The Federal Accounting Standards Advisory Board From the Grounds, Up, and Beyond May 7, 2008 AGA-DC/GWSCPA Conference

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

Objectives The “Grounds” or conceptual framework for developing federal financial reporting standardsThe “Grounds” or conceptual framework for developing federal financial reporting standards Anticipating standards starting “Up”, how the FASAB considers the cost and benefits of standardsAnticipating standards starting “Up”, how the FASAB considers the cost and benefits of standards Once standards are “Up” how the FASAB assists with implementing them and the role of the AAPCOnce standards are “Up” how the FASAB assists with implementing them and the role of the AAPC Projects that may lead to standards “Beyond” the existing onesProjects that may lead to standards “Beyond” the existing ones

The Grounds – the FASAB’s Conceptual Framework What is the role of Concepts?What is the role of Concepts? –Guide the Board in developing standards –Help users understand the information provided by financial reporting –Help preparers and auditors in understanding the Board’s reasoning Are Concepts GAAP?Are Concepts GAAP? –Considered other literature –May be relied on in the absence of GAAP

The Grounds – the FASAB’s Conceptual Framework The FASAB Revisiting Conceptual Framework in Phases 1.Objectives and Qualitative Characteristics (completed) 2.Elements and Basic Recognition Criteria (completed) 3.Financial Reporting Model 4.Measurement Attributes 5.Entity

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

The Grounds – the FASAB’s Conceptual Framework Primary Focus of FASAB Stewardship--Information on whether:Stewardship--Information on whether: –the government’s financial condition improved or deteriorated –programs are sustainable as currently constructed Operating Performance—Information to evaluate: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

The Grounds – the FASAB’s Conceptual Framework Issued SFFAC 5 Definitions of Elements and Basic Recognition Criteria for Accrual Basis Financial Statements Defines 5 ElementsDefines 5 Elements Discusses Basic Recognition CriteriaDiscusses Basic Recognition Criteria –meets definition –measurable

The Grounds – the FASAB’s Conceptual Framework Financial Reporting Model PurposePurpose –Guidance for selecting methods of communicating information –Stewardship objective requires long-range projections & other information –Enhance comparability and consistency Revisiting SFFAC 2, Entity and DisplayRevisiting SFFAC 2, Entity and Display –Explain each financial statement –Ensure all objectives are adequately addressed by the model Issued ED – Distinguishing Basic Information, RSI, and Other Accompanying InformationIssued ED – Distinguishing Basic Information, RSI, and Other Accompanying Information

The Grounds – the FASAB’s Conceptual Framework Measurement Attributes PurposePurpose –Critical aspect of financial reporting –Defining “measurement attributes” –Guidance for selecting measurement attributes –Enhance consistency in standards

The Grounds – the FASAB’s Conceptual Framework Federal Entity PurposePurpose –Ensure users provided with complete financial information –Guidance on whether certain activities should be included with an entity. –Revisiting SFFAC 2 Will lead to a STANDARDWill lead to a STANDARD Federal Entity Task ForceFederal Entity Task Force –Survey on boundaries of reporting entity

Up - How the FASAB Considers Cost/Benefit in Developing Standards –Agenda setting Significance relative to meeting the reporting objectivesSignificance relative to meeting the reporting objectives Pervasiveness of the issue among federal entitiesPervasiveness of the issue among federal entities –Proposal Development Consider how the proposal improves financial reporting and contributes to the reporting objectivesConsider how the proposal improves financial reporting and contributes to the reporting objectives –Staff communications Communications with task forces, agencies, councils, AICPA, othersCommunications with task forces, agencies, councils, AICPA, others

Up - How the FASAB Considers Cost/Benefit in Developing Standards –Exposure Drafts Constituents asked to comment on proposed standardsConstituents asked to comment on proposed standards –Informational presentations at conferences –Field tests Helps to identify implementation issuesHelps to identify implementation issues

Up – How the FASAB Assists with Implementation Additional GuidanceAdditional Guidance –Interpretations Clarifies existing standardsClarifies existing standards –Technical Bulletins provide guidance for applying FASAB Statements and Interpretations and resolving accounting issues not directly addressed by them. The following kinds of guidance may be provided in a Technical Bulletin:provide guidance for applying FASAB Statements and Interpretations and resolving accounting issues not directly addressed by them. The following kinds of guidance may be provided in a Technical Bulletin: –Guidance to clarify, explain, or elaborate on an underlying Statement or Interpretation, –Guidance to address areas not directly covered by existing Statements or Interpretations, –Interim guidance on problems in applying an existing Statement or Interpretation currently under study by the FASAB, or –If applicable, guidance for applying FASB or GASB standards to federal activities.

Up – How the FASAB Assists with Implementation –Staff Implementation Guidance Guidance on the appropriate application of FASAB literatureGuidance on the appropriate application of FASAB literature Does not result in a new requirementDoes not result in a new requirement

Up – How the FASAB Assists with Implementation Accounting and Auditing Policy Committee (AAPC) What is the AAPC? A permanent committee established by the FASAB. The AAPC’s mission is to assist the federal government in improving financial reporting by timely identifying, discussing, and recommending solutions to accounting issues within the framework of existing authoritative literature.

