Professional Documents
Culture Documents
2011 Fasab Handbook PDF
2011 Fasab Handbook PDF
FEDERAL ACCOUNTING
STANDARDS ADVISORY BOARD
SFFAC 1-6
SFFAS 1-40
Interpretations 1-7
Technical Bulletins
Technical Releases 1-13
Staff Implementation Guidance
Contents
Foreword
Preamble to
Statements of Federal
Financial Accounting
Concepts
Statement of Federal
Financial Accounting
Concepts
Statement of Federal
Financial Accounting
Standards
Page i
Contents
Page ii
Contents
Page iii
Contents
Interpretations
Page iv
Contents
Technical Bulletins
Technical Releases
Page v
Contents
Staff Implementation
Guidances
Appendices
Page vi
droweroForeword
F
The FASAB Handbook of Federal Accounting Standards and Other Pronouncements, as Amended (FASAB
Handbook) contains the body of accounting concepts and standards for the U.S. government.1 Specifically,
the FASAB Handbook incorporates the following documents published through June 30, 2011.
Concepts Statements
Statements on concepts differ from statements of accounting standards. Statements on concepts are more
general than statements on standards and do not contain specific authoritative requirements for federal
agencies. After approval by the Board, concepts statements provide general guidance to the Board itself as it
deliberates on specific issues. They also are useful to the OMB in carrying out its statutory responsibilities,
and others in understanding federal accounting and financial reports.
1
Versions of the FASAB Handbook issued prior to June 30, 2011, were referred to as Pronouncements as Amended, Statements of
Federal Financial Accounting Concepts and Standards (2008-2010), Original Pronouncements, Statements of Federal Financial
Accounting Concepts and Standards (2007), or Volume I, Original Pronouncements, Statements of Federal Federal Financial
Accounting Concepts and Standards (2004-2006).
2
Mission Statement, Federal Accounting Standards Advisory Board. For a more extensive description of FASABs role, refer to
Statement of Federal Financial Accounting Concepts No. 1, Objectives of Federal Financial Reporting, Paras. 23-29.
Page 1
Foreword
Standards
Using a due process and a consensus building approach, the Board promulgates accounting standards after
considering the financial and budgetary information needs of Congress, executive agencies, other users of
federal financial information, and comments from the public. The Memorandum of Understanding dated
December 3, 2009, is included in Appendix C and describes the Boards authorities and processes.
Interpretations
Interpretations clarify original meaning, add definitions, and provide other guidance for existing SFFAS. They
are narrow in scope. FASAB will respond to requests for guidance by providing technical assistance,
including, in some cases, interpretations. When drafting an interpretation the FASAB staff submits the request
to the Board and reviews applicable literature and consults with knowledgeable persons, as appropriate.
FASAB will consider the draft interpretation at an open meeting. Proposed interpretations are exposed for
public comment for at least 30 days. Interpretations approved by a majority of the Board and not objected to
by a Board member representing a principal within 45 days are published by FASAB.
Technical Bulletins
Technical bulletins provide guidance for applying statements and interpretations and resolving issues not
directly addressed by them. Technical bulletins are used when the nature of an issue does not warrant more
extensive due process. They are generally in question and answer format.
Technical Releases
The Accounting and Auditing Policy Committee (AAPC) provides implementation guidance through technical
releases that are reviewed and published by the FASAB and announced originally in the Federal Register. They
are included here for ease of reference.
Page 2
Foreword
GAAP Documents
When adopted and issued, these documents become federal accounting standards and implementation
guidance. It is expected that FASAB will continue to issue guidance through the documents described above.
As new documents are adopted, the FASAB Handbook will be updated. Individual documents issued between
updates are available through a variety of sources.
Page 3
Foreword
Topical Index
Effective Dates of Statements, Interpretations, Technical Bulletins,
and Technical Releases
Memorandum of Understanding
Federal Accounting and Auditing Resources
Consolidated Glossary
Consolidated List of Acronyms
Materiality
The Board intends that application of authoritative guidance be limited to items that are material.
Materiality has not been strictly defined in the accounting community; rather, it has been a matter of
judgment on the part of preparers of financial statements and the auditors who attest to them. Presented
below is the Boards position on the issue of materiality at this time.
The accounting and reporting provisions of the Boards accounting standards need not be applied to
immaterial items. The determination of whether an item is immaterial requires the exercise of
considerable judgment, based on consideration of specific facts and circumstances.
Copyright
This is a work of the U. S. government and is not subject to copyright protection in the United States. It may be
reproduced and distributed in its entirety without further permission from FASAB. However, because this
work may contain copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.
Page 4
Each Statement of Federal Financial Accounting Concepts (SFFAC) is part of a series of concepts statements
intended to set forth objectives and fundamentals on which financial accounting and reporting standards will
be based. The objectives identify the goals and purposes of financial reporting. The fundamentals are the
underlying concepts of financial accounting-concepts that guide the selection of transactions, events, and
circumstances to be accounted for; their recognition and measurement; and the means of summarizing and
communicating them to interested parties.
The Federal Accounting Standards Advisory Boards (FASAB or the Board) conceptual framework enhances
the consistency of standards and serves the public interest by providing structure and direction to federal
financial accounting and reporting. The most direct beneficiaries of the FASAB's concepts statements are the
Board itself and preparers and auditors of federal financial reports. The statements guide the Board's
development of accounting and reporting standards by providing the Board with a common foundation and
basic reasoning on which to consider the merits of alternatives.
Knowledge of the objectives and concepts the Board considers should help users and others who are affected
by or interested in federal financial accounting and reporting standards to understand better the purposes,
content, and qualitative characteristics of information provided by federal financial accounting and reporting.
That knowledge should enhance the usefulness of, and confidence in, federal financial accounting and
reporting.
Concepts statements enhance preparers and auditors understanding of the common foundation and
reasoning employed in considering alternatives. The GAAP hierarchy provides that statements of federal
financial accounting standards constitute level A (the highest level) guidance. Statements of federal financial
accounting concepts are not GAAP. Instead, concepts statements constitute "other literature" and may only be
relied upon by financial statement preparers and auditors to resolve specific accounting issues in the absence
of GAAP literature. In developing and amending accounting standards, the Board looks to concepts
statements for guiding principles and also considers relevant existing standards and guidance issued by the
Board and other standard setting bodies. Until the Board amends existing standards, the Board expects
practice to be governed by the accounting principles embodied in the four levels of the GAAP hierarchy. Thus,
the Board distinguishes between material presented in concepts which are used to guide Board deliberations
on future GAAP and accounting principles presented in standards which constitute current GAAP. (Appendix
C presents the sources of generally accepted accounting principles.)
For federal entities, in the absence of specific authoritative literature applicable to a transaction or event, it
should be possible to report the event or transaction by selecting an established accounting principle for an
analogous transaction or event that appears appropriate when applied in a similar manner. In the unusual case
where an analogy cannot be drawn to established authoritative literature, the GAAP hierarchy permits
consideration of other literature including concepts statements. Consideration of individual concepts
statements will be helpful but often may not provide sufficient guidance in resolving emerging issues.
Therefore, the Board encourages careful study of the conceptual framework and established practice in
resolving such issues.
Page 5
Preamble to SFFAC
Statements in this series describe concepts and relations that will underlie future federal financial accounting
standards and practices and in due course will serve as a basis for evaluating existing standards and practices.
With issuance of this statement, the series of concepts statements comprises:
SFFAC 4, Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the
United States Government
Like other pronouncements of the FASAB, Statements of Federal Financial Accounting Concepts remain in
effect until amended, superseded, or withdrawn by appropriate action under the Board's Rules of Procedure.
Page 6
Status
Issued
September 2, 1993
None.
Affected by
Summary
This document is a conceptual statement on the objectives of financial reporting by the federal government. It
focuses on the uses, user needs, and objectives of such reporting. The objectives are designed to guide the
Board in developing accounting standards to enhance the financial information reported by the federal
government to (1) demonstrate its accountability, (2) provide useful information, and (3) help internal users of
financial information improve the governments management. In addition to guiding the Board, the objectives
may serve as useful guidance to others involved in federal financial reporting. For example, the objectives
may be useful in developing accounting policy, designing reports, and writing narratives and notes to financial
reports.
The objectives reflect the federal environment. They also consider many of the needs expressed by current
and potential users of federal financial information. They provide a framework for assessing the existing
financial reporting systems of the federal government and for considering how new accounting standards
might help to enhance accountability and decision-making in a cost-effective manner.
The four objectives of Federal Financial Reporting are:
Budgetary IntegrityFederal financial reporting should assist in fulfilling the governments 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 governments budget for a particular fiscal
year and related laws and regulations. Federal financial reporting should provide information that helps
the reader to determine
how budgetary resources have been obtained and used and whether their acquisition and use
were in accordance with the legal authorization,
the status of budgetary resources, and
how information on the use of budgetary resources relates to information on the costs of
program operations and whether information on the status of budgetary resources is
consistent with other accounting information on assets and liabilities.
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Concepts 1
Operating PerformanceFederal 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 entitys assets and liabilities. Federal
financial reporting should provide information that helps the reader to determine
the costs of providing specific programs and activities and the composition of, and changes in,
these costs;
the efforts and accomplishments associated with federal programs and the changes over time
and in relation to costs; and
the efficiency and effectiveness of the governments management of its assets and liabilities.
StewardshipFederal financial reporting should assist report users in assessing the impact on the
country of the governments operations and investments for the period and how, as a result, the
governments and the nations financial condition has changed and may change in the future. Federal
financial reporting should provide information that helps the reader to determine whether
Systems and ControlFederal financial reporting should assist report users in understanding whether
financial management systems and internal accounting and administrative controls are adequate to
ensure that
transactions are executed in accordance with budgetary and financial laws and other
requirements, consistent with the purposes authorized, and are recorded in accordance with
federal accounting standards;
assets are properly safeguarded to deter fraud, waste, and abuse; and
performance measurement information is adequately supported.
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Concepts 1
Table of Contents
Contents
Page
Executive Summary
Federal Financial Reporting and the Role of the Federal Accounting Standards
Advisory Board
10
16
21
27
38
39
41
49
55
63
67
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Concepts 1
SFFAC 1 - Page 4
Concepts 1
Executive Summary
Introduction
1.
2.
3.
4.
The objectives reflect the federal environment. They also reflect many
of the needs expressed by current and potential users of federal
financial information. They provide a framework for assessing the
existing financial reporting systems of the federal government and for
considering how new accounting standards might help to enhance
accountability and decision-making in a cost-effective manner.
5.
The FASAB notes that many information sources other than financial
statements help to attain these objectives. The objectives relate to the
management and financial reporting systems in the federal
government in their entirety.
6.
Listing the objectives does not imply a judgment about the extent to
which they are now being attained. Indeed, it is presumed that the
objectives are being met to some degree now. However, the federal
government does not have an integrated mechanism for reporting
SFFAC 1 - Page 5
Concepts 1
within the context of these objectives. The FASAB will consider where
new accounting standards could make a useful and cost-effective
contribution to improving the extent to which these objectives are
attained.
Background and
Rationale
7.
8.
The federal government derives its just powers from the consent of the
governed. It therefore has a special responsibility to report on its
actions and the results of those actions. These reports must accurately
reflect the distinctive nature of the federal government and must
provide information useful to the citizens, their elected
representatives, federal executives, and program managers. Providing
this information to the public, the news media, and elected officials is
an essential part of accountability in government. Providing this
information to program managers, executives, and members of
Congress is essential to planning and conducting government
functions economically, efficiently, and effectively for the benefit of
society.
9.
10. The objectives apply to both internal and external financial reports.
They are intended to improve the relevance,consistency, and quality
of accounting and other data available for a wide variety of
applications.
11. The FASAB and its sponsors believe that any statement of objectives
of federal financial reporting must be based on the needs of those who
use the reports. Those users include citizens, Congress, federal
executives, and federal program managers. Current and potential
users of federal financial information want information to help them
assess how well the government is doing by answering questions
regarding such topics as:
SFFAC 1 - Page 6
Concepts 1
12. Concerns like these define the following objectives of federal financial
reporting.
Objectives of Federal
Financial Reporting
Budgetary Integrity
SFFAC 1 - Page 7
Concepts 1
Operating Performance
14. Federal financial reporting should assist report users in evaluating the
service efforts, costs, and accomplishments of the reporting entity;1
the manner in which these efforts and accomplishments have been
financed; and the management of the entitys assets and liabilities.
Federal financial reporting should provide information that helps the
reader to determine
Stewardship
15. Federal financial reporting should assist report users in assessing the
impact on the country of the governments operations and investments
for the period and how, as a result, the governments and the nations
financial conditions have changed and may change in the future.
16. Federal financial reporting should provide information that helps the
reader to determine whether
The FASAB has not yet considered criteria for defining, and terminology for describing,
federal financial reporting components or units. In this document, therefore, the term
entity is used in a generic way to refer, depending on the context, to the U. S. government
as a whole; to organizational component units of the government, such as an agency; and to
other kinds of potential reporting units, such as programs.
SFFAC 1 - Page 8
Concepts 1
Organization of the
Statement
SFFAC 1 - Page 9
Concepts 1
Chapter 1: Federal
Financial Reporting
And The Role Of
The Federal
Accounting
Standards Advisory
Board
Except where the context indicates otherwise, the term government in this document
refers both to the U.S. government as a whole and to its component reporting entities, such
as agencies and programs.
3
From the FASAB Mission Statement, approved by the Board and by the Secretary of the
Treasury, the Director of OMB, and the Comptroller General of the United States in l991.
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28. Just as the traditional distinction between internal and external report
users is less useful in the federal context, some of the traditional ways
of classifying financial reports are less relevant. Reports can be
intended primarily for a designated special purpose or for general
purpose use. In the federal government, as in most entities, internal
financial reporting is designed for special purposes. Internal financial
reporting helps managers to plan, conduct, and coordinate their
activities and to evaluate the economy, efficiency, and effectiveness of
their programs.
29. Much external federal financial reporting also is for special purposes,
but some is for general purpose use; that is, it attempts to meet the
common needs of many different users who have limited power to
demand information directly. These reports are known as general
purpose reports.4
Limitations Of Financial
Reporting
30. The FASB and the GASB focus primarily on general purpose financial
reporting because that is their mandate and reason for being. Even so,
those Boards recognize that general purpose financial reporting is not
the only source of financial information about such entities. In many
cases, users of general purpose financial reports need to consult other
sources to satisfy their information needs. This is no less true for the
federal government.
31.
In state and local governmental accounting, the term general-purpose financial statements
(GPFS) has a quite specific meaning. Standards published by the GASB define in detail the
form and content of such reports. The term general-purpose reports is used in a more
generic sense in this document to refer to a variety of federal financial reports.
SFFAC 1 - Page 12
Concepts 1
Evolutionary Approach
SFFAC 1 - Page 13
Concepts 1
Background Information
On Federal Financial
Reporting
38. Different people are likely to talk about very different things when
asked to describe federal financial reporting or federal accounting. A
few examples will illustrate this point
39. An economist, when asked this question, is likely to refer to reports
about the national society as a whole. Among the most important of
such financial reports are the national income and product accounts
(NIPA) that measure the nations aggregate expenditures on currently
produced output. Federal government expenditures, of course,
constitute a significant fraction of the total expenditures in the
economy. The NIPAs, as a system, emerged in the 1940s and were built
on work done in the U.S. Department of Commerce beginning in the
1930s and earlier by private organizations.
40. The NIPAs provide a picture of the economic transactions that occur
in an accounting period, such as a year. The approach is to provide
such a picture through a set of accounts that aggregate the accounts
belonging to the individual transactors in the economyworkers,
businesses, and consumers, among otherswhether or not formal
accounting statements exist explicitly for all of them.
41. The NIPAs provide vital information to policymakers and others who
are planning future actions and to individuals who would like to assess
the effects of past actions. The NIPAs are recognized as an essential
part of economic reporting by national governments. For this reason,
the United Nations has developed the System of National Accounts
(SNA). The SNA is a comprehensive, integrated, and internationally
comparable statistical base for analysis in key policy-making areas,
such as economic growth, inflation, and productivity.
42. This Statement does not deal directly with such accounts of the
economic activity of the national society. The focus of this Statement
is on accounting systems and financial reports that deal with the
budgetary integrity, operating performance, and stewardship of the
government as such; that is, of the government as a legal and
organizational entity within the national society. However, to report on
some aspects of the governments performance and stewardship,
economic and other information about the national society is
essential. Thus, the FASAB may consider whether such economic
information should be included in certain financial reports, such as
general purpose financial reports for the U.S. government as a whole.
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Chapter 2: The
Federal Accounting
And Financial
Reporting
Environment
Sovereignty
50. The federal government is unique, when compared with any other
entity in the country, because it is the vehicle through which the
citizens of the United States exercise their sovereign power.5 The
federal government has the power through law, regulation, and
5
The word sovereign, much discussed by legal and political philosophers, is used here in its
broad, popular sense to imply (1) internally that the people are the ultimate (if indirect)
overseer or authority in the decision-making process of a democratic state and
(2) externally that the state is autonomous or independent. As noted by one authority on the
subject, either type of sovereignty, internal or external, implies that there is no higher
agency. In a more limited sense, sovereignty is the power to make or change the law, a power
exercised collectively by individuals and institutions operating in a complex system of
relationships. See Sovereignty, W. J. Stankiewicz, The New Encyclopedia Britannica, 15th.
ed. (l976), vol. 17, pp. 309-313.
SFFAC 1 - Page 16
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Separation Of Powers
Federal System Of
Government
SFFAC 1 - Page 17
Concepts 1
Influence Of Organized
Interests
The Federal Reserve Board functions as a largely independent entity but is, of course, a
government agency created by congressional action.
SFFAC 1 - Page 18
Concepts 1
Assets
SFFAC 1 - Page 19
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Responsibility To The
News Media
Importance Of The
Budget
67. The budget is the most widely recognized and used financial report of
the federal government. It is a principal surrogate for the missing
external restraints discussed above. It is a vehicle for the political
process to reach agreement on goals and to allocate resources among
competing priorities. It provides a system for controlling expenditures.
And it supplies information necessary for assessing the effect on the
economy of the governments fiscal policies. The role of budgeting in
financial reporting is discussed further in Chapter 7 under
Relationship of Financial Reporting to Budgeting.
68. The lack of external restraints noted above creates a need for special
control mechanisms. Some mechanisms exist today. The most
important, of course, are the political constraints and accountability
imposed by regular elections and the separation of powers and the
other constitutional constraints and accountabilities, such as the
federal system and freedom of speech.
69. Accounting and financial reporting also play a role. Budgetary
obligation accounting is used to control activities, primarily at the
budget account level. Audited financial reports can provide users with
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Concepts 1
Chapter 3:
Accountability And
Users Information
Needsthe
Foundation Of
Governmental
Financial Reporting
Accountability
SFFAC 1 - Page 21
Concepts 1
Users Of Federal
Financial Reports
75. The Board believes that users of financial information about the
federal government can be classified in four major groups: citizens,
Congress, executives, and program managers.
J. D. Stewart, The Role of Information in Public Accountability, eds. Tony Hopwood and
Cyril R. Tompkins, Issues in Public Sector Accounting (Oxford, Great Britain: Philip Allan,
l984), pp. 14-15, as cited by the GASB in its Preliminary Views on Service Efforts and
Accomplishments Reporting (Dec. l992).
8
SFFAC 1 - Page 22
Concepts 1
Citizens
Congress
79. This group includes elected members of Congress and their staffs,
including staff of the Congressional Budget Office (CBO) and the
GAO. Congress is concerned with broad policies, priorities, and the
programs that implement those priorities. It decides what taxes to
impose, what funds should be spent, and for what purpose. Thus,
Congress is concerned both with how to finance programs and with
how they are executed.
80. Congress participatesalong with the administrationin the basic
decisions that describe the intent of government. Such decisions
include passing laws in response to public demand, allocating
resources among competing programs, and establishing policy that
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Concepts 1
affects various aspects of the countrys economic and social life. These
decisions often are influenced by assessing costs and benefits and by
considering the effect of the governments aggregate financial
requirements on the economy.
81.
Executives
82. This group includes the President and those acting as his agents, i.e.,
program agency heads and their deputy, under, and assistant agency
heads; heads of bureaus, administrations, services, and agencies; and
the central agency officials in OMB and the Department of the
Treasury.
83. Executives, like Congress, are concerned with the governments goals,
objectives, and policies. Executives focus on the strategic plans and
programs that are intended to achieve presidential and congressional
goals and to implement their policies. In particular, they pay attention
to budgets that, from the perspective of each agency, are the source of
the resources needed to achieve goals and to implement policies.
Executives are, of course, directly concerned about the management
of programs, that is, with the actual delivery of services and with the
efficiency and effectiveness of the delivery process.
84. Executives develop legislative proposals, recommend the necessary
level of program funding, and formulate financing and revenue-raising
strategies. They help select the method for delivering services. They
determine whether program managers have been accountable for the
resources entrusted to them and whether programs are operating
efficiently and effectively. Executives also provide information that
will enable the President and Congress to monitor programs.
Program Managers
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Concepts 1
88. While the financial information needs of these groups is more diverse
than their membership, those needs can be categorized under four
broad headings.
Budgetary Integrity
89. All user groups need information about the budget. For citizens,
information about budget execution provides assurance that their
elected and appointed representatives have fulfilled their most basic
fiduciary responsibility: to raise and spend money in accordance with
the law.
90. For the Presidents economic team and for congressional budget
committees, information is needed on budget aggregates (total budget
authority, total receipts and collections, and total outlays) to establish
fiscal policy, including governmental financing needs. These officials
need to know that prior-year actuals have been accurately recorded
in accordance with the same budgetary principles used to prepare
estimates.
91. To avoid violations of the Anti-Deficiency Act and the Impoundment
Control Act, program managers need information about obligations
incurred on their programs. They need periodic information about the
status of budgetary resources, that is, the extent to which the
resources have been used or remain available. They also want to know
whether budgetary resources are available to be used for other
purposes through reprogramming.
Operating Performance
92. Citizens want information about programs that affect them. Veterans,
for example, want to know about new hospitals, and defense workers
want information about contract awards (and cancellations). Retirees
and people planning retirementand their representatives in
Congresswant to know that the Social Security Administration
provides reliable services to the public.
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Stewardship
SFFAC 1 - Page 26
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103. Users at all levels need information on internal controls and the
adequacy of financial management systems. Citizens want assurances
that systems and controls are in place to protect the resources they
supply to the government. They want to know that operating
procedures and processes provide reasonable assurance that those
resources are used economically and efficiently for the purposes
intended. Congress, executives, and program managers need to
demonstrate to those to whom they are accountable that they have, in
fact, protected those resources and used them well. Users want to
know, for example, that agency heads have determined that internal
controls are adequate, that basic financial statements are auditable,
and that high-risk areas have been identified and addressed.
104. The implications of these four broad categories of information needs
for the objectives of federal financial reporting are discussed in more
detail in the next Chapter.
Chapter 4:
Objectives Of
Federal Financial
Reporting
105. The federal government derives its just powers from the consent of the
governed. It therefore has a special responsibility to report on its
actions and the results of those actions. These reports must accurately
reflect the distinctive nature of the federal government and must
provide information useful to the people, their elected representatives,
and federal executives. Providing this information to the public, the
news media, and elected officials is an essential part of accountability
in government. Providing this information to program managers,
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Budgetary Integrity
Objective 1
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Operating Performance
Objective 2
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Performance targets specify the level of performance that is set as a goal by policy and
program officials. Targets may be set in terms of outputs, outcomes, impacts, cost per unit of
output, etc.
SFFAC 1 - Page 32
Concepts 1
cash is used;
loan, loan guarantee, and other receivables programs are
conducted;
inventories of supplies, materials, and similar items are
maintained; and
forfeited and other tangible assets are handled.
SFFAC 1 - Page 33
Concepts 1
Stewardship
Objective 3
the amount of assets, liabilities, and net assets (or net position);
an analysis of government debt, its growth, and debt service
requirements;
changes in the amount and service potential of capital assets; and
the amount of contingent liabilities and unrecognized obligations
(such as the probable cost of deposit insurance).
10
The concepts of financial position and financial condition are discussed in Chapter 7.
SFFAC 1 - Page 34
Concepts 1
142. Providing information of this kind may require the use of reporting
mechanisms other than traditional financial statements. For example,
11
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Chapter 5:
Balancing Costs
And Benefits In
Recommending
Standards
151. Users information needs define financial reporting. Even so, the
process of articulating financial reporting objectives and then
recommending accounting standards is not a simple progression from
canvassing users of federal financial information to recommending
standards. This is partly because such users, when asked about their
information needs, may give answers that are limited by their past
needs and experiences. More fundamentally, it is because articulating
objectives and recommending accounting standards necessarily
involve judgments about the costs and benefits of producing more
information or of reporting it differently.
152. The standard-setting process is further complicated by the fact that
any given accounting standard can have many different kinds of
effects that must be considered. For example, accounting standards
can influence the activities of agency accountants and the auditors
who review reports prepared by those accountants, as well as the
decisions of those who read the financial statements. Thus, a standard
may influence which physical assets are under accounting control and
the extent of work the auditor does to provide assurance about those
assets. The accountants and auditors reports, in turn, may influence
various decisionmakers in different ways as they select policies
regarding the assets and the systems used to control them, decide how
to implement the policies, and evaluate the results.
153. The standard setter must, to some extent, be aware of these potential
effects when considering the costs and benefits of any given
accounting alternative. As an added complication, the same piece of
information may be used in different ways for different decisions. In
other words, there are different kinds of use. In some cases, the
information may be consciously used in well-defined ways; in other
cases, it may subtly influence the way people see the world,
understand their options, and assess their priorities.
154. For example, the size of the deficit may have a very specific meaning
with quite explicit implications (e.g., sequestration) under certain
rules for scoring the budget. The deficit may also influence the
economy because it affects aggregate demand and the governments
financing requirements in a variety of ways that economists can only
partially explain and quantify. Finally, the deficit may influence
peoples perceptions of their own well-being or of the nations financial
condition in more subjective or symbolic ways that can affect both
SFFAC 1 - Page 38
Concepts 1
Chapter 6:
Qualitative
Characteristics Of
Information In
Financial Reports
156. Financial reporting is the means of communicating with those who use
financial information. For this communication to be effective,
information in financial reports must have these basic characteristics:
understandability, reliability, relevance, timeliness, consistency, and
comparability.12
Understandability
157. Special purpose reports are prepared to meet the needs of specified
users. Understandability is rarely a problem in such cases because
mutual understanding of what information is needed can generally be
assumed between report preparer and report user. Information in
general purpose financial reports, however, should be expressed as
simply as possible. Users of general purpose financial reports,
including internal users, tend to have different levels of knowledge
and sophistication about government operations, accounting, and
finance.
158. To be publicly accountable, the federal government and its component
entities should issue general purpose financial reports that can be
understood by those who may not have a detailed knowledge of
accounting principles. Those reports should include explanations and
interpretations to help report users understand the information in the
proper context. However, general purpose financial reports should not
12
For the most part, these characteristics are similar to those described by the FASB and the
GASB.
SFFAC 1 - Page 39
Concepts 1
Reliability
Relevance
SFFAC 1 - Page 40
Concepts 1
Timeliness
Consistency
163. Financial reports should be consistent over time; that is, once an
accounting principle or reporting method is adopted, it should be used
for all similar transactions and events unless there is good cause to
change. The concept of consistency in financial reporting extends to
many areas, such as valuation methods, basis of accounting, and
determination of the financial reporting entity. If accounting principles
have changed or if the financial reporting entity has changed, the
nature and reason for the change, as well as the effect of the change,
should be disclosed.
Comparability
Chapter 7: How
Accounting
Supports Federal
Financial Reporting
165. This Chapter explains the focus of the FASABs concern by showing
how accounting supports financial reporting and thus how accounting
standards recommended by the FASAB can influence federal financial
reporting. This Chapter shows how the FASABs recommendations
can influence a wide variety of financial reports. Additionally, it lays a
foundation for the discussion (in Chapter 8) of how financial reporting
in general, and cost information in particular, contribute to
SFFAC 1 - Page 41
Concepts 1
13
See William J. Schrader, Robert E. Malcom, and John J. Willingham, A Partitioned Events
View of Financial Reporting, Accounting Horizons (Dec. l988), p 10-20. For a more
academic exploration of the ideas involved, see Yuji Ijiri, Theory of Accounting
Measurement, Studies in Accounting Research #10, American Accounting Association
(l975).
SFFAC 1 - Page 42
Concepts 1
Figure 1: How Accounting Contributes to Information Used by Citizens, Congress, Federal Exceutives, and Program
Managers
Information used to assess accountability and performance, to make planning and policy decisions, to allocate
resources, to decide how to vote, and for other decisions.
Financial Information
Special-purpose reports
various specialpurpose financial
reports from
committees of
Congress, agencies,
GAO, news media,
etc.
Nonfinancial Information
General-purpose reports
budget
execution
reports
e.g., financial
information
required by the
CFO Act
e.g.,
nonfinancial
information
required by the
CFO Act
Special-purpose
special-purpose
nonfinancial
information from
agencies, news
media, etc., e.g.,
Federal Managers'
Financial Integrity
Act reports
2. Environmental Data
(e.g., changes in market value or service potential, contingent gains & losses, program results)
Entity Status
Data (assets &
liabilities)
SFFAC 1 - Page 43
Other Entities
Concepts 1
170. Together with the statement of cash flows, the income statement (or
statement of operations or activities) and the balance sheet comprise
the three basic general purpose financial statements for privately
owned entities. Other statements, such as a comparison of actual
results with the budget, may be regarded as part of the basic
statements for governmental entities.
171. At the initial stage of the accounting process, the information about
assets and liabilities is merely the result of assigning all or part of the
value of certain transactions to the future. Assets and liabilities at
this stage are not statements about future benefits or sacrifices that
can be proven or disproven. They are allocations of the cost of past
transactions based on assumptions about future benefit and sacrifice.
172. This has been a common source of confusion when accountants
communicate with nonaccountants, for whom the word asset
typically implies something of value that can be sold or used. Much of
the evolution of accounting under the FASB and the GASB has been to
reduce this confusion, to improve communication, and to make
financial reports more faithfully represent economic reality in terms
meaningful to report users. This evolution has involved adding
increasing amounts of information to the core set of transaction data.
That process is discussed later.
173. In other words, the amount of equity or net assets based on the
core data in a bookkeepers trial balance is not a direct measure of
either the market value or the service potential of the entity. In some
circumstances, however, net assets can be a meaningful indicator of
that value or potential. (The word indicator is used deliberately to
avoid the implication of precision that may be associated with the
word measure.)14
174. Accounting data may be further assigned, allocated, or associated with
units of activity or production, segments of organizations, etc., within
the same time period. These kinds of intraperiod allocations are
14
The term measure is commonly used in accounting literature regarding cost and in other
literature (including the GASBs) regarding performance. This document follows that
practice. In a conceptual discussion, however, it is important to note that cost,
performance, and financial condition are all multidimensional concepts. It may be more
precise to think in terms of multiple indicators that provide information about these
concepts instead of a single-valued measure of any of them.
SFFAC 1 - Page 44
Concepts 1
Financial Environmental
Data And The Concept
Of Financial Position
177. The core set of accounting data is expanded with a variety of what
may be called environmental data to distinguish them from the data
that arise from transactions (flows of resources or promises) with
other entities. Box 2 in figure 1 depicts this step of the accounting and
reporting process. Many events within the environment of a reporting
entity may have economic consequences for the entity. Examples of
environmental data that may be relevant to financial reporting for
some purposes include current market prices, net realizable values,
changes in discount (interest) rates, and impairment of assets (either
in terms of market value or in terms of service potential). Judgments
about what environmental data should be added are made by
considering the specific information needed for specific purposes.
178. At this level of the accounting and financial reporting process, the
information reported in the balance sheet transcends bookkeeping. It
can now represent more of what is known about future economic
benefits and sacrifices. To the extent that this is accomplished, the
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Concepts 1
Nonfinancial
Environmental
Information
The Concept Of
Financial Condition
180. As more environmental data are added to the core data, a concept that
is broader and more forward-looking than financial position
emerges. That concept is financial condition. For the U.S.
government, the additional data could include financial and
nonfinancial information about current conditions and reasonable
expectations regarding the national and even the global society. For
example, the expected implications of environmental degradation; the
relative competitiveness and productivity of the U.S. economy; or
expected changes in the populations composition in terms of age,
gender, longevity, education, health, and income all might affect
judgments about the governments financial condition.
181. Information about financial condition can be conveyed in a variety of
schedules, notes, projections, and narrative disclosures. Among the
most important of these is managements discussion and analysis of
known trends, demands, commitments, events, and uncertainties. For
federal reporting entities, managements discussion and analysis might
address such topics as
budgetary compliance;
internal control systems;
capital resources and investments;
service efforts, accomplishments, and results of operations; and
SFFAC 1 - Page 46
Concepts 1
Kinds Of Financial
Information Needed And
Provided
15
Such a discussion and analysis is required in federal financial reports prepared pursuant to
the CFO Act of l990. In these reports, the discussion and analysis is referred to as the
overview section. OMB Bulletin 92-03 provides guidance on preparing the overview
section.
SFFAC 1 - Page 47
Concepts 1
Relationship Of
Financial Reporting To
Budgeting
186. The budget is a broad term that may include, among other things, a
projection of spending authorities and means of financing them for a
future period and a report of the actual spending and associated
financing for a past period. The FASABs recommendations may
influence the reporting of actual budgetary data.
187. The Budget of the United States Government is the most widely
recognized and used financial report of the federal government. The
budget process is the governments principal mechanism for reaching
agreement on goals, for allocating resources among competing uses,
and for assessing the governments fiscal effects on economic stability
and growth. Most attention is paid to these future-oriented roles of the
budget.
188. Budget execution is designed to control and track tax receipts and the
use of resources according to the purposes for which budget authority
was approved. Actual receipts, obligations, and outlays are recorded
by account, as is the status of budgetary resources at the end of each
fiscal year.
189. Budgetary measurement is designed to assist in the control and
allocation of resources by showing the cash outlays implied by each
decision when the decision is made. In some cases, the budget now
also includes accruals for costs in advance of the required cash outlay.
SFFAC 1 - Page 48
Concepts 1
Chapter 8: How
Financial Reporting
Supports Reporting
On Operating
Performance
SFFAC 1 - Page 49
Concepts 1
194. This Chapter first discusses cost measurement in general terms, then
outlines a framework for reporting on performance to show how cost
information can assist in that endeavor. Both cost measurement and
performance measurement are complex subjects. Difficult problems
arise during attempts to implement the ideas involved. For example,
meaningful interpretation may require disaggregation of information,
or adjustment of targets for differences in client characteristics, for
local conditions, and for other factors beyond the governments
control. Such problems are beyond the scope of this conceptual
document. This Statement does not purport to present a
comprehensive discussion of how to measure cost or performance.
Neither does this Statement address the problems of implementation;
it merely shows the relationship between financial reporting and
performance reporting in conceptual terms.
Cost Measurement
Method of Accounting
SFFAC 1 - Page 50
Concepts 1
Full Costing
Performance
Measurement
Measures of Efforts
201. Efforts are the amount of financial and nonfinancial resources (in
terms of money, material, and so forth) that are put into a program or a
process. Measures of service efforts also include ratios that compare
financial resources with other measures that may indicate potential
demand for services, such as the number of potential service
recipients.
16
The following discussion is based largely on the GASBs Preliminary Views on Service
Efforts and Accomplishments Reporting, December, l992.
SFFAC 1 - Page 51
Concepts 1
Measures of
Accomplishments
SFFAC 1 - Page 52
Concepts 1
SFFAC 1 - Page 53
Concepts 1
Limitations of Performance
Measurement
SFFAC 1 - Page 54
Concepts 1
Appendix A: Basis
For Conclusions
Introduction
Relationship Between
Financial Reporting And
The Budget
217. The Board considered whether it should modify the exposure drafts
discussion of the relationship between financial reporting and the
budget. Several respondents commented on this subject, but often in
different ways. Some alluded to budgetary and proprietary (or
accrual or financial) accounting in a context that implied each
should be on a different basis but reported in an integrated fashion.
Others suggested that using the same basis for reporting and for
budgeting was essential to achieve the objectives stated for federal
financial reporting.
218. Many recommendations have been made over the years that
information on expenditures be arranged to permit better perception
of the relationship between the expenditures and national policy
objectives. Some of those recommendations have related to the
budget. Some have called for an accrual-basis budget. Those who
would like to change the organization and/or the basis of the budget,
SFFAC 1 - Page 55
Concepts 1
SFFAC 1 - Page 56
Concepts 1
Reporting On
Performance And Using
Nonfinancial
Information
SFFAC 1 - Page 57
Concepts 1
Thomas D. Lynch, Presidents Column, ASPA Times, vol. 16, No. 6 (June 1, l993), p. 5.
SFFAC 1 - Page 58
Concepts 1
232. In concept, this fact could imply that a complete financial report of a
federal reporting entity should include indicators of economy,
efficiency, and cost effectiveness if the report is to fairly present the
entitys financial position and results of operations. Paragraph 164
notes that financial or cost information is an important component of
both types of measures that attempt to relate efforts to
accomplishments. In practice, the extent to which it is feasible and
cost effective to present such information can be decided only after
careful study of the specific circumstances.
233. While specific decisions will require further study, the Board notes its
belief that any attempt to demonstrate accountability beyond probity
(level 5) and process (level 4) requires performance measures.18 The
Boards user needs study, its public hearings, and similar sources of
information suggest a widespread belief that the federal government
needs to make a more systematic attempt to measure and report
outputs, outcomes (including impacts), and the costs of producing
them. To do this, the Board believes, accounting and financial
reporting play an essential part throughout the cycle of planning,
budgeting, financial management, and evaluation of federal activities.
Stewardship
234. A few respondents said that the stewardship objective described in the
exposure draft was too broad. They felt that information on the effects
on the nation of policy decisions was outside the scope of federal
financial reporting. The Board concluded that this concernlike the
preceding one regarding reporting on performance--stemmed in part
from the wording and structure of the first three objectives in the
exposure draft.
235. Accordingly, the Board substituted the phrase provide information
that helps . . . for enable . . . As noted earlier, federal financial
reporting cannot by itself accomplish the objectives of evaluating or
assuring stewardship; it can only contribute to those goals.
236. The Board notes that the federal government has two levels of
stewardship. One is for its own assets and liabilities and its ongoing
ability to operate. The other is its constitutional responsibility for the
nations wealth and well-being. It is unique in this respect. If the
18
SFFAC 1 - Page 59
Concepts 1
237. Most respondents who addressed the fourth objective, originally titled
Deterring Fraud Waste and Abuse, supported the exposure draft,
though some suggested that it could be phrased in a more positive
fashion. Several emphasized the need for this objective and for
standards to achieve it, but a few thought that internal control should
not be regarded as an element of financial reporting. Others suggested
that a separate objective on this topic was not necessary because it
could be inferred from the other objectives.
238. The Board agreed that the objective should be stated in more positive
terms. Accordingly, it replaced Deterring Fraud, Waste, and Abuse
with the new heading Systems and Control and made other changes
in wording the objective. With regard to the fundamental point,
however, the Board continues to believe that systems and control are
topics of sufficient importance and relevance to warrant addressing in
their own right.
239. The Boards user needs study, public hearings, and other sources of
information make abundantly clear that users want assurance that
reported information is credible and reliable. They also want to know
that reasonable controls are in place to deter fraud, waste, and abuse.
Independent audit can help provide this assurance, but whether
information is audited or not, effective systems and controls are
essential to providing such assurance in a cost-effective way.
Furthermore, effective systems and controls are essential to achieving
the other objectives.
240. Perhaps the unique contribution of accounting-based reports for
objectives 1 and 4 is the core accounting data base on transactions,
especially on controlled transactions subject to finance-related
SFFAC 1 - Page 60
Concepts 1
SFFAC 1 - Page 61
Concepts 1
Objectives For
Governmentwide And
Component Entity
Reports
SFFAC 1 - Page 62
Concepts 1
Appendix B: Users
Information Needs
Addressed By
Federal Financial
Reporting
19
SFFAC 1 - Page 63
Concepts 1
Information On The
Sources And Uses Of
Budgetary Resources
253. The budget is the starting point for the governments finances. All
users want to know the makeup of the budget, i.e., the budget
authority, the obligations, the outlays, the receipts and offsetting
collections, etc. They want to know how the budget was executed and
particularly whether it was executed in accordance with the
appropriation statutes and other laws affecting the entitys finances.
They want to know the status of the budgetary resources, including
the extent of obligated and unobligated budget authority. Finally, they
want to know the sufficiency of the budget authority for covering
future commitments.
Information About
Operations And The
Related Resources
SFFAC 1 - Page 64
Concepts 1
257. The government also holds assets as a custodian or only until the
assets can be sold. Examples are seized or forfeited assets.
Information about these assets helps to establish accountability for
them and to make decisions about the best time and method for their
disposal.
258. Users want to know what the government owes and whether the
amounts are short term and precisely definable, long term and only an
estimate, or just a contingency related to an enterprise or activity that
is not a direct and current government responsibility, e.g., governmentsponsored enterprises. This information helps the reader assess the
governments ability to continue to operate at its current levels over a
period of time and/or whether a tax increase is likely.
259. The changes in the amounts owed from year to year are also
important. The user often is willing to settle for (or may actually
prefer) ranges rather than point estimates and/or net present values
rather than nominal (undiscounted) amounts.
Information That
Addresses Concerns
With The Future
260. The federal government is responsible for the countrys well-being. Its
financial actions affect that well-being, both currently and in the
future. Thus, users look not just for information to evaluate the
condition of the trust funds upon which they rely for future security.
They also want information to assess the likelihood of tax increases,
service reductions, and changes in the inflation rate.
261. They therefore want information about possible sources of additional
financial resources. They want to see the amounts of resources
expended on consumption activities in comparison to investment
activities, such as research and development. They want information
on other growth-stimulating activities. On the other hand, they still
want to be able to assess where spending can be reduced significantly.
262. Finally, they want to know the magnitude of the probable future
deficits, the cost burden this will place on taxpayers, and the potential
effect that this burden might have on the quality of life.
SFFAC 1 - Page 65
Concepts 1
Information That
Discloses The Levels Of
Financial Controls
SFFAC 1 - Page 66
Concepts 1
Appendix C:
Selected Federal
Reports Prepared
On A Recurring
Basis
Financial Information
Special Purpose
Financial Information
General Purpose
SFFAC 1 - Page 67
Concepts 1
Nonfinancial
InformationGeneral
Purpose
Nonfinancial
InformationSpecial
Purpose
SFFAC 1 - Page 68
Status
Issued
No other statement.
Affected by
Paragraphs 90-102, SFFAS 7, which affect paragraphs 64, 74, 105 of this statement,
and add Appendix I-G.
SFFAS 27, paragraph 38, amends footnote 3.
SFFAS 31, paragraph 35, amends paragraphs 84 and 102.
SFFAS 6, paragraphs 6 through 22, amend par. 2, 3, 55, 69, 72-74, 76-79, 81, and
108 as well as footnotes 11, 12, 12a, 14, and 17.
Summary
This concepts statement describes the basis for defining a reporting entity for the general purpose financial
reporting performed by the Federal government and/or entities thereof. For any entity to be a reporting entity
it should meet all of the following criteria:
There is a management responsible for controlling and deploying resources, producing outputs and
outcomes, executing the budget or a portion thereof (assuming that the entity is included in the budget),
and held accountable for the entitys performance.
The entitys scope is such that its financial statements would provide a meaningful representation of
operations and financial condition.
There are likely to be users of the financial statements who are interested in and could use the
information in the statements to help them make resource allocation and other decisions and hold the
entity accountable for its deployment and use of resources.
Criteria for including components in a reporting entity are also provided. A conclusive criterion establishes
that any organization, program, or budget account (including off-budget accounts and government
corporations) appearing in the Federal budget section currently titled Federal Programs by Agency and
Account should be considered part of the Federal Government as well as part of the organization with which
it appears. Indicative criteria are presented that should be considered when an organization is not listed in the
Federal Programs by Agency and Account yet the general purpose financial statements might be misleading
or incomplete if the organization where not included therein.
This concepts statement also describes the items that should be included in Federal financial reports and
presents illustrative statements depicting desirable displays of financial information. The items include:
SFFAC 2 - Page 1
Concepts 2
SFFAS 7, Accounting for Revenue and Other Financing Sources, amends the above list to include statement
of financing. SFFAS 7 also presents an illustrative statement of financing to amend the displays shown in
Appendix A of SFFAC 2.
SFFAC 2 - Page 2
Concepts 2
Table of Contents
Contents
Page
Introduction
11
14
18
19
35
48
50
51
52
53
54
55
55
SFFAC 2 - Page 3
Concepts 2
Introduction
1.
2.
3.
OMB specifies the form and content of agency and governmentwide financial statements,
pursuant to authority assigned in the Chief Financial Officers Act of 1990, as amended (title
31, U.S. Code, section 3515(d) and section 331(e)(1)) through periodic issuance of OMB
Bulletins. OMB intends to base the form and content on the concepts contained in this
statement.
SFFAC 2 - Page 4
Concepts 2
4.
This statement does not try to define which reporting entities must
prepare and issue financial statements. That authority and
responsibility resides with the Congress, OMB, and other oversight
organizations and resource providers.
5.
6.
SFFAC 2 - Page 5
Concepts 2
Reasons For
Defining Reporting
Entities
7.
8.
9.
SFFAC 2 - Page 6
Concepts 2
Structure Of The
Federal
Government
Organization
Perspective
Budget Perspective
SFFAC 2 - Page 7
Concepts 2
14. Budget accounts are not the same as Treasury accounts. The latter are
accounts established in the Treasury to, among other purposes, record
the appropriations and other budgetary resources provided by statutes
and the transactions affecting those accounts. For the most part,
budget accounts are aggregations of Treasury accounts. Also, Treasury
accounts include deposit accounts as well as budget accounts.
15. Nor are budget accounts the same as the uniform ledger accounts
established by the U.S. Government Standard General Ledger (SGL).
SGL accounts record specific homogeneous types of transactions and
balances that aggregate to specific classifications on the financial
statements. They have been established so that agencies can establish
control over their financial transactions and balances, meet the basic
financial reporting requirements, and integrate budgetary and
financial accounting in the same general ledger.
16. A budget account may coincide with an organization or one or more of
its suborganizations. Other times, several budget accounts need to be
aggregated to constitute an organization or sub-organization.
17. Budget accounts are classified as federal funds or trust funds. Any
account that is designated by the laws governing the federal budget as
being a trust fund is so classified. Federal funds comprise the larger
group and include all transactions not classified by law as trust funds.
Three components make up federal funds: the general fund, special
funds, and revolving funds. The definition of each of these categories
can be found in the OMB circular A-11 and the GAO Glossary of Terms
Used in the Federal Budget Process.
18. Care must be taken in determining the nature of all trust funds and
their relationship to the entity responsible for them. A few trust funds
are truly fiduciary in nature. Most trust funds included in the budget
are not of a fiduciary nature and are used in federal financing in a way
that differs from the common understanding of trust funds outside the
federal government. In many ways, these trust funds can be similar to
revolving or special funds in that their spending is financed by
earmarked collections.
19. In customary usage, the term trust fund refers to money belonging to
one party held in trust by another party operating as a fiduciary. The
money in a trust fund must be used in accordance with the trusts
terms, which the trustee cannot unilaterally modify, and is maintained
SFFAC 2 - Page 8
Concepts 2
separately and not commingled with the trustees own funds. This is
not the case for most federal trust funds that are included in the
budget--the fiduciary relationship usually does not exist. The
beneficiaries do not own the funds and the terms in the law that
created the trust fund can be unilaterally altered by Congress.
20. Special funds and trust funds, except trust revolving funds, are
aggregates of budget accounts. They normally consist of one or more
receipt accounts and one or more expenditure accounts. Among the
trust funds, social insurance programs (such as social security and
unemployment compensation) have the largest amount of funds and
federal employee programs (such as retirement and health benefits)
the second largest. Together they make up about 90 percent of all trust
fund receipts. Other trust funds include excise tax financed programs
for highway construction, airports and airway operations, and other
public works. Like other budget accounts, trust funds are usually the
responsibility of a single organization, although sometimes they are
the responsibility of more than one organization.
21. Budget accounts are also categorized, as mandated by law and defined
by OMB, into functions and subfunctions that represent national needs
of continuing national importance and substantial expenditures of
resources. Examples of functions are national defense and health.
Program Perspective
SFFAC 2 - Page 9
Concepts 2
24. The term program is also often used interchangeably with the terms
function and sub-function (see paragraph 21). Generally, however,
the term function would be used only for the functions defined in the
budget. Otherwise, the term program would be used.
Intertwining Of The
Perspectives
SFFAC 2 - Page 10
Concepts 2
Identifying The
Reporting Entities
For General
Purpose Financial
Reporting
29. As stated, reporting entities are entities that issue general purpose
financial statements to communicate financial and related information
about the entity. For any entity to be a reporting entity, as defined by
this Statement of Federal Financial Accounting Concepts, it would
need to meet all of the following criteria.
30. Budget accounts, in and of themselves, do not meet the criteria in the
preceding paragraph and, therefore, would not be considered a
reporting entity for the purposes of issuing general purpose financial
statements. Also, the size and scope of the budget accounts across all
government agencies lack sufficient consistency for them to be
universally considered as the reporting entity. Similarly, programs
generally do not meet the criteria in paragraph 29 and, therefore,
would not be a considered a reporting entity that prepares general
purpose financial statements.
31. On the other hand, organizations, and particularly larger
organizations, meet the criteria in paragraph 29. While the occasional
overlap of programs and budget accounts among more than one
organizational unit could complicate financial reporting, the
association of data with the responsibility centers, revenue centers,
profit centers, cost centers, etc. which managers typically use for
organizing and operating permit the following:
SFFAC 2 - Page 11
Concepts 2
SFFAC 2 - Page 12
Concepts 2
3
For some trust funds, the collection of the revenues is performed by an organizational entity
acting in a custodial capacity that differs from the organizational entity that administers the
trust fund. In those instances, the organizational entity that collects the revenues would be
responsible for reporting only the collection and subsequent disposition of the funds. The
organizational entity responsible for carrying out the program(s) financed by a trust fund
will report all assets, liabilities, revenues, and expense of the fund, notwithstanding the fact
that another entity has custodial responsibility for the assets. In the case of multiple
responsible entities, if the separate portions of the program can be clearly identified with a
responsible component entity, then each component entity should report its portion in
accordance with the requirements of SFFAS 27, Identifying and Reporting Earmarked
Funds. If separate portions cannot be identified, the component entity with program
management responsibility should report the fund.
SFFAC 2 - Page 13
Concepts 2
Criteria For
Including
Components In A
Reporting Entity
Conclusive Criterion
41. There are two types of criteria that should be considered when
deciding what to include as part of a financial reporting entity. The
first is a conclusive criterion, i.e., an inherent conclusion that for
financial reporting purposes, any organization meeting this criterion is
part of a specified larger entity.
42. Appearance in the Federal budget section currently entitled Federal
Programs by Agency and Account is a conclusive criterion. Any
organization, program, or budget account, including off-budget
accounts and government corporations, included in that section
should be considered part of the U.S. Federal Government, as well as
part of the organization with which it appears. This does not mean,
however, that an appropriation that finances a subsidy to a nonFederal entity would, by itself, require the recipient to be included in
SFFAC 2 - Page 14
Concepts 2
Indicative Criteria
SFFAC 2 - Page 15
Concepts 2
45. The entity or any of the above criteria are likely to remain in existence
for a time, i.e., the interest in the entity and its governmental
characteristics is more than fleeting.
46. In applying the indicative criteria, the materiality of the entities and
their relationship with one another should be considered. Materiality
should not be measured solely in dollars. Potential embarrassment to
any of the entities stakeholders should also be considered. Thus, a
bias toward expansiveness and comprehensiveness would be justified,
particularly if it could contribute to maintenance of fiscal control.4
4
Any uncertainty as to what to consider as a reporting entity would be resolved by OMB in
consultation with the appropriate Congressional committees.
SFFAC 2 - Page 16
Concepts 2
Government Sponsored
Enterprises
48. There are also several Federally chartered but privately owned and
operated financial institutions that have been established as financial
intermediaries to facilitate the flow of investment funds to specific
segments of the private sector. These entities are called government
sponsored enterprises (GSE). Examples are the Federal National
Mortgage Association, the Farm Credit Banks, and the Federal Home
Loan Banks. By law, each of these GSEs is subject to oversight from a
specific Federal agency. However, they are not included in the Federal
budget section entitled Federal Programs by Agency and Account.
Nor, as currently constituted, do they function in a manner consistent
with the indicative criteria presented in paragraph 44. Thus they would
not be considered part of the government-wide reporting entity nor the
reporting entity to which they have been assigned for oversight.
49. On the other hand, there are political expectations associated with
the GSEs, the most significant of which is an expectation that
legislation would be enacted to support a GSE experiencing severe
financial difficulties. (Political expectations are different than moral
obligations established by many states. There is no statutory
authority that defines whether and how a political expectation would
be met. With a moral obligation, the manner in which it may be met is
usually explicitly defined in statute.) Therefore, agencies assigned
oversight responsibility for a GSE(s) would need to consider making
disclosures of the governments relationship with the GSE(s) and
SFFAC 2 - Page 17
Concepts 2
Bailout Entities
Other Aspects
Concerning The
Completeness Of
The Entity
The term government sponsored enterprise is also sometimes used in a broader manner to
encompass other entities established by the Federal Government to further a public policy
and that are also not included in the budget section Federal Programs by Agency and
Account. Examples are the Financing Corporation, Resolution Funding Corporation,
Amtrak, and even, on occasion, the American National Red Cross. These entities have varied
characteristics and different types of relationships to the Federal Government, and
therefore, in some cases, may be included with the above mentioned GSEs in sections or
tables of Federal budget documents. These entities need to be judged individually with
respect to the indicative criteria presented in paragraph 39 in order to determine whether
they should be considered part of a Federal reporting entity.
SFFAC 2 - Page 18
Concepts 2
Displaying Financial
Information
The Board has decided to undertake a project addressing the types of capital for which it
might be appropriate for a reporting entity to disclose the costs, the reasons thereof, and the
manner in which to determine and report these costs. A determination of the
appropriateness of considering interest expense as part of the costs incurred by an
organization or program will be made by that project.
SFFAC 2 - Page 19
Concepts 2
SFFAC 2 - Page 20
Concepts 2
Stock Statements
57. The financial reporting objectives are also met with different types of
financial statements. A financial statement that presents financial
information for an entity as of a particular point in time, however the
information is measured, i.e., budgetary, cash, or accrual, is often
characterized as a stock statement. An example of a stock statement is
a balance sheet. It presents the total balances of assets, liabilities,
and net position of an organization as of a specific time.
Flow Statements
SFFAC 2 - Page 21
Concepts 2
The Board is currently developing an Exposure Draft entitled Revenue and Other
Financing Sources which addresses more fully the types of revenues (i.e., exchange versus
non-exchange and earned versus unearned revenues) discussed here.
SFFAC 2 - Page 22
Concepts 2
Budget Statement
SFFAC 2 - Page 23
Concepts 2
Reconciliation
Statement--Budgetary
And Financial
Accounting
Performance Measures
Statement
65. The second objective of Federal financial reporting states, in part, that
Federal financial reporting should provide information that helps
readers of the financial reports determine the efforts and
accomplishments associated with Federal programs and the changes
over time and in relation to costs. This suggests that a statement of
program performance measures,9 i.e., one or more statements
presenting service efforts and accomplishments measures for each of
a reporting entitys significant programs, is necessary.
66. The Federal Government is increasing its interest in measuring and
reporting program performance, as evidenced by the enactment of the
Government Performance and Results Act and increasing emphasis
during budget reviews on program performance. Moreover, the ability
to seek and obtain maximum return from increasingly limited
resources can be enhanced by an understanding of the results of the
programs for which budget resources have been expended. In the final
analysis, the objective of the Federal Government is to provide
The Board does not consider the Statement of Program Performance Measures to be a basic
financial statement.
SFFAC 2 - Page 24
Concepts 2
Other Information
SFFAC 2 - Page 25
Concepts 2
10
A complete discussion of the third objective for Federal financial reporting, which is called
the stewardship objective, is contained in paragraphs 134 to 145 of Statement of Federal
Financial Accounting Concepts No. 1, Objectives of Federal Financial Reporting.
11
12
SFFAC 2 - Page 26
Concepts 2
Distinguishing Basic
Information, RSI,
and OAI
Determining Required
Information
Determining Basic
Information versus RSI
The first and highest level of the GAAP hierarchy comprises standards and
interpretations. Lower level GAAP may not conflict with standards or interpretations.
SFFAC 2 - Page 27
Concepts 2
SFFAC 2 - Page 28
Concepts 2
SFFAC 2 - Page 29
Concepts 2
OAI
73F. If an item of information does not meet the criteria for basic
information or RSI, it becomes a candidate for OAI. OAI is
information that accompanies basic information and RSI, but is not
required by a body that establishes GAAP. Some entities may desire to
report information to supplement required information and enhance a
user's understanding of the entity's operations or financial condition.
This may include, but is not limited to, information on delivery times,
turnover, and wastage of inventories; expected replacement of
physical capital; and delinquency, aging, and default rates for loan
portfolios. In addition, entities report information not required by a
body that establishes GAAP, but required by laws or administrative
directives. The laws or administrative directives may require the
information to be audited and may require it to accompany basic
information and RSI. However, this information is also considered
OAI.
73G. Although the FASAB does not require OAI to be presented, the FASAB
may at times encourage voluntary reporting of items to help in the
development of information that may enhance overall federal financial
reporting. For example, the FASAB may consider an item to be
relevant to entity operations but, for the moment, does not meet other
criteria for required information.
SFFAC 2 - Page 30
Concepts 2
Low
(implies
RSI)
Factor
High
(implies
Basic)
74. Meeting the four objectives of Federal financial reporting in the most
efficient manner suggests that reporting entities issue a financial
report that would include the following:
SFFAC 2 - Page 31
Concepts 2
statement of financing;12.2
statement of program performance measures;13
accompanying footnotes;
required supplementary information ; and
other accompanying information.
12.2
The Statement of Financing may be presented as a financial statement or as a schedule in
the notes to the financial statements. The OMB will provide guidance regarding details of
how the information will be displayed.
13
14
SFFAC 2 - Page 32
Concepts 2
16
SFFAC 2 - Page 33
Concepts 2
80. The readers should be made aware of whether the financial statements
for the entire government exclude any significant entities that are
included in the budget or include significant entities that are not
included in the budget.
81. [Rescinded by SFFAC 6.]
82. The financial statements for the entire government could also be used
to provide information on Presidential initiatives or crosscutting
programs that is not available in financial statements for individual
organizations or programs.
SFFAC 2 - Page 34
Concepts 2
Recommended
Contents For The
Recommended
Displays
Balance Sheet
SFFAC 2 - Page 35
Concepts 2
18
The Board issued an Exposure Draft, Accounting for Property, Plant, and Equipment
(PP&E ED), on February 28, 1995 addressing those items of PP&E that would be reported on
the balance sheet. The PP&E ED also proposes definitions for categories of PP&E that
would not be reported on the balance sheet. In a separate ED, the Board will address other
means of reporting on the non-balance sheet categories--possibly including separate basic
financial statements and required supplemental information.
SFFAC 2 - Page 36
Concepts 2
from other than contracts. This does not, however, eliminate the
existence of, and therefore the need to report, liabilities incurred
by the reporting entity.
Net position. Net position is the residual difference between
assets and liabilities. It is generally composed of unexpended
appropriations and the cumulative results of operations. Included
in the former would be appropriations not yet obligated or
expended, including undelivered orders. Included in the latter
would be the amounts accumulated over the years by the entity
from its financing sources less its expenses and losses, which
would include donated capital and transfers in the net investment
of the Government in the reporting entitys assets; and an amount
representing the entitys liabilities for such things as accrued
leave, credit reform subsidies, and actuarial liabilities not
covered by available budgetary resources.
85. Assets the reporting entity holds and has the authority to use in its
operations should be displayed separately from assets the entity holds
but does not have the authority to use. Likewise, liabilities for which
budgetary authority has been received for liquidating the liabilities
should be displayed separately from liabilities for which budget
authority has not been received (even if the authority is expected).
Assets and liabilities arising from transactions among Federal entities
should be displayed separately from assets and liabilities arising from
transactions with non-Federal entities.
SFFAC 2 - Page 37
Concepts 2
SFFAC 2 - Page 38
Concepts 2
SFFAC 2 - Page 39
Concepts 2
Statement Of Changes In
Net Position
SFFAC 2 - Page 40
Concepts 2
Statement Of Custodial
Activities
19
The Board plans to undertake a project on the interest cost associated with investing in
operating assets. At this time, no decision has been made on the recognition by individual
entities of these types of costs.
SFFAC 2 - Page 41
Concepts 2
Statement Of Budgetary
Resources
SFFAC 2 - Page 42
Concepts 2
Statement of Financing
SFFAC 2 - Page 43
Concepts 2
Statement Of Program
Performance Measures
SFFAC 2 - Page 44
Concepts 2
20
SFFAC 2 - Page 45
Concepts 2
21
The Public Management Committee of the Organization for Economic Cooperation and
Development, which is comprised of the twenty four democratic nations with advanced
market economies, has been studying performance management systems. It has concluded,
based on the experiences of countries that have implemented such systems, that
performance measures should reflect three important characteristics: validity, continuity,
and legitimacy. These characteristics, while intended to guide management systems in their
totality, rather than simply inclusion in financial statements, have nonetheless been
incorporated into the above characteristics.
SFFAC 2 - Page 46
Concepts 2
SFFAC 2 - Page 47
Concepts 2
Appendix 1-A:
Balance Sheet
Suborganization
B
Suborganization
C
Total
FY 19X4
Total
FY 19X3
$xxx
$xxx
$xxx
$xxx
$xxx
xxx
xxx
xxx
xxx
xxx
Intragovernmental
xxx
---
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Intragovernmental
xxx
xxx
xxx
xxx
xxx
xxx
---
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Physical assets
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Cash
xxx
xxx
xxx
xxx
xxx
Intragovernmental
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Entity assets:
Fund balance with Treasury
Cash (and other monetary assets)
Investments:
Receivables:
Non-entity assets:
Receivables:
xxx
xxx
xxx
xxx
xxx
$xxx
$xxx
$xxx
$xxx
$xxx
SFFAC 2 - Page 48
Concepts 2
Suborganization
B
Suborganization
C
Total
FY 19X4
Total
FY 19X3
$xxx
$xxx
$xxx
$xxx
$xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Payables
xxx
xxx
xxx
xxx
xxx
xxx
---
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Unexpended appropriations
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
$xxx
$xxx
$xxx
$xxx
$xxx
LIABILITIES
Liabilities covered by budgetary
resources:
Intragovernmental liabilities:
Payables
Governmental liabilities:
Payables
Total liabilities covered by budgetary
resources
Liabilities not covered by budgetary
resources:
Intragovernmental liabilities:
Payables
Governmental liabilities:
Note: The above balance sheet format is for an organization composed of three significant suborganizations. An organization deciding to forego
presenting the information pertaining to the suborganizations would provide only the information contained in the last two columns.
SFFAC 2 - Page 49
Concepts 2
Appendix 1-B:
Statement of Net
Costs
STATEMENT OF NET COSTS - For the year ended September 30, 19X4
Suborganization
A
Suborganization
B
Suborganization
C
Total
FY 19X4
Total
FY 19X3
$xxx
$---
$---
$xxx
$xxx
xxx
---
---
---
---
xxx
---
---
---
---
xxx
xxx
-----
-----
xxx
xxx
--xxx
---
xxx
xxx
xxx
xxx
-----
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Intragovernmental
xxx
xxx
---
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
-----
xxx
xxx
COSTS:
Program A:
Intragovernmental
With the public
Total
Less earned revenues
Net program costs
Program B:
Program D:
Costs with the public
---
xxx
---
xxx
xxx
xxx
---
xxx
---
xxx
xxx
xxx
xxx
xxx
xxx
$xxx
$xxx
$xxx
$xxx
$xxx
SFFAC 2 - Page 50
Concepts 2
Appendix 1-C:
Statement of
Changes in Net
Position
STATEMENT OF CHANGES IN NET POSITION - For the year ended September 30, 19X4
Suborganization
A
Suborganization
B
Suborganization
C
Total
FY 19X4
Total
FY 19X3
$(xxx)
$(xxx)
$(xxx)
$(xxx)
$(xxx)
Appropriations Used
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
---
xxx
xxx
xxx
xxx
Imputed Financing
xxx
xxx
xxx
xxx
xxx
Transfers-in
xxx
---
xxx
xxx
xxx
---
(xxx)
---
(xxx)
---
Transfers-out
xxx
xxx
xxx
xxx
xxx
xxx
xxx
---
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
(xxx)
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
$xxx
xxx
$xxx
xxx
$xxx
xxx
$xxx
xxx
$xxx
Note: The above statement of changes in net position format is for an organization comprised of three significant suborganizations. An organization
deciding to forego presenting the information pertaining to the suborganizations would provide only the information contained in the last two columns.
SFFAC 2 - Page 51
Concepts 2
Appendix 1-D:
Statement of
Custodial Activities
STATEMENT OF CUSTODIAL ACTIVITIES - For the year ended September 30, 19X4
FY 19X4
FY 19X3
$(xxx)
$(xxx)
xxx
xxx
Excise Taxes
xxx
xxx
Employment Taxes
xxx
xxx
xxx
xxx
xxx
xxx
(xxx)
(xxx)
Collections:
Income Taxes
Total collections
Refunds and other payments
Net collections
xxx
xxx
xxx
(xxx)
xxx
xxx
xxx
xxx
Department of Labor
xxx
xxx
xxx
xxx
xxx
xxx
Accrual adjustment
Total revenues collected
Disposition of revenues collected:
Transferred to others:
Total transfers
Retained by the entity
xxx
xxx
xxx
(xxx)
SFFAC 2 - Page 52
xxx
xxx
$000
$000
Concepts 2
Appendix 1-E:
Statement of
Budgetary
Resources
STATEMENT OF BUDGETARY RESOURCES - For the year ended September 30, 19X4
Suborganization
A
Suborganization
B
Suborganization
C
Total
FY 19X4
Total
FY 19X3
$xxx
$xxx
$xxx
$xxx
$xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Adjustments
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
$xxx
xxx
$xxx
xxx
$xxx
xxx
$xxx
xxx
$xxx
Total, outlays
SFFAC 2 - Page 53
Concepts 2
Appendix 1-F:
Statement of
Program
Performance
Measures
Statement of Program Performance Measures22 - For the year ended September 30, 19X4
FY 19X4
FY 19X3
FY 19X2
Performance Measure
xxx
xxx
xxx
Performance Measure
xxx
xxx
xxx
Performance Measure
xx%
xx%
xx%
Performance Measure
xxx
xxx
xxx
Sub-organization A
Program
Program
Program
Performance Measure
xxx
xxx
xxx
Performance Measure
Sub-organization B
xx%
xx%
xx%
Program
Performance Measure
xxx
xxx
xxx
Performance Measure
xx%
xx%
xx%
Performance Measure
xx%
xx%
xx%
Performance Measure
Sub-organization C
xxx
xxx
xxx
Performance Measure
xxx
xxx
xxx
Performance Measure
xx%
xx%
xx%
Program
Program
Note: Sub-organizations A, B, and C are equivalent to responsibility segments for which cost and financial data are collected. (See FASAB Exposure
Draft, Managerial Cost Accounting for Federal Government, pages 26-30.)
22
Although this example contains only numerical measures, the performance for some
programs might be reported with other than numerical measures.
SFFAC 2 - Page 54
Concepts 2
Appendix 1-G:
Statement of
Financing
$XXX)
(X)
X)
X)
Transfers-in (out)
X)
Other
X)
XXX)
(X)
(X)
(X)
Other
(X)
X)
X)
Other
X)
X)
Appendix 2: List of
Acronyms
$XXX)
SFFAC 2 - Page 55
Status
Issued
April 1999
Affected by
Summary
This document describes the concepts on which the Board relied in recommending standards for
Managements Discussion and Analysis (MD&A) to be included in general purpose federal financial reports
(GPFFR).1 Concepts Statements are not authoritative in the sense that they do not establish standards or
principles. Preparers may find them useful, but these concepts are not prescribed guidelines for required
supplementary information as discussed in section 558 of the Codification of Statements on Auditing
Standards published by the American Institute of Certified Public Accountants. No standards or prescribed
guidelines for MD&A are presented in this statement of concepts.
MD&A is an important vehicle for (1) communicating managers insights about the reporting entity, (2)
increasing the understandability and usefulness of the GPFFR, and (3) providing accessible information about
the entity and its operations, service levels, successes, challenges, and future. Some federal agencies also
refer to MD&A as the overview.
The basic concept that underlies the standards for MD&A is:
Each general purpose federal financial report (GPFFR) should include a section devoted to
managements discussion and analysis (MD&A). It should address the reporting entitys performance
measures, financial statements, systems and controls, compliance with laws and regulations, and actions
taken or planned to address problems. The discussion and analysis of these subjects may be based partly
on information contained in reports other than the GPFFR. MD&A also should address significant events,
conditions, trends and contingencies that may affect future operations.
The term general purpose financial report, abbreviated GPFFR, is used as a generic term to refer to the report that contains the
entitys financial statements that are prepared pursuant to federal accounting principles.
SFFAC 3 - Page 1
Concepts 3
A separate document titled Standards for Managements Discussion and Analysis presents the standards for
MD&A. The standards for MD&A say that MD&A should address:
The discussion and analysis of these subjects may be based on information in other discrete sections of the
GPFFR or it may be based on reports separate from the GPFFR. The standards require MD&A to be included
in each GPFFR as required supplementary information (RSI).
SFFAC 3 - Page 2
Concepts 3
Table of Contents
Contents
Page
Statement of Concepts
13
23
28
SFFAC 3 - Page 3
Statement Of
Concepts
Basic Concept
1.
Discussion and
Rationale
2.
3.
Financial reports have two key roles. One is a feedback role to provide
information used for evaluating past decisions, expectations, and
trends. Another is a predictive role to provide information used for
formulating expectations and making decisions about the future. Both
roles can be enhanced by insights and interpretations from an entitys
management.
The term general purpose federal financial report, abbreviated GPFFR, is used as a
generic term to refer to the report that contains the entitys financial statements that are
prepared and audited pursuant to the CFO Act of 1990, as amended. entities may refer to
these reports using different terms, such as Annual Report, Accountability Report,
Financial Management report, etc. Paragraphs 54-112 and Appendix 1 of Statement of
Federal Financial Accounting Concepts 2, Entity and Display, describe and illustrate the
contents of the GPFFR. For more information on the Accountability Report see paragraph
59 and the glossary. (Other words defined in the glossary are marked with an asterisk.) See
also Toward a Report to Citizens on the State of their Nation and the Performance of Their
Government: proceedings of the AGA Task Force on a Report to Citizens on the State of the
Nation, Association of Government Accountants, 1994.
SFFAC 3 - Page 4
Concepts 3
Background
4.
5.
6.
The Securities and Exchange Commission (SEC) has for many years
recognized the importance of such a narrative discussion of the
financial statements. To serve the interests of investors and creditors,
the SEC requires such a narrative discussion and analysis from
management of companies under its purview. The SEC wants MD&A
to help readers understand the entitys financial position and results of
operations with the benefit of managements understanding and
perspective. The SEC also wants MD&A to go beyond the basic
financial statements, to include relevant forward-looking information.
Research on MD&A for companies registered with the SEC shows that
SFFAC 3 - Page 5
Concepts 3
Several factors suggest that MD&A may be even more important for
Federal reporting entities than for those in the private sector and may
need to be more extensive in scope. These factors include the
complexity of Federal operations, the myriad objectives they pursue,
and the diverse nature of the groups affected by and interested in the
Governments activities. Fundamentally, the Governments objective is
to provide for the common defense and to promote the general
welfare, not to earn a profit. Therefore, reporting on performance and
other matters in a way that is understandable to diverse audiences is
important. For these reasons, both SFFAC 1, Objectives of Federal
Financial Reporting, and SFFAC 2, Entity and Display, refer to
MD&A in concept as part of the general purpose federal financial
report.
8.
SFFAC 3 - Page 6
Concepts 3
Basic financial 2.
statements and
notes, with
auditors report
if audited
Required
Supplementary
Stewardship
Information
(RSSI)
3.
Required
Supplementary
Information
(RSI)
4.
Performance
Information
5.
Other
Accompanying
Information
(OAI)
6.
Managements
assertions and
reports on
controls,
compliance,
and corrective
actions under
FMFIA and
FFMIA (or
portions of
these
assertions and
reports)
The GPFFR is represented by MD&A plus columns 1-6 of the diagram. (The agency heads letter is part of the GPFFR by general practice, though it
is not required by federal accounting principles.) This is not a literal depiction of the organization of a report. Information should be presented in a
logical arrangement. MD&A will address major issues that are typically reported in more detail in the discrete sections of the GPFFR or in other
publicly available reports that the GPFFR incorporates by reference. Incorporating another report by reference does not, by itself, mean that the
separate report is subject to audit.
Unless law or managerial action requires more extensive audit review or examination of the material incorporated by reference, the FASAB expects
that the auditor of the financial statements will treat the material incorporated by reference as other accompanying information, although it does not
physically accompany the GPFFR. OMB has authority to provide specific guidance on the auditors minimum responsibility regarding this material.
OMB may, for example, direct auditors to treat the material incorporated by reference as if it were other accompanying information in an auditorsubmitted document.
SFFAC 2 (paragraphs 106-111 and Appendix 1-F) calls for a Statement of Performance Measures as part of the GPFFR, but FASAB has not yet
recommended standards for it. Other titles may be used for this section of the GPFFR. Performance indicators included in the GPFFR will either be
those in the entitys annual performance report under the Government Performance and Results Act of 1993 (GPRA or the Results Act) or a subset of
them.
Alternatively, that report may be incorporated by reference. Until further guidance is available, the agency should select the indicators to report in
consultation with OMB.
The assertions and report on control called for by the Federal Managers Financial Integrity Act (FMFIA or Integrity Act) would not be stated in full in
MD&A. They would be reported in a discrete section of the GPFFR or incorporated in the GPFFR by reference. They are within the scope of MD&A
because highly important aspects of systems, compliance, and internal controls should be discussed in MD&A. Highly important in this context may
imply a higher threshold than materiality for the financial statements.
If the report also includes financial statements for component entities (bureaus, responsibility segments, etc.), management should use its judgment
in organizing the report. The component entities financial statements may be discussed in separate sections of the report or as subsections of MD&A
of the consolidated entity.
SFFAC 3 - Page 7
Concepts 3
9.
10. MD&A should address these subjects even if, as will be true for many
Federal reporting entities, separate documents report much of the
information in more detail. Information about these subjects is
essential to address the objectives of federal financial reporting
regarding performance, stewardship, budgetary integrity, and systems
and controls.
The following paragraphs explain the implications of this.
11. Regarding the entitys mission and performance, MD&A should inform
the reader how well the reporting entity is doing. This means that it
should tell the reader what the reporting entity and its programs have
accomplished, and how well the entity is managing its programs. To do
this, MD&A should answer such questions as:
This document uses the terms performance measure and performance indicator
synonymously. Some people use the term performance indicator instead of performance
measure because the performance of government programs typically involves several
factors or dimensions, and many of these dimensions of performance cannot be measured
precisely.
SFFAC 3 - Page 8
Concepts 3
SFFAC 3 - Page 9
Concepts 3
15. Regarding systems and controls, MD&A should tell the reader whether
internal accounting and administrative controls (some authorities
prefer the term management controls) are adequate to ensure that:
16.
The traditional concepts of financial position and financial condition are typically applicable
to revolving funds, Government corporations, and other reporting entities that are intended to be
self-financing. The concepts may be less relevant, or may require some qualification or
modification, for other kinds of Federal reporting entities.
Management should use its judgment to decide what variances are relevant for MD&A. It
will not always be essential or appropriate to discuss all variances.
SFFAC 3 - Page 10
Concepts 3
Relationship to Other
Reports
18. The information in the GPFFR about systems, internal controls, and
legal compliance (column 6 in figure 1) may include the assertions and
a summary of the reports on controls, legal compliance, and corrective
actions pursuant to the Integrity Act and the Federal Financial
Management Improvement Act (FFMIA), or those reports may be
incorporated by reference. This information should be presented in
conformance with guidelines published by OMB. MD&A, in turn,
should discuss the most important aspects of the information on these
Internal controls are also relevant to other objectives. For example, controls help
management assure efficient and effective use of resources for the purpose intended. They
also support preparation of performance reports pursuant to GPRA. See, for example,
paragraph 40.
SFFAC 3 - Page 11
Concepts 3
Note that the purpose of the pilot Accountability Reports is to eliminate the need for
numerous separate reports and to include the information required by those reports in a
single report. For example, the Integrity Act requires an assertion on controls by the agency
head. Pilot agencies are including this assertion in the Accountability Report.
SFFAC 3 - Page 12
Concepts 3
Authoritative Status of
Accounting Concepts
24. This section provides specific suggestions for the content of MD&A.
Like the other sections of this document, this material does not
constitute accounting standards or principles for federal reporting
entities. Except to the extent that OMB may issue supplementary
mandatory guidance regarding the content of MD&A, the following
items should be read as suggestions to be considered, not as
prescriptive rules that must be followed.
Mission and
Organizational Structure
SFFAC 3 - Page 13
Concepts 3
27.
For many readers program performance information is more important than the financial
statements. The order in which topics are discussed in this document does not imply that
performance information is of secondary importance. See paragraphs 43 and following.
10
SFFAC 3 - Page 14
Concepts 3
11
The term obligations is used here in the customary sense, not as it is used in budgetary
accounting.
SFFAC 3 - Page 15
Concepts 3
12
The term commitments is used here in the customary sense, not as it is used in budgetary
accounting.
13
SFFAC 3 - Page 16
Concepts 3
SFFAC 3 - Page 17
Concepts 3
14
Concepts 3
Discussion and
Analysis of
Performance
15
SFFAC 1, paragraph 206 notes that, to the extent feasible and practical, effectiveness
evaluation should focus on program results or effects in the sense of impacts*, i.e., the
difference between what actually occurred and what would have occurred in the absence of
the program. Assessing impacts of Governmental action in this sense typically requires
program evaluations or other techniques that transcend annual performance reporting,
although these techniques often will avail of information i the annual performance reports.
Valid and reliable evaluations of program impacts are not feasible for some programs. When
they are conducted, they often require several years of data, are expensive, and typically are
not performed on an annual basis for a given program.
SFFAC 3 - Page 19
Concepts 3
16
SFFAC 3 - Page 20
Concepts 3
49. For these and other reasons, performance indicators generally need to
be accompanied by suitable explanatory information. Explanatory
information helps report users understand reported indicators, assess
the reporting entitys performance, and evaluate the significance of
underlying factors that may have affected the reported performance.
Explanatory information may include, for example, information about
factors substantially outside the entitys control, as well as information
about factors over which the entity has significant control.
SFFAC 3 - Page 21
Concepts 3
SFFAC 3 - Page 22
Concepts 3
Appendix A: Basis
For Conclusions
Background and Project
History
50. The Board identified MD&A as a topic for its agenda shortly after the
Boards inception. The Board deferred work on this topic, however,
until it completed recommendations for an initial set of basic
accounting standards. FASAB published an initial exposure draft on
MD&A in January, 1997. The Board received comment letters on the
initial exposure draft from the following sources:17
Federal
(internal)
Nonfederal
(external)
Total
10
16
23
16
30
51. The basic rationale for MD&A has not changed since the initial
exposure draft. As a result of its deliberations after receiving
comments on the 1997 exposure draft, however, the Board made
certain changes. The more significant changes are discussed below.
17
SFFAC 3 - Page 23
Concepts 3
Responses to Second
Exposure Draft
54. The Board received comment letters on the second exposure draft
from the following sources:18
Federal
(internal)
Nonfederal
(external)
Total
11
14
11
20
18
Includes the AICPAs Federal Accounting and Auditing Subcommittee and the Comptroller
Generals Advisory Council on Government Audit Standards.
SFFAC 3 - Page 24
Concepts 3
55. Most comments were generally favorable, but comments were mixed
regarding some points. A few auditors and preparers expressed some
concern about requiring forward-looking information as RSI. Others
expressed support for doing so. After considering these responses, the
Board agreed to defer the recommended implementation date of the
standard by one year and to make minor editorial changes to the
standards and concepts that were exposed for comment.
Incorporation of
Guidance in OMB
Bulletin 97-01
56. This document, like both exposure drafts, integrates some of the
guidance in OMB Bulletin 97-01 for preparing the Overview of the
financial report with some of the guidance proposed in FASABs initial
exposure draft for MD&A. Some portions of the guidance regarding
performance measurement in 97-01s discussion of the Overview
have been omitted. As an interim step prior to implementation of the
Results Act, OMB and many agencies used the Overview as a major
vehicle for reporting on performance, not just as a summary and
analysis. With the full implementation of the Results Act in FY 1999,
however, it will be appropriate to implement the financial reporting
model contemplated in SFFAC 2. This contemplates a discrete section
of the GPFFR focused on performance. Alternatively, performance
information may be incorporated in the GPFFR by reference to
another report or reports.
Managements
Assertions
57. Senior management of the reporting unit is responsible for the content
of the GPFFR, including MD&A. Consistent with that, the initial
exposure draft included the following paragraph:
MD&A should include a discrete section with managements
explicit assertions that it is responsible for maintaining internal
accounting and administrative controls that are adequate to
ensure that
SFFAC 3 - Page 25
Concepts 3
58. This paragraph, which was based on the language of objective four in
SFFAC 1, was modified after the first exposure. The Board concluded
that such assertions should be presented in a separate section of the
GPFFR, not in MD&A. Alternatively, managements assertions about
internal control and related information about systems, controls, and
compliance may be incorporated in the GPFFR by reference to
another report or reports. (As noted previously, pilot agencies are
including these assertions in their accountability reports.) FASAB
expects to consider whether a new statement of standards is needed
to assure that Federal financial reports adequately address objective
four of Federal financial reporting, Systems and Controls. As noted
in paragraph 41, MD&A should include a description of any major
deficiencies in the management systems and internal controls
designed to provide reasonable assurance that management
responsibilities are satisfactorily carried out. It also should describe
the corrective action planned.
Accountability Reports
59. The Board notes that the concept and practice of the Accountability
Report continue to evolve through the pilot project voluntarily
undertaken by several agencies. The Board supports this evolution
and encourages agencies to participate in the pilot project. The
concepts and standards FASAB recommends are intended to be
applicable to the GPFFR of Federal entities, whether those reports are
prepared pursuant to the Chief Financial Officers Act, the Government
Management Reform Act, or some future law that might establish a
statutory basis for Accountability Reports. In the event of such future
legislation, OMB will need to resolve any questions about how to apply
existing Federal accounting standards in the context of new legislative
requirements.
Incorporation by
Reference
Concepts 3
SFFAC 3 - Page 27
Concepts 3
Appendix B:
Glossary
SFFAC 3 - Page 28
Status
Issued
March 2003
None.
Affects
None.
Affected by
None.
Summary
In this Statement of Concepts, the Federal Accounting Standards Advisory Board (FASAB) has identified the
intended or primary audience for the Consolidated Financial Report (CFR) of the US Government. FASAB
also has described the characteristics of the audience and the qualitative characteristics FASAB believes will
aid in meeting financial reporting objectives for the CFR. The concepts in this document are intended to help
the Board as it develops accounting standards and the accounting and reporting framework for the Federal
Government.
To provide guidance on the CFR, the Board reviewed its existing technical guidance on Federal financial
reporting to discern how to apply that guidance to the CFR. It also researched other pertinent studies, and
considered its experience with Federal accounting principles and the evolution of the CFR. The Board
developed its assessment of who should be the general primary audience for the CFR. As a result of that
review and assessment, the Board has identified five audiences for the CFR: Citizens, Citizen Intermediaries,
Congress, Federal Executives, and Program Managers. However, the Board believes that the external user
groups, Citizens and Citizen Intermediaries, are the primary audiences for the CFR.
The Board will rely on qualitative characteristics from SFFAC 1 in developing accounting standards for the
CFR that will effectively meet the needs of the intended audience. These Qualitative Characteristics include:
understandability, reliability, relevance, timeliness, consistency and comparability. While all these
characteristics are important, given the intended audience for the CFR, understandability and timeliness are
particularly fundamental to the usefulness of the CFR.
This concepts statement provides that the CFR should be a general purpose report directed to external
users (citizens and their intermediaries), should address the Boards objectives,1 should have highly
understandable information, and should be timely.
Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Accounting Concepts (SFFAC 1) defines
those objectives in terms of user needs as 1) budgetary integrity, 2) operating performance, 3) stewardship, and 4) systems and
control. See Appendix A for a description of these objectives.
SFFAC 4 - Page 1
Concepts 4
Table of Contents
Contents
Page
Summary
Introduction
Concepts
13
Appendix B: Acronyms
15
SFFAC 4 - Page 2
Concepts 4
Introduction
1.
2.
3.
See Appendix A for a full description of these four objectives from SFFAC 1, Objectives of
Federal Financial Accounting Concepts.
SFFAC 4 - Page 3
Concepts 4
Concepts: Intended
Audience and
Related Qualitative
Characteristics for
the CFR
4.
5.
6.
7.
2
The Board acknowledges that this concepts statement addresses only some aspects of CFR
reporting. It may address further aspects as more experience is gained in CFR reporting.
3
Toward a Report to Citizens on the State of Their Nation and the Performance of Their
Government: Proceedings of the AGA Task Force on a Report to Citizens on the State of the
Nation, November 1994, p.12 The report did not define average citizen.
4
SFFAC 4 - Page 4
Concepts 4
Basis for
Conclusions
8.
The CFR should provide information that addresses the areas of the
Boards objectives as identified in SFFAC 1: 1) budgetary integrity, 2)
operating performance, 3) stewardship, and 4) systems and control.
The Board does not intend that the CFR should satisfy all of the
Boards objectives for all audiences. It earlier provided that each of the
reporting objectives could be met to a greater or lesser degree by
different statements prepared by different entities. For example,
program and financing schedules for individual budget accounts could
help address budgetary integrity, and financial statements from
organizations could help address operating performance. 5
9.
Statement of Federal Financial Accounting Concepts 2, Entity and Display, par. 56.
The Board understands that the preparers ability to meet this goal is beyond the Boards
purview. Guidance on reporting deadlines is provided by the Office of Management and
Budget.
