assistant Director Roads? Where we re going, we don t need roads. -- Doc Brown, Back to the Future 29

30 Questions? 30