Up – How the FASAB Assists with Implementation AAPC Is the AAPC guidance authoritative? Section III. I (3) of FASAB’s Rules of Procedure authorize AAPC to issue technical releases related to existing federal accounting standards. Technical releases are intended to provide guidance on the specific application of SFFASs, Interpretations of SFFASs, and Technical Bulletins. AAPC’s technical releases are in the third category of authoritative guidance in the Federal GAAP hierarchy as stated in the AICPA’s Statement on Auditing Standards 91. AAPC may not amend existing standards or promulgate new standards.

Up – How the FASAB Assists with Implementation AAPC How can I submit an issue to the AAPC for consideration? The AAPC encourages the submission of Federal accounting issues to its website at However, the AAPC is not intended to serve as a mediator for preparers, program managers, and/or auditors.

Up – How the FASAB Assists with Implementation AAPC What is the process for developing technical releases? Assigned to AAPC member to develop and to serve as task force chair if necessary. The result of the task force’s work, including recommended actions, will be discussed at public meetings of the AAPC. AAPC will seek input from a variety of sources, as needed, to reach a consensus.

Up - How the FASAB Assists with Implementation AAPC Recent technical releases TR7: Clarification of Standards Relating to the National Aeronautics and Space Administration’s Space Exploration EquipmentTR7: Clarification of Standards Relating to the National Aeronautics and Space Administration’s Space Exploration Equipment TR8:Clarification of Standards Relating to Inter- Entity CostsTR8:Clarification of Standards Relating to Inter- Entity Costs TR9: Implementation Guidance for SFFAS 29: Heritage Assets and Stewardship LandTR9: Implementation Guidance for SFFAS 29: Heritage Assets and Stewardship Land

Up - How the FASAB Assists with Implementation AAPC project in process -- GPP&E Task Force to address General PP&E IssuesTask Force to address General PP&E Issues The objective of the task force is to assist in developing implementation guidance for federal G- PP&E as it relates to SFFAS 6, Accounting for PP&E, SFFAS 23, Eliminating the Category National Defense Property Plant, & Equipment, and other related G-PP&E Guidance developed by the FASAB.The objective of the task force is to assist in developing implementation guidance for federal G- PP&E as it relates to SFFAS 6, Accounting for PP&E, SFFAS 23, Eliminating the Category National Defense Property Plant, & Equipment, and other related G-PP&E Guidance developed by the FASAB. Sub-groups Sub-groups –Acquisition –Use –Disposal –Records Retention

Beyond – Future Standards Fiscal Sustainability ReportingFiscal Sustainability Reporting Social InsuranceSocial Insurance Changes in AssumptionsChanges in Assumptions Oil and Gas ResourcesOil and Gas Resources

Beyond – Future Standards Fiscal Sustainability Are we able to continue financing the current basket of goods and services provided by the government indefinitely? PurposePurpose – –Provide information to help readers determine whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due. – –Enhance understanding of long-term fiscal issues

Beyond – Future Standards Fiscal Sustainability Reporting Current ProposalsCurrent Proposals –Long-term projections Present values of receipts and outlays for major programs, such as Social Security and Medicare, and all other Present values of receipts and outlays also as a percent of present value of GDP Narrative discussion and graphs –Summary Display with net present value as the “bottom line” – fiscal imbalance

Beyond – Future Standards Social Insurance PurposePurpose –Provide information on Impact on the government’s financial condition and position as a result of the programsImpact on the government’s financial condition and position as a result of the programs Whether social insurance programs are sustainableWhether social insurance programs are sustainable Likelihood social insurance programs will be able to provide benefits to those planning on receiving themLikelihood social insurance programs will be able to provide benefits to those planning on receiving them BackgroundBackground –Social Insurance programs have high participation among citizens –Fiscal challenges

Beyond – Future Standards Social Insurance IssuesIssues –What is essential social insurance information? –How should information be displayed? –When expense and liability should be recognized? ChallengesChallenges –Understandability Ability to change lawAbility to change law Size and volatilitySize and volatility –Usefulness

Beyond – Future Standards Changes in Assumptions & Selecting Discount Rates PurposePurpose –Guidance for displaying changes in assumptions –Provides more transparent and useful information prepared in a more consistent manner. BackgroundBackground –Change in assumptions may exceed all other costs –What Treasury rates should be used when calculating present values for expense and liability amounts

Beyond – Future Standards Changes in Assumptions & Selecting Discount Rates Exposure Draft Issued:Exposure Draft Issued: –Gains and losses from changes in assumptions displayed on the statement of net cost separate from other costs and exchange revenue –Components of expenses associated with long-term liabilities disclosed in notes –Guidance on what rate to use in present value measurements of long-term liabilities

Beyond – Future Standards Oil and Gas Resources Purpose - recognizing assets and liabilities for federal oil and gas resourcesPurpose - recognizing assets and liabilities for federal oil and gas resources BackgroundBackground –Federal government has extensive oil and gas resources throughout the country and on the Outer Continental Shelf. –Quantity and value of these assets not provided

Beyond – Future Standards Oil and Gas Resources ED Issued--Recognizing asset for oil and gas proved reserves at current valueED Issued--Recognizing asset for oil and gas proved reserves at current value Results in information on:Results in information on: –Quantity of proved reserves –Value of proved reserves –Royalty revenue and depletion of reserves –Extensive disclosure and RSI

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