SFFAC 4 - Page 5
Concepts 4
Category
Users, academics,
and others (includes
professional organizations
Preparers and
Financial Managers
Totals
Federal
(Civilian)
Federal
(Military)
Non-federal
5
6
6
1
1
SFFAC 4 - Page 6
Concepts 4
Federal Government Reporting Study: A Joint Study by the Office of the Auditor General
of Canada and the US Government Accountability Office, March 1986, p.10.
9
SFFAC 4 - Page 7
Concepts 4
10
11
12
Ibid. p.5.
13
Ibid. pp.5-6.
SFFAC 4 - Page 8
Concepts 4
20. The Board agrees with the conclusion of the Federal Government
Reporting Study. A significant finding was that users depend on each
other for the communication of financial information about the
Federal Government. Legislators - generally considered to have a
primary role in the use of Federal Government financial information depend to a considerable extent on the interpretations of information
by analysts and the media to provide them with the understanding they
need. This also applies to citizens and corporations. Thus, needs of
analysts and the media are considered crucial because, if they are not
well served, the understanding of government activities by others will
suffer.14
Internal Users
21. Internal users are those groups inside the Federal Government who
typically have more access to the myriad of Federal Government
information including summarized and detailed financial, program,
budget, cost, and economic reports and analyses for all entities.
Because they are able to get information on their specific issues of
interest, they might benefit from the CFR but are not its primary
audience. Internal users include Congress, Federal executives, and
program managers. Of these three internal users, some have
considered Congress as the ultimate intermediary between the public
and its Government. That notwithstanding, Congress, as would the
other internal users, has access to more specific internal information
and reports for conducting its work. Thus they are not the main
audience of the CFR. However, these users may rely on the CFR with
its broad indicators and summarized information as a reference
document to lead to more detailed or disaggregated information in
specific areas.15 Each internal user has access to detailed,
disaggregated information, but relies on summarized data in a more
limited capacity as indicators for general Governmental financial
position and condition. Internal users would use the CFR to provide
an overall picture of the financial health of the Government that is not
available elsewhere[and provide it with] a general framework to
situate [its] own activities.16
14
15
Ibid. p.8.
16
Ibid. p.9.
SFFAC 4 - Page 9
Concepts 4
Summary
22. Based on the above analysis, the Board concluded that the CFR would
be of general interest to five user groups. However, the Board believes
that the external user groups representing the general public, that is,
Citizens and Citizen Intermediaries, are the primary audiences for the
CFR.
23. The Board also considered comments from respondents to its
exposure draft (see paragraph 11). Some respondents requested that
specific individuals be added to the examples of persons included in
the Citizen Intermediary group. Since the Board intended that the
individuals listed in the group description were typical examples
rather than an exhaustive list, it decided not to expand the list of
examples. Rather it decided to slightly modify the wording of the
description of the Citizen Intermediary group to clarify that the
individuals and groups listed are typical examples and not an
exhaustive list.
Qualitative Characteristics
24. To be useful, FASABs SFFAC 1 provides that information should be
reliable, relevant, consistent, comparable, understandable and timely.
The FASAB considers these characteristics as it deliberates standards
applicable to all Federal reporting entities, both agency level and the
government as a whole. In the Federal environment, satisfaction of
these characteristics occurs when FASAB develops standards for
Federal reporting. At the CFR level, where the audited agency level
data are aggregated, the manner in which the data are presented to the
general audience for which the CFR is intended is a fundamental
consideration. Because Federal financial statements differ from
commercial financial statements in concept, form, volume, and
complexity and the intended audience for Federal financial statements
is so all encompassing, the FASAB is emphasizing the need for the
CFR to be understandable. The Board concurs with a study by the
Association of Government Accountants on Government
accountability reporting that concluded that, the problem of
reporting to the citizens is not primarily one of inability to develop
meaningful information or lack of it. Rather, the principal problem is
the manner
SFFAC 4 - Page 10
Concepts 4
17
Toward a Report to Citizens on the State of Their Nation and the Performance of Their
Government: Proceedings of the AGA Task Force on a Report to Citizens on the State of the
Nation, November 1994, p.25.
18
If items to be reported have mixed levels of audit coverage, the level of audit coverage for
each item should be clearly identified. The audit standards in AU 558 will govern the labeling
of the items.
SFFAC 4 - Page 11
Concepts 4
important for all reports and users. Its focus on the characteristics of
understandability and timeliness related to the aggregated nature of
the report and the intended audiences. It decided to delete the last two
sentences of paragraph 22 of the exposure draft:
Thus, these two qualitative characteristics (understandability and
timeliness) serve as a foundation for constructing accounting
standards for a useful CFR. The Board will consider the other
qualitative characteristics as standards are developed,
considered, and adopted.
28. The Board believes that these two sentences caused some
respondents to conclude the other 4 characteristics were not
important to the Board.
General Purpose Financial Reporting
29. Since the Board considers the CFR a general purpose financial report,
it reiterates its discussion from SFFAC 1, where it described the
limitations of financial reporting. It said that general purpose
financial reporting is not the only source of financial information In
many cases, users of general purpose financial reports need to consult
other sources to satisfy their information needsWhile certain
information is provided by general purpose financial reports, other
information is better provided by, or can be provided only by, financial
reporting outside such reports. Still other information is provided by
nonfinancial reports or by financial reports about segments of the
national society other than the Federal Government and its
component entities (e.g., economic reporting). 19
Board Approval
30. The Board unanimously approved issuing this concepts statement.
19
SFFAC 4 - Page 12
Concepts 4
Appendix A:
Objectives of
Federal Financial
Reporting
20
SFFAC 4 - Page 13
Concepts 4
and the Nations financial conditions have changed and may change in
the future.
34. Federal financial reporting should provide information that helps the
reader to determine whether
SFFAC 4 - Page 14
Concepts 4
Appendix B:
Acronyms
SFFAC 4 - Page 15
Status
Issued
None.
Affects
None.
Affected by
None.
Summary
Objective of this Statement
Elements of financial statements result from an entity's transactions or other events that affect the entity.
Elements are the building blocks of financial statements-the broad classes of items from which the
statements are constructed. This Statement defines five elements of accrual-basis financial statements of the
federal government. Items that meet the definitions also are elements of accrual-basis financial statements of
the relevant component entity. The elements are defined as follows:
An asset is a resource that embodies economic benefits or services that the federal government controls.
A liability is a present obligation of the federal government to provide assets or services to another entity at
a determinable date, when a specified event occurs, or on demand.
Net position or its equivalent, net assets, is the arithmetic difference between the total assets and total
liabilities recognized in the federal government's or a component entity's balance sheet. Net position may be
positive (assets greater than liabilities) or negative (assets less than liabilities).
A revenue is an inflow of or other increase in assets, a decrease in liabilities, or a combination of both that
results in an increase in the government's net position during the reporting period.
An expense is an outflow of or other decrease in assets, an increase in liabilities, or a combination of both
that results in a decrease in the government's net position during the reporting period.
This Statement establishes two basic recognition criteria that an item must meet to be a candidate for
recognition in the body of a financial statement: (1) the item must meet the definition of an element and (2)
the item must be measurable, meaning a monetary amount can be determined with reasonable certainty or is
reasonably estimable. An item that meets the definition of an element but is not measurable is a candidate for
disclosure in the notes to financial statements or as supplementary information.
SFFAC 5 - Page 1
Concepts 5
Meeting the basic recognition criteria is a necessary but not a sufficient condition for recognition. Additional
considerations for a recognition decision are measurement of the candidate for recognition and assessments
of the materiality and benefit versus cost of the amount measured. Measurement entails selection of an
appropriate attribute, such as historical cost, fair value, or expected value, and application of a measurement
method. Measurement may require the use of estimates or approximations and, for items that meet the
definition of an asset or a liability, an assessment of the probability that future inflows or outflows of
economic benefits or services will result from the item.
This Statement includes a discussion of the effects of uncertainty on financial reporting but does not
otherwise address the assessment of probabilities or other measurement issues. The Board intends to
address those considerations for recognition decisions in future pronouncements. In the meantime, this
Statement does not change existing standards for assessing probabilities or for selecting the appropriate
measurement attribute, which the Board expects will continue to be based on the reporting objectives,
qualitative characteristics, and cost-benefit constraints applicable to financial information.
SFFAC 5 - Page 2
Concepts 5
Effect on Practice
The concepts in this Statement are consistent with those established in earlier SFFACs,1 which are not
superseded or modified by this Statement. The definitions of elements and basic recognition criteria in this
Statement also are generally consistent with current practice and do not imply radical change. However, they
are expected to guide the Board's future deliberations.
1
SFFAC 1, Objectives of Federal Financial Reporting; SFFAC 2, Entity and Display; SFFAC 3, Management's Discussion and
Analysis; and SFFAC 4, Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United
States Government.
SFFAC 5 - Page 3
Concepts 5
Table of Contents
Contents
Page
Executive Summary
Acronyms
Introduction
Concepts
Recognition
Entity Concept
Definitions of Elements
11
11
Assets
11
Definition of an Asset
11
12
13
14
Liabilities
16
Legal Framework
16
Definition of a Liability
17
18
Present Obligation
18
19
20
20
20
Effects of Uncertainty
22
23
Appendix B: Glossary
42
44
SFFAC 5 - Page 4
Concepts 5
Acronyms
AcSEC
AICPA
ED
FASAB
FASB
GAAP
GASB
SFFAC
SFFAS
SFFAC 5 - Page 5
Concepts 5
Introduction
Purpose Of This
Statement
1.
Elements and
Recognition
2.
The term elements refers to broad classes of items, such as assets and
liabilities, that comprise the building blocks of financial statements.
Components of those broad classes, such as cash, investments, and
debt instruments, may meet the definitions of elements but are not
elements as the term is used in this Statement. Instead, they are called
items or by descriptive names. This Statement focuses on the broad
classes and their characteristics instead of defining particular assets,
liabilities, or other items. Notes to financial statements generally are
considered an integral part of financial statements, but they are not
elements. They serve different functions, including amplifying or
complementing information about items reported in the body of
financial statements.
3.
1
Terms defined in the Glossary are printed in bold-face type the first time they appear in the
text.
2
SFFAC 5 - Page 6
Concepts 5
4.
5.
6.
7.
Concepts
Recognition
Basic Recognition Criteria
Additional Considerations
for Recognition Decisions
SFFAC 5 - Page 7
Concepts 5
Entity Concept
8.
9.
10. All elements defined in this Statement are defined in relation to the
U.S. Government (federal government or government). That is, an
item that meets the relevant definition is an asset, liability, net
position, revenue, or expense of the federal government. An item that
meets the basic recognition criteria established in paragraph 5 and the
additional considerations for recognition decisions referred to in
paragraph 7 is recognized in the consolidated financial statements of
the federal government, except when it is eliminated in the
consolidation process, as discussed in paragraphs 14 and 15.
11. The federal government is composed of component entities that
control, manage, or are otherwise accountable for the governments
assets and may be authorized to incur liabilities. Component entities
include departments, independent agencies, and government
corporations, as well as their agencies, bureaus, offices,
administrations, corporations, and other organizational units. An item
SFFAC 5 - Page 8
Concepts 5
SFFAC 5 - Page 9
Concepts 5
SFFAC 5 - Page 10
Concepts 5
Definitions Of Elements
Applicability of Current
Conditions, Including
Current Law
Assets
Definition of an Asset
18. An asset is a resource that embodies economic benefits or services
that the federal government controls.
19. The definition of an asset addresses only whether an asset exists. It
does not address whether the asset is measurable and, if so, how it
should be measured or whether or when it should be recognized in the
federal governments or a component entitys balance sheet. Nor does
the definition address whether or when the economic benefits or
services embodied in an asset will be used. Basic recognition criteria
for all elements of accrual-basis financial statements are set forth and
discussed in paragraphs 5 through 9. Those paragraphs also indicate
that measurement issues and other considerations for recognition
decisions will be addressed in future pronouncements. In addition,
paragraph 6 acknowledges the possibility of uncertainty about
whether an item meets the definition of an element and the need for
judgment based on the available evidence. However, this Statement
does not establish a threshold to be assumed in applying judgment.
20. The definition of an asset derives from the nature of assetsthat is,
their essential characteristics. An essential characteristic of an
asset is one that is inherent to all assets and, therefore, without it an
asset would not exist. Paragraphs 21 through 35 highlight and discuss
those characteristics. Also discussed are certain characteristics that
SFFAC 5 - Page 11
Concepts 5
are common to many assets but not to all assets. As such, those
characteristics are not essential, but they may provide additional
evidence that an asset exists.
Essential Characteristics of Assets
21. The federal government needs financial, economic, human, and other
resources to help it achieve its mission. In this context, the term
resource means a useful or valuable possession or quality of a
country, organization or person3 or a means of supplying a want.4
The government has numerous resources. However, those resources
are not assets unless they have the essential characteristics of assets
and, therefore, meet the definition of assets in paragraph 18.
22. To be an asset of the federal government, a resource must possess two
characteristics. First, it embodies economic benefits or services that
can be used in the future. Second, the government controls access to
the economic benefits or services and, therefore, can obtain them and
deny or regulate the access of other entities.
23. To illustrate the distinction between a resource that is an asset and
one that is not, the federal government may obtain economic benefits
or services from a resource but be unable to deny or regulate the
access of other entities to those benefits or services. If so, the
resource is not an asset of the federal government. For example, outer
space is a natural resource from which the federal government can
obtain economic benefits. However, outer space is not an asset of the
federal government because the government cannot deny or regulate
the access of others. In contrast, natural resources under federal
lands qualify as federal government assets because the government
can obtain the economic benefits and regulate the access of other
entities as provided under federal law. Such natural resources are
assets of the federal government even if they are not measurable and
therefore are not candidates for recognition in the financial
statements.
The Concise Oxford Dictionary Oxford, U.K.: Oxford University Press, 1964.
SFFAC 5 - Page 12
Concepts 5
SFFAC 5 - Page 13
Concepts 5
27. The economic benefits or services that a property can provide can be
distinguished from the property itself, whether it is tangible or
intangible, such as a right. Not all properties embody economic
benefits or services and the assumption that a particular type of
property will always be an asset is not justified. For example, whereas
equipment normally is expected to provide economic benefits or
services, sometimes it has become unusable and has no scrap value. If
so, it no longer embodies economic benefits or services and does not
meet the definition of an asset.
28. The economic benefits or services embodied in resources may be
shared by the government and another entity through specific
arrangements. For example, the government and another entity may
enter into a joint venture and share an interest in the resources
committed to the joint venture. If so, each party may possess assets
comprising its respective share of the benefits or services. Similarly,
lease agreements unbundle the economic benefits or services
embodied in leased property and may, for example, give the lessee the
right to hold and use the property and the lessor the right to receive
rentals and any residual value. Thus, both parties may have assets
corresponding to their respective rights.
Control by the Federal Government
29. The second essential characteristic of an asset is control, which refers
to the ability of the federal government to obtain the economic
benefits or services embodied in a resource and to deny or regulate the
access of others. It is possible that the government does not actively
exercise control. Nevertheless, as long as the government currently
has the ability to exercise control, the item is an asset of the
government. In exercising control of the economic benefits or
services, the government may, depending on the nature of the
resource, hold the resource; exchange it; use it to obtain cash, cash
equivalents, goods, or services; exact a price for other entities use of
the economic benefits or services; or use it to settle liabilities. Many
resources are subject to certain legal or other external constraints,
such as public land subject to preservation requirements. Such
restrictions on the use of a resource do not negate the governments
control of the economic benefits or services embodied in the resource.
SFFAC 5 - Page 14
Concepts 5
SFFAC 5 - Page 15
Concepts 5
Liabilities
Legal Framework
36. The federal government is governed by and operates within a
framework of laws. Thus, a federal liability must have its foundation
in law. Some federal liabilities result from discrete actions of the
government that are authorized by law but are not explicitly required
by law. Examples are liabilities that result from contractual
arrangements, including amounts borrowed, amounts owed for
purchased goods and services, and liabilities for providing goods or
services to entities that have paid for them in advance. Other
liabilities flow directly from a law and its implementing regulation that
specifically require the federal government to provide assets to
another entity. Examples include formula grants and subsidies, claims
owed under workers compensation, and amounts owed for
environmental clean-up.
SFFAC 5 - Page 16
Concepts 5
37. Although all federal liabilities have their foundation in law, some
liabilities are construed from the totality of the conditions and facts of
a particular situation, rather than from specific legal or regulatory
requirements. In those circumstances, the government should weigh
the totality of the facts of the situation against the definition and
essential characteristics of liabilities (discussed in paragraphs 41
through 48) and make an informed judgment as to whether or when a
liability has been incurred. Factors that may affect that conclusion
include relevant aspects of the legal framework within which the
government is constituted, whether the government has an agreement
or understanding with another entity concerning the nature and
amount of the governments obligation and the timing of settlement,
and decisions or actions in previous situations that are relevant
precedents.
38. Settlement of a federal liability often is legally enforceable, as is the
case, for example, with contracts. However, laws that create or
support federal liabilities do not always confer legally enforceable
rights on recipient entities. Legal enforceability may provide
additional evidence that a liability exists, but it is not a prerequisite.
Definition of a Liability
39. A liability is a present obligation5 of the federal government to provide
assets or services to another entity at a determinable date, when a
specified event occurs, or on demand.
40. The definition of a liability addresses only whether a liability exists
and not how it should be measured or whether or when it should be
recognized. Basic recognition criteria for all elements of accrual-basis
financial statements are set forth and discussed in paragraphs 5
through 9. Those paragraphs also indicate that measurement issues
and other considerations for recognition decisions will be addressed
in future pronouncements. In addition, paragraph 6 acknowledges the
possibility of uncertainty about whether an item meets the definition
of an element and the need for judgment based on the available
5
The term obligation is used in this Statement with its general meaning of a duty or
responsibility to act in a certain way. It does not mean that an obligation of budgetary
resources is required for a liability to exist in accounting or financial reporting or that a
liability in accounting or financial reporting is required to exist for budgetary resources to be
obligated.
SFFAC 5 - Page 17
Concepts 5
SFFAC 5 - Page 18
Concepts 5
As indicated in paragraph 16, for a component entity the other entity could be another
component entity. When component entities transact with each other, they are external to
each other. Paragraph 14 explains that some items meet the definitions of elements from a
component entitys perspective but not from the federal governments perspective. Such
items would be reported in the accrual-basis financial statements of the relevant component
entities but would be eliminated in consolidation and therefore would not be reported in the
consolidated financial statements of the federal government.
SFFAC 5 - Page 19
Concepts 5
49. Whereas the definitions of assets and liabilities derive from the
essential characteristics of those items, the definitions of net position,
revenues, and expenses derive from the definitions of assets and
liabilities. Thus, in assessing whether items meet the definitions of net
position, revenues, and expenses, reference should be made to the
definitions of their underlying assets or liabilities.
Definition of Net Position
50. Net position or its equivalent, net assets, is the arithmetic difference
between the total assets and total liabilities recognized in the federal
governments or a component entitys balance sheet. Net position may
be positive (assets greater than liabilities) or negative (assets less than
liabilities).
51. Entities often subdivide net position in financial reports to provide
information about its composition. However, the reported
composition and intended interpretation of net position depend on the
particular financial reporting model applied and resulting display
requirements. As such, a discussion of the meaning of the
governments or a component entitys reported net position is beyond
the scope of this Statement.
Definitions of Revenue and Expense
52. A revenue is an inflow of or other increase in assets, a decrease in
liabilities, or a combination of both that results in an increase in the
governments net position during the reporting period.
SFFAC 5 - Page 20
Concepts 5
See, for example, Statement of Federal Financial Accounting Standards 7, Accounting for
Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and
Financial Accounting, par. 35 (FASAB, 1996).
SFFAC 5 - Page 21
Concepts 5
56.
Effects Of Uncertainty
SFFAC 5 - Page 22
Concepts 5
more money, but it also may not be worth the added cost. As
discussed in paragraph 6, the exercise of judgment may be necessary,
but this Statement does not require certainty.
Appendix A: Basis
for Conclusions
Background
A2. The FASAB developed a core set of accounting standards and initial
concepts statements on reporting objectives and entity and display
early in its first six years of operation. Concepts were developed as
initial standards were developed. In 2003, the Board decided that it
should review and add to or modify its concepts statements as needed.
The Boards desire to evaluate its concepts after more than twelve
years of successful progress is stimulated by a realization that (a)
some critical concepts that have been relied on are not yet included in
a concepts statement, (b) certain aspects of the concepts are not
widely understood or accepted, and (c) an expansion or modification
of its concepts statements will help the Board communicate more
effectively with the growing community of federal financial report
users, preparers, and auditors.
A3. As part of its project to review and expand its conceptual framework,
the FASAB began deliberations on this Statement of Federal Financial
Accounting Concepts (SFFAC), Definitions of Elements and Basic
Recognition Criteria for Accrual-Basis Financial Statements, in
October 2003. This Statement defines the elements of federal accrualbasis financial statements and establishes basic criteria for selecting
candidates for recognition in those statements. The Board believes
that this Statement is an important part of its conceptual framework
and will provide more consistent, useful, and enduring guidance to the
Board and its constituents than establishing definitions and
recognition requirements standard by standard.
A4. Part of the reason for this Statement is that, for several years, the
Board has received questions about the usefulness of certain
definitions of elements, such as liabilities, in current standards and
their applicability to transactions outside the scope of the defining
standard, as well as about the absence of definitions of other elements,
SFFAC 5 - Page 23
Concepts 5
SFFAC 5 - Page 24
Concepts 5
Definitions Of Elements
In Existing FASAB
Pronouncements
How Does This Concepts
Statement Affect Existing
Definitions in Statements of
Federal Financial
Accounting Standards?
11
12
SFFAC 5 - Page 25
Concepts 5
SFFAC 5 - Page 26
Concepts 5
A12. The Board believes that the definitions in this concepts statement will
better support the Boards future deliberations by providing for the
first time:
a.Internally consistent definitions for all of the elements of accrualbasis financial statements, some of which are not defined in current
GAAP and all of which have been subject to due process; and
b.Explanatory text for each definition to assist the Board in
application of the definitions. For example, the discussion of essential
characteristics is intended to enhance the clarity of the definitions and
the consistency of their interpretation and application by the Board.
A13. In addition, the concepts statement responds to the following general
concerns that were raised regarding the prior asset and liability
definitions:
SFFAC 5 - Page 27
Concepts 5
Approach to Defining
Elements
Assets and Liabilities
A14. The Boards approach to defining assets and liabilities is to identify the
essential characteristics of those elementsthat is, the characteristics
that all assets and all liabilities, respectively, possess and without
which they would not exist. The definitions of assets and liabilities
established in this Statement are designed to capture those essential
characteristics succinctly. However, the definitions considered
SFFAC 5 - Page 28
Concepts 5
A16. The Board has concluded that the elements net position, revenues, and
expenses are not independent of assets and liabilities and do not have
their own essential characteristics. Net position is total assets less
total liabilities. Revenues and expenses are changes in assets and/or
liabilities during a reporting period that result in a change in net
position. Thus, the definitions of all three elements are dependent on
the definitions of assets and liabilities.
A17. Some people believe that a conclusion that the definitions of revenues
and expenses derive from the definitions of assets and liabilities
indicates that assets and liabilities are more important than revenues
and expenses. They believe that, by extension, a stocks statement,
such as a statement of financial position or balance sheet, will be
considered the principal statement in a financial report and a flows
statement, such as an activities statement or statement of net cost, will
be secondary in importance. Many of those with these views disagree
with the perceived primacy of stocks statements and believe that
flows statements are either equally important or more important in
government financial reporting.
SFFAC 5 - Page 29
Concepts 5
A18. The Board disagrees that the derivation of the definitions of revenues
and expenses from the definitions of assets and liabilities accords
more importance to a statement of financial position or balance sheet
than to an activities statement. Each type of statement has its own
purposes. Conceptually, they are equally important. However, the
relative importance that users give to one type of statement versus the
other may vary depending on the decisions that users wish to make in
particular circumstances and, therefore, on the information they are
seeking. The two types of statements are related. They articulate, just
as revenues and expenses articulate with assets and liabilities. Assets
and liabilities represent real-world phenomena, such as cash,
equipment, and debt, and can be defined by the characteristics that all
assets and liabilities, respectively, share. Revenues and expenses do
not have characteristics that are independent of assets and liabilities.
Rather, they are accounting and financial reporting constructs that
measure and report the effects of activities during a reporting period
on the amounts of assets and liabilities at the beginning of the period.
Without assets and liabilities, revenues and expenses do not exist.
They cannot be defined without reference to assets and liabilities or
similar concepts such as resources and obligations. A large
majority of the respondents to the ED agreed with the Boards
approach to defining net position, revenues, and expenses. The Board
notes that its view of the relationship between revenues and expenses
and the definitions of assets and liabilities is shared by most other
major standard setters in the United States and overseas, including
those that promulgate standards for the public sector as well as the
business sector.
Definitions, Recognition,
and Measurement
A19. The Boards approach in this Statement also separates the path to
recognition on the face of financial statements into three components:
meeting the definition of an element, meeting recognition criteria, and
measurement of the item to be recognized. Although the components
may be addressed simultaneously in practice, the Board believes that a
conceptual distinction is useful. It clarifies that an item that meets the
definition of, for example, an asset is an asset, even if it does not meet
the criteria for recognition in the body of the financial statements, or it
is not material, or it is not cost-beneficial to report the item in the
financial statements or notes or as supplementary information. The
item remains an asset until it is disposed of or no longer meets the
definition of an asset.
SFFAC 5 - Page 30
Concepts 5
Modifications to the
Exposure Draft
Probability Assessments and
Thresholds
A21. The Board had numerous discussions about the role of probability
assessments in determining whether an item meets the definition of an
element and/or is measurable for financial reporting purposes. The
Boards decision in the ED was that judgment might be required in
determining whether an item meets the definition of an element and is
recognizable in the body of financial statements. However, an
assessment of probabilities was not included as a mandatory
component of determining compliance with the definition of an
element or basic recognition criteria, although such an assessment
was not precluded. Rather, an assessment of probabilities should be
made, if appropriate, when measuring the item to be recognized.
A22. Three Board members presented an alternative view. These members
were concerned that, by not requiring probability assessments, the ED
implied that items with a low probability of meeting the definition of
an element or of meeting the recognition criteria could be recognized
in the financial statements. In their view, the Board should specifically
state that an assessment of probabilities should be made as part of
determining whether an item meets the definition of an element.
Similarly, the probability that an item is measurable should be
SFFAC 5 - Page 31
Concepts 5
Qualitative Characteristics
SFFAC 5 - Page 32
Concepts 5
Applicability of Existing
Conditions, Including
Current Law
SFFAC 5 - Page 33
Concepts 5
SFFAC 5 - Page 34
Concepts 5
Definition of Assets
A31. A large majority of the respondents to the ED agreed with the essential
characteristics of assets identified by the Board and that the Boards
definition of assets adequately conveys those characteristics. Further,
they did not identify any additional characteristics that are essential to
all assets. Two respondents, while agreeing with the definition of
assets, questioned whether the requirement in the definition that the
government can control the economic benefits or services embodied
in an asset should be changed to controls the economic benefits or
services. The respondents were concerned that can control might be
construed as applying only to the future, whereas they believe the
government should be controlling the economic benefits or services at
SFFAC 5 - Page 35
Concepts 5
the reporting date. The Board reconsidered the issue. Some members
believe that controls may be interpreted to mean that the Board must
be actively controlling access to the economic benefits or services at
the reporting date, which is not an essential characteristic of an asset.
Rather, the essential characteristic is the governments ability to
control access. For example, the government might be willing
currently to allow other entities free access to the economic benefits
or services embodied in its asset, without relinquishing its right to
regulate or deny that access and obtain the benefits exclusively for the
government. In contrast, other members believe and the Board
concluded that controls incorporates the ability to exercise or waive
its active control of the access to economic benefits. The Board
therefore revised the definition of an asset (paragraph 18) to read:
An asset is a resource that embodies economic benefits or services
that the federal government controls.
Conforming modifications have been made to the paragraphs
describing the essential characteristics of assets.
SFFAC 5 - Page 36
Concepts 5
A33. The Board agreed that referring to changes in net position would
remove the need to refer to the exclusion of borrowings and
repayments of borrowings. Also, the Board concluded that the
reference to any other activity lacked clarity and effectively made
the definitions all-encompassing. The Board decided to simplify the
definitions and has included the following wording in this Statement:
52. A revenue is an inflow of or other increase in assets, a decrease in
liabilities, or a combination of both that results in an increase in the
governments net position during the reporting period.
53. An expense is an outflow of or other decrease in assets, an increase
in liabilities, or a combination of both that results in a decrease in the
governments net position during the reporting period.
The Board has included examples of revenues and expenses in
paragraph 54 instead of in the definitions. The Board also has
confirmed in paragraph 54 that transactions that are in substance
adjustments or components of previous transactions would use the
same element as the original transaction. For example, tax levies
would be reported as revenues and tax refunds would be reported as
reductions of revenues, not expenses.
A34. A large majority of the respondents to the ED agreed with the essential
characteristics of liabilities identified by the Board and that the
Boards definition of liabilities adequately conveys those
characteristics. Further, they did not identify any additional
characteristics that are essential to all liabilities. Nevertheless, a few
respondents thought that an agreement or understanding between the
parties concerning settlement of the obligation is not an essential
characteristic of a liability, or is part of the present obligation
characteristic.
SFFAC 5 - Page 37
Concepts 5
A35. The Board discussed the settlement characteristic before issuing the
ED and concluded that if the government alone can determine
whether and when to settle an obligation then it does not qualify as a
liability. A liability always is between two separate entities. There
must be either an obligation and a requirement for settlement with the
other entity supported in law or some agreement or meeting of the
minds between the government and the other entity as to whether an
obligation exists and what circumstances would trigger settlement.
The Board believes that the respondents who disagreed that the
settlement characteristic is an essential characteristic of a liability
may have inferred that the FASAB was saying that the precise timing
of settlement must be specified and agreed between the two parties.
However, that was not the Boards intent. As stated in paragraph 45:
. . . The timing of settlement often is expressed in contracts and
other agreements as a specific or determinable date. However, in
some cases the parties agree that settlement will be triggered by a
specific event or by the demand of the recipient of the assets or
services, the timing of which may be uncertain. If at the reporting
date the government and the other entity do not have an agreement
or understanding concerning settlement and the government is
free to decide whether and when to settle the obligation, the
governments obligation does not meet the definition of a liability.
(emphasis added)
A36. Paragraph 46 indicates that both the timing and the amount of the
settlement may be uncertain, but that Uncertainty regarding the
amount or timing of settlement is addressed through measurement of
the liability. The Board does not believe that there is uncertainty
about whether the government has a liability simply because the
precise settlement date is unknown. For example, with respect to
unresolved litigation, the date of settlement may be unknown. Based
on these considerations, the Board reaffirmed its conclusion that an
essential characteristic of a liability is that the government be legally
required to make settlement with the other entity or the government
and the other entity have an agreement or understanding concerning
settlement.
Additional Elements
A37. A few respondents to the ED suggested that certain items that the
Board had concluded meet the definitions of revenues or expenses
should be defined as separate elements. Those items and the number
of respondents who suggested them are gains and losses (4
SFFAC 5 - Page 38
Concepts 5
16
SFFAC 5 - Page 39
Concepts 5
component entities because they provide the legal basis for the
entities to incur expenses.
A40. FASAB Interpretation 617 states the following:
11. Imputed intra-departmental costs are the unreimbursed
portion of the full costs of goods and services received by the
entity from a providing entity that is part of the same department
or larger reporting entity (i.e. other bureaus, components or
responsibility segments within the department or larger reporting
entity).
Consistent with this definition, the Board has concluded that imputed
costs are not separate elements, but are included in the definition of
expenses for component entities.
A41. The Board does not consider unexpended appropriations and
cumulative results of operations to be separate elements. Rather, they
are components of net position in the current federal financial
reporting model. To define them as elements in this Statement would
imply that the definitions in this Statement are designed to apply to the
current reporting model and may not be applicable to other models.
On the contrary, the Board concluded at the outset of the elements
project that the definitions and related concepts in this Statement
should not be geared or restricted to any particular financial reporting
model because that would constrain the Boards ability to modify the
model to meet the changing or emerging needs of decision makers.
For these reasons, the Board has not included definitions of
unexpended appropriations or cumulative results of operations in this
Statement and has not discussed their role in financial reporting.
Board Approval
A42. The Board adopted this Statement by the affirmative votes of eight
members. Mr. Werfel and Mr. Steinberg abstained.
A43. Mr. Steinberg, as a new member of the Board, did not participate in the
Statements development and has abstained. He is concerned,
nevertheless, that the Statement does not provide sufficiently for the
manner in which the federal government and its agencies meet the
17
SFFAC 5 - Page 40
Concepts 5
SFFAC 5 - Page 41
Concepts 5
Appendix B:
Glossary
SFFAC 5 - Page 42
Concepts 5
18
SFFAC 5 - Page 43
Concepts 5
Appendix C:
Generally Accepted
Accounting
Principles
Excerpt from the
AICPAs AU Section 411 The Meaning of Present
Fairly in Conformity
With Generally Accepted
Accounting Principles
SFFAC 5 - Page 44
Concepts 5
SFFAC 5 - Page 45
Concepts 5
Application to Federal
Governmental Entities
SFFAC 5 - Page 46
Concepts 5
Effective Date
16. This section is effective for audits of financial statements for periods
ending after March 15, 1992. [Paragraph added, effective April 2000,
by Statement on Auditing Standards No. 91.]
Transition
17. Most of the pronouncements or practices in categories (b), (c), and (d)
of paragraphs .10 and .12 had equal authoritative standing prior to the
issuance of this section. An entity following an accounting treatment
in category (c) or (d) as of March 15, 1992, need not change to an
accounting treatment in a category (b) or category (c) pronouncement
whose effective date is before March 15, 1992. For example, a
nongovernmental entity that followed a prevalent industry practice
(category (d)) as of March 15, 1992, need not change to an accounting
treatment included in a pronouncement in category (b) or (c) (for
example, an accounting principle in a cleared AICPA Statement of
Position or AcSEC Practice Bulletin) whose effective date is before
March 15, 1992. For pronouncements whose effective date is
subsequent to March 15, 1992, and for entities initially applying an
accounting principle after March 15, 1992 (except for FASB Emerging
Issues Task Force consensus positions issued before March 16, 1992,
which become effective in the hierarchy for initial application of an
SFFAC 5 - Page 47
Concepts 5
accounting principle after March 15, 1993), the auditor should follow
the applicable hierarchy established by paragraphs .10 and .12 in
determining whether an entity's financial statements are fairly
presented in conformity with generally accepted accounting
principles. [Paragraph added, effective April 2000, by Statement on
Auditing Standards No. 91.]
SFFAC 5 - Page 48
Status
Issued
February 4, 2009
None.
Affects
SFFAC 2, specifically, par. 2, 3, 55 (replaced), 69, 72 (rescinded), 74, 76, 77, 78, 79,
81 (rescinded), and 108, and footnotes 11, 12, 12a, 14, and 17. Also, section titled,
Displaying Financial Information.
Affected by
None.
Summary
This Statement amends SFFAC 2, Entity and Display, to provide guidance for use by the Board in determining
whether information should be basic information, required supplementary information (RSI), or other
accompanying information (OAI). Although each of these categories communicates information to readers of
financial reports, each may be subjected to different procedures and reporting requirements under generally
accepted government auditing standards. The Statement defines the categories as follows:
Basic information is essential for the financial statements and notes to be presented in conformity with
generally accepted accounting principles (GAAP).
RSI is information that a body that establishes GAAP requires to accompany basic information.
OAI is information that accompanies basic information and required supplementary information, but is
not required by a body that establishes GAAP.
This Statement describes the process the Board may apply in selecting one of these categories for
communicating an item of information. The process begins with determining what information should be
required. A candidate for required information is consistent with the reporting objectives and meets
qualitative characteristics and cost-benefit considerations discussed in Statement of Federal Financial
Accounting Concepts (SFFAC) 1, Objectives of Federal Financial Reporting.
Information that meets the criteria for required information is a candidate for basic information or RSI. To
help distinguish basic information from RSI, this Statement provides a list of factors that the Board may
consider.
Information that does not meet the criteria for required information is a candidate for OAI. Entities may
report OAI to support required information or to comply with laws or administrative directives. The Board
may encourage OAI to help advance overall federal financial reporting.
SFFAC 6 - Page 1
Concepts 6
Table of Contents
Contents
Page
Summary
Table of Contents
Introduction
Purpose
Concepts
Scope
Definitions
Amending SFFAC 2 to Distinguish Basic Information, RSI, and Other Accompanying Information
Appendix A: Basis for Conclusions
4
14
Project History
14
Board Approval
Appendix B: Glossary
18
19
SFFAC 6 - Page 2
Concepts 6
Introduction
Purpose
1.
2.
3.
This Statement specifically affects SFFAC 2, par. 2, 3, 55, 69, 72, 74, 76,
77, 78, 79, 81, and 108, and footnotes 11, 12, 12a, 14, and 17. Also, this
Concepts
Scope
The term general purpose federal financial report, abbreviated GPFFR is used throughout
this Statement as a generic term to refer to the report that contains the entity's financial
statements that are prepared pursuant to generally accepted accounting principles. In the
federal government, the report is known as the Performance and Accountability Report or
the Agency Financial Report.
SFFAC 6 - Page 3
Concepts 6
Definitions
Amending SFFAC 2 to
Distinguish Basic
Information, RSI, and
Other Accompanying
Information
4.
b.
5.
6.
7.
SFFAC 6 - Page 4
Concepts 6
SFFAC 6 - Page 5
Concepts 6
Distinguishing Basic
Information, RSI, and
OAI
Determining Required
Information
SFFAC 6 - Page 6
Concepts 6
12.1
The first and highest level of the GAAP hierarchy comprises standards and
interpretations. Lower level GAAP may not conflict with standards or interpretations.
SFFAC 6 - Page 7
Concepts 6
b.
c.
SFFAC 6 - Page 8
Concepts 6
e.
f.
g.
OAI
73F. If an item of information does not meet the criteria for basic
information or RSI, it becomes a candidate for OAI. OAI is
information that accompanies basic information and RSI, but is
not required by a body that establishes GAAP. Some entities may
SFFAC 6 - Page 9
Concepts 6
High (implies
Basic)
Factor
<Relevance to fair presentation>
<Connection with elements of financial reporting>
<Use of various types of financial data or financial transaction data>
<Level of importance the Board wishes to be communicated in the financial report>
<Significance, relevance, or importance of the item in light of Objectives>
< Level of importance the Board wishes to be communicated in the auditor's report>
<Relevance to measuring financial condition or changes in financial condition>
<Extent to which the information interests a wide audience (rather than specialists)>
<Extent to which there are not alternative sources of reliable information>
<Agreement on criteria that permit comparable and consistent reporting>
<Experience among users, preparers, and auditors with the information>
<Benefit/cost ratio of using resources to compile the information as well as ensure accuracy>
<Connection with basic financial statements>
<Reliability and/or precision possible>
<Reliability and/or precision needed>
2
As noted in paragraph 73D, the factors are not listed in a particular order and do not represent a
hierarchy of factors.
SFFAC 6 - Page 10
Concepts 6
SFFAC 6 - Page 11
Concepts 6
SFFAC 6 - Page 12
Concepts 6
and issued by OMB and GAO, e.g., accounting standards issued by the
Financial Accounting Standards Board or accounting standards
established by a regulatory agency. Those components should
continue to issue the required reports. The reporting entities of which
the components are a part can issue consolidated, consolidating, or
combining statements that include the components' financial
information prepared in accordance with the other accounting
standards. They need to be sensitive, however, to differences resulting
from applying different accounting standards that could be material to
the users of the reporting entity's financial statements. If these
differences are material, the standards recommended issued by
FASAB and issued by OMB and GAO should be applied. The
components would need to provide any additional disclosures
recommended required by FASAB and included in the OMB-issued
standards guidance that would not be required by the other standards.
21. SFFAC 2, paragraph 79 is amended as follows.
In addition to budgetary integrity, operating performance, and systems
and control information, rReaders of the financial statements for the
entire government are likely to be concerned primarily with whether
the government has been a proper steward. This can best be achieved
with the preparation and issuance of the following:
SFFAC 6 - Page 13
Concepts 6
Appendix A: Basis
for Conclusions
Project History
A1. The FASAB developed a core set of accounting standards and initial
concepts statements on reporting objectives and entity and display
early in its first six years of operation. Concepts were developed as
initial standards were developed. In 2003, the Board began to actively
review and add to or modify its concepts statements as needed. The
Board's desire to evaluate its concepts after more than twelve years of
successful progress is stimulated by a realization that (a) some critical
concepts that have been relied on are not yet included in a concepts
statement, (b) certain aspects of the concepts are not widely
understood or accepted, and (c) an expansion or modification of its
concepts statements will help the Board communicate more
effectively with the growing community of federal financial report
users, preparers, and auditors.
A2. As part of the overall project to review and expand its conceptual
framework, the FASAB began deliberations on this Statement in
October 2006. The FASAB noted that, in the past, it had relied on
certain concepts to distinguish between basic information, RSI, and
OAI. However, those concepts had not been incorporated into a
concepts statement. This Statement amends SFFAC 2 to include those
concepts. The Board believes that this Statement is an important part
of its conceptual framework and will provide more consistent, useful,
and enduring guidance to the Board.
A3. The Board focused on this Statement, in part, because of the issues
that developed regarding how to communicate complex information in
the most useful manner to financial report users. There are several
broad financial reporting objectives each with sub-objectives that
require financial and non-financial information. In addition, reporting
information to achieve those objectives raises the issue of how the
information should be classified. This Statement provides guidance on
addressing such issues and selecting the means of communicating
information necessary to help achieve the reporting objectives.
SFFAC 6 - Page 14
Concepts 6
A4. The Board published the exposure draft (ED), Distinguishing Basic
Information, Required Supplementary Information, and Other
Accompanying Information, on March 26, 2008, with comments
requested by June 26, 2008. Upon release of the ED, notices and press
releases were provided to: The Federal Register, FASAB News, The
Journal of Accountancy, AGA Today, the CPA Journal, Government
Executive, the CPA Letter, and Government Accounting and Auditing
Update, The CFO Council, the Presidents Council on Integrity and
Efficiency, Financial Statement Audit Network, and the Federal
Financial Managers Council, and committees of professional
associations generally commenting on EDs in the past.
A5. This broad announcement was followed by direct mailings of the
exposure draft to the Subcommittee on Federal Financial
Management, Government Information, and International Security,
Committee on Homeland Security and Governmental Affairs, United
States Senate, and the Subcommittee on Government Management,
Organization, and Procurement, Committee on Oversight and
Government Reform, House of Representatives.
A6. The Board received 19 responses from the following sources:
FEDERAL
(Internal)
Users, academics, others
NON-FEDERAL
(External)
3
Auditors
12
Total
15
A7. In general, respondents agreed with the process and factors for
distinguishing the categories of information. However, many
respondents believed that some of the factors listed in Table 1: Factors
to Consider in Distinguishing Basic Information from RSI, needed
clarification. Two respondents also noted that the factors could be
weighted or assigned a value because some factors seemed more
important than others.
A8. The purpose of the ED is to provide conceptual guidance for
developing future standards. It is intended to guide the Board in
deciding issues such as what information should be a part of the
SFFAC 6 - Page 15
Concepts 6
SFFAC 6 - Page 16
Concepts 6
SFFAC 6 - Page 17
Concepts 6
Board Approval
A17. This Statement was approved for issuance by all members of the
Board. The written ballots are available for public inspection at the
FASABs offices.
SFFAC 6 - Page 18
Concepts 6
Appendix B:
Abbreviations
AICPA
AU
FASAB
FASB
GAAP
GAGAS
GASB
GPFFR
MD&A
OAI
RSI
RSSI
SFAS
SFFAC
SFFAS
SFFAC 6 - Page 19
Status
Issued
Effective Date
Affects
None.
Affected by
Summary
This statement defines and illustrates the distinction between Entity Assets and Non-entity Assets, as well as
Intragovernmental and Governmental Assets and Liabilities.
Assets available to an entity to use in its operations are entity assets while those assets not available to an
entity but held by the entity are non-entity assets. While both entity and non-entity assets are to be reported in
entity statements, the standards require the segregation of entity and non-entity assets. In addition, a liability
(due to Treasury or other entities) must be recognized in an amount equal to non-entity assets.
Intragovernmental assets and liabilities arise from transactions among federal entities. Governmental assets
and liabilities arise from transactions of the federal government or an entity of the federal government with
nonfederal entities. The standards require that all selected assets and liabilities addressed in SFFAS No. 1 be
reported separately as intragovernmental or governmental assets and liabilities.
The statement also establishes specific standards for six assets: Cash, Fund Balance with Treasury, Accounts
Receivable, Interest Receivable, Advances and Prepayments, and Investments in Treasury Securities; and
three liabilities: Accounts Payable, Interest Payable, and Other Current Liabilities. The standards provide
definitions of each asset and liability as well as recognition, measurement, and disclosure requirements.
SFFAS 1 - Page 1
SFFAS 1
Table of Contents
Contents
Page
Introduction
Explanation
General Standards
Specific Standards:
Cash
Accounts Receivable
11
Interest Receivable
13
14
15
Accounts Payable
17
Interest Payable
18
19
20
36
39
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Introduction
Objective
1.
2.
3.
4.
Approach
5.
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Scope
6.
7.
These selected assets and liabilities involve less complex issues than
other assets and liabilities to be considered by the Board in the future.
The Board also believes that the selected assets and liabilities are so
basic to financial reporting that they will not conflict with any
conceptual framework that the Board may develop.1
8.
9.
Cash
The Board is also addressing other assets and liabilities. It has issued a proposed standard
for direct loans and loan guarantees (see Exposure Draft entitled Accounting for Direct
Loans and Loan Guarantees, September 15, 1992, and Accounting for Inventory and
Related Property, December 1992).
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Materiality
Accounts Payable
Interest Payable
Other Current Liabilities
Applicability
Effective Date
Explanation
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17. The word entity refers to a unit within the federal government, such
as a department, agency, bureau, or program, for which a set of
financial statements will be prepared. The word entity also
encompasses a group of related or unrelated commercial functions,
revolving funds, trust funds, and/or other accounts for which financial
statements are prepared in accordance with OMB guidance on the
form and content of financial statements.
General Standards
Intragovernmental vs.
Governmental Assets
and Liabilities
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25. Entity assets are those assets which the reporting entity has
authority to use in its operations. Non-entity assets are those assets
that are held by an entity but are not available to the entity. An
example of non-entity assets are customs duty receivables that the
Customs Service collects for the U.S. government but has no authority
to spend. A similar example is federal income tax receivable that the
Internal Revenue Service collects for the U.S. government.
26. Both entity assets and non-entity assets under an entitys custody or
management should be reported in the entitys financial statements,
except for non-entity assets meeting the definition of fiduciary assets,
which should not be recognized on the balance sheet, but should be
disclosed in accordance with the provisions of SFFAS 31, Accounting
for Fiduciary Activities. Non-entity assets recognized on an entitys
balance sheet should be segregated from entity assets. An amount
equal to non-entity assets should be recognized as a liability (due to
Treasury or other entities) recognized on the balance sheet.
Specific Standards
Cash
b.
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c.
28. Entity cash. Entity cash is the amount of cash that the reporting
entity holds and is authorized by law to spend.
29. Non-entity cash. Non-entity cash is cash that a federal entity collects
and holds on behalf of the U.S. government or other entities. In some
circumstances, the entity deposits cash in its accounts in a custodial
capacity for the U.S. Treasury or other federal component entities, or
in a fiduciary capacity for non-federal parties.
a.
b.
31. A federal entitys fund balance with the Treasury (FBWT) is the
aggregate amount of funds in the entitys accounts with Treasury for
which the entity is authorized to make expenditures and pay liabilities.
FBWT is an intragovernmental item, except for fiduciary or other nonfederal non-entity FBWT. From the reporting entitys perspective, the
reporting entitys FBWT is an asset because it represents the entitys
claim to the federal governments resources. However, from the
perspective of the federal government as a whole, it is not an asset;
and while it represents a commitment to make resources available to
federal departments, agencies, programs and other entities, it is not a
liability. In contrast, fiduciary and other non-federal non-entity FBWT
is not intragovernmental, and it represents a liability of the
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Accounts Receivable
40. Accounts receivable arise from claims to cash or other assets. The
accounting standard for accounts receivable is set forth below.
41. Recognition of receivables.3 A receivable should be recognized
when a federal entity establishes a claim to cash or other assets
against other entities, either based on legal provisions, such as a
payment due date, (e.g., taxes not received by the date they are due),
or goods or services provided. If the exact amount is unknown, a
reasonable estimate should be made. [See SFFAS 7, paragraph 53 for
more.]
42. Separate reporting. Receivables from federal entities are
intragovernmental receivables, and should be reported separately
from receivables from nonfederal entities.
43. Entity vs. Non-entity receivables. Receivables should be
distinguished between entity receivables and non-entity receivables.
Entity receivables are amounts that a federal entity claims for
payment from other federal or nonfederal entities and that the federal
entity is authorized by law to include in its obligational authority or to
The word recognition used in this document bears the same meaning as used by the
Financial Accounting Standards Board (FASB) in its conceptual statements. It means the
process of formally recording or incorporating an item into the financial statements of an
entity as an asset, liability, revenue, expense, or the like. A recognized item is depicted in
both words and numbers, with the amount included in the statement totals. Recognition
comprehends both initial recognition of an item and recognition of subsequent changes in or
removal of a previously recognized item. FASB Statement of Financial Accounting Concepts
No. 5, par. 6.
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An entity may have receivables that, once collected, can be used as offsets to the entitys
budget authority and outlays only when authorized by Congress. Before receiving the
authorization, however, those receivables are non-entity receivables.
Governmental receipts include collections arising from the sovereign and regulatory
powers unique to the federal government, e.g., income tax receipts, customs duties, court
fines, certain license fees, etc. A federal entity may be responsible for collecting these
receipts on behalf of the U.S. government, but is not authorized to use the monies collected
to offset its expenditures.
In the Boards Exposure Draft, Accounting for Direct Loans And Loan Guarantees,
September 15, 1992, receivables are accounted for on a net present value basis. [See SFFAS
No. 2]
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48. The allowance for losses generally cannot be based solely on the
results of individual account analysis. In many cases, information may
not be available to make a reliable assessment of losses on an
individual account basis or the nature of the receivables may not lend
itself to individual account analysis. In these cases, potential losses
should be assessed on a group basis.
49. Group analysis. To determine the loss allowance on a group basis,
receivables should be separated into groups of homogeneous accounts
with similar risk characteristics.
50. The groups should reflect the operating environment. For example,
accounts receivable can be grouped by: (a) debtor category (business
firms, state and local governments, and individuals), (b) reasons that
gave rise to the receivables (tax delinquencies, erroneous benefit
payments, trade accounts based on goods and services sold, and
transfers of defaulted loans to accounts receivable), or (c) geographic
regions (foreign countries, and domestic regions). Within a group,
receivables are further stratified by risk characteristics. Examples of
risk factors are economic stability, payment history, alternative
repayment sources, and aging of the receivables.
51. Statistical estimation by modeling or sampling is one appropriate
method for estimating losses on groups of receivables. Statistical
estimation should take into consideration factors that are essential for
estimating the level of losses, including historical loss experience,
recent economic events, current and forecast economic conditions,
and inherent risks.
52. Disclosure. Agencies should disclose the major categories of
receivables by amount and type, the methodology used to estimate the
allowance for uncollectible amounts, and the total allowance.
Interest Receivable
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Advances and
Prepayments
57. Advances are cash outlays made by a federal entity to its employees,
contractors, grantees, or others to cover a part or all of the recipients
anticipated expenses or as advance payments for the cost of goods
and services the entity acquires. Examples include travel advances
disbursed to employees prior to business trips, and cash or other
assets disbursed under a contract, grant, or cooperative agreement
before services or goods are provided by the contractor or grantee.
58. Prepayments are payments made by a federal entity to cover certain
periodic expenses before those expenses are incurred. Typical prepaid
expenses are rents paid to a lessor at the beginning of a rental period.
Progress payments made to a contractor based on a percentage of
completion of the contract are not advances or prepayments.
59. Advances and prepayments should be recorded as assets. Advances
and prepayments are reduced when goods or services are received,
contract terms are met, progress is made under a contract, or prepaid
expenses expire. A travel advance, for example, should be initially
recorded as an asset and should be subsequently reduced when travel
expenses are actually incurred. Amounts of advances and
prepayments that are subject to refund (for example, a settled travel
Accounting for imputed interest, interest on long-term leases, interest on loans, and interest
on amounts deposited in credit reform accounts will be addressed when the Board considers
accounting standards in these areas.
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Investments in Treasury
Securities
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Accounts Payable
74. Accounts payable are amounts owed by a federal entity for goods and
services received from, progress in contract performance made by,
and rents due to other entities.
75. Accounts payable are not intended to include liabilities related to
on-going continuous expenses such as employees salary and benefits,
which are covered by other current liabilities. (See recommended
standard for Other Current Liabilities.)
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76. Amounts owed for goods or services received from federal entities
represent intragovernmental transactions and should be reported
separately from amounts owed to the public.
77. When an entity accepts title to goods, whether the goods are delivered
or in transit, the entity should recognize a liability for the unpaid
amount of the goods. If invoices for those goods are not available
when financial statements are prepared, the amounts owed should be
estimated.
78. When a contractor provides the government with goods that are also
suitable for sale to others, the liability usually arises when the
contractor physically delivers the goods and the government receives
them and takes formal title. However, when a contractor builds or
manufactures facilities or equipment to the governments
specifications, formal acceptance of the products by the government
is not the determining factor for accounting recognition. Constructive
or de facto receipt occurs in each accounting period, in accordance
with the following paragraph.
79. For facilities or equipment constructed or manufactured by
contractors or grantees according to agreements or contract
specifications, amounts recorded as payable should be based on an
estimate of work completed under the contract or the agreement. The
estimate of such amounts should be based primarily on the federal
entitys engineering and management evaluation of actual
performance progress and incurred costs.
80. The reporting entity should disclose accounts payable not covered by
budgetary resources.
Interest Payable
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83. The term other current liabilities is used to report current liabilities
that are not recognized in specific categories such as accounts
payable; interest payable; debt owed to the public, Treasury, or other
entities; and liabilities for loan guarantee losses. Other current
liabilities may include unpaid expenses that are accrued for the fiscal
year for which the financial statements are prepared and are expected
to be paid within the fiscal year following the reporting date.
84. Typical examples of other current liabilities to be recognized are:
(a) accrued employees wages, bonuses, and salaries for services
rendered in the current fiscal year for which paychecks will be issued
in the following year; (b) accrued entitlement benefits payable, such as
Old Age Survivors Insurance (OASI) and Veterans Compensation and
Pension benefits applicable to the current period but not yet paid, and
(c) annuities for the current fiscal year administered by trust, pension,
or insurance programs for which payment would be made in the
following fiscal year. Such liabilities may be presented on the face of
the financial reports as Other Current Liabilities or as one or more
separate categories depending on the materiality of the amounts.
85. Federal entities may receive advances and prepayments from other
entities for goods to be delivered or services to be performed. Before
revenues are earned, the current portion of the advances and
prepayments should be recorded as other current liabilities. After the
revenue is earned (goods or services are delivered, or performance
progress is made according to engineering evaluations), the entity
should record the appropriate amount as a revenue or financing
source and should reduce the liability accordingly. Other current
liabilities due to federal entities are intragovernmental liabilities that
should be reported separately from those due to employees and the
public.
86. The reporting entity should disclose the amount of current liabilities
not covered by budgetary resources. The U.S. government-wide
financial statements need not include this disclosure.
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Appendix A: Basis
Of The Boards
Conclusions
Basic Concepts
88. Net financial resources. In the Exposure Draft, the Board proposed
the concept of net financial resources . The term net financial
resources was referred to as an entitys total financial resources less
its total funded liabilities (Exposure Draft, page 11). The Exposure
Draft stated that the amount of net financial resources provides a
general measure of an entitys financial sufficiency before new
appropriations are provided. The Exposure Draft further stated that
information on the components of an entitys net financial resources
(obligated and unobligated balances of budget authority and other
items) can provide additional insight into an entitys financial
situation.
89. Many respondents do not see convincing evidence that the concept of
net financial resources is useful. They point out that there are no
concrete examples to illustrate how the information can be used.
Some respondents also do not believe that the measure of net financial
resources is well defined. They point out that one of the elements
missing from the concept is the amount of unfunded liabilities. They
state that without measuring unfunded liabilities, the measure of net
financial resources is incomplete and can be misleading.
90. The Board has decided to postpone consideration of the net financial
resources concept. The Board believes that the usefulness of the
concept can be further explored after it completes its project on users
needs and objectives for financial accounting and reporting.
91. Entity financial resources. In the Exposure Draft, the Board
discussed the concept of entity financial resources. The concept was
defined as assets of a federal entity that consist of (a) the entitys cash
and funds authorized and available for disbursement (excluding
contract authority and unused authority to borrow), (b) resources of
the entity that are expected to be converted into cash to satisfy
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liabilities, and (c) conversion of cash into another form (for example
prepayments) that would be consumed. Under this definition, the
Exposure Draft identified as financial resources: cash, funds with
Treasury, claims to cash (for example accounts receivable and loans
receivable), claims to goods and services (for example advances and
prepayments), inventories held for sale, and investments.
92. As indicated in the Exposure Draft, financial resources are a subset of
assets that provide liquidity (cash and assets that can be converted to
cash) to meet a federal entitys operational needs. The concept was
considered useful because federal entities obtain resources from the
budget to finance their operations and are held accountable for the use
of the financial resources.
93. The Board has decided not to use the term financial resources in this
document. However, a definition of the term financial resources and
its usefulness will be further considered by the Board in its conceptual
framework project. In the absence of the term, the items that would
provide future economic benefits to the government and its entities
are referred to as assets. The term asset as used in this document
means an item that embodies a probable future economic benefit that
can be obtained or controlled by the federal government or a reporting
entity as a result of past transactions or events. (The definition of
assets will be considered by the Board in the future.)
94. Funded liabilities. The Exposure Draft proposed the definition of
funded liabilities as liabilities for which the federal entity has
received budget authority to cover the related expenditure or
expense.
95. The term funded liabilities would limit the recognition of liabilities to
the extent that they are funded. The Board believes that the liabilities
addressed in this document should be recognized when they are
incurred, regardless of whether they are funded. The Board therefore
decided not to use the term funded liabilities in this document.
However, the Board recommends that disclosure be made for
liabilities that are not covered by budgetary resources.
96. The word liability used in this document means a probable and
measurable future outflow of resources arising from past transactions
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General Standards
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Accounts Receivable
Entity Assets
Non-Entity Assets
Intra-governmental
Assets
Governmental Assets
Specific Standards
Cash
103. The Board has retained from the Exposure Draft the requirement for
separate reporting of restricted and unrestricted cash. However, after
considering comments on the Exposure Draft, the Board has modified
the definition of restricted cash.
104. The Exposure Draft proposed that unrestricted cash include amounts
in demand deposits. However, whether an amount of cash is restricted
does not depend on where the cash is kept. For example, federal
entities may hold cash in demand deposit accounts on behalf of
Treasury. Since the entities have no authority to spend the cash, from
the entities perspective, these amounts of cash are restricted.
105. The recommended standard in this document redefines restricted cash
as (1) amounts of cash that an entity holds on behalf of Treasury or
other entities and does not have authority to spend, and
(2) amounts of cash that are legally restricted to specific purposes.
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112. Authority to borrow does not in itself place funds into an entitys
accounts with Treasury. In order to increase its fund balance with
Treasury, an entity must actually borrow under its borrowing
authority.
113. For these reasons, the recommended standard states that fund
balance with Treasury does not include contract authority and unused
authority to borrow.
(3) Should the fund balance exclude funds designated for
special purposes?
114. Some respondents to the Exposure Draft believe that the standard
should identify funds held with Treasury that are not available to the
entitys operations. For example, the Department of Energy collects
fines levied under the Emergency Petroleum Allocation Act of 1973,
deposits those funds in an escrow account with Treasury, and
ultimately disburses those funds to injured parties or for other uses as
directed by court decisions.
115. It is not unusual that funds in certain accounts are held and restricted
to specific purposes. Amounts of trust funds, for example, are held for
the specific purpose of making benefit payments to eligible recipients.
The restriction on funds held for the Department of Energy to pay
persons injured by oil pricing and allocation violations is another
example. The Board believes that the fund balance of a reporting
entity should include funds held in all accounts of the entity regardless
of whether they are designated for specific purposes.
Accounts Receivable
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124. Loss recognition. In the Exposure Draft, it was proposed that a loss
be recognized when it is more likely than not that a receivable has
been impaired. The phrase more likely than not means a greater than
50 percent probability of occurrence.
125. Several respondents questioned why the Board used the more likely
than not criterion for loss recognition instead of the probable criterion
used in the private sector under generally accepted accounting
principles (GAAP).9
126. The Board may refer to the pronouncements and statements issued by
other standard setting bodies in deliberating accounting standards for
the federal government. However, the Board is not bound by these
pronouncements and statements, especially when accounting
standards promulgated for other sectors are not relevant to the federal
government.
127. In the case of loss recognition on receivables, the Board believes that
there should be a definitive guideline for recognizing government
credit losses. The word probable is subject to broad interpretation
(often being interpreted as meaning a virtual certainty of occurrence)
and could allow for belated recognition of losses.
128. The Board proposed the more stringent criterion of more likely than
not, which requires the recognition of losses when there is more than a
50 percent chance that some receivables will not be collected. In
recommending the more likely than not criterion, the Boards intent is
to achieve unbiased, consistent, and reliable loss recognition in federal
government accounting.
129. The more likely than not criterion can be applied to both individual
accounts and groups of accounts. Both significant individual accounts
receivable (e.g., unusually large refunds due from contractors,
medicaid reimbursements from third parties, substantial tax
delinquencies, or other large claims) and groups of small accounts
should be analyzed and losses recognized if it is more likely than not
that some or all of the amounts owed will not be collected.
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130. When applying the loss recognition criterion, the Board believes it is
appropriate to recognize the nature of federal receivables. Many of the
federal governments receivables, unlike trade accounts of private
firms or loans made by banks, are not created through credit screening
procedures. These receivables arise because of activities such as fines
from regulatory violations, refunds from erroneous benefit payments,
reimbursements, and overdue taxes and duties. In these
circumstances, historical experience and economic factors indicate
that the receivables frequently are not fully collectible. These
receivables meet the loss recognition test because of their inherent
risk. Therefore, an appropriate amount of allowance for losses should
be recognized at their inception.
131. Loss measurement. Because of the large volume of federal
transactions, accounts receivable generally exist in large groups. Some
groups may consist of several hundred thousand accounts. In such
cases, losses on uncollectible amounts should be assessed on a group
basis using statistical sampling techniques. Statistical sampling should
be supplemented by historical trend experience, adjusted for current
conditions.
132. On the other hand, some government receivables arise from
transactions of significant amounts. These receivables should be
individually analyzed to assess losses due to risks specifically
attributable to the individual accounts. The assessment of impairment
of individual accounts may not always provide a valid basis to estimate
the impairment of the entire group. Often, losses may exist for the
group that are not currently identifiable on an individual basis. The
Board believes that the federal governments receivables are generally
subject to losses due to inherent risks. Therefore, allowances for
receivables should be viewed in the context of the overall risk of the
receivables being assessed.
133. Based on the above considerations, the recommended standard
provides that, for reporting purposes, losses on accounts receivable
should be determined by evaluating accounts on both a group and an
individual basis.
Interest Receivable
134. In the Exposure Draft, the proposed standard requires that interest be
recognized on a receivable until the receivable is repaid or written off.
At the same time, the proposed standard requires that an allowance
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Advances and
Prepayments
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Investments in Treasury
Securities
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Accounts Payable
151. Accounts payable are set up to record an entitys liability for goods and
services received or work progress made by a contractor for which
payment has not been made.
152. Some respondents questioned the timing of recognizing a liability in
accounts payable. A federal entity, under budgetary accounting,
records an obligation when the entity places a purchase order or signs
a contract. An obligation, once incurred, reduces an entitys resources
available for obligation. Budgetary accounting entries are required to
record the amounts obligated and to reduce the available budget
authority. For financial reporting purposes, liabilities are recognized
when goods and services are received or are recognized based on an
estimate of work completed under a contract or agreement.
153. Some federal entities believe it is appropriate to recognize a liability in
accounts payable when a purchase order is placed. The theory of this
practice is that the purchase order represents a use of the entitys
budgetary resources and that recognizing the liability would correctly
reduce the entitys available budgetary resources.
154. Proponents for this practice also argue that, in many cases, goods
produced under government contracts bear unique specifications for
government needs and, as a result, cannot be sold to other customers.
Thus, they argue that it is virtually certain that the government has
incurred a liability toward the contractor.
155. The Board recognizes that there is a need to reconcile budget
execution results and financial effects. In budgetary accounting, when
a purchase order is placed, an obligation is recorded to ensure
budgetary control. However, recognition of the claim from a financial
accounting standpoint does not occur until goods are delivered, work
progress is actually made by a contractor, or services are performed
since these events generally trigger a cash outlay that liquidates the
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obligation. The Board does not believe that recognizing a liability prior
to a actual receipt or constructive receipt of goods or services should
be adopted as a financial accounting standard. It also does not believe
that it is appropriate to erase the distinction between recording
obligations for budget purposes and recognizing a liability for financial
accounting purposes.
156. Some respondents question whether a liability should be recognized
for multi-year contracts that are to be financed through appropriations
over a number of years. As has been discussed earlier, when a contract
is entered, an obligation is recognized in budgetary accounting.
However, until goods or services are received or work progress is
made, the Board does not believe that an obligation should be
recognized as a liability. When goods or services are received or work
progress is made under either a short or long-term contract, a liability
for unpaid amounts should be recognized.
Interest Payable
158. The recommended standard covers the current liabilities that are not
specifically defined in other standards. Current liabilities specifically
defined in this Statement are accounts payable and interest payable.
Accounts payable and interest payable represent liabilities arising
from discrete transactions. The Board also plans to issue statements
to define other specific liabilities such as liabilities incurred under a
loan guarantee contract and borrowings from other entities.
159. Other current liabilities generally are related to on-going and
continuous expenses, which are typically recognized throughout each
accounting period rather than on an individual transaction basis. A
typical example is the liability for employees salary that is accrued at
the end of a fiscal year but is not paid.
160. The Exposure Draft indicated that a liability was considered funded if
the related expense was incurred under budget authority. Some
respondents suggested that the term budget authority be changed to
budgetary resources . They argued that budgetary resources
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encompass not only new budget authority, but also other resources
available to incur liabilities for specified purposes in a given year.
161. The Board agrees that a liability (or a portion of the liability) should be
considered funded from the reporting entitys perspective if it is
covered by available budgetary resources. However, the
recommended standard takes the position that a liability should be
recognized when it is incurred, regardless of whether it is covered by
available budgetary resources. The recommended standard also
requires that disclosure should be made for liabilities that are not
covered by available budgetary resources.
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Appendix B:
Illustration Of The
Interest Method For
Investment
Discount And
Premium
The price of a bond equals the present value of the bonds net future cash
flows, including principal and interest payments, discounted to the time of
its issuance. The discount rate is referred to as the effective interest rate.
Since the effective interest rate usually equals the market interest rate, it
may differ from the stated interest rate (the coupon rate) of the bond. The
difference between the effective interest rate of a bond and its stated
interest rate causes the bond price to be different from its face amount.
A Treasury bond may be purchased at a price higher or lower than the
bonds face amount (par amount). The difference between the purchase
price and the face amount is a discount if the price is lower than the face
amount; or a premium if the price is higher than the face amount. The
investor initially records the bond at its face amount and records the
discount or the premium in a valuation allowance account. Thus, the
carrying amount of the bond equals its face amount minus or plus the
discount or the premium. The discount or the premium is amortized over
the life of the bond, so that the bond would be redeemed at its face amount
at its maturity.
10
The interest method of amortization is described in several FASB statements and APB
Opinions. For example, see paragraph 18, FASB Statement No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases, and paragraph 16 of APB Opinion No. 12, Omnibus Opinion.
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interest of the investment. (The stated interest is the interest that is payable
to the investor according to the stated interest rate.) The difference
between the effective interest and the stated interest is the amount by
which the discount or the premium should be amortized (i.e., reduced) for
the accounting period.
Examples
Date
Stated
Interest
7%
Effective
Discount Unamortized
Interest
Balance
8% Amortization
Bonds
Carrying
Amount
1/1/92
$3,993
$ 96,007
12/31/92
7,000
$7,681
$681
3,312
96,688
12/31/93
7,000
7,735
735
2,577
97,423
12/31/94
7,000
7,794
794
1,783
98,217
12/31/95
7,000
7,857
857
926
99,074
12/31/96
7,000
7,926
926
100,000
11
The examples are adapted from Glenn A. Welsch and Charles T. Zlatkovich, Intermediate
Accounting, 8th ed. (Boston: Richard D. Irwin, Inc., 1989), p. 656.
SFFAS 1 - Page 37
SFFAS 1
Date
Stated
Interest 7%
Effective
Premium
Interest 6% Amortization
1/1/92
Unamortized
Balance
Bonds
Carrying
Amount
$4,212
$104,212
12/31/92
7,000
$6,253
$747
3,465
103,465
12/31/93
7,000
6,208
792
2,673
102,673
12/31/94
7,000
6,160
840
1,833
101,833
12/31/95
7,000
6,110
890
943
100,943
12/31/96
7,000
6,057
943
100,000
SFFAS 1 - Page 38
SFFAS 1
Appendix C:
Glossary
SFFAS 1 - Page 39
Status
Issued
Effective Date
TR 3 (Revised), Auditing Estimates for Direct Loan and Loan Guarantee Subsidies
under the Federal Credit Reform Act Amendments to Technical Release No. 3
Preparing and Auditing Direct Loan and Loan Guarantee Subsidies under the
Federal Credit Reform Act
TR 6, Preparing Estimates for Direct Loan and Loan Guarantee Subsidies under the
Federal Credit Reform Act Amendments to Technical Release No. 3 Preparing and
Auditing Direct Loan and Loan Guarantee Subsidies under the Federal Credit
Reform Act
Affects
None.
Affected by
SFFAS 18
SFFAS 19
SFFAS 32 amends par. 56
Summary
The Statement provides accounting standards for federal direct loans and loan guarantees. The standards
require that direct loans obligated and loan guarantees committed after September 30, 1991, be accounted for
on a present value basis. The use of the present value accounting method is consistent with the intent of the
Federal Credit Reform Act of 1990.
The standards contain the following essential requirements:
Direct loans disbursed and outstanding are recognized as assets at the present value of their estimated
net cash inflows. The difference between the outstanding principal of the loans and the present value of
their net cash inflows is recognized as a subsidy cost allowance.
For guaranteed loans outstanding, the present value of estimated net cash outflows of the loan
guarantees is recognized as a liability. Disclosure is made of the face value of guaranteed loans
outstanding and the amount guaranteed.
For direct or guaranteed loans disbursed during a fiscal year, a subsidy expense is recognized. The
amount of the subsidy expense equals the present value of estimated cash outflows over the life of the
loans minus the present value of estimated cash inflows.
The subsidy cost allowance for direct loans and the liability for loan guarantees are reestimated each
year, taking into account all factors that may have affected the estimated cash flows. Any adjustment
resulting from the reestimates is recognized as a subsidy expense (or a reduction in subsidy expense).
When direct loans or loan guarantees are modified, the cost of modification is recognized at an amount
equal to the decrease in the present value of the direct loans or the increase in the present value of the
loan guarantee liabilities measured at the time of modification.
SFFAS 2 - Page 1
SFFAS 2
Upon foreclosure of direct or guaranteed loans, the acquired property is recognized as an asset at the
present value of its estimated future net cash inflows.
The standards permit but do not require restating pre-credit reform direct loans and loan guarantees at
present value.
SFFAS 2 - Page 2
SFFAS 2
Table of Contents
Contents
Page
Executive Summary
Introduction
11
12
12
13
13
17
18
19
36
SFFAS 2 - Page 3
SFFAS 2
Executive Summary
1.
2.
3.
SFFAS 2 - Page 4
SFFAS 2
Introduction
Background
4.
5.
6.
Terms included in Appendix C: Glossary are printed in CAPITAL LETTERS when they
appear for the first time. (Note: See Appendix E: Consolidated Glossary on page 1.)
SFFAS 2 - Page 5
SFFAS 2
7.
The major provisions of the Act, which is effective for fiscal year 1992
and thereafter, are to:
Require that, for each fiscal year in which the direct loans or the
loan guarantees are to be obligated, committed, or disbursed, the
Presidents budget reflect the long-term cost to the government of
the subsidies associated with the direct loans and loan
guarantees. The subsidy cost estimate for the Presidents budget
is to be based on the PRESENT VALUE of specified cash flows
discounted at the average rate of marketable Treasury securities
of similar maturity.
Require that, before direct loans are obligated or loan guarantees
are committed, annual appropriations generally be enacted to
cover these costs. (However, mandatory programs have
permanent indefinite appropriations.)
Provide for borrowing authority from Treasury to cover the
non-subsidy portion of direct loans.
Establish budgetary and financing control for each credit
program through the use of three types of accounts: the
PROGRAM ACCOUNT (budgetary), the FINANCING ACCOUNT
(non-budgetary), and the LIQUIDATING ACCOUNT (budgetary).
8.
9.
SFFAS 2 - Page 6
SFFAS 2
Present Value
Accounting
11. The Federal Credit Reform Act of 1990 requires that effective
October 1, 1991, the cost of direct loans and loan guarantees be
estimated at present value for the budget. The objectives of using the
present value measurement in federal credit reform are to measure,
recognize, and control subsidy costs of direct loans and loan
guarantees.2
12. For direct loans, the effect of using the present value measurement is
to estimate the extent of the disbursed amounts that would be
recovered, and the extent of the disbursed amounts that is a subsidy
cost. The portion that can be recovered is the present value of
projected net cash inflows discounted at the Treasury rate of similar
maturity. This portion is not considered a cost to the government
because it is expected to be returned to the government in future
amounts. The remaining portion of the cash disbursement represents a
cost to the government, resulting either from lending at a rate lower
than the Treasury interest rate, or from default losses, or both.
13. Under credit reform, the subsidy portion of direct loans is financed by
appropriations, and the unsubsidized portion of the loans, which
equals the present value of the government collections from the
borrowers, is financed with funds borrowed from Treasury. The
subsidy cost of loans must be REESTIMATED and updated annually.
14. The present value measurement basis is also applied to loan
guarantees. Before credit reform, as in the case of direct loans, loan
guarantees were measured for the budget on a cash basis. Thus, loan
guarantees could appear to be virtually cost free, since cash payments
by the government were not required unless and until the guaranteed
loans defaulted at a future date. Under credit reform, the future cash
outflows required by LOAN GUARANTEE COMMITMENTS must be
projected and discounted at an appropriate Treasury interest rate. The
present value of the cash outflows is the cost of the loan guarantees.
Before loan guarantees are committed, annual appropriations
generally must be enacted to cover the cost of the loan guarantees.
Congressional Budget Office, Credit Reform: Comparable Budget Costs for Cash and
Credit (Dec. 1989), p.33.
SFFAS 2 - Page 7
SFFAS 2
Financial Reporting
SFFAS 2 - Page 8
SFFAS 2
Effective Date
The Accounting
Standards
Explanation
Accounting Standards
Post-1991 Direct Loans
22. Direct loans disbursed and outstanding are recognized as assets at the
present value of their estimated net cash inflows. The difference
between the outstanding principal of the loans and the present value
of their net cash inflows is recognized as a subsidy cost allowance.
23. For guaranteed loans outstanding, the present value of estimated net
cash outflows of the loan guarantees is recognized as a liability.
Disclosure is made of the face value of guaranteed loans outstanding
and the amount guaranteed.
24. For direct or guaranteed loans disbursed during a fiscal year, a subsidy
expense is recognized. The amount of the subsidy expense equals the
present value of estimated cash outflows over the life of the loans
minus the present value of estimated cash inflows, discounted at the
SFFAS 2 - Page 9
SFFAS 2
SFFAS 2 - Page 10
SFFAS 2
30. The subsidy cost allowance for direct loans is amortized by the
INTEREST METHOD using the interest rate that was used to calculate
the present value of the direct loans when the direct loans were
disbursed, after adjusting for the interest rate re-estimate. The
amortized amount is recognized as an increase or decrease in interest
income.
31. Interest is accrued and compounded on the liability for loan
guarantees at the interest rate that was used to calculate the present
value of the loan guarantee liabilities when the guaranteed loans were
disbursed, after adjusting for the interest re-estimate. The accrued
interest is recognized as interest expense.
32. Credit programs should re-estimate the subsidy cost allowance for
outstanding direct loans and the liability for outstanding loan
guarantees as required in this standard. There are two kinds of reestimates: (a) interest rate re-estimates, and (b) technical/default reestimates.2a Entities should measure and disclose each programs reestimates in these two components separately. An increase or
decrease in the subsidy cost allowance or loan guarantee liability
resulting from the re-estimates is recognized as an increase or
decrease in subsidy expense for the current reporting period.
(A) An interest rate re-estimate is a re-estimate due to a change in interest
rates from the interest rates that were assumed in budget preparation
and used in calculating the subsidy expense to the interest rates that
are prevailing during the time periods in which the direct or
guaranteed loans are disbursed. Credit programs may need to make an
interest rate re-estimate for cohorts from which direct or guaranteed
loans are disbursed during the reporting year. If the assumed interest
rates that were used in calculating the subsidy expense for those
cohorts differ from the interest rates that are prevailing at the time of
loan disbursement, an interest rate re-estimate for those cohorts
should be made as of the date of the financial statements.
(B) A technical/default re-estimate is a re-estimate due to changes in
projected cash flows of outstanding direct loans and loan guarantees
after reevaluating the underlying assumptions and other factors that
affect cash flow projections as of the financial statement date, except
2a
The term
technical/default re-estimate used in this statement is identical in meaning to the
term "technical re-estimate" used in OMB Circular A-11, as revised in July 1999.
SFFAS 2 - Page 11
SFFAS 2
for any effect of the interest rate re-estimates explained in (a) above.
In making technical/default re-estimates, reporting entities should
take into consideration all factors that may have affected various
components of the projected cash flows, including defaults,
delinquencies, recoveries, and prepayments. The technical/default reestimate should be made each year as of the date of the financial
statements.
33. The criteria for default cost estimates provided in this and the
following paragraphs apply to both initial estimates and subsequent
reestimates. Default costs are estimated and reestimated for each
program on the basis of separate cohorts and risk categories. The
reestimates take into account the differences in past cash flows
between the projected and realized amounts and changes in other
factors that can be used to predict the future cash flows of each risk
category.
34. In estimating default costs, the following risk factors are considered:
(1) loan performance experience; (2) current and forecasted
international, national, or regional economic conditions that may
affect the performance of the loans; (3) financial and other relevant
characteristics of borrowers; (4) the value of collateral to loan
balance; (5) changes in recoverable value of collateral; and (6) newly
developed events that would affect the loans performance.
Improvements in methods to reestimate defaults are also considered.
35. Each credit program should use a systematic methodology, such as an
econometric model, to project default costs of each risk category. If
individual accounts with significant amounts carry a high weight in
risk exposure, an analysis of the individual accounts is warranted in
making the default cost estimate for that category.
36. Actual historical experience of the performance of a risk category is a
primary factor upon which an estimation of default cost is based. To
document actual experience, a data base should be maintained to
provide historical information on actual payments, prepayments, late
payments, defaults, recoveries, and amounts written off.
SFFAS 2 - Page 12
SFFAS 2
39. The losses and liabilities of direct loans obligated and loan guarantees
committed before October 1, 1992, are recognized when it is more
likely than not that the direct loans will not be totally collected or that
the loan guarantees will require a future cash outflow to pay default
claims. The allowance of the uncollectible amounts and the liability of
loan guarantees should be reestimated each year as of the date of the
financial statements. In estimating losses and liabilities, the risk
factors discussed in the previous section should be considered.
Disclosure is made of the face value of guaranteed loans outstanding
and the amount guaranteed.
40. Restatement of pre-1992 direct loans and loan guarantees on a present
value basis is permitted but not required.
SFFAS 2 - Page 13
SFFAS 2
The term pre-modification value is the present value of the net cash inflows of direct loans
estimated at the time of modification under pre-modification terms and discounted at the
interest rate applicable to the time when the modification occurs on marketable Treasury
securities that have a comparable maturity to the remaining cash flows of the direct loans
under pre-modification terms (simply stated, the pre-modification terms at the current rate).
The term post-modification value is the present value of the net cash inflows of direct
loans estimated at the time of modification under post-modification terms and discounted at
the interest rate applicable to the time when the modification occurs on marketable
Treasury securities that have a comparable maturity to the remaining cash flows of the
direct loans under post-modification terms (simply stated, the post-modification terms at the
current rate).
SFFAS 2 - Page 14
SFFAS 2
OMB instructions provide that if the decrease in book value exceeds the cost of
modification, the reporting entity receives from the Treasury an amount of modification
adjustment transfer equal to the excess; and that if the cost of modification exceeds the
decrease in book value, the reporting entity pays to the Treasury an amount of modification
adjustment transfer to offset the excess. (See OMB Circular A-11.)
6
The term post-modification liability is the present value of the net cash outflows of the
loan guarantees estimated at the time of modification under the post-modification terms,
and discounted at the interest rate applicable to the time when the modification occurs on
marketable Treasury securities that have a comparable maturity to the remaining cash flows
of the guaranteed loans under post-modification terms (simply stated, the post-modification
terms at the current rate).
7
The term pre-modification liability is the present value of the net cash outflows of loan
guarantees estimated at the time of modification under the pre- modification terms and
discounted at the interest rate applicable to the time when the modification occurs on
marketable Treasury securities that have a comparable maturity to the remaining cash flows
of the guaranteed loans under pre-modification terms (simply stated, the pre- modification
terms at the current rate.)
SFFAS 2 - Page 15
SFFAS 2
cash outflows projected under the modified terms from the time of
modification to the loans maturity, and discounted at the original
discount rate (the rate that was originally used to calculate the present
value of the liability, when the guaranteed loans were disbursed, after
adjusting for the interest rate re-estimate).
51. When pre-1992 loan guarantees are directly modified, they are
transferred to a financing account and the existing book value of the
liability of the modified loan guarantees is changed to an amount equal
to their post-modification liability. Any subsequent modification is
treated as a modification of post-1991 loan guarantees. When pre-1992
direct loan guarantees are indirectly modified, they are kept in a
liquidating account. The liability of those loan guarantees is
reassessed and adjusted to reflect any change in the liability resulting
from the modification.
52. The change in the amount of liability of both pre-1992 and post-1991
loan guarantees resulting from a direct or indirect modification and
the cost of modification will normally differ, due to the use of different
discount rates or the use of different measurement methods. Any
difference between the change in liability and the cost of modification
is recognized as a gain or loss. For post-1991 loan guarantees, the
modification adjustment transfer8 paid or received to offset the gain or
loss is recognized as a financing source (or a reduction in financing
source).
C. SALE OF LOANS
53. The sale of post-1991 and pre-1992 direct loans is a direct
modification. The cost of modification is determined on the basis of
the pre-modification value of the loans sold. If the pre-modification
value of the loans sold exceeds the net proceeds from the sale, the
excess is the cost of modification, which is recognized as modification
expense.
OMB instructions provide that if the increase in liability exceeds the cost of modification,
the reporting entity receives from the Treasury an amount of modification adjustment
transfer equal to the excess; and that if the cost of modification exceeds the increase in
liability, the reporting entity pays to the Treasury an amount of modification adjustment
transfer to offset the excess. (See OMB Circular A-11.)
SFFAS 2 - Page 16
SFFAS 2
54. For a loan sale with RECOURSE, potential losses under the recourse
or guarantee obligations are estimated, and the present value of the
estimated losses from the recourse is recognized as subsidy expense
when the sale is made and as a loan guarantee liability.
55. The book value loss (or gain) on a sale of direct loans equals the
existing book value of the loans sold minus the net proceeds from the
sale. Since the book value loss (or gain) and the cost of modification
are calculated on different bases, they will normally differ. Any
difference between the book value loss (or gain) and the cost of
modification is recognized as a gain or loss.9 For sales of post-1991
direct loans, the modification adjustment transfer10 paid or received to
offset the gain or loss is recognized as a financing source (or a
reduction in financing source).
D. DISCLOSURE
56. Disclosure is made in notes to financial statements to explain the
nature of the modification of direct loans or loan guarantees, the
discount rate used in calculating the modification expense, and the
basis for recognizing a gain or loss related to the modification. The
U.S. government-wide financial statements need not include this
disclosure.
Foreclosure of Post-1991
Direct Loans and
Guaranteed Loans
If there is a book value gain, the gain to be recognized equals the book value gain plus the
cost of modification.
10
SFFAS 2 - Page 17
SFFAS 2
61. When post-1991 direct loans are written off, the unpaid principal of the
loans is removed from the gross amount of loans receivable.
Concurrently, the same amount is charged to the allowance for
subsidy costs. Prior to the WRITE-OFF, the uncollectible amounts
should have been fully provided for in the subsidy cost allowance
through the subsidy cost estimate or reestimates. Therefore, the
write-off would have no effect on expenses.
[See SFFAS 18, par. 10 and 11 for additional disclosure requirements.]
SFFAS 2 - Page 18
SFFAS 2
Appendix A: Basis
Of The Boards
Conclusions
This appendix discusses the substantive comments that the Board received
from respondents to the Exposure Draft, Accounting for Direct Loans and
Loan Guarantees, issued in September 1992. The Appendix explains the
Boards conclusions on issues raised by the respondents.
Present Value
Accounting
SFFAS 2 - Page 19
SFFAS 2
FASAB Exposure Draft, Objectives of Federal Financial Reporting, Vol. 1, par. 13.
SFFAS 2 - Page 20
SFFAS 2
Expected Payments
1993
$5,000
1994
5,000
1995
5,000
1996
5,000
1997
Present value at 9%
$85,000
$71,400
12
Tables are provided only for illustration. They do not represent a reporting format.
SFFAS 2 - Page 21
SFFAS 2
Table 2: Reporting On The Direct Loans At Present Value On September 30, 1992
Assets
Loans receivable
Liabilities
$100,000
Subsidy cost
allowance (28,560)
(28,560)
Loans receivable,
net
$ 71,440
Debt to Treasury
$71,440
Net Position
$0
Table 3: Reporting On The Direct Loans At Nominal Value On September 30, 1992
Assets
Loans receivable
Liabilities
$100,000
Subsidy cost
allowance (28,560)
(20,000)
Loans receivable,
net
$ 80,000
Debt to Treasury
Net Position
$71,440
$8,560
SFFAS 2 - Page 22
SFFAS 2
SFFAS 2 - Page 23
SFFAS 2
Subsidy Cost
Component
83. The Exposure Draft proposed that when direct or guaranteed loans
are disbursed, their subsidy expense be recognized separately among
interest subsidy costs, default costs, fees (as a deduction from the
costs), and other subsidy costs.
