The Federal Accounting Standards Advisory Board Back to the Future Back to the Future FASAB Update AGA Richmond Chapter Seminar Holiday Inn Koger Conference Center Holiday Inn Koger Conference Center May 18, 2011

Views expressed are those of the speaker. Official positions of the FASAB are determined only after extensive due process and deliberations. Disclaimer

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

Mark Reger Treasury Debra Bond OMB Bob Dacey GAO Hal Steinberg Alan Schumacher Michael Granof Scott Showalter Norwood Jackson Tom Allen Chairman (Former GASB Chair) Who is FASAB? Bios available at (Current as of May 18, 2011)

When does FASAB meet? Generally six times a year For 2011: February 23 – 24 February 23 – 24 April 27 – 28 April 27 – 28 June 22 – 23 June 22 – 23 August 24 – 25 August 24 – 25 October 26 – 27 October 26 – 27 December 19 – 20 December 19 – 20 Open to the public Agenda and briefing materials on

Where does FASAB meet? Government Accountability Office 441 G Street, NW Washington, DC Room 7C13 (Staats Briefing Room)

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 Application of FASB Effective (FY 2009) SFFAS 36, Reporting Comprehensive Long-Term Fiscal Projections Fully Effective (FY 2013) SFFAS 35, Estimating Historical Cost of GPP&E Effective (FY 2010)

Recently Issued Standards (contd.) SFFAS 39, Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the SAS Effective (Upon issuance) SFFAS 38, Accounting for Federal Oil and Gas Resources Effective (FY 2012) SFFAS 37, Social Insurance: Additional Requirements for MD&A and Basic Financial Statements Effective (FY 2010)

Recently Issued Standards (contd.) SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes Effective (FY 2012)

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

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 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

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”)

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 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, pp

FY 2010 Financial Report of the U.S. Government, pg. 140

FY 2010 Financial Report of the U.S. Government

Costs of Delay FY 2010 Financial Report of the U.S. Government, p. 146

SFFAS 36: Example Formats and Illustrations

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 SFFAS 37, Social Insurance: Additional Requirements for MD&A and Basic Financial Statements Effective (FY 2010)

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

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

SFFAS 38, Accounting for Federal Oil and Gas Resources Effective (FY 2012) 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

SFFAS 39, Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the AICPA Statement on Auditing Standards Effective (Upon issuance) AICPA SAS → FASAB SFFAS At the request of ASB Guidance basically unchanged Audit standards not included: –Related parties –Going concern

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 SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes Effective (FY 2012)

Other Recently Issued Documents

Other Recently Issued Documents Technical Releases 10 – Asbestos Cleanup Costs Associated with Facilities and Installed Equipment 11 – Cleanup Costs Associated with Equipment 12 – Accrual Estimates for Grant Programs Effective (Upon issuance) (FY 2012) Financial Reporting Model Task Force Report to the FASAB Effective (N/A)

Technical Release 10 – Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment Fully Effective (upon issuance) Provides implementation guidance for Technical Bulletin , 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 Costs Associated with Equipment Fully Effective (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

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.) Technical Release 12 – Accrual Estimates for Grant Programs Fully Effective (FY 2012)

Documents Under Review

SFFAS 41, Deferral of the Effective Date of SFFAS 38, Accounting for Federal Oil and Gas Resources Effective (Upon issuance) 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

Technical Bulletin , Accounting for Federal Natural Resources Other than Oil and Gas Effective (FY 2014) 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

SFFAC 7, Measurement of the Elements of Accrual-Basis Financial Statements in Periods After Initial Recording Effective (Upon issuance) 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 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

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

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 FASAB listserv –Bi-monthly FASAB newsletter –Requests for comment –Press releases –Agendas –Invitations to serve on task forces Public meetings

Online Resources New Design Coming Soon !

Contact Information Julia Ranagan, CGFM, CPA Assistant Director on Twitter

Questions?