84. The Exposure Draft also proposed the following requirement: The
interest subsidy allowance shall be amortized using the interest
method. Compound interest shall be accumulated on the allowances
for default losses, fees, and other cost components.
85. The Exposure Draft posed a question: Should the subsidy cost
components, if material, be recognized separately in financial
reporting? Some respondents agreed that the subsidy cost
components should be separately recognized. They believed that
separate recognition would provide the level of detail needed to
understand the program better and improve their component
estimates for budget formulation.
86. Some respondents were opposed to reporting subsidy costs by
component on the grounds that (1) only the aggregate amount of
subsidy costs is needed for budget execution purposes,
SFFAS 2 - Page 24
SFFAS 2
SFFAS 2 - Page 25
SFFAS 2
91. In the Exposure Draft, the Board proposed that the present value of
estimated fee receipts be recognized as a deduction from the subsidy
expense. The Board posed a question: How should fees be recognized
on an entitys financial reports? Should they be recognized as a
deduction of subsidy expense, or as a revenue?
92. Many respondents agreed with the proposal that the present value of
estimated fee collections be recognized as a deduction of subsidy
expense. Some respondents contended that fees should be recognized
as a revenue rather than as an expense component. They stated that
offsetting revenues against expenses would not provide clear
revenue/expense information concerning the operating results of a
credit program. Some of the respondents also said that to the extent
some of the fees are used to defray administrative costs, they should
not offset subsidy expenses because the Federal Credit Reform Act of
1990 excludes administrative costs from subsidy expenses.
93. The Board is not persuaded by the arguments that fees should be
reported as a revenue. The subsidy expense of direct loans and loan
guarantees is the focal point of credit reform, and it is measured as the
present value of the net cash flows of the direct loans and loan
guarantees. Since the estimated fees are a component of the cash
flows, the Board believes that the present value of fees should be
reported as a component of the subsidy expense. Since the Board has
concluded that all of the subsidy expense components, including the
SFFAS 2 - Page 26
SFFAS 2
94. The phrase pre-1992 direct loans and loan guarantees refers to direct
loans obligated and loan guarantees committed before October 1,
1991, the effective date of the Federal Credit Reform Act of 1990. In
the Exposure Draft, the Board did not recommend restating pre-1992
direct loans and loan guarantees at present value. The Boards position
was that the costs of restating those direct loans and loan guarantees
would outweigh the benefits.
95. Most respondents who commented on this issue agreed with the
Boards position. They emphasized that the restatement of pre-1992
direct loans and loan guarantees would be a complex process and
would require substantial resources. They pointed out that a major
difficulty is caused by the lack of complete and accurate historical
data that a restatement needs to be based upon. Because of the lack of
accurate data, even if the agencies incurred a great deal of cost, the
restated loans and loan guarantees could not be accurately compared
with post-1991 loans and loan guarantees on the same basis. The
respondents pointed out that since the pre-1992 direct loans and loan
guarantees were obligated or committed in the past, restated
information would be of limited usefulness to current budget
decisions. They also pointed out that the amount of pre-1992 direct
loans and loan guarantees outstanding would diminish over time as
loans matured, defaulted, or were modified.
96. In addition to considering the comments on the Exposure Draft, the
Board also considered the findings of a GAO report presented to the
Board.13 The GAO report suggested that by not requiring a restatement
of pre-1992 direct loans and loan guarantees at present value, poor
13
GAO Report to the Chairman, Senate Budget Committee, Federal Credit Programs:
Agencies Had Serious Problems Meeting Credit Reform Accounting Requirements
(GAO/AFMD-93-17, Jan. 1993).
SFFAS 2 - Page 27
SFFAS 2
SFFAS 2 - Page 28
SFFAS 2
recognized when it is more likely than not that the loans will not be
totally collected or the loan guarantees will require a future cash
outflow to pay default claims. This is the same standard that the Board
recommended for the recognition of losses on receivables in FASAB
Statement of Recommended Accounting Standards No. 1, Accounting
for Selected Assets and Liabilities.
101. The Board believes that each loan guarantee program should disclose
the aggregate amount of outstanding guaranteed loans. In addition, it
should also disclose its risk exposure, which is the guaranteed portion
of the total outstanding guaranteed loans.
Modifications
SFFAS 2 - Page 29
SFFAS 2
SFFAS 2 - Page 30
SFFAS 2
See Exposure Draft, Vol. 2, pars. 221 through 231, and Appendix 2, pages 139 through 143.
SFFAS 2 - Page 31
SFFAS 2
SFFAS 2 - Page 32
SFFAS 2
SFFAS 2 - Page 33
SFFAS 2
123. Second, even if the current rate were used to calculate the book value
of modified loans, the difference between the change in book value (or
the change in liability balance) and the modification cost would not
disappear. In measuring the change in book value (or the change in
liability balance), the starting point is the pre-modification book value
(or the pre-modification liability balance), which is based on the
original discount rate. If the current rate is used to calculate the
post-modification book value of modified direct loans, the change in
book value would equal the difference between the pre-modification
book value (based on the original rate) and the post-modification book
value (based on the current rate). Similarly, if the current rate is used
to calculate the post-modification balance of modified loan guarantee
liabilities, the change in liability balance would equal the difference
between the pre-modification balance (based on the original rate) and
the post-modification balance (based on the current rate).
124. The cost of modification, on the other hand, is calculated differently.
The starting point of the calculation is not the existing
pre-modification book value of the modified loans (or the existing
pre-modification book value of the liability of the modified loan
guarantees). For both direct loans and loan guarantees, the calculation
uses the present value of pre-modification net cash flows discounted
at the current discount rate as the starting point. This pre-modification
value differs from the existing pre-modification book value because
the latter is based on the original discount rate. The cost of
modification equals the difference between the present value of
pre-modification net cash flows (discounted at the current rate) and
the present value of post-modification net cash flows (also discounted
at the current rate). Since the calculations take a different starting
point, the cost of modification would not equal the change in book
value.
125. Because of the two reasons above, the Board believes that the best
solution available is to measure the cost of modification at the current
discount rate, and to calculate the carrying amount of modified loans
and loan guarantee liabilities at the original discount rate.
126. However, while it makes sense to determine the cost of modification
based on the current discount rate, financial reporting cannot discard
the pre-modification balance of direct loans or loan guarantee
liabilities that are carried in the accounting records. Because of the
use of different discount rates, the change in book value will be
SFFAS 2 - Page 34
SFFAS 2
different from the cost of modification. The Board believes that the
effect of a modification on assets or liabilities should be reflected in
the operating statement. The Board believes that in addition to
recognizing the cost of modification as a modification expense, any
difference between the change in book value and the modification
expense should be recognized as a gain or loss. Thus, the net effect of
the modification on the operating statement equals the decrease in
loan assets or the increase in the liability of loan guarantees resulting
from the modification.
127. Based on this view, the Board has concluded that, with respect to a
modification of direct loans, any difference between the change in the
book value of the direct loans resulting from the modification and the
cost of modification should be recognized as a gain or loss in the
operating statement. Similarly, any difference between the change in
the amount of liability of loan guarantees resulting from the
modification and the cost of modification should be recognized as a
gain or loss in the operating statement. The gain or loss is to be
recognized in a category distinguished from the modification expense.
The modification adjustment transfer paid or received to offset the
gain or loss is to be reported as a financing source or a reduction in
financing source.
128. The Board further believes that agency financial statements should
include a footnote to explain the calculation of the cost of
modifications and nature of gain or loss on modifications.
SFFAS 2 - Page 35
SFFAS 2
Appendix B:
Technical
Explanations And
Illustrations
This Appendix explains and illustrates the accounting standards for direct
loans and loan guarantees. The explanations and illustrations are presented
to show how the standards may be applied but are not standards
themselves. They also take into account OMB and Treasury regulations on
credit reform.
This Appendix has 4 parts:
the measurement and recognition of direct loans, subsidy costs, and the
liability of loan guarantees;
the reestimation and the amortization of the subsidy cost allowance;
the reestimation of loan guarantee liabilities and the accumulation of
interest on the liabilities;
the recognition of revenues and expenses;
modifications of direct loans and loan guarantees (including the sale of
direct loans);
the write-off of direct loans; and
the foreclosure of assets upon default.
Post-1991 direct loans are direct loans obligated after September 30, 1991.
The accounting for post-1991 direct loans is explained and illustrated in this
part of the Appendix through an example described below:
At the end of fiscal year 1994, a federal credit program disburses a number
of direct loans with a total principal of $10 million. Those loans constitute a
cohort for that year. The maturity term of that cohort is 5 years and the
stated annual interest rate is 4 percent.
All of the amounts used in the text below are in thousands of dollars.
SFFAS 2 - Page 36
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The loan contracts require an annual payment of $2,246 per year for
5 years, paid at the end of each year. In Table 1 below, the required annual
payments are shown in column (a).15 The amounts in column (b) equal the
beginning loan balance of each period multiplied by the stated interest rate
of 4 percent. The amounts in column (c) are principal repayments, which
equal the amounts in column (a) minus the amounts in column (b). The
amounts in column (d) are the ending principal balance of each period,
which equal the beginning balance minus the principal repayment of that
period, shown in column (c).
Payment
(a)
FY
Interest
(b)
Principal
(c)
1994
Year-End
Loan Balance
(d)
$10,000
1995
$2,246
$400
$1,846
8,154
1996
2,246
326
1,920
6,234
1997
2,246
249
1,997
4,237
1998
2,246
169
2,077
2,160
1999
2,246
86
2,160
A. Reporting Post-1991
Direct Loans And Their
Subsidy Costs
The accounting standard for post-1991 direct loans requires that direct
loans disbursed and outstanding be recognized as assets at the present
value of their estimated net cash inflows. The difference between the
15
The annual payment is derived by dividing the present value factor of 4.45182 into the
principal of $10,000. The present value factor can be found in any ordinary annuity table, and
it equals the present value of $1 paid over 5 periods discounted at 4 percent. Alternatively,
knowing the loan principal, the number of pay back periods, and the interest rate, one can
use computer software or a financial calculator to find the required payment per period.
SFFAS 2 - Page 37
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outstanding principal of the loans and the present value of their net cash
inflows is recognized as a subsidy cost allowance.16
To implement the standard in the example, a cash flow projection and
present value calculations are prepared. Based upon the risk factors and
other criteria for default cost estimates that are enumerated in the
accounting standards, it is estimated that losses in cash flows due to the
defaults would equal 30 percent of the scheduled payments for fiscal year
1997 and each year thereafter.17 Table 2 below displays the cash flow
projections and present value calculations.
Table 2: Projected Cash Flows Discounted To The End Of FY 1994 (in thousands of
dollars)
FY
1994
Fee
Collections
P&I
Paymentsa
Default
Losses
$500
Net Cash
Inflows
$500
1995
$2,246
1996
2,246
1997
2,246
$(674)
1,572
1998
2,246
(674)
1,572
1999
2,246
(674)
1,572
$9,461
$(1,603)
$8,358
PV at 6%
$500
2,246
2,246
The term P & I Payments used in this table as well as other tables throughout this Appendix denotes
scheduled principal and interest payments required in loan contracts.
The present value of the loans estimated net cash inflows is $8,358. The
direct loans are recognized as assets at that amount. Since the loans
outstanding principal is $10,000, the difference between the loans
outstanding principal and their present value is $1,642, which is recognized
as the subsidy cost allowance.
16
In this Appendix, the requirements of the accounting standards are summarized to address
specific situations. However, the standards are not quoted verbatim. Readers should refer to
the text of the standards for their exact wording.
17
The standard defines losses in cash flows due to default as being due to defaults net of
recoveries. However, to simplify computations, recoveries are assumed to be zero
throughout Parts I and II of this Appendix. References to defaults throughout Parts I and II
should be understood to mean defaults net of recoveries for all cases where recoveries are
expected. The accounting standard for recoveries is illustrated in Part III of this Appendix.
SFFAS 2 - Page 38
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The accounting standard for post-1991 direct loans requires that for
direct loans disbursed during a fiscal year, a subsidy expense be
recognized. The amount of the subsidy expense equals the present
value of estimated cash outflows over the life of the loans minus the
present value of estimated cash inflows, discounted at the interest
rate of marketable Treasury securities with a similar maturity term,
applicable to the period during which the loans are disbursed
(hereinafter referred to as the applicable Treasury interest rate).
In the example, the present value of the loans cash outflows is the
disbursed amount of $10,000. The present value of the loans estimated net
cash inflows is $8,358. The difference between those two amounts is $1,642,
which is recognized as subsidy expense.
The accounting standard for post-1991 direct loans requires that for
the fiscal year during which new direct loans are disbursed, the
components of the subsidy expense of those new direct loans be
recognized separately among interest subsidy costs, default costs,
fees and other collections, and other subsidy costs.
The interest subsidy cost of direct loans is the excess of the amount of the
loans disbursed over the present value of the interest and principal
payments required by the loan contracts, discounted at the applicable
Treasury interest rate (6 percent in this example). In this example, the
amount of the loans disbursed is $10,000. The present value of the
scheduled interest and principal payments is $9,461. The difference
between those two amounts is $539, which is recognized as the interest
subsidy cost.
The default cost of direct loans results from any anticipated deviation,
other than prepayments, by the borrowers from the payment schedules in
the loan contracts. The deviations include delinquencies and omissions in
interest and principal payments. The default cost is measured at the present
value of the projected payment delinquencies and omissions minus net
recoveries. (See footnote 3.) In this example, the present value of the
projected payment omissions minus net recoveries is $1,603, which is
recognized as the default cost.
The present value of fee collections is $500, which is recognized as a
deduction from subsidy costs.
SFFAS 2 - Page 39
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$ 539
Fee collections
(500)
1,603
$1,642
Table 3: Assets And Liabilities As Of The End Of FY 1994 (in thousands of dollars)
Assets
Loans receivable
Liabilities
$10,000
Debt to Treasury
$7,858
Less:
Allowance for subsidy costs
(2,142)
$7,858
18
The term other subsidy costs is explained in the standard for subsidy costs of post-1991
direct loans and loan guarantees.
SFFAS 2 - Page 40
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SFFAS 2 - Page 41
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Table 4: Subsidy Cost Reestimation: Projected Cash Flows Discounted To The End
Of FY 1994 (in thousands of dollars)
FY
P & I Payments
Default Losses
1995
$2,246
$0
$2,246
1996
2,246
(1,348)
898
1997
2,246
(1,348)
898
1998
2,246
(1,348)
898
1999
2,246
(1,348)
898
$9,461
$(4,405)
$5,056
PV at 6%
The present value of the reestimated net cash inflows discounted to the end
of fiscal year 1994 is $5,056, compared to the loans book value of $7,858, a
decrease of $2,802. Thus, the subsidy cost allowance is increased by $2,802,
from $2,142 to $4,944. The amount of the increase in the subsidy cost
allowance (which is the decrease in the present value of the loans),
resulting from the reestimate, is recognized as subsidy expense
reestimates.
A subsidy payment of $2,802, equal to the subsidy expense resulting from
the reestimate, is received under permanent indefinite authority. The
amount is used to repay borrowing from Treasury. Thus, the outstanding
balance of the debt to Treasury is reduced by $2,802 to $5,056.
Furthermore, the direct loan program also receives a payment under
permanent indefinite authority to cover the interest accrued on the
reestimate subsidy payment of $2,802 for the period from the end of fiscal
year 1994 to the end of fiscal year 1995. The payment is $168, which equals
$2,802 times the applicable Treasury interest rate of 6 percent. This amount
is recognized as interest income reestimates, and the money is used to pay
the interest on the $2,802 borrowed from Treasury but repaid with the
reestimate subsidy.
Table 5 displays the asset and liability balances as of the end of fiscal year
1994, adjusted for the reestimate that was calculated early in fiscal year
1996.
SFFAS 2 - Page 42
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Table 5: Assets And Liabilities As Of The End Of FY 1994: Amounts Adjusted For
Reestimate Calculated In Early FY 1996 (in thousands of dollars)
Assets
Loans receivable
Liabilities
$10,000
Debt to Treasury
$5,056
Less:
Allowance for subsidy cost
Loans Receivable, Net
(4,944)
$5,056
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Table 6: Assets And Liabilities After Amortization At The End Of FY 1995 (in
thousands of dollars)
Assets
Loans receivable
Liabilities
$8,154
Debt to Treasury
$3,113
Less:
Allowance for subsidy costs
Loans Receivable, Net
(5,041)
$3,113
19
SFFAS 2 - Page 44
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$400
Amortized interest
(97)
Interest reestimates
168
$471
Interest expense on the debt to Treasury for the fiscal year is also $471,
which equals the debt to Treasury of $7,859 at the beginning of the year
times 6 percent. It is financed with the following sources:
Collections from borrowers
Interest on reestimated subsidy payments
Total interest expense
$303
168
$471
D. Modification Of Post-1991
Direct Loans
SFFAS 2 - Page 45
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loans for one additional year (to the end of fiscal year 2000). It is estimated
that 70 percent of the outstanding amounts, or $5,708, is forgiven.
The legislative action is within the definition of direct modification because
it is a federal government action that directly changes the estimated
subsidy cost and the present value of outstanding direct loans by altering
the terms of existing contracts.
The accounting standard on modifications states that with respect
to a direct or indirect modification of pre-1992 or post-1991 direct
loans, the cost of modification is the excess of the pre-modification
value of the loans over their post-modification value. The amount of
the modification cost is recognized as a modification expense when
the loans are modified.
The accounting is implemented in the steps described below.
(1) Calculate The Pre-Modification Value
The pre-modification value is the present value of the net cash inflows of
the direct loans estimated at the time of modification under
pre-modification terms and discounted at the current discount rate.
As used in this part and Part II of this Appendix, the current discount rate is
the interest rate applicable at the time of modification on marketable
Treasury securities with a similar maturity to the remaining maturity of the
direct loans under pre-modification terms or post-modification terms,
whichever is appropriate.20
The cash flows of the loans under pre-modification terms during 1996-99
are assumed to be the same as the cash flows that were reestimated early in
fiscal year 1996 for these years and that are shown in Table 4. Those cash
flows are used to calculate the loans pre-modification value. It is assumed
that the Treasury rate for a comparable maturity (4 years) and applicable to
the time of modification is 4.5 percent. As Table 7 below shows, the present
value of the pre-modification cash flows discounted at 4.5 percent is $3,223.
20
The definition of the current discount rate is provided in Appendix C, Glossary. [See
Appendix E of this Volume.]
SFFAS 2 - Page 46
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P & I Payments
Default Losses
1996
$2,246
$(1,348)
$ 898
1997
2,246
(1,348)
898
1998
2,246
(1,348)
898
1999
PV AT 4.5%
2,246
(1,348)
898
$8,058
$(4,835)
$3,223
FY
Payment
Interest
Principal
1995
Year-end Loan
Balance
$2,446
1996
$549
$97
$452
1,994
1997
549
79
470
1,524
1998
549
61
488
1,036
1999
549
41
508
528
2000
549
21
528
SFFAS 2 - Page 47
SFFAS 2
P & I Payments
Default Losses
1996
$549
$(110)
$439
1997
549
(110)
439
1998
549
(110)
439
1999
549
(110)
439
2000
549
(110)
439
$2,377
$(475)
$1,902
PV AT 5%
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Table 10: Post-Modification Book Value (in thousands of dollars, calculated at the
original discount rate)
FY
P & I Payments
Default Losses
1996
$549
$(110)
$439
1997
549
(110)
439
1998
549
(110)
439
1999
549
(110)
439
2000
549
(110)
439
$2,312
$(463)
$1,849
PV AT 6%
At the time the modification action is taken, the existing book value of the
loans is $3,113. The book value is changed to $1,849. This represents a
decrease in book value by $1,264.
Table 11 displays the effect of the modification on the book amounts. The
table shows that, due to the forgiveness, (1) the outstanding balance of the
loans receivable is reduced from $8,154 to $2,446, (2) the book value is
reduced from $3,113 to $1,849, and (3) the subsidy cost allowance, which is
the difference between the gross amount and the book value, is changed
from $5,041 to $597.
Table 11: Change In The Value Of Modified Loans (in thousands of dollars)
Gross
Amount
Book
Allowance
Value
Before Modification
$8,154
$(5,041)
$3,113
After Modification
$2,446
$(597)
$1,849
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Table 12: Assets And Liabilities After Modification In October 1995 (in thousands of
dollars)
Assets
Loans Receivable
Liabilities
$2,446
Debt to Treasury
$1,849
Less:
Allowance for subsidy
cost
(597)
$1,849
21
OMB instructions provide that if the decrease in book value exceeds the cost of
modification, the reporting entity receives from the Treasury an amount of modification
adjustment transfer equal to the excess; and if the cost of modification exceeds the decrease
in book value, the reporting entity pays to Treasury an amount of modification adjustment
transfer to offset the excess. (See OMB Circular A-11.)
SFFAS 2 - Page 50
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The disclosure will not be illustrated for other modifications explained in this Appendix.
SFFAS 2 - Page 51
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Table 13: Subsidy Cost Reestimation: Projected Cash Flows Discounted To The End
of FY 1995 (in thousands of dollars)
FY
P & I Payments
Default Losses
1996
$549
$(110)
$439
1997
549
(165)
384
1998
549
(165)
384
1999
549
(165)
384
2000
549
(165)
384
$2,313
$(643)
$1,670
PV AT 6%
Based on the reestimate, the direct loans book value is reduced by $179,
from $1,849 to the reestimated present value of $1,670. This is
accomplished by adjusting the subsidy cost allowance upward by $179,
SFFAS 2 - Page 52
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from $597 to $776. The increase of $179 in the subsidy cost allowance is
recognized as subsidy expense reestimates.
A subsidy payment of $179 equal to the subsidy cost increase resulting from
the reestimate is received under permanent indefinite authority and is used
to reduce debt to Treasury. As a result, the debt to Treasury is reduced from
$1,849 to $1,670. Furthermore, the direct loan program also receives a
payment under permanent indefinite authority to cover the interest accrued
on the increased subsidy expense of $179. The payment is $11, which equals
$179 times the applicable Treasury interest rate of 6 percent. This amount is
recognized as interest income reestimates, and the money is used to pay
interest accrued for fiscal year 1996 on the $179 borrowed from Treasury,
that is repaid by the subsidy reestimate.
The following table displays the asset and liability balances as of the end of
fiscal year 1995, adjusted for the modification in October 1995 and the
results of the reestimate that is calculated in early fiscal year 1997.
Table 14: Assets And Liabilities As Of The End Of FY 1995: Amounts Adjusted For
Modification In October 1995 and Reestimates Calculated In Early FY 1997 (in
thousands of dollars)
Assets
Loans Receivable
Liabilities
$2,446
Less:
Allowance for subsidy
cost
(776)
$1,670
Debt to Treasury
$1,670
SFFAS 2 - Page 53
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interest income, and the allowance for subsidy costs is reduced by $2, and
becomes $774.
(3) Collections and Payments
Of the scheduled annual payment of $549 for fiscal year 1996, payments of
$439 are received from the borrowers, which equal 80 percent of the
scheduled payments. Of the amount received, $78 is interest payment
(which equals 80 percent of the loans balance of $2,446 times the stated
interest rate of 4 percent), and the remaining $361 is principal repayment.
The outstanding nominal principal of the loans is reduced by $361 to $2,085.
There is unpaid accrued interest of $20 (which equals 20 percent of the
loans nominal balance as of the end of fiscal year 1995 times the stated
interest rate of 4 percent). At this point of time, the loans book value is
$1,331, which equals the outstanding principal of $2,085, plus interest
receivable of $20, minus the subsidy cost allowance of $774.
The debt to Treasury was $1,849 after the modification in October 1995. Of
that amount, $179 has been paid off with the subsidy payment received as a
result of the reestimate, which reduces the debt to $1,670; and the $11 of
accrued interest on the $179 has been paid off with the interest on the
reestimate. The interest accrued on the remaining debt is $100, which
equals the debt balance of $1,670 times the Treasury interest rate of
6 percent. Of the $439 in payments received from the borrowers, $100 is
used to pay interest due Treasury, and the remaining $339 is used to reduce
debt to Treasury. As a result, the balance of debt to Treasury becomes
$1,331.
Table 15 displays the asset and liability balances after the amortization and
the recording of collections and payments at the end of fiscal year 1996.
Table 15: Assets And Liabilities After Amortization At The End Of FY 1996 (in
thousands of dollars)
Assets
Loans Receivable
Interest Receivable
Less:
Allowance for subsidy costs
Loans & Interest Receivable, Net
SFFAS 2 - Page 54
Liabilities
$2,085
Debt to Treasury
$1,331
20
(776)
$1,331
SFFAS 2
Table 16: Assets And Liabilities After The Write-off As Of The End Of FY 1996 (in
thousands of dollars)
Assets
Loans Receivable
Liabilities
$1,596
Less:
Allowance for subsidy
costs
(265)
$1,331
Debt to Treasury
$1,331
The book value of $1,331, as indicated in the above table, equals the present
value of estimated net cash inflows of the remaining outstanding loans.
The estimated cash flows and the present value calculations are shown in
Table 17.
In Table 17 the amounts in column (a) are the scheduled annual principal
and interest payments. Since the principal of the outstanding loans is $1,596
and the remaining life of the loans is 4 years, the required annual payment is
$439. The amounts in column (b) equal the default amounts reestimated at
the end of fiscal year 1996 minus the scheduled payments of the loans that
have been written off (recoveries on those loans are assumed to be zero).
The amounts in column (c) are the projected net cash inflows of the
outstanding loans.
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Table 17: Projected Cash Flows After Loan Write-off: Discounted To The End Of FY
1996 (in thousands of dollars)
FY
P & I Payments
Default Losses
1996
$ 549
$(110)
$ 439
1997
549
(165)
384
1998
549
(165)
384
1999
549
(165)
384
2000
549
(165)
384
$2,313
$(643)
$1,670
PV AT 6%
23
This assumes that the sales proceeds were not included in the cash flow estimates for the
initial subsidy calculation.
SFFAS 2 - Page 56
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sold exceeds the net proceeds from the sale, the excess is the cost
of modification, which is recognized as modification expense.
The pre-modification value of the loans sold is the present value of the
loans net cash inflows estimated under pre-modification terms and
discounted at the current discount rate.
The net cash inflows of the direct loans estimated prior to the sale are
assumed to be the same as those estimated after the loan write-off at the
end of fiscal year 1996 (shown in Table 17). It is assumed that the current
discount rate for a similar maturity (4 years) is 5 percent. To calculate the
pre-modification value, the net cash flows are now discounted at the
current discount rate of 5 percent. As Table 18 shows, the pre-modification
value of the loans sold is $1,362.
Table 18: Pre-Modification Value Of The Loans Sold, As Of October 1996 (in
thousands of dollars, calculated at the current discount rate)
FY
P & I Payments
Default Losses
1997
$439
(55)
$384
1998
439
(55)
384
1999
439
(55)
384
2000
PV AT 6%
439
(55)
384
$1,557
$(195)
$1,362
The pre-modification value of the loans sold exceeds the net proceeds of
$1,100 from the sale by $262, which is recognized as a modification
expense. The credit program receives an appropriation equal to that
amount to cover the modification cost. (The credit program must have an
appropriation equal to the modification cost before it can sell the loans.)
(2) Recognize Book Value Gain Or Loss
The accounting standard on sale of direct loans states that the book
value loss (or gain) on a sale of direct loans equals the existing
book value of the loans sold minus the net proceeds from the sale.
Since the book value loss (or gain) and the cost of modification are
calculated on different bases, they will normally differ. Any
difference between the book value loss (or gain) and the cost of
SFFAS 2 - Page 57
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24
If there is a book value gain, the gain to be recognized equals the book value gain plus the
cost of modification.
SFFAS 2 - Page 58
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expense before the loans can be sold, since the payment to the loan
guarantee financing account must be made in order for the guarantee to
take effect.)
At this point, the credit program has $1,489 in cash, which was derived from
the following events:
Net proceeds from the loan sale
$1,100
262
158
(31)
$1,489
The credit program uses $1,331 to pay off the debt to Treasury, which was
borrowed to finance the direct loans. The remaining balance of $158 has
been paid to the loan guarantee financing account (as stated above). That
amount, together with interest for one year at 5 percent, is to cover the
recourse liability of the loan guarantee financing account.
Pre-1992 direct loans are direct loans obligated prior to October 1, 1991,
and are recorded in liquidating accounts. The accounting standard
requires that the losses of pre-1992 direct loans be recognized when
it is more likely than not that the direct loans will not be totally
collected. The allowance of the uncollectible amounts should be
reestimated each year as of the date of the financial statements. In
estimating losses, the risk factors discussed in the standard for
post-1991 direct loans should be considered.
The standard further states that restatement of pre-1992 direct
loans on a present value basis is permitted but not required.
All of the amounts used in the text that follows are in thousands of dollars.
A. Provision For
Uncollectible Amounts
Assume that at the end of fiscal year 1994 a credit program has pre-1992
direct loans with outstanding principal of $5,000 at 7 percent interest rate,
maturing in three years (at the end of fiscal year 1997). The program
management evaluates the risk factors enumerated in the accounting
standard, and estimates that the net loss of principal due to defaults would
be $2,000. Thus, the program management provides an allowance of $2,000
SFFAS 2 - Page 59
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for uncollectible amounts, and charges that amount to bad debt expense.25
Thus, the book value of the loans is $3,000, as shown below:
Loans receivable
$5,000
(2,000)
B. Modification Of Pre-1992
Direct Loans
$3,000
Assume that in October 1994, shortly after the close of fiscal year 1994, a
decision is made to take the following actions: (1) forgive 50 percent of the
amounts due, (2) lower the interest rate to 4 percent, and (3) extend the due
date to the end of fiscal year 2000.
These actions are within the definition of direct modification because they
are federal government actions that would directly change estimated
subsidy costs and the present value of outstanding direct loans by altering
the terms of existing contracts.
The accounting standard on direct loan modifications states that with
respect to a direct or indirect modification of pre-1992 direct loans, the cost
of modification is the excess of the pre-modification value of the loans over
their post-modification value. The amount of the modification cost is
recognized as a modification expense when the loans are modified.
Accounting for the cost of modification takes the following steps:
(1) Calculate The Pre-Modification Value
The pre-modification value is the present value of the net cash inflows of
the direct loans estimated at the time of modification under
pre-modification terms and discounted at the current discount rate.
It is estimated that under the pre-modification terms, 40 percent of the cash
flows would be lost due to defaults in fiscal year 1995 and each year
thereafter. The current discount rate for a maturity of 3 years is 4 percent.
As Table 19 below shows, the present value of the estimated net cash
25
This assumes that no allowance for uncollectible amounts was provided prior to fiscal year
1994. If there is an allowance for uncollectible amounts, that allowance should be adjusted
to the current estimate and the difference between the current estimate and the existing
allowance should be charged to bad debt expense.
SFFAS 2 - Page 60
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Table 19: Pre-Modification Value (in thousands of dollars, calculated at the current
discount rate)
FY
P & I Payments
Default Losses
1995
$1,905
$(762)
$1,143
1996
1,905
(762)
1,143
1997
1,905
(762)
1,143
$5,287
$(2,115)
$3,172
PV at 4%
Table 20: Payment Schedule Of The Modified Loans (in thousands of dollars)
FY
Payment
Interest
Principal
Year-end Loan
Balance
1994
$477
1995
477
$100
$377
$2,500
2,123
1996
477
85
392
1,731
1997
477
69
408
1,323
1998
477
53
424
899
1999
477
36
441
458
2000
477
19
458
Taking into consideration that the loans owed by borrowers with poor
conditions have been forgiven, it is estimated that only 10 percent of the
SFFAS 2 - Page 61
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cash flows would be lost due to defaults. The current discount rate for a
maturity of 6 years is 5 percent. As shown in Table 21, the present value of
the estimated net cash inflows discounted at 5 percent is $2,179. This is the
loans post-modification value.
Table 21: Post-modification Value (in thousands of dollars, calculated at the current
discount rate)
FY
P & I Payments
Default Losses
1995
$477
$(48)
$429
1996
477
(48)
429
1997
477
(48)
429
1998
477
(48)
429
1999
477
(48)
429
2000
477
(48)
429
$2,421
$(242)
$2,179
PV at 5%
SFFAS 2 - Page 62
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26
The accounting standard provides that when pre-1992 direct loans are indirectly modified,
they are kept in a liquidating account; and that their bad debt allowance is reassessed and
adjusted to reflect amounts that would not be collected due to the modification. Indirect
modifications of pre-1992 direct loans are not illustrated.
SFFAS 2 - Page 63
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when the loans mature at the end of the the year. The government agrees to
pay a 1 percent interest supplement to the lenders at the end of each year
over the loans life. The loans are disbursed on September 30, 1994. The
federal loan guarantee program collects a fee of 5 percent, when the loans
are disbursed. The average interest rate of marketable Treasury securities
of a similar maturity for the period in which the guaranteed loans are
disbursed is 6 percent.
All of the amounts used in the text that follows are in thousands of dollars.
SFFAS 2 - Page 64
SFFAS 2
Table 22: Projected Cash Flows Discounted To The Time Of Disbursement (in
thousands of dollars)
FY
1994
Fee
Receipts
Interest
Supplements
Net Default
Payments
Recoveries
$(500)
Cash Flows
$(500)
1995
$100
100
1996
100
100
1997
100
100
1998
100
1999
100
$3,600
$421
$2,690
100
2000
PV at 6%
$(500)
$3,700
$(2,000)
(2,000)
$(1,410)
$1,201
The present value of the estimated net cash outflows of the loan guarantees
is $1,201. This amount is recognized as a liability.
Disclosure is made in a footnote to the financial statements for fiscal year
1994 that guaranteed loans have an outstanding principal of $10,000, and
the guaranteed amount is $6,000. (A similar disclosure is made in each year
so long as the guaranteed loans are outstanding.)
The accounting standard for post-1991 loan guarantees requires
that for guaranteed loans disbursed during a fiscal year, a subsidy
expense be recognized. The amount of the subsidy expense equals
the present value of estimated cash outflows over the life of the
guaranteed loans minus the present value of estimated cash inflows,
discounted at the interest rate of marketable Treasury securities
with a similar maturity term, applicable to the period during which
the loans are disbursed (hereinafter referred to as the applicable
Treasury interest rate).
In the example, the present value of the cash outflows minus the present
value of the cash inflows is $1,201, which is recognized as a subsidy
expense.
The accounting standard for post-1991 loan guarantees requires
that for the fiscal year during which new guaranteed loans are
disbursed, the components of the subsidy expense of those new loan
guarantees be recognized separately among interest subsidy costs,
default costs, fees and other collections, and other subsidy costs.
SFFAS 2 - Page 65
SFFAS 2
The interest subsidy cost of the loan guarantees is the present value of the
interest supplement payments to the lenders, which, in this example, is
$421.
The default cost is the present value of the projected default payments
minus the present value of net recoveries. The present value of the default
payments is $2,690, and the present value of the net recoveries is $1,410.
Thus, the default cost is $1,280.
The present value of fee collections, which is $500, is recognized as a
deduction from subsidy costs.
There are no other subsidy costs in this example.
The subsidy expense of the loan guarantees is the sum of the above cost
components, which is $1,201, calculated as follows:
Interest subsidy cost
$421
Fee collections
(500)
1,280
$1,201
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Table 23: Projected Cash Flows Discounted To The End Of FY 1994, After The Receipt
Of Fees (in thousands of dollars)
FY
Interest
Supplements
Default
Payments
Net
Recoveries
Net Cash
Flows
1994
1995
$100
$100
1996
100
100
1997
100
100
1998
100
1999
100
$3,600
$421
$2,690
100
2000
PV at 6%
3,700
$(2,000)
(2,000)
$(1,410)
$1,701
Table 24 displays the asset and liability balances at the end of the 1994 fiscal
year.
Table 24: Assets And Liabilities At The End Of FY 1994 (in thousands of dollars))
Assets
Fund Balance with Treasury
B. Liability Reestimation
And Interest Compounding
Liabilities
$1,701
$1,701
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Table 25: Subsidy Cost Reestimation: Projected Cash Flows Discounted To The End
Of FY 1994 (in thousands of dollars)
FY
Interest
Supplements
Default
Payments
Net
Recoveries
Net Cash
Flows
1995
$100
$00
1996
100
100
1997
100
100
1998
100
100
1999
100
$3,600
2000
PV at 6%
$421
$2,690
3,700
$(1,000)
(1,000)
$(705)
$2,406
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SFFAS 2
$1,701
102
705
42
(100)
$2,450
The loan guarantee liability is also $2,450 at the end of fiscal year 1995,
calculated as follows:
Liability balance at the end of FY 1994, as reestimated
$2,406
144
(100)
$2,450
Table 26 displays the asset and liability balances at the end of the 1995 fiscal
year.
Table 26: Assets And Liabilities After Interest Accumulations At The End Of FY 1995
(in thousands of dollars)
Assets
Fund Balance with Treasury
Liabilities
$2,450
$1,701
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SFFAS 2
D. Modification Of Post-1991
Loan Guarantees
Assume that in October 1995, shortly after the close of fiscal year 1995, the
loan guarantee program takes action to expand its guarantee from
60 percent of the outstanding loan principal to 80 percent. This action is
within the definition of direct modification because it is a government
action that directly changes the estimated subsidy cost and the present
value of the loan guarantee liability by altering the terms of the loan
guarantee agreement.
The accounting standard on modifications of loan guarantees states
that with respect to a direct or indirect modification of pre-1992 or
post-1991 loan guarantees, the cost of modification is the excess of
the post-modification liability of the loan guarantees over their
pre-modification liability. The modification cost is recognized as
modification expense when the loan guarantees are modified.
The accounting is implemented in the steps described below.
(1) Calculate the Pre-modification Liability
The pre-modification liability is the present value of the net cash outflows
of loan guarantees estimated at the time of modification under the
pre-modification terms and discounted at the current discount rate.
As used in this part and Part IV of this Appendix, the current discount rate
is the interest rate applicable at the time of modification on marketable
Treasury securities with a similar maturity to the remaining maturity of the
guaranteed loans under pre-modification terms or post-modification terms,
whichever is appropriate.27
The cash flows for the loan guarantees under pre-modification terms during
1996-2000 are assumed to be the same as the cash flows that were
27
The definition of the current discount rate is provided in Appendix C, Glossary. [See
Appendix E of this Volume.]
SFFAS 2 - Page 71
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reestimated early in fiscal year 1996 for these years and that are shown in
Table 25. Assume that the current discount rate for a comparable maturity
(4 remaining years) is 4 percent. As Table 27 shows, the present value of the
pre-modification net cash outflows discounted at 4 percent is $2,618.
Table 27: Pre-modification Liability (in thousands of dollars; calculated at the current
discount rate)
FY
Interest
Supplements
Default
Payments
Net
Recoveries
Net
Cash Flows
1996
$100
$100
1997
100
100
1998
100
100
1999
100
$3,600
2000
PV at 4%
$363
$3,077
3,700
$(1,000)
(1,000)
$(822)
$2,618
SFFAS 2 - Page 72
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FY
Interest
Supplements
Default
Payments
Net
Recoveries
Net Cash
Flows
1996
$100
$100
1997
100
100
1998
100
1999
100
$4,800
$363
$4,103
100
2000
PV at 4%
4,900
$(1,000)
(1,000)
$(822)
$3,644
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Table 29: Post-modification Book Value Liability (in thousands of dollars; calculated
at the original discount rate)
FY
Interest
Supplements
Default
Payments
Net
Recoveries
Net Cash
Flows
1996
$100
$100
1997
100
100
1998
100
1999
100
$4,800
$346
$3,802
100
2000
PV at 6%
4,900
$(1,000)
(1,000)
$(747)
$3,401
At the time the modification action was taken, the existing book value of
the loan guarantee liability was $2,450 (See Table 26). The book value is
changed to $3,401. This is an increase of $951 in the book value of the loan
guarantee liability.
(5) Recognize A Gain Or Loss
The accounting standard on loan guarantee modifications states
that the change in the amount of liability of both pre-1992 and
post-1991 loan guarantees resulting from a direct or indirect
modification and the cost of modification will normally differ, due to
the use of different discount rates or the use of different
measurement methods. Any difference between the change in
liability and the cost of modification is recognized as a gain or loss.
For post-1991 loan guarantees, the modification adjustment
transfer28 paid or received to offset the gain or loss is recognized as
a financing source (or a reduction in financing source).
The change in book value in this case is $951, compared to the cost of
modification of $1,026. The difference between those two amounts is $75,
which is recognized as a gain.
28
OMB instructions provide that if the increase in liability exceeds the cost of modification,
the reporting entity receives from the Treasury an amount of modification adjustment
transfer equal to the excess; and if the cost of modification exceeds the increase in liability,
the reporting entity pays to Treasury an amount of modification adjustment transfer to offset
the excess. (See OMB Circular A-11.)
SFFAS 2 - Page 74
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Table 30: Assets And Liabilities After The Modification In October 1995 (in thousands
of dollars)
Assets
Liabilities
$3,401
$3,401
Assume that for fiscal year 1996 and thereafter, annual reestimations do not
result in any changes in cash flow estimates.29 After accumulating interest
at 6 percent and paying the $100 interest supplement annually, the credit
program has $3,856 in its fund balance with Treasury at the end of fiscal
year 1999, prior to paying any default claims. Table 31 shows annual
changes in the fund balance.
At the End of FY
Interest Accrued
Interest
Supplement Paid
1995
Fund Balance
$3,401
1996
$204
$(100)
3,505
1997
210
(100)
3,615
1998
217
(100)
3,732
1999
224
(100)
3,856
At the same time, the programs loan guarantee liability at the end of fiscal
year 1999 is also $3,856, which equals the estimated default claim payment
29
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of $4,800 minus $943, the present value of the estimated net recovery from
foreclosing assets. It has been estimated that the net recovery would be
$1,000 and would be realized at the end of fiscal year 2000. The present
value of the net recovery discounted to the end of fiscal year 1999 at the
original discount rate of 6 percent is $943.
As expected, when the guaranteed loans mature at the end of 1999, $6,000
of the principal is in default. To meet its guarantee obligation, the loan
guarantee program must pay 80 percent of the default amount, or $4,800, to
the lenders. When the defaults occur, the loan guarantee program in this
example has the options to foreclose property pledged by the borrowers
who defaulted, and/or to acquire the loans involved, as a compensation for
the default payment.
The accounting standard on foreclosure requires that when property is
transferred from borrowers to a federal credit program, through
foreclosure or other means, as a compensation for losses that the
government sustained under post-1991 loan guarantees,30 the foreclosed
property be recognized as an asset at the present value of its estimated
future net cash inflows discounted at the original discount rate.
The accounting standard states that at a foreclosure of guaranteed
loans, a federal guarantor may acquire the loans involved. The
acquired loans are recognized at the present value of their
estimated net cash inflows from selling the loans or from collecting
payments from the borrowers, discounted at the original discount
rate.
In this example, the default occurs at the loans maturity and virtually no
cash inflows can be realized either from selling the loans or collecting
payments from the borrowers. The loan guarantee program therefore
forecloses the assets. It continues to estimate that the net cash inflow from
possessing and selling the foreclosed property will be $1,000 and will be
received at the end of fiscal year 2000. The present value of the estimated
net cash inflow discounted at the original rate of 6 percent to the end of
fiscal year 1999 is $943.
30
The accounting standard is the same for property transferred in partial or full settlement of
post-1991 direct loans, and the application of the standard to direct loans is illustrated by the
present example of loan guarantees.
SFFAS 2 - Page 76
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Table 32: Assets And Liabilities At the End of FY 1999 (in thousands of dollars)
Assets
Foreclosed property
F. Disposition Of The
Foreclosed Property
Liabilities
$943
Debt to Treasury
$943
31
Borrowing from Treasury is necessary in this example because all default payments occur
at the same time. If they occurred in different years, the default payments in most cases
might be covered by the fund balance and the proceeds from selling foreclosed assets.
Borrowing would only be needed for defaults near the maturity date of the guaranteed loans
SFFAS 2 - Page 77
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SFFAS 2 - Page 78
SFFAS 2
A. Recognition Of Liabilities
Assume that a federal credit program guarantees a group of loans and the
guarantee was committed prior to October 1, 1991. At the end of fiscal year
1994, the loans have outstanding principal of $5,000 at 7 percent interest
rate, maturing in three years. The borrowers are required to pay interest
annually and to repay the principal at the end of 1997. The guarantee covers
60 percent of the principal.32
Disclosure is made in a footnote to the financial statements for fiscal year
1994 that guaranteed loans have an outstanding principal of $5,000, and the
guaranteed amount is $3,000. (A similar disclosure is made in each year so
long as the guaranteed loans are outstanding.)
The program management evaluates the risk factors enumerated in the
accounting standard, and estimates that $2,500 of the loans principal
repayments would be defaulted when the loans mature. The program will
pay 60 percent of the defaulted amount, equal to $1,500. It is also estimated
that the credit program would realize a net recovery of $500 through
acquiring and selling pledged assets. Thus, the program management
recognizes a liability of $1,000, which equals the estimated default payment
minus the net recovery. The $1,000 is charged to default expense.33
B. Modification Of Pre-1992
Loan Guarantees
Assume that in October 1994, shortly after the close of fiscal year 1994, a
decision is made to increase the guarantee from 60 percent of the loan
payments to 80 percent. This action is within the definition of direct
modification because it is a federal government action that directly changes
the estimated subsidy cost and the present value of outstanding loan
guarantees by altering the terms of existing contracts.
The accounting standard on modifications of loan guarantees states that
with respect to a direct or indirect modification of pre-1992 or post-1991
loan guarantees, the cost of modification is the excess of the
post-modification liability of the loan guarantees over their
pre-modification liability. The modification cost is recognized as
modification expense when the loan guarantees are modified.
32
A loan guarantee may guarantee both principal and interest payments. In that case, the
estimate and recognition of loan guarantee liabilities should be based on defaults on both
principal and interest payments.
33
This assumes that no liability was previously recognized. If a liability has been recognized
for the loan guarantees, the liability should be adjusted to the current estimate, and any
increase in liability should be charged to default expense.
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Table 33: Pre-modification Liability (in thousands of dollars, calculated at the current
discount rate)
FY
Default
Payments
Net
Recoveries
Net Cash
Outflow
1995
1996
1997
$1,500
1998
PV at 4%
$1,333
$1,500
$(500)
(500)
$(427)
$ 906
SFFAS 2 - Page 80
SFFAS 2
FY
Default
Payments
Net
Recoveries
Net Cash
Outflows
1995
1996
1997
$2,000
1998
PV at 4%
$1,778
$2,000
$(500)
(500)
$(427)
$1,351
34
The accounting standard states that when pre-1992 loan guarantees are indirectly
modified, they are kept in a liquidating account, and that the liability of those loan
guarantees is reassessed and adjusted to reflect any change in the liability resulting from the
modification. Indirect modifications of pre-1992 loan guarantees are not illustrated in the
Appendix.
SFFAS 2 - Page 81
SFFAS 2
SFFAS 2 - Page 82
Status
Issued
Effective Date
Affects
None.
Affected by
SFFAS 7, paragraphs 264-269, affects SFFAS 3, paragraphs 69, 70, 72 and 74-77,
plus Table 2, Summary of Accounting Standards, and Table 1, Summary of
Accounting Standards--Forfeited Property, by providing additional accounting
standards regarding revenue recognition for forfeited property.
SFFAS 32 amends paragraphs 28, 30, 35, 50, 55, 56, 66, 71, 78, 91, and 109
Summary
This statement provides accounting standards that apply to several types of tangible property, other than long
term fixed assets, held by federal government agencies. These accounting standards cover the following
assets:
SFFAS 3 - Page 1
SFFAS 3
cost or market valuation. When latest acquisition cost valuation is used the inventory is revalued periodically
and an allowance account is established for unrealized holding gains and losses.
Excess, obsolete and unserviceable inventory is to be valued at net realizable value. Inventory held for repair
is to be valued at either historical cost or latest acquisition cost less an allowance for the estimated repair
cost.
Stockpile Materials
Stockpile materials are to be accounted for through the consumption method using the historical cost
valuation or any method that reasonably approximates historical cost. When historical cost valuation is used,
acceptable cost flow assumptions include the first-in, first-out, weighted average or moving average cost flow
assumptions. The carrying amount of materials that have suffered (1) a permanent decline in value to an
amount less than their cost or (2) damage or decay shall be reduced to the expected net realizable value of the
material.
SFFAS 3 - Page 2
SFFAS 3
items seized in satisfaction of tax liabilities and for transfer of the property to government entities for their
use.
Foreclosed Property
Foreclosed property must be classified as Post-1991 property or Pre-1992 property to remain consistent with
the provisions of the Credit Reform Act of 1990. Post-1991 property is associated with loans or loan
guarantees issued after September 30, 1991 and is valued at its net present value. Pre-1992 property is
associated with loans or loan guarantees issued before September 30, 1991 and is valued at the lower of cost
or net realizable value.
SFFAS 3 - Page 3
SFFAS 3
Table of Contents
Contents
Page
10
15
Stockpile Materials
18
20
Foreclosed Property
25
29
33
SFFAS 3 - Page 4
SFFAS 3
Executive Summary
1.
2.
3.
As well as addressing the commodities acquired through price support and stabilization
programs, this standard addresses nonrecourse loans and purchase agreements.
SFFAS 3 - Page 5
SFFAS 3
Description
Valuation methods
Inventory
Operating
materials and
supplies
Stockpile
materials
SFFAS 3 - Page 6
SFFAS 3
Description
Valuation methods
Seized and
forfeited
property
Foreclosed
property
Assets received in
satisfaction of a loan
receivable or as a result of a
claim under a guaranteed or
insured loan
Commodities
Commodity
nonrecourse
loans
Commodity
purchase
agreements
Agreements to purchase
Estimated amount of the
commodities at a given price contingent loss
at the option of the seller
Seized property other than monetary instruments would not be recognized as the entitys asset since it is not owned by the
government. However, the market value of seized property should be disclosed in notes to the financial statements. This recognizes
that the entity has a fiduciary responsibility for the property.
Seized monetary instruments are recognized as assets with an offsetting liability to recognize the potential for remission to the
owners. This treatment was provided in order to maintain a higher level of financial control over seized monetary instruments.
b
Post-1991 refers to foreclosed property that is received in satisfaction of loans obligated or loan guarantees committed after September 30, 1991.
Pre-1992 refers to foreclosed property that is received in satisfaction of loans obligated or loan guarantees committed before October 1, 1991. In
addition, any programs or agencies that are specifically exempt from the provisions of the Federal Credit Reform Act should follow accounting
provisions for pre-1992 property.
SFFAS 3 - Page 7
SFFAS 3
Introduction
Objective
4.
Approach
5.
6.
7.
8.
9.
Materiality
SFFAS 3 - Page 8
SFFAS 3
SFFAS 3 - Page 9
SFFAS 3
Effective Date
Inventory
SFFAS 3 - Page 10
SFFAS 3
This unit value is referred to as the latest acquisition cost for the remainder of this standard.
SFFAS 3 - Page 11
SFFAS 3
Other Categories of
Inventory
27. Inventory Held in Reserve for Future Sale. Inventory stocks may
be maintained because they are not readily available in the market or
because there is more than a remote chance that they will eventually
be needed (although not necessarily in the normal course of
operations). These stocks shall be classified as inventory held in
reserve for future sale. Inventory held in reserve for future sale shall
be valued using the same basis as inventory held for sale in normal
Holding gains (or losses) result from holding assets in periods of changing prices. Under
historical cost methods, holding gains (or losses) are not separately recognized even though
they exist. Under the latest acquisition cost method, holding gains (or losses) will be
recognized in the valuation of inventory since that value is adjusted periodically to present
the more current latest acquisition costs. These gains or losses are unrealized holding gains
or losses. Unrealized refers to any gain or loss associated with inventory still held by the
entity. Realization of the holding gain or loss occurs only when an item of inventory is sold.
SFFAS 3 - Page 12
SFFAS 3
operations. The value of inventory held in reserve for future sale shall
be either (1) included in the inventory line item on the face of the
financial statements with separate disclosure in footnotes or
(2) shown as a separate line item on the face of the financial
statements.
28. The criteria considered by management in identifying inventory held
in reserve for future sale shall be disclosed. Examples of factors to be
considered in developing the criteria are (1) all relevant costs
associated with holding these items (including the storage and
handling costs), (2) the expected replacement cost when needed,
(3) the time required to replenish inventory, (4) the potential for
deterioration or pilferage, and (5) the likelihood that a supply of the
items will be available in the future. The above listed disclosure
requirements are not applicable to the U.S. government-wide financial
statements. SFFAS 32 provides for disclosures applicable to the U.S.
government-wide financial statements.
29. Excess, Obsolete, and Unserviceable Inventory. Excess
inventory is inventory stock that exceeds the demand expected in the
normal course of operations because the amount on hand is more than
can be sold in the foreseeable future and that does not meet
managements criteria to be held in reserve for future sale. Obsolete
inventory is inventory that is no longer needed due to changes in
technology, laws, customs, or operations. Unserviceable inventory is
damaged inventory that is more economical to dispose of than to
repair. The category excess, obsolete and unserviceable inventory
shall be either (1) included in the inventory line item on the face of the
financial statements with separate disclosure in footnotes or
(2) shown as a separate line item on the face of the financial
statements.
30. Such inventory shall be valued at its expected net realizable value. The
difference between the carrying amount of the inventory before
identification as excess, obsolete or unserviceable and its expected
net realizable value shall be recognized as a loss (or gain) and either
separately reported or disclosed. Any subsequent adjustments to its
net realizable value or any loss (or gain) upon disposal shall also be
recognized as a loss (or gain). The U.S. government-wide financial
statements need not separately report or disclose the difference
between the carrying amount of the inventory and its expected not
realizable value.
SFFAS 3 - Page 13
SFFAS 3
31. Management shall develop and disclose in the financial statements its
criteria for identifying excess, obsolete and unserviceable inventory.
32. Inventory Held for Repair. Inventory held for repair may be treated
in one of two ways: (1) the allowance method or (2) the direct method.
(1) Under the allowance method, inventory held for repair shall be
valued at the same value as a serviceable item. However, an allowance
for repairs contra-asset account (i.e., repair allowance) shall be
established. The annual (or other period) credit(s) required to bring
the repair allowance to the current estimated cost of repairs shall be
recognized as current period operating expenses. As the repairs are
made the cost of repairs shall be charged (debited) to the allowance
for repairs account.
33. (2) Under the direct method, inventory held for repair shall be valued
at the same value as a serviceable item less the estimated repair costs.
When the repair is actually made, the cost of the repair shall be
capitalized in the inventory account up to the value of a serviceable
item. Any difference between the initial estimated repair cost and the
actual repair cost shall be either debited or credited to the repair
expense account.
34. Transition to either of these two methods may result in recognizing an
accumulated amount of needed repairs that were not previously
accounted for. To avoid overstating repair expense for the first period
that repair expense is accrued, prior period amounts are to be
separately identified or estimated. The estimated amount to repair
inventory that is attributable to prior periods shall be credited to the
repair allowance under the repair allowance method or to the
inventory account under the direct method and reported as an
adjustment to equity.
Disclosure Requirements
35.
SFFAS 3 - Page 14
SFFAS 3
Operating Materials
And Supplies
SFFAS 3 - Page 15
SFFAS 3
in the period they are issued to an end user for consumption in normal
operations.
40. If (1) operating materials and supplies are not significant amounts,
(2) they are in the hands of the end user for use in normal operations,
or (3) it is not cost-beneficial to apply the consumption method of
accounting, then the purchases method may be applied to operating
materials and supplies. The purchases method provides that operating
materials and supplies be expensed when purchased.
41. An end user is any component of a reporting entity that obtains goods
for direct use in the components normal operations. Any component
of a reporting entity, including contractors, that maintains or stocks
operating materials and supplies for future issuance shall not be
considered an end user.
42. Valuation Under the Consumption Method. Operating materials
and supplies shall be valued on the basis of historical cost.
43. Historical cost shall include all appropriate purchase and production
costs incurred to bring the items to their current condition and
location. Any abnormal costs, such as excessive handling or rework
costs, shall be charged to operations of the period. Donated operating
materials and supplies shall be valued at their fair value at the time of
donation. Operating materials and supplies acquired through
exchange of nonmonetary assets (e.g., barter) shall be valued at the
fair value of the asset received at the time of the exchange. Any
difference between the recorded amount of the asset surrendered and
the fair value of the asset received shall be recognized as a gain or a
loss.
44. The first-in, first-out (FIFO); weighted average; or moving average cost
flow assumptions shall be applied in arriving at the historical cost of
ending operating materials and supplies and cost of goods consumed.
In addition, any other valuation method may be used if the results
reasonably approximate those of one of the above historical cost
methods (e.g., a standard cost or latest acquisition cost system).
SFFAS 3 - Page 16
SFFAS 3
Other Categories of
Operating Materials and
Supplies
SFFAS 3 - Page 17
SFFAS 3
Stockpile Materials
SFFAS 3 - Page 18
SFFAS 3
supplies), (2) items that are held for use in the event of an agencys
operating emergency or contingency (see proposed standard for
operating materials and supplies), and (3) materials acquired to
support market prices (see proposed standard for goods held under
price support and stabilization programs).
52. Recognition. The consumption method of accounting for the
recognition of expense shall be applied for stockpile materials. These
materials shall be recognized as assets and reported when produced or
purchased. Purchase is defined as the date that title passes to the
purchasing entity. If the contract between the buyer and the seller is
silent regarding passage of title, title is assumed to pass upon delivery
of the goods. The cost of stockpile materials shall be removed from
stockpile materials and reported as an operating expense when issued
for use or sale.
53. Valuation. Stockpile materials shall be valued on the basis of
historical cost. Historical cost shall include all appropriate purchase,
transportation and production costs incurred to bring the items to
their current condition and location. Any abnormal costs, such as
excessive handling or rework costs, shall be charged to operations of
the period. The first-in, first-out (FIFO); weighted average; or moving
average cost flow assumptions shall be applied in arriving at the
historical cost of stockpile materials. In addition, any other valuation
method may be used if the results reasonably approximate those of
one of the above historical cost methods (e.g., a standard cost or latest
acquisition cost system).
54. Exception to Valuation. The carrying amount of materials that have
suffered (1) a permanent decline in value to an amount less than their
cost or (2) damage or decay shall be reduced to the expected net
realizable value of the materials. The decline in value shall be
recognized as a loss or an expense4 in the period in which it occurs.
55. Held for Sale. When stockpile materials are authorized to be sold,
those materials shall be disclosed as stockpile materials held for sale.
The materials authorized for sale shall be valued using the same basis
used before they were authorized for sale. Any difference between the
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carrying amount of the stockpile materials held for sale and their
estimated selling price shall be disclosed. The cost of stockpile
materials shall be removed from stockpile materials and reported as
cost of goods sold when sold. Any gain (or loss) upon disposal shall be
recognized as a gain (or loss) at that time. The U.S. government-wide
financial statements need not separately report or disclose any
difference between the carrying amount of the stockpile materials
held for sale and their estimated selling price.
Disclosure Requirements
56.
Seized and
Forfeited Property
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Seized Property
If the central fund is other than the seizing or custodial agency, the latter should maintain
sufficient internal records to carry out its stewardship responsibility.
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Forfeited Property
monetary instruments,
intangible property,
real property and tangible personal property,
property acquired by the government in satisfaction of a tax
liability, and
unclaimed and abandoned merchandise.
Market value is the estimated amount that can be realized by disposing of an item through
arms length transactions in the marketplace or the price (usually representative) at which
bona fide sales have been consummated for products of like kind, quality, and quantity in a
particular market at any moment of time. For investments in marketable securities, the term
refers to the per-unit market price of a security times the number of units of that security
held.
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Category of property
Method of disposition
Valuation method
Recognized as assets
Monetary instruments
Market value
Upon seizure
Sale
Market value
Transferred, distributed,
or held for internal use
Market value
Property acquired to
satisfy tax liability
Unclaimed/ abandoned
merchandise
Market value
Upon sale
Foreclosed
Property
79. Definition. The term foreclosed property means any asset received
in satisfaction of a loan receivable or as a result of payment of a claim
under a guaranteed or insured loan (excluding commodities acquired
under price support programs). All properties included in foreclosed
property are assumed to be held for sale.
80. In accordance with the Federal Credit Reform Act of 1990, the
remainder of this standard will refer to specific provisions for pre-1992
foreclosed property and post-1991 foreclosed property. Pre-1992
foreclosed property refers to property associated with direct loans
obligated or loan guarantees committed before October 1, 1991.
Post-1991 foreclosed property refers to property associated with
direct loans obligated or loan guarantees committed after
September 30, 1991. The distinction is necessary because for budget
purposes, the cash flows associated with post-1991 direct loans and
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Section 506 of the Federal Credit Reform Act exempts specific agencies, such as the Federal
Deposit Insurance Corporation and the Tennessee Valley Authority.
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See FASAB exposure draft No. 2, Accounting for Direct Loans and Loan Guarantees,
September, 1992.
Cost is the carrying amount of the loan at the time of foreclosure or, for a loan guarantee,
the amount of the claim paid.
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103. The liability for losses on purchase agreements shall be valued at the
net of the contract price and the net realizable value of the
commodities described in the purchase agreement.10
104. At the time of acquisition and for financial statement purposes, all
commodities shall be valued at the lower of cost or net realizable
value.
105. The cost for commodities acquired via a nonrecourse loan settlement
is the amount of the loan principal (excluding interest), processing
and packaging costs incurred after acquisition, plus other costs (e.g.,
transportation) incurred in taking title to the commodity.
106. The cost for commodities acquired via a purchase settlement is the
unit price agreed upon in the purchase agreement multiplied by the
number of units purchased by CCC plus other costs (e.g.,
transportation) incurred in taking title to the commodity.
107. For financial statement purposes, any adjustments necessary to
reduce the carrying amount of commodities to the lower of cost or net
realizable value shall be recognized as a loss on farm price support and
reported in the current period. The adjustment to the carrying amount
shall be recorded in a commodity valuation allowance. Recoveries of
losses may be recognized up to the point of any previously recognized
losses on the commodities, and the commodity valuation allowance
reduced accordingly in the current period.
108. For cost determination, any of the following cost flow assumptions
may be applied in arriving at inventory balances and cost of goods sold
or transferred: first-in, first-out (FIFO); weighted average; moving
average; and specific identification.
Disclosure Requirements
109.
10
Contract price is the amount the government would be committed to pay in exchange for
the commodities.
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Appendix A: Basis
Of The Boards
Conclusions
110. This Appendix discusses the substantive comments that the Board
received from respondents to the Exposure Draft, Accounting for
Inventory and Related Property, issued in January 1993. The
Appendix explains the Boards conclusions on issues raised by the
respondents. A separate section is identified for each of the six
recommended standards.
Inventory
111. Several respondents questioned the need for the various inventory
categories proposed; inventory held in reserve for future sale; and
excess, obsolete and unserviceable inventory. Respondents and
speakers stated that (1) the requirement to segregate inventory and
inventory held in reserve for future sale could result in arbitrary and
subjective balance sheet allocations, (2) the category for excess,
obsolete and unserviceable is unnecessary and (3) it is not costeffective to modify systems to capture this data. However, other
respondents supported the categories and indicated that they would
result in more meaningful information.
112. Based on the comment letters received and the presentations at the
public hearing, the objections seemed to be based on the belief that
the Board intended to develop rigid guidelines for the categorization of
inventory. However, it is apparent that these or similar categories are
used internally by organizations. The Board is merely attempting to
improve disclosure related to these categories. The Board concluded
that the four categories should be maintained. The same issue was
raised with regard to operating materials and supplies and the same
conclusion was reached.
113. Several respondents opposed identifying the holding costs associated
with inventory held in reserve for future sale. They indicated that the
information has no apparent utility value, that it was virtually
impossible to compute and maintain incremental holding costs for the
reserve, and that disclosure would not provide managers with useful
information to make relevant decisions. They also indicated that this
requirement would be too subjective and difficult to audit. The Board
discussed this issue and concluded that the identification of holding
cost was a broad issue and deserving of more detailed treatment than
could be afforded in the inventory standard. The Board agreed to drop
the disclosure requirement and to defer this issue until a later project
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on cost issues. The same issue was raised with regard to operating
materials and supplies and the same conclusion was reached.
114. In the exposure draft, the Board requested opinions on two
presentation formats for cost of goods sold and the change in the
allowance for holding gains and losses under latest acquisition cost
(LAC) (Par. 87). The following two cost of goods sold computations
under the latest acquisition cost method where presented:
Proposed presentation:
(Appendix A)
Alternative presentation:
(Appendix B)
115. Most respondents to the question regarding the two alternative cost of
goods sold computations indicated a preference for the alternative
presentation from Appendix B. These respondents stated that changes
in cost were operating in nature and should be included in the
operating results. It was also noted that comparability would be
improved under the alternative treatment since cost of goods sold
would approximate historical cost. Two respondents provided
examples of the distortion of cost of goods sold that may result
under the proposed presentation. The examples showed that cost of
goods sold as calculated under the first proposed treatment (Appendix
A of the ED) might actually be less than it would have been under
historical cost.
116. In reviewing the responses, it was noted that the nonoperating
change seems to have been confused by some respondents with the
unrealized holding gain/loss for the period. The full title,
Nonoperating Change - Change in the Balance of the Allowance for
Unrealized Holding Gains/Losses is, although cumbersome, more
descriptive. The change in the balance is made up of decreases, due to
liquidation of inventory or cost decreases, and increases, due to
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holding more inventory or cost increases. The net change should not
be confused with the unrealized holding gain/loss for the period.
117. The Board, after much discussion, decided to adopt the alternative
presentation (Appendix B of the ED). This would avoid (1) confusion
as to the significance of the nonoperating change and (2) distortion
of the cost of goods sold. In addition, for those who wish to know the
change in the allowance account, the Board decided that line items
should be included in the calculation of the cost of goods sold to show
the beginning and ending balances.
118. Some respondents believed that the Board should adopt the lower of
cost or market (LCM) rule (traditional under Accounting Research
Bulletin (ARB) 43) for valuing inventory. Respondents supporting the
LCM rule stated that:
119. In evaluating the LCM rule the Board considered some of the unique
facets of the Federal environment:
120. The Board concluded that there was no need to include the LCM rule
in the inventory standards.
121. The Board requested comments on the impact of historical cost
accounting on performance measurement, and the costs and benefits
of market value accounting. The majority of respondents that
addressed these questions expressed a preference for historical cost
accounting due to its verifiability and understandability. They also
believed that market value methods were too costly to implement and
subjective. Another said that for most government operations, the goal
is cost recovery and market value has little relevance.
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122. One Board member believes that market value information is more
relevant to decision makers than historical cost information. This
opinion is shared by many in the academic community. However, the
Board devoted considerable resources to the issue of measuring and
reporting on holding gains and losses, an essential component of
market value accounting, and was unable to resolve the issues that
arose in a manner that would have been cost-effective. The Board has
decided to rely primarily on historical cost accounting for inventory.
123. The Board also requested comments on the standard cost using
replacement cost method. The method was described in detail in
Appendix C to the exposure draft. Standard costs are defined as
predetermined or budgeted per-unit costs. Standard costs are
commonly used in manufacturing concerns and are being adopted in
service industries as well.
124. In a standard cost system, variances between the actual per-unit cost
and the standard per-unit rate are identified. Variances are typically
calculated for the individual cost components, such as materials or
labor, included in the overall per-unit rate.
125. Standard costs also provide managers useful information for managing
inventory costs. As an agency purchases inventory during the year and
incurs operating costs, the actual costs are compared with the
standard costs to identify why the cost variances occurred. Since
inventory and operating managers are evaluated against the standard,
the managers have an incentive to meet the standard, which, in turn,
provides for effective inventory cost control.
126. The distinction between the traditional standard cost system and that
outlined in the exposure draft relates to replacement cost information.
The method on which comments were requested would require
standard costs based on the next periods expected replacement costs
and overhead rates. Further, no adjustment to historical cost amounts
would have been required for external reporting purposes.
127. The majority of the respondents cited substantially the same problems
for this method as they cited for market value accounting in general.
The calculations were viewed as complex, costly and subjective.
128. One Board member is concerned that this method would be excluded
under the recommended standard. The Board does not believe that
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Stockpile Materials
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139. A respondent explained at the public hearing that a good portion of the
forfeited assets are seized and valued under conditions which make
accurate appraisals extremely difficult. As a result, there have been
values reported for assets well in excess of what is eventually realized.
The determination of the market value prior to the actual sale of the
item is very difficult. The respondent has found that when the best
estimate of market value is made on an item by item basis, the total
value is still found to be overstated.
140. To avoid overstating deferred revenue, the respondent recommended
that a valuation allowance be created to adjust the reported value of
assets in the financial statements. The valuation allowance would be
based on historical trends or other relevant information; in a manner
similar to that used to establish an allowance for uncollectible
receivables. For example, information over the last six months may
show sale proceeds were 5% to 10% less than appraised values.
Further, the respondent believes that use of the valuation allowance
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2)
3)
4)
146. The first two suggestions relate to seized property. The Board
considered these suggestions during its discussions of seized property.
The Board did not revise the standard; this was based on (1) the desire
to establish strong controls over monetary instruments and (2) the
difficulties in valuing and uncertainties regarding disposition
associated with seized non-monetary property.
147. The third and fourth items relate to forfeited property. The suggestion
to disclose forfeited non-monetary instruments, item 3, would result in
understatement of the entitys assets. Disclosure requirements should
emphasize that the value reported is merely an estimate of the
propertys value. The suggestion to recognize revenue upon forfeiture,
item 4, while theoretically correct was not adopted by the Board. Due
to the difficulties in valuing forfeited property and the risk of
overstating the revenue the Board decided to defer revenue
recognition until the property was sold.
148. One respondent requested that the standard address valuation of
property for which there is no value, which cannot be legally sold, but
which can be donated to museums or other non-profit organizations
(e.g., stuffed endangered species) or destroyed (e.g., narcotics). The
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153. With regard to the request for a clear statement of which agency is to
maintain records on seized property, the Board believes that central
fund would be responsible for accounting for and reporting seized
property, but that seizing agencies or custodial agencies may have a
need for property records related to seized property and does not wish
to preclude them from doing so. However, in preparing consolidated
financial statements care should be taken to avoid double counting
these items. With regard to forfeited property, ownership should be the
determinant for an entitys recognition of an asset. However, an agency
that maintains physical custody, but not ownership, of forfeited
property is not precluded from maintaining property records although
no asset should be recognized.
Foreclosed Property
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the enacted budget.11 The Board believes that only by using the same
basis can financial information be used to compare the actual results
of operations with the budget.
157. However, the Board wishes to acknowledge that respondents may be
correct in stating that in certain cases there may be only immaterial
differences between net realizable value (or other methods) and NPV.
The standard has been revised to indicate that if no material difference
results, other valuation methods may be used as an approximation of
the net present value of foreclosed property.
158. One respondent currently values foreclosed vessels at their acquisition
price based on its own bid at the foreclosure sale. Following
acquisition, the value is depreciated at one-percent per month. Gains
or losses are recognized upon sale. The respondent believes that the
current practice is more appropriate because: (1) the price paid at
foreclosure sale represents the best valuation, (2) estimating future
net cash flows requires assumptions and this would be less prudent
than utilizing existing specific valuations, and (3) the entity has had to
establish the value of the vessels in legal proceedings and has relied on
the acquisition price to do so - utilizing a different value in financial
records could jeopardize the entitys position in legal proceedings. The
Board has not revised the standard as a result of this request. The
Board believes that there are no unique circumstances in this case
which would preclude conformance to the standard.
FASAB Exposure Draft, Objectives of Federal Financial Reporting, Vol. 1, par. 13.
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Status
Issued
Effective Date
For fiscal years beginning after September 30, 1996. Subsequently modified to be for
years beginning after September 30, 1997.
Affects
None.
Affected by
Summary
The managerial cost accounting concepts and standards contained in this statement are aimed at providing
reliable and timely information on the full cost of federal programs, their activities, and outputs. The concepts
of managerial cost accounting contained in this statement describe the relationship among cost accounting,
financial reporting, and budgeting. The five standards set forth the fundamental elements of managerial cost
accounting.
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Responsibility segments - Management of each reporting entity should define and establish responsibility
segments. Managerial cost accounting should be performed to measure and report the costs of each segments
outputs. Special cost studies, if necessary, should be performed to determine the costs of outputs.
Full cost - Reporting entities should report the full costs of outputs in general purpose financial reports. The
full cost of an output produced by a responsibility segment is the sum of (1) the costs of resources consumed
by the segment that directly or indirectly contribute to the output, and (2) the costs of identifiable supporting
services provided by other responsibility segments within the reporting entity, and by other reporting entities.
Inter-entity costs - Each entitys full cost should incorporate the full cost of goods and services that it receives
from other entities. The entity providing the goods or services has the responsibility to provide the receiving
entity with information on the full cost of such goods or services either through billing or other advice.
Recognition of inter-entity costs that are not fully reimbursed is limited to material items that (1) are
significant to the receiving entity, (2) form an integral or necessary part of the receiving entitys output, and (3)
can be identified or matched to the receiving entity with reasonable precision. Broad and general support
services provided by an entity to all or most other entities generally should not be recognized unless such
services form a vital and integral part of the operations or output of the receiving entity.
Costing methodology - Costs of resources consumed by responsibility segments should be accumulated by
type of resource. Outputs produced by responsibility segments should be accumulated and, if practicable,
measured in units. The full costs of resources that directly or indirectly contribute to the production of
outputs should be assigned to outputs through costing methodologies or cost finding techniques that are most
appropriate to the segments operating environment and should be followed consistently.
The cost assignments should be performed using the following methods listed in the order of preference:
(a) directly tracing costs wherever feasible and economically practicable, (b) assigning costs on a cause-andeffect basis, or (c) allocating costs on a reasonable and consistent basis.
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Table of Contents
Contents
Page
Executive Summary
Introduction
Background
Objectives
Scope
10
Terminology
10
11
11
Performance Measurement
12
13
Program Evaluations
13
14
14
21
21
Responsibility Segments
25
Full Cost
28
Inter-Entity Costs
34
Costing Methodology
39
52
81
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Executive Summary
Managerial Cost
Accounting Concepts
1.
2.
3.
These standards are based on sound cost accounting concepts and are
broad enough to allow maximum flexibility for agency managers to
develop costing methods that are best suited to their operational
environment. Also, the managerial cost accounting standards and
practices will evolve and improve as agencies gain experience in using
them. The following is a summary of the concepts and standards
contained in this statement.
4.
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Managerial Cost
Accounting Standards
Requirement for cost
accounting
5.
Each reporting entity should accumulate and report the costs of its
activities on a regular basis for management information purposes.
Costs may be accumulated either through the use of cost accounting
systems or through the use of cost finding techniques.
Responsibility segments
6.
Full cost
7.
Inter-entity costs
8.
Each entitys full cost should incorporate the full cost of goods and
services that it receives from other entities. The entity providing the
goods or services has the responsibility to provide the receiving entity
with information on the full cost of such goods or services either
through billing or other advice.
9.
Costing methodology
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Introduction
Background
15. It is further stated in SFFAC No. 1 that The topics of costs and
performance measurement are related because it is by associating cost
with activities or cost objectives that accounting can make much of its
contribution to reporting on performance.3 Cost is the monetary
value of resources used or sacrificed or liabilities incurred to achieve
an objective, such as to acquire or produce a good or to perform an
activity or service. Costs incurred may benefit current and future
periods. In financial accounting and reporting, the costs that apply to
an entitys operations for the current accounting period are recognized
as expenses of that period.
1
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16. The Chief Financial Officers Act of 1990 includes among the functions
of chief financial officers the development and reporting of cost
information and the systematic measurement of performance.4 In
July 1993, Congress passed the Government Performance and Results
Act (GPRA) which mandates performance measurement by federal
agencies.5 In September 1993, in his report to the President on the
National Performance Review (NPR), Vice President Al Gore
recommended an action which required the Federal Accounting
Standards Advisory Board to issue a set of cost accounting standards
for all federal activities.6 Those standards will provide a method for
identifying the unit cost of all government activities.
17. In early 1994, the Federal Accounting Standards Advisory Board (the
Board) convened an advisory group to help develop standards for
managerial cost accounting in the federal government. The group
included members from government, business, and academe. Their
views and proposals have been considered by the Board, and their
work contributed greatly in developing this document.
107 Stat. 285 (See particularly, 31 U.S.C. sections 1101, 1105, 1115, 1116-1119, 9703, 9704).
Vice President Al Gore, Creating A Government That Works Better & Costs Less,
Accompanying Report of the National Performance Review (September 1993), p. 59.
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helps them ensure that resources are spent to achieve expected results
and outputs, and alerts them to waste and inefficiency.
20. Congress and federal executives, including the President, make policy
decisions on program priorities and allocate resources among
programs. These officials need cost information to compare
alternative courses of action and to make program authorization
decisions by assessing costs and benefits. They also need cost
information to evaluate program performance.
21. Citizens, including news media and interest groups, are concerned
with the costs and results of federal programs that affect their
interests. They need program cost information to judge whether
resources are allocated to programs rationally and if the programs
operate efficiently and effectively.
Objectives
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Scope Of Standards
23. This statement contains managerial cost concepts and five standards
for the federal government. The five standards address the following
topics:
(1)
(2)
(3)
(4)
(5)
Terminology
See FASAB Exposure Drafts, Accounting for Liabilities of the Federal Government
(November 7, 1994); Accounting for Property, Plant, and Equipment (February 28, 1995);
and Revenue and Other Financing Sources (Pending).
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Materiality
Effective Date
Purposes Of Using
Cost Information
31. There are many different purposes for which cost information may be
used by the federal government. The focus of this statement is on cost
information needed to improve federal financial management and
managerial decision making.
32. In managing federal government programs, cost information is
essential in the following five areas: (1) budgeting and cost control,
(2) performance measurement, (3) determining reimbursements and
setting fees and prices, (4) program evaluations, and (5) making
economic choice decisions. Each of these uses is discussed below.
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control and reduce costs, and find and avoid waste. For example, with
appropriate cost information, federal managers can:
Performance
Measurement
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Determining
Reimbursements And
Setting Fees And Prices
Program Evaluations
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Economic Choice
Decisions
Managerial Cost
Accounting
Concepts
40.
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Common Data Source
The makeup of core data and environmental data is discussed in Statement of Federal
Financial Accounting Concepts No. 1, Objectives of Federal Financial Reporting, Chapter 7,
and, therefore, a detailed discussion is not provided here.
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any one system or location. Furthermore, the use of the term data
source is not meant to imply the use of computerized systems for
source information. Instead, the term is used in a broad way to include
many sources of information.
45. Managerial cost accounting, financial accounting, and budgetary
accounting draw information as needed from the common data
source. The data obtained by each of these is processed to attain
specific objectives by reporting useful information.
Relationship to Financial
Accounting
11
Coulthurst, Nigel and John Piper, The State of Cost and Management Accounting,
Management Accounting, April 1986.
12
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Relationship to Budgetary
Accounting
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54. While managerial cost accounting is concerned not only with past
costs and future costs, one of its most important features is the use of
present costs to assist management. This current cost aspect of
managerial cost accounting is referred to in the Objectives of Federal
Financial Reporting where is states that accounting data may be
further assigned, allocated, or associated with units of activity or
production, segments of organizations, etc., within the same time
period. These kinds of intraperiod allocations are developed most
extensively in the branch of accounting called cost accounting.
Neither the FASB nor the GASB has devoted much attention to this
branch of accounting, but the FASAB, because of its unique mission,
will need to do so.14 Managerial cost accounting information
pertaining to present costs is most often used for controlling and
reducing those costs, controlling work processes, and measuring
current performance.
Reporting Relationships
14
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Basis Of Accounting
And Recognition/
measurement Methods
16
The types of general purpose and special purpose reports are discussed in Statement of
Federal Financial Accounting Concepts No. 1, Objectives of Federal Financial Reporting,
Chapter 7.
17
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18
19
20
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Reconciliation Of
Information
64. Different bases of accounting will produce different costs for the same
item, activity, or entity. This can confuse users of cost information.
Therefore, reports that use different accounting bases or different
recognition and measurement methods should be reconcilable, and
should fully explain those bases and methods. Regardless of the type
of report in which it is presented, cost information should ultimately
be traceable back to the original common data source.
65. To be reconcilable, the amount of the differences in the information
reported should be ascertainable and the reasons for the differences
should be explainable. In some situations, informational differences
may be clearly understandable without further explanation. However,
other cases may require a narrative statement concerning the
differences. In complicated situations, a schedule or table may be
required to fully explain the differences.
66. Financial reporting has long recognized the necessity for
reconciliation between information reported on different accounting
bases. Reconciliations have been required in federal financial reports
to show and explain significant differences between budget reports
and financial statements prepared in accordance with generally
accepted accounting principles.
Managerial Cost
Accounting
Standards
Requirement For Cost
Accounting
21
Each reporting entity21 should accumulate and report the cost of its activities on a
regular basis for management information purposes. Costs may be accumulated
either through the use of cost accounting systems or through the use of cost
finding techniques.
21
The term reporting entity as used in this document conveys the same meaning as defined
in FASAB Statement of Recommended Accounting Concepts No. 2, Entity and Display
(May 1995).
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22
23
See standard concerning full costs and standard concerning inter-entity costing.
24
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Complexity Of Cost
Accounting Processes
72. While each entitys managerial cost accounting should meet the basics
discussed above, this standard does not specify the degree of
complexity or sophistication of any managerial cost accounting
process. Each reporting entity should determine the appropriate detail
for its cost accounting processes and procedures based on several
factors. These include the:
73. Some entities may find that they can purchase basic off-the-shelf
cost accounting programs, systems, or processes, or adapt those of
other federal agencies. All entities should consider using similar or
compatible cost accounting processes throughout their component
units to facilitate comparison and consolidation of cost information.
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75. Some entities may not need a sophisticated system to perform detailed
cost accumulation and assignment. They need to accumulate and
report costs regularly as required by this standard, but they may
determine and analyze costs through special cost studies and analyses.
Also, some entities may use a combination of a system supplemented
by cost studies.
76. Cost information may be developed and savings achieved in some
cases by the use of special cost studies or cost analyses to develop
information helpful in certain decision making situations. In addition,
cost finding techniques may be used to determine the cost of products
or services. Cost finding is a method for determining the cost of
producing goods or services using appropriate procedures. Cost
finding techniques may also be useful for computing costs in cases
where the information is not needed on a recurring basis.
Responsibility Segments
Management of each reporting entity should define and establish responsibility
segments. Managerial cost accounting should be performed to measure and
report the costs of each segments outputs. Special cost studies, if necessary,
should also be performed to determine the costs of outputs.
77. The standard states that the management of each reporting entity
should define and establish responsibility segments. This section
explains the concept of responsibility segment, purposes of
segmentation, and how responsibility segments can be structured.
Defining Responsibility
Segments
25
The term reporting entity referred to in this document conveys the same meaning as
defined in FASAB Statement of Recommended Accounting Concepts No. 2, Entity and
Display (May 1995).
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Purposes Of Segmentation
26
These two characteristics make responsibility segments, as the term is used in this
document, differ from cost centers. A cost center can be at any level of an organization and
may not report to the top management directly. As will be explained later, a responsibility
segment can contain cost centers in itself.
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27
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Structuring Responsibility
Segments
Full Cost
Reporting entities should report the full costs of outputs in general purpose
financial reports. The full cost of an output produced by a responsibility segment
is the sum of (1) the costs of resources consumed by the segment that directly or
indirectly contribute to the output, and (2) the costs of identifiable supporting
services provided by other responsibility segments within the reporting entity,
and by other reporting entities.
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89. This standard states that reporting entities should measure and report
the full costs of their outputs in general purpose financial reports.
Outputs means products and services generated from the
consumption of resources. The full cost of a responsibility segments
output is the total amount of resources used to produce the output.
This includes direct and indirect costs that contribute to the output,
regardless of funding sources. It also includes costs of supporting
services provided by other responsibility segments or entities. The
standard does not require full cost reporting in federal entities
internal reports or special purpose cost studies. Entity management
can decide on a case-by-case basis whether full cost is appropriate and
should be used for internal reporting and special purpose cost studies.
Direct Costs
90. Direct costs are costs that can be specifically identified with an
output. All direct costs should be included in the full cost of outputs.
Typical direct costs in the production of an output include:
(a) Salaries and other benefits for employees who work directly on
the output;
(b) Materials and supplies used in the work;
(c) Various costs associated with office space, equipment, facilities,
and utilities that are used exclusively to produce the output; and
(d)
Indirect Costs
91. Indirect costs are costs of resources that are jointly or commonly used
to produce two or more types of outputs but are not specifically
identifiable with any of the outputs. Typical examples of indirect costs
include costs of general administrative services, general research and
technical support, security, rent, employee health and recreation
facilities, and operating and maintenance costs for buildings,
equipment, and utilities. There are two levels of indirect costs:
(a) Indirect costs incurred within a responsibility segment. These
indirect costs should be assigned to outputs on a cause-and-effect
basis, if such an assignment is economically feasible, or through
reasonable allocations. (See discussions on cost assignments in
the Costing Methodology section.)
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30
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99. The full cost of such a program includes: (a) the costs of federal
resources that have been or will be transferred to individuals and
state/local governments, and (b) the costs of operating the programs.
These two types of costs should be recognized on a basis of
accounting that is prescribed within the Federal Financial Accounting
Standards. These two types of costs should be separately identified so
that each can be used for different analytic purposes.
100. The costs resulting from transfer payments are determined by the level
of grants, subsidies, entitlement benefits, credit subsidies, or loss
payments made under insurance and guarantee agreements. They are
also determined by the number of eligible persons who receive the
transfer payments. The program cost of AFDC, for example, depends
on the average payment per family, the number of eligible families, and
the federal governments share in the payments (some payments are
made by state and local governments). Information on this type of cost
is useful for making policy decisions about levels of subsidies or
benefits, eligibility of recipients, and how transfer payments are made.
This cost information is also useful for measuring the costeffectiveness of a transfer payment program.
101. Program operating costs, on the other hand, are costs of managing the
program and delivering the payments. They include the costs of
personnel, supplies, equipment, and offices. The costs are related to
such activities as screening benefit recipients for eligibility, keeping
their accounts, making payments and collections, answering inquiries,
etc. Information on this type of cost is useful in measuring the
efficiency of program operations.
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31
In FASAB Exposure Draft, Accounting for Property, Plant, and Equipment, the Board
proposed that the costs of acquiring or constructing federal mission and heritage
property, plant, and equipment be recognized as expenses when the costs are incurred. See
the ED, pars. 98-117, pages 29-34.
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Inter-entity Costs
Each entitys full cost should incorporate the full cost of goods and services that it
receives from other entities. The entity providing the goods or services has the
responsibility to provide the receiving entity with information on the full cost of
such goods or services either through billing or other advice.
Recognition of inter-entity costs that are not fully reimbursed is limited to material
items that (1) are significant to the receiving entity, (2) form an integral or
necessary part of the receiving entitys output, and (3) can be identified or
matched to the receiving entity with reasonable precision. Broad and general
support services provided by an entity to all or most other entities should not be
recognized unless such services form a vital and integral part of the operations or
output of the receiving entity.
105. As stated in the preceding standard, to fully account for the costs of
the goods and services they produce, reporting entities should include
the cost of goods and services received from other entities. Knowledge
of these costs is helpful to top level management in controlling and
assessing the operating environment. It is also helpful to other users in
evaluating overall program costs and performance and in making
decisions about resource allocations and changes in programs.
Inter-entity Activities
106. Within the federal government, some reporting entities rely on other
federal entities to help them achieve their missions. Often this involves
support services, but may include the provision of goods. Sometimes
these arrangements may be stipulated by law, but others are
established by mutual agreement of the entities involved. Such
relationships can be classified into two types depending upon funding
methods.
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Accounting And
Implementation Guidance
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Recognition Criteria
32
See Statement of Recommended Federal Accounting Concepts No. 2, Entity and Display,
par. 65. See also, FASAB Exposure Draft, Accounting for Liabilities of the Federal
Government, pars. 62-99, pages 26-46, which addresses accounting for pensions and other
retirement benefits (ORB). The payment of pension and ORB costs for an entity by another
entity has often been likened to providing goods and services. In the case of pensions,
employees of the reporting entity provide services to that entity and part of the salaryrelated cost is paid by a different entity. The pension administering entity does not provide
goods or services to the reporting entity (other than normal pension administration
services), but rather pays their costs directly. The difference is subtle but important.
However, the accounting is similar. This document is consistent with the section of the
liabilities exposure draft dealing with accounting for pensions and other retirement benefits.
33
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Accounting Example
Credit
$100,000
$100,000
Note: This example shows the cost recognized as an expense. However, as discussed in the text, it
may be an asset.
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$100,000
Appropriated capital
Fund balance with Treasury
Appropriated capital used
Credit
$100,000
$100,000
$100,000
Costing Methodology
Costs of resources consumed by responsibility segments should be accumulated
by type of resource. Outputs produced by responsibility segments should be
accumulated and, if practicable, measured in units. The full costs of resources
that directly or indirectly contribute to the production of outputs should be
assigned to outputs through costing methodologies or cost finding techniques
that are most appropriate to the segments operating environment and should be
followed consistently.
The cost assignments should be performed by the following methods listed in the
order of preference: (a) directly tracing costs wherever feasible and economically
practicable, (b) assigning costs on a cause-and-effect basis, or (c) allocating
costs on a reasonable and consistent basis.
Cost Accumulation
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119. This standard also requires that the accumulated costs be classified by
type of resource, such as costs of employees, materials, capital,
utilities, rent, etc. When appropriate and cost effective, information on
quantitative units related to various cost categories should be
maintained. For example, staff-days may be reported for staff salaries
and benefits, and gallons of gasoline consumed for gasoline costs. The
quantitative units are useful for cost assignments, and are
indispensable for measuring efficiency in using resources.
Cost Assignment
120. The term cost assignment refers to the process that identifies
accumulated costs with reporting periods and cost objects. The
assignment of costs to time periods is to recognize costs either as
expenses or assets for each reporting period. It is governed by
accounting standards on recognition of assets and expenses, and will
not be addressed in this document. This section addresses cost
assignment to cost objects. The word assignment used in this
document includes various methods of attributing costs, such as direct
tracing, cause-and-effect basis, and cost allocations.
121. The term cost object refers to an activity or item whose cost is to be
measured.34 In a broad sense, a cost object can be an organizational
division, program, activity, task, product, service, or customer.
However, the purpose of cost accounting by a responsibility segment
is to measure the costs of its outputs. Thus, the final cost objects of a
responsibility segment are its outputs: the services or products that
the segment produces and delivers, the missions or tasks that the
segment performs, or the customers or markets that the responsibility
segment serves. There may be intermediate cost objects that are used
in the course of the cost assignment process.
122. Some responsibility segments of an entity may provide supporting
services or deliver intermediate products to other segments within the
same entity. The costs of the supporting services and intermediate
products should be assigned to the segments that receive the services
and products. This is referred to as the intra-entity cost assignments.
Also, in accordance with the inter-entity cost standard discussed in the
preceding section, an entity should recognize inter-entity costs for
goods and services received from other federal entities. The inter34
Some literature, the CASB pronouncements for example, use the term cost objective for
the same meaning.
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35
Cost Accounting Standards Board, Restatement of Objectives, Policies and Concepts, par.
2915.
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Employees
Percent
Allocated amount
300
60
$300,000
200
40
$200,000
Total
500
100
$500,000
136. For cost allocation purposes, indirect costs may be grouped into
pools, and each pool is subject to one allocation base. Costs grouped
into one pool should have similar characteristics. The allocation base
should be used consistently to allow cost comparison from one period
to another.
137. Cost allocation is a relatively simple method of assigning indirect costs
to cost objects. Users of the cost information should be aware that
distortions in product costing often result from arbitrary cost
allocations. In most cases, there is little correlation between an
indirect cost and the allocation base, and the allocation is arbitrary. To
assist cost analyses and cost findings, cost accounting should
segregate costs that are traced or assigned to outputs from costs that
are allocated to outputs.
Assigning common costs
138. Facility and personnel resources may be shared by two or more
activities either at the same time or in different times during a fiscal
year. For example, a military aircraft maintained for war readiness
may be used in peacetime to transport cargo. As another example, a
plant may be used to process two or more products.
139. The cost assignment principles discussed in this section should apply
to assigning costs to activities or outputs that share the use of
resources. Costs that can be traced to each of the activities (or
outputs) should be assigned to them directly. These include direct
operating costs of each of the activities. For the military aircraft used
in peacetime to transport cargo, for example, the costs of fuel and
supplies, additional personnel who worked on the cargo, and other
costs incidental to the transportation should be directly assigned to
the transportation services.
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140. To determine the full cost of each of the activities or outputs that share
resources, indirect common costs should be assigned to those
activities. The term common costs refers to the costs of maintaining
and operating facilities and other resources that cannot be directly
traced to any one of the activities or outputs that share the resources.36
Common costs should be assigned to activities either on a cause-andeffect basis, if feasible, or through reasonable allocations.
141. Sometimes management may find it useful to designate primary and
secondary activities that share resources. Primary activity is the
primary purpose or mission for which the resources are made
available. Secondary activities are those activities that are performed
only if they will not interfere with the primary activity. Management
can then determine two types of costs: (1) the costs that are necessary
for the primary activity and are unavoidable even without the
secondary activities, and (2) the costs that are caused by the
secondary activities and are incremental to the costs of the primary
activity. This type of cost information can be produced through cost
findings, and may help management in making resource allocation and
capacity utilization decisions.
Cost-benefit considerations
142. Throughout the discussions of this section, it is stated that a cost
accumulation and assignment method would be used when it is
economically feasible. A method is economically feasible if the
benefits resulting from implementing the method outweigh its costs. It
is not advantageous to use a costing method if it requires a large
amount of resources and yet produces information of little value to
users.
143. As a general rule, directly tracing costs and assigning costs on a causeand-effect basis are more expensive than cost allocations, because
they require detailed analyses and record-keeping for costs and
activities. However, they are preferable because they produce more
reliable cost information than cost allocations.
36
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Selecting A Costing
Methodology
144. This standard does not require the use of a particular type of costing
system or costing methodology. Federal entities are engaged in a
broad range of diverse operations. A costing system appropriate for
one type of operation may not be appropriate for other operations. At
many federal agencies, cost accounting practices are either relatively
new or experimental. It is too early to tell which cost systems are best
for specific types of operations. As experience and research in cost
accounting progress, reporting entities and responsibility segments
may find a preferred costing methodology for their operations.
145. Agency and program management is in the best position to select a
type of costing system that would meet its needs. In making the
selection, management should evaluate alternative costing methods
and select those that provide the best results under its operating
environment.
146. The standard requires that a costing methodology, once adopted, be
used consistently. Consistent use provides cost information that can
be compared from year to year. However, this requirement does not
preclude necessary improvements and refinements to the system or
methodology, so long as the effect of any change is documented and
explained. On the contrary, improvements are encouraged.
147. Several costing methodologies have been successful in the private
sector and in some government entities. Four are briefly described
below for agency consideration. It should be noted in particular that
activity-based costing has gained broad acceptance by manufacturing
and service industries as an effective managerial tool. Federal entities
are encouraged to study its potential within their own operations. In
the following paragraphs, activity-based costing will be introduced
with other well known costing methodologies, namely job order
costing and process costing. Standard costing is also mentioned as an
important cost management tool. It is important to note that those
costing methodologies are not mutually exclusive. Both activity-based
costing and standard costing can be applied to job order or process
costing systems.
Activity-based costing (ABC)
148. ABC focuses on the activities of a production cycle, based on the
premises that (a) an output requires activities to produce, and (b)
activities consume resources. ABC systems use cost drivers to assign
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costs through activities to outputs. The ABC cost assignment is a twostage procedure. The first stage assigns the costs of resources to
activities and the second stage assigns activity costs to outputs. The
procedure is illustrated in the following figure.37
Resources
First
Stage
Activities
Second
Stage
Outputs
149. Implementing an ABC system requires four major steps: (1) identify
activities performed in a responsibility segment to produce outputs,
(2) assign or map resources to the activities, (3) identify outputs for
which the activities are performed, and (4) assign activity costs to the
outputs. Each of the steps is briefly explained below.
(1) Identify activities. This step requires an in-depth analysis of the
operating processes of each responsibility segment. Each process
may consist of one or more activities required by outputs.
Activities may be classified into unit-level, batch-level, product
37
The figure and the accompanying discussions are based on Robin Cooper, Robert S.
Kaplan, Lawrence S. Maisel, Eileen Morrissey, and Ronald M. Oehm, Implementing ActivityBased Cost Management (Montvale, NJ: Institute of Management Accountants, 1992),
pages 9-13.
38
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more of their time than others. Under ABC, the costs of loan officers
would first be assigned to their portfolio review and workout activities
that they perform, then the activity costs would be assigned to the
groups of loans for which the activities are performed.
152. A major advantage of using ABC is that it avoids or minimizes
distortions in product costing that result from arbitrary allocations of
indirect costs. By tracing costs through activities, ABC provides more
accurate service or product costs. Experience in the private sector
shows that by providing accurate cost measures, ABC has helped
improve product costing, strategic pricing, and profit planning.
153. Also important is that ABC encourages management to evaluate the
efficiency and cost-effectiveness of activities. Some ABC systems rank
activities by the degree to which they add value to the organization or
its outputs. Managers use such value rankings to focus their cost
reduction programs. ABC encourages management to identify and
examine (a) what activities are really needed (value-added activities)
in order to accomplish a mission, deliver a service, or meet customer
demand, (b) how activities can be modified to achieve cost savings or
product improvements, and (c) what activities do not actually add
value to services or products (non-value-added activities). ABC
integrates with cycle time analysis and value-added analysis.
Job order costing
154. Job order costing is a costing methodology that accumulates and
assigns costs to discrete jobs. The word jobs refers to products,
projects, assignments, or a group of similar outputs.
155. Each job has a number or code to accumulate costs. Resources spent
are identified with the job code. Costs are traced to individual jobs to
the extent economically feasible. Costs that cannot be directly traced
are assigned to jobs either on a cause-and-effect basis or allocation
basis.
156. Job order costing is appropriate for responsibility segments that
produce special order products, or perform projects and assignments
that differ in duration, complexity, or input requirements. Typical
situations in the federal government in which job order costing would
be appropriate are legal cases, audit assignments, research projects,
and repair work for ships, aircraft, or vehicles.
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Process costing
157. Process costing is a method that accumulates costs by individual
processing divisions (organization divisions that perform production
processes). These processing divisions are involved in a continuous
production flow, with each division contributing towards the
completion of the end products. The output of a processing division
either becomes the input of the next processing division or becomes a
part of the end product.
158. Each division accumulates costs, assigns the costs to its outputs, and
calculates the unit cost of its output. For each period, divisions
prepare a cost and production report, showing the costs, the
completed units, and the work-in-process volume. When a certain
number of completed units are transferred from a division to the next
division, the costs of those units are also transferred and are
eventually incorporated into the costs of the end product. Thus, the
cost flow follows the physical flow of the production. The unit cost of
the end product is the sum of the unit costs of all the divisions.
159. Process costing is appropriate for production of goods or services
with the following characteristics: (a) the production involves a
regular pattern of process, (b) its output consists of homogeneous
units, and (c) all units are produced through the same process
procedures. In the private sector, process costing is used by such
industries as flour mills, steel foundries, oil refineries, and chemical
processing plants. In government, it may be used by some activities
that involve repetitive process procedures to deliver a large volume of
similar goods or services. An example would be making entitlement
benefit payments, which involves a series of consecutive processes for
reviewing applications to establish their eligibility, computing the
amount of benefits, and issuing checks.
Standard costing
160. Standard costs are carefully predetermined or expected costs that can
be applied to activities, services, or products on a per unit basis.
Horngren describes standard costing as follows:
A set of standards outlines how a task should be accomplished in nonfinancial terms
(minutes, board feet) and how much it should cost. As work is being done, actual costs
incurred are compared with standard costs for various tasks or activities to reveal
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39
Horngren, Charles T. and George Foster, Cost Accounting, A Managerial Emphasis, 7th ed.
(Prentice Hall, Englewood Cliffs: New Jersey, 1991), page 222.
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Appendix A: Basis
For Conclusions
The Nature of Concepts
and Standards
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Relationship Among
Cost Accounting,
Financial Reporting,
And Budgeting
170. The Board considers it important for financial preparers and users of
financial reports to understand the relationship of cost accounting to
the more traditional areas of general financial accounting, financial
reporting, and budgeting. It views cost accounting as a basic and
integral part of an entitys financial management system. Therefore,
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40
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Responsibility Segments
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41
FASAB Statement of Recommended Accounting Concepts 2, Entity and Display, par. 75.
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Full Cost
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43
44
The standard of determining full cost discussed in this document, however, should not be
construed as a standard for setting fees, prices, and reimbursements. Federal entities should
comply with laws and regulations related to pricing policies in general and for specific types
of goods and services. Those laws and regulations (including OMB Circular A-25) may
prescribe costing requirements other than the full cost standard discussed in this document.
Full cost defined by this standard can serve as a point of reference for managerial decisions.
However, it is not intended to supersede any costing concept that management is required or
permitted by law to use in pricing goods and services.
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207. One of the available cost management tools is trend analysis. In trend
analysis, unit costs of a service or product over a number of
consecutive periods are examined to find a trend of increases or
decreases. This analysis can be valid only when the unit costs of all
periods are measured on a consistent basis, such as the full cost basis.
When the full cost basis is used, the analyst can further examine the
components of the unit cost, such as direct labor and material costs,
overhead costs, and costs of services received from other segments or
entities. Through examining the various components of the full unit
cost, program managers can pinpoint specific areas that contributed
to cost increases or decreases.
208. If activity-based costing is used, the cost components would be
associated with activities. The trend analysis for activity-based cost
components can provide information related to the efficiency of the
activities. Managers can also analyze the extent that the individual
activities add value to program outputs and objectives.
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Inclusion or Exclusion of
Certain Costs
46
FASAB Exposure Draft, Accounting for Liabilities of the Federal Government (Nov. 1994),
pars. 80-99, pages 32-46.
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47
Federal mission PP&E and heritage assets are explained in FASAB Exposure Draft,
Accounting for Property, Plant, and Equipment (February 28, 1995), pars. 98-115, pages 2933.
48
FASAB Exposure Draft, Accounting for Liabilities of the Federal Government (Nov. 7,
1994), pars. 100-102, pages 47-48.
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Controllable and
Uncontrollable Costs
Centralized Accounting
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Costs of Outcomes
220. A respondent suggested that in addition to the full cost of outputs, the
standard should also require reporting the full cost of program
outcomes. As discussed in the ED, the Board believes that
performance measurement of a program requires three major
elements: the full cost of the program, its outputs, and its outcomes.
(See ED pars 37 and 38) The full cost of a program and its outputs,
once measured according to this standard can be related to the
outcome of the program to measure its cost effectiveness.
221. This standard does not require a direct measurement of the cost of
outcomes because in most instances, program outcomes need to be
measured with methodologies beyond those discussed in this
document. GPRA defined outcome measure as an assessment of the
results of a program activity compared to its intended purpose.49
Many programs policy objectives and intended results are socioeconomic or scientific in nature, or involve national defense. The
assessment of the program results require expert knowledge in those
areas. Thus, unlike costs and outputs, outcomes are not always
measured in quantitative or monetary terms.
222. Moreover, unlike costs and outputs that are measured for each
accounting and reporting period, such as a quarter or a year, outcome
measurement may be long-term in nature. For example, the Senate
Report on GPRA states that Outcome measurement cannot be done
until a program or project reaches a point of maturity (usually at least
several years of full operation for programs continuing indefinitely) or
at completion. Although all programs cost money, some of them may
produce positive results, while others may produce no results or
negative results.
223. Because of the complexities in measuring outcomes, the costing
principles and methodologies discussed in this document cannot be
used to measure the cost of outcomes. The Board believes that the full
cost of a program and its outcome should be measured independently,
49
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Inter-entity Costs
224. It is not unusual in the federal government for one agency to provide
goods or services to another agency. Sometimes this may be required
by law, and often it is a very efficient method of conducting business
for the agencies involved and for the government as a whole. In many
cases, the agency receiving such goods or services will reimburse the
providing agency in accordance with some agreed-upon price. Often,
however, there is no charge, or there is a charge that is not sufficient to
cover the providing agencys full cost. When such free or lower-thancost items are used in the production of the receiving agencys
outputs, the result can be an understatement of the full cost of final
outputs by the receiving agency.
Survey of Non-Reimbursed
Costs
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226. The Board noted that the survey was restricted to non-reimbursed
costs between different agencies. As such, the results did not
necessarily represent all of the kinds and amounts of transactions and
costs between different reporting entities. The survey was also limited
to those non-reimbursed costs which the agencies could easily identify
in order to respond quickly to the questionnaire. Nevertheless, there
were indications that some non-reimbursed costs may be significant in
amount.
Usefulness of Recognition
50
Full cost, as discussed in the full cost standard, contemplates both intra-entity costs and
inter-entity costs applicable to a responsibility segment. This standard elaborates on interentity costs. Intra-entity costing is accomplished through the costing methodology selected
for use within the reporting entity since these costs are passed among responsibility
segments.
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233. Some respondents to the exposure draft stated that the use of
estimates would be too problematic and unreliable and that the
receiving entity would not have enough information to make the
estimate. Some were concerned that the use of estimates would cause
arguments between reporting entities over the cost. Others were
concerned that some entities do not have experienced personnel to
make such estimates. A few were concerned about the audit
implications of using an estimate.
234. Some respondents expressed concern over the possible use of market
values in making the estimate. Some of these respondents stated that
government-type goods and services are not often produced outside
government and, therefore, such market values may not exist. Others
stated that market value does not always bear a direct relationship to
true cost or that market values change too rapidly to be of any use.
235. The Board realizes the problems associated with the use of estimates.
However, implementation of the other managerial cost accounting
standards in this statement by the providing entities should
considerably lessen the need for receiving entities to make estimates
of inter-entity costs. The Board also believes that, if the inter-entity
costs meet the recognition criteria established by the standard, and
cost information is not received, then use of a reasonable estimate of
cost is preferable to no recognition at all.
236. Estimates are often used in accounting and financial reporting. The
recognition of cost based on estimation is not new and can be reliable
so long as the estimate is reasonable and based on a rational and
systematic method. The Board also realizes that the use of estimation
necessarily implies the use of professional judgement. This does not
negate the value of the estimate to users of the financial information
and should not present a problem in relation to audit requirements.
237. The Board realizes that market values may not always be available for
many kinds of inter-entity goods and services. Nevertheless, if such
values are available, they can be a good basis for estimating cost if no
other basis can be established. Although market values may not be
directly related to costs of production and they may fluctuate, they
may also be viewed as a fairly reliable guide to the costs an entity
might have to incur to obtain inter-entity goods and services from a
non-governmental source. As with the determination of all estimates,
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Recognition Criteria
239. It is clear to the Board that the recognition of each and every nonreimbursed or under-reimbursed inter-entity cost is not possible. The
federal government is a very large and complex entity and it is normal
to expect some flow of goods and services between its activities as a
natural and reasonable method of completing missions and objectives.
The Board decided that only certain non-reimbursed or underreimbursed inter-entity costs should be addressed. The standard,
therefore, includes criteria for recognition which will limit the
application of the standard to only those items deemed most
significant and important.
240. The criteria address the materiality of the non-reimbursed inter-entity
cost, whether it is a part of broad and general support for all entities,
and whether it is needed to help determine a price to nongovernmental entities. The materiality criterion considers materiality
in the context of the importance of the item to the receiving entity.
Under this criterion, whether an item of inter-entity cost is recognized
depends upon three points. The first of these is significance to the
receiving entity, i.e. whether the item is important enough that
management should be aware of its cost in decision making
circumstances. The second is the degree to which the goods or
services are an integral and necessary part of the receiving entitys
output. The third is the degree to which the good or service can be
matched to the specific receiving entity with reasonable precision.
241. The criterion of broad and general support recognizes that some
entities provide support to all or most other federal entities, generally
SFFAS 4 - Page 72
SFFAS 4
Consolidation
SFFAS 4 - Page 73
SFFAS 4
services even though they are sent to another entity. It may also
receive a partial payment or reimbursement. These transactions and
events should be reflected in its accounting. The receiving entity, as a
separate reporting entity, should also recognize its total cost of
production. The full cost of non-reimbursed or under-reimbursed
goods or services ultimately contributing to its outputs should be
reflected in the costs of production. To the extent that reimbursement
is not made for those costs, the receiving entity is utilizing a separate
source of financing, namely the providing entity. Again, this fact is
reflected in the accounting. The result is that costs recognized but not
actually paid are off-set by the imputed financing source. While the
entitys financial position is not affected, the real costs of production
are reflected.
246. The only possibility for double-counting of costs occurs when
consolidated financial reports are prepared for a reporting entity that
includes both the providing entity and the receiving entity. In
preparing such statements, the standard calls for elimination of the
inter-entity transactions. In effect, this is no different from the
elimination of transactions for which full reimbursement has been
made. The only additional transaction to be eliminated is the
recognition of the imputed financing source by the receiving entity.
The recognition of costs by both the providing entity and the receiving
entity and any actual reimbursements would be eliminated anyway if
payment for the inter-entity costs were made.
247. The Board realizes that identification and tracking of transactions that
must be eliminated for consolidated reports can become complex and
difficult. However, this is a practical implementation problem that
management should be able to overcome through the use of
transaction coding or some other identification method. It likely will
require changes in methods and systems currently in use and may
require additional training of personnel. The Board has decided upon a
method to ease implementation problems as discussed below.
Implementation Issues
248. As discussed above, the Board realizes that there may be problems in
implementing the standard on inter-entity costing. Recognition of nonreimbursed or under-reimbursed inter-entity costs is a new concept to
federal entities and involves a new way of thinking about costs. There
is concern that application of the standard may be inconsistent among
federal entities. In addition, there could be problems, particularly at
first, in developing estimates of costs; in revising accounting systems
SFFAS 4 - Page 74
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Costing Methodology
SFFAS 4 - Page 75
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256. The Board encouraged government entities to study the potential use
of ABC in their operations (ED par. 200). This was well received by the
respondents. Eighteen respondents supported ABC. Most of them said
that ABC can be effective when combined with any of the other
costing methodologies. Seven respondents from federal agencies
stated that they believed ABC is appropriate for their activities and
were considering using it. In addition, two respondents stated that the
use of standard costing should also be encouraged. The Board
continues to believe that as federal agencies are going through stages
in the development of their managerial costing, more sophisticated
and refined costing methods, such as ABC and standard costing,
should be considered and used to minimize arbitrary cost allocations
and to improve full cost information.
257. The Board considered whether the costing methodology section
should be recommended as a concept or a standard. It concluded that
it should be a standard. The Board believes that cost accumulation and
assignment principles contained in this section are definitive and
should be followed by federal entities. Only by adhering to the
principles and by continuous refinement of costing methodologies,
can reliable full cost information be achieved.
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Effective Date
264. The Board holds the view that managerial cost accounting has been
needed across the federal government for a long time. Since the
standards are quite general and address only the highest levels of cost
accounting, the Board felt that they should be implemented quickly.
The earlier managerial cost accounting is started, the earlier the
benefits will be seen in managing and controlling federal programs and
activities. The Board also believes that an effective date far into the
future would not serve to quickly change the governments tendency to
neglect cost accounting. Therefore, in the exposure draft, the effective
date was set for fiscal periods beginning after September 30, 1995 (i.e.,
beginning in fiscal year 1996).
265. A majority of respondents to the exposure draft commented that this
date was too early and said that they foresee problems with
implementation at September 30, 1995. Many reasons were given for a
delay in implementation. Chief among these were (1) difficulty in
obtaining funding to make necessary changes in financial systems
before September 30, 1995, (2) a lack of trained accounting personnel
and equipment, and (3) a need for time to develop or modify
appropriate cost accounting methodologies and systems and develop
management awareness and support. Respondents suggested
implementation dates ranging from one to five years after the fiscal
year 1996 date given in the exposure draft.
266. The Board recognized the validity of the concerns of many
respondents over funding, training, and development of costing
activities. However, it also recognized that federal agencies must be
able to develop cost information very soon to meet the requirements
of the GPRA. It also noted that reporting entities do not have to
possess sophisticated cost accounting systems to meet the
requirements in these standards. Federal agencies can take a gradual
approach to the development of cost systems, if necessary, while
developing basic cost information through other means in the short
term.
267. Nevertheless, the Board agreed that the implementation date in the
exposure draft may be a problem for many federal agencies since cost
accounting is relatively new to most of them and the recommended
implementation date is very near. The Board decided, therefore, to
delay the implementation date by one additional year and make the
standards effective for periods beginning after September 30, 1996,
with earlier implementation encouraged.
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Glossary
SFFAS 4 - Page 80
SFFAS 4
Appendix B:
Glossary
SFFAS 4 - Page 81
Status
Issued
Effective Date
Affects
Affected by
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Summary
This Statement establishes accounting standards for liabilities of the federal government not covered in
Statement of Federal Financial Accounting Standards Number 1, Accounting for Selected Assets and
Liabilities, and in Statement of Federal Financial Accounting Standards Number 2, Accounting for Direct
Loans and Loan Guarantees. This Statement defines liability as a probable future outflow or other sacrifice
of resources as a result of past transactions or events.1
This Statement defines the recognition points for liabilities associated with different types of events and
transactions (See Figure 1 on page 5).2
A liability arising from reciprocal or exchange transactions (i.e., transactions in which each party to the
transaction sacrifices value and receives value in return) should be recognized when one party receives
goods or services in return for a promise to provide money or other resources in the future (e.g., a federal
employee performs services in exchange for compensation).
A liability arising from nonreciprocal transfers or nonexchange transactions (i.e., transactions in which
one party to the transaction receives value without directly giving or promising value in return, such as
grant and certain entitlement programs) should be recognized for any unpaid amounts due as of the
reporting date. The liability includes amounts due from the federal entity to pay for benefits, goods, or
services3 provided under the terms of the program, as of the federal entitys reporting date, whether or
not such amounts have been reported to the federal entity (e.g., estimated Medicaid payments due to
health providers for service that has been rendered and that will be financed by the federal entity but
have not yet been reported to the federal entity).
Government-related events are nontransaction-based events that involve interaction between federal
entities and their environment. The event may be beyond the control of the entity. A liability is
recognized for a future outflow of resources that results from a government-related event when the event
occurs if the future outflow of resources is probable and measurable (see paragraphs 33 and 34 for the
definitions of probable and measurable, respectively) or as soon thereafter as it becomes probable and
measurable. Events, such as a federal entity accidentally causing damage to private property, would
1
Liabilities recognized according to the standards in this Statement include both liabilities covered by budgetary resources and
not covered by budgetary resources. Liabilities covered by budgetary resources are liabilities incurred that will be covered
liabilities
by available
budgetary resources encompassing not only new budget authority but also other resources available to cover liabilities for
specified
purposes in a given year. Liabilities not covered by budgetary resources include liabilities incurred for which revenues or
other sources of funds necessary to pay the liabilities have not been made available through congressional appropriations or current
of the reporting entity. Notwithstanding an expectation that the appropriations will be made, whether they in fact will be
earnings
completely at the discretion of the Congress. (Adapted from OMB Bulletin No. 94-01, Form and Content of Agency Financial
made is
Statements.)
2
Recognition
means reporting a dollar amount on the face of the basic financial statements.
3
Goods or services may be provided under the terms of the program in the form of, for example, contractors providing a service for the
government on the behalf of the disaster relief beneficiaries.
SFFAS 5 - Page 2
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create a liability when the event occurred, to the extent that existing law and policy made it probable that
the federal government would pay for the damage and to the extent that the amount of the payment
could be estimated reliably. Government-related events also include hazardous waste spills on federal
property caused by federal operations or accidents and catastrophes that affect government-owned
property.
Government-acknowledged events are events that are of financial consequence to the federal
government because it chooses to respond to the event. A liability is recognized for a future outflow of
resources that results from a government-acknowledged event when and to the extent that the federal
government formally acknowledges financial responsibility for the event and a nonexchange or
exchange transaction has occurred. The liability for a nonexchange transaction should be recognized for
any unpaid amounts due as of the reporting date and the liability for the an exchange transaction should
be recognized when goods or services have been provided. The liability includes amounts due from the
federal entity to pay for benefits, goods, or services provided under the terms of the program, as of the
federal entitys reporting date, whether or not such amounts have been reported to the federal entity
(Examples of government-acknowledged events include toxic waste damage caused by nonfederal
entities and damage from natural disasters).
In addition to discussing the general liability recognition principle, the Statement includes several
specific federal liability accounting standards which are summarized below.
Disclosure in this document refers to information in notes regarded as an integral part of the basic financial statements.
In the case of government-acknowledged events giving rise to nonexchange or exchange transactions, there must be a formal
acceptance of financial responsibility by the federal government, as when the Congress has appropriated or authorized (i.e., through
authorization legislation) resources. Furthermore, exchange transactions that arise from government-acknowledged events would be
recognized as a liability when goods or services are provided. For nonexchange transactions, a liability would then be recognized at
the point the unpaid amount is due. Therefore, government-acknowledged events do not meet the criteria necessary to be recognized
as a contingent liability.
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Capital leasesIn a lease transaction, the lessee should report a liability when one or more of four
specified capital lease criteria are met (see detailed criteria on page 20). The amount to be recorded by
the lessee as a liability6 under a capital lease is the present value of the rental and other minimum lease
payments during the lease term, excluding that portion of the payments representing executory cost to
be paid by the lessor.
Federal debtFederal debt transactions are recognized as a liability when there is an exchange between
the involved parties. Fixed-value securities are securities that have a known maturity or redemption
value at the time of issue. These securities should be valued at their original face (par) values net of any
unamortized discount or premium. Amortization of the discount or the premium should normally follow
the interest method; in certain cases, the straight line method is permitted (see page 16). Variable-value
securities should be originally valued and periodically revalued at their current value on the basis of the
regulations or offering language. The related interest cost of the federal debt includes the accrued
(prorated) share of the nominal interest incurred during the accounting period, the amortization amounts
of discount or premium of each accounting period, and the amount of change in the current value for the
accounting period for variable-value securities.
Pensions, other retirement benefits, and other postemployment benefitsThe liability and associated
expense for pensions and other retirement benefits (included health care) should be recognized at the
time the employees services are rendered. The expense for postemployment benefits should be
recognized when a future outflow or other sacrifice of resources is probable and measurable based on
events occurring on or before the reporting date. Any part of that cost unpaid at the end of the period is a
liability. The aggregate entry age normal actuarial cost method should be used to calculate the expense
and the liability for the pension and other retirement benefits for the administrative entity financial
statements, as well as the expense for the employer entity financial statements. The employer entity
should recognize an expense and a liability for postemployment benefits when a future outflow or other
sacrifice of resources in probable and measurable on the basis of events that have occurred as of the
reporting date.
Insurance and guarantee programsAll federal insurance and guarantee programs7 (except social
insurance and loan guarantee programs8) should recognize a liability for unpaid claims incurred resulting
from insured events that have already occurred. Insurance and guarantee programs recognize as an
expense all claims incurred during the period, including, when appropriate, those not yet reported. The
change in a contingent liability during the reporting period should also be recognized as a component of
expense. Life insurance programs should recognize a liability for future policy benefits in addition to the
liability for unpaid claims incurred. All federal insurance and guarantee programs (except life insurance
and loan guarantee programs) should also report as required supplementary stewardship information
(RSSI) the expected losses that are based on risk inherent in the insurance and guarantee coverage in
force.
The cost of general property, plant, and equipment acquired under a capital lease shall be equal to the amount recognized as a liability
for the capital lease at its inception. (See SFFAS No. 6, Property, Plant, and Equipment.)
7
Social insurance in considered to be a separate program type not included within insurance and guarantee programs. See social
insurance discussion in [SFFAS No. 17, Accounting for Social Insurance].
8
Accounting for federal loan guarantee programs should follow the Statement of Federal Financial Accounting Standards Number 2,
Accounting for Direct Loans and Loan Guarantees (August 23, 1993).
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SFFAS 5
Transaction Based
Exchange
Transaction
Nonexchange
Transaction
Government
Related
Event
Government
Acknowledged
Event
Government Assumes
Financial Responsibility
Exchange
Transaction
Nonexchange
Transaction
Payment is Due
and Payable
Payment is Due
and Payable
LIABILITY RECOGNITION
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Table of Contents
Contents
Page
Purpose
Scope
Liability Standards
13
13
Contingencies
18
Capital Leases
20
22
25
43
54
75
77
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Purpose
1.
Scope
2.
3.
SFFAS 5 - Page 7
SFFAS 5
4.
5.
6.
7.
OMB Circular No. A-11 as cited in Statement of Federal Financial Accounting Standards
Number 2, Accounting for Direct Loans and Loan Guarantees (August 23, 1993), p. 46.
SFFAS 5 - Page 8
SFFAS 5
Objectives Of
Federal Financial
Reporting
8.
9.
SFFAS 5 - Page 9
SFFAS 5
Federal financial reporting should assist report users in evaluating the service efforts,
cost, and accomplishments of the reporting entity; the manner in which these efforts
and accomplishments have been financed; and the management of the entitys assets
and liabilities.5
10. At the same time, the Board recognizes that the third objective, dealing
with stewardship, is equally important.
Federal financial reporting should assist report users in assessing the impact on the
country of the governments operations and investments for the period and how, as a
result, the governments and the nations financial conditions have changed and may
change in the future.
Federal financial reporting should provide information that helps the reader to
determine:
the amount of assets, liabilities, and net assets (or net position);
an analysis of government debt, its growth, and debt service requirements;
changes in the amount and service potential of capital assets; and
the amount of contingent liabilities and unrecognized obligations6 (such as the
probable cost of deposit insurance).
5
Statement of Federal Financial Accounting Concepts Number 1, Objectives of Federal
Financial Reporting (Sept. 2, 1993).
6
The term obligation is used in its everyday or generic sense, not as it is used in federal
budgetary accounting.
SFFAS 5 - Page 10
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Effective Date
Structure Of This
Document
14. This document has three sections, two appendixes, and a glossary.
The first section, the executive summary, precedes this section. This
introduction constitutes the second section. The remaining section
and appendixes are described below.
Liability Standards
15. This section presents a definition and criteria for recognizing a liability
and related disclosure requirements. It also provides specific
standards for contingencies, capital leases, federal debt, pensions,
other postemployment and retirement benefits, and insurance (other
than social insurance) and guarantees.
See Statement of Federal Financial Accounting Concepts (SFFAC) Number 2, Entity and
Display (April 20, 1995).
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Liability Standards
Definition And General
Principle For
Recognition Of A
Liability
Recognition means reporting a dollar amount on the face of the basic financial statements .
This document uses the term nonexchange transaction in a way similar to FASBs
nonreciprocal transfer. That is, it implies a one-way flow of resources, services, or
promises between two parties. Transaction in the phrase nonexchange transaction does
not include reclassification, closing, and similar internal entries to the accounting records,
though some accountants use the term in that broader sense. Probable means more likely
than not. Measurable means reasonably estimable.
10
SFFAS 5 - Page 13
SFFAS 5
11
Executory contracts where goods and services have not been received are not generally
recognized as liabilities in financial accounting, although they are generally recognized as
obligations in governmental budgetary accounting.
12
Goods or services may be provided under the terms of the program in the form of, for
example, contractors providing a service for the government on the behalf of the disaster
relief beneficiaries.
SFFAS 5 - Page 14
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13
The vast majority of claims against the United States Government stemming from tortious
government conduct are adjudicated under the Federal Tort Claims Act (FTCA), which
provides for both administrative and judicial resolution. Administrative awards under the
established threshold are paid from agency appropriations. Administrative awards in excess
of the established threshold are paid from the judgment appropriation. Court judgments and
compromise settlements by the Department of Justice are paid from the judgment
appropriation regardless of amount. This Act means that, for certain types of events it is not
necessary for the government to acknowledge financial responsibility separately for each
individual event as is the case for events described in paragraph 30.
14
See SFFAS No. 6, Accounting for Property, Plant, and Equipment, for a detailed
discussion of cleanup cost.
SFFAS 5 - Page 15
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15
The subjects of valuing assets and of measuring asset impairments--thus measuring the loss
to be recognized--are beyond the scope of this Statement. See SFFAS No. 6, Accounting for
Property, Plant, and Equipment, for a discussion on the impairment or loss of federal
property.
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Measurability
34. Measurability means that an item has a relevant attribute that can be
quantified in monetary units with sufficient reliability to be reasonably
15a
The concept of probability is imprecise and difficult to apply with respect to most legal
The "more likely than not" phrase suggests greater precision than is attainable when
matters.
assessing
the outcome of matters in litigation. Accordingly, in the context of assessing the
outcome of matters of pending or threatened litigation and unasserted claims, and
recognizing
an associated liability, "probable" refers to that which is likely, not to that which
likely than not. Note that the remaining two criteria for recognizing a liability--that is,
is more
a past event or exchange transaction has occurred and the future outflow or sacrifice of
resources is measurable--also must be met before recognizing a contingent liability in
matters involving litigation.
16
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Contingencies
17
Contingencies are different from subsequent events. Subsequent events are events or
transactions that affect the basic information or required supplementary information (RSI)
and occur subsequent to the end of the reporting period but before the financial report is
issued. Some of those transactions and events (referred to as recognized events) require
adjustments to the basic information or RSI while others (referred to as nonrecognized
events) may require disclosure in the basic information or RSI. A subsequent event may
affect a contingency by providing information that resolves an uncertainty related to a
contingent liability and confirm the impairment of an asset or incurrence of a liability as of
the end of the reporting period.
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collectability of receivables,
pending or threatened litigation, and
possible claims and assessments.
SFFAS 5 - Page 19
SFFAS 5
See SFFAS 7, par. 36b, for guidance on losses on contracts for goods
made to order or services produced to order
Capital Leases
43. Capital leases are leases that transfer substantially all the benefits
and risks of ownership to the lessee. If, at its inception, a lease meets
one or more of the following four criteria, the lease should be
classified as a capital lease by the lessee:
SFFAS 5 - Page 20
SFFAS 5
20
The cost of general property, plant, and equipment acquired under a capital lease shall be
equal to the amount recognized as a liability for the capital lease at its inception. See SFFAS
No. 6, Accounting for Property, Plant, and Equipment.
21
OMB Circular No. A-11, Preparation and Submission of Annual Budget Estimates,
explains the measurement of budget authority, outlays, and debt for the budget in the case of
lease-purchases and other capital leases. Circular A-94, Guidelines and Discount Rates for
Benefit-Cost Analysis of Federal Programs, provides the requirements under which a leasepurchase or other capital lease has to be justified and the analytical methods that need to be
followed.
SFFAS 5 - Page 21
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47. This standard applies to all securities or other debt instruments issued
by the U.S. Treasury or other federal agencies. It encompasses debt
issued to the public and debt issued to federal accounts by other
federal accounts.22
48. Accounting for the federal debt should identify the amount of the
outstanding debt liability of the federal government at any given time
and the related interest cost for each accounting period. This entails
valuing securities initially at their sales price or proceeds, ultimately at
the amount paid to the holder at maturity, and in the intervening
period in a way that fairly expresses the federal governments liability.
49. Federal debt securities23 fall into two major categories for accounting
purposes: fixed value securities and variable value securities.
Fixed Value Securities
50. Fixed value securities have a known maturity or redemption value at
the time of issue. These securities should be valued at their original
face (par) value net of any unamortized discount or premium.
Securities sold at face (par) have no discount or premium and should
be valued at face (par). Securities sold at a discount will increase in
value between sale and maturity; securities sold at a premium will
decrease in value. Amortization of the discount or premium may
follow the straight line method or the interest method.24 Either method
is acceptable in the cases of
22
This includes but is not limited to debt issued by the U.S. Treasury to trust funds, agency
borrowings from Treasury, and trust fund borrowings from other trust funds.
23
24
For an explanation and an example of the interest method of amortization, see Appendix B
of SFFAS No. 1.
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51. In all other cases, the interest method for amortizing any discount or
premium should be used.
Variable Value Securities
52. Variable value securities have unknown redemption or maturity values
at the time of issue. Values of these securities can vary on the basis of
regulation or specific language in the offering. These securities should
be originally valued and periodically revalued at their current value, on
the basis of the regulations or offering language.
Retirement Prior To Maturity 54. For those securities that are retired prior to the maturity date due to a
call feature of the security, or because they are eligible for redemption
by the holder on demand, the difference between the reacquisition
price and the net carrying value of the extinguished debt should be
recognized currently in the period of the extinguishment as losses or
gains.
25
Old currencies include National and Federal Reserve Bank Notes, Old Demand Notes, Old
Series currency, and silver certificates classified as public debt pursuant to 31 U.S.C. 5119.
SFFAS 5 - Page 23
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Subcategory
Term
Redeemable
Accounting Method
Up to 1 yr
At maturity
Treasury Notes
2 to 10 yrs
At maturity
Treasury Bonds
10 to 30 yrs
At maturity
Par Values
Various
On demand
Market Based
Various
On demand
E/EE bonds
10 to 40 yrs
On demand
after 6 months
Current value
H/HH bonds
10 to 30 yrs
On demand
after 6 months
Various
On demand
20 to 40 yrs
At maturity
Treasury bills
Up to 1 yr
On demand
Zero-Coupon bonds
20 to 30 yrs
At maturity
(1 bond)
Non-Marketable
Debt
Government Account
Series:
Foreign Series
On demand
(2 bonds)
26
These tables are intended to illustrate current practice only and are not to be considered authoritative.
SFFAS 5 - Page 24
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Pensions, Other
Retirement Benefits,
And Other
Postemployment
Benefits
27
30
The terms employer entity and administrative entity are used in this document to
distinguish between entities that employ federal workers and thereby generate the employee
costs, including pension cost, and those that are responsible for managing and/or accounting
for the pension or the other employee plan. For example, entities that receive salaries and
expense appropriations are employer entities, while the Office of Personnel Management is
an administrative entity because it administers the civilian retirement benefit plans.
SFFAS 5 - Page 25
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58. Retirement benefits other than pensions (ORB) are all forms of
benefits to retirees or their beneficiaries provided outside the pension
plan. Examples include health and life insurance. Retirement health
care benefits are the primary ORB expense. They present unique
measurement problems.
59. Pension benefits, OPEB, and ORB are exchange transactions because
the employee performs service in part to receive the deferred
compensation provided by the plans (such as future pension and
medical care benefits). For pension and other retirement benefits, the
expense is recognized at the time the employees services are
rendered. For OPEB, the expense is recognized at the time the
accountable event occurs. Any part of that cost unpaid at the end of
the period is a liability.
60. This Statement is intended to specify the accounting objectives. With
regard to pensions and ORB, if estimates, averages, or such devices
can reduce the cost of applying this Statement, their use is appropriate
provided the results do not materially differ from a detailed
application of the standard.
Pensions
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31
In addition to the requirements of this standard, which deals with general purpose financial
reports, federal plans report annually pursuant to P.L. 95-595, which calls for statements of
net assets available for benefits, a statement of accumulated benefits, and other statements.
The reporting requirements of Public Law 95-595 were rescinded by Public Law 105-362,
Federal Reports Elimination Act of 1998.
32
Adapted from Actuarial Standards of Practice No. 4, Measuring Pension Obligations (Jan.
1990), p. 31.
33
The Actuarial Standards Board is a board within the American Academy of Actuaries that
sets professional standards of actuarial practice.
SFFAS 5 - Page 27
SFFAS 5
experience data are available, but should emphasize expected longterm future trends rather than give undue weight to recent past
experience. Although emphasis should be given to the combined effect
of all assumptions, the reasonableness of each actuarial assumption
should be considered independently on the basis of its own merits and
its consistency with each other assumption.
66. In addition to complying with the guidance in the preceding
paragraph, the discount rate assumption for present value
measurements pension liabilities should be the interest rate on
marketable Treasury securities of similar maturities to the cash flows
of the payments for which the estimate is being made. The discount
rates should be matched with the expected timing of the associated
expected cash outflow. Thus, each year for which cash flows are
projected should have a separate discount rate associated with it.
However, a single average discount rate may be used for all projected
future payments if the resulting present value is not materially
different than the resulting present value using multiple-rates. The
discount rates should reflect average historical rates on marketable
Treasury securities rather than give undue weight to recent past
experience with such rates. Historical experience should be the basis
for expectations about future trends in marketable Treasury
securities. In developing the average historical Treasury rates, a
minimum of five historical rates as of the appropriate reporting dates
should be used for each maturity. The historical rates used to calculate
the average should be sequential (e.g. 2003-2007). For example, for an
average historical Treasury rate to be used as the discount rate as of
the end of the fiscal year 2007 for a payment due in 10 years, i.e., in
2017, a minimum of five 10-year Treasury rates should be used. Thus,
the rate on 10-year Treasury securities as of the end of fiscal year 2007
would be one rate, the rate on 10-year Treasury securities as of the end
of fiscal year 2006 would be another rate, etc., until, at a minimum, the
rates on 10-year Treasury securities for the years 2003 through 2007
were included in the average. The number of historical rates used for
the average, e.g., five yearly rates, should be consistent from period to
period. The entity should explain that its accounting policy is to be
consistent in this regard from period to period. For cash flows that are
projected to occur in future years for which Treasury securities are not
available or that extend beyond the maturities for which Treasury
securities are available, e.g., beyond the 30-year security, the preparer
should incorporate in the assumed discount rate expected re-financing
rates extrapolated from historical Treasury borrowing rates.
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normal cost;
interest on the pension liability during the period;
prior (and past) service cost from plan amendments (or the
initiation of a new plan) during the period, if any; and
actuarial gains or losses during the period, if any.
35
The administrative entity may also receive financing from the General Fund to cover prior
service or other cost for which contributions from employer entities are not provided.
36
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37
Service cost is defined as the actuarial present value of benefits attributed by the pension
plans benefit formula to services rendered by employees during an accounting period. The
term is synonymous with normal cost.
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entities). The employer entity transfers its contribution and that of its
employees to the administrative entity.
78. The administrative entity recognizes revenue for: (1) contributions
from the employer entity, (2) contributions from the employees, and
(3) interest on the plans investments. The administrative entity
recognizes expense for the net of the pension cost components.
Assumptions are as follows:
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Credit
$100,000
Appropriations Used
$60,000
$40,000
Table 138
Employer Entitys Other Financing Sources as They Should
Appear on Its Statement of Changes in Net Position
FINANCING SOURCES:46
Appropriations Used..................................... $60,000
Imputed financing ........................................ $40,000
Note: Imputed financing covers the difference between (1) the employer entitys contribution
transferred to the administrative entity pursuant to law (exclusive of the employees contributions)
and (2) the employers pension expense calculated on the basis of information received from the
administrative entity--as shown immediately below.
Note: The above table and those that follow in the sections on
pensions and ORB are presented for illustrative purposes only; the
responsibility for defining the form and content of a financial
statement prepared pursuant to the Chief Financial Officers Act, as
amended, is the responsibility of the Office of Management and
Budget.
38
SFFAC No. 2, Entity and Display, presents a change in the way revenue and other
financing sources are reported. This illustration reflects the new concepts.
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Credit
$120,000
$60,000
$60,000
Credit
$XXX,XXX
Interest Revenue
$XXX,XXX
Table 2
Administrative Entitys Revenue as It Should Appear on the Statement of Net Cost
LESS OTHER EARNED REVENUES:
Contributions received from employer entities ..... $60,000
Contributions received from employees ............... 60,000
Interest on investments ..................................... XX,XXX
Total other earned revenues ......................... $ XXX,XXX
Note: Contributions are amounts transferred to the administrative entity from the employer entity
representing its contribution--and that of its employees--for the employees pensions.
Credit
$XXX,XXX
Pension Liability
$XXX,XXX
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Table 3
Administrative Entitys Pension Expense
Normal cost ................................................ $160,000
Interest on pension liability .................................. XXX
Prior serv. costs (gains) (if any) ........................... XXX
Actuarial gains (losses) (if any) ........................... XXX
Total pension expense .......................... $ XXX,XXX
Note: The $160,000 represents 100 percent of the normal costas calculated by plan
actuariesfor the one employer entity in this example. According to law, $60,000 of this
amount is to be contributed by the employer entity and $60,000 is to be contributed by the
employees themselves. The remaining $40,000 is a liability of the pension plan (covered
by future financing sources). The pension expense is reported on the Statement of Net
Cost in accordance with paragraph 72.
Table 4
Administrative Entitys Pension Liability:
Beginning balance ................................. $ XX,XXX,XXX
Add: additional pension expense
incurred (as calculated in
table 3) .................................................... XXX,XXX
Less: payments made to
beneficiaries ............................................. XXX,XXX
Ending liability balance ................... $ XX,XXX,XXX
Note: The liability balance should be reported on the administrative entitys Balance Sheet.
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Other Retirement
Benefits (ORB)
79. ORB include all retirement benefits other than pension plan benefits.39
ORB are provided outside the pension plan by an employer to a former
employee or the employees beneficiary upon retirement. The
predominant ORB in the federal government is retirement health care
benefits, and they are the focus of this section.40
80. Future health care benefits present unique measurement problems.
They are more uncertain than pensions since they depend on the
changing patterns of health care delivery and utilization, on the price
trends for medical care, and on the benefits provided by social
insurance programs like Medicare (part A). Also, medical plans do not
vest like pensions in which, after a fixed number of years of service, an
employee has a right to receive payment. To receive ORB benefits the
employee must retire with health care benefits provided by the
organization.
81. This Statement establishes standards of accounting for ORB expense
and related ORB liability for federal government employers and
administrative agencies.
39
See Appendix A: Basis for Conclusions, for a discussion of reporting medical costs for
veterans.
40
Accounting for life insurance is described in a separate section of the liability standard.
However, to the extent that premiums paid by covered individuals and employer entities do
not fully cover the retirement life insurance cost of employees, the employer entities would
account for the additional cost as described in this section.
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41
Adapted from Actuarial Standards of Practice No. 4, p. 31. Also see Actuarial Standard of
Practice No. 6, Measuring and Allocating Actuarial Present Values of Retiree Health Care
and Death Benefits, Actuarial Standards Board (1988).
SFFAS 5 - Page 37
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normal cost,
interest on the ORB liability during the period,
prior (and past) service costs from plan amendments (or the
initiation of a new plan) during the period, if any,
any gains/losses due to a change in the medical inflation rate
assumption; and
other actuarial gains or losses during the period, if any.
42
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43
Service cost is defined as the actuarial present value of benefits attributed to services
rendered by employees during an accounting period. The term is synonymous with normal
cost.
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45
This is the amount attributable to the government for its share of future medical care costs
for future retirees. Although this simplified illustration does not show contributions other
than those from the General Fund, current retirees pay premiums for their health insurance
that partially defray the cost of the program. Federal civilian retirees pay approximately 2530 percent of the total health benefit premium.
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Credit
$10,000
$10,000
Table 5
Employer Entitys Other Financing Sources as They Should Appear on the
Statement of Changes in Net Position
FINANCING SOURCES:
Imputed financing Expenses paid by other entities ... $10,000
Note: Imputed financing Expenses paid by other entities covers the annual expense for the
employer entitys employees as shown immediately below.
Table 6
Administrative Entitys Other Financing Sources as It Should Appear on the
Statement of Changes in Net Position
FINANCING SOURCES:
Appropriations used......... $ XX,XXX
Note: Since, in this example, contributions are not required from the employer entity or its
employees, all benefits must be paid with appropriations from the General Fund.
SFFAS 5 - Page 41
Credit
$XX,XXX
$XX,XXX
SFFAS 5
Table 7
Administrative Entitys ORB Expense
Normal cost .................................................... $ 10,000
Interest on ORB liability..................................... XX,XXX
Prior service costs (gains) (if any) ............................. XX
Actuarial gains (losses) (if any) ................................. XX
Total ORB expense ................................ $ XX,XXX
Note: The $10,000 represents 100% of the service cost attributable to the employer entity in this
example, as calculated by plan actuaries. The ORB expense (as calculated above) would be
reported on the Statement of Net Cost in accordance with paragraph 88.
Table 8
Administrative Entitys ORB Liability
Beginning balance ................................... $ X,XXX,XXX
Add: additional ORB expense
incurred (as calculated in
table 7) ....................................................... XX,XXX
Less: payments made on
behalf of beneficiaries .................................. XX,XXX
Ending liability balance ...................... $ X,XXX,XXX
Note: The liability balance should be reported on the administrative entitys Balance Sheet.
Other Postemployment
Benefits (OPEB)
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Insurance And
Guarantees
Nature Of Federal Insurance
And Guarantee Programs47
97.47 Insurance and guarantee programs are federal programs that provide
protection to individuals or entities against specified risks. Many of
these programs were established to assume risks that private sector
entities are unable or unwilling to assume [at least at prices that
beneficiaries of the program can afford (in some cases) or want to pay
( in other cases)] or to subsidize the provision of insurance to achieve
social objectives. Program participants pay fees or premiums for
46
Both the federal employee unemployment program and the federal workers compensation
program are financed by direct reimbursements from federal employers.
47
In the federal government, the aspects of insurance and guarantees are frequently
commingled within the same program. Therefore, this Statement treats the terms as a single
type of activity.
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48
Further details on PBGC may be found in Controlling Losses of the Pension Benefit
Guaranty Corporation, Congressional Budget Office, January 1993.
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104. All federal insurance and guarantee programs (except social insurance
and loan guarantee programs49) should recognize a liability for unpaid
claims incurred, resulting from insured events that have occurred as of
the reporting date. The standard requires recognition of the liability
that is known with certainty plus an accrual for a contingent liability
recognized when an existing condition, situation, or set of
circumstances involving uncertainty as to possible loss exists and the
uncertainty will ultimately be resolved when one or more probable
future events occur or fail to occur; a future outflow or other sacrifice
of resources is probable; and the future outflow or sacrifice of
resources is measurable. Insurance and guarantee programs should
recognize as an expense all claims incurred during the period,
including, when appropriate, those not yet reported and contingencies
that meet the criteria for recognition. Life insurance programs should
recognize a liability for future policy benefits (a liability to current
policyholders that relates to insured events, such as death or
disability) in addition to the liability for unpaid claims incurred. (See
Contingencies section for the criteria for disclosure of a contingent
liability.)
105. Risk assumed information is important for all federal insurance and
guarantee programs (except social insurance, life insurance and loan
guarantee programs) and will be considered in the context of the
Stewardship reporting. Risk assumed is generally measured by the
present value of unpaid expected losses net of associated premiums,
based on the risk inherent in the insurance or guarantee coverage in
force. [See SFFAS 25, par. 4.]
49
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SFFAS 5
Illustrations Of The
Application Of The Standard
In effect, FDICs options are to renew the insurance coverage or to assume losses of the
institution; only Congress can reduce or eliminate the deposit insurance program.
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Table 9
(1)
Type of
insurance
(2)
Example of
program
Fixed period,
annual
National Flood
Insurance
Fixed period,
annual
Federal Crop
Insurance
Fixed period,
annual
Fixed period,
Multi-year
Overseas
Investment
Insurance
(3)
Insured event has occurred
(4)
Risk assumed
Noncancelable VA Life
or renewable
Insurance
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This example is intended to illustrate examples of various programs and how the various liabilities would be determined. This table is not to be
considered authoritative.
111. Insurance programs are on-going and may be viewed as having long
term characteristics. Thus, from a broader, longer term perspective,
the liability to be recognized (column 3), and the amount to be
reported as supplementary information (column 4) may be
conceptually different and materially different from each other. From
the broader perspective column (4) could be a longer term measure
and a probabilistic estimate of future costs of these programs.
112. For noncancelable or guaranteed renewable insurance also, a
difference arises between columns (3) and (4). Thus, for pension
guarantees, column (3) shows the net present value of losses arising
from plans that have already been terminated or that are more likely
than not to be terminated. This is the amount to be recognized as a
liability. Column (4) shows the net present value of the expected loss
inherent in the risk assumed as a result of coverage on the guaranteed
and vested benefit amounts. This number should be reported as
supplementary information. It will generally be larger than the liability
because it includes a provision for the additional losses that are
expected to arise because some plan sponsors currently in good
financial condition will in the future face bankruptcy with pension
assets too small to cover the vested benefits that were guaranteed.
113. The liability for life insurance includes both the liability for unpaid
claims, including IBNR (i.e., column 3), and a liability for net future
policy benefit outflows (i.e., column 4). The liability for future policy
benefits represents the expected present value of future outflows to be
paid to, or on behalf of, existing policyholders, less the expected
present value of future net premiums to be collected from those
policyholders. The liability is estimated using appropriate financial or
actuarial methods that include assumptions, such as estimates of
expected investment yield, mortality, morbidity, terminations, and
expenses, applicable at the time the insurance contracts are made and
in accordance with existing law and related policy (see specific whole
life insurance standard below). Changes in the liability for future net
policy benefit outflows that result from periodic re-estimations would
be recognized as expense in the period in which the changes occur.
The effects of changes in relevant law or policy would be recognized
when those changes occur.
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114. The assessments of losses expected based on the risk assumed may be
made by appropriate actuarial or financial methods that include
information and assumptions applicable to the economic, legal, and
policy environment in force at the time the assessments are made.
Since all future events are uncertain, indicators of the range of
uncertainty around expected estimates, including indicators of the
sensitivity of the estimates to changes in major assumptions, should
also be reported.
115. Some VA life insurance programs are whole life policies.51 These
programs operate in a manner similar to private sector mutual life
insurance enterprises,52 except that the regulations and market forces
that control the private sector are different for these federal programs.
VA life insurance policyholders are issued participating policies, and a
portion of the earnings from those policies is returned to policyholders
in the form of dividends. The following paragraphs specifically
address the accounting required for federal whole life insurance
programs.
116. The premiums collected by the insurer are used to pay benefits and
other cost, and the balance is usually invested to yield additional
income. These assets would be fund balances with Treasury or
investments. Encompassed in the liability (also referred to as policy
reserves) is cash surrender value and the liability for future policy
benefits. The cash surrender value is the portion of premiums paid or
other amount recoverable on an insurance policy if immediately
canceled. The liability for future policy benefits is the present value of
future outflows to be paid to (or in behalf of) policyholders, less the
present value of future related premiums. In general, for whole life
policies, the liability for future policy benefits should be no less than
the cash surrender value that accrues to the benefit of policyholders.
51
Whole life policies provide insurance over the insureds entire life and the proceeds (face
amount) are paid only upon death of the insured. A level premium is usually paid for policies
of this type. The premium may be paid annually or more frequently.
52
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the net level premium reserve for death and endowment policy
benefits,
b.
53
The applicable private sector standards are as follows, FASB SFAS 60 Accounting and
Reporting by Insurance Enterprises, FASB SFAS 97 Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments, and FASB SFAS 120 Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain LongDuration Participating Contracts and AICPA Statement of Position (SOP) 95-1 Accounting
for Certain Insurance Activities of Mutual Life Insurance Enterprises.
For those federal entities with mutual enterprise-type whole life insurance programs,
FASB SFAS 120 should be followed. SFAS 120 states that mutual life insurance enterprises
shall apply SFAS 60 or 97, as appropriate, to participating life insurance contracts unless
those contracts meet both of the following conditions:
The contracts are long-duration participating contracts that are expected to pay
dividends to policyholders based on actual experience of the insurer.
Annual policyholder dividends are paid in a manner that identifies divisible surplus
and distributes that surplus in approximately the same proportion as the contracts are
considered to have contributed to divisible surplus (commonly referred to in actuarial
literature as the contribution principle).
If the participating life insurance contracts meet the above conditions SOP 95-1 should be
followed.
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c.
The liability for future policy benefits is consistent with the liability required by SOP 95-1.
Net level premium reserve is the excess, if any, of the present value of future guaranteed
death endowment benefits over the present value of future net premiums. The net level
premium reserve should be calculated based on the dividend fund interest rate, if
determinable, and mortality rates guaranteed in calculating the cash surrender values
described in the contracts. The dividend fund interest rate is the interest rate determined at
policy issuance used to determine the amount of the dividend fund. It is the rate used to
credit interest to the dividend fund, and against which experience is measured to determine
the amount of the interest portion of dividends paid to individual policyholders. Terminal
dividends are dividends to policyholders calculated and paid upon termination of a contract,
such as on death, surrender, or maturity. If the payment of terminal dividends is probable
and the amount can be reasonably estimated, the liability should be recognized. [AICPA SOP
95-1, Glossary, p. 33]
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Appendix A: Basis
For Conclusions
SFFAS 5 - Page 54
SFFAS 5
Exchange And
Nonexchange
Transactions
55
SFFAS 5 - Page 55
SFFAS 5
56
Notwithstanding an expectation that the appropriations will be made, whether they in fact
will be made is completely at the discretion of the Congress.
SFFAS 5 - Page 56
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Conclusion On Social
Insurance
SFFAS 5 - Page 57
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Impact Of
Communicating
Information In General
Purpose Federal
Financial Reports
SFFAS 5 - Page 58
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Relationship To Liability
Recognition Principles
Used By Nonfederal
Entities
142. FASB defines the basic principles that govern liability recognition by
private sector entities in the United States.57 Government corporations
follow those standards in their separately issued financial statements.
Probably most readers of this Statement are familiar with these
principles. Probably most users of federal financial reports are
accustomed to seeing other financial reports prepared according to
these principles.
143. FASABs principle for liability recognition differs from FASBs. The
difference can be seen as a modification made necessary by the
sovereign nature of the federal government. FASAB contemplates a
liability standard within the context of a reporting model that provides
much greater emphasis on publicly reporting certain stewardship
responsibilities than does the reporting model used by private sector
organizations. This kind of reporting model is necessary because of
the federal governments responsibility for the general welfare of the
nation and its resulting willingness to take on obligations.
Conclusion On
Contingencies
144. In the Exposure Draft the Board asked the following question. When
an estimated [contingent] liability is a range of amounts and no
amount within the range is a better estimate than any other amount,
should either the midpoint or, alternatively, the expected value (as
the term is used in statistics) be recognized as a liability instead of the
minimum amount? The majority of respondents preferred the
expected value and the second preference was the minimum amount.
145. The Board further considered all of the options. Based on the Board
discussions it was noted that it would be difficult to use expected
value to pinpoint an estimate within a range. The expected value
method would assign a probability percentage to each of the numbers
57
The Governmental Accounting Standards Board (GASB) has not published a concept
statement on financial statement elements as FASB has done in Concept Statement Number
6 and has not defined liability per se. In the current state and local governmental
accounting model, a fund liability is the amount left unpaid at the end of the reporting
period that normally would be liquidated with expendable available financial resources. The
remainder of the liability should be reported in the General Long-Term Debt Account Group
(GLTDAG). National Council on Government Accounting Statement (NCGAS) Number 4,
par. 17. (See GASB Codification of Governmental Accounting and Financial Reporting
Standards, section 1500.)
SFFAS 5 - Page 60
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58
Goods or services may be provided under the terms of the program in the form of, for
example, contractors providing a service for the government on the behalf of disaster relief
beneficiaries.
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Conclusion On
Pensions, Other
Retirement Benefits And
Other Postemployment
Benefits
Pensions - Projected Salary
Levels
Attribution Methods
149. The major federal pension plans use an actuarial cost method for
funding purposes known as aggregate entry age normal (AEAN).
Various actuarial cost methods exist. All the methods regarded as
acceptable methods for advance funding of private pension plans
recognize the cost of an employees pension benefits during the
employees years of service, but the different actuarial methods
recognize the cost in different patterns over time. The AEAN method
is intended to produce a periodic pension cost that is a level percent of
payroll.
150. That is, AEAN is a method under which the present value of projected
benefits of each employee is allocated on a level basis (such as a
constant percentage of salary) over the service of the employee
between entry age and assumed exit age. The portion of this present
value allocated to each year is called the normal cost. The portion of
this present value not provided for at a valuation date by the present
value of future normal cost is called the actuarial accrued liability.
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The CSRS statute calls for procedures that are generally construed as entry age normal.
Full cost, of course, depends on the method selected. For example, prior service cost is
amortized in FERS over 30 years pursuant to the funding method; it would be recognized
over a shorter period (years of expected future service of the group or 15 years) under SFAS
87. It should be recognized in full immediately under the terms of this standard, but only in
financial reports of the agency that administers the pension plan and in the consolidated
financial statements of the United States, not in the employer agencys financial statements.
Thus, full cost in this sentence must be read in a generic way, that is, as a statement of the
general intent underlying the law.
SFFAS 5 - Page 63
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60
CSRS also receives General Fund appropriations for this purpose, but the appropriations
are based on statutory provisions and are less than they would be under a fully funded
approach. Because of this, the CSRS funding approach is not being used as an example of
budgetary treatment to be contrasted with the accounting treatment.
SFFAS 5 - Page 65
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162. The Board considered these views, but it continues to believe that
employer component entities of the U. S. Government should usually
recognize only the service cost element of pension (and ORB) expense
in their general purpose financial reports. (Exceptions will arise in
cases such as the Coast Guard, where the employer entity is also the
administrative entity for the plan). The Board is aware that its
approach may appear to differ from the approaches taken by FASB
and GASB in this regard. However, neither of those Boards focused, in
their standards on pensions and other retirement benefits, on
reporting by component entities of a larger reporting entity
comparable to the Government of the United States. All elements of
pension (and ORB) expense should be recognized in the consolidated
financial statements of the United States Government; however, the
Board believes that prior service cost and other non-service cost are
not useful for most managerial or policy decisions at the program
level. They are sunk costs (or sunk gains) attributable to services
rendered in prior years, or otherwise are not under the control of
program management. FASAB continues to believe that having nonservice elements of cost reported by the administrative entity best
reflects the federal environment and organizational structure.
163. The Board recognizes that some analysts might, for some purposes,
want to consider an alternative measure of compensation cost, e.g.,
one that includes interest on the part of the pension (or ORB) liability
that relates to current workers, or one that recognizes some nonservice costs over the workers years of expected service. Special
analyses and reports will always be necessary for special purposes.
General purpose financial reports must, by definition, focus on the
most common needs of users of those reports.
164. For similar reasons, FASAB also continues to believe that prior service
costs (or gains) should be recognized immediately, without
amortization, by the administrative entity, and in federal governmentwide financial reports. FASAB sees no benefit to delaying recognition
of a cost and a liability or to reducing volatility in the general purpose
financial report of the administrative entity. FASAB was not persuaded
that the benefit (or the cost) derived in future periods from increased
(or deceased) pension benefits was sufficiently tangible in the federal
context to warrant delayed recognition by means of amortization over
future periods. Examples of plausible future benefits or costs would
be, increased (decreased) employee productivity or reduced
(increased) turnover.
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165. FASAB recognizes that, for funding purposes, prior service costs for
CSRS, FERS, and MRS are amortized through appropriations over a
number of years. Funding decisions, however, should not be
determinative for accounting recognition of cost. Deciding when and
how to fund an obligation is not an accounting issue.
Actuarial Gains and Losses
166. Actuarial gains and losses result from (1) deviations between actual
experience and the actuarial assumptions used and (2) changes in
actuarial assumptions. Actuarial assumptions are essentially longrange estimates about future events and necessarily vary from actual
experience.
167. Actuarial gains and losses and prior service costs (or gains) have
similar characteristics. They are both determined after the accounting
period in question has concluded, and both relate to the past (either
prior service or prior experience). The difference between actuarial
gains and losses and prior service costs (or gains) is that the former
are the normal result of actuarial estimation and may occur annually,
while prior service costs are incurred only when the plan is amended.
Also, actuarial gains and losses may tend to even out over time, unlike
prior service costs.
168. FASAB concluded that actuarial gains and losses should receive the
same treatment as prior service costs (or gains). They should be
charged to the administrative entity. The employer entities should
recognize an expense only for the service cost61 of their employees for
the period less the amount contributed by the employees, if any. Like
prior service costs, the actuarial losses are sunk costs (or sunk gains)
attributable to services rendered in prior years and therefore should
be excluded from data used for managerial or policy decisions.
169. For the same reasons as were given for prior service costs, actuarial
gains and losses should be recognized immediately by the
administrative entity. There is no benefit in delaying recognition or
61
Service cost is defined as the actuarial present value of benefits attributed by the plans
benefits formula to services rendered by employees during an accounting period. The term
is synonymous with normal cost.
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reducing volatility in the cost measures and the financial reports of the
administrative entity.
Recognition and Measurement
170. The Boards conclusions discussed immediately above are reflected in
the accounting treatment of pensions. The employer entity should
recognize an annual pension expense as a cost of operations. When
the employer entitys contributions are less than its pension expense,
the employer entity should recognize an imputed financing source for
the expenses paid by other entities. To the extent that it receives
contributions from the employer entity, the administrative entity
should recognize an intragovernmental revenue.
171. These transactions are intragovernmental. For purposes of federal
government-wide consolidated financial reports, the employers
pension expense should be offset against (1) the administrative
entitys contributions received from employer entities and (2) the
employer entitys imputed financing source, if applicable.
172. The administrative entity should report the pension liability. An
increase in the liability during the accounting period is an expense to
the administrative entity. The liability is increased by the net total of
the pension cost components [normal cost, interest on the pension
obligation, prior service costs (gains), and actuarial gains (losses)].
Thus, the administrative entity should be providing information not
only about the actuarial liability but also about the relationship
between the full cost and the revenue from employees, employer
entities, interest, and Treasury contributions.
173. Recognizing the pension cost components in the administrative entity
and also the normal cost in the employer entities accomplishes two
objectives. First, the full cost and actuarial liability are summarized
and presented in one place, i.e., in the administrative entitys operating
results and Balance Sheet. Second, each employer entity reports its
respective normal cost as a cost of providing service. This is essential
to report properly the cost of delivering federal government services.
These entries are eliminated during consolidation for federal
government-wide financial statements and, thus, no double counting
occurs.
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174. FASAB concluded that ORB are similar to pension benefits and should
be accounted for in a similar way unless differences in substance
dictate otherwise. The predominant other retirement benefit in the
federal government is health care benefits for retirees. These are longterm and require actuarial estimation.
175. FASAB recognizes that future health care benefits present unique
measurement problems. They are more uncertain than pensions since
they depend on the changing patterns of health care delivery and
utilization, on the price trends for medical care, and on the benefits
provided by social insurance programs like Medicare.
176. Also, some federal retiree health benefits are provided directly in
federal government hospitals and domiciliary facilities. The liability in
these cases also depends on the amount that the Congress will
appropriate in the future to pay for the benefits, so the expense and
liability are more difficult to measure. Notwithstanding the
measurement difficulties, because of the importance of approximating
the cost of services rendered at the time the service is rendered,
FASAB believes that in most cases, the ORB costs and liabilities
should be measured for federal programs. However, as noted in the
discussion starting with paragraph 182, VA medical care cost would be
recognized in the period medical care service is rendered.
Attribution Method
177. Unlike the situation regarding federal pension plans, there is no
established attribution method for federal retirement medical care.
Although there are current proposals to do so, the costs are not
currently being funded.
178. For retirement health care, FASAB found no compelling reason to
prefer an approach other than the aggregate entry age normal used for
pensions. The employers service cost however, should be calculated
differently for health care than for pensions. For the pensions, costs
are calculated as a percent of payroll, but retirement health care
benefits are paid for each individual retiree regardless of prior salary.
Cost, therefore, should be calculated on a per person basis because
that accurately represents how the cost is incurred.
SFFAS 5 - Page 69
SFFAS 5
Assumptions
179. Although the general assumptions employed for ORB should be the
same as those for pensions, the health care cost trend assumption is
unique. The standard gives general guidance regarding the use of
Medicare projections or other authoritative sources for the trend
assumption in order to achieve consistency and set broad guidelines
for the estimates. The health care cost assumption should reflect these
sources adjusted for any factors unique to the organization.
Other Postemployment
Benefits
62
The federal workers compensation and unemployment insurance programs are different
from the programs applicable to nonfederal workers. The benefits for federal employees
under these programs are financed by direct reimbursement from employer entities. Usually
the reimbursement period for workers and unemployment compensation is short-term, but
under certain conditions, workers compensation may extend for many years.
SFFAS 5 - Page 70
SFFAS 5
Conclusion On
Insurance And
Guarantees
185. The Board considered two possible bases for recognizing the liability
of federal insurance programs. One would recognize as a liability the
unpaid expected present value (PV) cost of insured events that had
occurred. The second would recognize as a liability the unpaid
expected PV cost of risks that had been assumed (i.e., the unpaid
expected PV cost inherent in insurance extended or in force). This
second approach would be similar to that taken by the Congress in
budgeting for direct loans and loan guarantees and by FASAB in
accounting for these transactions. (See Statement of Federal Financial
Accounting Standards Number 2, Accounting for Direct Loans and
Loan Guarantees).
SFFAS 5 - Page 71
SFFAS 5
186. Several Board members believe that this second approach has merit
from a conceptual standpoint. However, the Board has concerns about
the measurability of the risk assumed, particularly in the context of
pension guarantees. There may also be some question as to the exact
nature or categorization of some assumed risks in the absence of
written contracts. The Board concluded that it would continue the
traditional practice of recognizing the effect of events that had
occurred on the face of the financial statements. However, it also
decided to require reporting as RSSI the estimated PV cost of the risk
assumed for all programs, except social insurance, life insurance, and
loan guarantee programs.
187. Accrual accounting for insurance programs attempts to report the
expenses of operations for each period and the unpaid liability at the
end of the period. Projections of future claims, including renewed,
expanded, and new business, also provide important information for
policy decisions about what rates should be charged to cover all
expected future losses, what additional insurance should be extended,
and similar decisions. Management of reporting entities may wish to
include such projections in financial reports as other accompanying
information, and may do so on a voluntary basis, but the Board is not
presently making any specific recommendations about this, beyond
those required by this Statement and those to be further considered in
Supplementary Stewardship Reporting.
188. During the Exposure Draft stage of the Liability Standard, the Board
asked respondents whether the Standard provided sufficient guidance
on how the risk assumed amount should be measured. Two of the fifty
five respondents asked for additional guidance but did not mention
measurement possibilities.
189. At the discussion stages of the final Statement the Board contemplated
two possible measurement perspectives for reporting the risk
assumed. The Statement requires that all federal insurance programs
(except social insurance, life insurance, and loan guarantee programs)
report the risk assumed amount as supplementary information. The
risk assumed calculation as presented in the Exposure Draft measured
the cost of the coverage outstanding during the reporting year. For
annual term insurance programs, under this approach the risk
assumed amount might not be significantly different from the sum of
recognized liabilities and contingent liabilities reported on the Balance
Sheet. However, the Board believes that requiring disclosure or
SFFAS 5 - Page 72
SFFAS 5
SFFAS 5 - Page 73
SFFAS 5
SFFAS 5 - Page 74
SFFAS 5
Appendix B:
Liability
Recognition And
Measurement
Matrix63 64
Federal Program Categories
Expense
Liability
Employee benefits
Recognize expense as
employee services are
performed.
VA disability compensation72
FECAworkers
compensation
OPEB
63
This program is an entitlement program that veterans may be eligible for if they have limited income when they have 90 days or more
of active military service, at least one day of which was during a period of war. Their discharge from active duty must have been
during a period of war. Their discharge from active duty must have been under conditions other than dishonorable. They must be
permanently and totally disabled for reasons neither traceable to military service nor to willful misconduct. [Department of Veterans
Affairs, Federal Benefits for Veterans and Dependents, 1993 Edition].
64
Disability compensation is paid to veterans who are disabled by injury or disease incurred or aggravated during active military
service in the line of duty. The service of the veterans must have been terminated through separation or discharge under conditions
that were other than dishonorable. Monetary benefits are related to the residual effects of the injury or disease. [Department of
Veterans Affairs, Federal Benefits for Veterans and Dependents, 1993 Edition].
SFFAS 5 - Page 75
SFFAS 5
Fixed periodannual:
Federal Crop Insurance Corp.
National Flood Insurance
Fund
Federal Deposit Insurance
Corp.
Expense
Liability
Fixed periodmulti-year:
Overseas Investment
Noncancelable or renewable:
Pension Benefit Guaranty
Corp.
Noncancelable or renewable:
Veterans Life Insurance Trust
Fund
Employees Life Insurance
Fund
Capital leases
Federal debt
SFFAS 5 - Page 76
SFFAS 5
Appendix C:
Glossary
SFFAS 5 - Page 77
Status
Issued
Effective Date
Affects
None.
Affected by
SFFAS 10, paragraph 7, rescinds SFFAS 6, paragraphs 27 and 28, and SFFAS 10,
paragraphs 8-36 provide a comprehensive standard for accounting for internal use
software.
SFFAS 14, paragraphs 5-9, affect SFFAS 6, paragraphs 79-80, and 83-84 by changing
certain section headings, deleting paragraph 79, and adding phrases to paragraphs 8384.
SFFAS 16, paragraphs 6 and 8-12 replace SFFAS 6 paragraphs 59 and 60-62,
respectively; SFFAS 16, paragraph 14, replaces SFFAS 6, paragraph 63; SFFAS 16,
paragraph 15, provides additional implementation guidance.
SFFAS 23, affects SFFAS 6, paragraph 23, by rescinding the category name Federal
mission property, plant, and equipment; SFFAS 23 rescinds SFFAS 6, paragraphs 46
through 56 and the accompanying heading Federal mission property, plant, and
equipment, which precedes these paragraphs, SFFAS 23 affects SFFAS 6, paragraph
35, by adding the following sentence as a separate bulleted line item: A composite or
group depreciation methodology, whereby the costs of PP&E are allocated using the
same allocation rate, is permissible.
SFFAS 29, par. 10-11 and 30 affect SFFAS 6 by rescinding par. 57-76 and amending
text in par. 21.
SIG 23.1.
SFFAS 32 amends paragraphs 45, 83, 84, and 107 through 111.
SFFAS 35 amends paragraphs 40 and 45.
SFFAS 40 amends paragraphs 77, 78, 80, 82, 83, and 84.
Summary
This statement contains accounting standards for Federally owned property, plant, and equipment
(PP&E); deferred maintenance on PP&E; and cleanup costs.
SFFAS 6 - Page 1
SFFAS 6
general PP&E are PP&E used to provide general government services or goods;
heritage assets are those assets possessing significant educational, cultural, or natural
characteristics; and
stewardship land2 (i.e., land other than that included in general PP&E).
Complete accounting standards for general PP&E are included in this document.
1
Department of the Treasury, Financial Management Service, Consolidated Financial Statements of the United States Government,
prototype 1993, p. 23. The prototype statements provide gross historical cost investment amounts for all PP&E recorded by
government entities. These amounts have not been audited.
2
Land acquired for or in connection with general PP&E would be included in that category. Land not associated with general PP&E
would be considered stewardship land.
SFFAS 6 - Page 2
SFFAS 6
General PP&E
The general PP&E category consists of items that:
could be used for alternative purposes (e.g., by other Federal programs, state or local governments,
or non-governmental entities) but are used by the Federal entity to produce goods or services, or to
support the mission of the entity; or
are used in business-type activities;3 or
are used by entities in activities whose costs can be compared to other entities (e.g., Federal
hospitals compared with other hospitals).
General PP&E includes land acquired for or in connection with other general PP&E.4
General PP&E shall be reported in the basic financial statements: the balance sheet,5 and the statement
of net cost.6 The acquisition cost of general PP&E shall be recognized7 as an asset. Subsequently, except
for land which is a nondepreciable asset, that acquisition cost shall be charged to expense through
depreciation.8 The depreciation expense shall be accumulated in a contra asset accountaccumulated
depreciation.
Business-type
activity is defined as a significantly self-sustaining activity which finances its continuing cycle of operations through
collection
of exchange revenue as defined in the Boards exposure draft on Revenue and Other Financing Sources.
4
Acquired for or in connection with other general PP&E is defined as land acquired with the intent to construct general PP&E and
land acquired
in combination with general PP&E, including not only land used as the foundation, but also adjacent land considered to
be the general PP&Es common grounds.
5
Balance sheet refers to the statement that reports on assets, liabilities, and net position of the entity at the end of the reporting
period. This statement is referred to in OMB Bulletin 94-01, Form and Content of Agency Financial Statements, as the Statement of
Financial
Position.
Statement of Net Cost refers to the statement providing information on the entitys flows of exchange revenues, expenses, gains,
and losses. The Board presented this new statement in its Statement of Federal Financial Accounting Concepts 2, Entity and Display.
In addition, the Board has exposed for comment a standard for reporting net costs and has provided an illustrative statement which
might give effect to this standard in the ED on Revenue and Other Financing Sources, July, 1995.
7
Recognize means to record an amount in entity accounts and to report a dollar amount on the face of the Statement of Net Costs or
the Balance Sheet either individually or so that the amounts are aggregated with related amounts.
8
Depreciation is the systematic and rational allocation of the acquisition cost of an asset, less its estimated salvage or residual value,
over its estimated useful life.
SFFAS 6 - Page 3
SFFAS 6
In addition, the standard addresses donations, transfers, and retirements of general PP&E as well as
disclosure9 requirements.
Deferred Maintenance
Deferred maintenance information related to the condition and the estimated cost to remedy deferred
maintenance of PP&E is to be reported as required supplementary information.
The standards recognize that there are many variables in estimating deferred maintenance amounts. The
standards acknowledge that condition rating is a management function since different conditions might
be considered acceptable by different entities as well as for different items of PP&E held by the same
entity. In addition, management may use condition assessment surveys or life cycle cost plans to estimate
the amount of deferred maintenance.
The deferred maintenance standard applies to all PP&E.
Cleanup Costs
Cleanup costs are the costs associated with hazardous waste removal, containment, or disposal. In some
instances, the Federal Government incurs liabilities10 for cleaning up hazardous waste at sites or facilities
it operates or has operated. Generally, cleanup cannot be, or is not, done until permanent or temporary
closure or shutdown of sites or facilities. The Board has completed accounting standards for liabilities
which address liabilities for environmental cleanup resulting from an accident, natural disaster, or other
one-time occurrence. Those liability standards do not address inter-period cost allocation when cleanup
relates to operations that span many periods.
9
Disclosure refers to reporting information in notes regarded as an integral part of the basic financial statements.
10
FASABs
Statement of Federal Financial Accounting Standards 5, Accounting for Liabilities of the Federal Government,
recommends
the following definition for liability: a probable future outflow or other sacrifice of resources as a result of past
transactions or events. The standards require recognition, in general purpose Federal financial reports, of probable and measurable
arising from past exchange transactions; government-related injuries or damage; or non-exchange amounts that, according
liabilities
law and applicable policy, are due and payable to the ultimate recipient. The standards also provide guidance for disclosures
to current
related to liabilities that are not both probable and measurable at the balance sheet date.
SFFAS 6 - Page 4
SFFAS 6
Therefore, the Board chose to provide additional guidance relative to cleanup costs in this standard. The
additional standards in this statement provide for the timing of recognition of the liability and related
operating expense.
For cleanup costs associated with general PP&E, probable11 and measurable cleanup costs shall be
allocated to operating periods benefiting from operations of the general PP&E. This allocation shall be
based on a systematic and rational method. For example, the estimated cost could be allocated to
operating periods based on the expected physical capacity of the PP&E and the amount of capacity used
each period. In addition, disclosure of the total estimated cost is required.
For cleanup costs associated with stewardship PP&E, probable and measurable liabilities shall be
recognized when the stewardship PP&E is placed in service. Simultaneous to recognizing the liability, the
related expense for cleanup cost shall be recognized.
11
The term probable means that which can reasonably be expected or believed to be more likely than not on the basis of available
evidence or logic but which is neither certain nor proven. For example, cleanup costs would be probable if (1) laws and regulations
that have been approved as of the balance sheet date, regardless of the effective date of those laws and regulations, require cleanup or
(2) compliance agreements (e.g., agreements with state or local authorities relating to the extent and the timing of remedial action)
had been entered into by a Federal entity.
SFFAS 6 - Page 5
SFFAS 6
Table of Contents
Contents
Page
Chapter 1: Introduction
10
Definitions
10
12
13
Heritage Assets
19
Stewardship Land
20
20
Definition
20
Measurement
20
21
23
Definition
23
Scope
23
25
Implementation guidance
26
Disclosure requirements
27
29
50
54
56
66
SFFAS 6 - Page 6
SFFAS 6
Chapter 1:
Introduction
Purpose
1.
Scope
2.
3.
4.
5.
6.
7.
8.
SFFAS 6 - Page 7
SFFAS 6
Reporting Objectives
9.
Operating Performance
10. The Board believes that it can contribute to meeting the operating
performance objective1 by measuring the cost associated with using
property, plant, and equipment and including that cost in entity
operating results. The Board first sought to identify PP&E costs that
would be appropriate to include in operating expense. Then, from
consideration of cost information required, the Board determined
what balance sheet information would have to be reported.
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 entitys assets and
liabilities. Federal financial reporting should provide information that helps the reader to
determine:
a. the costs of providing specific programs and activities and the composition of, and
changes in, these costs.
b. the efforts and accomplishments associated with Federal programs and the changes over
time and in relation to costs.
c. the efficiency and effectiveness of the governments management of its assets and
liabilities.
SFFAS 6 - Page 8
SFFAS 6
Stewardship
comprehensive, comparable cost information for decisionmaking and program evaluation by Congress and the public, and
information to help assess the efficiency and effectiveness of
asset management (e.g., condition of assets including deferred
maintenance).
12. The Board believes that Federal financial reporting can fulfill the
stewardship objective2 if the Board provides standards that will result
in reporting information on:
asset condition;
changes in the amount and service potential of property, plant,
and equipment;
cost of property, plant, and equipment where applicable; and
spending for acquisition of property, plant, and equipment versus
non-capital spending.
Capitalization
Thresholds
Applicability
14. For guidance on the general applicability of this standard and all other
Federal financial accounting standards please refer to Statement of
Federal Financial Accounting Concepts No. 2, Entity and Display.
Federal financial reporting should assist users in assessing the impact on the country of the
governments operations and investments for the period and how, as a result, the
governments and the nationss financial condition have changed and may change in the
future. Federal financial reporting should provide information that helps the reader to
determine:
a. whether the governments financial position improved or deteriorated over the period.
b. whether the future budgetary resources will likely be sufficient to sustain public services
and to meet obligations as they come due.
c. whether government operations have contributed to the nations current and future wellbeing.
SFFAS 6 - Page 9
SFFAS 6
Materiality
Effective Date
Chapter 2: Property,
Plant, And
Equipment
Definitions
Useful life is the normal operating life in terms of utility to the owner. (adapted from
Kohlers Dictionary for Accountants)
SFFAS 6 - Page 10
SFFAS 6
land rights.4
19. Property, plant, and equipment excludes items (1) held in anticipation
of physical consumption such as operating materials and supplies5 and
(2) the Federal entity has a reversionary interest in.6
20. Capital leases are leases that transfer substantially all the benefits and
risks of ownership to the lessee. If, at its inception, a lease meets one
or more of the following four criteria,7 the lease should be classified as
a capital lease by the lessee. Otherwise, it should be classified as an
operating lease.8
Land rights are interests and privileges held by the entity in land owned by others, such as
leaseholds, easements, water and water power rights, diversion rights, submersion rights,
rights-of-way, and other like interests in land.
The Federal Government sometimes retains an interest in PP&E acquired with grant money.
In the event that the grant recipient no longer uses the PP&E in the activity for which the
grant was originally provided the PP&E reverts to the Federal Government.
7
Note that the criteria for identifying capital leases for financial reporting purposes differ
from OMB criteria for budget scoring of leases. OMB Circular No. A-11, Preparation and
Submission of Budget Estimates, includes criteria for identifying operating leases in
Appendix B. OMB provides four additional criteria which relate to the level of private sector
risk involved in a lease-purchase agreement. This is necessary because, for budget purposes,
there is a distinction between lease-purchases with more or less risk. This distinction is not
made in the financial reports and, therefore, FASAB does not include the four criteria related
to risk levels.
8
Operating leases of PP&E are leases in which the Federal entity does not assume the risks
of ownership of the PP&E. Multi-year service contracts and multi-year purchase contracts
for expendable commodities are not capital leases.
9
Estimated economic life of leased property is the estimated remaining period during
which the property is expected to be economically usable by one or more users, with normal
repairs and maintenance, for the purpose for which it was intended at the inception of the
lease, without limitation by the lease term.
SFFAS 6 - Page 11
SFFAS 6
The last two criteria are not applicable when the beginning of the lease
term falls within the last 25 percent of the total estimated economic
life of the leased property.
Standards And
Categories
10
Fair value is the price for which an asset could be bought or sold in an arms-length
transaction between unrelated parties (e.g., between a willing buyer and a willing seller).
(adapted from Kohlers Dictionary for Accountants)
11
Base unit refers to the level of detail considered in categorizing PP&E. Generally, the
base unit is the smallest or least expensive item of property to be categorized. The term
base unit may be used by others to have a different meaningthe meaning intended in this
standard is limited to that specified above.
SFFAS 6 - Page 12
SFFAS 6
23. General property, plant, and equipment is any property, plant, and
equipment used in providing goods or services. General PP&E
typically has one or more of the following characteristics:
12
The concept described here is intended for PP&E categorization purposes only. However,
for the purpose of record keeping, greater detail may be necessary to maintain
accountability for PP&E so that assets can be safeguarded against loss, theft,
misappropriation, etc. Categorizing PP&E with less detail considered does not necessarily
mean that (1) accounting systems or (2) property records must follow the same level of
detail.
13
Business-type activity is defined as a significantly self-sustaining activity which finances its
continuing cycle of operations through collection of exchange revenue as defined in the
Boards exposure draft on Revenue and Other Financing Sources.
14
The Board is not making a recommendation that cost comparisons actually be made. Nor is
it suggesting that costs can be easily compared for a Federal and non-Federal entity. If the
activities are somewhat comparable then one should presume that a cost comparison could
be made.
15
Acquired for or in connection with other general PP&E is defined as land acquired with
the intent to construct general PP&E and land acquired in combination with general PP&E,
including not only land used as the foundation, but also adjacent land considered to be the
general PP&Es common grounds.
SFFAS 6 - Page 13
SFFAS 6
include only land and land rights with an identifiable cost that was
specifically acquired for or in connection with construction of general
PP&E.
Asset Recognition
26. All general PP&E shall be recorded at cost. Cost shall include all
costs incurred to bring the PP&E to a form and location suitable for its
intended use. For example, the cost of acquiring property, plant, and
equipment may include:
16
Interest costs refers to any interest paid by the reporting entity directly to providers of
goods or services related to the acquisition or construction of PP&E.
17
18
19
SFFAS 6 - Page 14
SFFAS 6
20
21
See Statement of Recommended Accounting Standards No. 5, Accounting for Liabilities
of the Federal Government.
22
23
This paragraph applies only to exchanges between a Federal entity and a non-Federal
entity. Exchanges between Federal entities shall be accounted for as transfers (See
paragraph 31).
24
If entity enters into an exchange in which the fair value of the PP&E acquired is less than
that of the PP&E surrendered, the PP&E acquired shall be recognized at its cost as described
in paragraph 32 and subsequently reduced to its fair value. A loss shall be recognized in an
amount equal to the difference between the cost of the PP&E acquired and its fair value.
SFFAS 6 - Page 15
SFFAS 6
25
SFFAS 3 requires that forfeited real and personal property be valued at market value less
an allowance for any liens or claims from a third party.
26
Delivery or constructive delivery shall be based on the terms of the contract regarding
shipping and/or delivery. For PP&E acquired by a contractor on behalf of the entity (e.g., the
entity will ultimately hold title to the PP&E), PP&E shall also be recognized upon delivery or
constructive delivery whether to the contractor for use in performing contract services or to
the entity.
27
Software and land [See SFFAS 10 for standard regarding internally developed software]
rights, while associated with tangible assets, may be classified as intangible assets by some
entities. In this event, they would be subject to amortization rather than depreciation.
Amortization is applied to intangible assets in the same manner that depreciation is
applied to general PP&Etangible assets.
28
Land rights that are for a specified period of time shall be depreciated or amortized over
that time period.
SFFAS 6 - Page 16
SFFAS 6
42a
A contra asset account is an account which partially or wholly offsets an asset account. On
financial statements they may be either merged or appear together.
30
For example, amounts realized may include cash received for scrap materials or fair value
of items received in exchange for PP&E removed from service.
SFFAS 6 - Page 17
SFFAS 6
39. General PP&E shall be removed from general PP&E accounts along
with associated accumulated depreciation/amortization, if prior to
disposal, retirement or removal from service, it no longer provides
service in the operations of the entity. This could be either because it
has suffered damage, becomes obsolete in advance of expectations, or
is identified as excess. It shall be recorded in an appropriate asset
account at its expected net realizable value. Any difference in the book
value of the PP&E and its expected net realizable value shall be
recognized as a gain or a loss in the period of adjustment. The
expected net realizable value shall be adjusted at the end of each
accounting period and any further adjustments in value recognized as
a gain or a loss. However, no additional depreciation/amortization
shall be taken once such assets are removed from general PP&E in
anticipation of disposal, retirement, or removal from service.
Implementation Guidance
40. Although the measurement basis for valuing G-PP&E remains
historical cost, reasonable estimates may be used to establish the
historical cost of G-PP&E, in accordance with the asset recognition
and measurement provisions herein. Estimates may be based on:
31
Net remaining cost is the original cost of the asset less any accumulated
depreciation/amortization to date.
SFFAS 6 - Page 18
SFFAS 6
Heritage Assets
Major classes of general PP&E shall be determined by the entity. Examples of major
classes include buildings and structures, furniture and fixtures, equipment, vehicles, and
land.
[Footnotes 47 through 51 were rescinded by SFFAS 23, par. 9; footnotes 52 through 54 were
rescinded by SFFAS 29, par. 11; and footnotes 55-57 were rescinded by SFFAS 29, par. 30.]
SFFAS 6 - Page 19
SFFAS 6
Stewardship Land
Chapter 3: Deferred
Maintenance
Definition
77. Deferred maintenance and repairs are maintenance and repairs that
were not performed when they should have been or were scheduled to
be and which, therefore, is put off or delayed for a future period.
78. Maintenance and repairs are activities directed toward keeping fixed
assets in an acceptable condition.1 Activities include preventive
maintenance; replacement of parts, systems,1a or components; and
other activities needed to preserve or maintain the asset. Maintenance
and repairs, as distinguished from capital improvements, exclude
activities directed towards expanding the capacity of an asset or
otherwise upgrading it to serve needs different from, or significantly
greater than, its current use.
79. ... [This paragraph was rescinded by SFFAS 14, par. 5]2, 3
Measurement
80. Amounts ... [Selected text was revised by SFFAS 14, par. 6] [reported]
for deferred maintenance and repairs may be measured using:
a.
b.
The determination of acceptable condition may vary both between entities and among sites
within the same entity. Management shall determine what level of condition is acceptable.
1a
The term systems can refer to either (1) information technology assets {e.g., hardware,
internal use software, data communication devices, etc.} or (2) groupings (assemblages) of
component parts belonging to a building, equipment or other personal property.
Other methods may be used which are similar or identical to condition assessment survey
or life-cycle costing. These methods would also be acceptable sources of information on
deferred maintenance.
SFFAS 6 - Page 20
SFFAS 6
Required Supplementary
Information
Management shall determine what methods and standards to apply. Once determined, it is
desirable but not required that methods and standards be applied consistently from period
to period.
Major classes of general PP&E shall be determined by the entity. Examples of major class
include, among others, buildings and structures, furniture and fixtures, equipment, vehicles,
and land.
SFFAS 6 - Page 21
SFFAS 6
Optional Information
Adjustments may be necessary because the cost of maintenance and repairs foregone may
not be cumulative. For example, if perindic painting is skipped twice it is not necessarily
true that the cost would be double the scheduled amount.
SFFAS 6 - Page 22
SFFAS 6
Chapter 4: Cleanup
Costs
Definition
85. Cleanup costs are the costs of removing, containing, and/or disposing
of (1) hazardous waste (see paragraph 86) from property, or (2)
material and/or property that consists of hazardous waste at
permanent or temporary closure or shutdown of associated PP&E.
86. Hazardous waste is a solid, liquid, or gaseous waste, or combination of
these wastes, which because of its quantity, concentration, or physical,
chemical, or infectious characteristics may cause or significantly
contribute to an increase in mortality or an increase in serious
irreversible, or incapacitating reversible, illness or pose a substantial
present or potential hazard to human health or the environment when
improperly treated, stored, transported, disposed of, or otherwise
managed.
87. Cleanup may include, but is not limited to, decontamination,
decommissioning, site restoration, site monitoring, closure, and
postclosure costs.
Scope
88. This standard applies only to cleanup costs from Federal operations
known to result in hazardous waste which the Federal Government is
required by Federal, state and/or local statutes and/or regulations that
have been approved as of the balance sheet date, regardless of the
effective date, to cleanup (i.e., remove, contain or dispose of).9 These
cleanup costs meet the definition of liability provided in Statement of
Recommended Accounting Standards no. 5, Accounting for
Liabilities of the Federal Government (SRAS no. 5).
SFFAS 6 - Page 23
SFFAS 6
89. However, due to the nature of the liability and the timing associated
with cleanup costs, additional guidance is provided in this standard on
the recognition of cleanup costs over the life of the related PP&E.
Guidance is required since cleanup can not occur until the end of the
useful life of the PP&E or at regular intervals during that life.
90. This standard is intended to supplement the accounting requirements
for liabilities in SRAS no. 5. SRAS no. 5 defines liabilities as a
probable future outflow or other sacrifice of resources as a result of
past transactions or events. Further, SRAS no. 5 requires recognition
of liabilities that are probable and measurable. Measurable means that
an item has a relevant attribute that can be quantified in monetary
units with sufficient reliability to be reasonably estimable.
91. The recognition and measurement standards provided in this standard
are subject to the criteria for recognition of liabilities included in SRAS
no. 5. That is, liabilities shall be recognized when three conditions are
met:
92. SRAS no. 5 also provides for disclosure of liabilities that do not meet
all of the above criteria; these standards apply to cleanup costs as well.
93. Other cleanup costs, such as those resulting from accidents or where
cleanup is an ongoing part of operations, are to be accounted for in
accordance with liability standards and are not subject to the
recognition guidance provided in this standard. This guidance does
10
Probable means that the future confirming event or events is more likely than not to occur.
11
The unit of analysis for estimating liabilities can vary based on the reporting entity and the
nature of the transaction or event. The liability recognized may be the estimation of an
individual transaction or event; or a group of transactions and events. For example, an
estimate of the cleanup costs could be made on a facility by facility basis, or an entity by
entity basis.
SFFAS 6 - Page 24
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not apply to these other types of cleanup since the cleanup effort is not
deferred until operation of associated PP&E ceases either
permanently or temporarily.12
Recognition And
Measurement
Estimation Methods
Laws and regulations approved as of the balance sheet date, regardless of the effective date
of those laws and regulations, shall be considered.
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Implementation
Guidance
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105. The offsetting charge for any liability recognized upon implementation
shall be made to Net Position of the entity. The amount of the
adjustment shall be shown as a prior period adjustment in any
statement of changes in net position that may be required. No amounts
shall be recognized as expense in the period of implementation. The
amounts involved shall be disclosed and to the extent possible the
amount associated with current and prior periods should be noted.
106. For stewardship PP&E that are in service at the effective date of this
standard, the liability for cleanup costs shall be recognized and an
adjustment made to the Net Position of the entity. The amount of the
adjustment shall be shown as a prior period adjustment in any
statement of changes in net position that may be required. The
amounts involved shall be disclosed.
Disclosure Requirements
107. The sources (applicable laws and regulations) of cleanup
requirements. The U.S. government-wide financial statements need
not disclose the sources of cleanup requirements
108. The method for assigning estimated total cleanup costs to current
operating periods (e.g., physical capacity versus passage of time). The
U.S. government financial statements need not disclose the method for
assigning estimated cleanup costs to current operating periods.
109. For cleanup cost associated with general PP&E, the unrecognized
portion of estimated total cleanup costs (e.g., the estimated total
cleanup costs less the cumulative amounts charged to expense at the
balance sheet date). SFFAS 32 provides for disclosure requirements
for the U.S. government-wide financial statements regarding the
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Appendix A: Basis
For Conclusions
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14
Note that land acquired for or in connection with general PP&E would be included in that
category. All other land would be subject to stewardship reporting and is referred to
throughout this document as stewardship land.
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15
The term stewardship PP&E is used to refer collectively to federal mission PP&E,
heritage assets, and stewardship land.
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132. The cost of Federal mission PP&E acquired during the period be
shown on the operating statement.
Heritage assets
133. Heritage assets are held for their cultural, architectural, or aesthetic
characteristics. Users have identified nonfinancial information as
being relevant for these assets. For assessing operating performance,
the Board believes that relevant cost information is provided through
reporting of periodic maintenance cost since heritage assets are
intended to be preserved as national treasures. It is anticipated that
they will be maintained in reasonable repair and that there will be no
diminution in their usefulness over time.
17
This may be evidenced by the ability (1) to retire the PP&E and later return it to service, or
(2) to continually upgrade the PP&E to maintain its usefulness. In addition, PP&E that is
held for one-time use, such as a warhead, has an indeterminate life.
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134. In addition to assets held purely for heritage purposes (e.g., the
Washington Monument), the Federal Government uses heritage assets
in its day-to-day operations. For example, many Federal office
buildings, such as the Old Executive Office Building, have
monumental characteristics. The Board considered whether these
multi-use heritage assets would be more appropriately categorized as
general PP&E.
135. Despite their heritage characteristics, these assets serve a function
that could otherwise be served by assets that do not possess heritage
characteristics. Therefore, the standards provide that costs of
reconstruction, renovation, or improvements that are directly
associated with supporting operations be treated in a manner
consistent with general PP&E. The Board based this decision on the
need to measure cost for operations and to compare cost between
entities.
Stewardship Land
136. The Federal Government owns vast amounts of land and its use of
land is diverse. In some instances Federal land is integral to the
ownership of general PP&E. For example, the cost of land upon which
an office building is sited is integral to the cost of that building. Land
acquired for or in connection with general PP&E will be recognized on
the balance sheet to provide a more comprehensive measure of the
assets devoted to general government operations. However, since land
is not a depreciating asset, depreciation expense will not be
recognized on land included in general PP&E.
137. Most Federal land is not directly related to general PP&E. For
example, the national parks and forests are not used to support
general PP&E. The Board concluded that land other than that acquired
for or in connection with other general PP&E should not be reported
on the balance sheet. This is consistent with the Boards treatment of
heritage assets in that much of the governments land is held for the
general welfare of the nation and is intended to be preserved and
protected.
Issues
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Definitions
139. The Board asked respondents to comment on the appropriateness of
the definitions of PP&E, general PP&E, Federal mission PP&E,
heritage assets, and stewardship land. Respondents raised issues on
the overall definition of PP&E including (1) internally-developed
software, (2) land rights, (3) capitalization threshold, and (4)
reversionary interests in property. These four issues are discussed
below. An issue raised regarding the Federal mission PP&E definition
is also addressed below.
Internally-developed Software
140. The ED proposed that internally-developed software be excluded from
PP&Ein effect, that it be expensed when incurred. In making this
proposal, the Board pointed to concerns affecting the
objectivity/accuracy of any capitalized cost for internally-developed
software in general PP&E.18 The Board was concerned that costs could
be overcapitalized thus understating expense for the period and that it
would be difficult to provide for the removal or write-off of costs
related to unsuccessful projects and/or cost overruns. Given these
practical concerns and the expectation that costs for software
development efforts would not fluctuate dramatically since they
related to continuous agency efforts, the Board proposed that these
costs be expensed.19
141. Many respondents supported the Boards view. They noted that,
among other problems, it would be difficult to distinguish new
development efforts from ongoing system maintenance. In fact, some
respondents commented that software undergoes continuous
improvement and updating.
142. On the other hand, the majority of respondents objected to the
exclusion of these costs from PP&E. Many argued that internallydeveloped software met the overall definition of PP&E and that
accounting could accommodate the problems of cost overruns and
18
19
In fact, the majority of private-sector entities do not capitalize the cost of internallydeveloped software. The Financial Accounting Standards Board has not developed guidance
on this issue.
SFFAS 6 - Page 35
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unsuccessful efforts. Many suggested that costs be held in a work-inprocess account and any unsuccessful efforts subsequently written off
in the period deemed unsuccessful. In addition, many believed that
cost overruns were appropriate to include in the cost of the asset.
143. Ultimately, the Board made two changes to the PP&E definitions
they removed the statement excluding internally-developed software
from PP&E and they added a provision for recognition of internallydeveloped software as a component of general PP&E under certain
circumstances. Since the Boards concern was with the potential for
overcapitalization of these costs, they found that it was not necessary
to exclude the costs from the PP&E categories for which costs would
not be capitalized. Therefore, any internally-developed software costs
appropriately classified as an item of stewardship PP&E may be
included in those categories.
144. For internally-developed software costs that would be categorized as
general PP&E, the Board placed several restrictions on the
capitalization of costs. To be capitalized, it must be intended that the
costs be recovered through charges to users. In addition, only certain
costs may be capitalized after it has been established that the software
project is likely to be successful. Once capitalized, the costs can not be
amortized over a period longer than five years.
145. In addition to internally-developed software, the Board discussed
accounting for contractor-developed software. In principle, the
Boards consensus was that the same accounting should be provided
for contractor-developed software as for internally-developed
software. However, the Board believed that this proposal should be
exposed for comment prior to establishing a standard to that effect.
Therefore, the standards do not provide specific provisions restricting
the capitalization of contractor-developed software.
Land Rights
146. The Board received a request to address restrictive easements
acquired by a Federal agency. This agency acquires restrictive
easements limiting the use of land adjoining the agencys own
property. The Board considers these easements a land right. Land
rights are interests and privileges held by an entity in land owned by
others.
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147. The Board provided for the recognition of land rights as part of PP&E
since they are generally associated with other items of PP&E actually
owned by the entity. In addition, where land rights are for a limited
period of time and are includable in the general PP&E category, the
Board provided for depreciation of the cost.
Capitalization Threshold
148. Many respondents requested that the Board provide a capitalization
threshold as an element of the PP&E definition. The Board addressed
this issue in developing the ED. At that time, the Board carefully
considered whether to take a prescriptive approach by setting a
threshold or to permit entities the latitude to establish a threshold
suited to their particular operating environment. The Board believes
that Federal entities are sufficiently diverse that one threshold would
not be suitable for all entities. For example, Title 2s $5,000 threshold
would be immaterial for defense department operations but perhaps
not for a smaller entity such as the Small Business Administration.
149. Instead of setting a specific threshold, the Board has adopted a
materiality approachjust as is done in private sector accounting.
Each entity would establish its own threshold as well as guidance on
applying the threshold to bulk purchases. The Board believes that
permitting management discretion in establishing capitalization
policies will lead to a more cost-effective application of the accounting
standards.
Reversionary Interests in PP&E
150. The Board also received a request to address reversionary interests in
PP&E. In some instances, the Federal Government provides grants to
state and local governments for the acquisition of PP&E. If the state or
local government eventually decides that it no longer needs to use the
PP&E for the purpose specified in the original grant there is often a
provision that the PP&E must revert to Federal ownership. In these
cases, the Federal Government maintains a reversionary interest in
PP&E. In essence, these are contingent assets and should not be
recognized on the balance sheet. The Board elected to specifically
exclude these items from PP&E.
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163. It was suggested that adopting this proposal would allow agencies to
classify property as best suits their needs. The Board discussed this
proposal at length. Some Board members were favorably inclined to
permit entity managers to exercise judgment regarding the accounting
treatment of Federal mission PP&E. However, the majority of the
Board members believed that making the category optional would be
inappropriate.
SFFAS 6 - Page 40
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164. These members argued that (1) the user needs study supported their
belief that historical cost depreciation on these types of items was not
useful, (2) it would not be appropriate to give entities the latitude to
use different accounting methods for similar assets, and (3) it would
not be cost-beneficial to permit entities to make item by item
judgments on appropriate accounting treatment. The members noted
that, in connection with the proposal to require depreciation
accounting for Federal mission PP&E (See paragraph 161), they had
not been able to identify any management uses of depreciation
information on Federal mission PP&E. The Board was concerned that
entities may make unsupported, and costly, decisions regarding the
election to categorize items as general or Federal mission PP&E.
While entities can use cost finding to determine depreciation expense
for internal purposes if they so desire, the Board does not believe that
depreciation of Federal mission PP&E would be useful for general
purpose financial reports.
165. The Board decided that use of the Federal mission PP&E category
would remain mandatory for PP&E exhibiting the designated
characteristics. The Board did add guidance in the standard regarding
the selection of the base unit to be used in categorizing PP&E (See
paragraph ). One respondent had proposed that this guidance be
added and stated that it would aid entities in establishing the level of
detail necessary to properly categorize PP&E. For example, should
PP&E be categorized on a site by site basis or by a smaller unit such as
building by building. As with the capitalization threshold, the Board
has indicated the factors that should enter into the selection of a base
unit but has ultimately left the actual selection up to management.
Other PP&E Meeting the Characteristics
166. The Board posed a question in the ED regarding the classification of
nuclear weapons production facilities and military base
facilities as Federal mission PP&E.20 This question was posed
because of a discussion among the Board members as to whether
these items would or would not meet the Federal mission PP&E
definition.
20
FASAB Exposure Draft, Accounting for Property, Plant, and Equipment, February 28,
1995, page 19, paragraph 71, Item IC.
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Deferred Maintenance
171. The deferred maintenance standard was well received by the majority
of respondents. The Board addressed the issue in part due to the many
state and local governments as well as national groups that concerned
over the deteriorating condition of government owned PP&E. A report
of the U.S. Advisory Commission on Intergovernmental Relations
(ACIR), High Performance Public Works,21 notes that maintenance
competes for funding with other government programs and is often
underfunded. Contributing to this underfunding is the fact that the
consequences of underfunding maintenance are often not immediately
reported. The consequences include increased safety hazards, poor
service to the public, higher costs in the future, and inefficient
operations.
172. The ACIR recommended that entities disclose information on:
173. The Capital Expenditures task force also recognized that deferred
maintenance was an issue for Federal PP&E and requested that the
Board address it. The policies and initiatives related to deferred
21
SFFAS 6 - Page 43
SFFAS 6
22
These agencies are the Department of Energy, the Department of the Navy, and the
National Aeronautics and Space Administration.
SFFAS 6 - Page 44
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Recognition
181. A few respondents requested that the Board provide for deferred
maintenance information through required supplemental information
to lessen the audit burden associated with the information. The
Boardas was the case with Federal mission PP&Edoes not believe
that audit coverage should govern the placement of information in the
annual reports. Deferred maintenance information is considered
important because it ensures that readers are informed of the
condition of Federally owned PP&E. If there is a need to reduce the
audit coverage, the Board believes that GAO and OMB can best
address this need.
Cleanup Cost
182. The Board elected to address cleanup costs from long-term Federal
operations as one of the costs associated with PP&E. For example, the
Federal Government operates nuclear facilities and is required by law
to cleanup any hazardous materials upon closing the facilities. This
SFFAS 6 - Page 45
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185. Because of the differences in accounting for the costs of general PP&E
and stewardship PP&E, the Board developed different methods for
allocating cleanup costs to operating periods depending on the
category of the related PP&E.
186. The Board concluded that the liability for cleanup costs related to the
operation of general PP&E would be recognized in a systematic and
rational manner over the periods that the associated general PP&E is
in use. This approach is consistent with the requirement to depreciate
general PP&E. In addition, the Board requires disclosure of the
estimate of total cleanup costs.
23
SFFAS 6 - Page 46
SFFAS 6
Cleanup Of Stewardship
PP&E
187. For cleanup costs related to stewardship PP&E, the Board concluded
that the total estimated liability for cleanup cost would be recognized
at the time that the stewardship PP&E is placed in service. This is
consistent with the treatment of the acquisition cost of the
stewardship PP&E which is recognized as a cost of operations in the
period that the PP&E is placed in service.
188. With regard to estimating cleanup cost, the Board concluded that the
estimate would be based on the current cost to perform the cleanup.
Current cost should be based on existing laws, technology and
management plans. An alternative to current cost would have been to
estimate costs in the future, factoring in expected inflation, and
discounting this amount to current dollars. The Board did not believe
that this approach offered any greater degree of accuracy in return for
the additional effort involved in making the estimate.
189. As with all estimates, the estimates of cleanup costs will change over
time. These changes will be due to inflation as well as to changes in
laws and technology.
190. For cleanup costs associated with general PP&E, changes in estimates
related to current and prior period operations be recognized as an
expense in the period of the change. For example, if a facility with a
capacity to produce 100 tons of material has produced 60 tons of
material, then 60% of the change in estimate should be recognized as
expense in the year that the estimate changes.
191. For cleanup costs associated with stewardship PP&E, the total change
in estimate be recognized in the period of the change.
SFFAS 6 - Page 47
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Appendix B:
Illustrations Of
Categories
Illustration 1: Federal
Mission Property, Plant,
And Equipment
202-213 ... [The category Federal Mission, property, plant, and equipment
was rescinded by SFFAS 23, par. 9]24
Illustration 2: Heritage
Assets
214. Many assets are clearly heritage assets. For example, the National
Park Service manages the Washington Monument, the Lincoln
Memorial and the Mall. However, other assets, particularly Federal
office buildings, have historical, cultural or architectural significance
as well as being used for general operations.
215. The Board has found that these multi-use heritage assets should still
be categorized as heritage assets. Any costs to maintain the assets
themselves should be treated as heritage assets. However, any costs
that are operational in nature (e.g., reconfiguring of office space or
modernized communications wiring) should be classified as general
PP&E. Costs of these types of improvements or renovations would
then be capitalized and depreciatedproviding useful information for
performance measurement.
216. For assets that are used solely for heritage purposes (e.g., the
Washington Monument), the Board believes that the cost of operation,
... [The category Federal Mission, property, plant, and equipment was rescinded by
SFFAS 23, par. 9]
24
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SFFAS 6 - Page 51
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Illustration 3: Land
228. In general, land used for military bases would be considered general
PP&E. However, in some cases, land is used by the military as a site
for missile silos, testing grounds or firing ranges. Land used for these
purposes meets the definition of stewardship land. The Board believes
that period-by-period cost information related to holding land for
defense purposes is not relevant to assessing operating performance.
229. Public lands have various types of roads to provide access. These
types include:
SFFAS 6 - Page 52
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230. Some of these roads are maintained while others merely exist until
natural conditions overtake them.
231. Under private sector accounting, permanent improvements to land are
included in the cost of land on the balance sheet. Typically, the cost of
clearing and establishing the road bed is considered a permanent
improvement because, with routine maintenance, it will remain
indefinitely. Any pavement or gravel that must be replaced periodically
would be considered depreciable PP&E. For a Federal entity, if the
road could be categorized as general PP&E this practice would be
appropriate since the period-by-period cost of assets is relevant for
assessing operating performance.
232. For land subject to stewardship reporting, the cost of establishing the
roadbed would be expensed in the year incurred since the land
improved by the roadbed is not capitalized on the balance sheet. On
the other hand, the paved and gravel roads are general PP&E because
they are operational and the period-by-period cost is essential for
assessing operating performance. The cost of pavement or gravel
would be capitalized and depreciated. Decisions about the quality of
the road conditions (e.g., how often roads are repaved) are an element
of operating performance and of the cost of providing government
services.
SFFAS 6 - Page 53
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Appendix C:
Deferred
Maintenance
Illustration
233. This appendix illustrates ... [Selected text was deleted as a result of
SFFAS 14] paragraphs 77-83. The example shown here is for
illustrative purposes only. Different entities may developed different
asset categories, condition codes and descriptive terminology. The
Board intends that this standard provide flexibility while providing
relevant information on the condition of Federal assets. The following
illustration presents text from a footnote meeting the requirements of
the standard.
XYZ Hospital Facility
... [Selected text was deleted as a result of SFFAS 14] Deferred Maintenance
XYZ operates a hospital facility at one of its remote sites. During the period
maintenance expense is recognized as incurred. However, maintenance
was insufficient over the past several years and resulted in deferred
maintenance.
Information on deferred maintenance is based on an annual inspection of
facilities. Standards are provided for evaluating facility condition. These
standards include:
There have not been material changes in the standards in recent years.
SFFAS 6 - Page 54
SFFAS 6
Asset Condition
(See Note 1)
Cost To Return To
Acceptable Condition
(See Note 2)
Critical
Non-critical
Category
Method
Buildings
Condition
Assessment Survey
$100,000-125,000
$75,000-
$15-50,000
Communication
Eqp/Systems
Condition
Assessment Survey
4.5
$10,000-15,000
$2,000
8-13,000
Laboratory Eqp
Condition
Assessment Survey
$500,000-550,000
$300,000
200-250,000
Condition
Assessment Survey
$40,000-42,000
$5,000
35-37,000
SFFAS 6 - Page 55
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Appendix D:
Illustration Of
Cleanup Cost
234. This appendix illustrates one method of complying with the standards
proposed for cleanup costs. The examples shown in this appendix are
for illustrative purposes only. There are many types of cleanup that
may be accounted for under this proposed standard (e.g., nuclear
facilities, landfills, or laboratories). Applying this proposed standard
may require consideration of estimated cost components other than
those shown here.
235. The computations are based on a formula allocating the estimated
total cleanup costs (i.e., the total amount to be spent in the future to
accomplish cleanup) to accounting periods. In identifying the amount
to be expensed for the period, the formula considers the cumulative
amounts:
25
If recognition of the costs is based on the passage of time rather than physical capacity, the
cumulative amount of time passed since the associated PP&E began operating shall be
substituted.
26
If recognition is based on the passage of time, the estimated useful life of the associated
asset shall be substituted.
SFFAS 6 - Page 56
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Illustration 1: Hazardous
Waste Disposal Site
Operating Assumptions
239. The hazardous waste disposal site will begin accepting waste in 1995.
The following assumptions apply:
$100
750
500
27
This estimate includes any costs of any cleanup efforts required during the thirty year
cleanup period. While these activities will not occur until the associated PP&E is closed, the
costs are estimated at the current cost to conduct similar efforts.
SFFAS 6 - Page 57
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2.
3.
3,000
2,250
300
Remediation Cost:
Projected remediation based on statistical studies
TOTAL ESTIMATED CLEANUP COST
500
$7,400
28
If recognition of the costs is based on the passage of time rather than physical capacity, the
cumulative amount of time passed since the associated PP&E began operating shall be
substituted.
29
If recognition is based on the passage of time, the estimated useful life of the associated
asset shall be substituted.
SFFAS 6 - Page 58
SFFAS 6
$1,110
$1,110
2.
$ 101
758
505
3.
3,030
2,273
303
Remediation Cost:
Projected remediation based on statistical studies
TOTAL ESTIMATED CLEANUP COST
SFFAS 6 - Page 59
505
$7,475
SFFAS 6
$759
$759
30
If recognition of the costs is based on the passage of time rather than physical capacity, the
cumulative amount of time passed since the associated PP&E began operating shall be
substituted.
31
If recognition is based on the passage of time, the estimated useful life of the associated
asset shall be substituted.
SFFAS 6 - Page 60
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2.
$ 115
740
500
3.
2,250
1,300
300
Remediation Cost:
Projected remediation based on statistical studies
TOTAL ESTIMATED CLEANUP COST
400
$5,605
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where:
a = total cleanup cost estimated as of end of period
b = cumulative capacity used at end of period32
c = total estimated capacity33
d = amount previously recognized as expense-beginning of period
e = cleanup expense recognized in the current period
The following journal entry would be required:
Dr. Cleanup expense
Cr. Cleanup liability
$93
$93
32
If recognition of the costs is based on the passage of time rather than physical capacity, the
cumulative amount of time passed since the associated PP&E began operating shall be
substituted.
33
If recognition is based on the passage of time, the estimated useful life of the associated
asset shall be substituted.
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where:
a = total cleanup cost estimated as of end of period
b1 = cumulative capacity used at beginning of period34
c = total estimated capacity35
d = amount previously recognized as expense at beginning of period
f = changes in estimated cleanup cost from prior periods
Current period cleanup costs are:
g = e - f
g = $ 93 - $( 468)
g = $ 561
where:
e = cleanup cost recognized in the current period
f = changes in estimated cleanup cost from prior periods
g = current period cleanup costs
SUMMARY:
Illustration 2: Nuclear
Facility Qualifying As
General PP&E
FINANCIAL STMT.
1995
1996
1997
Operating expense
$1,110
$ 759
$ 93
Liability
$1,110
$1,869
$1,962
Operating Assumptions
240 A nuclear facility was placed in operation in 1981. No recognition of
cleanup cost was made under past accounting policy. At the end of
1995, the entity adopts the accounting policies presented in this
proposed standard.
34
If recognition of the costs is based on the passage of time rather than physical capacity, the
cumulative amount of time passed since the associated PP&E began operating shall be
substituted.
35
If recognition is based on the passage of time, the estimated useful life of the associated
asset shall be substituted.
SFFAS 6 - Page 63
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2.
$1,000
3,000
3.
6,000
3,000
600
Remediation Cost:
Projected remediation based on statistical studies
TOTAL ESTIMATED CLEANUP COST
SFFAS 6 - Page 64
2,000
___________
$15,600
SFFAS 6
$7,800
$7,800
1995
$7,800
Liability
$7,800
SFFAS 6 - Page 65
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Appendix E:
Glossary
SFFAS 6 - Page 66
Status
Issued
Effective Date
Affects
Affected by
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Summary
This Statement contains two separate parts. The first, on revenue and other financing sources, is composed of
the introduction, accounting standards, and appendices. The second part of this document amends Statement
of Federal Financial Accounting Concepts No. 2, Entity and Display, by adding a new concept to satisfy users
needs for information that reconciles budgetary and financial accounting. Statements of Federal Financial
Accounting Concepts articulate the framework within which the Board considers and recommends
accounting standards.
1
As explained in para. 44 of SFFAS Number 1, Accounting for Selected Assets and Liabilities, more likely than not means more than a
50 percent chance. Not probable means the converse, i.e., 50 percent or less.
SFFAS 7 - Page 2
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reason, the method of accounting for taxes and duties can best be characterized as a modified cash basis of
accounting, rather than an accrual basis. This basis of accounting amends the standard for the recognition of
accounts receivable for taxes and duties.
Budgetary resources are recognized from two perspectives: the proprietary accounting perspective and the
budgetary perspective. From the proprietary perspective, appropriations are accounted for as a financing
source when used. Appropriations are used when an entity acquires goods and services or provides benefits
and grants that are authorized to be paid by an appropriation. The remaining amount of appropriations
enacted into law, but not yet recognized as appropriations used, is treated as capital, i.e., unexpended
appropriations. This treatment parallels the recognition of expended appropriations during budgetary
execution.
To the extent that other standards require that costs not on the entitys books be imputed to the entity, the
standards for other financing sources require recognition of the corresponding imputed financing.
Financial statements have not previously presented budget execution information needed by users of those
reports. The standards presented in this document require the presentation and, consequently, the audit of
information about budgetary resources, the status of those resources, and outlays. The standards also require
a reconciliation of proprietary and budgetary information in a way that helps users relate the two.
SFFAS 7 - Page 3
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Table of Contents
Contents
Page
Executive Summary
11
Background
Accounting Standards
11
15
Scope
15
Exchange Revenue
16
16
20
Nonexchange Revenue
21
21
21
21
26
Donations
27
27
28
Disclosures
28
Supplementary Information
29
30
31
31
Appropriations
31
32
Transfers Of Assets
32
34
Budgetary Information
34
36
36
37
37
Statement Of Financing
38
40
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Page
APPENDICES
Appendix A: Basis For Conclusions
Introduction
41
Exchange Revenue
42
42
44
49
Measurement
Nonexchange Revenue
57
60
Inherent Limitations
60
Practical Limitations
60
61
61
Potential Changes
62
62
62
63
65
65
65
66
67
Tax Gap
69
Tax Expenditures
71
72
73
General Principles
73
Reducing Differences
74
75
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80
80
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Page
84
Table Of Transactions
86
88
88
97
103
106
107
107
109
110
113
114
120
126
Index Of Transactions
127
130
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118
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Executive Summary
Scope
1.
Classification,
Recognition, And
Measurement
2.
3.
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4.
5.
6.
7.
As explained in para. 44 of SFFAS Number 1, Accounting for Selected Assets and Liabilities,
more likely than not means more than a 50 percent chance. Not probable means the
converse, i.e., less than a 50 percent chance.
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Disclosures,
Supplementary
Information, And Other
Information
8.
To the extent that other standards require that costs not on the entitys
books be imputed to the entity, the standards for other financing
sources require recognition of the corresponding imputed financing.
9.
10. The different types of revenue, and the complexity of accounting for
revenue and other financing sources, increases the importance of
certain disclosures and other information.
11. Extensive disclosures and other information about taxes and duties
compensate to some extent for the limited accruals under the
modified cash basis of accounting. Such disclosures and other
information also provide a better basis for estimating future cash
flows, overseeing the custodial responsibilities given to the tax
collecting entities, and understanding how the tax burden is shared.
12. Certain disclosures are required about exchange transactions where
the full cost of goods and services sold is not recovered.
13. Limited disclosure concerning accountability for dedicated collections
is required of reporting entities responsible for administering such
funds. Supplementary information is required from those entities and
the entities that make the collections in cases where trust funds may
be over- or under-funded in terms of applicable law.
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14. Disclosures are required about the use of borrowing authority and the
status of budgetary resources that may affect future spending by the
entity.
Concepts For
Reconciling Budgetary
And Financial
Accounting
Part I: Accounting
For Revenue And
Other Financing
Sources
Introduction
Background
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The only major exception is for intragovernmental sales of goods and services. The extent
to which taxpayers bear the costs of these goods and services depends on whether the goods
and services are sold to entities that in turn sell goods and services to the public, or to
entities that are financed by taxes. The net cost of operations may also be financed by other
nonexchange revenue such as fines, forfeitures, and donations.
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Accounting Standards
Scope
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Exchange Revenue
This standard is an exception to the general principle of SFFAS No. 5, Accounting for
Liabilities of the Federal Government, which, but for this exception, would require a loss on
a contract to be recognized at the time when expected costs exceeded expected revenue.
However, the expected loss must be disclosed: see the disclosure requirement in paragraph
(d) below.
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(c) When goods are kept in inventory so that they are available to
customers when ordered, revenue should be recognized when the
goods are delivered to the customer.
(d) When services are rendered continuously over time or the right to
use an asset extends continuously over time, such as the use of
borrowed money or the rental of space in a building, the revenue
should be recognized in proportion to the passage of time or the
use of the asset. The interest received on money borrowed in an
intragovernmental transaction is an exchange revenue when the
source of the borrowed funds is predominantly exchange revenue
and is a nonexchange revenue when the source of the borrowed
funds is predominantly nonexchange revenue or other financing
sources.
(e) When an asset other than inventory is sold, any gain (or loss)
should be recognized when the asset is delivered to the
purchaser.
37. When advance fees or payments are received, such as for large-scale,
long-term projects, revenue should not be recognized until costs are
incurred from providing the goods and services (regardless of whether
the fee or payment is refundable). An increase in cash and an increase
in liabilities, such as unearned revenue, should be recorded when the
cash is received. Unearned revenue should also be recorded if an
agency requests advances or progress payments prior to the receipt of
cash and records the amount.6
38. The measurement basis for revenue from exchange transactions
should be the actual price that is received or receivable under the
established pricing arrangements.
39. When cash has not yet been received at the time revenue is
recognized, a receivable should be recorded. An appropriate
allowance for estimated bad debts should be established.
40. To the extent that realization of the full amount of revenue is not
probable due to credit losses (caused by the failure of the debtor to
SFFAS No. 1, para. 41, provides that such request should be recorded if a claim to cash is
established based on legal provisions, such as a payment due date.
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42. The recognition and measurement of revenue and credit losses due to
direct loans and loan guarantees is determined by SFFAS No. 2,
Accounting for Direct Loans and Loan Guarantees. Appropriate
allowances should be established as determined by those standards.
43. Exchange revenue should be recognized in determining the net cost of
operations of the reporting entity during the period. The exchange
revenue should be recognized regardless of whether the entity retains
the revenue for its own use or transfers it to other entities. Gross and
net cost should be calculated as appropriate to determine the costs of
outputs and the total net cost of operations of the reporting entity. The
components of the net cost calculation should separately include the
gross cost of providing goods or services that earned exchange
revenue, less the exchange revenue earned, and the resulting
difference. The components of net cost should also include separately
the gross cost of providing goods, services, benefit payments, or
grants that did not earn exchange revenue. The U.S. government-wide
financial statements need not break out gross costs of providing
goods, services, benefit payments, or grants that did not earn
exchange revenue, separately from those programs that earned
exchange revenue.
44. The net amount of gains (or losses) should be subtracted from (or
added to) gross cost to determine net cost in the same manner as
SFFAS No. 1, Accounting for Selected Assets and Liabilities, paragraphs 40-52, is the
standard for estimating bad debts. The standard is further explained in SFFAS No. 1s Basis
for Conclusions, paragraphs 116-133.
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b.
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The pricing guidance in OMB Circular No. A-25 does not apply to prices set by law or
executive order.
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Nonexchange Revenue
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include any amounts paid in advance of due dates unless they are
deposits.
51. Cash refunds should be based on repayments of taxes and duties
during the period. Refunds include refund offsets and drawbacks.
Refund offsets are amounts withheld from refunds on behalf of other
agencies and paid to such agencies. Drawbacks are refunds of duties
paid on imported goods that are subsequently exported or destroyed.
52. The accrual adjustment, which modifies the net of cash
collections and refunds to determine the amount of revenue
recognized, should be the net increase or decrease during the
reporting period in net revenue-related assets and liabilities. The net
revenue-related assets and liabilities include accounts receivable, the
allowance for uncollectible accounts, and amounts payable for
refunds. Recognition standards for these accounts of the collecting
entities are described in paragraphs 53 to 57.
53. Accounts receivable should be recognized when a collecting entity
establishes a specifically identifiable, legally enforceable claim to cash
or other assets through its established assessment processes to the
extent the amount is measurable. This definition of accounts
receivable from nonexchange transactions requires the standard for
recognition of accounts receivable to be amended so that such
receivables are not recognized on the basis of payment due dates but
rather on the basis of the completion of the assessment processes.9
Under such processes, assessments are enforceable claims for which
specific amounts due have been determined and the person(s) or
entities from whom the tax or duty is due have been identified.
Assessments include both self-assessments made by persons filing tax
returns or entry documents and assessments made by the collecting
entities.
54. Assessments recognized as accounts receivable include tax returns
filed by the taxpayer (or customs documents filed by the importer)
SFFAS No. 1, Accounting for Selected Assets and Liabilities, para. 41, states that a
receivable should be recognized . . . based on legal provisions, such as a payment due date
(e.g., taxes not received by the date they are due) . . ." Under the revenue standard, past due
taxes are not recognized on the date they are due, but rather on the date when tax returns
are received without sufficient payment or legally enforceable claims against non-compliant
taxpayers are established through enforcement processes.
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B.
10
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11
SFFAS No. 1, Accounting for Selected Assets and Liabilities, para. 44 to 51, provides the
basis for determining this allowance.
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B.
12
Future income taxes from corporations may be reduced by more than $100 billion dollars
as a result of net operating loss carryforwards and tax credit carryforwards. Information in
returns filed by corporations and in their financial statements appears to provide the basis
for a reasonable estimate of the amount of potential reduced future income tax revenue
attributable to these provisions of tax law. Information about net operating loss
carryforwards is not an unasserted claim, as defined here.
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61. Fines and penalties are monetary requirements imposed on those who
violate laws or administrative rules. They may be imposed by the
entities collecting taxes and duties, or by other government entities.
The time when a claim to resources arises will depend on the nature of
the fine and the associated legal and administrative processes. Some
examples of conditions that, depending on the circumstances, could
establish a legally enforceable and measurable claim include (1) the
date by which an individual may contest a court summons expires, (2)
the offender pays the fine before a court date, or (3) the court imposes
the fine. An allowance for uncollectible accounts should, as in the case
of taxes and duties, be recognized as a revenue adjustment and
determined in accordance with other standards.13 The allowance
should reduce the gross amount of the receivable and revenue to its
net realizable value, based on the criterion that losses should be
recognized to the extent it is probable (more likely than not) that some
or all of the receivables will not be totally collected.
Donations
62. Donations are contributions to the government, i.e., voluntary gifts of
resources to a government entity by a nonfederal entity. Donations
may be financial resources, such as cash or securities, or nonfinancial
resources such as land or buildings. Revenue arising from donations
should be recognized for those inflows of resources which meet
recognition criteria for assets14 and should be measured at the
estimated fair value of the contribution.
Other Nonexchange Revenue
63. The various types of nonexchange revenue are described in Appendix
B: Guidance for the Classification of Transactions. Some of these are
not specifically mentioned in this standard. They should be recognized
and measured in accordance with the general rule (see para. 48)
except where other Board standards apply.
13
14
For the recognition criteria for donated property, plant and equipment, see SFFAS No. 6,
Accounting for Property, Plant, and Equipment, para. 30, 62, and 71.
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cash collections and refunds by tax year and type of tax for the
reporting period and for sufficient prior periods to illustrate (1) the
historical timing of tax collections and refunds, and (2) any material
trends in collection and refund patterns. SFFAS 32 provides for
disclosures applicable to the U.S. government-wide financial
statements.
66. If trust fund revenues are not recorded in accordance with applicable
law, both the collecting and recipient entities should disclose the
reasons.
Supplementary Information
67. Entities that collect taxes and duties should provide the following
supplementary information relating to their potential revenue and
custodial responsibilities:
67.1 The estimated realizable value, as of the end of the reporting
period, of compliance assessments and, if reasonably estimable, preassessment work in process. The amounts furnished should represent
managements estimate of additional revenues reasonably expected to
be collected from compliance assessments and from pre-assessment
work in process, appropriately qualified as to their reliability. A range
of amounts may be provided for pre-assessment work in process if
estimable. The change in the total(s) of compliance assessments and
of pre-assessment work in process during the reporting period also
should be provided.
67.2 If reasonably estimable, other claims for refunds that are not
yet accrued but are likely to be paid when administrative actions are
completed. If estimated, unasserted claims for refunds should be
provided separately from claims filed and may be expressed as a range
of amounts. The amounts furnished should represent managements
reasonable estimates, appropriately qualified as to their reliability. The
change in the total of these amounts during the reporting period also
should be provided.
67.3 The amount of assessments that the entity still has statutory
authority to collect at the end of the period, but that have been written
off and thus excluded from accounts receivable.
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15
Other accounting standards will determine the criteria for the imputation of costs and how
those costs shall be measured. This standard provides guidance for accounting for the
corresponding financing source that is reported in such cases.
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16
As is explained in the Basis for Conclusions, in the private sector, the term net results of
operations is synonymous with net income and net income is the bottom line measure of
performance for profit-seeking businesses. For most Government reporting entities, on the
other hand, this is not the bottom line for performance measurement. See para. 224 and
following.
17
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18
These transfers are distinguished from custodial transfers in that transfers involve assets
that have been earned or in use by the entity in carrying out its programs whereas custodial
transfers involve funds that have been collected on behalf of another entity. Accounting for
custodial transfers is described in the section covering nonexchange revenue.
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Amendments To SFFAC
No. 2, Entity And
Display
Reconciliation Statement
Budgetary And Financial
Accounting
SFFAS 7 - Page 37
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Statement Of Financing
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$XXX)
(X)
X)
X)
Transfers-in (out)
X)
Other
X)
XXX)
(X)
(X)
(X)
Other
(X)
X)
X)
Other
X)
X)
SFFAS 7 - Page 40
$XXX)
SFFAS 7
Appendix A: Basis
For Conclusions
103. This appendix does not constitute authoritative guidance for those
who prepare and audit general purpose federal financial reports. It
summarizes important considerations that FASAB members
considered as they deliberated on this Statement. It includes reasons
for accepting certain approaches and rejecting others. Individual
Board members gave greater weight to some factors than to others.
104. FASAB published the exposure draft Accounting for Revenue and
Other Financing Sources in July 1995. The exposure draft included
18 specific questions for respondents and invited comments on other
topics. The Board received 42 letters of comment from the following
sources: 19
Source
Users, Academics & Others
19
Internal To
The U.S. Govt.
External To
The U.S. Govt.
Total
Auditors
10
11
Preparers
22
Total
34
22
8
42
105. FASAB also held a public hearing on the exposure draft on September
20, 1995. One individual (a professor of accounting), representatives of
four federal organizations that prepare financial statements, and
representatives of one federal audit organization presented comments
and discussed the exposure draft with the Board. Most of those who
commented orally or in writing supported most of the provisions of
the exposure draft. Most responses did suggest widening the proposed
disclosures for trust funds to include other funds with similar special
accountability for dedicated collections. Also, most respondents
suggested retaining the customary business practice of recognizing
bad debt expense for credit losses from exchange transactions. The
Board made these changes. (See paragraph 128 for details on the
change regarding credit losses. See paragraphs 226 and following for
details on the change regarding disclosures for trust funds and similar
funds). Concurrently with the widening of disclosures about funds, the
Board required disclosures and supplementary information about any
19
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over- and under-funding of the trust funds (see para. 66, 67.4 and 68).
The Board also made other less material changes in the exposure draft
as a result of considering the comments it received.
106. As a result of further information received from IRS following the
exposure draft, the Board made terminology changes with respect to
pre-assessments, now referred to as compliance assessments, and
proposed assessments, now called pre-assessment work in process.
More importantly, the Board provided for the possibility that amounts
for pre-assessment work in process might not be reasonably estimable
(see para. 67.1). As a result of further information from Customs
following the exposure draft, the Board added a supplementary
information requirement for unasserted claims for refund (see para.
67.2). (These include potential drawbacks that may approximate 20%
of Customs reported revenue.)
107. After some deliberation, the Board also concluded that it would permit
a fuller application of accrual accounting for taxes and duties than is
required by the general rule (see para. 49). This would apply in the
interim period between the issuance date of the Statement and any
reconsideration of the standard by the Board. Coincident with
extending the effective date of the standard for one year beyond that
proposed in the exposure draft, and because of the importance of
accurate information, the Board decided to require that material
revenue-related transactions should be accounted for under a double
entry accounting system (rather than estimated) and changed the
designation of this information from supplementary to disclosure
information ([Text deleted by SFFAS No. 20] see par. 65.3).
108. Finally, the Board recognized that, under certain circumstances,
reporting entities may appropriately report information about tax
expenditures and directed flows of resources that are related to their
programs. However, the standard only permits this information to be
presented as other accompanying information if it is properly qualified
and explained (see para. 69.3 and 69.4).
Exchange Revenue
Special Nature of
Government Exchange
Transactions
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20
Even revolving funds that are self-financing do not recover full cost from their customers if
they are not charged for all of their own costs, such as pension and retirement health
benefits for their employees.
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Recognition: General
Considerations
113. Matching revenue with cost. It is often said that private sector
accounting matches expense with revenue to measure the net income
of the business. This provides a measure of effort compared with
accomplishment that cannot be used for most government activities.
Most government activity either provides collective goods and service
(such as national defense and justice) or redistributes income and
wealth (as in benefit payments and grants). Therefore, the
Governments outputits goods, services, transfers, and grantsis
usually not provided in exchange for voluntary payments. In such
cases, directly measuring the value that the Governments activity
adds to societys welfare is difficult.
114. The Objectives of Federal Financial Reporting focuses on cost
in relationship to accomplishment as the main objective in reporting
an entitys operating performance. This is because of the fundamental
importance of cost information. It is important to program managers
in operating their activities efficiently and effectively. It is equally
important to Executive and Congressional decision makers in making
resource allocations. Subobjectives 2A and 2B declare that:
Federal financial reporting should provide information that helps the reader to
determine ...the costs of providing specific programs and activities and the
components of, and changes in, these costs... [and] the efforts and accomplishments
associated with federal programs and the changes over time and in relation to costs.21
21
SFFAC No. 1, Objectives of Federal Financial Reporting, paragraphs 126 and 128.
22
Ibid., para. 124. For more extended discussion, see ibid., chapter 8. As explained there,
difficulties arise in practice for many reasons, e.g., the specific measures that are
appropriate and feasible will vary from program to program, outcomes are influenced by
external factors as well as actions of government, focusing attention on selected measures
can have unintendedand sometimes undesiredconsequences, etc.
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that good cost information can be used for: (1) budgeting and cost
control, (2) performance measurement, (3) determining
reimbursements and setting fees, (4) program evaluations, and (5)
economic choice decisions (such as whether to contract-out a
project).23
117. To meet these goals, cost must be matched with the provision of goods
and services to the public or other Government entities. To determine
the net cost of an exchange activityi.e., the part of the cost that is
not offset by revenue earned from the goods and services provided
the related revenue must be matched with the cost.
118. Matching revenue with cost in a uniform manner is essential in
evaluating agency performance and setting price. Cost and revenue
must pertain to the same output in order to estimate the extent
to which the revenue covers the cost. Therefore, costs should be
matched against the provision of goods and services with revenue
matched against those costs and thus with revenue also matched
against the same provision of goods and services. When this is done,
the gross and net cost of an entity can be compared with the related
outputs and outcomes to evaluate its operating performance, pricing
policy, and economic decisions. Similarly, when this is done, the net
cost to the taxpayer can be estimated for the entitys related outputs
provided to the public.
119. The standards in this Statement therefore use the accrual basis for
recognizing exchange revenue and provide for matching exchange
revenue against related cost as closely as practicable. The standards
specify how the matching is to be achieved for different types of
transactions.
120. Assigning revenue to the costs of earning it. Determining the net
cost of producing outputs, providing programs, or carrying out
missions will often be more important than determining the net cost
for the reporting entity as a whole. A reporting entity may have several
missions carried out by different suborganizations, all of them having
component programs and outputs. For each of these, both gross and
net cost are important in evaluating performance and managing cost.
23
SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal
Government, para. 31-40.
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24
See ibid., para. 77-88. Also see SFFAC No. 2, Entity and Display, para. 75 and footnote 14.
25
SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal
Government, para. 89-104 and 116-143.
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26
27
28
SFFAS No. 1, Accounting for Selected Assets and Liabilities, paragraphs 44-45 and 124-30.
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debts may not always be needed, because full payment can often be
assumed.
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136. Exchange revenue collected for others. Many entities that collect
exchange revenue keep that revenue for their own use. Revolving
funds keep the revenue they earn. By their nature, they are expected to
finance at least a material part of their cost by selling goods and
services in a continuing cycle of business-type activity. Other
collecting entities may also keep the revenue they earn. Sometimes,
however, the exchange revenue is transferred to the General Fund or
to other entities in whole or in part. For example, the Southeastern
and Southwestern Power Administrations transfer the revenue they
collect from the public to the General Fund of the Treasury; similarly
the Western Area Power Administration, while retaining some of the
revenue that it collects, transfers the rest to the General Fund and
various special funds designated by law.
137. As a general rule, exchange revenue transferred to others must be
offset against the collecting entitys gross cost to determine its net cost
of operations. Exchange revenue reduces the net cost of operations
incurred by the entity in producing outputs, regardless of whether the
entity keeps the exchange revenue for its own use or transfers it to
another operating entity or the General Fund. Likewise, exchange
revenue reduces the net cost of the entitys operations to the taxpayer
regardless of its disposition. Therefore, all exchange revenue related
to the cost of operations must be deducted from gross cost to
determine the net cost of operations for the entity.
138. Any exchange revenue that is transferred to others, however, does not
affect the collecting entitys net position. Therefore, as required by the
standards for other financing sources, such exchange revenue is
recognized as a transfer-out in calculating the entitys operating
results.
139. The only exception to the general rule occurs when the entity
recognizes virtually no cost in earning the exchange revenue, as
explained in the following section.
140. Exchange revenue unrelated to recognized cost. In exceptional
cases, an entity may recognize virtually no costs in connection with
earning exchange revenue that it collects. A major example for many
years has been the Minerals Management Service (MMS) of the
Department of the Interior. It manages energy and other mineral
resources on the Outer Continental Shelf (OCS) and collects rents,
royalties, and bonuses due the Government and Indian tribes from
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minerals produced on the OCS and other Federal and Indian lands.
The rents, royalties, and bonuses are exchange revenues, earned by
sales in the market. If the value of natural resources were recognized
as an asset by MMS, then depletion could be recognized as a cost
according to the units of production method as minerals were
extracted.30 The revenue from rents, royalties, and bonuses could then
be matched against MMSs gross cost, including depletion and minor
other costs, to determine its net cost of operations.
141. MMS does not recognize a depletion cost for various reasons,
including the fact that under present accounting standards the value of
natural resources is not recognized as an asset. As a result, this
exchange revenue cannot be matched against the economic cost of
operations and bears little relationship to the recognized cost of MMS.
Therefore, it should not be subtracted from MMSs gross cost in
determining its net cost of operations. If it were subtracted, the
relationship between MMSs net cost of operations and its measures of
performance would be distorted. The net cost of operations of the
Department of the Interior would likewise be distorted.
142. MMS collects this revenue and distributes it to the recipients
designated by law: the Treasury, certain entities within the
Government to which amounts are earmarked, the states, and Indian
tribes and allottees. MMS should account for the exchange revenue it
collects as an agent for the U.S. Treasury or other federal component
entities as a custodial activity, which is an amount collected or to be
collected for other federal entities, in the same way as the Internal
Revenue Service accounts for the nonexchange revenue that it
collects. MMS collection activity for non-federal entities may meet the
definition of fiduciary activity and, if so, should be accounted for in
accordance with SFFAS 31, Accounting for Fiduciary Activities.
Because the revenue collected by MMS is exchange revenue, it should
be recognized and measured under the exchange revenue standards
30
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when the rents, royalties, and bonuses are due pursuant to the
contractual agreements.
SFFAS 31, Accounting for Fiduciary Activities, amended the
provisions in paragraph 142. This amendment is effective for periods
ending after September 30, 2008. To view the explanatory text prior
to this date, please see the previous edition of the FASAB Handbook
at http://www.fasab.gov/codificaarchives.html.
143. The rents, royalties, and bonuses transferred to Treasury for the
General Fund or to other Government reporting entities should be
recognized similarly by these recipient entities. The revenue is
exchange revenue and should be recognized and measured under the
exchange revenue standards. However, neither the Government as a
whole nor the other recipient entities recognize the natural resources
as an asset and depletion as a cost. Therefore, the revenue should not
offset the cost of operations for the U.S. Government as a whole or for
these entities. As in the case of MMS, offsetting cost by this revenue
would distort the relationship between the net cost of operations and
the measures of the performance of these entities. The exchange
revenue should instead be a financing source in determining the
operating results and change in net position.
144. The Board is addressing the accounting for natural resources in a
separate project. If it concludes that the value of mineral rights should
be recognized as an asset and depletion as a cost, it would be
appropriate to recognize the exchange revenue from rents, royalties,
and bonuses in determining the net cost of operations.
145. Although MMS is the most prominent case of an entity collecting
exchange revenue for which it recognizes virtually no cost, there can
be other instances. The Federal Communications Commission collects
exchange revenue from the auction of the radio spectrum. Such
revenue should be accounted for in the same way as the revenue
collected by MMS.
146. One respondent to the Exposure Draft asked about the meaning of the
term virtually no costs. If an entity sells scrap metal or fully
depreciated equipment, the exchange revenue or gain is not related to
any cost that is recognized at the time of sale. These assets are
recorded on the balance sheet as having no value at the time of sale, so
the gross proceeds from the sale are not offset by any remaining book
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way as the revenue earned from selling services; and the source is
predominantly revenue previously earned from the sales of services,
for which they incurred costs of operations. Their interest should
therefore be classified in the same way as for other revolving funds,
which is exchange revenue.
160. The three previous paragraphs explain the rationale for the normal
classification of interest received by trust funds, special funds,
revolving funds, and trust revolving funds. However, in some cases,
the source of balances for trust funds and special funds may not be
predominantly nonexchange revenue, and the source of balances for
revolving funds and trust revolving funds may not be predominantly
exchange revenue. For example, the main source of balances for two
major trust funds, the Civil Service Retirement and Disability Fund
and the Military Retirement Fund, consists of exchange revenue and
other financing sources. In such exceptional cases, interest should be
classified in the same way as the predominant source of balances
rather than according to the normal rule.
161. Agencies may receive authority to borrow from Treasury (or the
Federal Financing Bank), and they pay interest on their borrowings.
The interest is a cost to the agency and an inflow of resources to the
Treasury. The Treasury may be deemed to have borrowed from the
public to finance the outlays for which the agency borrowed, and thus
to have incurred a corresponding interest cost of its own. The interest
received by Treasury from the agency is therefore related to Treasurys
cost of borrowing from the public and should be classified as an
exchange revenue.
162. When debt securities are retired before maturity, there may be a
difference between the reacquisition price and the net carrying value
of the extinguished debt. This difference is a gain or loss that should
be classified in the same category as the interest on the extinguished
debt.
Measurement
163. Exchange transactions with the public ordinarily take place at prices
set by the agency or the Congress, such as electricity rates, book
prices, and interest on delinquent taxes. Sometimes the market sets
the price, as with the rents and royalties from companies that bid to
explore and produce oil and gas on the Outer Continental Shelf. In
either case the actual prices represent the inflow of resources to the
entity and, therefore, are the appropriate basis for measuring revenue.
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164. Except for prices set by law, OMB Circular No. A-25 and other
regulations generally provide that user charges for transactions with
the public should be set at full cost or market price.31 However,
compliance with these regulations is partial, and potential revenue is
not realized in many cases. To help report users understand how the
entitys operations are financed, disclosures are needed about (1)
differences in pricing policy from the guidance in OMBs circular on
user charges and (2) transactions where prices are set by law or
executive order and are not based on full cost or market pricing. Other
accompanying information is needed about the revenue foregone in
these transactions but only if a reasonable estimate is practicable. The
other accompanying information should explain whether, and to what
extent, the quantity demanded was assumed to change as a result of
the change in price.
165. Circular A-25 defines full cost as all direct and indirect costs to any
part of the Federal Government of providing a good, resource, or
service.32 This generic definition and the accompanying examples in
the circular are generally consistent with the definition of full cost in
the managerial cost accounting standards33 and the recognition and
measurement of many particular expenses in other Federal accounting
standards.34 However, unlike those standards, Circular A-25 also
includes as part of the definition of full cost an annual rate of return on
land, structures, equipment, and other capital resources (unless they
31
Circular No. A-25, User Charges, as revised July 8, 1993, establishes Federal policy regarding
fees assessed for government services and for the sale or use of government goods or
resources. It implements the provisions of Title V of the Independent Offices Appropriations
Act of 1952 (31 U.S.C. 9701), which generally calls for each service or thing of value provided
by an agency . . . to a person . . . to be self-sustaining to the extent possible and says that
charges shall be based on a number of specified criteria including the costs to the
Government. The guidance of Circular A-25 also applies to the assessment of user charges
under other statutes. However, Circular A-25 is intended to be applied only to the extent
permitted by law or executive order; it does not apply to the legislative and judicial branches
or to mixed-ownership government corporations; and its requirements are deemed to be met
by other OMB circulars that provide guidance concerning a specific user charge area.
32
33
SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal
Government, para. 93-107.
34
For example, the standards for expenses related to credit are stated in SFFAS No. 2,
Accounting for Direct Loans and Loan Guarantees; and numerous standards for expense are
stated in SFFAS No. 5, Accounting for Liabilities of the Federal Government.
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35
The Board currently has a project to consider whether the rate of return on capital should
be recognized as a cost in financial accounting statements.
36
The extent of differences between Circular A-25 and Federal accounting standards can be
found by comparing Circular A-25, section 6(d)(1)(b), with SFFAS No. 6, Accounting for
Property, Plant, and Equipment.
37
Circular A-25 says that full cost shall be determined or estimated from the best available
records of the agency, and new cost accounting systems need not be established solely for
this purpose. See section 6(d)(1)(e). The cost accounting and other standards should
improve agency records and specify the nature of costs more precisely and
comprehensively.
38
The general principles for recognizing imputed cost are stated in SFFAS No. 4, Managerial
Cost Accounting Concepts and Standards for the Federal Government, para. 105-115. The
accounting is similar to the accounting for employee pensions and retirement health
benefits, where the entity administering the plan does not provide goods or services to the
reporting entity but does pay some or all of the cost. See SFFAS No. 5, Accounting for
Liabilities of the Federal Government, para. 56-93 and 148-181.
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Nonexchange Revenue
Inherent Limitations
Practical Limitations
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such, they do not require, for example, the accrual of taxes or duties
which are likely to be assessed under established processes, but only
those that are actually assessed under the defined processes of the
collecting entities. Having accounting mirror the established process
by which collecting entities interact with taxpayers has value, though
arguably accounting for revenue should not be so limited.
171. At the time the Board began deliberations on this standard, accounting
systems necessary to determine even the limited revenue accruals that
are now required for taxes did not exist. The changes in systems
required by this standard are limited to those necessary to mirror the
established assessment processes. The Board understands that the
Internal Revenue Service is attempting to improve its collection
function and the related management information systems. Because
such systems must also provide accounting information, the Board
decided not to impose accounting standards at this time that might
conflict with systems changes needed to improve the efficiency and
effectiveness of the collection process or go beyond the minimum
changes considered necessary to enable the collecting entities to
properly discharge their responsibilities.
172. As a result of both the inherent limitations and the practical limitations
accepted by the Board, the accrual standard, as it applies to taxes and
duties, might be best characterized as a modified cash basis of
accounting. These limitations on full accrual accounting required the
amendment of the accounting standard on recognition of receivables
as provided in paragraph 41 of SFFAS No. 1, which said, in effect, that
taxes should be recognized as receivables when they are due from
taxpayers.
173. In the future, the general standard for accrual as it applies to taxes and
duties could be tightened to produce a fuller application of the accrual
concept. For fines, penalties and donations, no accountable event
precedes the recognition point established by this standard. Therefore,
the general standard for recognition as it applies to these sources of
revenue results in full accrual accounting for them.
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Potential Changes
176. Collecting entities, e.g., the Internal Revenue Service and the Customs
Service, collect cash and administer the assessment processes that
provide the basis for adjusting those collections to an accrual basis.
They, therefore, have measurement and reporting responsibilities for
these inflows of resources. They also, at the direction of the Treasury
Department, account for the disposition of these inflows to recipient
entities. The Treasury determines the amounts payable to the recipient
entities and, in conjunction with the collecting entities, makes the
actual cash payments, or issues special Treasury securities, as
necessary, to fund the amounts transferred. Because the recipient
entities are designated by law to receive the inflows and make ultimate
disposition of the funds, they, rather than the collecting entities, must
recognize the inflows as revenues in order to provide financial
statements which are meaningful to users.
177. The standard provides that trust funds should recognize the amounts
transferred (and the change during the period of the amounts to be
transferred) from the collecting entity as revenue despite the fact that
those transfers may not be made on the basis of applicable law. In the
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39
Even if all taxpayers filed returns, the underlying event criterion for most taxpayers is their
income for the calendar year, whereas the governments fiscal year ends September 30.
Presently required estimated tax payments do not eliminate the problem of measuring taxes
based on an artificial nine months period ending September 30 for calendar year taxpayers
whose income for the following three month stub period ending December 31 could be
disproportionate.
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Accounting Systems
Changes
185. The IRS accounting system at present does not account for revenue
transactions on an accrual basis and, therefore, does not establish
accounts receivable, refunds payable, and the allowance for
uncollectible accounts on the basis of the flow of all the various events
and transactions affecting these balances. Instead of being an accrual
accounting system, all assessments are recorded in an operating file
not designed to do accounting and not operated under a double entry
concept where the revenue effects of assessments are determined.
That operating file, for example, includes multiple assessments made
for the same tax claim so that the IRS can pursue all potential sources
for the payment of that claim. As a result of the present limitations of
this operating file, to determine the accounts receivable at any point in
time, the IRS must make a statistical projection of a representative
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sample of valid tax claims. The potential error in the estimates made
to date have been material, i.e., in excess of $5 billion.
186. This standard contemplates that systems and accounting records will
be put in place to permit the accurate determination and disclosure of
all revenue and cash transactions which are reflected in the formal
assessment process. By treating information relating to compliance
assessments, pre-assessment work in process, and refunds before the
completion of the assessment process as supplementary information,
this standard contemplates that statistical estimates, rather than
transaction-driven accounting systems and auditable subsidiary
accounting records for individual taxpayers, may be used to provide
the dollar values for these important revenue-related items.
Disclosures, Supplementary
Information, and Other
Accompanying Information
187. This additional information will help users of federal financial reports
in understanding the following:
187.1 Components of the revenue stream. By disclosing the
dollar amounts of the material types of transactions reflected in the
required modified cash basis revenue stream (from initial
recognition by the established assessment process through cash
collections and refunds), important accountability information for
oversight and performance evaluation will be provided about the tax
collection function. Providing as much accurate and detailed
information as possible about the annual flow of taxpayer funds (now
over $1 trillion) is important because the administration of the
collection function is to some degree discretionary.40
187.2 Cash flows. By disclosing cash flows by type of tax and tax
year, accurate historical information will be provided about the source
and timing of the annual flow. Material trends in collection and refund
patterns may be apparent from the comparative financial statements
presented and by reference to financial statements of prior periods.
Both the ability to accurately forecast future flows and to understand
the speed and effectiveness of the collection function should be
40
Pursuant to law, Customs establishes legal assessments for fines in amounts which
frequently materially exceed the value of the goods, then subsequently abates the fine to a
fraction of that value, also in accordance with applicable law. Full disclosure and
explanation of practice should aid better understanding of the significance of assessments,
abatements, and uncollectible amounts reported by Customs. [Text deleted by SFFAS
No. 22.]
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Supplementary information on compliance assessments and preassessment work in process and on refunds before the
completion of the assessment process shows the backlog in
processing assessments and refunds.
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Tax Gap
188. The exposure draft proposed that available information about the
nonexchange revenue gap, including the tax gap, be provided as other
accompanying information. This information would not have been
subject to audit, and the auditors responsibility would have been
limited to reporting if it was materially misleading in light of the
information gathered during the audit. Substantially all of the revenue
gap is the tax gap because duties are technically a type of tax, so the
Board decided to deal only with the tax gap. The sources of noncompliance that cause the tax gap include unreported income,
overstated exemptions, and overstated deductions. The largest
component of the tax gap relates to income taxes. IRS originally
estimated the gross income tax gap at $94 billion for tax year 1987. The
net income tax gap for 1987, which is the gross income tax gap less the
estimated amount that has been or will be collected through IRSs
enforcement efforts, is now estimated at $72 billion. Thus, with
respect to 1987, later collections from non-compliant taxpayers are
about $22 billion. Estimates of the income tax gap cover only taxes on
legally earned income of individuals and corporationsnot taxes
owed from illegal sources of income such as drugs and prostitution.41
189. Estimates of the tax gap by IRS have been made from time to time.
Congress recently concluded not to authorize a current study42 and
there is no present plan to conduct another one. On the other hand,
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Customs makes estimates of amounts due from unknown noncompliant importers. The Board concluded, therefore, that the
standard should require only that any estimates by the Government of
the tax gap be presented when they were relevant, i.e., provided
reasonably current information is available.
190. Some respondents to the exposure draft believed that tax gap
information is important, but others believed it is too imprecise to be a
required disclosure. The Board considered establishing a new
category of information Required Supplementary Stewardship
Information (RSSI) for the unidentified persons or entities portion
of the tax gap. This concept is also being considered for application to
certain Stewardship Information. The Board concluded that for the
time being this standard should say that available information about
the tax gap should be provided as other accompanying information. In
addition to the tax gap information requirements (see para. 69.2),
other accompanying information is required or permitted under
certain circumstances with respect to (a) the income tax burden (see
para. 69.1), (b) tax expenditures (see para. 69.3), (c) directed flows of
resources (see para. 69.4), and (d) revenue foregone for exchange
transactions (see para. 47).
191. The Board intends to review the requirements in this standard to
provide other accompanying information when it considers standards
for the Management Discussion and Analysis (MD&A). The Board may
decide to modify the information requirements when it considers the
degree to which this information should be subject to some sort of
audit scrutiny. Auditing standards for the MD&A have not been
established by any auditing standard setters, including the
Comptroller General, who establishes standards for auditors who
audit federal organizations, programs, and activities. It is expected
that audit standards for an MD&A will be considered by the
Comptroller Generals Advisory Council and standards may be set
later by the Comptroller General. Particular audit requirements for
MD&A may be set by agreement between OMB and GAO if consistent
with any such standards then existing. When the Boards project on
41
For details see Net Tax Gap and Remittance Gap Estimates (Supplement to Publication
7285), Publication 1415 (4-90), Internal Revenue Service; and Tax Gap: Many Actions Taken,
But a Cohesive Compliance Strategy Needed, GAO/GGD-94-123, May 1994.
42
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Tax Expenditures
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for example, in 1983 and 1993 when they increased the taxation of
Social Security benefits but alternatively could have reduced the costof-living adjustment. In ways such as these, the reporting on the costs
and accomplishments of an entity is incomplete unless it includes the
tax expenditures related to its missions.
197. The Board decided not to require supplementary information on tax
expenditures in component entity financial statements for several
reasons. The definition of the baseline for comparison is in part a
matter of values and judgment. In some cases the association with
particular programs is not sufficiently clear. Furthermore, the
information is available elsewhere now. However, the Board agreed to
permit reporting entities to present, as other accompanying
information, information on tax expenditures that the reporting entity
considers relevant to its programs, if suitable explanations and
qualifications are provided.
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203. The standards for other financing sources and budgetary resources
should satisfy several of the objectives of financial reporting such as:
(1) explaining the relationship of budgetary resources obligated to the
net cost of operations, (2) showing how budgetary resources were
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used and the status of budgetary resources at the end of the period,
and (3) indicating the effect on the net results of operations of the
entity of all the financing sources used to finance the net cost of
operations. However, financing from a financial accounting
(proprietary) perspective is different than the budgetary accounting
perspective.
204. The budget is the primary financial planning and control tool of the
Government. Its objectives, such as planning resource allocation,
authorizing and controlling obligations, planning cash disbursements,
and raising revenue, differ from those of financial reporting where the
focus is on net cost of the entitys programs and activities and
stewardship of its assets and liabilities. Differing objectives are
responsible for some but not all of the many differences in these
two financial management tools. Differences in standards for
measuring and reporting budgetary and financial information, coupled
with unreliable data, have caused financial statements to be underutilized by Government managers, the budget community, and others
who might benefit from financial information.
Reducing Differences
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43
Amounts appropriated to liquidate contract authority or repay debt are not available to
incur new obligations and hence are not considered budget authority.
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and services ordered have been delivered, when benefits are payable
to recipients, or when funds available under a grant agreement are
payable, and there is an available appropriation to pay these amounts.
Under this standard, this is also the time when appropriations used
is recognized as a financing source in the proprietary accounts.
215. Thus, at the time a liability is established which will be paid by an
available appropriation, appropriations are considered used.
Liabilities should be established in accordance with SFFAS No. 5.
Under that standard, a liability can be established in several ways, and
the type of transaction that has occurred governs when a liability has
occurred. For example, grants can be provided under different
transactions. Some can be provided without any required exchange of
service with the federal government, while others may require specific
activities to occur before the funds are available.
216. Providing funds from an appropriation does not necessarily cause the
recognition of a financing source if that payment is an advance. For
example, an entity may advance funds to a grantee under the grant
agreement. This should not cause recognition of a financing source.
The recognition of appropriations used would not occur until the
grantee meets the requirements that allow it to use the funds in
accordance with the grant agreement.
217. The focus on net cost rather than on matching financing with expenses
as incurred provided an opportunity to simplify the accounting for
appropriations and to eliminate one of the differences between
financial and budgetary accounting. Reporting entities will no longer
have to defer recognition of appropriations used nor accrue
appropriations before they become available.
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44
Imputed financing sources may be reported to recognize imputed costs that have not yet
been budgeted for other entities, such as for pensions and retirement health care.
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Dedicated Collections
226. The exposure draft proposed disclosure requirements for trust funds
that were included within the reporting entitys financial statements in
total and for material individual fund. The information was proposed
to provide users a basis for understanding these funds and for holding
the Government accountable for the use and disposition of earmarked
collections. Based on comments received, this standard changes what
was proposed as follows.
A.
B.
The requirement for a total for all funds was modified. If the fund
is not material to the reporting entity, disclosure may be made in
a special report to the contributors and beneficiaries (or their
representatives) and only disclosure of the total of these funds is
required.
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227. User needs. Funds that account for dedicated collections are of great
interest to users of federal financial statements. First and foremost are
the contributors and beneficiaries to which the Government needs to
be accountable for the receipt and disposition of earmarked
collections and for the balances that remain available to pay
beneficiaries in the future or serve other purposes determined by law.
Other users are interested in the financing of other government
operations with these fund balances.
228. External users of federal financial reports sometimes misunderstand
the relationship of these funds, especially trust funds, to the
Government. Very few Government trust funds are held in trust in a
fiduciary relationship as is customarily the meaning of this term
outside the Government. Also, some of the trust funds currently spend
less than the receipts they collect each year. Most of the cash surplus
that arises when receipts are greater than outlays is invested in
Treasury securities until the amounts are needed for the trust fund to
use in accordance with benefit formulas or other provisions of the law.
229. The Treasury uses these additional receipts to meet the cash needs of
general operations, thus reducing the need to borrow from the public,
raise taxes, or reduce spending. In the consolidated financial
statements of the Government, the investments in Treasury securities
held by trust funds and other fund entities and the corresponding debt
owed by the Treasury to these funds cancel out. They are eliminated
from the amounts reported in the consolidated Balance Sheet but
footnote disclosure of these amounts normally has been included.
230. Funds covered by the standard. As pointed out by respondents,
trust funds are not the only type of fund that collects dedicated
moneys. However, the exposure draft did not specifically delineate
which funds might be included in the wider scope. The Board decided
to limit these disclosures to funds where there was a need to show
accountability to contributors and expected beneficiaries. Therefore,
the funds that are covered by this standard are all trust funds, all
special funds that are similar to trust funds, and all fiduciary funds
whether or not in the budget.
231. The federal government does not use a consistent fund designation for
these types of collections. Funds classified by law as trust funds are
established by specific legislation to carry out activities stipulated by
law and frequently are financed by taxes. While the Governments use
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of the term trust funds ordinarily differs from use of the term in the
private sector, a few trust funds within the federal universe have the
stringent fiduciary characteristics similar to those of trust funds in the
private sector. Furthermore, some funds within the budget are
classified as special funds and are similar in nature to non-fiduciary
trust funds within the budget. Providing precise criteria for which nontrust funds are covered by this requirement is difficult. The Board
realized that it will not always be easy for management to identify
accountability expectations of contributors and beneficiaries.
232. On the other hand, no special accountability of a fund is needed for the
sake of those who make voluntary payments in contemporaneous
exchange for goods or services. Once goods and services have been
rendered for the payment made, the purchaser generally does not
expect the fund to provide additional accountability. For this reason
the special reporting requirements do not apply to revolving funds or
other funds financed similarly. However, special accountability may
exist for a revolving fund that collects receipts for goods and services
that are expected to be provided at a later period, such as long-term
insurance contracts, and preparers are encouraged to provide the
needed information in such cases.
233. Funds not part of the reporting entitys financial statements. In
most cases, the requirement will apply to a fund that is included in the
financial statements of the reporting entity. In the case of most
fiduciaries, however, the fund is administered by a reporting entity but
is not part of the reporting entity itself or included in its own general
purpose financial statements. The disclosure requirement applies to
such funds as well.
234. Special reports. Since the primary purpose of this requirement is
accountability to the contributors and expected beneficiaries, all
funds that meet the stated criteria are deemed material in this respect.
Therefore, information needs to be provided regardless of whether it
is material to the reporting entity. However, to minimize the amount of
additional information required in financial statements, where the
disclosures for dedicated collections are made to the contributors and
beneficiaries in special reports and the information required is not
material to the reporting entity, minimal disclosures are included in
the reporting entitys general purpose financial statements or notes
thereto. Special reports provided to representatives of contributors or
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Appendix B:
Guidance For The
Classification Of
Transactions
Introduction
235. The Government of the United States has a great many types of
transactions that finance its cost of operations, and they must be
classified in various ways for revenue accounting in order to achieve
the objectives of the standards in this Statement. The type of
transaction may be an exchange transaction, a nonexchange
transaction, or an other financing source; the transaction may be made
between a Government reporting entity and the public or between two
reporting entities within the Government (i.e., an intragovernmental
transaction). If it is an exchange transaction, it will normally produce
revenue but may produce gains and losses. This appendix provides
guidance for the classification of specific transactions based on the
standards for accounting for revenue and other financing sources, and
the reasoning behind these standards as explained in the Introduction
and the Basis for Conclusions.
236. To serve that purpose, this appendix provides guidance for classifying
all major transactions that finance the Governments cost of
operations and a significant number of lesser transactions. It is
intended that these classifications--together with the explanation of
these classifications, interpreted in the light of the Standards, the
Basis for Conclusions, and the Introductionwill provide guidance
for classifying all the financing transactions of the Government,
including those that are not specifically listed. It should be understood
that while some classifications are unequivocal, others are the result
of balancing different considerations.
237. The transactions in this appendix are divided into several groups.
Transactions recognized in the financial statements have a two-fold
division: first, whether they are with the public or intragovernmental;
and second, whether they are nonexchange transactions, exchange
transactions that produce revenue, exchange transactions that
produce gains or losses, or other financing sources. A separate group
consists of gains and losses due to revaluation.
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240. As a guide to this appendix, the following table lists in order the
transactions that are illustrated, group by group, and cites the page.
Unless otherwise stated:
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Table of Transactions
TRANSACTIONS WITH THE PUBLIC
88
88
Individual income taxes, corporation income taxes, social insurance taxes and contributions, excise taxes,
estate and gift taxes, and customs duties
88
90
90
91
91
93
Donations: except types of property, plant, and equipment that are expensed
94
94
95
Forfeitures
95
97
97
97
Interest (unless classified elsewhere), dividends, and rents (except for mineral rights) on Government property
97
Rents, royalties, and bonuses on Outer Continental Shelf (OCS) and other petroleum and mineral rights.
98
99
99
Interest on delinquent taxes and other receivables that arise as the result of custodial operations
100
Regulatory user fees such as patent and copyright fees; immigration and consular fees; SEC registration and
filing fees; and Nuclear Regulatory Commission fees
100
101
Premiums for SMI (Supplementary Medical Insurance), bank deposit insurance, pension benefit guarantees,
crop insurance, life insurance, and other insurance
101
101
102
102
103
103
Sales of Government assets: other than property, plant, and equipment and forfeited and foreclosed property
104
104
105
105
105
106
106
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106
Seigniorage
106
INTRAGOVERNMENTAL TRANSACTIONS
107
107
Interest on Treasury securities held by trust funds and special funds (except trust revolving funds)
107
108
108
109
Retirement of debt securities prior to maturity: trust funds and special funds (except trust revolving funds)
109
Cancellation of debt
109
110
110
Intragovernmental sales of goods and services by a fund other than a revolving fund
110
Employer entity contributions to pension and other retirement benefit plans for Federal employees
110
Employer entity contributions to health benefit plans for current coverage of Federal employees
111
111
112
112
Interest on uninvested funds received by direct loan and guaranteed loan financing accounts
113
113
113
Retirement of debt securities prior to maturity: revolving funds and trust revolving funds
109
114
Appropriations
114
Cost subsidies: difference between internal sales price (reimbursement) and full cost
114
Cost subsidies: difference between the service cost of pensions (and other retirement benefits), less the
employee contributions, if any, and the employer entity contributions
115
116
117
Interchange between the Railroad Retirement Board and the Social Security and Hospital Insurance trust funds
117
118
Transfer of property, plant, and equipment without reimbursement: types that are expensed
118
REVALUATIONS
118
118
119
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120
120
Borrowing from Treasury, the Federal Financing Bank, or other Government accounts
120
120
120
121
Transfer of property, plant, and equipment without reimbursement: types that are expensed
121
122
122
Downward subsidy reestimates for post-1991 direct loans and loan guarantees
122
122
123
123
123
124
Sales of foreclosed property: associated with post-1991 direct loans and loan guarantees
124
Social insurance does not include programs established solely or primarily for Federal
employees, such as pension and other retirement plans. Social insurance taxes and
contributions do, however, include payments made by or on behalf of Federal employees to
social insurance plans, such as Social Security and Medicare.
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46
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rather than on their own behalf. The collecting entity receives the cash
and then transfers it to the General Fund, trust fund, or special fund on
whose behalf it was collected. The amount so collected should be
accounted for as a custodial activity by the collecting entity. The tax is
recognized as a nonexchange revenue by the entity that is legally
entitled to the amount. This would be a trust fund or special fund in
the case of an earmarked (i.e., dedicated) tax. If collected on behalf of
the Government as a whole, it would be recognized in the
Government-wide consolidated financial statements.
246. Social insurance taxes and contributions paid by Federal
employees.47Federal employees may be covered by social insurance
programs such as Social Security48 and Medicare under the same terms
and conditions as the remainder of the covered population. The
payments made by Federal employees are in the nature of taxes,
compulsory payments demanded by the Government through the
exercise of its power to compel payment. Insofar as the social
insurance program applies to employees of the United States
government, the terms and conditions are generally the same as the
program for private employees. The employer and employee
contributions are generally calculated in the same way; the employee
contribution is not earned by the social insurance program; and the
benefits are generally calculated in the same way. The employee does
not obtain particular benefits under the plan from rendering service in
Federal employment, because he or she would have been similarly
covered by the program if privately employed and would have
obtained similar benefits. For these reasons, the employee
contribution should have the same classification as contributions by
non-Federal employees, which is nonexchange revenue.
247. Deposits by states for unemployment trust fund.States deposit the
receipts from the state unemployment tax to the U.S. Treasury for the
unemployment trust fund in order to finance most of the benefits
under the unemployment compensation system. The state
unemployment tax differs from state to state in terms of the tax rate,
tax base, and certain other characteristics, and unemployment
47
Social insurance does not include programs established solely or primarily for Federal
employees, such as pension and other retirement plans.
48
Most Federal civilian employees hired before 1984 are not covered by Social Security.
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benefits also differ from state to state. Nevertheless, the deposit has
long been construed as a Federal budget receipt (a governmental
receipt), and the unemployment trust fund has long been included as
an account in the Federal budget.
248. This is for a combination of reasons taken together: (a) the
unemployment compensation systemincluding the system of taxes,
the system of benefits, and the trust fundwas established by the
Social Security Act of 1935 and has been amended by Federal law
many times; (b) deposits are held in a trust fund operated by the U.S.
Government; (c) Federal law specifies extensive requirements for the
state unemployment tax and unemployment benefits; (d) the Federal
unemployment tax finances grants to states to cover their entire cost
of administering the unemployment system; and (e) Federal law
effectively coerces states to participate in the system, with
participation requiring them to levy the state unemployment tax and
deposit the collections in the U.S. Treasury. If a state does not
participate (or is not certified by the Department of Labor as meeting
Federal requirements): (i) the Federal unemployment tax is levied
within the state at its maximum rate, (ii) the system does not pay any
unemployment compensation benefits within the state, and (iii) the
Federal Government provides no grants to state governments to pay
for the costs of administration. The deposits of the state tax are
therefore nonexchange revenue of the unemployment trust fund. (The
Federal unemployment tax is levied and collected separately from the
state unemployment tax.)
249. User fees, Harbor Maintenance trust fund. This is an example of a
tax that is termed a user fee by law while classified in the budget as a
governmental receipt together with other taxes and duties. It is an ad
valorem tax of 0.125 percent imposed on commercial cargo loaded and
unloaded at specified U.S. ports open to public navigation. The receipt
is earmarked to the Harbor Maintenance trust fund. It is similar in
nature to other excise taxes that result from the Governments power
to compel payment and that are dedicated to a trust fund or special
fund to be spent for a designated purpose (for example, the gasoline
excise tax, which is dedicated to the Highway Trust Fund). It therefore
should be recognized as nonexchange revenue by the Harbor
Maintenance trust fund.
250. Customs Service fees.The Customs Service collects revenue
primarily from duties on imported merchandise but also from two
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49
These fees are sometimes called the COBRA user fees. This term comes from the
Consolidated Omnibus Budget Reconciliation Act of 1985, which established these fees.
SFFAS 7 - Page 92
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50
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258. Donations: except types of property, plant, and equipment that are
expensed.Donations are contributions to the Government, i.e.,
voluntary gifts of resources to a Government entity by a non-Federal
entity.51 The Government does not give anything of value to the donor,
and the donor receives only personal satisfaction. The donation of
cash, other financial resources, or nonfinancial resources (except
stewardship property, plant, and equipment) is therefore a
nonexchange revenue.
259. The exception, stewardship PP&E, consists of Federal mission PP&E,
heritage assets, and stewardship land. Such PP&E is expensed if
purchased, but no amount is recognized if it is received as a
donation.52 Correspondingly, no revenue is recognized for such
donations.
260. Fines and penalties.Fines and penalties are monetary requirements
imposed on those who violate laws or administrative rules. The person
or other entity that pays a fine or penalty does not receive anything of
value in exchange, nor does the Government sacrifice anything of
value. The Government collects these amounts through the exercise of
its power to compel payment. Fines and penalties are therefore a
nonexchange revenue.
261. Fines from judicial proceedings are collected by the entity acting as an
agent for the Government as a whole rather than on its own behalf.
They are therefore accounted for as a custodial activity of the
collecting entity and recognized as a nonexchange revenue in the
Government-wide consolidated financial statements.
262. Fines and penalties produced by an entitys operationssuch as
inspections to ensure compliance with Federal law and with
regulations that are the responsibility of the entity (e.g., inspections by
the Office of Surface Mining) or compliance with regulations for the
conduct of a Federal programare recognized as nonexchange
revenue by whichever entity is legally entitled by law to the revenue.
In some cases, but not all, this would be the collecting entity. If the
51
The term donations includes wills disposing of property and judicial proceedings other
than forfeitures.
52
SFFAS No. 6, Accounting for Property, Plant, and Equipment, para. 61 and 71.
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53
This amends SFFAS No. 3, Accounting for Inventory and Related Property, with respect to
forfeitures related to satisfying tax liabilities.
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54
SFFAS No. 3, para. 57-78. The standard also requires deferred revenue to be recognized
when a forfeiture judgment is obtained, but the deferred revenue is reversed when revenue
is recognized. The amount of revenue ordinarily differs from the amount of deferred
revenue. In some cases, an adjustment subsequent to the original forfeiture judgment may be
necessary when it is later determined that a portion of the forfeiture is to be distributed to
state or local law enforcement agencies or foreign governments.
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270. Sales of goods and services.The cost of production for goods and
services such as electricity, mail delivery, and maps is defrayed in
whole or in part by revenue from selling the goods or services
provided. The sales may be made by a public enterprise revolving fund
(such as the Bonneville Power Administration), an intragovernmental
revolving fund (such as the Government Printing Office), or a fund
that is not a revolving fund (such as the Geological Survey). Each
party receives and sacrifices something of value. The sale is therefore
an exchange transaction, and the revenue is exchange revenue for the
entity making the sale.
271. Sales of goods and services in undercover operations.The cost of
the Governments undercover operations is defrayed in whole or in
part from the proceeds of sales of goods that have been purchased (as
opposed to goods that have been forfeited). Each party receives and
sacrifices something of value. These characteristics of the transaction
are not affected by whether the sale is illegal. The sale is therefore an
exchange transactions, and the revenue is exchange revenue of the
entity making the sale.
272. Interest (unless classified elsewhere), dividends, and rents (except for
mineral rights) on Government property.Each party receives and
sacrifices something of value, so the inflow of resources is an
exchange transaction.
273. Interest is classified as exchange revenue notwithstanding the fact
that the entity may not be charged a cost of capital for the assets that
yield these inflows; or, if the entity borrowed from Treasury to acquire
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the assets, it may have been charged a below-market interest rate. The
gross cost of the entity is understated in such cases; and to recognize
an exchange revenue is to recognize a revenue without some or all of
the related costs, and hence to understate the entitys net cost of
operations. Nevertheless, in some cases the entity does pay the
Treasury at least some interest; and the Governments cost of
borrowing to acquire the assets is recognized as a cost of the
Government as a whole. Since some cost is recognized, even if not
always the full cost of the entity,55 an exchange revenue is recognized
for the entity that receives the inflow of interest.
274. Rents, royalties, and bonuses on Outer Continental Shelf (OCS) and
other petroleum and mineral rights.Rents, royalties, and bonuses
are exchange revenues, because each party receives and sacrifices
something of value. The amounts are earned by sales in the market
and therefore are exchange revenue. They are collected by the
Minerals Management Service (MMS) of the Department of the
Interior, which manages the energy and minerals resources on the
OCS and collects the amounts due the Government and Indian tribes
from minerals produced on the OCS and other Federal and Indian
lands.
275. MMS does not recognize a depletion cost for various reasons,
including the fact that under present accounting standards natural
resources are not recognized as an asset and depletion is not
recognized as a cost. As a result, this exchange revenue bears little
relationship to the recognized cost of MMS and cannot be matched
against its gross cost of operations. Therefore, although the inflows
are exchange revenue, they should not be subtracted from MMSs
gross cost in determining its net cost of operations.
276. MMS collects rents, royalties, and bonuses and distributes the
collections to the recipients designated by law: the General Fund,
certain entities within the Government to which amounts are
earmarked, the states, and Indian tribes and allottees. MMS collection
activity for non-federal entities may meet the definition of fiduciary
activity and, if so, should be accounted for in accordance with the
55
The partial recognition of associated cost distinguishes interest from rents, royalties, and
bonuses on the Outer Continental Shelf and the auction of the radio spectrum. For the latter
transactions, see the subsequent paragraphs.
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56
Post-1991 direct loans consist of direct loans that were obligated after September 30, 1991,
whereas pre-1992 direct loans consist of direct loans that were obligated before October 1,
1991. The same accounting that is used for post-1991 direct loans is also used for pre-1992
direct loans that were modified and transferred to financing accounts; loans receivable
arising from defaulted post-1991 guaranteed loans; and loans receivable arising from
defaulted pre-1992 guaranteed loans that were modified and transferred to financing
accounts.
57
For interest on pre-1992 direct loans, see the preceding section on interest (unless
classified elsewhere) . . .
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transaction in which the entity makes a loan to the borrower and the
entity and borrower each receives and sacrifices something of value.
Interest on direct loans that are budgeted according to the provisions
of the Federal Credit Reform Act of 1990 consists of two components:
the nominal interest (the stated interest rate times the nominal
principal) and the amortized interest (change in present value of the
loans receivable due to the passage of time). The combined effect of
these components equals the effective interest, which is directly
defined as the present value of the loans receivable times the Treasury
interest rate applicable to the particular loans (i.e., the interest rate
used to calculate the present value of the direct loans when the direct
loans were disbursed). The effective interest causes an equal increase
in the aggregate value of the assets on the balance sheet, and therefore
the effective interest is the amount recognized as exchange revenue.58
281. Interest on delinquent taxes and other receivables that arise as the
result of custodial operations.Receivables that arise as the result of
custodial operations are custodial (or non-entity) assets, held by the
IRS or another entity as an agent for the Government as a whole rather
than on its own behalf (e.g., IRS tax receivables on which the
delinquent taxpayer must pay interest). The interest is an exchange
revenue, because each party receives and sacrifices something of
value, but it is not related to the costs incurred by the collecting entity.
The interest is accounted for as a custodial activity by the collecting
entity. If transferred to the General Fund, the interest is recognized as
exchange revenue in the Government-wide consolidated financial
statements because it is related to the governments cost of borrowing;
if transferred to another entity, it is recognized as nonexchange
revenue by the entity that receives the transfer.
282. Regulatory user fees such as patent and copyright fees; immigration
and consular fees; SEC registration and filing fees; and Nuclear
Regulatory Commission fees.Regulatory user fees are charges based
on the Governments power to regulate particular businesses or
activities. The revenue is related to the cost in one of two ways.
Special benefits may be provided to identifiable recipients who pay the
fees, beyond the benefits, if any, that accrue to the general public (e.g.,
passport fees); or the Government may incur costs in order to regulate
an identifiable entity for the benefit of the general public or some
58
See SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees, paragraphs 30-31 and
37; for an illustrative case study, also see Appendix B.
SFFAS 7
59
Federal employee retirement plans do not include social insurance, such as Social Security
and Medicare.
SFFAS 7
For further discussion of the accounting standards for pensions and other retirement
benefits of Federal employees, see SFFAS No. 5, Accounting for Liabilities of the Federal
Government, para. 56-93 and 148-181. The standards do not cover accounting for the plan
per se as distinct from the administering entity. Nor do they cover defined contribution
plans, or administrative entities that are not Federal reporting entities.
SFFAS 7
SFFAS 7
294. Sales of Government assets: other than property, plant, and equipment
and forfeited and foreclosed property.The sale of Government
assets (other than property, plant, and equipment and forfeited and
foreclosed property) is an exchange transaction, because each party
receives and sacrifices something of value. If the sales price equals
book value, there is no gain or loss, because a cash inflow equal to
book value is the exchange of one asset for another of equal recorded
value and therefore not a net inflow of resources. If the sales price is
more or less than the book value of the property, a gain or loss,
respectively, is recognized to the extent of the difference. The amount
of the difference between sales price and book value is ordinarily a
gain or loss rather than a revenue or expense, because sales of
property are ordinarily an unusual or nonrecurring inflow of
resources.
295. Sales of property, plant, and equipment. The transaction is an
exchange transaction, because each party receives and sacrifices
something of value. If the sales price61 equals book value, there is no
gain or loss, because a cash inflow equal to book value is the exchange
of one asset for another of equal recorded value and therefore not a
net inflow of resources. If the sales price is more or less than book
value, a gain or loss, respectively, is recognized to the extent of the
difference. The amount of the difference is ordinarily a gain or loss
rather than a revenue or an expense, because sales of property, plant,
and equipment are ordinarily an unusual or nonrecurring inflow of
resources.
296. The entire sales price is a gain if the book value of the asset is zero.
The book value is zero (a) if the asset is general property, plant, and
equipment (PP&E) that is fully depreciated or written-off or (b) if the
asset is stewardship PP&E, for which the entire cost is expensed when
the asset is purchased.62
61
The sales price may include the fair value of items received in exchange.
62
SFFAS No. 6, Accounting for Property, Plant, and Equipment, has divided property, plant,
and equipment (PP&E) into two basic categories: general PP&E and stewardship PP&E
(which consists of federal mission PP&E, heritage assets, and stewardship land). General
PP&E is capitalized and recognized on the balance sheet; stewardship PP&E is expensed
and thus has no book value. (Stewardship PP&E is presented in a stewardship statement.)
SFFAS 7
63
See SFFAS No. 6, Accounting for Property, Plant, and Equipment, para. 32.
64
65
See SFFAS No. 3, Accounting for Inventory and Related Property, para. 79-91.
SFFAS 7
66
This difference is due to the different interest rates used to discount future cash flows for
calculating the subsidy cost (and subsidy allowance) when the loan is made and for
calculating the cost of modification at a later time. If the sale is with recourse, the present
value of the estimated loss from the recourse is also recognized as an expense.
67
See SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees, para. 53-55 and
Appendix B, Part II(B).
68
SFFAS No. 5, Accounting for Liabilities of the Federal Government, para. 54.
SFFAS 7
Intragovernmental
Transactions
Nonexchange transactions
intragovernmental: revenue
306. Interest on Treasury securities held by trust funds and special funds
(except trust revolving funds).Many trust funds and special funds
hold Treasury securities on which they receive interest. In most cases
the invested balances of these funds derive predominantly from the
funds earmarked taxes, which are nonexchange transactions with the
public (e.g., employment taxes and gasoline taxes), and to a lesser
extent from other financing sources received from other government
entities (e.g., the General Fund payment appropriated to the
Supplementary Medical Insurance fund). The balances are not earned
in exchange transactions by the entitys operations. Most
fundamentally, they are not produced by operations in which the entity
incurs a cost.
307. Therefore, in such cases, the interest on Treasury securities should not
be deducted from the gross costs of the trust fund (or special fund), or
the organization in which it is administered, in determining its net cost
of operations. As a result, that interest should not be classified as
exchange revenue. It should instead have the same classification as
the predominant source of the invested balances, which for most trust
funds (and special funds) is nonexchange revenue. The interest
received from invested balances of trust funds and special funds
(except trust revolving funds) is therefore normally a nonexchange
revenue.
308. The source of balances for some trust funds and special funds may not
be predominantly nonexchange revenue. For example, the main
source of balances for two major trust funds, the Civil Service
Retirement and Disability fund and the Military Retirement fund,
consists of exchange revenue and other financing sources. In such
exceptional cases, as explained in the Basis for Conclusions, the
interest should be classified in the same way as the predominant
SFFAS 7
69
Social insurance does not include programs established solely or primarily for Federal
employees, such as pension and other retirement plans.
70
Most Federal civilian employees hired before 1984 are not covered by Social Security.
SFFAS 7
Nonexchange transactions
intragovernmental: gains and
losses
311. Retirement of debt securities prior to maturity: trust funds and special
funds (except trust revolving funds).Treasury securities held by
trust funds and special funds are primarily issued in the Government
account series, which can generally be redeemed on demand. Other
Treasury securities held by these funds may also be callable or
redeemable on demand. If these debt securities are retired before
maturity, the difference, if any, between the reacquisition price and the
net carrying value of the extinguished debt should be recognized as a
gain or loss by the fund that owned the securities. The gain or loss
should be accounted for as a nonexchange gain or loss if the interest
on the associated debt securities is classified as nonexchange revenue,
and it should be accounted for as an exchange gain or loss if the
interest on the associated debt securities is classified as exchange
revenue. For trust funds (except trust revolving funds) and special
funds, as explained elsewhere, the interest is normally but not always
a nonexchange revenue.
312. The difference, if any, between the reacquisition price and the net
carrying value of the extinguished debt should be recognized as a loss
or gain in accounting for interest on Treasury debt. The amount should
be equal in absolute value but with the opposite sign to the gain or loss
recognized by the trust fund or special fund. The amount should be
recognized as a gain or loss from exchange in order to offset it against
the gross interest on Treasury debt in the Government-wide
consolidated financial statements.
313. Cancellation of debt.The debt that an entity owes Treasury (or other
agency) may be canceled by Act of Congress. The amount of debt that
is canceled (including the amount of capitalized interest that is
canceled, if any) is a gain to the entity whose debt is canceled and a
loss to Treasury (or other agency). The purpose of borrowing
authority is generally to provide an entity with capital rather than to
finance its operations. Therefore, the cancellation of debt is not
earned by the entitys operations and is not directly related to the
entitys costs of providing goods and services. As a result, the
cancellation is a nonexchange gain to the entity that owed the debt
and a nonexchange loss to the lender.
SFFAS 7
Exchange transactions
intragovernmental: revenue
71
For further discussion of the accounting standards for pensions and other retirement
benefits for federal employees, see SFFAS No. 5, Accounting for Liabilities of the Federal
Government, para. 56-93 and 148-181. The standards do not cover accounting for the plan
per se as distinct from the administering entity. Nor do they cover defined contribution
plans, or administrative entities that are not Federal reporting entities.
SFFAS 7 - Page 110
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72
See SFFAS No. 5, Accounting for Liabilities of the Federal Government, para. 96 and para.
181, footnote 70.
SFFAS 7
SFFAS 7
325. The source of balances for some trust revolving funds may not be
predominantly exchange revenue. For such exceptions, as explained
in the Basis for Conclusions, the interest should be classified in the
same way as the predominant source of balances rather than
according to the normal rule.
326. Interest on uninvested funds received by direct loan and guaranteed
loan financing accounts.A guaranteed loan financing account holds
uninvested balances as reserves against its loan guarantee liabilities
and earns interest on these balances that adds to its resources to pay
these liabilities. A direct loan financing account may hold uninvested
balances to bridge transactions that are integral to its operations, such
as when it borrows from Treasury to disburse direct loans prior to the
time of disbursement; it earns interest on these balances to reflect the
time value of money and thereby finance the interest it pays on its debt
to Treasury. Thus, in both cases, the interest received by the financing
account is earned through exchange transactions with Treasury and is
an offset to the financing accounts related costs of operations. The
interest is therefore an exchange revenue of the financing account.
327. Interest received by Treasury.Accounts or funds (including direct
loan and guaranteed loan financing accounts) may be authorized to
borrow from the Treasury or from the Federal Financing Bank (an
entity within Treasury) or other sources. The interest that the entity
pays on its borrowings is a cost to the entity and an inflow of
resources to the Treasury. The Treasury may be deemed to have
borrowed from the public to finance the outlays for which the entity
borrowed, and thus to have incurred a corresponding interest cost of
its own. The interest received by Treasury from the entity is therefore
related to Treasurys cost of borrowing from the public and should be
classified as an exchange revenue.
Exchange transactions
intragovernmental: gains and
losses
SFFAS 7
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services from another entity without paying the full cost of the goods
or services or without paying any cost at all. Other Federal accounting
standards may require the receiving entity to recognize the full cost as
an expense (or, if appropriate, as an asset). In these cases the
difference between full cost and the internal sales price or
reimbursement (sometimes called a transfer price) is an imputed
cost to the receiving entity.73
334. The financing of the imputed cost is also imputed to the receiving
entity. Imputed financing is necessary so that the imputed cost does
not reduce the entitys operating results and net position. The imputed
financing equals the imputed cost and is recognized as an other
financing source. It is not a revenue, because the receiving entity does
not earn the amount imputed or demand its payment.
335. Cost subsidies: difference between the service cost of pensions (and
other retirement benefits), less the employee contributions, if any, and
the employer entity contributions.The service cost of pensions (and
other retirement benefits) to the employer entity, less the employee
contributions, if any, is recognized as a cost to the employer entity. The
difference between the employer entitys cost and its contributions, if
any, is imputed to the employer entity as part of its recognized cost.
For pensions, the cost recognized by the employer entity is more than
its contribution for employees who are covered by the Civil Service
Retirement System and several minor systems (in a few of which the
employer entity does not make any contributions toward the service
cost). For retirement health care benefits, neither the employees nor
the employer entity make any contributions while the employee is
working.74 Therefore, the entire service cost is recognized as a cost to
the employer entity and imputed to it.
336. The financing of the imputed cost is also imputed to the employer
entity.75 The imputed financing is necessary so that the imputed cost
73
See SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal
Government, para. 105-115.
74
Retired employees do pay premiums, however, and the service cost to the employer entity
is defined net of the actuarial present value of those future premiums.
75
SFFAS 7
does not reduce the employer entitys operating results and net
position. The imputed financing equals the imputed cost and is
recognized as an other financing source. It is not a revenue, because
the employer entity does not earn the amount imputed or demand its
payment.76
337. (This transaction differs from the immediately preceding transaction,
in which an entity does not pay the full cost of the goods or services it
receives from another entity. In the present case, the employer entity
acquires the services of the employees itself, but another entity pays
part of their cost.)
338. Contribution by the General Fund to the SMI trust fund.The General
Fund makes a contribution to the SMI (Supplementary Medical
Insurance) trust fund. This appropriated payment is separate from the
transfer of earmarked premiums and is not a transfer of earmarked
taxes or other income. It does not arise from an exchange transaction,
because SMI does not sacrifice any value to the General Fund in
exchange for the payment, and the General Fund does not receive
anything of value from SMI. Instead, the payment constitutes a
General Fund subsidy of the SMI trust fund. Since the payment is not
demanded or earned, it is an other financing source to SMI rather than
a revenue.
339. Examples of other payments of a similar nature (and also classified as
other financing sources) are the payment by the General Fund to the
social security trust funds for military service credits and for certain
uninsured persons at least 72 years old; and the payment by the
General Fund to the Railroad Retirement Board for the vested dual
benefit payments received by certain retirees under both the railroad
retirement and the social security systems. The quinquennial military
service credit adjustment paid between the General Fund and the
social security trust funds is likewise an other financing source to the
social security trust funds but one that may be either positive or
negative.
76
For further discussion of the accounting standards for pensions and other retirement
benefits for federal employees, see SFFAS No. 5, Accounting for Liabilities of the Federal
Government, para. 56-93 and 148-181. The standards do not cover accounting for the plan
per se as distinct from the administering entity. Nor do they cover defined contribution
plans, or administrative entities that are not Federal reporting entities.
SFFAS 7
SFFAS 7
Revaluations
SFFAS 7
77
SFFAS No. 6, Accounting for Property, Plant, and Equipment, para. 39.
78
See SFFAS No. 3, Accounting for Inventory and Related Property, para. 29-30, 47-48, 54, 97,
and 107.
SFFAS 7
Transactions Not
Recognized As
Revenues, Gains, Or
Other Financing Sources
SFFAS 7
See SFFAS No. 6, Accounting for Property, Plant, and Equipment, para. 32.
SFFAS 7
360. If multi-use heritage assets are transferred and some cost was
recognized for them on the books of the transferring entity, that cost is
recognized as a transfer-out (a negative other financing source) of
capitalized assets. No amount is recognized by the entity that receives
the asset.80
361. Donation of property, plant, and equipment: types that are
expensed.The acquisition cost of stewardship property, plant, and
equipment (PP&E) is recognized as a cost when incurred. Such PP&E
consists of Federal mission PP&E, heritage assets, and stewardship
land. When such PP&E is donated to the Government, however, no
amount is recognized as a cost.81 Since the donation of such PP&E
does not affect the net cost or net position of the recipient entity, it is
not a revenue, a gain, or an other financing source.
362. Negative subsidies on post-1991 direct loans and loan guarantees.A
negative subsidy means that the direct loans or loan guarantees are
estimated to make a profit, apart from administrative costs (which are
excluded from the subsidy calculation by law). The amount of the
subsidy cost is recognized as an expense when the direct loan or
guaranteed loan is disbursed. A negative subsidy is recognized as a
direct reduction in expense, not as a revenue, gain, or other financing
source.82
363. Downward subsidy reestimates for post-1991 direct loans and loan
guarantees.A downward subsidy reestimate means that the subsidy
cost of direct loans or loan guarantees is estimated to be less than had
previously been estimated. The initial subsidy cost is recognized as an
expense; a positive subsidy reestimate is recognized as an expense;
and a downward subsidy reestimate is recognized as a direct reduction
in expense, not as a revenue, gain, or other financing source.
364. Fees on post-1991 direct loans and loan guarantees.The present
value of estimated fees is included as an offset in calculating the
80
SFFAS No. 6, Accounting for Property, Plant, and Equipment, para. 61 and 72.
81
Ibid.
82
For standards on direct loans and loan guarantees, see SFFAS No. 2, Accounting for Direct
Loans and Loan Guarantees. The accounting for negative subsidy costs is symmetrical to the
accounting for positive subsidy costs.
SFFAS 7
83
84
If the actual repayment is different from the previous estimate, the present value of the
difference between cash inflows and outflows over the term of the loancalculated as of
the date of disbursementis reestimated and is recognized as a subsidy expense or a
reduction in subsidy expense.
85
If the loan is not repaid, the unpaid amount is recognized as an adjustment to the bad debt
allowance and does not affect revenue, gains, or other financing sources.
SFFAS 7
86
If the receivable is not repaid, the unpaid amount is recognized as an adjustment to the bad
debt allowance and does not affect revenue, gains, or other financing sources.
87
This difference is due to the different interest rates used to discount future cash flows for
calculating the subsidy cost (and subsidy allowance) when the loan is disbursed and for
calculating the cost of modification at a later time. If the sale is with recourse, the present
value of the estimated loss from the recourse is also recognized as an expense.
88
SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees, para. 53-55 and Appendix
B, Part II(B).
SFFAS 7
89
See SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees, para. 57-60 and
Appendix B, Part III(E); and SFFAS No. 3, Accounting for Inventory and Related Property,
para. 79-91 and 154-158.
SFFAS 7
Appendix C: Glossary
SFFAS 7
Index Of Transactions
Classified In
Appendix B
SFFAS 7
SFFAS 7
SFFAS 7
List of
Abbreviations
Status
Issued
Effective Date
For fiscal years beginning after September 30, 1997 except for the consolidated financial
report of the Federal Government (CFR). For the CFR: Chapters 6 through 7 are not
effective until further action by the Board.
None.
Affects
None.
Affected by
SFFAS 17 provides standards for accounting for social insurance. SFFAS 8, paragraphs
116-117 deferred consideration of social insurance.
SFFAS 23, par. 9 affects SFFAS 8 by rescinding the prefatory box preceding paragraph
52 and paragraphs 52 through 70 (Chapter 3).
SFFAS 25, paragraph 5 rescinds chapter 8 and paragraphs 14-16 of SFFAS 8, and the
associated Illustration of the Current Services Assessment in Appendix B of SFFAS 8.
SFFAS 29, par 12 rescinded Chapter 2 (Heritage Assets) and par. 31 rescinded
Chapter 4 (Stewardship Land) and the associated Illustrations in Appendix B of
SFFAS 8. SFFAS 29 provides the standards for Heritage Assets and Stewardship Land.
SFFAS 8 - Page 1
SFFAS 8
Summary
This Statement establishes standards for reporting on the Federal Governments stewardship over 1) certain
resources entrusted to it, identified as stewardship property, plant, and equipment and stewardship
investments, and 2) certain responsibilities assumed by it, identified as the current service assessment. The
resources and responsibilities do not meet the criteria for assets and liabilities that are required to be reported
in the financial statements but are, nonetheless, important to an understanding of the operations and financial
condition of the Federal Government at the date of the financial statements and in subsequent periods.
Because the Government has been entrusted with, and made accountable for, these resources and
responsibilities, they should be recognized in the financial reports of the Federal Government and of its
component entities.
Stewardship resources are investments by the Federal Government for the benefit of the Nation. When made,
they are treated as expenses in the financial statements. These expenses, however, are intended to provide
long-term benefits to the public. Therefore, this Statement requires that information on these resources be
reported to highlight their long-term-benefit nature and to demonstrate accountability over them. Depending
on the nature of the resources, stewardship reporting could consist of financial and nonfinancial data.
This Statement establishes reporting requirements based on the categories defined below:
a
The purpose of this Statement is to establish standards for reporting on the Federal Government's
stewardship over 1) certain resources entrusted to it, identified as stewardship property, plant, and
equipment and stewardship investments, and 2) certain responsibilities assumed by it, identified as the
current service assessment. The resources and responsibilities do not meet the criteria for assets and
liabilities that are required to be reported in the financial statements but are, nonetheless, important to
an understanding of the operations and financial condition of the Federal Government at the date of the
financial statements and in subsequent periods. Because the Government has been entrusted with, and
made accountable for, these resources and responsibilities, they should be recognized in the financial
reports of the Federal Government and of its component entities. This determination was made to more
fully satisfy the stewardship objective defined in the concepts statement, Objectives of Federal Financial
Reporting.1
The stewardship objective requires that the Federal Government "report on the broad outcomes of its
actions." Such reporting will provide information that could help report users assess the impact of the
Government's operations and activities for the period on its financial condition.2
Stewardship resources involve substantial investment by the Federal Government for the benefit of the
Nation. When made, they are treated as expenses in the financial statements. These expenses, however,
SFFAS 8
are intended to provide long-term benefits to the public. Therefore, this Statement requires that
information on these resources be reported to highlight their long-term-benefit nature and to
demonstrate accountability over them. Depending on the nature of the resources, stewardship reporting
could consist of financial and nonfinancial data.
e
Given the above purpose, this Statement established standards for supplementary stewardship reporting
for Stewardship Investment
Stewardship Investments - items treated as expenses in calculating net cost but meriting special
treatment to highlight their substantial investment and long-term-benefit nature. This includes:
Nonfederal Physical Property - grants provided for properties financed by the Federal
Government, but owned by the state and local governments.
Costs incurred for education and training programs that are designed to increase or maintain
national economic productive capacity and research efforts to provide future benefits or returns. These
include:
Human Capital - education and training programs financed by the Federal Government for the
benefit of the public.
All stewardship information is deemed "required supplemental stewardship information" (RSSI). Audit
requirements for RSSI will be established in a collaborative effort by the Office of Management and
Budget (OMB) and the Government Accountability Office (GAO).
The introduction and background chapter of this standard provides information on the approaches used
to develop the standards for supplementary stewardship reporting. Appendices include a basis for the
Board's conclusions, sample stewardship reports, and a glossary of terms used in the Statement. Firsttime use of glossary terms within the body of this document appear in boldface.
SFFAS 8 - Page 3
SFFAS 8
Table Of Contents
Contents
Page
16
16
17
17
19
22
26
27
34
40
SFFAS 8 - Page 4
SFFAS 8
Chapter 1:
Introduction And
Background
Purpose
1.
2.
1
Physical assets supporting Federal operations to provide goods and services to the public,
referred to as general property, plant and equipment (PP&E), are addressed in Accounting
for Property, Plant and Equipment, SFFAS No. 6.
SFFAS 8 - Page 5
SFFAS 8
Background And
Rationale
3.
4.
5.
6.
SFFAS 8 - Page 6
SFFAS 8
Financial Condition
7.
8.
9.
SFFAS 8 - Page 7
SFFAS 8
Stewardship PP&E
Stewardship Investments
SFFAS 8 - Page 8
SFFAS 8
Stewardship Responsibilities
Stewardship Categories
Or Elements
SFFAS 8 - Page 9
SFFAS 8
SFFAS 8 - Page 10
SFFAS 8
Stewardship
Information
Measurement
24. The separate standards for each stewardship element contain specific
guidance for that element. In general, however, stewardship
SFFAS 8 - Page 11
SFFAS 8
See Managerial Cost Accounting Concepts and Standards, SFFAS No. 4, for a discussion
of Federal cost accounting principles and standards.
An example of a grant with a split purpose is a grant issued to a teaching hospital to perform
both medical education and medical research.
SFFAS 8 - Page 12
SFFAS 8
Reporting Requirements
34. Within each of the standards, minimum required and, in some cases,
recommended reporting is described. These requirements and
recommendations, including a phasing-in process for entities who may
not have required data available at the implementation of the
standards, are contained in the individual standards. These
requirements describe the nature of items to be reported by Federal
entities; guidance on the form and content of agency financial reports,
See Managerial Cost Accounting Concepts and Standards, SFFAS No. 4, for a discussion of
Federal cost accounting principles and standards.
SFFAS 8 - Page 13
SFFAS 8
Social Insurance
36. The Board first considered accounting and reporting for social
insurance programs while considering SFFAS No. 5, Accounting for
Liabilities of the Federal Government. The Board concluded, at that
time, that the topic should be made part of the Supplementary
Stewardship Reporting project.
37. Research and deliberations regarding social insurance have continued
as part of the Supplementary Stewardship Reporting project. However,
the Board, recognizing the magnitude and complexity of these
programs, the strength of the views on the accounting and reporting
issues, the significant attention being focused on these programs at
the present time, and the potential for change to the programs, has
again concluded that additional consideration is appropriate before
issuing final guidance. Accordingly, the Board has not included
guidance on social insurance in this Statement and has added a Social
Insurance Accounting project to its agenda.
Applicability
38. This standard requires that the consolidated financial reports10 of the
Federal Government and the financial reports of its component units
contain RSSI relating to:
10
The terms financial statements and consolidated financial statements are used
throughout this document to refer to the basic financial statements of a reporting entity; the
basic financial statements normally include: the balance sheet, the statements of net cost,
changes in financial position, financing, budgetary resources, and custodial activities and
the notes to the financial statements. The terms financial reports and consolidated
financial reports are used to refer to a document which would include the financial
statements but which would also include items such as: a management discussion and
analysis section, a statement of program performance measures, required supplemental
information or required supplementary stewardship information not included in the
financial statements or other supplemental financial and management information.
SFFAS 8 - Page 14
SFFAS 8
SFFAS 8 - Page 15
SFFAS 8
Materiality
Effective Date
42. The accounting standards in this statement, except for the standards
described in Chapters 2-7 to the extent that they related to the
consolidated financial report of the Federal Government, are effective
for fiscal periods beginning after September 30, 1997. Earlier
implementation is encouraged. See paragraph 39 for the effective date
of standards in Chapters 2-7 relating to the consolidated financial
report.
...[Chapter 2 was rescinded by SFFAS 29, par. 12. See SFFAS 29 for
Standards on Heritage Assets.]
...[Chapter 3 (par. 52-70) was rescinded by SFFAS 23, par. 9.]
SFFAS 8 - Page 16
SFFAS 8
...[Chapter 4 was rescinded by SFFAS 29, par. 31. See SFFAS 29 for
Standards on Stewardship Land.]
Chapter 5:
Nonfederal Physical
Property Standard
Definition
Measurement
See Managerial Cost Accounting Concepts and Standards, SFFAS No. 4, for a full
discussion of Federal cost accounting principles and standards.
SFFAS 8 - Page 17
SFFAS 8
86. Expenses incurred for program costs, contracts, or grants with split
purposes2 shall be reported on the basis of an allocation of the
expenses. If allocation is not feasible, the investment shall be reported
on the basis of the predominant application of the expense or transfer.
Minimum Reporting
As defined in this standard, annual investment includes more than the annual expenditure
reported by character class for budget execution. Annual investment is the full cost of the
investment. Full cost shall be measured and accounted for in accordance with Managerial
Cost Accounting Concepts and Standards, SFFAS No. 4.
SFFAS 8 - Page 18
SFFAS 8
Recommended
Reporting
Chapter 6: Human
Capital
Human Capital
Definition
90. The definition excludes education and training expenses for Federal
civilian and military personnel. It also excludes education and training
expenses whose purpose is not maintaining or enhancing national
productive capacity.
SFFAS 8 - Page 19
SFFAS 8
Measurement
See Managerial Cost Accounting Concepts and Standards, SFFAS No. 4, for a full
discussion of Federal cost accounting principles and standards.
5
The human capital outputs and outcomes should be the same as those measured for the
Government Performance and Results Act (GPRA) and the budget and could be reported in
a Statement of Program Performance Measures as described in Appendix 1-F to the
concepts statement entitled, Entity and Display, SFFAC No. 2.
SFFAS 8 - Page 20
SFFAS 8
Minimum Reporting
As defined in this standard, annual investment includes more than the annual expenditure
reported by character class for budget execution. Annual investment is the full cost of the
investment. Full cost shall be measured and accounted for in accordance with Managerial
Cost Accounting Concepts and Standards, SFFAS No. 4.
SFFAS 8 - Page 21
SFFAS 8
Recommended
Reporting
Chapter 7: Research
& Development
Definition
SFFAS 8 - Page 22
SFFAS 8
Measurement
See Managerial Cost Accounting Concepts and Standards, SFFAS No. 4, for a full
discussion of Federal cost accounting principles and standards.
10
11
The research and development outputs and outcomes should be the same as those
measured for the Government Performance and Results Act (GPRA) and the budget and will
be reported in a Statement of Program Performance Measures as described in Appendix 1-F
to Entity and Display, SFFAC No. 2.
SFFAS 8 - Page 23
SFFAS 8
12
SFFAS 8 - Page 24
SFFAS 8
Minimum Reporting
13
As defined in this standard, annual investment includes more than the annual
expenditure reported by character class for budget execution. Annual investment is the
full cost of the investment. Full cost shall be measured and accounted for in accordance
with Managerial Cost Accounting Concepts and Standards, SFFAS No. 4.
SFFAS 8 - Page 25
SFFAS 8
Recommended
Reporting
Chapter 8: Current
Services
Assessment
SFFAS 8 - Page 26
SFFAS 8
Appendix A: Basis
For Conclusions
The Nature Of
Stewardship Reporting
SFFAS 8 - Page 27
SFFAS 8
records. Thus reliance on financial records for audit backup would not
be feasible.
114. On the other hand, the Board believes that certain stewardship
information should receive more audit scrutiny than it would if it were
RSI. For RSI, the auditor reviews the data for overall compliance with
associated guidance and for consonance with the basic financial
statements. The auditor usually provides in-depth review of the RSI
only if there appears to be some problem with the data. If he or she
believes that the data is not fairly presented, the auditor still may issue
a clean opinion on the basic financial statements while noting that
there are problems with the RSI.
115. Therefore, the Board has proposed that a new category, RSSI, be
designated to cover stewardship reporting. By developing this new
category, it is anticipated that audit standards will be developed to
address the specific items in that category. Although the Board does
not have authority to set audit standards, it established RSSI with the
expectation that OMB and GAO will, in collaboration, determine
appropriate audit procedures for this information.
Social Insurance
SFFAS 8 - Page 28
SFFAS 8
Expensing Stewardship
PP&E
SFFAS 8 - Page 29
SFFAS 8
Costing Of Federal
Mission PP&E
[SFFAS 11]
Reporting Expense Or
Outlay Data
122. The standards require that expense data be reported for investments
in human capital, research and development, and nonfederal physical
property. The standards also provide for a period of 5 years to
transition to reporting expense data for those agencies that currently
maintain only outlay data. Some Board members suggested that since
some agencies currently maintain only outlay data, requiring that only
outlay data be reported might be more practical. However, the
responses reflected a clear consensus for reporting expenses, with
little or no support for reporting outlays only, and a minority preferring
to report both expenses and outlays. Therefore, the standards, as
proposed, remain unchanged.
123. When the Board developed the standards for stewardship reporting,
its intention was to provide overall guidance on definitions,
recognition, measurement, and minimum and recommended
reporting. This broad guidance was intended to provide the basic
reporting requirements while allowing each entity maximum flexibility
in such areas as determining what constitutes the individual
stewardship items for that entity, which costs are directly attributable
to the stewardship item, and how best to report on multi-use items so
SFFAS 8 - Page 30
SFFAS 8
that users will gain the best picture of the entitys financial and
performance information.
124. The Board believes that the desire for more specific guidance
expressed by several respondents stems from the belief that without
such guidance, an entitys determination of how to apply the standards
could be questioned. Nevertheless, the Board reiterates its position
that entities should be provided maximum flexibility when applying
the stewardship standards. However, entities should make the
determination of how best to apply the stewardship standards based
on a thorough analysis of their individual entity, including its mission,
financial practices, and the impact of its mission and operation on
financial report users and on the Nation. Finally, all entity
determinations of the applicability of stewardship standards should be
thoroughly documented.
SFFAS 8 - Page 31
SFFAS 8
the Nation) or not meaningful (e.g., the historical cost to build the
Washington Monument). Therefore, they questioned the cost/benefit
of requiring that the fair value of stewardship property transferred to
state and local governments be determined and reported.
128. The Board agreed that the fair value of stewardship property
transferred to state and local governments need not be determined
and reported. The standards have been revised to require a description
of the property transfer transaction; if the fair value is known, nothing
would preclude reporting it.
SFFAS 8 - Page 32
SFFAS 8
Reporting Of
Information Not
Specifically Addressed
In The Standards
133. Some respondents requested that the standards provide for reporting
additional information, such as transfers of stewardship property to
foreign governments, stewardship land sold to the private sector, the
Federal Governments interest in such things as property held by
nonfederal entities or patents generated through Federal research and
development funds, and foreign contributions to Federal programs.
134. In developing the standards for stewardship reporting, the Board
concentrated on providing guidance in the principal areas of
stewardship resources that have materiality for the majority of Federal
entities and for the consolidated financial reporting for the Nation.
The Boards intent was to ensure that these significant areas, if
material for an entity, would be reported regularly and in a consistent
manner.
135. In some cases, an entity may have other resources or obligations that
were not specifically addressed in the stewardship standards, but that
the entity believes may be material to the presentation of its
stewardship information. In such cases, if the reporting of such
additional data would be useful and relevant to readers, and would
provide a better indication of the resources and obligations of the
entity, the Board encourages such reporting.
SFFAS 8 - Page 33
SFFAS 8
Appendix B: Sample
Reports
NOTE: The sample report sections in Appendix B are intended to illustrate the type of reporting contemplated by the Board. Certain data are
taken from various reports for one or more recent years and are actual
data. Other data have been estimated by judgmentally extrapolating
from actual data. Still other data and program references have been fabricated and are hypothetical. Therefore, readers should not rely on the
validity of the data in the sample reports.
Nonfederal Physical
Property
Annual Stewardship
Information For The Fiscal
Year Ended September 30,
199Z
SFFAS 8 - Page 34
SFFAS 8
Nonfederal Physical Property Annual Stewardship Information for the Fiscal Year
Ended September 30, 199Z
Dollars in billions
Transportation
199V
199W
199X
199Y
199Zm
$19.0
$20.0
$20.0
$22.0
$23.0
3.7
4.0
3.9
3.7
4.2
4.9
4.3
4.5
5.6
6.3
2.2
$29.8
2.3
$30.6
2.4
30.8
2.5
$33.8
2.7
$36.2
Administrationn
Total
m
Human Capital
Annual Stewardship
Information For the Fiscal
Year Ended September 30,
199Z
14
SFFAS 8 - Page 35
SFFAS 8
199W
199X
199Y
199Zo
$ 373
$ 508
$ 740
$ 980
1,053
786
2,381
3,860
5,621
7,053
847
$ 2,005
1,165
$ 4,054
1,224
$ 5,824
1,367
$ 7,968
1,584
9,690
Participants
Counseled
310
415
592
784
823
Participant Years of
Training Delivered
162
486
787
1,147
1,432
Program Expenses
($000s)p
Counseling
Education
q
Administration
Total
Program Outputs
Expenses are reported on an accrual basis, including contractual amounts due for counseling
services delivered and educational costs incurred by participants.
Program Outcomes
Preliminary data appear to confirm that the services provided by the
program accelerate the transition of participants into alternative
employment; some savings are realized in the Unemployment Insurance
Fund. A follow-up survey of the 415 participants in the year 199W showed
that 80% were earning at least as much as they were earning in their Navy
contractor positions. A more extensive evaluation, including an assessment
of effects on long-term earnings, is currently planned for completion in
1999.
Narrative Discussion
This program was authorized in 19XX (by P.L. XX-XXX) to ease the
transition into other civilian positions of skilled technical, administrative,
and managerial personnel who are no longer needed in certain shipyards
because of declining orders for Navy ship construction.
Eligibility is limited to those who have been employed at designated
shipyards for at least 5 years, but who are not yet eligible for retirement
benefits. Participants receive intensive counseling to help them develop
SFFAS 8 - Page 36
SFFAS 8
Research and
Development
Annual Stewardship
Information For the Fiscal
Year Ended September 30,
199Z
15
SFFAS 8 - Page 37
SFFAS 8
199W
199X
199Y
199Zr
$ 106
$ 124
$136
$ 132
$ 143
93
101
107
118
121
46
62
73
68
82
14
$ 259
16
$ 303
17
$ 333
19
$ 337
21
$ 367
Program Expenses
Basic Research
Applied Research
Development
Administration
Total
r
Expenses are reported on an accrual basis and include an allocation of overhead costs.
Development grants are for a fixed amount, not to exceed 50 percent of the cost of the project.
199W
199X
199Y
199Z
New
45
38
41
37
44
Continuation
28
52
55
61
68
Articles in Journals
12
23
34
41
14
18
21
Indicated inventions financed with federal funds to which the government has patent rights, in
accordance with the Bayh-Dole Act.
SFFAS 8 - Page 38
SFFAS 8
Narrative Discussion:
This program was authorized in 19XX (by P.L. XX-XXX) to accelerate the
development of this industry in the United States. The research element of
the program operates through interagency agreements with the Federal
laboratories and grants to university researchers. The researchers are
selected through peer review procedures. The development component
provides grants to private firms to develop improved manufacturing
procedures for ceramic materials-based products and to accelerate the
development of marketable products incorporating advanced ceramic
materials.
SFFAS 8 - Page 39
SFFAS 8
Appendix C:
Glossary
SFFAS 8 - Page 40
Status
Issued
March 3, 1997
Effective Date
None.
Affects
SFFAS 4.
Affected by
None.
Summary
This statement is issued to amend the effective date of the standards in Statement of Federal Financial
Accounting Standards (SFFAS) No. 4, Managerial Cost Accounting Concepts and Standards for the
Federal Government, issued in July 1995. The original effective date was for reporting periods beginning
after September 30, 1996. The amended effective date is for periods beginning after September 30, 1997.
In July 1997, the Federal Accounting Standards Advisory Board (the Board) received a request from the
CFO Council for a two year deferral of the effect date of the managerial cost accounting standards to
fiscal year 1999. The CFO Council representatives stated that many agencies have not been able to
implement the managerial cost accounting standards during the two years since SFFAS No. 4 was issued,
due to the following reasons: (a) the Joint Financial Management Improvement Program (JFMIP) has not
issued its Managerial Cost Accounting System Requirements, (b) the CFO Council has not issued its
managerial cost accounting guide, and (c) most agencies do not have adequate cost accounting systems
in place. After considering the CFO Councils request, the Board reluctantly agreed to propose deferring
the effective date of the managerial cost accounting standards for one year to fiscal year 1998 and issued
an Exposure Draft (ED) for public comments. Most responses to the ED were in favor of the proposal.
After reviewing the comments to the ED, the Board decided to recommend the one year deferral. At the
same time, it reemphasizes the importance of managerial cost accounting to Federal program and
financial management. The Chief Financial Officers Act of 1990 requires the development of cost
information and the systematic measurement of performance. Reliable and relevant cost information is
indispensable for implementing the requirements of the Government Performance and Results Act of
1993. The Board urges Federal entities and their CFOs to give priority to implementing the requirements
in SFFAS No. 4.
SFFAS 9 - Page 1
SFFAS 9
Table Of Contents
Contents
Page
Introduction
SFFAS 9 - Page 2
SFFAS 9
Introduction
1.
2.
3.
In addition to managerial cost accounting standards, SFFAS No. 4 also contains managerial
cost accounting concepts which provide general guidance for managerial cost accounting
but do not constitute specific requirements. The effective date does not apply to those
concepts.
The ED was published in FASAB News issue No. 45, August 1997.
In April 1997, JFMIP issued an Exposure Draft on Managerial Cost Accounting System
Requirements, which is yet to be finalized as of this date.
4
The CFO Councils Governmentwide Cost Accounting Work Group issued an Exposure
Draft of the Managerial Cost Accounting Implementation Guide on June 30, 1997, which has
not been finalized as of this date.
SFFAS 9 - Page 3
SFFAS 9
The Amended
Effective Date
4.
5.
Basis For
Conclusion
Reasons for the Delay
6.
SFFAS 9 - Page 4
SFFAS 9
systems, and to promote the use of cost measures among program and
financial managers.
7.
Most respondents stated that the one year delay should not
significantly affect implementation of the Government Performance
and Results Act of 1993 (GPRA). With regard to the GPRA requirement
that Federal agencies measure and report outputs, outcomes, and
related costs by segments for fiscal year 1999 and thereafter, the
respondents stated that with the one year deferral of the cost
accounting standards, agencies will have time to align their cost
accounting structures with the GPRA measures.
8.
9.
10. Several respondents said that, after the effective date, Federal entities
should be given a transitional period in which they could have
flexibility to develop and improve their cost accounting systems and
procedures gradually. The Board disagrees with this approach for two
reasons: (a) such a transitional period would add uncertainty to the
required implementation, (b) a degree of flexibility for developing cost
accounting systems and procedures is already built in the standards,
and thus a transitional provision is not necessary.
11. The Board notes that the standards already provide a sufficient degree
of flexibility to Federal entities. For example, paragraph 70, SFFAS No.
4, provides that managerial cost accounting processes can be
accomplished through the use of a cost accounting system or the use
of cost finding techniques or other cost studies and analyses.
Paragraph 266 further provides that Federal agencies can take a
SFFAS 9 - Page 5
SFFAS 9
The Status of
Interpretation No. 2
SFFAS 9 - Page 6
SFFAS 9
16. Those respondents who preferred a two year delay for SFFAS No. 4
also reiterated the CFO Councils original request to defer certain costrelated portions of SFFAS No. 7, Accounting for Revenue and Other
Financing Sources to fiscal year 1999. While no specific paragraphs
were mentioned, they were concerned with the requirements for
matching costs with revenues by sub-organizations (equivalent to
responsibility segments). (See, for example, paragraphs 116 through
126, SFFAS No. 7.) They stated that they are modifying their systems
to accommodate those requirements, but their systems work could not
be completed in fiscal year 1998.
17. With the effective date of SFFAS No. 4 deferred to fiscal year 1998, the
cost accounting standards should be implemented and the necessary
cost information should be accumulated to support implementation of
SFFAS No. 7 for that year. Thus, the Board is not convinced that
SFFAS No. 7 needs to be deferred. The Board believes that it is highly
important to relate SFFAS No. 4 and No. 7 to measuring program
performance and results. While the standards in SFFAS No. 4 provide
more detail in cost concepts, procedures, and methodologies, SFFAS
No. 7 brings cost information into focus in measuring the net results of
programs and activities. The integrated implementation of those two
statements is crucial for meeting the objectives of financial reporting
by Federal entities and for implementing the GPRA requirements.
SFFAS 9 - Page 7
SFFAS 9
Attachment: Letter
From CFO Council
For the above reasons, the Council requests FASAB to change the effective
date for SFFAS No. 4, and in relevant portions of its companion, SFFAS No.
7, Accounting for Revenue and Other Financial Sources (effective for
reporting periods after September 30,1997), to the revised effective date
SFFAS 9 - Page 8
SFFAS 9
for reporting periods after September 30, 1998. Given that the systems and
cost accounting guidance needed by agencies have not been issued and
only 4 months remain in this fiscal year, we feel this request is justified.
Additionally, this request is further supported by the fact that the Results
Act Performance Report requirements are not statutorily required until FY
1999.
While we recommend a change in the effective implementation date, we
fully acknowledge and support the critical importance of the cost and
revenue standards. Based on the importance and usefulness of anticipated
cost information for internal agency management and other purpose, in
addition to the significant benefits that are often derived from early
implementation of Federal accounting standards, we nevertheless
encourage Federal agencies to implement these standards as soon as
practicable based on the capabilities of agency systems and the maturity of
agency cost accounting practices. While such early, voluntary
implementation is encouraged, the Council requests that the Board change
the mandatory implementation date to fiscal periods after September 30,
1998.
Specific questions regarding this request may be directed to Frank M.
Sullivan, Chair, CFOC Cost Accounting Committee, at (202) 273-5504 or via
E-Mail at fs@mail.va.gov.
Sincerely,
(SIGNED)
Arnold G. Holz
Executive Vice-Chair
Chief Financial Officers Council
SFFAS 9 - Page 9
Status
Issued
June 1998
Effective Date
None.
Affects
Affected by
Summary
This statement provides accounting standards for internal use software. Under the provisions of this
statement, internal use software is classified as general property, plant, and equipment (PP&E) as defined in
Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for Property, Plant, and
Equipment. This statement includes software used to operate a federal entitys programs (e.g., financial and
administrative software, including that used for project management) and software used to produce the
entitys goods and services (e.g., air traffic control and loan servicing).
Internal use software can be purchased off-the-shelf from commercial vendors and can be developed by
contractors with little technical supervision by the federal entity or developed internally by the federal entity.
SFFAS 6 specified treatment for internally developed software different from that for commercial off-the-shelf
(COTS) software and contractor-developed software. SFFAS 6 addressed COTS and contractor-developed
software generally, providing that they were subject to its provisions. On the other hand, specific provision
was made for internally developed software.
SFFAS 6 prohibited the capitalization of the cost of internally developed software unless management
intended to recover the cost through user charges, and the software was to be used as general PP&E. For
capitalizable software, capitalization would begin after the entity completed all planning, designing, coding,
and testing activities that are necessary to establish that the software can meet the design specifications.
At the conclusion of the PP&E project the Federal Accounting Standards Advisory Board discussed whether
the standard for internally developed software should also apply to contractor-developed software. Also,
some users of SFFAS 6 were unsure how to apply it to COTS and contractor-developed software. The Board
decided, in December 1996, to review the issue and develop a separate standard for internal use software.
SFFAS 10 - Page 1
SFFAS 10
This standard requires the capitalization of the cost of internal use software whether it is COTS, contractordeveloped, or internally developed. Such software serves the same purposes as other general PP&E and
functions as a long-lived operating asset. This standard provides guidance regarding the types of cost
elements to capitalize, the timing and thresholds of capitalization, amortization periods, accounting for
impairment, and other guidance.
SFFAS 10 - Page 2
SFFAS 10
Table Of Contents
Contents
Page
Introduction
Purpose
Scope
Background
Materiality
Effective Date
Accounting Standard
5
5
Definitions
Implementation
Appendix A: Basis for Conclusions
14
27
15
SFFAS 10 - Page 3
SFFAS 10
Introduction
Purpose
1.
Scope
2.
3.
The terms defined in the glossary will be in boldface when they first appear in the body of
this document [see Appendix E, Consolidated Glossary]
SFFAS 10 - Page 4
SFFAS 10
Background
4.
5.
Materiality
6.
Effective Date
7.
8.
Internal Use
Software
Accounting
Standard
Definitions
SFFAS 10 - Page 5
SFFAS 10
b.
Developed software
(1) Internally developed software refers to software that
employees of the entity are actively developing, including
new software and existing or purchased software that are
being modified with or without a contractors assistance.
(2) Contractor-developed software refers to software that a
federal entity is paying a contractor to design, program,
install, and implement, including new software and the
modification of existing or purchased software.
Software Development
Phases
There are no federal requirements regarding the phases that each software project must
follow. The life-cycle phases of a software application described here are compatible with
and generally reflect those in the Office of Management and Budgets (OMB) Circular A-130,
Management of Information Resources, and Capital Programming Guidance; the
Government Accountability Offices (GAO), Measuring Performance and Demonstrating
Results of Information Technology Investments (GAO/AIMD-98-89, Mar. 1998); and the
American Institute of CPAs Statement of Position No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (Mar. 4, 1998). Successful
software projects normally would have at least an initial design phase, an application
development phase, and a post-implementation/operational phase. Also, software eventually
would become obsolete or otherwise be replaced and therefore have a termination phase.
Circular A-130 acknowledges that the life cycle varies by the nature of the information
system. Only two phases are common to all information systemsa beginning and an end.
As a result, life cycle management techniques that agencies can use may vary depending on
the complexity and risk inherent in the project. (A-130, Analysis of Key Sections, p. 63).
SFFAS 10 - Page 6
SFFAS 10
11. The following table illustrates the various software phases and related
processes. The steps within each phase of internal use software
development may not follow the exact order shown below. This
standard should be applied on the basis of the nature of the cost
incurred, not the exact sequence of the work within each phase.34
Preliminary design
phase
Software development
phase
Post-Implementation/
operational phase
Conceptual formulation of
alternatives3
Data conversion
Application maintenance
Coding
Determination of existence
of needed technology
Installation to hardware
Final selection of
alternatives
12. In the preliminary design phase, federal entities will likely do the
following:
a.
b.
c.
d.
See OMB Circular A-11, Planning, Budgeting, and Acquisition of Capital Assets;
Supplement to Circular A-11, Capital Programming Guide (July 1997); and Circular A-109,
Major Systems Acquisitions, par. 11, Alternative Systems.
4
See OMB Circular A-109, Major Systems Acquisitions, par. 13, Full-Scale Development and
Production.
SFFAS 10 - Page 7
SFFAS 10
f.
g.
13. In the software development phase, federal entities will likely do the
following:
a.
b.
c.
d.
b.
c.
d.
SFFAS 10 - Page 8
SFFAS 10
Recognition,
Measurement, And
Disclosure
Software Used As General
PP&E
15. Entities should capitalize the cost of software when such software
meets the criteria for general property, plant, and equipment (PP&E).
General PP&E is any property, plant, and equipment used in providing
goods and services.5
Capitalizable Cost
16. For internally developed software, capitalized cost should include the
full cost (direct and indirect cost) incurred during the software
development stage.6 Such cost should be limited to cost incurred after
a.
b.
17. Such costs include those for new software (e.g., salaries of
programmers, systems analysts, project managers, and administrative
personnel; associated employee benefits; outside consultants fees;
rent; and supplies) and documentation manuals.
18. For COTS software, capitalized cost should include the amount paid to
the vendor for the software. For contractor-developed software,
capitalized cost should include the amount paid to a contractor to
design, program, install, and implement the software. Material internal
cost incurred by the federal entity to implement the COTS or
5
For a full discussion of direct and indirect cost, see SFFAS No. 4, Managerial Cost
Accounting Concepts and Standards for the Federal Government (June 1995), pars. 90-92.
Also see pars. 94-95, Statement of Federal Financial Accounting Concepts No. 2, Entity and
Display.
SFFAS 10 - Page 9
SFFAS 10
20. Costs incurred after final acceptance testing has been successfully
completed should be expensed. Where the software is to be installed
at multiple sites, capitalization should cease at each site after testing is
complete at that site.
Multiuse Software
21. The cost of software that serves both internal uses and stewardship
purposes (multiuse software) should be accounted for as internal
use software (e.g., a global positioning system used in connection with
national defense activities and general operating activities and
services).
Integrated Software
Capitalization Thresholds
24. Each federal entity should establish its own threshold as well as
guidance on applying the threshold to bulk purchases of software
SFFAS 10 - Page 10
SFFAS 10
Enhancements
Impairment
POST-IMPLEMENTATION/OPERATIONAL SOFTWARE
28. Impairment should be recognized and measured when one of the
following occurs and is related to post-implementation/operational
software and/or modules thereof:
However, in instances where the useful life of the software is extended, the amortization
period would be adjusted.
The Board has considered the cost associated with modifying internal use software for the
year 2000 (Y2K) and has determined that such cost should be charged to expenses as
incurred, since it is a repair of a design flaw that allows existing software to continue being
used. However, an enhancement could presumably provide enhanced capabilities and at the
same time, as an integral part of the new code and other software enhancements, cure the
Y2K problem. The total cost of such an enhancement should be capitalized rather than
allocated between the Y2K cost and all other cost.
SFFAS 10 - Page 11
SFFAS 10
29. If the impaired software is to remain in use, the loss due to impairment
should be measured as the difference between the book value and
either (1) the cost to acquire software that would perform similar
remaining functions (i.e., the unimpaired functions) or, if that is not
feasible, (2) the portion of book value attributable to the remaining
functional elements of the software. The loss should be recognized
upon impairment, and the book value of the asset reduced accordingly.
If neither (1) nor (2) above can be determined, the book value should
continue to be amortized over the remaining useful life of the
software.
30. If the impaired software is to be removed from use, the loss due to
impairment should be measured as the difference between the book
value and the net realizable value (NRV), if any.8 The loss should be
recognized upon impairment, and the book value of the asset reduced
accordingly. The NRV, if any, should be transferred to an appropriate
asset account until such time as the software is disposed of and the
amount is realized.
DEVELOPMENTAL SOFTWARE
31. In instances where the managers of a federal entity conclude that it is
no longer more likely than not that developmental software (or a
module thereof) will be completed and placed in service, the related
book value accumulated for the software (or the balance in a work in
process account, if applicable) should be reduced to reflect the
expected NRV, if any, and the loss recognized. The following are
indications of this:
Presumably, NRV will be zero for software. However, in the rare case that it is not zero, NRV
should be recognized.
SFFAS 10 - Page 12
SFFAS 10
Amortization
Disclosures
35. The disclosures required by SFFAS No. 6, paragraph 45, for general
PP&E are applicable to general PP&E software. Thus, for material
For example, federal agencies use the following planning guidance: OMB Circulars A-11,
Budget Planning, Budgeting, and Acquisition of Fixed Assets; A-94, Guidelines and
Discount Rates for Benefit-Cost Analysis of Federal Programs; and A-109, Acquisition of
Major Systems; OMBs Capital Programming Guide (July 1997); GAOs Assessing Risks
and Returns: A Guide for Evaluating Federal Agencies IT Investment Decision-making
(Feb. 1997); and other federal guidance.
SFFAS 10 - Page 13
SFFAS 10
Implementation
36. Cost incurred prior to the initial application of this statement, whether
capitalized or not, should not be adjusted to the amounts that would
have been capitalized, had this statement been in effect when those
costs were incurred. However, the provisions of this statement
concerning amortization and impairment should be applied to any
unamortized cost capitalized prior to the initial application of this
statement that continue to be reported as assets after the effective
date.
SFFAS 10 - Page 14
SFFAS 10
Appendix A: Basis
For Conclusions
General Property, Plant,
And Equipment
38. The Board believes that the cost of software acquired or developed for
internal use that meets the SFFAS No. 6 criterion for general PP&E
should be capitalized. Internal use software is specifically identifiable,
can have determinate lives of 2 years or more, is not intended for sale
in the ordinary course of operations, and has been acquired or
constructed with the intention of being used by the entity.10
39. This standard does not apply to software that is an integral part of
stewardship property, plant, and equipment. For example, if software
is a part of a weapons systems, it would not be capitalized but
included in the cost of investing in that weapons system. On the other
hand, software used to accumulate the cost of acquiring that weapons
system or to manage and account for that item would meet the criteria
for general PP&E and should be capitalized.
40. Regarding any costs of internal use software acquired or developed for
stewardship PP&E or stewardship investments, the Board chose to
10
SFFAS 10 - Page 15
SFFAS 10
Par. 37.
SFFAS 10 - Page 16
SFFAS 10
Respondents Comments
45. The respondents to the exposure draft (ED), Accounting for Internal
Use Software, generally agreed with the principles presented therein.
Most of the respondents agreed that the cost of internal use software
and enhancements thereto should be capitalized, that capitalized
amounts should be written down or off when the software is impaired,
and that the guidance in the ED was sufficient to identify capitalizable
cost and to recognize impairment. Two-thirds of the respondents
agreed with the capitalization point in the EDafter (1) management
authorizes and commits to funding a project and believes that it is
more likely than not that the project will be successful and (2) the
preliminary design stage is complete.
46. Some respondents raised objections and concerns, similar to those
expressed in response to the original PP&E exposure draft, about
capitalizing software, especially internally developed software. They
were concerned that distinguishing between the cost of new and/or
enhanced software on the one hand and maintenance and routine
improvements that do not benefit future periods on the other hand
would be difficult. Other respondents noted the rapidity with which
technology changes and current software becomes obsolete, and said
that the risky and uncertain nature of software development makes
write-off much more likely for software than for general PP&E.
47. Notwithstanding these objections, the Board continues to believe that
internal use software is similar to other general PP&E and should be
accounted for accordingly. Internal use software and other
information technology products and services are important
resources for government operations. They are subject to similar risks
of impairment and write-off and, otherwise, have general PP&E
characteristics. Moreover, some respondents said they were already
SFFAS 10 - Page 17
SFFAS 10
Cost-Benefit
12
Also, see OMB Circular A-130, Management of Federal Information Resources, par. 7d,
which establishes the goal of having benefits exceed cost but notes that the benefits to be
derived from government information may not always be quantifiable.
SFFAS 10 - Page 18
SFFAS 10
13
See OMB Circular A-130, par. 8a, Information Management Policy, and par. 9b, as well as
OMBs Capital Programming Guide, for detailed guidance on analyzing information
technology through the planning, acquisition, and management-in-use phases.
SFFAS 10 - Page 19
SFFAS 10
Cost To Be Capitalized
Direct And Indirect Cost
58. Many respondents agreed with the ED position that indirect cost
should be expensed. The ED provided that such cost should be
expensed because of cost-benefit considerations and the risk of overcapitalization.
59. Several respondents objected to the failure of the ED to require
indirect as well as direct costs to be capitalized. Most of these
respondents based their objection on the full-cost requirements in
SFFAS No. 4, Managerial Cost Accounting Concepts and Standards
for the Federal Government, believing that the Board would not be
consistent with this standard unless full cost accounting were
adopted.
60. The Board had reserved final judgment on the issue of capitalizing
indirect cost at the time the ED was published. Several of the Boards
members had argued that capitalizing only direct cost was
inconsistent with SFFAS No. 4. Also, some Board members felt that, if
the standard not did require indirect cost to be capitalized, the cost of
internally developed internal use software would not be comparable
with COTS and contractor-developed software, which would include
indirect cost.
61. After reconsidering the issue, the Board is persuaded that SFFAS No. 4
requires both direct and indirect costs to be capitalized. Moreover, the
14
SFFAS 10 - Page 20
SFFAS 10
Commencing
Capitalization
15
The Office of Management and Budgets (OMB) Capital Programming Guide, Supplement
to OMB Circular A-11, Part 3 (July 1997), integrates the various executive branch and
statutory asset management initiatives, including the Government Performance and Results
Act, the Clinger-Cohen Act, and the Federal Acquisition Streamlining Act, into a single,
integrated capital-programming guide.
16
Capital assets are land, structures, equipment, and intellectual property (including
software) that ... have an estimated life of two years or more... The cost of a capital asset is
its full life-cycle cost, including all direct and indirect cost for planning, procurement ...
operations and maintenance, including service contracts and disposal. Capital
Programming Guide, version 1.0, definition of capital asset, p. i (July 1997).
17
18
Technological feasibility is the criteria that the Financial Accounting Standards Board
(FASB) used in Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.
SFFAS 10 - Page 21
SFFAS 10
Software Licenses
66. One respondent asked for guidance on accounting for licenses for
COTS software. The Board had not discussed software licenses during
its deliberations leading up to the publication of the ED. Software
licenses can cover periods ranging from the entire estimated service
life of the software (a perpetual license) to annual or more frequent
periods and are similar to leases of general PP&E.
67. The Board believes that it would be appropriate for the federal entity
to apply lease accounting concepts19 and the entitys existing policy for
capitalization thresholds and for bulk purchases to licenses.
Immaterial costs would be expensed, but the entity should consider
whether period costs would be distorted by expensing the license.
Capitalization Thresholds
19
See SFFAS No. 5, Accounting for Liabilities of the Federal Government, Capital Leases,
pars. 43-46, and SFFAS No. 6, Accounting for Property, Plant, and Equipment, par. 20, for
federal accounting standards for leases.
SFFAS 10 - Page 22
SFFAS 10
environment. The Board decided that federal entities were too diverse
to require one threshold for all entities; hence, the Board adopted a
materiality approach whereby each entity establishes its own
threshold as well as the guidance for bulk purchases. The Board
continues to believe that permitting management discretion in
establishing capitalization policies will lead to a more cost-effective
application of the accounting standards.
69. The issue of whether to capitalize all, some, or no data conversion cost
is a difficult one. Some argue that the cost of converting existing data
to a new software system is analogous to the types of cost that the
Accounting Principles Board Opinion (APB) No. 17, Intangible Assets,
requires to be expensed as incurred because they are not specifically
identifiable, have indeterminate lives, or are inherent in a continuing
business and related to an enterprise as a wholesuch as goodwill
(APB 17, par. 24). The Board is persuaded that data conversion costs
are operating costs and should be expensed.
Amortization Period
Enhancements
SFFAS 10 - Page 23
SFFAS 10
Impairment
SFFAS 10 - Page 24
SFFAS 10
SFFAS 10 - Page 25
SFFAS 10
to, for example, annual lease payments even though the latter may be
more expensive in the longrun.20
81. Notwithstanding these very real concerns, the Board concludes that
the WCFs problem is one of budgetary control and program finance
rather than of accounting. Congress has instituted various alternatives
for WCFs to acquire capital. The Boards responsibility is to
recommend what it considers the best accounting treatment
considering all the circumstances and the Boards objectives.
Implementation Date
20
See GAO, Budget Issues: Budgeting for Federal Capital (GAO/AIMD-97-5 Nov. 1996), for
(1) an analysis of capital budgeting problems experienced by WCFs and federal agencies
generally and (2) possible solutions.
SFFAS 10 - Page 26
SFFAS 10
Appendix B:
Glossary
SFFAS 10 - Page 27
Status
Issued
Effective Date
The amendments to SFFAS 6 and 8 in this statement were effective for periods
beginning after September 30, 1998. As of September 30, 2002 this statement was
rescinded in its entirely by SFFAS 23.
None.
Affects
None.
Affected by
SFFAS 11 - Page 1
Status
Issued
December 1998
Effective Date
None.
Affects
SFFAS 5, paragraphs 33 and 36, by changing the recognition criteria for recognizing
liabilities arising from litigation.
Affected by
None.
Summary
This standard amends Statement of Federal Financial Accounting Standards 5, Accounting for Liabilities of
the Federal Government (SFFAS 5). It provides an exception to the contingent liability standard for
recognizing loss contingencies on matters of pending or threatened litigation and unasserted claims.
For loss contingencies for matters of pending or threatened litigation and unasserted claims, a contingent
liability would be recognized1 when a future outflow or other sacrifice of resources is likely to occur, a past
event or exchange transaction has occurred, and the future outflow or sacrifice of resources is measurable.
Before the amendment, SFFAS 5 called for recognition when an outflow is more likely than not. In addition
to recognition, disclosure2 would be required for loss contingencies on matters of pending or threatened
litigation and unasserted claims if it is at least reasonably possible that a loss or an additional loss may have
been incurred. The amendment does not affect recognition of other types of contingencies.
1
The term recognize means the formal recording or incorporating of an item into the financial statements of an entity as an asset,
liability, revenue, expense, etc. See FASAB Consolidated Glossary
2
The term disclosure means the reporting of information in notes or narrative regarded as an integral part of the basic financial
statement. See FASAB Consolidated Glossary.
SFFAS 12 - Page 1
SFFAS 12
Table Of Contents
Contents
Page
Materiality
Effective Date
Accounting Standard
SFFAS 12 - Page 2
SFFAS 12
Purpose
1.
Scope
2.
Background
3.
4.
5.
SFFAS No. 5 uses the same general framework for evaluating loss
contingencies as Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies (SFAS No. 5). Contingencies can be probable,
SFFAS 12 - Page 3
SFFAS 12
7.
The Board believes that this amendment clarifies the standard for
contingencies involving pending or threatened litigation and
unasserted claims and will facilitate communication among auditors,
lawyers, those who prepare financial statements, and those who use
the financial statements.
Materiality
8.
Effective Date
9.
SFFAS 12 - Page 4
SFFAS 12
Accounting
Standard
SFFAS 12 - Page 5
SFFAS 12
Appendix A: Basis
for Conclusions
SFFAS 12 - Page 6
SFFAS 12
SFFAS 12 - Page 7
SFFAS 12
Appendix B:
Selected Section
from Statement of
Financial
Accounting
Standards No. 5,
Accounting for
Contingencies.
1.
3.
When a loss contingency exists, the likelihood that the future event or
events will confirm the loss or impairment of an asset or the
incurrence of a liability can range from probable to remote. This
Statement uses the terms probable, reasonably possible, and remote to
identify three areas within that range, as follows:
a.
b.
c.
***
8.
b.
SFFAS 12 - Page 8
SFFAS 12
Appendix C:
Selected Sections of
Statement of
Federal Financial
Accounting
Standards No. 5,
Accounting for
Liabilities of the
Federal
Government
(footnotes omitted).
***
33. Probable refers to that which can reasonably be expected or is
believed to be more likely than not on the basis of available evidence
or logic. The probability of a future outflow or other sacrifice of
resources is assessed on the basis of current facts and circumstances.
These current facts and circumstances include the law that provides
general authority for federal entity operations and specific budget
authority to fund programs. If budget authority has not yet been
provided, a future outflow or other sacrifice of resources might still
meet the probability test if (1) it directly relates to ongoing entity
operations and (2) it is the type for which budget authority is routinely
provided. Therefore, the definition applies both to liabilities covered
by budgetary resources and to liabilities not covered by budgetary
resources.
***
Contingencies
35. A contingency is an existing condition, situation, or set of
circumstances involving uncertainty as to possible gain or loss to an
entity. The uncertainty will ultimately be resolved when one or more
future events occur or fail to occur. Resolution of the uncertainty may
confirm a gain (i.e., acquisition of an asset or reduction of a liability)
or a loss (i.e., loss or impairment of an asset or the incurrence of a
liability).
36. This Statement does not deal with gain contingencies or measurement
of contingencies that involve impairment of nonfinancial assets. When
a loss contingency (i.e., contingent liability) exists, the likelihood that
the future event or events will confirm the loss or the incidence of a
liability can range from probable to remote. The probability
classifications are as follows:
SFFAS 12 - Page 9
SFFAS 12
collectibility of receivables,
pending or threatened litigation, and
possible claims and assessments.
SFFAS 12 - Page 10
SFFAS 12
SFFAS 12 - Page 11
Status
Issued
January 1999
Effective Date
This amendment was effective for fiscal periods beginning after September 30, 1998,
until October 1, 2000, when paragraph 65.2 of SFFAS 7 was rescinded by SFFAS 20.
None.
Affects
Affected by
Summary
This statement deferred paragraph 65.2 of SFFAS 7 for three years. As a result, paragraph 65.2 would have
become effective for periods beginning after September 30, 2000; however, paragraph 65.2 was subsequently
rescinded by SFFAS 20.
SFFAS 13 - Page 1
SFFAS 13
Table Of Contents
Contents
Page
Background
Standards
Effective Date
SFFAS 13 - Page 2
SFFAS 13
Background
1.
2.
3.
Statement of
Standards
4.
Effective Date
5.
SFFAS 13 - Page 3
SFFAS 13
Basis for
Conclusions
6.
7.
8.
9.
The Board concluded that the effective date for subparagraph 65.2
should be deferred three years; from fiscal year 1998 to fiscal year
2001. The Board expects to complete the study before the new
effective date.
SFFAS 13 - Page 4
SFFAS 13
Board Approval
SFFAS 13 - Page 5
Status
Issued
April 1999
Effective Date
For fiscal years beginning after September 30, 1998 with earlier implementation
encouraged.
SFFAS 6, paragraphs 79-80, and 83-84 by changing certain section headings and
adding phrases to paragraphs 83-84.
Affected by
Summary
Deferred maintenance reporting is a required disclosure per Statement of Federal Financial Accounting
Standards 6, Accounting for Property, Plant, and Equipment (SFFAS 6), and is referenced in SFFAS 8,
Supplementary Stewardship Reporting. This amendment does not modify the information to be provided
users of federal financial statements. It does, however, modify the status of that information and thus the level
of its review by financial statement auditors.
When SFFAS 6 was issued, the Board indicated that deferred maintenance reporting would evolve as
preparers gained experience. The Board provided maximum flexibility to preparers noting that management
would determine acceptable condition against which deferred maintenance would be assessed. (see SFFAS
6, par. 78, footnote 58) In addition, the Board noted that acceptable condition might vary between entities and
between sites within the same entity. To ensure that readers would understand the deferred maintenance
disclosures, the Board required that managements method of measuring deferred maintenance and
managements requirements for acceptable condition be disclosed with the estimated amounts.
After the statement became effective, questions arose about whether this flexibility was appropriate given the
status of the information as basic information (i.e., an integral part of the financial statements). The Board
agreed that a change in status was warranted.
This statement amends SFFAS 6 and SFFAS 8 to define deferred maintenance information as required
supplemental information (RSI) rather than within the financial statements and the notes thereto.
As required supplementary information, the deferred maintenance information will be subject to the audit
procedures prescribed in AU Section 558.07, Codification of Statements on Auditing Standards. These
procedures include inquiries to management and comparisons of the information for consistency. In addition,
the auditor should consider whether the RSI should be covered in managements representation letter. The
auditor may need to apply additional procedures required by other guidance, and to make additional inquiries
SFFAS 14 - Page 1
SFFAS 14
if necessary based on the outcome of the required procedures. Readers should refer to the most current
auditing standards for relevant guidance.
SFFAS 14 - Page 2
SFFAS 14
Table Of Contents
Contents
Page
Introduction
Accounting Standards
10
SFFAS 14 - Page 3
SFFAS 14
Introduction
Purpose
1.
2.
The Basis for Conclusions presents the reasons for these amendments.
Scope
3.
Effective Date
4.
5.
6.
7.
Accounting
Standards
Amendments to SFFAS
No. 6
SFFAS 14 - Page 4
SFFAS 14
8.
9.
SFFAS 14 - Page 5
SFFAS 14
Appendix A: Basis
for Conclusions
12. The Board believes that the experience gained in implementing SFFAS
Nos. 6 and 8 provides greater insight into the required deferred
maintenance disclosures. In recommending the deferred maintenance
standards, the Board recognized that experimentation would be
needed before high quality information on deferred maintenance was
available throughout the federal government. However, the
implementation experience brought to light concerns regarding the
degree of flexibility afforded during the experimentation period and
audit issues.
13. In December 1998, the Board issued an exposure draft proposing
amendments intended to address the concerns being raised. The
concerns included:
a.
b.
While deferred maintenance information as required under the SFFAS 6 provisions is very
relevant, implementation demonstrated that it may not be reliable or comparable. The Board
is concerned that placement of this information in notes would be a disservice to users.
SFFAS 14 - Page 6
SFFAS 14
Nonfederal
Total
Preparers
Auditors
Total
18
20
16. One respondent opposed the proposal and stated a preference for a
delayed effective date. Seventeen respondents supported the proposal
and two did not directly indicate support or opposition.
17. Respondents noted the need for more detailed guidance on preparing
estimates as well as specific issues such as overseas facilities which
have differing facilities standards. One respondent suggested that
guidance be developed for small agencies for which deferred
maintenance reporting may be unnecessarily burdensome. Many
respondents acknowledged the importance of the disclosures and the
need to address auditing standards for deferred maintenance as well
as accounting standards.
18. A number of respondents suggested that moving deferred
maintenance disclosures to stewardship reports would be appropriate
because doing so would:
a.
b.
c.
reduce the resources needed to prepare and audit the data, and
d.
SFFAS 14 - Page 7
SFFAS 14
b.
c.
23. The Board intends that the Accounting and Auditing Policy Committee
(AAPC) work with government-wide groups such as the Chief
Financial Officers Council and the Presidents Council on Integrity and
Efficiency to review the first year reports and identify areas requiring
further guidance. At a minimum, the Board expects to develop
guidance on determining acceptable condition. The Board plans to
revise the standards based on experience gained during the
experimentation period.
SFFAS 14 - Page 8
SFFAS 14
Board Approval
24. This recommended statement was approved by the Board with a vote
of seven members in favor of its issuance and one member opposing
its issuance. (Only eight members voted on this recommendation due
to a vacancy on the Board.)
SFFAS 14 - Page 9
SFFAS 14
Appendix B:
Amended Standards
Amendments To
SFFAS 6
Definition
Measurement
58
[Acceptable services and condition may vary both between entities and among sites within
the same entity. Management shall determine what level of service and condition is
acceptable.]
59
60
61
[Other methods may be used which are similar or identical to condition assessment survey
or life-cycle costing. These methods would also be acceptable sources of information on
deferred maintenance.]
SFFAS 14 - Page 10
SFFAS 14
Required Supplementary
Information
62
[Management shall determine what methods and standards to apply. Once determined, it is
desirable but not required that methods and standards be applied consistently from period
to period.]
63
[Major classes of general PP&E shall be determined by the entity. Examples of major
class include, among others, buildings and structures, furniture and fixtures, equipment,
vehicles, and land.]
64
SFFAS 14 - Page 11
SFFAS 14
Optional Information
84. Stratification between critical and noncritical amounts of maintenance
needed to return each major class of asset to its acceptable operating
condition. If management elects to report critical and noncritical
amounts, the information shall include managements definition of
these categories.
The provisions of this statement need not be applied to immaterial items.
65
[Adjustments may be necessary because the cost of maintenance foregone may not be
cumulative. For example, if periodic painting is skipped twice it is not necessarily true that
the cost would be double the scheduled amount.]
SFFAS 14 - Page 12
Status
Issued
April 1999
Effective Date
None.
Affected by
None.
Summary
This document establishes standards for preparing Managements Discussion and Analysis (MD&A). MD&A is
an important vehicle for (1) communicating managers insights about the reporting entity, (2) increasing the
understandability and usefulness of the general purpose federal financial report (GPFFR),1 and (3) providing
understandable and accessible information about the entity and its operations, service levels, successes,
challenges, and future. Some federal agencies also refer to MD&A as the overview.
The basic concept that underlies the standards for MD&A is:
Each general purpose federal financial report (GPFFR) should include a section devoted to
managements discussion and analysis (MD&A). It should address the reporting entitys performance
measures, financial statements, systems and controls, compliance with laws and regulations, and actions
taken or planned to address problems. The discussion and analysis of these subjects may be based partly
on information contained in reports other than the GPFFR. MD&A also should address significant events,
conditions, trends and contingencies that may affect future operations.
A separate document titled Concepts for Managements Discussion and Analysis explains the conceptual
basis for the role and importance of MD&A, the general content of the GPFFR, and the elements of MD&A.
The concepts provide a foundation for the standards presented in this document. The concepts include
suggestions about the contents of MD&A, but those suggestions are not accounting standards or principles for
federal reporting entities. In particular, the concepts are not prescribed guidelines for required
supplementary information as discussed in section 558 of the Codification of Statements on Auditing
The term general purpose federal financial report, abbreviated GPFFR, is used as a generic term to refer to the report that contains
the entitys financial statements that are prepared and audited pursuant to the CFO Act of 1990, as amended. Entities may refer to
these reports using different terms, such as Annual Report, Accountability Report, Financial Management Report, etc.
Paragraphs 54-112 and Appendix 1 of Statement of Federal Financial Accounting Concepts 2, Entity and Display, describe and
illustrate the contents of the GPFFR.
SFFAS 15 - Page 1
SFFAS 15
Standards published by the American Institute of Certified Public Accountants (AICPA). The only standards
and prescribed guidelines for MD&A are in paragraphs 1-8 of this document.
The standards require MD&A to be included in each GPFFR as required supplementary information (RSI).
MD&A should address:
The discussion and analysis of these subjects may be based on information in other discrete sections of the
GPFFR or it may be based on reports separate from the GPFFR. The standards are effective for reporting
periods that begin after September 30, 1999.
SFFAS 15 - Page 2
SFFAS 15
Table Of Contents
Contents
Page
Statement of Standards
SFFAS 15 - Page 3
SFFAS 15
Managements
Discussion And
Analysis
Statement Of
Standards
1.
2.
3.
2
1
SFFAS 15 - Page 4
SFFAS 15
5.
6.
MD&A should deal with the vital few matters; i.e., the most
important matters that will probably affect the judgments and
decisions of people who rely on the GPFFR as a source of information.
(The specific topics mentioned in Concepts for Managements
Discussion and Analysis are examples of items that might be relevant
for MD&A of a given entity.) Matters to be discussed and analyzed are
those that management of the reporting entity believes it is reasonable
to assume could:
The word anticipated is used in a broad, generic sense in this document. In this context
the term may encompass both probable losses arising from events that have occurred,
which should be recognized on the face of the basic or principal financial statements, as
well as reasonably possible losses arising from events that have occurred, which should be
disclosed in notes to those statements. Anticipated may include the effects of future events
that are deemed probable, for which a financial forecast would be appropriate. The term
may also encompass hypothetical future trends or events that are not necessarily deemed
probable, for which financial projections may be appropriate. Such information about the
possible effects of anticipated future demands, events, conditions and trends, if presented,
should include the term or label projected or projection, and the key hypothetical
underlying assumptions should be explained. As with other information presented in MD&A,
no examination of this information by the auditor is now routinely included within the scope
of an audit of a federal entitys financial statements; however, preparers and auditors may
find useful background information in the AICPAs Statements on Standards for Attestation
Engagements Nos. 1 and 4, codified as section 200, Financial Forecasts and Projections, of
the AICPAs Codification of Statements on Standards for Attestation Engagements.
SFFAS 15 - Page 5
SFFAS 15
7.
8.
The standards are effective for reporting periods that begin after
September 30, 1999.
SFFAS 15 - Page 6
SFFAS 15
Appendix A: Basis
For Conclusions
Background, Rationale,
and Project History
9.
The Board identified MD&A as a topic for its agenda shortly after the
Boards inception. The Board deferred work on this topic, however,
until it completed recommendations for an initial set of basic
accounting standards.
16
Totals
23
Nonfederal
(external)
Total
10
16
30
12. The first exposure draft asked respondents whether all or part of the
exposure drafts provisions should be issued as recommended
standards rather than recommended concepts. Responses were
mixed; most of those who commented on this question favored
concepts, but a significant number expressed the view that standards
SFFAS 15 - Page 7
SFFAS 15
SFFAS 15 - Page 8
SFFAS 15
Responses to Second
Exposure Draft
15. The Board received comment letters on the second exposure draft
from the following sources:5
Federal
(internal)
Citizens, users, academics and others
Auditors
3
11
14
Nonfederal
(external)
Total
11
20
16. Most comments were generally favorable, but comments were mixed
regarding some points. A few auditors and preparers expressed some
concern about requiring forward-looking information as RSI. Others
expressed support for doing so. After considering these responses, the
Board agreed to defer the recommended implementation date of the
standard by one year and to make minor editorial changes to the
standards and concepts that were exposed for comment.
17. Although the resulting standard differs from private sector standards,
the Board expects that, in practice, the effect on auditors will not be
greatly different.6 In the private sector, corporations frequently include
with their annual financial report the MD&A that they are required to
file with the SEC. Because it is required by the SEC rather than by
accounting standards, the auditor engaged to audit the corporations
financial statements normally treats MD&A as accompanying
information that is not audited in the context of the audit of the
financial statements. The auditor also may review the submission to
the SEC and may have certain responsibilities in that regard, but the
auditors usual role regarding MD&A is, nevertheless, fairly limited.
18. Because this standard defines MD&A for federal reporting entities as
RSI, auditors will have certain responsibilities regarding it; however,
both the accounting standards specified here and the auditing
standards specified by the AICPA (and incorporated in Government
5
Includes the AICPAs Federal Accounting and Auditing Subcommittee and the Comptroller
Generals Advisory Council on Government Audit Standards.
6
The standard itself differs from the SECs guidance for MD&A in ways that reflect the
unique federal reporting environment. This will affect what financial statement preparers
must do to comply with the standard. For example, reporting on performance of
governmental programs requires measures in addition to net income or net cost.
SFFAS 15 - Page 9
SFFAS 15
Audit Standards) for RSI are rather general. Therefore, the Board does
not expect that this standard will cause the auditor to be deeply
involved in reviewing the contents of MD&A.
19. More specific requirements regarding the content of MD&A may be
added later by OMB acting on its own authority or pursuant to future
FASAB recommendations. For example, OMB might at some time in
the future require preparers to address certain of the suggested items
in Concepts for Managements Discussion and Analysis. OMB also may
provide more specific guidance regarding the auditors responsibility
for MD&A. That guidance may call for more extensive review of all or
parts of MD&A than the minimum contemplated by this accounting
standard in the context of current auditing standards. For example,
OMB might at some time in the future decide that the minimum scope
of engagements to audit federal financial statements should be
expanded to include a review or examination of all or parts of MD&A,
consistent with attestation guidelines published by the AICPA.7
Accountability Reports
20. The Board notes that the concept and practice of the Accountability
Report continue to evolve through the pilot project voluntarily
undertaken by several agencies.8 The Board supports this evolution
and encourages agencies to participate in the pilot project. The
concepts and standards FASAB recommends are intended to be
applicable to the GPFFR of Federal entities, whether those reports are
prepared pursuant to the Chief Financial Officers Act, the Government
Management Reform Act, or some future law that might establish a
Accountability reports are broader in scope than traditional general purpose financial
reports. As explained by OMB: Six pilot agencies volunteered to produce an Accountability
Report for FY 1995 to provide more useful information to decision makers by linking
together information required by several management statutes... Accountability Reports
integrate the following information: the FMFIA report, the CFOs Act Annual Report
(including audited financial statements); managements Report on Final Action as required
by the IG Act; Civil Monetary Penalty and Prompt Payment Act reports; and available
information on agency performance compared with its stated goals and objectives, in
preparation for implementation of GPRA. Federal Financial Management Status Report
and Five Year Plan, June 1996, pp. 33-34. Twelve agencies produced accountability reports
for FY 1997; eighteen plan to do so for FY 1998; the number will increase to 23 for FY 2000.
(The requirement to include Civil Monetary Penalty and Prompt Payment Act reports has
been deleted.)
SFFAS 15 - Page 10
SFFAS 15
Forward-looking
Information
Incorporation by
Reference
SFFAS 15 - Page 11
Status
Issued
July 1999
Effective Date
None.
Affects
None.
Affected by
SFFAS 16 - Page 1
SFFAS 16
SFFAS 16 - Page 2
Status
Issued
August 1999
Effective Date
None.
Affected by
SFFAS 26, par. 5, affects SFFAS 17, paragraphs 24, 27(3), 31, and 32(3) by
changing the classification of information required by SFFAS 17.
SFFAS 33, par. 39-41, affects SFFAS 17, par. 25, 27(2), and 27(4)(a).
SFFAS 37 affects SFFAS 17, par. 26, 26A, 27, and 32.
Summary
This statement presents accounting standards for federal social insurance programs. The standards
cover the following programs: Social Security (Old-Age, Survivors, and Disability Insurance), Medicare
(Hospital Insurance [Part A] and Supplementary Medical Insurance [Part B]), Railroad Retirement
benefits, Black Lung benefits, and Unemployment Insurance. The standards do not cover any other
programs at this time.
Social insurance programs have complex characteristics and thus require specialized accounting
standards. These programs blend elements of exchange and nonexchange transactions and therefore do
not completely fit traditional accounting notions of either annual governmental assistance programs
(nonexchange transactions) or long-term pension programs (exchange transactions).
Because taxpayers rely on social insurance programs in their long-term planning, fundamental questions
about social insurance programs include (1) whether they are sustainable as currently constructed and
(2) what their effect on the governments financial condition will be. The requirements of this standard
reflect the complexity of these programs. In its entirety, the information required will help users assess
the governments financial condition and the sufficiency of future budgetary resources for these
programs. No single element of the information required is sufficient to meet all the users needs.
The standards require that a liability be recognized when payments are due and payable to beneficiaries
or service providers. Supplementary stewardship information is to be reported to facilitate assessing the
programs long-term sustainability and the ability of the program and the nation to raise resources from
future program participants to pay for benefits proposed to present participants.
The information is required in the financial reports of both the individual agency and the
governmentwide entity. The information is tailored for specific programs but generally includes narrative
and/or graphic presentation of the following:
SFFAS 17 - Page 1
SFFAS 17
(1) long-range cashflow projections in nominal dollars and as a percentage of (a) the payroll that is
subject to the tax earmarked for the program and (b) the Gross Domestic Product;
(2) long-range projection of the ratio of contributors to beneficiaries (commonly called the
dependency ratio); and
(3) a statement presenting the actuarial present values of (i) future benefits and (ii) contributions and
tax income for social insurance programs; the Statement of Social Insurance.
The Board is issuing this statement after years of debate. Taken as a whole, the package is a major step
forward in meeting the objectives of federal financial reporting. Nonetheless, federal financial reporting
is in a period of great change and the Board expects that further research regarding presentation of a
federal balance sheet is needed. In Statement of Federal Financial Accounting Concepts 1, Objectives of
Federal Financial Reporting, the Board acknowledged that an evolutionary approach would be taken:
The FASAB recognizes that developing and implementing standards that will contribute to achieving certain objectives may take
considerable time. Time will be needed to establish information-gathering systems and to gain experience by experimenting with
alternative approaches. [par. 35]
The FASAB expects that some of these objectives may best be accomplished through means of reporting outside general
purpose financial reports. Indeed, the FASAB recognizes that information sources other than financial reporting, sources over
which the FASAB may have little of no influence, also are important to achieving the goals implied by these objectives. [par. 36]
SFFAS 17 - Page 2
SFFAS 17
Table Of Contents
Contents
Page
Purpose
Scope
Materiality
Effective Date
19
43
87
92
SFFAS 17 - Page 3
SFFAS 17
Purpose
1.
Scope
2.
Background
3.
See the [Consolidated] glossary (Appendix E) for definitions of terms used in the statement.
Terms defined in the glossary are in boldface the first time they appear in the text.
SFFAS 17 - Page 4
SFFAS 17
4.
5.
6.
Budgetary Integrity,
Operating Performance,
Stewardship, and
Systems and Controls.
Although all the objectives are important, Nos. 2 and 3 directly impact
the social insurance standards. Objective No. 2 provides,
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 entitys assets and liabilities.3
SFFAS 17 - Page 5
SFFAS 17
Meeting Objective No. 3 is the other focus for this statement. It says,
Federal financial reporting should assist report users in assessing the impact on the
country of the governments operations and investments for the period and how, as a
result, the governments and the nations financial condition has changed and may
change in the future.4
8.
SFFAS 17 - Page 6
SFFAS 17
(ii) the ability of the program and the nation to raise resources
from future program participants to pay for benefits
proposed to present participants.
10. The RSSI includes:
SFFAS 17 - Page 7
SFFAS 17
SFFAS 26, par. 5 requires that the actuarial present values and
significant assumptions be presented as a basic financial statement
and as disclosures, respectively.
Materiality
12. The provisions of the accounting standards in this statement need not
be applied to immaterial items.
Effective Date
Accounting
Standards For
Social Insurance
14. The following programs are designated as social insurance and subject
to these standards:
SFFAS 17 - Page 8
SFFAS 17
Characteristics Of Social
Insurance Programs
15. These programs were developed to carry out the responsibilities of the
government and generally have characteristics that make them unique.
Although they generally share certain characteristics, social
insurance programs are too diverse to allow definitive criteria to be
applied to include some and exclude others from the category. This
statement identifies the following five characteristics common among
social insurance programs:
(1) Financing from participants or their employers,
(2) Eligibility from taxes/fees paid and time worked in covered
employment,
(3) Benefits not directly related to taxes/fees paid,
(4) Benefits prescribed in law, and
(5) Programs intended for the general public.
These characteristics are briefly described below.
Financing From
Participants
16. Some of the resources needed to run these programs are raised
through explicit taxes and fees collected from the program participant
or from the participants employer. Taxes paid are usually a fixed
percentage of the participants wage income.
17. Federal social insurance programs utilize trust funds to account for
dedicated collections held for later use to accomplish the programs
purpose. Federal trust funds are accounts designated by law as such
for receipts earmarked for specific purposes and the associated
expenditure of those receipts. Trust funds serve useful purposes in
allocating federal spending authority and accounting for earmarked
taxes.
Eligibility from
Taxes/Fees Paid and
Time Worked in Covered
Employment
18. Eligibility for benefits under social insurance programs usually rests,
in part, on current or previous taxes and/or fees paid by the individual,
the individuals employer, or both, and the time worked in covered
employment. Frequently an individuals taxes and/or fees paid and
time worked in covered employment also make family members
eligible.
SFFAS 17 - Page 9
SFFAS 17
Benefits Prescribed in
Law
21. These programs are intended for the general public and not solely for
present or former federal employees.
Component Entity
Accounting &
Reporting Standard
Expense & Liability
Recognition
22. The expense recognized for the reporting period should be the
benefits paid during the reporting period plus any increase (or less any
decrease) in the liability from the end of the prior period to the end of
the current period. The liability should be social insurance benefits
due and payable to or on behalf of beneficiaries at the end of the
reporting period, including claims incurred but not reported (IBNR).
23. For Unemployment Insurance (UI), the liability to be recognized
includes (1) amounts due to states and territories for benefits they
have paid to beneficiaries but for which they have not withdrawn
funds from the federal unemployment trust fund (UTF) as of fiscal
year end, and (2) estimated amounts to be withdrawn from UTF and
benefits paid by states and territories after fiscal year end for
compensable days occurring prior to fiscal year end.
SFFAS 17 - Page 10
SFFAS 17
Required Supplementary
Stewardship
Information
SFFAS 17 - Page 11
SFFAS 17
26.A.The entity should provide a brief statement explaining that the SOSI
amounts are estimates based on current conditions, that such
conditions may change in the future, and that actual cost may vary,
sometimes greatly, from estimated cost. The entity should state that
the amounts of the open (and closed) group measures depend on the
assumptions used and that actual experience is likely to differ from
the estimate. For example:
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The financial statements are based on the selection of accounting
policies and the application of significant accounting estimates,
some of which require management to make significant
assumptions. Further, the estimates are based on current
conditions that may change in the future. Actual results could
differ materially from the estimated amounts. The financial
statements include information to assist in understanding the
effect of changes in assumptions to the related information.
27. The information on financial and actuarial status should include the
following measures and data:
(1) Cashflow Projections - Projections of cashflow for those persons
who are participating or eventually will participate in the
program as contributors or beneficiaries during a projection
period sufficient to illustrate long-term sustainability (e.g.,
traditionally the Social Security, or OASDI, program has used a
projection period of 10 years for relatively short-term and 75
years for long-term projections, and the UI program has used a
projection period of 10 years for its projections). The projection
should include current workers, retirees, survivors, disabled
persons, and new participants entering the workforce or
becoming beneficiaries, including those who will be born or
immigrate to the United States during the projection period. The
information should include the following:
Actuarial projections of the annual cashflow, with amounts
reported for at least every fifth year in the projection period. The
cashflow information should show
(i)
SFFAS 17 - Page 12
SFFAS 17
1)
2)
SFFAS 26, par. 5 requires that the actuarial present values and
significant assumptions be presented as a basic financial statement
and as disclosures, respectively.
6
Interest on intragovernmental borrowing refers to interest earned by the social insurance
program on obligations of the U.S. Government.
7
SMI, Black Lung benefits, and UI programs are financed by, respectively, premiums paid by
covered participants and general fund contributions (SMI); direct payments from employers,
excise taxes per ton of coal, and general fund contributions (Black Lung); and
state/employer-specific payroll taxes (UI). Therefore, these programs are not required to
provide the ratio of contributors to beneficiaries. The OASDI trustees refer to the ratio of
beneficiaries to contributors as the dependency ratio.
SFFAS 17 - Page 13
SFFAS 17
8
A projection period for future participants would cover their working and retirement years.
The entity would make an assumption about the length of this period. For example, the
OASDI program uses a projection period of 75 years. A projection period for current
participants (that is, for the people actually participating in the program) would theoretically
cover all of their working and retirement years, a projection period that could be greater
than 75 years a in few instances. As a practical matter the present values of future payments
and contributions for/from current participants beyond 75 years usually would not be
material, and a 75 year projection period would include virtually all the future contributions,
tax income, and benefit payments for current as well as future participants.
SFFAS 17 - Page 14
SFFAS 17
(j)
(4) Sensitivity Analysis All programs should provide sensitivity analysis appropriate
for their particular circumstances. The objective of
sensitivity analysis is to illustrate how an estimate or
projection would change if assumptions, data,
methodologies or other inputs change. The OASDI,
Medicare and Railroad Retirement programs should provide
sensitivity analysis of the open group measure presented in
the SOSI summary. Appropriate considerations include
SFFAS 17 - Page 15
SFFAS 17
Transition
28. In instances where data are not available to calculate the actuarial
estimates for one or more prior years, as required in paragraph
27(3)(j) the entity may apply the standard prospectively.
Consolidated
Governmentwide
Entity Accounting &
Reporting Standard
SFFAS 17 - Page 16
SFFAS 17
Required Supplementary
Stewardship
Information
SFFAS 17 - Page 17
SFFAS 17
(i)
(ii) GDP for OASDI, HI, and SMI, presenting each program
separately.
(2) Ratio of Contributors to Beneficiaries - For OASDI and HI, the
ratio of the number of contributors to the number of beneficiaries
(commonly called the dependency ratio) during the projection
period as described under the standard for component entities
(see par. 27(2)).
SFFAS 26, par. 5 requires that the actuarial present values and
significant assumptions be presented as a basic financial statement
and as disclosures, respectively.
Transition
33. In instances where data are not available to calculate the actuarial
estimates for one or more prior years, as required in paragraph
27(3)(j) the entity may apply the standard prospectively.
SFFAS 17 - Page 18
SFFAS 17
Appendix ABasis
For Conclusions
Section 1 Response
To Comments Received
34. This appendix does not constitute authoritative guidance for those
who prepare and audit general purpose federal financial reports. It
summarizes important matters that the FASAB members considered
as they deliberated on this Statement. It includes reasons for accepting
certain approaches and rejecting others. Individual Board members
gave greater weight to some factors than to others.
35. FASAB published the exposure draft Accounting for Social Insurance
in February 1998. The exposure draft included five questions and
invited comments on the usefulness of the proposal for accounting
and reporting for social insurance. Twenty-nine letters were received
from the following sources:
General Public
Auditors
Preparers and
Financial Managers
Total
Federal
(internal)
Nonfederal
(external)
Total
2
[retired employees]
10
12
12
17
12
29
36. FASAB also held a public hearing on the exposure draft on October 56, 1998. Testimony was received from representatives of accounting,
auditing, and actuarial organizations; from a public service
organization; and from the Social Security and Medicare programs.
Appendix C, Historical Background, provides a history of past
accounting for these programs.
37. Section 1 of this basis for conclusions addresses certain responses to
the exposure draft and the comments received at the public hearing.
38. The responses to the exposure draft illustrate what was described in
the basis for conclusions for the exposure draft as two polarized views
regarding recognizing or even disclosing a liability measure beyond
the due and payable amount called for in this standard. Some
respondents restated their views on the propriety of the accounting
SFFAS 17 - Page 19
SFFAS 17
proposed in the ED, and/or they said they favored one or the other of
the two opposing views described in the basis for conclusions. Some
respondents argued once again that social insurance programs are
pay-as-you-go, income transfer programs for which an estimate of
accrued and future benefits and contributions and tax income is
inappropriate. Other respondents reiterated the contrary argument.
They said that such programs are commitments for which a long-range
accrual is not only appropriate but also essential for the balance sheet,
if the information presented therein is not to be misleading.
39. The Board continues to believe that the original basis for conclusions
in the exposure draft describes and explains the Boards conclusions
adequately. Therefore, except for those issues specifically discussed
immediately below, the Board is presenting the original basis for
conclusions from the exposure draft in Section 2. Changes were made
where necessary to reflect the requirement for a statement of social
insurance in the final standard.
SFFAS 17 - Page 20
SFFAS 17
period, while the standard now calls for fund balance information to
be presented in a note to the statement.
43. The Board decided that the new presentation and data did not require
re-exposure. The information added to the standard results from
adding more detail and modifying the display to increase visibility.
These modifications are responsive to the views expressed by many
during the comment period. The Board believes that the difference in
the presentation does not warrant delaying the issuance of the
standard.
Specific Identification of
Social Insurance Programs
44. A few of the respondents disagreed with the approach in the exposure
draft whereby programs are specifically identified. One respondent
reasoned that an accounting standard would be more useful if it
established definitive criteria for current and future programs to meet
rather than designating only specific programs. Conversely, another
respondent said the standard should be even more specific and deal
with the individual programs separately because some have
characteristics of defined benefit plans while others are similar to
welfare programs.
45. After weighing these arguments carefully, the Board continues to
believe that definitive criteria would be unworkable. Although these
programs do generally share certain characteristics, they are complex.
Each program has unique benefits, different eligibility requirements,
and different financing arrangements. Because definitive criteria
would be subject to interpretation, questions would arise about
individuals programs that would require a response from the Board.
The Board has decided to identify social insurance programs that now
exist and consider the classification of other programs as they may
arise in the future.
Consistency of Assumptions
SFFAS 17 - Page 21
SFFAS 17
Sensitivity Analysis
48. Some respondents disagreed with the approach in the exposure draft
regarding sensitivity analysis, which calls for showing the effect of
changing one major assumption at a time. One respondent favored a
general requirement that entities provide sensitivity analysis rather
than telling them how to do it. This respondent favored the high-,
low-, and intermediate sets of cost assumptions that are featured in
the trustees annual reports for Social Security and Medicare. Another
respondent suggested that the standard not require sensitivity analysis
because most users would not understand it and the potential for
misuse would be great. Another respondent said that the requirement
in the standard was useful because it gives an idea about the
uncertainty associated with the estimate. However, this respondent
said sensitivity analysis was inadequate without a further discussion of
the nature of uncertainty itself and recommended mandating such a
discussion.
49. The Board continues to believe that the analysis required by the
standard is a clear, easily understood illustration of the sensitivity of
projections to changes in assumptions. The Board recognizes the
difficulty in illustrating the uncertainty inherent in all projections,
especially very long-range projections. However, the requirement in
the standard would not preclude the entity from presenting additional
discussions of uncertainty and the Board expects that agencies would
do so voluntarily.
50. Some respondents urged the Board to consider whether the approach
used by state and local governments to account for employee pensions
would be suitable, at least for some social insurance programs that are
most analogous to pensions, such as the retirement benefit portion of
Social Security. Those respondents focus on similarities, such as
defined benefit formulas tied to earnings.
51. The Board concluded that there are important differences in the
programs and environments involved. For example, state and local
pension plans typically do not have extensive income transfer
features. They are much like federal employee pension programs,
SFFAS 17 - Page 22
SFFAS 17
Vote of Approval
52. This recommended statement was approved by the Board with a vote
of 6 members in favor of its issuance and 3 member(s) opposing its
issuance. Two members submitted written dissents, which are
available for public inspection at the FASABs offices.
[Note: The Boards recommendation differs from the proposal made in the
exposure draft. Certain sections from the basis for conclusion in the
exposure draft were deleted since they are no longer relevant to the final
recommendation. Paragraphs 40-51 explain the differences and reasons
therefore.]
53. The following paragraphs address the basis for the Boards
proposals on
Characteristics of Social
Insurance Programs
54. As stated in the introductory sections, the Board has analyzed certain
programs that are generally considered social insurance. These
programs have certain characteristics that set them apart from general
assistance programs on the one hand and insurance programs on the
other hand. Accounting standards for liabilities associated with
general assistance and insurance programs are provided in SFFAS
No. 5, Accounting for Liabilities of the Federal Government.
55. After analyzing specific programs, the Board determined that,
although these programs generally shared certain characteristics, their
operational features were too diverse for establishing definitive
criteria that would include all the subject programs and exclude all
other federal programs for which accounting standards have already
been provided. Thus, the Board has outlined the general
characteristics that social insurance programs usuallybut not
alwayspossess and has listed the specific programs to which the
standards apply. This does not preclude the Board from considering an
additional program(s) in the future and, given the individual
circumstances pertaining to that program, including it within this
SFFAS 17 - Page 23
SFFAS 17
59. The Board believes that the annual expenses of such programs should
be the benefits paid during the accounting period plus any increase (or
less any decrease) in the liability from the end of the prior period to
the end of the current period, including claims incurred but not
SFFAC No. 1, Objectives of Federal Financial Reporting, pars. 52, 53, 55, and 60.
SFFAS 17 - Page 24
SFFAS 17
SFFAS 17 - Page 25
SFFAS 17
Polarization
64. With regard to social insurance, the Board notes the strength of
feelings on this issue. The Board has been faced with two polarized
views. On the one hand there are those who believe a liability should
be recognized for the net benefits expected to be paid in future periods
to current participants. On the other hand, there are those who believe
that the long-term obligation (i.e., beyond amounts due and payable at
the end of an accounting period) associated with these programs is not
a liability and should not be recognized as such. Some people also
believe such amounts should not be reported as RSSI.
Arguments against
Recognition, Disclosure, or
Supplementary Reporting
65. The latter group would argue that social insurance programs do not
result in exchange transactions, that social insurance programs are
income transfers financed primarily by compulsory earmarked taxes
and also, in certain cases, general revenues of the government. For
them, the political nature of the commitment is critical, for its terms
can be and are changed by the Congress to maintain actuarial
balance. In this regard, they point to Flemming, Secretary of HEW v.
Nestor, Part I (363 U.S. 608-611) wherein Mr. Justice Harlan, delivering
the opinion of the Court, said,
[T]he entire [Social Security System] rests on the legislative
judgment that those who in their productive years were
functioning members of the economy may justly call upon that
economy, in their later years, for protection from the rigors of the
poor house...
He continued,
It is apparent that the noncontractual interest of an employee
covered by the Act cannot be soundly analogized to that of the
holder of an annuity, whose right to benefits are bottomed on his
contractual premium payments.... To engraft upon the Social
10
SFFAS 17 - Page 26
SFFAS 17
Uncertainty
68. Some of those who do not believe that social insurance obligations
constitute a liability argue that the level of future benefit payments is
too uncertain for accrual as a liability. They point out that not only did
Congress expressly include (and retain) the right to alter, amend, or
repeal any provision in the Social Security Act itself, it has made
such changes frequently. In the early years, the changes generally
expanded benefitsfor example, to dependents, the disabled, and
early retirees; to a broader coverage of workers; to protect retirees
against inflationand increased tax rates. But as the system has
matured, the changes have increased the tax rate further, taxed an
increasing proportion of benefits, reduced cost of living adjustments
11
See Steuele, C. Eugene, and Jon M. Bakija, Retooling Social Security for the 21st Century:
Right and Wrong Approaches to Reform, (The Urban Institute Press, Washington, DC).
SFFAS 17 - Page 27
SFFAS 17
Period Costs
70. Some argue that the critical issue is the period to which a particular
cost or expense relates. They emphasize that a significant
determination in accounting is to decide in which period a transaction
should be recognized as an expense. They believe that social
insurance benefits, like other non-exchange transactions, should be
recognized as expenses in the time period when they are paid or are
due and payable and not earlier when a participant has covered wages.
Future social insurance benefits constitute program costs of future
periods, notwithstanding that they may be for the purpose of carrying
out responsibilities that the government has already assumed.
71. They would argue further that, given the nature of the Federal
Government and of social insurance, liability-type measures of the
social insurance obligation (e.g., the closed group measure...) are
meaningless or even potentially misleading. In particular, they argue
that this information would not be useful to assess sustainability. It
ignores the pay-as-you-go financing, excludes future earmarked taxes
from future participants, and results in such an enormous actuarial
present value that it may needlessly scare those unfamiliar with the
debate. Such measures do not reflect the way the program is financed
under current law and could, if taken out of context, imply that the
current participants have a right to benefits superior to future
participants.
72. They argue that other supplementary information would provide
useful sustainability information. For example, the Social Security
Trustees annual report provides open group projections of
cashflowin dollars, as a percentage of the tax base earmarked for
SFFAS 17 - Page 28
SFFAS 17
the program, of the GDP, etc.and the dependency ratio. The open
group measure reflects the way the program is financed; and the
dependency ratiothe ratio of contributors to beneficiaries
indicates whether the program could potentially encounter stress in
the future. Both of these were proposed in the exposure draft on social
insurance as part of the supplementary information. They argue that
these and other measures provide meaningful sustainability
information.
73. Those who hold a contrary view believe either that the distinction
between exchange and non-exchange transactions is not relevant to
the liability recognition or supplementary reporting issue or that the
programs possess characteristics that make the transactions
predominantly exchanges. They argue that social insurance programs
possess certain characteristics that, taken together, cause the criteria
for recognizing a liability to be met long before payments are due and
payable. Those characteristics are
1.
2.
3.
4.
5.
SFFAS 17 - Page 29
SFFAS 17
SFFAS 17 - Page 30
SFFAS 17
79. Because most users are familiar with FASBs definition, or at least are
accustomed to seeing financial reports based on it, those who favor
recognition or disclosure of a liability-type measure argue it is
inherently misleading to fail to quantify the size of the promise that is
continually being made and on which people are told they can rely.
While many who support liability-type disclosure agree the open group
data are desirable to aid in assessing the sustainability of social
insurance programs, they also believe that an assessment of the
financial condition of the program and more importantly, of the
Federal Government is not possible absent liability or closed group
data. If a reader seeks to answer the question Have we burdened
future generations of citizens with the cost of the current and past
years? and, if so, to what extent? the very large obligations for
social insurance must be considered.
80. The Board acknowledges that it is faced with two polarized views
without much hope of one side convincing the other side of the
correctness of its position. On the one side are those who believe that
social insurance programs especially Social Security and Medicare
constitute a liability of the Federal Government that should be
recognized on the consolidated balance sheet and that the closed
group is the best measure of it. They agree that other measures such as
a long-range projection of a programs cash inflow from all sources
and outflow for all purposes are also useful, and note that all measures
of sustainability and financial condition must be taken in context to be
meaningful. At the opposite pole are those who firmly believe that the
closed group measure is meaningless or even potentially misleading
and should not be disclosed at all in the financial report.
81. The Board recognizes that both approaches have limitations and that
the data are best understood when used together. An earned right
measure, for example, produces a relatively large dollar amount that
could confuse the reader who is unaware of the way in which the
program was intended to be funded. Although both sides make strong
arguments, no empirical evidence has been offered that would prove
one side right and the other wrong. The Board believes the best
approach to resolve this issue is for the closed group data to be
reported off the balance sheet as part of a balanced RSSI package of
disclosures about the Social Security and other social insurance
programs. [The Board subsequently affirmed that the data necessary
to calculate the closed group measure should be reported. See
SFFAS 17 - Page 31
SFFAS 17
Measurement of Social
Insurance Obligations
SFFAS 17 - Page 32
SFFAS 17
Required Supplementary
Stewardship Information
86. The Board believes that the required information is relevant for
assessing the sustainability of social insurance programs and also
bears on the governments financial condition. The following
paragraphs discuss each of the RSSI elements.
Cashflow
87. An estimate based on the amount and timing of future cash inflows
and outflows will help users understand the long-range sustainability
of the social insurance programs based on current revenue and benefit
structure. The Board believes that the yearly inflows and outflows
under the open group method should be disclosed over a sufficient
number of years (e.g., 10 years, 75 years) to display crossover points
where outflows begin exceeding inflows. Crossover points provide an
early warning as to the need to adjust either the revenue stream or the
expenditure stream to ensure that the program is sustainable under
current law.
88. The Board considered specifying the length of the projection (e.g., 1020 years). However, it decided that allowing the entity to use its
traditional timeframe was preferable, if the period presented is long
SFFAS 17 - Page 33
SFFAS 17
SFFAS 17 - Page 34
SFFAS 17
12
[A variety of actuarial methods exist which can be used to calculate an actuarial liability.
The closed group measure is not identical to the methods that would be used in pension
accounting. See paragraph 97]
SFFAS 17 - Page 35
SFFAS 17
SFFAS 17 - Page 36
SFFAS 17
Transition Costs
97. Some people note that the closed group measure, in addition to being
an important factor in assessing the financial position and condition of
the program and of the government, also represents a rough estimate
of the maximum transition cost of the program if it were to move
from the present pay-as-you-go system to one that, like most pension
plans, sets aside resources during workers careers to finance the
benefits they will receive after they retire.14 The primary reason for
reporting the size of this implicit liability in general purpose federal
financial reports is to ensure that the financial report fairly presents
the financial position, condition, and results of operations of the
13
Budget issues: Budgeting for Federal Insurance Programs, General Accounting Office,
GAO/AIMD-97-16, Sept. 30, 1997, p. 5.
14
Several ways exist for measuring transition costs depending on, among other things,
whether one assumes the current program will continue for current participants alongside a
new program for new participants (similar to federal employees continuing with the Civil
Service Retirement System after the creation of the Federal Employee Retirement System in
1983). In such a transition, the older program would be closed to new entrants. Another type
of transition would be where the current participants will move on to the new system, with
the transition cost being the amount owed them under the former program. The discussion
of different methodologies for calculating transition cost is beyond the scope of this
accounting standard; but see the Stephen Goss, Measuring Solvency in the Social Security
System, Prospects for Social Security Reform, ed. Olivia S. Mitchell, Robert J. Myers, and
Howard Young (Philadelphia: University of Pennsylvania Press, 1999), 16-36.
SFFAS 17 - Page 37
SFFAS 17
15
Note that this rate differs from the 2.17 percent increase in the payroll tax that has been
estimated to be necessary to maintain benefits under current law; see p. 25 of the 1994-96
Advisory Council report, vol. 1.
SFFAS 17 - Page 38
SFFAS 17
... It has become conventional wisdom that the social security system, as currently
constructed, will not be fully viable after the baby boom generation starts to retire....
This imbalance in social security stems primarily from the fact that, until very recently,
payments into the social security trust accounts by the average employee, plus
employer contributions and interest earned, were inadequate to fund the total of
retirement benefits. This has started to change. Under the most recent revisions to the
law and presumably conservative economic and demographic assumptions, todays
younger workers will pay social security taxes over their working years that appear
sufficient, on average, to fund their benefits during retirement. However, the huge
liability for current retirees, as well as for much of the work force closer to retirement,
leaves the system as a whole badly underfunded.16
101. Mr. Greenspan mentioned some reasons why the capital markets
reactionthough possibly substantialmight be muted if the
government made this implicit liability more explicit. The Federal
Reserve has estimated that, using a 2 percent real rate of discount and
other assumptions, the value of all currently accrued legislated future
Social Security retirement benefits would be roughly $9.5 trillion.
102. The assumptions, benefits, population, and actuarial approach
covered by this estimate differ somewhat from those used by the
Social Security Trustees in the past to produce the closed group
estimate comparable to the one called for by this statement. The
calculation used for Mr. Greenspans testimony is an estimate of the
16
17
Greenspan, p. 4-5.
SFFAS 17 - Page 39
SFFAS 17
...
Moneys Worth
18
Greenspan, p. 9.
SFFAS 17 - Page 40
SFFAS 17
105. Some argue that the moneys worth measure may be viewed as a good
measure of potential future stress caused by the disparity between
taxes and anticipated benefits. However, others argue that this
measure is of questionable relevance given the basic design and
breadth of the benefits available under some social insurance
programs. For example, the Social Security benefit formula is
designed to provide relatively higher benefits for workers with lower
earnings. This feature of the program is inconsistent with a pure focus
on moneys worth. Finally, as commonly reported, this measure does
not reflect some social insurance programs and program features such
as benefits to the disabled or dependents in the event of the
participants death.
106. The Board considered the moneys worth measure and believes that it
presents a useful perspective. However, the Board decided not to
require it because it fails to capture the complexity of social insurance
programs and could be calculated from too many perspectives. The
Board recognizes the usefulness of the measure for policy analysis
(and management may wish to report it voluntarily) but it goes beyond
what the Board regards as essential to present fairly the financial
position, condition, and results of operations of the reporting entities
involved (including the governmentwide entity). Accordingly, the
Board decided not to require RSSI about moneys worth.
107. The Board also considered the trust fund ratio which is defined as
the fund balance at the beginning of the year expressed as a
percentage of the outgo during the year; or, in other words, the
proportion of a years outgo that could be paid with the funds available
at the beginning of the year.19 The trust fund ratio is one of several
measures the Social Security trustees use to evaluate the short-term
financial status of the trust funds. Also, the 1994-96 Social Security
Advisory Council advocated using the trust fund ratio as a gauge of
long-term sustainability. The Council recommended that, in addition to
the actuarial balance over 75 years, the program should have a stable
trust fund ratio over the final years of the 75-year forecast horizon.20
The Council believed that the trend of trust fund ratio would indicate
19
The 1997 Annual Report of The Board of Trustees, Federal Old-Age and Survivors
Insurance and Disability Insurance Trust Funds, p. 221.
20
SFFAS 17 - Page 41
SFFAS 17
whether there would be cause for concern about the years beyond the
75-year horizon. The Council was concerned that all factors known at
the time of the 75-year projection be considered and reported,
including whether there were problems beyond the 75-year projection
period. For example, even as the trustees are reporting that the system
is in actuarial balance over 75 years, demographic trends could make
the next 10 years beyond the 75-year horizon more expensive.
108. The Board decided not to recommend the trust fund ratio as RSSI for a
number of reasons. In particular, to be useful, the ratio would have to
be used in conjunction with a projection that was in actuarial balance
or nearly so. Under the current best estimate projection, where fund
balance is expected to be exhausted well before 75 years, the trust
fund ratio would not be usable. Although the Board acknowledges that
the ratio may be useful as an indicator of short-term financial
condition, it believes the projections and estimates in this standard
will be more informative for accounting purposes.
...
Component &
Governmentwide
Perspectives
SFFAS 17 - Page 42
SFFAS 17
NOTE
The sample report sections in Appendix B provide nonauthoritative
illustrations of possible RSSI that would comply with this standard. The
narrative, charts, tables, and other information shown there are intended
to be one approach among others to provide a full description of the
programs and to supply the required information. The standard does not
require any particular format or graph. Most, but not all, of the data
presented in Appendix B would be required by pars. 27 and 32 of the
standard (e.g., the year the fund balance is exhausted [see par. 117] and
the open group actuarial deficit as a percentage of taxable payroll [see
par. 120] would not be required). This is done to illustrate that
management may provide more supplementary information than is
required by the standard.
Most data are taken from various reports for FY 1996 and are actual
data. Certain data are hypothetical. Although the data are realistic,
readers should not rely on the validity of the data in the sample reports.
OMB provides specific form and content guidance on financial reports.
SFFAS 17 - Page 43
SFFAS 17
Statement of Social Insurance - Old-Age, Survivors and Disability Insurance - 75-Year Projectiona as of September 30, 1996
[HYPOTHETICAL DATA]
Dollars in Trillions
Prior Years
1996
1995
1994
1993
1992
$X
$X
$X
$X
$X
19
Actuarial present value of future benefit payments during the 75-year period to or on
behalf of:
Current participants not yet having attained retirement agec
c
16
$3
$X
$X
$X
$Y
The projection period for new entrants covers the next 75 years. The projection period for current participants (or closed group) would theoretically
cover all of their working and retirement years, a period that could be greater than 75 years a in few instances. As a practical matter the present
values of future payments and contributions for/from current participants beyond 75 years are not material.
To calculate the actuarial net present value of the excess of future benefit payments to current participants (that is, to the closed group of
participants) over future contributions and tax income from them or on their behalf, subtract the actuarial present value of future contributions and tax
income by and on behalf of current participants from the actuarial present value of the future benefit payments to them or on their behalf.
d
The calculation of the close actuarial balance used for analysis by the Social Security trustees differs from the calculation of the amount presented
on this line. The trustees close actuarial balance calculation includes the fund balance at the beginning of the period as an item of cash inflow and the
cost of about one years expenditure, as a target fund balance at the end of the period, as a cash outflow. The fund balancewhich represents the
accumulated excess of all past cash inflow, including interest on intragovernmental securities, over cash outflow within the social insurance program
for 1996 for the OASDI program is $ .6 trillion (OASI, $ .5 trillion, and DI $ .1 trillion). The fund balances for 1995-2, in trillions, were $.6, .5, .5, .4,
respectively. The fund balance consists of a small amount of cash for current operations with the balance invested in Treasury securities. When
presented for redemption, these securities will represent a first claim on the resources of the government.
Program Description
SFFAS 17 - Page 44
SFFAS 17
laws applicable for the period. Current law provides that the amount
of the monthly benefit payments for individuals, or dependent spouses
and children, is based on the individuals taxable earnings up to the
date when payments commence.
111. The amount of the effective monthly OASDI benefits may be altered by
changes in laws governing the program. In 1983 for example, up to
one-half of OASDI benefits became taxable; cost-of-living-adjustments
(COLAs) were permanently delayed six months; and the age for full
retirement benefits was gradually increased from 65 to 67 over a 24year period.
112. OASDI has been described as an income transfer programthat is, a
program designed to reduce economic disparity by redistributing
income between households. OASDI transfers income in at least two
ways. First, its benefit structure is progressive in the sense that
benefits during retirement for lower-income workers replace a larger
proportion of income earned during their working years than is the
case for higher-income workers. This results in an income transfer
among workers of the same age group but in different income groups.
Second, OASDI is financed largely on a pay-as-you-go basis. The
payroll taxes paid to OASDI each year by current workers are
primarily used to pay the benefits provided during that year to current
beneficiaries. This results in income transfers between current
workers and current beneficiaries and therefore between younger
workers and older retirees, the disabled, and surviving family
members.
SFFAS 17 - Page 45
SFFAS 17
114. No liability has been recognized on the balance sheet for future
payments to be made to present and future program participants,
beyond the unpaid amounts as of September 30, 1996. This is because
the OASDI is accounted for as a social insurance program rather than
a pension program. Accounting for a social insurance program
recognizes the expense of benefits when they are actually paid or are
due to be paid because benefit payments are primarily nonexchange
transactions and are not considered deferred compensation as would
employer-sponsored, employees pension benefits. Accrual accounting
for a pension program, by contrast, would recognize the retirement
benefit expenses as they are earned during a workers career so that
the full actuarial present value of the expected retirement benefits has
been recognized by the time the worker retires.
115. Supplementary Stewardship Information - While no liability has
been recognized on the balance sheet for future payments beyond
those due at period end, actuarial estimates of future program
activities are made annually to assess the financial condition and
prospects for OASDI and are presented here as supplementary
stewardship information. The statement presented above and the
displays below represent the best estimate of future cash inflow and
outflow based on the assumptions shown at the end of this section and
considering future changes previously mandated by law. However,
estimates extending so far into the future are inherently uncertain, and
the uncertainty is greater for the later years in the period. This
stewardship information includes:
(1) actuarial present values of future benefits for and contributions
and tax income from or on behalf of current and future program
participants;
(2) cashflow in nominal dollars and as percentages of taxable
payroll and the GDP;
(3) the ratio of contributors to beneficiaries or dependency ratio
showing the long-range relationship between the programs
beneficiaries and contributors; and
(4) an analysis of the sensitivity of the projections to changes in
assumptions.
SFFAS 17 - Page 46
SFFAS 17
21
[Please note: the standard does not require information on the year when the assets would
be exhausted as the program is currently structured (see par. 117). This information
illustrates that management can provide data in addition to that required by the standard
where it feels doing so would be useful to readers of the report.]
SFFAS 17 - Page 47
SFFAS 17
Source: Data from Tables III B1, B3, & C1, 1996 OASDI Trustees Report.
SFFAS 17 - Page 48
SFFAS 17
!
Source: Data from Tables III A2, 1996 OASDI Trustees Report.
119. The total excess of cash outflow over inflow for OASDI over the next
75 years is estimated to be 2.17 percent of taxable payroll; in other
words, a tax increase today of about 1.09 percent of taxable payroll
each on employees and employers, over the 6.2 percent they each now
pay, would produce enough inflow over 75 years to pay all benefits due
under current law.22 There would be trust fund surpluses in the early
22
[Please note: the standard does not require information on the total excess of cash outflow
over inflow as a percentage of taxable payroll. It requires a cashflow projection as a
percentage of taxable payroll as in Chart 2.]
SFFAS 17 - Page 49
SFFAS 17
Source: Data from Tables III C1, 1996 OASDI Trustees Report.
122. In 1996, federal spending for OASDI exceeded $350 billion, which was
about 4.7 percent of GDP. By 2030, when most baby boomers will have
retired, the program (based on current law) will consume nearly
SFFAS 17 - Page 50
SFFAS 17
SFFAS 17 - Page 51
SFFAS 17
Source: Data regarding best estimate is from Tables III B1, B3, & C1, 1996 OASDI Trustees Report
SFFAS 17 - Page 52
SFFAS 17
!" # "$"
%
Source: Data regarding best estimate is from Tables III B1, B3, & C1, 1996 OASDI Trustees Report.
SFFAS 17 - Page 53
SFFAS 17
used for the projection in Chart 1 above. Chart 6 below compares the
estimated OASDI net cash outflow using the best estimate cost
assumptions, including the 1.9 birth rate, with the net cash outflow
that would result from decreasing the rate to 1.6 percent and
increasing it to 2.2 percent.
!
Source: Data regarding best estimate is from Tables III B1, B3, & C1, 1996 OASDI Trustees Report.
Table 1 presents the affect of using rates of 1.6 and 2.2 on the excess of
cash outflow over inflow during the projection period. The rate is
assumed to increase gradually from its current level to reach the
ultimate values in 2070.
SFFAS 17 - Page 54
SFFAS 17
Table 1: Estimated Total Excess OASDI Cash Outflow over Inflow with Various Birth
Rate Assumptions - Valuation Period: 1996-2070
Dollars in trillions
Ultimate Birth Rate Per Woman
Valuation Period:
1996-2070
1.6 births
1.9 births
(from best estimate
cost assumptions)
2.2 births
$3.7
$3.0
$2.5
! " !#!
$
Source: Data regarding best estimate from Tables III B1, B3, & C1, 1996 OASDI Trustees Report.
SFFAS 17 - Page 55
SFFAS 17
Table 2: Estimated Total Excess OASDI Cash Outflow over Inflow with Various Net
Immigration Assumptions - Valuation Period: 1996-2070
Dollars in trillions
Net immigration per year
Valuation Period:
1996-2070
Excess of cash outflow
over cash inflow
750,000
900,000
(from best estimate
cost assumptions)
1,150,000
$3.2
$3.0
$2.9
SFFAS 17 - Page 56
SFFAS 17
#$ % $&$
'
!"
Source: Data regarding best estimate is from Tables III B1, B3, & C1, 1996 OASDI Trustees Report.
Table 3- Estimated Total Excess OASDI Cash Outflow over Inflow with Various RealWage Assumptions - Valuation Period: 1996-2070
Dollars in trillions
Ultimate percentage in wages-CPI
The first value in each of the pairs below is the assumed ultimate
annual percentage increase in average wages in covered
employment. The second value is the assumed ultimate annual
percentage increase in the CPI. The difference between the two
values is the real-wage differential.]
Wages-CPI
Excess cash
outflow over inflow
SFFAS 17 - Page 57
4.5-4.0
5.0-4.0
(from best estimate
cost assumptions)
5.5-4.0
$3.9
$3.0
$2.3
SFFAS 17
SFFAS 17 - Page 58
SFFAS 17
Average Annual
Percent Change
GDP
Wages
CPI
Ave. Annl.
Interest
Rate on
Treasury
Secur. (%)
1996
2.0
4.0
2.0
6.0
5.0
2000
2.0
4.3
3.5
6.5
2005
2.0
5.1
4.0
2010
1.8
5.0
4.0
2020
1.3
5.1
2030
1.4
5.0
Life expectancy
Ave. Annl.
Ave. no. of
Unempl. children per
Rate
woman
Death rate
per 100,000
Men
Women
2.0
757
72
79
6.0
2.0
731
73
79
6.4
6.0
2.0
700
73
80
6.3
6.0
2.0
677
74
80
4.0
6.3
6.0
1.9
638
75
81
4.0
6.3
6.0
1.9
603
76
81
These assumptions and the other values on which these displays are based
represent the latest and most likely or best estimates of these values
by the Trustees. Estimates made in certain prior years have changed
substantially because of revisions to the assumptions due to changed
conditions or experience, and to changes in actuarial methodology. It is
reasonable to expect more changes for similar reasons in the future.
Unemployment Insurance Programs
131. The U. S. Department of Labor operates two programs classified under
federal accounting standards as social insurance, the Unemployment
Insurance Program and the Black Lung Disability Benefits Program.
Presented below is the required supplementary stewardship
information for the Unemployment Insurance Program.
Program Description
132. The Unemployment Insurance (UI) program was created in 1935 to
provide income assistance to unemployed workers who have lost their
jobs through no fault of their own. The program protects workers
during temporary periods of unemployment, through the provision of
unemployment compensation benefits. These benefits replace part of
the unemployed workers lost wages and, in so doing, stabilize the
economy during recessionals periods by increasing the unemployed
workers lost wages and purchasing power. The UI program operates
counter cyclically, paying benefits during recessionary periods and
collecting UI tax revenue during periods of recovery.
133. Program Administration and Funding - The UI program is
administered through a unique system of federal-state partnerships,
SFFAS 17 - Page 59
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SFFAS 17
Treasury when the EUCA has a balance insufficient to pay the federal
share of extended benefits. During periods of sustained high
unemployment, the EUCA may also receive payments and non
repayable advances from the general fund of the Treasury to finance
emergency unemployment compensation benefits. Emergency
unemployment benefits require congressional authorization.
141. The Federal Employees Compensation Account (FECA) was
established pursuant to section 909 of the Social Security Act. FECA
provides funds to states for unemployment compensation benefits
paid to eligible former federal civilian personnel and ex-service
members. Generally, benefits paid are reimbursed to the FECA by the
various federal agencies. Any additional resources necessary to ensure
that the account can make the required payments to states, due to the
timing of the benefit payments and subsequent reimbursements, will
be provided by non repayable advances from the general fund of the
Treasury.
142. State Accounts - Separate state accounts were established for each
state and territory depositing monies into the UTF, in accordance with
section 904 of the Social Security Act. State unemployment taxes are
deposited into these individual accounts and may be used only to pay
state unemployment benefits. States may receive repayable advances
from the FUA when their balances in the UTF are insufficient to pay
benefits.
143. Railroad Retirement Accounts - The Railroad UI Account and
Railroad UI Administrative Account were established under section
904 of the Social Security Act to provide for a separate unemployment
insurance program for railroad employees. This separate
unemployment insurance program is administered by the Railroad
Retirement Board, an agency independent of the Department of Labor
(DOL). DOL is not responsible for the administrative oversight or
solvency of the railroad unemployment insurance system. Receipts
from taxes on railroad payrolls are deposited in the Railroad UI
Account and the Railroad UI Administrative Account to meet benefit
payment and related administrative expenses.
144. UI Program Benefits - The UI program provides regular and
extended benefit payments to eligible unemployed workers. Regular
UI program benefits are established under state law, payable for a
period not to exceed a maximum duration. In 1970, federal law began
SFFAS 17 - Page 62
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the three year period ending in 1994. Emergency benefits were paid
from the surplus of federal unemployment taxes in EUCA and, once
EUCA balances were exhausted, from general revenues of the U.S.
Treasury.
149. Federal UI Benefits - Unemployment benefits to unemployed federal
workers are paid from the FECA within UTF and then reimbursed by
the responsible federal agency. They are not considered to be social
insurance benefits. Federal unemployment compensation benefits are
not included in this discussion of social insurance programs.
Program Finances and Sustainability
150. At September 30, 1996, total assets within the UTF exceeded liabilities
by $54.0 billion.23 This fund balance approximates the accumulated
surplus of tax revenues and earnings on these revenues over benefit
payment expenses and is available to finance benefit payments in
future periods when tax revenues may be insufficient. Treasury invests
this accumulated surplus in federal securities. The net value of these
securities at September 30, 1996, was $53.9 billion. These investments
accrue interest, which is distributed to eligible state and federal
accounts within the UTF. Interest income from these investments
during FY 1996 was $3.4 billion. As discussed in Note 1.B.3 to the
consolidated financial statements, DOL recognized a liability for
regular and extended unemployment benefits to the extent of unpaid
benefits applicable to the current period. Accrued unemployment
benefits payable at September 30, 1996, were
$506.4 million.
151. Effect of Projected Cash Inflows and Outflows on the
Accumulated Net Assets of the UTF - The ability of the UI
programs to meet a participants future benefit payment needs
depends on the availability of accumulated taxes and earnings within
the UTF. The DOL measures the effect of projected benefit payments
on the accumulated net assets of the UTF, under an open group
scenario, which includes current and future participants in the UI
23
[Please note: the standard does not require information on the total amount of securities
held at the balance sheet date. This information illustrates that management can provide
data in addition to that required by the standard when it feels doing so would be useful to
readers of the report.]
SFFAS 17 - Page 64
SFFAS 17
program. Future estimated cash inflows and outflows of the UTF are
tracked by DOL for budgetary purposes. These projections allow the
DOL to monitor the sensitivity of the UI program to differing economic
conditions, and to predict the programs sustainability under varying
economic assumptions. Charts I through IV graphically depict the
effect of varying economic conditions on the UTF over the next 10
years.
152. Projected Cash Inflows and Outflows Under Expected Economic
Conditions - Chart I depicts projected cash inflow and outflow of the
UTF over the next 10 years, under expected economic conditions.
Total cash inflow as well as cash inflow excluding interest earnings is
displayed. DOLs current estimates were based on an expected
unemployment rate of 5.1 percent during FY 1997, increasing to
5.5 percent in FY 2001 and thereafter. These projections indicate net
cash inflow through FY 2004, with a crossover to net outflow in
FY 2005. Cash inflows combined with interest earnings exceed cash
outflows for each of the 10 years presented, although this net excess
decreases from $8.7 billion at the end of FY 1997 to $3.9 billion at the
end of FY 2006.
!
SFFAS 17 - Page 65
SFFAS 17
SFFAS 17 - Page 66
SFFAS 17
155. Effect on UTF Assets of Mild Recession - Chart III shows the projected
effects of moderate recession on the cash inflow and outflow of the
UTF. Under this scenario, which utilizes a rising unemployment rate
peaking at 7.4 percent in FY 2002, net cash outflows are projected to
begin in FY 2001, increasing to a maximum of $7.0 billion in FY 2002.
Net cash inflow is reestablished in FY 2004 with a drop in the
unemployment rate to 6.4 percent.
156. Effect on UTF Assets of Deep Recession - Chart IV shows the effect of
severe recession on the cash inflow and outflow of the UTF. This
scenario assumes a rising unemployment rate peaking at 10.2 percent
in FY 2002. Under this scenario, net cash outflows are projected to
begin early in FY 2000, increasing to $22.5 billion in FY 2002. During
this two-year period, the net assets of the UTF decrease from
$76.7 billion to $35.0 billion, a decline of $41.7 billion (54 percent).
While aggregate UTF balances remain positive, state accounts without
SFFAS 17 - Page 67
SFFAS 17
SFFAS 17 - Page 68
SFFAS 17
Total
Cash
Inflow
Total
Cash
Outflow
Net
Assets
$120,000,000
$110,000,000
$100,000,000
$90,000,000
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Years
158. Tables containing the yearly cash inflow, interest earnings, and cash
outflow for each scenario are presented in the following pages.
SFFAS 17 - Page 69
U.S. Department of Labor - Required Supplemental Stewardship Information - Cash Inflow and Outflow of the Unemployment
Trust Fund excluding the Federal Employees Compensation Account For the Ten Year Period Ended September 30, 1996
(1) Expected Unemployment Rate
(Dollars in thousands)
1997
1998
1999
2000
$ 53,800,832
$ 62,495,644
$ 69,134,779
$ 75,410,218
22,681,000
22,442,000
24,195,000
6,046,000
6,141,000
6,201,000
27,600
67,800
28,754,600
Interest on Federal
securities
2001
2002
2003
2004
2005
2006
82,183,369
$ 89,188,172
$ 96,242,575
$ 102,591,615
$ 108,232,958
$ 113,075,913
25,837,000
27,011,000
27,927,000
28,666,000
29,217,000
29,792,000
30,439,000
6,300,000
6,332,000
6,428,000
6,474,000
6,545,000
6,616,000
6,690,000
127,600
136,600
101,000
70,000
75,100
102,400
109,800
91,400
28,650,800
30,523,600
32,273,600
33,444,000
34,425,000
35,215,100
35,864,400
36,517,800
37,220,400
3,744,328
4,179,810
4,413,592
4,670,414
4,924,397
5,227,889
5,326,384
5,503,356
5,656,406
5,711,029
32,498,928
32,830,610
34,937,192
36,944,014
38,368,397
39,652,889
40,541,484
41,367,756
42,174,206
42,931,429
20,179,000
22,357,000
24,875,000
26,443,000
27,619,400
28,831,233
30,329,870
31,765,260
33,267,761
34,821,713
3,357,406
3,561,582
3,513,672
3,456,087
3,474,974
3,498,455
3,591,026
3,687,876
3,787,445
3,889,713
165,641
169,182
170,441
171,565
172,610
172,612
174,589
176,885
179,237
181,644
Cash inflow
State unemployment taxes
Federal unemployment
taxes
Deposits by the RRB
Cash outflow
State unemployment
benefits
State administrative costs
Federal administrative
costs
Interest on tax refunds
3,248
3,299
3,165
3,136
3,035
3,011
2,984
3,017
3,033
3,016
98,821
100,412
99,475
97,075
93,575
93,175
93,975
93,375
93,775
93,575
23,804,116
26,191,475
28,661,753
30,170,863
31,363,594
32,598,486
34,192,444
35,726,413
37,331,251
38,989,661
4,950,484
2,459,325
1,861,847
2,102,737
2,080,406
1,826,514
1,022,656
137,987
(813,451)
(1,769,261)
8,694,812
6,639,135
6,275,439
6,773,151
7,004,803
7,054,403
6,349,040
5,641,343
4,842,955
3,941,768
$ 62,495,644
$ 69,134,779
$ 75,410,218
$ 82,183,369
89,188,172
$ 96,242,575
$ 102,591,615
$ 108,232,958
$ 113,075,913
$ 117,017,681
5.09%
5.12%
5.38%
5.47%
5.50%
5.50%
5.50%
5.50%
5.50%
5.50%
RRB withdrawals
SFFAS 17 - Page 70
U.S. Department of Labor - Required Supplemental Stewardship Information - Cash Inflow and Outflow of the Unemployment
Trust Fund excluding the Federal Employees Compensation Account For the Ten Year Period Ended September 30, 1996
(2) Mild Recessionary Unemployment Rate
(Dollars in thousands)
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
$ 53,800,832
$ 62,495,644
$ 69,134,779
$ 75,427,203
$ 78,997,497
$ 72,977,460
$ 65,947,568
$ 65,595,389
$ 74,470,094
$ 87,923,108
22,681,000
22,442,000
24,195,000
25,837,000
27,889,000
31,018,000
35,304,000
39,150,000
41,096,000
40,839,000
6,046,000
6,141,000
6,201,000
6,169,000
6,139,000
6,177,000
6,224,000
6,335,000
6,462,000
6,549,000
27,600
67,800
127,600
136,600
101,000
70,000
75,100
102,400
109,800
91,400
28,754,600
28,650,800
30,523,600
32,142,600
34,129,000
37,265,000
41,603,100
45,587,400
47,667,800
47,479,400
3,744,328
4,179,810
4,485,592
4,324,625
4,389,403
3,957,469
3,737,486
3,670,448
4,053,078
4,639,297
32,498,928
32,830,610
35,009,192
36,467,225
38,518,403
41,222,469
45,340,586
49,257,848
51,720,878
52,118,697
20,179,000
22,357,000
24,930,015
29,083,333
40,393,938
44,027,625
41,544,306
36,305,687
34,175,845
34,832,298
3,357,406
3,561,582
3,513,672
3,541,887
3,875,374
3,956,055
3,877,026
3,804,276
3,816,045
3,861,112
165,641
169,182
170,441
171,565
172,610
172,612
174,589
176,885
179,237
181,644
3,248
3,299
3,165
3,071
2,943
2,894
2,869
2,920
2,962
2,953
98,821
100,412
99,475
97,075
93,575
93,175
93,975
93,375
93,775
93,575
23,804,116
26,191,475
28,716,768
32,896,931
44,538,440
48,252,361
45,692,765
40,383,143
38,267,864
38,971,582
4,950,484
2,459,325
1,806,832
(754,331)
(10,409,440)
(10,987,361)
(4,089,665)
5,204,257
9,399,936
8,507,818
8,694,812
6,639,135
6,292,424
3,570,294
(6,020,037)
(7,029,892)
(352,179)
8,874,705
13,453,014
13,147,115
$ 62,495,644
$ 69,134,779
$ 75,427,203
$ 78,997,497
$ 72,977,460
$ 65,947,568
$ 65,595,389
$ 74,470,094
$ 87,923,108
$ 101,070,223
5.09%
5.12%
5.38%
5.60%
6.57%
7.43%
7.07%
6.42%
5.62%
5.50%
Cash inflow
State unemployment taxes
Federal unemployment taxes
Deposits by the RRB
Cash outflow
State unemployment benefits
State administrative costs
Federal administrative costs
Interest on tax refunds
RRB withdrawals
SFFAS 17 - Page 71
U.S. Department of Labor - Required Supplemental Stewardship Information - Cash Inflow and Outflow of the Unemployment
Trust Fund excluding the Federal Employees Compensation Account For the Ten Year Period Ended September 30, 1996
(3) Deep Recessionary Unemployment Rate
(Dollars in thousands)
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
$ 53,800,832
$ 62,495,644
$ 69,134,779
$ 75,247,218
$ 76,661,227
$ 57,496,183
$ 34,990,203
$ 40,790,676
$ 51,029,964
$ 61,156,933
22,681,000
22,442,000
24,195,000
25,837,000
27,001,000
33,246,000
40,275,000
44,151,000
46,310,000
45,904,000
6,046,000
6,141,000
6,201,000
6,169,000
6,139,000
6,177,000
6,224,000
6,335,000
6,462,000
6,549,000
27,600
67,800
127,600
136,600
101,000
70,000
75,100
102,400
109,800
91,400
28,754,600
28,650,800
30,523,600
32,142,600
33,241,000
39,493,000
46,574,100
50,588,400
52,881,800
52,544,400
3,744,328
4,179,810
4,413,592
4,313,207
4,254,058
3,108,756
2,055,502
2,331,404
2,840,149
3,202,881
32,498,928
32,830,610
34,937,192
36,455,807
37,495,058
42,601,756
48,629,602
52,919,804
55,721,949
55,747,281
20,179,000
22,357,000
25,038,000
31,171,000
52,201,000
60,454,000
38,737,870
38,517,260
41,302,761
38,980,713
3,357,406
3,561,582
3,513,672
3,599,087
4,189,974
4,385,055
3,819,826
3,890,076
4,016,245
4,004,112
165,641
169,182
170,441
171,565
172,610
172,612
174,589
176,885
179,237
181,644
3,248
3,299
3,165
3,071
2,943
2,894
2,869
2,920
2,962
2,953
98,821
100,412
99,475
97,075
93,575
93,175
93,975
93,375
93,775
93,575
23,804,116
26,191,475
28,824,753
35,041,798
56,660,102
65,107,736
42,829,129
42,680,516
45,594,980
43,262,997
4,950,484
2,459,325
1,698,847
(2,899,198)
(23,419,102)
(25,614,736)
3,744,971
7,907,884
7,286,820
9,281,403
8,694,812
6,639,135
6,112,439
1,414,009
(19,165,044)
(22,505,980)
5,800,473
10,239,288
10,126,969
12,484,284
$ 62,495,644
$ 69,134,779
$ 75,247,218
$ 76,661,227
$ 57,496,183
$ 34,990,203
$ 40,790,676
$ 51,029,964
$ 61,156,933
$ 73,641,217
5.09%
5.12%
5.38%
6.65%
9.07%
10.15%
7.82%
7.28%
7.05%
6.43%
Cash inflow
State unemployment taxes
Federal unemployment taxes
Deposits by the RRB
Cash outflow
State unemployment benefits
State administrative costs
Federal administrative costs
Interest on tax refunds
RRB withdrawals
SFFAS 17 - Page 72
SFFAS 17
Chart V
Minimally Solvent
State
State
Ratio
Virgin Islands
2.89
Maryland
0.99
New Mexico
2.43
Alaska
0.94
New Hampshire
2.18
Nevada
0.94
Vermont
2.17
Alabama
0.90
Georgia
1.96
Kentucky
0.71
Mississippi
1.93
Arkansas
0.64
Oklahoma
1.86
Ohio
0.63
Utah
1.84
Pennsylvania
0.62
Delaware
1.74
Massachusetts
0.58
Wyoming
1.65
Michigan
0.57
Kansas
1.63
Minnesota
0.56
Puerto Rico
Maine
0.54
Virginia
1.58
North Dakota
0.54
Indiana
1.57
California
0.53
Florida
1.55
Illinois
0.50
SFFAS 17 - Page 73
1.6
SFFAS 17
State
Ratio
Iowa
1.39
Rhode Island
0.47
Nebraska
1.37
Missouri
0.45
North Carolina
1.32
Dist. of Col.
0.45
Arizona
1.28
West Virginia
0.42
Idaho
1.26
Texas
0.33
South Carolina
1.24
Connecticut
0.31
Louisiana
1.23
New York
0.13
Oregon
1.2
Wisconsin
1.18
Montana
1.13
Colorado
1.08
Tennessee
1.08
Washington
1.07
Hawaii
1.06
South Dakota
1.06
SFFAS 17 - Page 74
SFFAS 17
Stewardship Information: Consolidated Statement of Social Insurance - 75-Year Projectiona as of September 30, 1996
[HYPOTHETICAL DATA]
Dollars in Trillions
Prior Years
1996
1995
1994
1993
1992
$X
$X
$X
$X
$X
OASDI
[X]
[X]
[X]
[X]
[X]
HI
[X]
[X]
[X]
[X]
[X]
SMI
[X]
[X]
[X]
[X]
[X]
Other
[X]
[X]
[X]
[X]
[X]
Actuarial present value of future benefit paymentsb during the 75-year period to
or on behalf of:
Current participants not yet having attained retirement agec
OASDI
[X]
[X]
[X]
[X]
[X]
HI
[X]
[X]
[X]
[X]
[X]
SMI
[X]
[X]
[X]
[X]
[X]
Other
[X]
[X]
[X]
[X]
[X]
OASDI
[X]
[X]
[X]
[X]
[X]
HI
[X]
[X]
[X]
[X]
[X]
SMI
[X]
[X]
[X]
[X]
[X]
Other
[X]
[X]
[X]
[X]
[X]
OASDI
[Y]
[Y]
[Y]
[Y]
[Y]
HI
[Y]
[Y]
[Y]
[Y]
[Y]
SMI
[Y]
[Y]
[Y]
[Y]
[Y]
Other
[Y]
[Y]
[Y]
[Y]
[Y]
SFFAS 17 - Page 75
SFFAS 17
1995
1994
1993
1992
OASDI
[Y]
[Y]
[Y]
[Y]
[Y]
HI
[Y]
[Y]
[Y]
[Y]
[Y]
SMI
[Y]
[Y]
[Y]
[Y]
[Y]
Other
[Y]
[Y]
[Y]
[Y]
[Y]
OASDI
[Y]
[Y]
[Y]
[Y]
[Y]
HI
[Y]
[Y]
[Y]
[Y]
[Y]
SMI
[Y]
[Y]
[Y]
[Y]
[Y]
Other
[Y]
[Y]
[Y]
[Y]
[Y]
$X
$X
$X
$X
$X
The actuarial net present value of the excess of future benefit payments to current participants (that is, to the closed group of participants) over
future contributions and tax income from them or paid on their behalf is calculated by subtracting the actuarial present value of future contributions
and tax income by and on behalf of current participants from the actuarial present value of the future benefit payments to them or on their behalf.
d
The fund balancewhich represents the accumulated excess of all past cash inflow, including interest on intragovernmental securities, over all past
cash outflow within the programfor fiscal year 1996 is $ X1 trillion. The fund balances for 1995-2, in trillions, were $X2, X3, X4, X5, respectively. The
accumulated excess of cash inflow over outflow at the valuation date consists of a small amount of cash for current operations with the balance
invested in Treasury securities. When presented for redemption, these securities will represent a first claim on the resources of the government.
Program Description
161. As discussed in Note X to the CFS, a liability of $75 billion is included
in Other Liabilities on the balance sheet for unpaid amounts of OldAge, Survivors, Disability Insurance (OASDI), Medicare (HI and SMI),
and other social insurance benefits due to recipients or service
providers for periods ended on or before September 30, 1996. Most of
this amount was paid in October 1996.
162. While no liability has been recognized on the balance sheet for future
payments beyond the amount due as of September 30, actuarial
estimates of future program activities have been prepared for the
social insurance programs. Long-term actuarial views are a critical
SFFAS 17 - Page 76
SFFAS 17
SFFAS 17 - Page 77
SFFAS 17
Source: Data from Tables III B1, B3, C1, 1996 OASDI Trustees Report.
166. The Medicare Hospital Insurance (HI) program cash outflow exceeded
annual cash inflow in FY 1996. using the actuaries best estimate, the
HI program will be insolvent in 2001, as shown in Chart 2 below.
Projected HI payroll tax will meet a declining share of cash outflow
under present law. Tax receipts are expected to equal
84 percent of cash outflow in 1997 and 74 percent in 2001 and would
cover less than one-third of costs 75 years from now.
SFFAS 17 - Page 78
SFFAS 17
!
Source: Data from Table II D3, 1997 HI Trustees Report.
SFFAS 17 - Page 79
SFFAS 17
14.0%
12.0%
10.0%
Cash
Inflow
8.0%
6.0%
Cash
Outflow
4.0%
2.0%
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
20
55
20
60
20
65
20
70
20
19
96
0.0%
Source: Data from Table II A.2, 1997 OASDI Trustees Report.
170. Medicare is currently paying and, from 2012 forward, OASDI would
pay more to the public than they receive in taxes thereby increasing
the governments financing needs. Compared to a situation in which
taxes or other financing sources equalled cash outflow, the
government will have to finance this difference by increased
borrowing from the public, spending cuts, tax increases, or some
combination of these measures.
171. Growing Disparity Between Rates of Income and Outgo - The
excess of OASDI and HI cash outflow over inflow and the decreasing
percent of SMI cost covered by premiums is due to the increasing cost
of existing medical care; the increased utilization of existing and new
health care techniques; and, in later years, the retirement of the baby
boom generation and the relatively small number of people born
during the subsequent period of low birth rate. For example, the
OASDI Trustees best estimate shows a long-term actuarial deficit over
the next 75 years of 2.17 percent of taxable payrollin other words, a
tax increase today of 1.09 percent of taxable payroll each for
employees and employers, over the 6.2 percent they each now pay
SFFAS 17 - Page 80
SFFAS 17
would produce enough revenue to pay benefits under current law, over
75 years.24 Increasing the payroll tax from 12.4 to 14.6 represents a
payroll tax increase of about 17 percent. The 2.17 percent deficit
represents, in terms of present value, an excess of $3.1 trillion of
expenditures over contribution.
172. Social Insurance in Relation to the National Economy - The
security of benefits and the distribution of financing costs for social
insurance programs cannot be determined solely on the basis of the
financial and actuarial status of the programs by themselves.
Sustainability from the governmentwide entity perspective is better
measured in terms of a healthy relationship between social insurance
programsand, indeed, the entire budgetand the national economy,
as measured by the GDP. Relative to the national economy, federal
spending for OASDI, HI, and SMI was 7 percent of GDP in 1996
$550 billion. By 2030, when most baby boomers will have retired, these
programs are projected to consume nearly 100 percent more of GDP
than they do today14 percent, as shown in Chart 4.
24
[Please note: the standard does not require information on the total excess of cash outflow
over inflow as a percentage of taxable payroll. It requires a cashflow projection as a
percentage of taxable payroll as in Chart 3.]
SFFAS 17 - Page 81
SFFAS 17
!"#"
18.0%
16.0%
14.0%
Percent
12.0%
OASDI
HI
SMI
Total
10.0%
8.0%
6.0%
4.0%
2.0%
19
96
20
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
20
55
20
60
20
65
20
70
0.0%
Years
Source: Data from Table III C1, 1996 OASDI Trustees Report and Table III B1, 1997 HI Trustees
Report.
25
[Please note: this section provides examples of some of the sensitivity analysis that would
be provided at the consolidated level. The consolidated entity would summarize the
sensitivity analyses from the individual social insurance entities.]
SFFAS 17 - Page 82
SFFAS 17
!
!
"#
$%
!
Source: Data for best estimate is from Tables III B1, B3, C1, 1996 OASDI Trustees Report.
177. Real Interest RateThe total excess of OASDI cash outflow over
inflow on the basis of the best estimate cost assumptions is
SFFAS 17 - Page 83
SFFAS 17
$3.0 trillion over the valuation period of 1996-2070. If the annual real
interest rate for Treasury securities is changed from the 2.3 percent
used for the best estimate to 1.5 percent, the excess of cash outflow
would increase to $3.8 trillion; if the rate were changed to 3 percent,
the excess of cash outflow would decrease to $2.5 trillion.
178. Birth Rate - Table 1 shows the effect of using birth rates of 1.6 and
2.2 children per woman, instead of the 1.9 rate used for the best
estimate projection, on the total excess OASDI cash outflow over
inflow over the period 1996-2070. The rate is assumed to increase
gradually from its current level to reach the ultimate values in 2070.
Table 1- Estimated Total Excess OASDI Cash Outflow over Inflow with Various Birth
Rate Assumptions - Valuation Period: 1996-2070
Dollars in trillions
Ultimate Birth Rate Per Woman
Valuation Period: 19962070
1.6 births
1.9 births
(from best estimate
cost assumptions)
2.2 births
$3.7
$3.0
$2.5
750,000
900,000
(from best estimate
cost assumptions)
1,150,000
$3.2
$3.0
$2.9
180. Real-Wage Differential - Table 3 below shows the total excess OASDI
cash outflow over inflow with various assumptions about the realwage differential. The real-wage differential is the difference between
SFFAS 17 - Page 84
SFFAS 17
Table 3- Estimated OASDI Actuarial Balances with Various Real-Wage Assumptions Valuation Period: 1996-2070
Dollars in trillions
Ultimate percentage in wages-CPIa
Wages-CPI
4.5-4.0
5.0-4.0
(from best estimate
cost assumptions)
5.5-4.0
$3.9
$3.0
$2.3
a
[The first value in each of the pairs below is the assumed ultimate annual percentage increase in
average wages in covered employment. The second value is the assumed ultimate annual percentage
increase in the CPI. The difference between the two values is the real-wage differential.]
181. Health Care Cost TrendChart 6 below shows the estimated HI and
SMI net cash outflow using a health care cost factor 1 percent above
and 1 percent below that used for the best estimate projection.
Factors such as wage increases and price increases may
simultaneously affect both HI payroll tax income and the costs
incurred by hospitals and other providers of medical care to HI and
SMI beneficiaries. Other factors, such as the utilization of services by
beneficiaries or the relative complexity of the services provided, can
affect provider costs without affecting HI payroll tax income. The
sensitivity analysis shown in Chart 6 illustrates the financial effect of
any combination of such factors that results in aggregate provider
costs increasing by 1 percent faster or slower than the best estimate
assumptions.
SFFAS 17 - Page 85
SFFAS 17
!"# $%%&'('
Source: Data for best estimate is from Table III B1, 1997 HI Trustees Report.
SFFAS 17 - Page 86
SFFAS 17
Appendix C Historical
Background
SFFAS 17 - Page 87
SFFAS 17
186. After 1966 the importance of information about pensions grew due to
increases in the number of plans and amounts of pension assets and
obligations. Significant changes occurred in both the legal
environment (e.g., Employee Retirement Income Security Act) and the
economic environment (e.g., higher inflation and interest rates).
187. APB 8 was superseded by FASB Statement of Financial Accounting
Standards (SFAS) No. 87, Employers Accounting for Pensions,
published in December 1985. FASB noted the years of accounting
controversy over measuring costs and liabilities resulting from defined
benefit pension plans. After considering the range of comments on its
Preliminary Views document and on its exposure draft, FASB
concluded that, although it did not recognize the full projected benefit
obligation on the balance sheet, SFAS 87 represented a worthwhile
improvement in financial reporting. SFAS 87 made accounting for
pensions more independent of the financing arrangements, provided
more standardization in measurement of the pension expense and
liability, and required at least a minimum liability to be recognized in
employers balance sheets.
188. The Social Security liability was de-recognized in the CFS for 1985; but
a similar closed group (to new entrants),26 liability type number
continued to be disclosed in a footnote along with the open group,
cashflow or financing type number. The closed group population
includes all current participants, that is, retirees and covered workers.
The open group includes all current participants plus all future
participants over the next 75 years. Disclosure of the closed group
number was discontinued in the CFS after 1994.
189. Social insurance was addressed in the Boards exposure draft (ED) on
Accounting for the Liabilities of the Federal Government in
November 1994. The Liabilities ED proposed defining a federal
liability in terms generally similar to the definition used by privately
owned entities in the United States: a probable and measurable future
sacrifice of resources based on a past transaction or event. However,
to accommodate the unique circumstances of the Federal
Government, both the Liabilities ED and the subsequent Statement of
Federal Financial Accounting Standards No. 5 distinguished between
26
Closed group will be used synonymously with closed group (to new entrants).
SFFAS 17 - Page 88
SFFAS 17
SFFAS 17 - Page 89
SFFAS 17
SFFAS 17 - Page 90
SFFAS 17
197. The Board directed the staff to continue researching social insurance
accounting, focusing especially on identifying the following:
27
SFFAS No. 8, Supplementary Stewardship Reporting, par. 117. The studies included the
1994-96 Social Security Advisory Council whose report, published in January 1997, reflected
the lack of consensus on long-term financing for Social Security. The Council members
agreed on how to define the size of the financing problem (by using the Social Security
Administration actuaries best estimate projection to derive an actuarial deficit of
2.17 percent of payroll over the next 75 years). They also agreed that two long-range goals
should be (1) to eliminate the 2.17 percent 75-year deficit and (2) to have the fund in stable
condition at the end of the 75-year period. However, the Council offered three sharply
different models for the future of Social Security. These models did contain some common
features (e.g., all three would increase from 35 to 38 the number of years used to compute
benefits and tax Social Security benefits in the same way that contributory defined-benefit
pensions are treated under the federal income tax). In addition to the Advisory Council,
academics and scholars were studying, for example, the Chilean and United Kingdom
experiments with privatization of public pension plans.
SFFAS 17 - Page 91
SFFAS 17
Appendix D Glossary
SFFAS 17 - Page 92
Status
Issued
May 2000
Effective Date
Affects
SFFAS 2
Affected by
SFFAS 19
SFFAS 32 amends paragraphs 10 and 11.
Summary
This Statement presents amendments to certain portions of Statement of Federal Financial Accounting
Standards 2, Accounting for Direct Loans and Loan Guarantees, (SFFAS 2), which was issued in August
1993. The objectives of these amendments are to improve financial reporting for subsidy costs and
performance of Federal credit programs.
During 1998 and early 1999, the Board discussed issues related to reporting the credit subsidy expense
and credit subsidy reestimates in general. The Board concluded that certain portions of SFFAS 2 should
be amended so that more useful information on credit programs subsidy costs and performance will be
provided to citizens, Congress, program managers, and other users of Federal financial information. The
amendments were proposed for public comment in an Exposure Draft published in March 1999. After
considering comments, the Board decided to adopt the following amendments:
Report subsidy reestimates in two distinct components: the interest rate reestimate and
the technical/default reestimate.
The former is a reestimate due to a change in interest rates from the rate assumed in budget
preparation and used in calculating the subsidy expense to the rates that are prevailing at the time
the direct or guaranteed loans are disbursed. The latter is a reestimate due to changes made in
projected cash flows under the terms of the direct loans or loan guarantees after reevaluating all the
risk factors as of the financial statement date, except for the effect of interest rate reestimates.
SFFAS 18 - Page 1
SFFAS 18
Display a reconciliation between the beginning and the ending balances of the subsidy
cost allowance for direct loans and the liability for loan guarantees, reported in an
entitys balance sheet.
The reconciliation displays activities that affect the subsidy cost allowance or the loan guarantee
liability, such as the subsidy expense for direct or guaranteed loans disbursed during the reporting
period, subsidy reestimates, fees received, interest supplements paid, loans written off, claim
payments made to lenders, recoveries obtained, and other adjustments.
Provide a description of program characteristics and disclose (1) the amounts of direct or
guaranteed loans disbursed in each program during the reporting year, (2) the estimated
subsidy rates for the total subsidy and the subsidy components at the program level in the
current years budget for the current years cohorts, (3) events and changes in economic
conditions, other risk factors, legislation, credit policies, and subsidy estimation
methodologies and assumptions, that have had a significant and measurable effect on
subsidy rates, subsidy expense, and subsidy reestimates; and (4) events and changes in
conditions that have occurred and are more likely than not to have a significant impact
but the effects of which are not measurable at the reporting date.
Reporting entities should discuss how those events and changes have affected or would affect
credit programs subsidy costs, subsidy reestimates, and the subsidy rates estimated in the budget.
In addition to requiring reconciliation for the balances of direct loan allowance and loan guarantee
liability on an entity-wide basis as prescribed in this statement, the Board recognizes that reconciliation
on a program-by-program basis can better reveal information relevant to program performance. Since the
program-by-program reconciliation was not proposed for public comment in the March 1999 ED, the
Board has not received input on this option. Because the proposal appears to have merit, the Board has
decided to issue an exposure draft to propose program-by-program reconciliation for major programs in
addition to the entity-wide reconciliation.
SFFAS 18 - Page 2
SFFAS 18
Table Of Contents
Contents
Page
Summary
Introduction
Purpose
Background
Effective Date
Accounting Standards For Direct Loans And Loan Guarantees
6
6
Reconciliation
8
10
Subsidy Reestimates
10
Reconciliation
12
16
18
22
23
26
27
SFFAS 18 - Page 3
24
SFFAS 18
Introduction
Purpose
1.
Background
2.
3.
The discussions were initiated by the Credit Reform Task Force of the Accounting and
Auditing Policy Committee (AAPC) which proposed that paragraph 25 in SFFAS No. 2 be
amended to require disclosure of subsidy rates estimated in the budget for the current year
cohorts in lieu of reporting the dollar amounts of the subsidy components. That proposal
was discussed in the March 1999 ED. The Board accepted the Task Force proposal for
disclosing subsidy rates, but did not remove the requirement for reporting the dollar
amounts of subsidy expense components.
SFFAS 18 - Page 4
SFFAS 18
5.
6.
7.
The Board considered and agreed with the view that reconciliations
for direct loan allowance and loan guarantee liability on a program-byprogram basis can better reveal variations in program characteristics
and performance. Since the program-by-program reconciliation was
not proposed for public comment in the March 1999 ED, the Board has
SFFAS 18 - Page 5
SFFAS 18
Effective Date
8.
9.
Accounting
Standards For
Direct Loans And
Loan Guarantees
Subsidy Reestimates-An
Amendment To SFFAS
No. 2
The term technical/default reestimate used in this statement is identical in meaning to the
term technical reestimate used in OMB Circular A-11, as revised in July 1999.
SFFAS 18 - Page 6
SFFAS 18
Reconciliation
SFFAS 18 - Page 7
SFFAS 18
Disclosure And
Discussion
SFFAS 18 - Page 8
SFFAS 18
SFFAS 18 - Page 9
SFFAS 18
Appendix A: Basis
For Conclusions
Subsidy Reestimates
See OMB Circular A-11, sec. 85.5 (a), revised in July 1999. The interest rate reestimate does
not involve any change in original assumptions other than the interest rates.
SFFAS 18 - Page 10
SFFAS 18
14. All of the 12 respondents to the March 1999 ED agreed with the
Boards proposal for reporting subsidy reestimates in those two
components. The respondents believe that reporting the two
reestimate components separately will provide information to reveal
the causes of the reestimates. They believe that such information can
help program managers improve credit program performance and
subsidy estimation methodology.
15. Although in support for the proposal, one respondent commented on
the controllability argument. Since it was discussed in the March 1999
ED that the magnitude of an interest rate reestimate is beyond
agencies control, the respondent pointed out that some default
factors, such as changes in economic conditions and natural disasters,
are also beyond the control of credit programs. While it was stated in
the March 1999 ED that the assumed rate is determined by the
Administration and is beyond the control of the agency, that
statement does not imply that credit programs can control changes in
economic conditions or all of the other events that would impact
default rates. However, the Board believes that a reliable assessment
of the economic changes and other risk factors in making default
subsidy reestimates, whether or not controllable by the agency, can
help credit programs better manage program costs and performance.
16. Another respondent stated that analyses performed by his agency
indicated that in past years, changes in interest rates produced
relatively minor changes in that agencys overall subsidy rates. Thus,
the respondent suggested that the Board consider whether it is costbeneficial to separate out the interest rate reestimates.
17. The interest rate reestimates vary in magnitude from year to year. For
some years, the assumed and the actual rates may be fairly close,
whereas in other years they differ significantly and could produce a
material effect on the overall subsidy rate. For example, the subsidy
reestimate data provided USDA Rural Development Water and Waste
Direct Loan program indicated that for fiscal years 1992 through 1994,
the amounts of interest rate reestimates exceeded the amounts of
technical/default reestimates. In 1995, the interest rate reestimate
accounted for 84 percent of the total subsidy reestimate. In more
recent years, the impact of interest rate reestimates was relatively
small. In any case, we do not believe one can rely on the past
experience for any particular year to make a conclusion about interest
variations in future years.
SFFAS 18 - Page 11
SFFAS 18
Reconciliation
SFFAS 18 - Page 12
SFFAS 18
4
SEC Accounting Rules, 8303, 1984 Commerce Clearing House, Inc. [Additional reference:
Securities Act Guide 3 adopted in Release No. 34-12784, amended by Release Nos 33-6221,
33-6383, FR-11, FR-13 and FR-27]
SFFAS 18 - Page 13
SFFAS 18
SFFAS 18 - Page 14
SFFAS 18
SFFAS 18 - Page 15
SFFAS 18
Disclosing Subsidy
Rates
SFFAS 18 - Page 16
SFFAS 18
SFFAS 18 - Page 17
SFFAS 18
received. One of the purposes for the disclosure of the budget subsidy
rates is to provide an indication of budget expectations of the most
recent cohorts.
38. The Board believes that the disclosure for the subsidy rates for the
cohorts of the current reporting year will prove beneficial as they are
important indicators for managements latest expectations reflecting
the programs current characteristics. The disclosure requirement is
adopted because the advantages of the disclosure outweigh its
disadvantages.
Disclosure And
Discussion
39. The Board holds the view that merely reporting the figures for the
subsidy expense and subsidy reestimates would not provide complete
and understandable information to users of Federal agency financial
reports. The Board believes that to make the figures meaningful,
significant events and changes in assumptions underlying the cost
estimates should be disclosed and their impact should be discussed.
The disclosure and discussion should help explain the subsidy cost
data. In other words, the Board believes that it is necessary to tell the
stories behind the figures.
40. Reporting entities are required to provide a description of the
programs that they administer and disclose at the program level the
amounts of direct or guaranteed loans disbursed during the reporting
year. This information would provide the reader with an indication of
the programs characteristics and the magnitude of their credit
activities. With the information on amounts disbursed, analysts can
calculate the subsidy expense, or one of its components, as a ratio to
the amount of the loans disbursed and compare the ratios among
programs or over time.
41. Reporting entities are required to disclose events and changes that
have had a significant and measurable effect on subsidy costs. These
would include changes in economic conditions and risk factors,
changes in legislation and policies regarding direct loans or loan
guarantees, and changes in methodologies and assumptions used in
making subsidy estimates and reestimates. Credit agencies are also
required to disclose and discuss events and changes that have
occurred and are more likely than not to have a significant impact on
subsidy rates, subsidy expense, and subsidy reestimates but the
effects of which are not measurable at the reporting date. These
SFFAS 18 - Page 18
SFFAS 18
include events and changes that have occurred after the reestimation
cut off date and will be taken into consideration in making reestimates
for the following year. Reporting entities should discuss how those
events and changes have or would have impacted the various
components of subsidy expense, subsidy rates, and subsidy
reestimates.
42. The Board noted in particular that changes in legislation and credit
policies could significantly alter a programs characteristics and thus
affect its subsidy rates. These changes include, for example, changes
in borrowers eligibility, the level of fees or interest rates charged
borrowers, the maturity terms of loans, and the percentage of a private
loan that is guaranteed. If such a change occurs during a reporting
year, the reporting entity should disclose and explain the nature of the
change and discuss its impact on program characteristics and its
estimated subsidy rates.
43. Most respondents supported the Board proposal. They believed that to
make the reported financial figures meaningful, significant events and
changes in assumptions underlying those figures should be disclosed
and their effect should be discussed. Some of the respondents
provided examples of events that can affect default rates. For
example, drought, flood, tornadoes, and other natural disasters may
affect some regions or some sectors of the economy, and
consequently, affect borrowers ability to make loan payments. Those
respondents also noted that changes in economic conditions, such as
interest and employment rates, could an also have a significant impact
on credit risks and performance. Some of them stated that legislative
and policy changes could have a direct impact on the costs and
performance of certain affected programs. They contend that without
disclosing those events and changes and discussing their impact, the
reader cannot fully understand the financial figures, such as subsidy
rates, expenses, and reestimates.
44. One respondent noted that the same type of disclosure and discussion
that is now required for credit subsidies is not usually required for
many other operating costs, such as employees salary, rent, and
computer service costs. The respondent questioned why the
disclosure and discussion for credit activities are more critical than
other costs reported in the statement of net cost. To address this issue,
we can provide at least two reasons for this difference. First, unlike
salary, rent, or the costs of other services, the credit subsidy costs are
SFFAS 18 - Page 19
SFFAS 18
SFFAS 18 - Page 20
SFFAS 18
reestimates but the effects for which are not measurable at the
reporting date.
47. Some respondents believed that the narrative disclosure and
discussion should more appropriately belong to the Management
Discussion and Analysis (MD&A) section of financial reports. The
Board disagrees with this view. The narrative disclosure and
discussion required in this statement should be specifically tailored to
address credit subsidy activities. As such, it differs from the MD&A
requirements in breadth, depth, and detail. The Board believes that the
disclosure and discussion required in this statement belong in a note
to financial statements, such as Note 7 in OMB Bulletin 97-01, the
Form and Content of Agency Financial Statements, in which all the
data on direct loan assets, loan guarantee liabilities, subsidy rates,
subsidy expenses, and reestimates are reported. By including the
narrative disclosure and discussion in the same note, the reader would
find all the information in one place. However, this does not preclude
entity management from including a discussion and analysis to
highlight credit activities in MD&A, so long as entity management
determines that such a discussion and analysis meets the MD&A
requirements in SFFAS 15.
48. Audit efforts for information provided in a footnote to financial
statements differ from those for information provided in MD&A.
MD&A is regarded as required supplementary information (RSI) and is
subject to less stringent audit than basic financial statements and their
notes.5 The Board believes that program subsidy data should be
reported in a note to agency financial statements because they are
directly related to information reported in the financial statements.
Those program subsidy data should be audited as basic financial
information. Based on the preceding paragraph, it might appear that
including the narrative disclosure and discussion in the same footnote
with the subsidy data (instead of in MD&A) would expand the audit
burden associated with credit subsidies. However, since the auditor
already needs to test the reliability of the estimates and reestimates in
SFFAS 18 - Page 21
SFFAS 18
the context of auditing the basic program subsidy data6, the Board
believes that there would be no substantial increase in audit burden
from including the narrative disclosure and discussion in a footnote
instead of in MD&A. In fact, the process of generating the required
disclosure and discussion for the footnote should provide information
on risk factors underlying the subsidy estimates and reestimates and
thus should facilitate the audit of the basic subsidy data.
49. One respondent commented that there may not be a basis to audit
future events and their effect disclosed in the narrative. The required
disclosure is for events that have occurred, but does not include
events that are anticipated to occur. Also, the provision does not
require quantifying the effect of an event that has occurred but whose
effects cannot be measured at the reporting date.
50. In the March 1999 ED, it was proposed that the amendments be made
effective for periods beginning after September 30, 1999. Two
respondents requested that the effective date be made for periods
beginning after September 30, 2000. They argued that many agencies
were still having difficulties in implementing existing credit reform
requirements and that the new requirements would require revisions
in accounting procedures and systems. The CFO Council stated that
many agencies are busy with resolving Y2K problems, and would not
be able to initiate new systems changes until some time in year 2000.
51. There were arguments against postponing the effective date. First, the
requirements prescribed in this statement do not require any new data.
For example, the data needed for the reconciliation schedules should
be in the system. Without that data, agencies could not report the
ending balances of the subsidy cost allowance and the loan guarantee
liability at the end of each fiscal year. Second, the proposed effective
date, beginning with fiscal year 2000, provides adequate time because
For example, Federal Financial Accounting and Auditing Technical Release No. 3,
Preparing and Auditing Direct Loan and Loan Guarantee Subsidies under the Federal
Credit Reform Act (July 1999), requires auditors to identify significant external and internal
factors that may affect the credit subsidy estimates and reestimates. External factors
include economic conditions, current political climate, and relevant legislation. Internal
factors include the size of the agencys budget and accounting staff qualifications of key
personnel, turnover of key personnel, and system capabilities.
SFFAS 18 - Page 22
SFFAS 18
financial statements for that year will be issued in early calendar year
2001.
52. On the other hand, the Board recognizes that staff training and
computer re-programming may be necessary to implement the new
requirements. Therefore, the Board considered and granted a delay for
the effective date to periods beginning after September 30, 2000.
However, the Board emphasizes that this should not be considered a
precedent for postponing implementation of adopted accounting
standards. The Board encourages early implementation of the
standards.
SFFAS 18 - Page 23
SFFAS 18
Appendix B:
Illustrative
Reporting Formats
FY 2000
FY 2001
Add: subsidy expense for direct loans disbursed during the reporting years by component:
(a) Interest subsidy costs
(b) Default costs (net of recoveries)
(c) Fees and other collections
(d) Other subsidy costs
Total of the above subsidy expense components
Adjustments:
(a) Loan modifications
(b) Fees received
(c) Foreclosed property acquired
(d) Loans written off
(e) Subsidy allowance amortization
(f) Other
Ending balance of the subsidy cost allowance before reestimates
Add or subtract subsidy reestimates by component
(a) Interest rate reestimate
(b) Technical/default reestimate
Total of the above reestimate components
Ending balance of the subsidy cost allowance
SFFAS 18 - Page 24
SFFAS 18
FY 2000
FY 2001
Add: subsidy expense for guaranteed loans disbursed during the reporting years by
component:
(a) Interest subsidy costs
(b) Default costs (net of recoveries)
(c) Fees and other collections
(d) Other subsidy costs
Total of the above subsidy expense components
Adjustments:
(a) Loan guarantee modifications
(b) Fees received
(c) Interest supplements paid
(d) Foreclosed property and loans acquired
(e) Claim payments to lenders
(f) Interest accumulation on the liability balance
(g) Other
Ending balance of the loan guarantee liability before reestimates
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate
(b) Technical/default reestimate
Total of the above reestimate components
Ending balance of the loan guarantee liability
SFFAS 18 - Page 25
SFFAS 18
Appendix C: The
Accounting
Standards in
SFFAS No. 2
SFFAS 18 - Page 26
SFFAS 18
Appendix D:
Glossary
SFFAS 18 - Page 27
Status
Issued
March 2001
Effective Date
Affects
Affected by
None.
Summary
In this Statement the Board adopts a number of technical amendments to certain portions of the Statement of
Federal Financial Accounting Standards 2, Accounting for Direct Loans and Loan Guarantees (SFFAS 2),
which was issued in August 1993.
The technical amendments serve the following purposes:
(A) Clarify that the cash flow discount method used in the accounting standards prescribed in SFFAS 2
is consistent with the method required in the Federal Credit Reform Act of 1990, as amended in July
1997.
(B) Clarify that the effective interest rate of a cohort of direct loans or loan guarantees is the interest
rate adjusted for the interest rate re-estimate, as defined in paragraph 9(A), SFFAS 18, Amendments
to Accounting Standards for Direct Loans and Loan Guarantees in SFFAS 2.
(C) Clarify the measurement principle for the default costs of direct loans and loan guarantees.
SFFAS 19 - Page 1
SFFAS 19
Table of Contents
Contents
Page
Summary
Introduction
Effective Date
Program-by-Program Reconciliation
Technical Amendments
Effective Date
11
Board Approval
11
SFFAS 19 - Page 2
12
SFFAS 19
Introduction
Background and
Purposes
1.
2.
3.
The Board received nine responses to the ED. All of the respondents
were in support for the technical amendments, except for two
respondents who commented on the proposed technical amendments
related to the measurement of default costs. Based on the comments,
the Board made a minor modification to the proposed measurement of
default costs for direct loans. This modification is discussed in this
Statements Appendix A, Basis for Conclusions.
4.
SFFAS 19 - Page 3
SFFAS 19
Effective Date
5.
6.
The amendments in (a) and (b) below are made to clarify that the
accounting standards in SFFAS No. 2 are consistent with the cash flow
discount method required by the amendment enacted in July 1997 to
the Federal Credit Reform Act of 1990. Sec. 502 (5)(E) of the Act, as
amended, provides that In estimating net present values, the discount
rate shall be the average interest rate on marketable Treasury
securities of similar maturity to the cash flows of the direct loan or
loan guarantee for which the estimate is being made.
Technical
Amendments To
SFFAS No. 2
Cash Flow Discount
Method
(a) In paragraph 24, SFFAS No. 2, the phrase with a similar maturity
term is changed to with similar maturity to the cash flows.
(b) In footnotes 3, 4, 6, and 7, SFFAS No. 2, the phrase the remaining
maturity is replaced with the phrase the remaining cash flows.
7.
SFFAS 19 - Page 4
SFFAS 19
(a) In paragraph 30, SFFAS No. 2, the first sentence is changed to:
The subsidy cost allowance for direct loans is amortized by the
interest method using the interest rate that was used to calculate
the present value of the direct loans when the direct loans were
disbursed, after adjusting for the interest rate re-estimate.
(b) In paragraph 31, SFFAS No. 2, the first sentence is changed to:
Interest is accrued and compounded on the liability for loan
guarantees at the interest rate that was used to calculate the
present value of the loan guarantee liabilities when the
guaranteed loans were disbursed, after adjusting for the interest
re-estimate.
(c) In paragraph 46, SFFAS No. 2, the phrase in the parentheses is
changed to the rate that was originally used to calculate the
present value of the direct loans, when the direct loans were
disbursed, after adjusting for the interest rate re-estimate.
(d) In paragraph 50, SFFAS No. 2, the phrase in the parentheses is
changed to the rate that was originally used to calculate the
present value of the liability, when the guaranteed loans were
disbursed, after adjusting for the interest rate re-estimate.
(e) In paragraphs 57 and 59, SFFAS No. 2, the words adjusted for the
interest rate re-estimate are added immediately after the words
the original discount rate.
8.
SFFAS 19 - Page 5
SFFAS 19
SFFAS 19 - Page 6
SFFAS 19
Appendix A: Basis
For Conclusions
Program-by-Program
Reconciliation
9.
In the May 2000 ED, the Board proposed a standard requiring that
entities display a program-by-program reconciliation for major credit
programs between the beginning and ending balances of the subsidy
cost allowance for direct loans and the liability for loan guarantees.
Nine respondents to the ED commented on the proposal. Five of them
supported the proposal and the remaining four were opposed to the
proposed standard.
10. Those who supported the proposal believed that the display of a
program-by-program reconciliation would enhance disclosure for
program costs and performance. One of the respondents said that the
program-by-program reconciliation would reveal actual program
performance information, such as direct loans written off, default
claims paid, fees received, and interest supplements paid. Reporting
this kind of information on a program-by-program basis is not required
by the existing standards. If the data were reported, they could be
useful in analyzing a programs operating results and providing
feedback to the programs budget expectations. Another respondent
pointed out that when program data are aggregated, increases and
decreases in program costs would offset each other. Thus, without a
display of program-by-program reconciliation, entity-wide
reconciliation alone would not disclose variations in program
performance.
11. Among those who were opposed to the proposal, the Chief Financial
Officer (CFO) of US Department of Agriculture (USDA) said that the
proposed standard was unnecessary because USDA has reported
subsidy costs by credit areas. The USDA CFO and several other
respondents expressed their concern that the proposed display of
program-by-program reconciliation would make the disclosure too
lengthy and complex and thus reduce its information value to the
users of general-purpose financial reports.
12. After considering the comments, the Board decided not to adopt the
proposed standard. The Board concluded that SFFAS No. 2 and
SFFAS No. 18 already require sufficient program information.
SFFAS 19 - Page 7
SFFAS 19
Technical Amendments
Office of Management and Budget (OMB) has implemented the amendment in Circular A11, Preparation and Submission of Budget Estimates, July 1999 and in its recent release of a
new credit subsidy calculator.
SFFAS 19 - Page 8
SFFAS 19
require using as the discount rate the average interest rate on Treasury
securities of similar maturity to the cash flows of a direct loan or loan
guarantee. None of the respondents to the ED objected to these
amendments.
14. The second group of amendments affects paragraphs 30, 31, 46, 50, 57,
and 59 of SFFAS No. 2. These amendments are related to interest rate
re-estimates. The amendments clarify that the effective interest rate
of a cohort of direct loans and loan guarantees is the interest rate
adjusted by the interest rate re-estimate, as defined in paragraph 9(a),
SFFAS No. 18. The adjusted rate should be used for amortizing
subsidy cost allowance, accruing and compounding interest on the
liability for loan guarantees, determining the book value of modified
direct loans and the book value of the liability for modified loan
guarantees, and calculating the present value of assets acquired
through foreclosure. None of the respondents to the ED objected to
these amendments.
15. The third group of amendments, proposed in ED paragraphs 10(A) and
10(B), concerns the measurement of default costs discussed in
paragraph 27, SFFAS No. 2. ED paragraph 10(A) addressed the default
costs of direct loans. The proposed amendment in that paragraph
would include the effect of short-term delinquencies in the other
costs category, rather than the default costs category.
16. The USDA CFO and IG objected to the exclusion of short-term
delinquencies from default costs. They said that the Commodity
Credit Corporation (an USDA unit) uses the Inter-Agency Country Risk
Assessment System (ICRAS) to estimate default costs. The ICRAS,
used for lending to foreign countries, includes short-term
delinquencies in measuring default costs. Thus, the proposed
amendment would create a difference from that practice.
17. The Board understands that practices differ among lending
institutions in treating delinquencies. They may or may not regard a
payment delay within a certain time frame as default. The Board is of
the view that the variation would not distort the measurement of
credit subsidy costs, if each practice is followed consistently. In this
regard, it is better that the accounting standard leaves some leeway for
the agencies that are responsible for developing subsidy estimate
models and methodologies. Thus, the Board deleted the words related
SFFAS 19 - Page 9
SFFAS 19
The default cost of loan guarantees results from paying lenders claims
upon default of the guaranteed loans. The default cost of loan
guarantees is measured at the present value of projected payments to
lenders required by the guarantee, plus uncollected fees, minus
interest supplements not paid as the result of the default, and minus
projected net recoveries as defined in paragraph 10(A).
19. The USDA CFO commented on the requirement for including
uncollected fees and interest supplements not paid in measuring
default costs. The USDA CFO stated that although those cash flow
components are specified in the OMB credit subsidy calculator, OMB
would give agencies flexibility in implementation with regard to those
cash flow components. The USDA CFO pointed out that realigning
those cash flow components might entail substantial changes in
agencies credit subsidy models. She also indicated problems with
private lender restrictions and workload increases. She suggested that
agencies be allowed flexibility to determine whether those cash flow
components are to be included in default costs.
20. The Board believes the amended standard provides a sound
methodology for measuring the default costs for loan guarantees.
Uncollected fees are a direct result of default itself and therefore
should be included in measuring the default costs. The interest
supplements not paid are also a direct result of defaults. When a
guaranteed loan is in default, the government pays the default claim to
the lender and stops paying interest supplement for that loan. Thus,
the interest supplements that are saved due to default should be
subtracted from the default costs. The Board concluded that the
categorization of these cash flow components should be uniform
across the government so that they can be comparable among
programs. However, as discussed in the following paragraph, the
Board has decided to delay the implementation of the technical
amendments for one year. This delay should help resolve some of the
problems raised by the USDA CFO.
SFFAS 19 - Page 10
SFFAS 19
Effective Date
21. The proposed effective date for the technical amendments was for
periods beginning after September 30, 2001, which means FY 2002.
The Board realized that that the subsidy expenses to be reported for
FY 2002 would be based on the budget submission for that year.
However, there would not be sufficient time to implement the
amendments for the FY 2002 budget. Therefore, the Board decided to
make the effective date for periods beginning after September 30,
2002, and the Board encourages earlier implementation.
Board Approval
23. This Statement was approved by the Board with a vote of eight
members in approval of its issuance. One member submitted a written
dissent, which is available for inspection at the FASAB office.
SFFAS 19 - Page 11
SFFAS 19
Appendix B: The
Accounting
Standards In SFFAS
No. 2
Explanation
Accounting Standards
Post-1991 Direct Loans
22. Direct loans disbursed and outstanding are recognized as assets at the
present value of their estimated net cash inflows. The difference
between the outstanding principal of the loans and the present value
of their net cash inflows is recognized as a subsidy cost allowance.
Post-1991 Loan
Guarantees
23. For guaranteed loans outstanding, the present value of estimated net
cash outflows of the loan guarantees is recognized as a liability.
Disclosure is made of the face value of guaranteed loans outstanding
and the amount guaranteed.
24. For direct or guaranteed loans disbursed during a fiscal year, a subsidy
expense is recognized. The amount of the subsidy expense equals the
present value of estimated cash outflows over the life of the loans
minus the present value of estimated cash inflows, discounted at the
interest rate of marketable Treasury securities with a similar
maturity term applicable to the period during which the loans are
SFFAS 19 - Page 12
SFFAS 19
Subsidy Amortization
and Reestimation
30. The subsidy cost allowance for direct loans is amortized by the
interest method using the interest rate that was originally used
to calculate the present value of the direct loans when the
direct loans were disbursed. The amortized amount is recognized
as an increase or decrease in interest income.
SFFAS 19 - Page 13
SFFAS 19
33. The criteria for default cost estimates provided in this and the
following paragraphs apply to both initial estimates and subsequent
reestimates. Default costs are estimated and reestimated for each
program on the basis of separate cohorts and risk categories. The
reestimates take into account the differences in past cash flows
between the projected and realized amounts and changes in other
factors that can be used to predict the future cash flows of each risk
category.
34.
SFFAS 19 - Page 14
SFFAS 19
39. The losses and liabilities of direct loans obligated and loan guarantees
committed before October 1, 1992, are recognized when it is more
likely than not that the direct loans will not be totally collected or that
the loan guarantees will require a future cash outflow to pay default
claims. The allowance of the uncollectible amounts and the liability of
loan guarantees should be reestimated each year as of the date of the
financial statements. In estimating losses and liabilities, the risk
factors discussed in the previous section should be considered.
Disclosure is made of the face value of guaranteed loans outstanding
and the amount guaranteed.
40. Restatement of pre-1992 direct loans and loan guarantees on a present
value basis is permitted but not required.
SFFAS 19 - Page 15
SFFAS 19
Modification of Direct
Loans and Loan
Guarantees
A. Modification of Direct
Loans
45. With respect to a direct or indirect modification of pre-1992 or post1991 direct loans, the cost of modification is the excess of the
pre-modification value3 of the loans over their post-modification
The term "pre-modification value" is the present value of the net cash inflows of direct
loans estimated at the time of modification under pre-modification terms and discounted at
the interest rate applicable to the time when the modification occurs on marketable
Treasury securities that have a comparable maturity to the remaining maturity of the
direct loans under pre-modification terms (simply stated, the pre-modification terms at the
current rate).
SFFAS 19 - Page 16
SFFAS 19
The term "post-modification value" is the present value of the net cash inflows of direct
loans estimated at the time of modification under post-modification terms and discounted at
the interest rate applicable to the time when the modification occurs on marketable
Treasury securities that have a comparable maturity to the remaining maturity of the
direct loans under post-modification terms (simply stated, the post-modification terms at the
current rate).
5
OMB instructions provide that if the decrease in book value exceeds the cost of
modification, the reporting entity receives from the Treasury an amount of "modification
adjustment transfer" equal to the excess; and that if the cost of modification exceeds the
decrease in book value, the reporting entity pays to the Treasury an amount of "modification
adjustment transfer" to offset the excess. (See OMB Circular A-11.)
SFFAS 19 - Page 17
SFFAS 19
B. Modification of Loan
Guarantees
The term "post-modification liability" is the present value of the net cash outflows of the
loan guarantees estimated at the time of modification under the post-modification terms,
and discounted at the interest rate applicable to the time when the modification occurs on
marketable Treasury securities that have a comparable maturity to the remaining
maturity of the guaranteed loans under post-modification terms (simply stated, the postmodification terms at the current rate).
The term "pre-modification liability" is the present value of the net cash outflows of loan
guarantees estimated at the time of modification under the pre-modification terms and
discounted at the interest rate applicable to the time when the modification occurs on
marketable Treasury securities that have a comparable maturity to the remaining
maturity of the guaranteed loans under pre-modification terms (simply stated, the premodification terms at the current rate).
SFFAS 19 - Page 18
SFFAS 19
C. Sale of Loans
D. Disclosure
OMB instructions provide that if the increase in liability exceeds the cost of modification,
the reporting entity receives from the Treasury an amount of "modification adjustment
transfer" equal to the excess; and that if the cost of modification exceeds the increase in
liability, the reporting entity pays to the Treasury an amount of "modification adjustment
transfer" to offset the excess. (See OMB Circular A-11.)
If there is a book value gain, the gain to be recognized equals the book value gain plus the
cost of modification.
10
SFFAS 19 - Page 19
SFFAS 19
Foreclosure of Post-1991
Direct and Guaranteed
Loans
61. When post-1991 direct loans are written off, the unpaid principal of the
loans is removed from the gross amount of loans receivable.
Concurrently, the same amount is charged to the allowance for
subsidy costs. Prior to the write-off, the uncollectible amounts should
have been fully provided for in the subsidy cost allowance through the
subsidy cost estimate or reestimates. Therefore, the write-off would
have no effect on expenses.
SFFAS 19 - Page 20
Status
Issued
Effective Date
September 2001
None.
Affects
SFFAS 7
Affected by
None.
Summary
Statement of Federal Financial Accounting Standards (SFFAS) 7, Accounting for Revenue and Other
Financing Sources, became effective in fiscal year 1998 and included detailed provisions that apply to
entities collecting taxes on behalf of the Federal Government. The two entities collecting the vast
marjority of federal taxes are the Internal Revenue Service (IRS) and the U.S. Customs Service
(Customs).
The Board is issuing this standard to rescind paragraph 65.2 of SFFAS 7. Absent very detailed
explanations, the provisions of paragraph 65.2 could result in information being given to readers of the
financial statements that they might misinterpret. The Board believes that paragraph 65.2 would not
accomplish what it purports to accomplish, and would impose costs unnecessarily on both the preparer
and auditor without a significant benefit. The Board's reasoning is explained more fully in Appendix A,
Basis for Conclusions.
This amendment is effective for periods beginning after September 30, 2000.
SFFAS 20 - Page 1
SFFAS 20
Table of Contents
Contents
Page
Summary
Introduction
Accounting Standard
11
11
SFFAS 20 - Page 2
SFFAS 20
Introduction
Purpose
1.
Background
2.
SFFAS 7 became effective in fiscal year 1998 and included, along with
other provisions, detailed provisions that apply to entities collecting
taxes on behalf of the Federal Government. Paragraph 65.2 of that
standard required disclosure of revenue-related transactions affecting
the beginning and end-of-period balances of accounts receivables,
accounts payable for refunds, and the allowance for uncollectible
amounts.
3.
4.
Effective Date
5.
Accounting
Standard
6.
7.
SFFAS 20 - Page 3
SFFAS 20
a.
b.
SFFAS 20 - Page 4
SFFAS 20
Appendix A: Basis
For Conclusions
8.
9.
10. In December 1998, the Board agreed that further study was needed
regarding the relevance of the information discussed in paragraph
65.2. Additionally, the Board was concerned about the relatively short
exposure period (approximately 30 days) for the ED. The Board
decided to defer the effective date for implementing paragraph 65.2
and revisit the issue of eliminating the requirement at a later date.
11. Following the decision to defer the disclosure requirement, the Board
did not take up research on the issue immediately. In December 1999,
the Board reviewed its agenda and weighed whether it should devote
scarce resources to this issue or simply allow the provisions of
paragraph 65.2 to take effect for fiscal year 2001 financial statements.
To assist in making this decision, the Board sent a letter to the Internal
Revenue Service (IRS) asking what additional information might be
available to aid the Board in considering the issue.
12. The IRS responded with additional information based on its two
additional reporting years experience with SFFAS 7 requirements. In
addition, the IRS provided a briefing to the Board regarding its
collections process and systems modernization. The IRS renewed the
request that the Board rescind the provisions of paragraph 65.2. Its
auditor, the General Accounting Office, supported this rescission.
SFFAS 20 - Page 5
SFFAS 20
Federal
(internal)
Users, academics, others
Nonfederal
(external)
2
Auditors
Responses to the
Exposure Draft
14. The respondents were closely divided with the majority supporting the
proposed elimination of paragraph 65.2. It is important to note that
the Board did not rely on the number in favor or opposed to a given
position. Information about the majority view is provided only as a
means of summarizing the comments. The Board considered the
arguments in each response and weighed the merits of the points
raised. The Board summarizes the respondents arguments below.
15. Several respondents stated that paragraph 65.2 disclosures would not
be useful, and could be misleading, to general purpose readers. A
respondent stated that any attempt to reconcile the elements required
by paragraph 65.2 could be misleading due to timing differences
between assessments and collections and the definitions of revenue
receipts and taxes receivable.
16. Some respondents said that the IRS currently provides sufficient
detailed information about federal tax revenues, unpaid assessments,
and refunds in its annual financial report through footnote disclosures,
supplementary information and in its managements discussion and
analysis (MD&A). Other respondents said that the disclosure
requirements of paragraph 65.2 far exceed what should be required in
general purpose financial statements. Another respondent concurring
with the elimination of paragraph 65.2 stated that FASAB clearly
documented its case in the EDs basis for conclusions.
SFFAS 20 - Page 6
SFFAS 20
17. Other respondents had a different view. One respondent stated that
the disclosure in SFFAS 7 was intended to overcome some of the
practical limitations of the tax collection system and make the tax
revenue recognition closer to what would be reported with fuller
accrual accounting. He submitted that the information required in
paragraph 65.2 is relevant and useful in assessing the efficiency and
effectiveness of the tax system, not merely the administrative
practices, and can be explained satisfactorily so as not to be
misleading.
18.
SFFAS 20 - Page 7
SFFAS 20
on this issue (November 1998 and November 2000) the Board has
discussed the complexity of the assessment and abatement process.
The Board has discussed the various IRS-initiated tax collection
actions, including compliance assessments; the enforcement work-inprocess status of the assessment database; the possible timing
difference between the period to which the tax relates, the eventual
assessment of the tax and penalties and interest, and the final
collection or abatement of the assessment; and other complicating
factors. Many assessments, penalties, and interest are made for
enforcement purposes, are often overstated due to incomplete
information, and are subject to change based on receipt of additional
information from the taxpayer. Thus, they do not always precede a
receivable2 in an accounting sense. The Board believes that the user
could misinterpret assessment reporting because increases or
decreases in assessments do not lead necessarily to increases or
decreases in receivables or revenue. Further, developing meaningful
categories of assessments that would permit a user to analyze whether
enforcement assessments are likely to lead to revenues would not be
cost-beneficial when one considers the remaining reporting required
under SFFAS 7 as amended.
21. The Board also has discussed the complications of the abatement
process. Abatement is a reduction or cancellation of an assessed tax.
Abatements are made for myriad reasons and in some cases there is no
correlation between the original assessment and the final reason for
the abatement. For example, taxpayers can carry back losses to prior
years and reduce prior year taxes that were correctly assessed by the
IRS. Such reductions are classified as abatements but are not the
same as abatements where the tax assessment itself was in error.
22. Moreover, taxpayers also file amended returns that can require
abatement of the original amount they reported, including taxpayer
requests to abate particular types of penalty assessments due to
reasonable causes. For example, during 1998 a new law required the
IRS to disallow certain dependents and credits claimed if the taxpayer
did not include a social security number for a dependent child or a
taxpayer identification number for a child-care provider. In each case
2
Per SFFAS 7, paragraph 53, accounts receivable should be recognized when a collecting
entity establishes a specifically identifiable, legally enforceable claim to cash or other assets
through its established assessment process to the extent the amount is measurable.
SFFAS 20 - Page 8
SFFAS 20
26. The Board calls attention to other SFFAS 7 paragraphs and to other
FASAB standards that require disclosures and supplemental
information that the Board believes accomplish the objectives of
SFFAS 7 as stated in paragraph 187.1 and elsewhere. Paragraph 65.1
requires disclosure of factors affecting collectability and timing of
categories of accounts receivable and the amounts involved.
SFFAS 20 - Page 9
SFFAS 20
Conclusion
27. The Board actively sought comments from potential users. In addition
to the FASAB distribution list, the Board sent the ED to all those who
had commented on the prior ED of November 1998 and to potential
decision-makers, including especially House and Senate committees
and sub-committees. Also, in setting February 16, 2001, as the cut-off
date for comments, the Board provided an extended period for
respondents to submit comments. Despite the Boards efforts to reach
users the response to the ED did not demonstrate a demand from
users to have the information. Only one respondent said the
information was useful and necessary. Other respondents who
oppose eliminating paragraph 65.2 at this time said that the Board did
not offer enough evidence regarding relevance and understandability
to warrant eliminating paragraph 65.2, not that they themselves found
it useful or relevant and for what purposes. Due to the cost of the
information, the availability of other information on this topic, the
requests from the preparer and auditor communities, and lack of a
response from users of the information, the Board does not believe the
paragraph should be retained.
28. The Board believes that sufficient evidence has been produced to
conclude that the information required by paragraph 65.2 could be
misinterpreted by users of general purpose financial statements and
that it does not accomplish what it purports to accomplish. The Board
does not exclude essential information merely because it is difficult to
understand or because some report users choose not to use it. In this
instance, however, the complexity of the tax collection process in
conjunction with the context of accounts receivable reconciliation
renders paragraph 65.2 defective and, therefore, not relevant. The
objective of SFFAS 7 is to tell users what is happening at the tax
collection entities, and the Board believes the standard is achieving
SFFAS 20 - Page 10
SFFAS 20
this objective without paragraph 65.2, and that paragraph 65.2 could in
fact be misinterpreted. This amendment of SFFAS 7 is limited to the
problem of disclosures in paragraph 65.2 being misinterpreted.
Appendix B:
Paragraph 65 of
SFFAS 7
65. Entities that collect taxes and duties should disclose the following
relating to future cash flows, revenue-related transactions, and custodial
responsibilities:
65.1 Accounts receivable. Factors affecting collectibility and
timing of categories of accounts receivable and the amounts
involved.
SFFAS 20 - Page 11
SFFAS 20
SFFAS 20 - Page 12
Status
Issued
October 2001
Effective Date
None.
Affects
SFFAS 7
Affected by
None.
Summary
This Statement amends the standard on Prior Period Adjustments contained in Statement of Federal
Financial Accounting Standards 7, Accounting for Revenue and Other Financing Sources
(SFFAS 7), which was issued in April 1996.
Paragraph 76 of SFFAS 7, entitled Prior Period Adjustments, addresses accounting changes and
errors that affect prior period financial statements. It does not permit reporting entities, when
presenting prior period financial statements for comparative purposes, to restate prior period
financial statements to show the effect of the accounting errors.
The unforeseen result is that reporting entities that have material errors in their prior period
financial statements are unable to present them for comparative purposes without creating both a
dilemma for auditors and confusion for users. The dilemma for the auditors is that they would have
to qualify their opinion on the prior period financial statements whether or not they had been
restated. If prior period statements were presented that contained a material error, auditors would
have to qualify their opinion. On the other hand, if prior period statements were presented and
balances had been corrected for an error, auditors would still have to qualify their opinion because
such restatement would not be in accordance with the existing standard. The confusion for the user
derives from the difficulty inherent in comparing the financial statements for two or more periods
when the effect of the error is not shown in the prior periods financial statements.
To correct this situation, the amendment requires that when material errors are discovered in prior
period financial statements, all statements presented must be restated to correct the error.
The Board has retained the current requirement that prior period financial statements not be
restated for changes in accounting principles, unless otherwise specified in the transition
instructions section of a new FASAB standard. The language addressing the requirements, however,
has been revised to improve clarity and to require certain disclosures.
SFFAS 21 - Page 1
SFFAS 21
Table of Contents
Contents
Page
Executive Summary
Introduction
Accounting Standard
SFFAS 21 - Page 2
SFFAS 21
Introduction
1.
2.
3.
When SFFAS No. 7 was issued, the Board believed that having
reporting entities restate prior period financial statements for prior
period adjustments would create an unnecessary burden at a time
when FASAB was still establishing a basic framework of standards.
4.
5.
The Board has amended the standard to require that reporting entities
restate prior period financial statements for material errors discovered
in the current period, if such statements are provided for comparative
purposes, and if the effect of the error would be material to the
financial statements in either period.
6.
The Board has chosen to retain the current methodology that prior
period financial statements not be restated for changes in accounting
principles, unless otherwise specified in the transition instructions
section of a new FASAB standard. The language addressing the
requirements, however, has been revised to improve clarity and to
require certain disclosures.
SFFAS 21 - Page 3
SFFAS 21
Effective Date
7.
8.
SFFAS 21 - Page 4
SFFAS 21
Accounting
Standard
9.
Corrections of Errors
(a) If only the current period statements are presented, then the
cumulative effect of correcting the error should be reported as a
prior period adjustment. The adjustment should be made to the
beginning balance of cumulative results of operations, in the
statement of changes in net position.
(b) If comparative financial statements are presented, then the error
should be corrected in the earliest affected period presented by
correcting any individual amounts on the financial statements. If
the earliest period presented is not the period in which the error
occurred and the cumulative effect is attributable to prior
periods, then the cumulative effect should be reported as a prior
period adjustment. The adjustment should be made to the
beginning balance of cumulative results of operations, in the
statement of changes in net position for the earliest period
presented.
(c) The nature of an error in previously issued financial statements
and the effect of its correction on relevant balances should be
disclosed. Financial statements of subsequent periods need not
repeat the disclosures.
11. Prior period financial statements should only be restated for
corrections of errors that would have caused any statements
presented to be materially misstated.
SFFAS 21 - Page 5
SFFAS 21
Changes in Accounting
Principles
SFFAS 21 - Page 6
SFFAS 21
Appendix A: Basis
For Conclusions
Federal
Non-federal
2
2
12
Corrections of Errors
18. When SFFAS No. 7 was issued, the Board believed that having
reporting entities restate prior period financial statements for prior
period adjustments would create an unnecessary burden at a time
when FASAB was still establishing a basic framework of standards.
Changes in the federal accounting environment in the ensuing years
have lessened these concerns. With the governments increasing
ability to produce accurate and sophisticated financial statements, the
Board is more concerned with encouraging reporting entities to
SFFAS 21 - Page 7
SFFAS 21
Changes in Accounting
Principles
23. Although the Board has chosen to retain the current methodology for
reporting changes in accounting principle, it has revised the language
to improve clarity and to require certain disclosures. The Board may
consider exceptions to this decision, if warranted, for accounting
standards issued in the future. It may also further examine issues
raised by respondents regarding changes in accounting principles.
SFFAS 21 - Page 8
SFFAS 21
Other Accounting
Changes
Board Approval
SFFAS 21 - Page 9
Status
Issued
October 2001
Effective Date
None.
Affects
SFFAS 7
Affected by
No other statements.
Summary
Statement of Federal Financial Accounting Standards 7, Accounting for Revenue and Other Financing
Sources, (SFFAS 7) requires a reconciliation of budgetary and financial accounting information. The
reconciliation explains the relationship between budgetary resources obligated by the entity during the
period and the net cost of operations as derived from the entitys proprietary accounting system.
This standard amends SFFAS 7 by deleting a requirement regarding an element of the reconciliation.
SFFAS 7, paragraph 80, requires increases and decreases in receivables from the public related to
exchange revenue to be reported as a nonbudgetary resource. This standard deletes this requirement and
makes other necessary conforming changes.
The effect of this change is that the location of this reconciling item is no longer specified by the
standard.
SFFAS 22 - Page 1
SFFAS 22
Table of Contents
Contents
Page
Summary
Introduction
Materiality
Effective Date
Accounting Standard
Respondents Comments
Conclusion
SFFAS 22 - Page 2
SFFAS 22
Introduction
1.
2.
3.
The effect of this change is that the location of this reconciling item in
the statement of financing is no longer specified by the standard.
Materiality
4.
Effective Date
5.
6.
Accounting
Standard
Changes for SFFAS 7
SFFAS 22 - Page 3
SFFAS 22
SFFAS 22 - Page 4
SFFAS 22
Appendix A: Basis
For Conclusions
7.
8.
9.
10. The effect of this change is that the location of this reconciling item in
the statement of financing is no longer specified by the standard.
Respondents Comments
11. The respondents comments are summarized below. The Board does
not rely on the number of respondents in favor of or opposed to a
given position. Information about the respondents majority view is
provided only as a means of summarizing the comments. The Board
SFFAS 22 - Page 5
SFFAS 22
considers the arguments in each response and weighs the merits of the
points raised.
Federal
Non- federal
Users, academics,others
Auditors
12. Nine respondents either said they agreed with or had no objection to
the amendment. One respondent agreed with the change but disagreed
with the decision to issue the standard allowing flexibility. Four
respondents reviewed the exposure draft but chose not to comment or
offered a comment beyond the scope of the issue addressed by the
exposure draft. Respondents made the following individual comments:
Conclusion
a.
b.
c.
d.
e.
f.
g.
h.
SFFAS 22 - Page 6
SFFAS 22
SFFAS 22 - Page 7
SFFAS 22
Appendix B:
Paragraphs 80 and
97 of SFFAS 7
SFFAS 22 - Page 8
Rescinding SFFAS No. 11, Amendments to Property, Plant, and Equipment -- Definitional Changes
Amending SFFAS No. 8, Supplementary Stewardship Reporting
Amending SFFAS No. 6, Accounting for Property, Plant, and Equipment
Status
Issued
May 8, 2003
Effective Date
None
Affects
Affected by
Summary
Prior to this amendment, the acquisition costs for items classified as national defense (ND) property,
plant, and equipment (PP&E) were expensed in the period incurred. In addition, valuation (using either
an historical or latest acquisition cost valuation method), condition, and deferred maintenance
information for these items was to be presented off-balance sheet.
The amendments in this Statement make the following changes. The term ND PP&E is rescinded. All
items previously considered ND PP&E are classified as general PP&E. Accordingly, the cost of these
items should be capitalized and, with the exception of the cost of land and land improvements that
produce permanent benefits, depreciated. This Statement also notes that all entities are permitted to use
the composite or group depreciation methodology to calculate depreciation.
The amendments in this Statement take effect for accounting periods beginning after September 30,
2002.
SFFAS 23 - Page 1
SFFAS 23
Table of Contents
Contents
Page
Summary
Introduction
Background
Summary Of Amendments
Effective Date
Accounting Standards
Implementation Guidance
Introduction
Background
February 1998 ED
10
September 2001 ED
11
March 2002 ED
12
15
15
Contractor Costs
16
Effective Date
17
Board Approval
18
SFFAS 23 - Page 2
SFFAS 23
Introduction
1.
Background
2.
3.
b.
Originally, ND PP&E was defined in SFFAS No. 6 as Federal mission PP&E. Subsequent to
the issuance of SFFAS No. 6, many agencies suggested that the Federal mission PP&E
category would be appropriate for agency PP&E not considered by the Board in developing
the category. To prevent confusion, inconsistency, and unintended application, the Board
replaced the definition of Federal mission PP&E with the definition of ND PP&E currently
contained in SFFAS No. 11 to clarify that only DoD and the Maritime Administrations
National Defense Reserve Fleet PP&E would be categorized as ND PP&E.
2
Recognize means to record an amount in entity accounts and to report a dollar amount on
the face of the Statement of Net Costs or the Balance Sheet either individually or so that the
amounts are aggregated with related amounts.
3
This amendment does not change any requirements for deferred maintenance.
SFFAS 23 - Page 3
SFFAS 23
c.
d.
e.
Summary of
Amendments
4.
5.
6.
b.
c.
SFFAS 23 - Page 4
SFFAS 23
Effective Date
7.
8.
9.
Accounting
Standards
Amendments to Existing
Standards
a.
b.
c.
d.
e.
f.
SFFAS 23 - Page 5
SFFAS 23
Implementation
Guidance
Initial Capitalization
4
The composite methodology is a method of calculating depreciation that applies a single
average rate to a number of heterogeneous assets that have dissimilar characteristics and
service lives. The group methodology is a method of calculating depreciation that applies a
single, average rate to a number of homogeneous assets having similar characteristics and
service lives.
4A
"Base unit" refers to the level of detail considered in categorizing PP&E. Generally, the
base unit is the smallest or least expensive item of property to be categorized. The term
"base unit" may be used by others to have a different meaning--the meaning intended in this
standard is limited to that specified above [from SFFAS 6 fn 25].
SFFAS 23 - Page 6
SFFAS 23
13A. In estimating the year that the base unit was placed in service, if only a
range of years can be identified then the mid-point of the range is an
acceptable estimate of the in-service date.
14. A contra asset account--accumulated depreciation--for the assets
should be calculated under the provisions provided in paragraphs 41,
42, and 43 of SFFAS 6, as amended.
15. For military equipment that is eligible for capitalization under this
standard, cleanup cost liabilities should be adjusted, as needed.5
Adjustment to Cumulative
Results of Operations
5
Under the provisions of SFFAS 6, paragraph 97, a portion of the estimated total cleanup
costs shall be recognized as expense during each period that G-PP&E is in operation and a
liability accumulated over time as expense is recognized. This adjustment may be needed
because the DoD may have already recognized the total estimated cleanup costs as a liability
and expense for some military equipment per paragraph 101 of SFFAS 6, as amended.
SFFAS 23 - Page 7
SFFAS 23
Appendix A: Basis
For Conclusions
Introduction
20. The Board issued an exposure draft (ED), Eliminating the Category
National Defense Property, Plant, and Equipment, to rescind SFFAS
No. 11, Amendments to Property, Plant, and Equipment -Definitional Changes and to amend SFFAS No. 8, Supplementary
Stewardship Reporting and SFFAS No. 6, Accounting for Property,
Plant, and Equipment in March of 2002. Twenty comment letters
were received during a comment period that ended May 20, 2002. The
majority of respondents supported the proposals presented in the ED.
Concerns raised by the respondents dealt mostly with providing
additional guidance for the valuation and consumption of items. Two
other concerns dealt with the impact of the Statement on contractor
costs and the effective date of the Statement. Background information
pertaining to the development of this Statement and discussions on
the concerns raised by respondents are addressed in the following
paragraphs.
Background
SFFAS 23 - Page 8
SFFAS 23
b.
comprehensive, comparable cost information for decisionmaking and program evaluation by the public; and,
c.
23. The Board, however, found that for some PP&E, the depreciation
effect of the asset on operating performance was not the predominant
reporting objective. Instead, stewardship was important. Therefore,
three categories of assets (i.e., national defense PP&E (ND PP&E),6
heritage assets, and stewardship land) are referred to collectively as
stewardship PP&E.
24. The purpose of SFFAS No. 8 was to establish standards for reporting
on the Federal Government's stewardship over certain resources
entrusted to it, and certain responsibilities assumed by it. Among
these standards are standards for reporting on stewardship PP&E.
"Stewardship PP&E" consists of items whose physical properties
resemble those of general PP&E traditionally capitalized in financial
statements. However, the nature of these Federal physical assets that
are classified as stewardship PP&E differs from general PP&E in that
their values may be indeterminable or may have little meaning (e.g.,
museum collections, monuments, assets acquired in the formation of
the nation) or that allocating the cost of such assets (e.g., ND PP&E)
to accounting periods that benefit from the ownership of such assets is
not meaningful. Specifically, for ND PP&E the majority of the Board
did not believe applying depreciation accounting for these assets
would contribute to measuring the cost of outputs produced, or to
assessing operating performance, in any given accounting period. The
Board believed that these assets were developed, used, and retired in a
6
Prior to the issuance of SFFAS No. 11, Amendments to Accounting for Property, Plant,
and Equipment Definitional Changes, (amending SFFAS Nos. 6 and 8) the Board referred
to ND PP&E as Federal Mission PP&E. The reasons leading to that change are not relevant
to this ED but may be understood by reading SFFAS No. 11. This document uses the
amended title and definition in referring to the existing provisions.
SFFAS 23 - Page 9
SFFAS 23
b.
c.
d.
e.
February 1998 ED
27. In early 1998, the FASAB issued an exposure draft (ED) to amend
SFFAS Nos. 6 and 8. The exposure draft was initiated (1) to refine the
definition of ND PP&E, and (2) in recognition of the need to provide a
transition plan due to the DoDs inability to comply with the provisions
of SFFAS No. 8. During the process, the Board reconsidered whether
SFFAS No. 8 was an appropriate end goal. Ultimately, the 1998
exposure draft included, among other suggestions, proposals to
replace the requirement to present cumulative cost information in the
supplementary stewardship report with a requirement to present ND
PP&E annual acquisition costs for each of the previous five years (i.e.,
SFFAS 23 - Page 10
SFFAS 23
September 2001 ED
SFFAS 23 - Page 11
SFFAS 23
31. The Board issued the 2001 ED because it believed that the proposals in
that ED were the best that could be achieved given the acknowledged
shortcomings of DoD accounting and other management information
systems, as well as DoD's firm belief that certain information would
not be useful for management purposes. The 2001 ED would have
achieved one of the current Board's objectives, which was to establish
monetary accountability over military assets. However, because the
2001 ED did not require depreciation of some major assets, the
September 2001 FASAB ED on NDPP&E fell short of comprehensive
PP&E accounting. In addition, it would not have fully achieved the
objective of SFFAS No. 4, Managerial Cost Accounting Concepts and
Standards for the Federal Government, to account for the full cost of
programs with a focus on relating costs to accomplishments in
reporting an entity's operating performance.
March 2002 ED
32. While there were divergent views on the proposals in the September
2001 ED, many respondents believed ND PP&E should be capitalized
and depreciated as is general PP&E. Many Board members had
wanted to make this change for some time. This caused the Board to
reconsider the proposals presented in the September 2001 ED. The
outcome from the deliberations was a consensus of the Board to make
the proposal in the March 2002 ED to classify, capitalize, and
depreciate ND PP&E as general PP&E. The Board believed its
proposal would put discipline into the asset management process.
Many members of the Board believe depreciation, impairment,
deferred maintenance, and condition are interrelated judgments that
should result jointly from periodic estimation of the remaining useful
service potential of assets. The Board believes periodic analysis of the
sources of asset diminution is as important, perhaps more so, for
national defense assets than for other assets.
33. The Board also notes that a second purpose of depreciation
accounting is to provide information for measuring the full cost of
producing outputs (e.g., deterrence, readiness, training). Full cost,
including the depreciation of ND PP&E, would be available for use in
assessing the operating performance of responsibility segments for
producing outputs and to meet the goals of SFFAC No. 1 and SFFAS
No. 4. In addition, the Board believes that classifying all DoD PP&E as
general PP&E would improve the publics understanding of federal
accounting, add consistency to the application of standards
throughout the Federal government, reduce the DoDs cost of
development and operation of accounting systems, and preclude the
SFFAS 23 - Page 12
SFFAS 23
b.
c.
The Accounting for National Defense PP&E and Associated Cleanup Costs ED, dated
September 2001, defined Major End Items to be: 1) items that launch, release, carry, or fire a
particular piece of ordnance, and 2) items that carry weapons systems-related property,
equipment, materials, or personnel. Major End Items (a) have an indeterminate or
unpredictable useful life due to the manner in which they are used, improved, modified, or
maintained and (b) are subject to premature destruction or obsolescence (e.g., aircraft,
ships, combat vehicles, etc.) Also, included in this category are vessels held in a
preservation status by the Maritime Administration's National Defense Reserve Fleet.
SFFAS No. 11 defined ND PP&E as being "PP&E [that] are (1) the PP&E components of
weapons systems and support PP&E owned by the Department of Defense or its component
entities for use in the performance of military missions and (2) vessels held in a preservation
status by the Maritime Administration's National Defense Reserve Fleet."
SFFAS 23 - Page 13
SFFAS 23
b.
c.
d.
36. Given the resources that have been devoted to resolving the
fundamental recognition and measurement guidance for ND PP&E
and the substantial efforts underway at DoD to modernize its systems,
the Board does not believe it would be useful to withhold this
Statement while it deliberates on the merits of any further PP&E
information.
37. In the meantime, the Board does not believe the absence of the
previously proposed special information requirements would
outweigh the benefits to be gained through this Statement. With regard
to the stewardship objective and the need for unit information, the
Board notes that the stewardship objective is being met for general
PP&E without this special disclosure. Through the course of the audit,
existence of PP&E and the completeness of PP&E records are
verified. This satisfies the basic stewardship function that the double
entry system offers.
38. With regard to condition information, the Board notes that deferred
maintenance information is currently required. Further, the
assessment of useful life needed to assure depreciation is reasonable
would result in greater discipline in information associated with the
condition of PP&E.
Any information, the loss, misuse, or unauthorized access to which would or could
adversely affect the organizational and/or national interest but which does not meet
classification criteria specified in DoD 5200.1-R (reference ( c )). Source: DoD 5200.1-M;
Acquisition Systems Protection Program; 16 March 1994.
SFFAS 23 - Page 14
SFFAS 23
b.
c.
d.
e.
f.
g.
SFFAS 23 - Page 15
SFFAS 23
h.
i.
j.
41. In response to these issues, the Board members reiterated that the
Board is responsible for promulgating accounting standards and that it
is the responsibility of individual entities to set policy and provide
operating guidance on how to implement the standards. The Board
believes these issues can and should be addressed by individual
entities in the context of existing basic principles and practices.
Composite and group depreciation methodologies are already
considered acceptable methods under generally accepted accounting
principles. The existing principles and practices are used by many
different industries, including the airline, electrical cooperative,
railroad, real estate, and cruise line industries.
42. The Board also expects that many of these concerns raised by
respondents will be addressed by DoD as the standards are
implemented. One example may be on the cost elements of research,
testing, development, and evaluation (RTD&E) to be capitalized.
Determining whether to include a particular cost in the capitalized
cost of PP&E should be guided by general guidance in SFFAS Nos. 4
and 6 regarding the types of costs to capitalized. In the event,
however, that DoD is unable to resolve issues , the Board and its staff
will be available to consider implementation guidance.
Contractor Costs
SFFAS 23 - Page 16
SFFAS 23
Effective Date
47. One respondent commented that the effective date, for periods
beginning after September 30, 2002, is unrealistic. The Board
acknowledges that full implementation of the standards will require
time and commitment. The Board understands that DoD is currently
developing systems needed to fully implement any PP&E standards,
comprehensive training needs to be provided, policies and procedures
need to be revised and contractors may need to modify how they do
things. However, the Board believes DoD financial statements will be
incomplete without consistent and comparable accounting for PP&E.
In addition, a practical issue arises. DoD has not yet identified
property as National Defense PP&E. Therefore, it would be
problematic to determine which components of general PP&E were
SFFAS 23 - Page 17
SFFAS 23
Board Approval
SFFAS 23 - Page 18
SFFAS 23
SFFAS 23 - Page 19
Status
Issued
January 2003
Effective Date
None.
Affects
None.
Affected by
None.
Summary
Most Statements of Federal Financial Accounting Standards (SFFAS) do not state whether they apply to the
Government as a whole or components thereof, or both. This standard clarifies that all parts of all SFFAS
apply to all Federal entities (including the consolidated entity) unless a standard specifically provides
otherwise.
In addition, certain requirements of SFFAS 7, Accounting for Revenue and Other Financing Sources and
Concepts for Reconciling Budgetary and Financial Accounting, are not relevant for the Consolidated
Financial Report of the United States Government (CFR). SFFAS 7 requires information on budgetary
resources and a reconciliation of obligations and other resources used with the net cost of operations. These
requirements, while relevant for agencies executing the budget, are not required for the CFR.
This standard requires that new statements be presented in the CFR, but not agency or departmental financial
statements, regarding net operating revenue (or cost), budget surplus (or deficit), and cash. The new
statements are principal CFR financial statements, and they are to be presented on a comparative basis.
SFFAS 24 - Page 1
SFFAS 24
Table of Contents
Contents
Page
Summary
Introduction
Materiality
Effective Date
Accounting Standard
14
15
16
18
Glossary
20
SFFAS 24 - Page 2
SFFAS 24
Introduction
1.
2.
3.
This standard clarifies that all existing and future standards apply to
all federal entities unless a standard specifically provides otherwise.
4.
This standard also exempts the CFR from certain provisions of SFFAS
7, Accounting for Revenue and Other Financing Sources and
Concepts for Reconciling Budgetary and Financial Accounting,
requiring information about budgetary resources and a reconciliation
of budgetary obligations with the cost of operations from the
proprietary accounting system. Such information is relevant and
meaningful for entities financed with budgetary resources but not for
the Government as a whole.
5.
In addition, this standard requires new information for the CFR (but
not component entity financial statements) that reconciles the annual
proprietary net cost with the unified budget surplus (or deficit), and
explains the changes in the Governments cash balance. The
information is to be presented in new CFR principal financial
statements that are to be presented on a comparative basis.
SFFAS 24 - Page 3
SFFAS 24
Materiality
6.
Effective Date
7.
8.
Budgetary Information
Not Required for the
Government as a Whole
9.
Reconciliation
Information
Accounting
Standard
The components of net operating revenue (or cost) that are not
part of the unified budget surplus (or deficit), including the
1
See Appendices D and E for illustrations of the statement of budgetary resources and
statement of financing from the Office of Management and Budgets Bulletin 01-09, Form
and Content.
SFFAS 24 - Page 4
SFFAS 24
Principal Financial
Statements Presented on
a Comparative Basis
SFFAS 24 - Page 5
SFFAS 24
Appendix A: Basis
for Conclusions
Category
Federal
(Civilian)
Federal
(Military)
Non-Federal
Auditors
SFFAS 24 - Page 6
SFFAS 24
SFFAS 24 - Page 7
SFFAS 24
Consolidated Financial
Report Exemption from
Requirements to Report
Certain Budgetary
Information
21. All but one of the respondents who addressed the issue agreed that the
CFR should be exempt from certain provisions of SFFAS 7,
Accounting for Revenue and Other Financing Sources and Concepts
for Budgetary and Financial Accounting, requiring a Statement of
Budgetary Resources (SBR) and the Statement of Financing (SOF).
One respondent disagreed, saying that the same information, based on
one single set of standards, required for components should be
required for the CFR, and vice versa. That respondent believes that the
CFR should present the SBR and SOF, because such combined
budgetary information is relevant and useful to the user of the CFR.
Likewise, the component entities should be required to prepare the
new statements, the necessary changes being made, as well as the SBR
and SOF.
22. SFFAS 7 requires entities whose financing comes wholly or partially
from the budget to provide information on budgetary resources and
the status of resources, which is presented in the SBR.8 It also calls for
a reconciliation of budgetary resources obligated by the entity with the
net cost of operations, which is presented in the SOF.9
23. The Board continues to believe that such information is less relevant
or meaningful at the level of the CFR. Resources differ between the
Government as a whole and individual component entities. The
exchange and non-exchange revenue and borrowing from the public
are the main sources of financing for the Government as a whole.10
For component reporting entities, however, the sources of financing
SFFAS 7 (pars. 77-79) requires information, which is presented in the SBR, that includes (1)
total budgetary resources available, (2) the status of the budgetary resources, including
obligations incurred, the available appropriation, borrowing and contract authority at
the end of the period, any restrictions on the use of unobligated balances of budget
authority, the amount of any capital infusion during the period, etc.; and (3) outlays. In
addition, the entities are required to provide this information for each of their major budget
accounts as supplementary information.
10
Exchange revenue arises when an entity provides goods and services for a price. Nonexchange revenue arises primarily from the exercise of the governments sovereign power
to demand payment from the public, such as taxes, duties, fines, etc.
SFFAS 24 - Page 8
SFFAS 24
are provided through the budget process and are largely financing
sources other than revenue. Appropriations and other budget
authority provide an agency with the authority to incur obligations to
acquire goods and services or to provide benefits and grants.
Budgetary resources are not earned by an entitys operations and have
a different character than both exchange revenue and non-exchange
revenue.11 Federal entities report as an asset their fund balance with
Treasury, which is the aggregate amount of funds in the entitys
accounts with Treasury for which the entity is authorized to make
expenditures and pay liabilities. This is an intra-government item.
From the perspective of the Government as a whole, it is not an asset.
It represents a commitment to make resources available to federal
departments, agencies, programs, etc.12
24. The budget process provides the principal basis for planning and
controlling obligations and outlays by Government entities. Budget
execution tracks the flow of budgetary resources from the
congressional authorizing and appropriating process, to
apportionment, allotment, and obligation of the budgetary
resources, to the outlay of cash to satisfy those obligations. For the
most part, obligations and cash, rather than accrual accounting, are
the bases for budgeting and reporting on budget execution.13
25. Accrual accounting is the basis for proprietary accounting in the
Federal Government. Proprietary accounting and budgetary
accounting are complementary. Proprietary accounting provides an
understanding of the entitys net position and cost of operations during
a period. Federal Government financial statements have not been
used for planning and control as much as they might be. In part, this is
because general purpose financial reports have not presented budget
information with the financial statements in a way that helped users
relate these two important, but different, types of financial
information.14 The Boards objective in requiring new statements in
the CFR addresses this issue.
11
12
13
14
SFFAS 24 - Page 9
SFFAS 24
The Government as a
Whole Should Provide
Information about Net
Operating Revenue (or
Cost), the Budget
Surplus (or Deficit), and
Cash
26. The information now required in two new statements serves the basic
objectives of federal accounting. Objective 115 provides that federal
financial reporting should assist in fulfilling the Federal Governments
duty to be publicly accountable for the money raised through taxes
and other means, and for their expenditure in accordance with the
appropriation laws. Sub-objective 1C provides that federal financial
reporting should provide information that helps the reader to
determine how information on the use of budgetary resources relates
to information on the costs of program operations and whether
information on the status of budgetary resources is consistent with
other accounting information on assets and liabilities.
27. In a new statement of concepts issued contemporaneously with this
standard, the Board recognizes that the CFR should be understandable
to the average citizen. The new statements required in this standard
were designed with this objective in mind.
28. Although budgetary and proprietary accounting information are
complementary, both the types of information and the timing of their
recognition are different, caused by differences in the basis of
accounting.16
29. The new statements required by this standard focus on three
important elements: (1) the net operating revenue (or cost) from the
proprietary accounting system, (2) the unified budget surplus (or
deficit), and (3) the change in the Governments cash during the
period. The information is presented in two parts: (1) a reconciliation
of the net operating revenue (or cost) to the unified budget surplus (or
deficit), and (2) a statement of changes in cash balance from budget
and other activities.
30. The purpose of the reconciliation information is to report how the
proprietary net operating revenue (or cost) and the unified budget
surplus (or deficit) relate to each other. The premise of the
reconciliation is that the proprietary and budget accounting bases
share much data. The reconciliation presents the differences between
15
16
SFFAS 24 - Page 10
SFFAS 24
SFFAS 24 - Page 11
SFFAS 24
36. With respect to the illustrative statement about changes in the cash
balance (Appendix C in the exposure draft of March 2002, Versions A
and B therein), most respondents who addressed the question
preferred Version B. They said that it would be more understandable
to the intended users because its groupings and subtotal were more
logical.
37. One respondent said the FASAB should provide detailed authoritative
guidance regarding the format of the reconciliation and cash
statements before requiring them. The respondent was concerned
that the reporting requirements are not fully developed, and that the
FASAB should not require such information until it develops and
prescribes an authoritative format. The Board weighed the benefits of
prescribing the format of the statements against the drawbacks of
placing constraints on the Treasury Departments future development
of the statements. The Board believes that it is better at this time to be
flexible so that the most meaningful display can evolve.
38. Another respondent asked the Board to clarify that the new
statements would be principal financial statements. Additional
wording to this effect has been added to the standard.
39. Several respondents urged the Board to tie the change in cash on the
new statement of changes in cash balance to the balance sheet line
item and accompanying note disclosure, and/or to include beginning
and ending cash balances on the statement. The Board decided that
such information would improve the statement and has included it in
the illustration in the standard, but does not believe that it is necessary
to require it as part of the standard.
40. One respondent said there should be some direct reference to the
stewardship information on the balance sheet similar to the reference
to the notes because this would inform the reader about important
information not included on the balance sheet. Also, this respondent
submitted that the term National Debt is unclear. Although the
Board does not view this standard as a vehicle to address these
concerns, it acknowledges the need for additional clarity and user
friendliness for the CFR. The Board notes that the Treasury
Department continues to improve the CFR, including the presentation
of stewardship information.
SFFAS 24 - Page 12
SFFAS 24
Implementation Date
41. Several respondents said that the FY 2002 implementation date for the
statements would afford insufficient time to prepare the new
statements. However, since the Treasury Department was a leader in
developing the statements and is able to prepare them in FY 2002, and
since no additional information is required from component entities,
this should not be an issue.
SFFAS 24 - Page 13
SFFAS 24
Appendix B:
Illustrative
Statement:
Reconciliation
(Hypothetical data)
RECONCILIATION OF NET OPERATING REVENUE (OR COST)
AND UNIFIED BUDGET SURPLUS (OR DEFICIT)
for the period ending Sept. 30, 20X2
(in billions of dollars)
[Footnotes below would be to notes to the financial statements and are not provided for this illustration.]
FY 20X2 FY 20X1
46.0
(50.0)
Net operating revenue or (cost)
Components of net operating revenue (or cost) not part of the of the budget surplus:
Add excess of accrual-basis expenses over budget outlays:
Civilian & military employee benefits (Note X1)
Pensions and retired pay
75.5
74.0
Retiree health benefits
14.6
14.7
Other benefits
4.7
4.6
Subtotal -- civilian & military employee benefits
94.8
93.3
Veteran compensation (Note X1)
62.5
59.0
Environmental clean-up (Note X2)
19.6
18.5
Other benefit programs (Note X3)
4.0
4.5
Other
18.5
17.5
Subtotal -- excess of accrual-basis expenses over budget outlays
199.4
192.8
Add amortized expenses not included in budget outlays:
Depreciation (Note X7)
15.4
15.0
Add other expenses that are not reported as budget outlays:
Premiums paid on buyback of Treasury debt (Note X10)
5.5
1.6
Subtract excess of accrual-basis revenue over budget receipts:
Accrued tax revenue (Note X5)
(0.6)
(0.7)
Other accrued revenue (Note X8)
1.0
Subtract other revenue and gains that are not budget receipts:
Other revenue and gains
(2.3)
(2.2)
Subtotal: components of net operating revenue (cost) not part
of budget surplus
217.4
207.5
Components of the budget surplus that are not part of net operating
revenue (or cost):
Add budget receipts not included in net operating revenue (or cost):
Principal repayments on pre-credit reform loans
24.0
24.5
Decrease in accounts receivable (Note X3)
2.7
3.0
Subtract budget outlays not included in net operating revenue (or cost):
Acquisition of capital assets (Note X7)
(31.6)
(43.0)
Acquisition of inventory (Note X6)
(11.9)
(12.0)
Acquisition of other assets
(5.4)
(7.0)
Subtotal -- components of the budget surplus that are not part of
net operating revenue (or cost)
(22.2)
(34.5)
Other:
Prior period adjustment (Note X17)
Unified budget surplus (deficit) -- actual
SFFAS 24 - Page 14
(4.2)
237.0
123.0
SFFAS 24
Appendix C:
Illustrative
Statement:
Statement of
Changes in Cash
Balance
STATEMENT OF CHANGES IN CASH BALANCE
FROM UNIFIED BUDGET AND OTHER ACTIVITIES
for the Years Ended September 30, 20X2 and 20X1
(in billions of dollars)
[Hypothetical Data]
[Footnotes b elow would b e to notes to the financial statements and are not provided for this illustration.]
20X2
20X1
CASH FLOW FROM UNIFIED BUDGETED ACTIVITIES
Total unified budgetary receipts -- actual
2,025.0
1,827.0
Total unified budgetary outlays -- actual
(1,788.0) (1,703.0)
Unified budget surplus (or deficit) -- actual
237.0
124.0
Adjustm e nts for non-ca sh outla ys include d in the unifie d budge t:
Interest accrued on Treasury debt held by the public
186.0
185.0
Subsidy expense accrued under direct loan & guarantee programs (Note X1)
3.0
4.0
Subtotal - adjustment for non-cash transactions in unified budget
189.0
189.0
CASH FLOW FROM ACTIVITIES NOT INCLUDED IN UNIFIED BUDGET
Inflows:
Repayment of principal on direct loans
Decrease/(increase) in miscellaneous assets (Note X2)
Seignorage
Outflows:
Interest paid by Treasury on debt held by the public
New direct loans disbursed
Other direct loan transactions
Premium on buyback of Treasury debt held by the public (Note X3)
Default payments on guaranteed loans
Other guaranteed loan transactions
Increase/(decrease) in deposit fund liability balances (Note X4)
Increase/(decrease) in miscellaneous liabilities (Note X4)
Cash flow from non-budget activities
Ca sh Flow from Mone ta ry Tra nsa ctions
Decrease in reserve position in the IMF (Note X5)
Decrease in loans to the IMF
Increase in special drawing rights (Note X5)
(Increase)/decrease in other monetary assets (Note X5)
Cash flow from monetary transactions
Ca sh Flow from Fina ncing
Borrowing from the public (Note X6)
Repayment of debt held by the public (Note X6)
Cash flow from financing
Incre a se (de cre a se ) in ca sh ba la nce
Be ginning ca sh ba la nce (Note X7)
Ending ca sh ba la nce (Note X7)
SFFAS 24 - Page 15
19.0
1.6
2.3
15.0
(1.6)
2.2
(184.4)
(40.0)
(0.7)
(5.5)
(4.3)
(0.5)
(1.2)
(0.9)
(214.6)
(187.8)
(34.0)
(1.0)
(5.0)
(0.3)
0.1
0.5
(211.9)
6.3
(4.0)
(0.9)
1.4
1.2
0.5
(2.2)
0.4
(0.1)
2,010.8
(2,233.5)
(222.7)
(9.9)
52.7
42.8
2,002.0
(2,090.0)
(88.0)
13.0
39.7
52.7
SFFAS 24
Appendix D:
Statement Of
Budgetary
Resources (from
OMB Bulletin 01- 09,
September 25, 2001)
_
APPENDIX D: STATEMENT OF BUDGETARY RESOURCES ( from OMB Bulletin 01- 09,
September 25, 2001)
Department/Agency/Reporting Entity
COMBINED STATEMENT OF BUDGETARY RESOURCES (page 1 of 2)
For the Years Ended September 30, 20x2 and 20x1
(in dollars/millions)
20x2
20x2
20x1
Non-Budgetary
Credit Program
Financing Accounts
Budgetary
Budgetary
Budgetary Resources:
1. Budget authority:
1a. Appropriations received
1b. Borrowing authority
1c. Contract authority
1d. Net transfers (+/-)
1e. Other
2. Unobligated balance:
2a. Beginning of period
2b. Net transfers, actual (+/-)
2c. Anticipated Transfers balances
3. Spending authority from offsetting collections:
3a. Earned
1. Collected
2. Receivable from Federal sources
3b. Change in unfilled customer orders
1. Advance received
2. Without advance from Federal sources
3c. Anticipated for rest of year, without advances
3d. Transfers from trust funds
3e. Subtotal
4. Recoveries of prior year obligations
5. Temporarily not available pursuant to Public Law
6. Permanently not available
7. Total Budgetary Resources
20x1
Non-Budgetary
Credit Program
Financing Accounts
$ xxx
xxx
xxx
xxx
xxx
$ xxx
xxx
xxx
xxx
xxx
$ xxx
xxx
xxx
xxx
xxx
$ xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
$ x,xxx
$ x,xxx
$ x,xxx
$ x,xxx
SFFAS 24 - Page 16
SFFAS 24
Department/Agency/Reporting Entity
COMBINED STATEMENT OF BUDGETARY RESOURCES (page 2 of 2)
For the Years Ended September 30, 20x2 and 20x1
(in dollars /millions)
20x2
20x2
20x1
Non-Budgetary
Credit Program
Financing Accounts
Budgetary
Budgetary
Status of Budgetary Resources:
8. Obligations incurred:
8a. Direct
$ xxx
$ xxx
$ xxx
xxx
xxx
8b. Reimbursable
xxx
8c. Subtotal
xxx
xxx
xxx
9. Unobligated balance:
9a. Apportioned
xxx
xxx
xxx
9b. Exempt from apportionment
xxx
xxx
xxx
9c. Other available
xxx
xxx
xxx
xxx
xxx
10. Unobligated balance not available
xxx
x,xxx
x,xxx
11. Total Status of Budgetary Resources
x,xxx
Relationship of Obligations to Outlays:
12. Obligated balance, net, beginning of period
xxx
13. Obligated balance transferred, net (+/-)
xxx
14. Obligated balance, net, end of period:
14a. Accounts receivable
xxx
14b. Unfilled customer orders from Federal sources xxx
14c. Undelivered orders
xxx
14d. Accounts payable
xxx
15. Outlays:
15a. Disbursements
xxx
15b. Collections
xxx
15c. Subtotal
xxx
xxx
16. Less: Offsetting receipts
17. Net Outlays
$ x,xxx
SFFAS 24 - Page 17
20x1
Non-Budgetary
Credit Program
Financing Accounts
$ xxx
xxx
xxx
xxx
xxx
xxx
xxx
x,xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
$ x,xxx
xxx
xxx
xxx
xxx
$ x,xxx
xxx
xxx
xxx
xxx
$ x,xxx
SFFAS 24
Appendix E:
Statement Of
Financing (from
OMB Bulletin 01-09,
September 25, 2001)
____________________________________________________________________
APPENDIX E: STATEMENT OF FINANCING (from OMB Bulletin 01-09,
September 25, 2001)
Department/Agency/Reporting Entity
CONSOLIDATED STATEMENT OF FINANCING (Page 1 of 2)
For the Years Ended September 30, 20x2 and 20x1
(in dollars /millions)
20x2
Resources Used to Finance Activities:
Budgetary Resources Obligated
1. Obligations incurred
$ xxx
2. Less: Spending authority from offsetting collections and recoveries
xxx
3. Obligations net of offsetting collections and recoveries
xxx
4. Less: Offsetting receipts
xxx
5. Net obligations
xxx
Other Resources
6. Donations and forfeitures of property
xxx
7. Transfers in/out without reimbursement (+/-)
xxx
8. Imputed financing from costs absorbed by others
xxx
9. Other (+/-)
xxx
10. Net other resources used to finance activities
xxx
11. Total resources used to finance activities
x,xxx
Resources Used to Finance Items not Part of the Net Cost of Operations
12. Change in budgetary resources obligated for goods,
services and benefits ordered but not yet provided (+/-)
13. Resources that fund expenses recognized in prior periods
14 .Budgetary offsetting collections and receipts that do not affect net cost
of operations
14a. Credit program collections which increase liabilities for loan
guarantees or allowances for subsidy
14b. Other
15. Resources that finance the acquisition of assets
16. Other resources or adjustments to net obligated resources that do not
affect net cost of operations (+/-)
17. Total resources used to finance items not part of the net cost of operations
18. Total resources used to finance the net cost of operations
SFFAS 24 - Page 18
20x1
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
x,xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
x,xxx
x,xxx
SFFAS 24
Department/Agency/Reporting Entity
CONSOLIDATED STATEMENT OF FINANCING (Page 2 of 2)
For the Years Ended September 30, 20x2 and 20x1
(in dollars /millions)
20x2 20x1
Components of the Net Cost of Operations that will not Require or Generate Resources in the
Current Period:
Components Requiring or Generating Resources in Future Periods:
19. Increase in annual leave liability
xxx
xxx
20. Increase in environmental and disposal liability
xxx
xxx
21. Upward/Downward reestimates of credit subsidy expense (+/-)
xxx
xxx
22. Increase in exchange revenue receivable from the public
xxx
xxx
xxx
23. Other (+/-)
xxx
24. Total components of Net Cost of Operations that will require or
generate resources in future periods
xxx
xxx
Components not Requiring or Generating Resources:
25. Depreciation and amortization
xxx
xxx
26. Revaluation of assets or liabilities (+/-)
xxx
xxx
27. Other (+/-)
xxx
xxx
28. Total components of Net Cost of Operations that will not require or
generate resources
xxx
xxx
29. Total components of net cost of operations that will not require or generate resources
in the current period
x,xxx x,xxx
30. Net Cost of Operations
SFFAS 24 - Page 19
x,xxx $ x,xxx
SFFAS 24
Glossary
SFFAS 24 - Page 20
Status
Issued
July 2003
Effective Date
None.
Affects
Affected by
Summary
This Statement of Federal Financial Accounting Standards (SFFAS) changes the classification of information
about stewardship responsibilities required by federal accounting standards. It also eliminates the
requirement to present certain information about stewardship responsibilities, known as the Current
Services Assessment, previously required by SFFAS 8.
Risk Assumed information required by SFFAS 5, Accounting for Liabilities of the Federal Government
The Current Services Assessment (CSA) required by SFFAS 8, Supplementary Stewardship
Reporting, and
Social Insurance information required by SFFAS 17, Accounting for Social Insurance.
SFFAS 25 - Page 1
SFFAS 25
SFFAS 25 - Page 2
SFFAS 25
Table of Contents
Contents
Page
Introduction
Risk Assumed
Social Insurance
Effective Date
Background
11
Risk Assumed
11
12
Social Insurance
13
15
Distinguishing RSI from the Basic Financial Statements and Associated Notes
15
16
17
18
Factors to Consider
19
23
SFFAS 25 - Page 3
SFFAS 25
Abbreviations
AGA
AICPA
AT
AU
CBO
CFR
CMS
CSA
FASAB
GAAP
GAAS
GAO
GASB
OAI
OMB
PCIE
RSI
RSSI
SFAC
SFFAC
SFAS
SFFAS
SSA
SFFAS 25 - Page 4
SFFAS 25
Introduction
1.
2.
3.
RSI was added to the accounting literature by Statement of Financial Accounting Standards
(SFAS) 25, Suspension of Certain Accounting Requirements for Oil and Gas Producing
Companies, published by the Financial Accounting Standards Board (FASB) in 1979. That
Statement has been amended, but the RSI category continues to be used in a variety of
standards published by the FASB, the Governmental Accounting Standards Board (GASB),
and the FASAB. The auditors responsibility for RSI is discussed in section AU 558 of the
codification of professional auditing standards published by AICPA.
SFFAS 25 - Page 5
SFFAS 25
Standards of
Federal Financial
Accounting
Risk Assumed
4.
Current Services
Assessment
5.
Social Insurance
6.
Effective Date
7.
Appendix A: Basis
for Conclusions
Background
8.
SFFAS 25 - Page 6
SFFAS 25
The Board originally contemplated that GAO and OMB would provide
special guidance regarding the audit procedures or fieldwork to be
performed on RSSI. At the same time, the Board expected that the
auditor would report on this information in much the same way as on
the basic financial statements, in the sense that the auditor would
qualify or disclaim an opinion when the RSSI was omitted or
materially misstated. The category was seen as a response to the
unique aspects of the federal accounting and reporting environment,
and to the broad objectives of federal financial reporting. It was
intended to permit flexibility on the part of preparers and auditors that
would facilitate reporting relevant, reliable information, including
nonfinancial and nonhistorical information. 4
The notes are regarded as an integral part of the basic financial statements, essential for
fair presentation in conformity with GAAP.
4
SFFAS 25 - Page 7
SFFAS 25
10. Some members became concerned that users: (1) may pay insufficient
attention to some important information because it is called
supplementary, and (2) may be confused by complicated reports in
which information is reported in various places. They believed this
might impede users understanding and reduce the credibility of
federal financial reports. Some members believed that FASABs use of
the RSSI category invites suspicion of accounting in which items that
are as important as the basic financial statements are labeled
supplementary. Accordingly, in Preliminary Views on Eliminating
the Category Required Supplementary Stewardship Information
(December 2000), the Board proposed to eliminate the RSSI category
by reviewing and reconsidering the appropriate classification of each
item classified as RSSI.
11. In deciding to review the classification of components of RSSI, some
members were influenced by the fact that existing audit standards do
not discuss RSSI. Therefore, auditors do not know what to do with
respect to information in this category without consulting federal
publications that provide additional guidance on how to conduct or
contract for audits of federal financial statements. Furthermore, as
practice evolved, it was not clear that auditors would qualify or
disclaim their opinion on the basic financial statements when RSSI
was missing or misstated, because it was not clear to everyone that the
information was essential to fair presentation in conformity with
GAAP. Some FASAB members were concerned that, under these
circumstances, even sophisticated users might not understand fully
the significance of certain information classified as RSSI. Some
members believed that it would be desirable for FASAB to use
categories that are widely understood by the broader accounting and
auditing professions, particularly now that FASAB has been
recognized by AICPA as the body that promulgates generally accepted
accounting principles for the federal government.
12. The Board received 29 written comments on its December 2000
Preliminary Views from the following sources:
SFFAS 25 - Page 8
SFFAS 25
13. The comments reflected the views of more than 29 people. Comments
from the Presidents Council on Integrity and Efficiency (PCIE), AGA,
federal agencies, and AICPA were the work of numerous individuals.
Twenty of the respondents would have retained the RSSI category, at
least for some period. Some typical concerns expressed include the
following:
14. In April 2001 the Board held a public hearing to discuss the
Preliminary Views proposal with interested parties. Fourteen
individuals, representing seven organizations, made presentations and
discussed issues with the Board. Comments were similar to those
expressed in the 29 comment letters.
15. After considering these comments, the Board continued to believe that
federal accounting standards may be able to address the objectives of
federal financial reporting, including accountability and reporting on
stewardship, without a unique category. The Board noted that
eliminating the RSSI category need not result in a reduction of
information required by existing standards. (The Board subsequently
decided to rescind the requirement to present the CSA in the annual
consolidated financial report of the U.S. Government (CFR) for other
reasons, which are explained on page, but the information will
SFFAS 25 - Page 9
SFFAS 25
18. Some letters reflected the views of an organization, while others were
from individuals. Comments generally supported or did not oppose
eliminating the CSA and reclassifying Risk Assumed information as
RSI. Some letters did express concern about the feasibility of auditing
Social Insurance information as an integral part of the basic financial
statements and/or questioned whether the benefit of doing so would
outweigh the cost. In response to these concerns, the Board consulted
with representatives of AICPA, and decided (1) to designate only the
SOSI as a basic financial statement, while classifying other Social
Insurance information as RSI, and (2) to extend the time allowed to
SFFAS 25 - Page 10
SFFAS 25
implement this change. More detailed explanation of the basis for the
Boards conclusions follows.
Conclusions Regarding
Each Type of
Stewardship
Responsibility
Information
19. Figure 2 on page 20 presents a list of general factors that one or more
Board members considered relevant for the classification choices.
Specific decisions on each of the three types of stewardship
responsibility information are discussed in the remainder of this
Appendix.
Risk Assumed
20. The Board agreed that information about Risk Assumed should be RSI
rather than an integral part of the basic financial statements, because
the amounts are not sufficiently reliable and measurement methods
are still experimental. This information is potentially valuable, but it is
not yet a suitable basis for recognition or disclosure.5 The Office of
Management and Budget (OMB), the Government Accountability
Office (GAO), and the Congressional Budget Office (CBO) have
considered the use of Risk Assumed information as a basis for
budgeting for insurance programs. These agencies have concluded
that more experience is needed before the measurements can be
regarded as sufficiently reliable for budgeting. Similar considerations
lead the FASAB to conclude that information about Risk Assumed
should be included in financial reports as RSI, at least until agencies
and auditors have more experience with this information.
21. The Board believes that analogies with insurance offered by private
insurers, (where, for example, an expected premium deficiency on
long-duration contracts such as life insurance is recognized), may be
misleading due to differences in the length of the policy coverage,
nature of insured risk, or other relevant variables. The Board believes
that additional guidance from FASAB on definition and measurement
of Risk Assumed would be necessary before it would be feasible to
FASAB uses the term disclosure to refer to information that is not recognized on the face
of the basic financial statements but is regarded as an integral part of the basic financial
statements, essential for fair presentation in conformity with generally accepted accounting
principles (GAAP). Normally such disclosures are presented in footnotes, but federal
accounting standards published by FASAB do not currently prescribe the format for
presentation of such disclosures. GAAP does not prohibit formatting or combining pieces of
information in appropriate ways to direct the readers attention, provided that the results are
not misleading.
SFFAS 25 - Page 11
SFFAS 25
Current Services
Assessment (CSA)
22. The CSA provides receipt and outlay data on the basis of the
Presidents projections of future activities pursuant to current law. It
is relevant for assessing the sustainability of programs established by
current law; that is, relevant for assessing the sufficiency of future
resources to sustain public services and to meet obligations as they
come due. The CSA focuses on the totality of government operations
rather than on individual programs. It provides an analytical
perspective on the Government because it shows the short- and longterm direction of current programs.
23. SFFAS 8 defines the CSA by reference to what is published in the
Presidents Budget. The Board did not then foresee the possibility that
the CFR would be published before the Budget. Because the Board
now expects that within a few years the CFR will be published before
the Presidents Budget is available, the requirement to include the CSA
in the CFR will expire in FY 2002 (i.e., the CSA will not be required in
the CFR after FY 2002). In order to continue to require something
comparable to the CSA as part of the CFR when the CFR is published
before the Budget, federal accounting standards would need to define
the CSA in some way other than by reference to the Budget.
Developing the criteria for such a projection is beyond the scope of
this project.
24. The Board considered the alternative of including OMBs current
services estimates prepared for the midsession review. The Board
concluded that certain technical problems would make this alternative
problematic. Furthermore, supplementary reporting on this basis
would not add value, because the estimates are publicly available in
SFFAS 25 - Page 12
SFFAS 25
any event, and because the base year actual data published in the
budget would not be subject to review by the auditor.
25. The Board notes that OMB, CBO, and others regularly publish similar
projections; therefore, similar information will continue to be
available, regardless of whether it is required to be part of the CFR.
The Board also notes that the state of the art for such projections is
constantly evolving. Should the Board in the future decide that it
would be desirable to develop criteria for such a projection as a part of
federal financial reporting, the Board will be able to learn from this
ongoing experience.
Social Insurance
26. The Board believes that the SOSI should be treated as a basic financial
statement because it is essential to fair presentation and is important
to achieve the objectives of federal financial reporting. The related
stewardship objectives include helping users to assess the impact on
the country of the Government's activities, determine whether the
Government's financial position improved or deteriorated over the
period, and predict whether future budgetary resources will likely be
sufficient to sustain public services and meet obligations as they come
due. In that regard, the multi-trillion dollar obligations associated with
Social Insurance over the next 75 years could significantly exceed the
largest liabilities currently recognized in the U.S. Government Balance
Sheet.
27. The Board acknowledges that there is great uncertainty inherent in
long term projections, but believes that if the uncertainty is suitably
disclosed--as is required by SFFAS 17--it need not preclude designating
the information as a basic financial statement, essential for fair
presentation in conformity with GAAP. The Board rejects the idea that
information based on projections cannot be an integral part of the
basic financial statements. FASAB has not limited the content of
federal financial statements to historical information.
28. Even within the context of historical financial reporting, the Board
notes that accrual-basis historical financial statements include many
measurements that involve assumptions about the future. The
distinction between reporting on the financial effects of events that
have occurred and the effects of future events depends, obviously,
upon the definition of the event. The information required by SFFAS
17 reports on the financial effects of existing law and demographic
SFFAS 25 - Page 13
SFFAS 25
SFFAS 25 - Page 14
SFFAS 25
Conclusions Regarding
Effective Date
32. The standard eliminates the requirement to present the CSA, and does
not change the definition, presentation guidelines, or audit status for
Risk Assumed information. (RSSI is currently treated as RSI for audit
purposes, pursuant to instructions in OMBs Audit Bulletin.) No
delay is needed as a result of the changes regarding these two items.
Accordingly, these changes are effective immediately.
33. Audit status for the SOSI would change; however, as noted above, the
information is not new. Most of the relevant agencies have produced
similar information for several years, and analysts and public officials
have routinely used this information. Also, the impact of the audit
requirement on the auditor and preparer should be reduced by the
flexibility SFFAS 17 provides in selecting a measurement date for
Social Insurance. The Board consulted with AICPA regarding the time
needed to develop appropriate audit guidance. The Board also noted
that federal agencies will be confronted with a challenging
requirement for accelerated financial reporting in FY 2004. As a result,
the Board concluded that the SOSI should be presented as a basic
financial statement for reporting periods that begin after September
30, 2004, with earlier implementation encouraged.
SFFAS 25 - Page 15
SFFAS 25
Operational Differences
Between the Basic Financial
Statements and RSI
36. Figure 1 (on page 1103) identifies some operational differences under
current auditing standards. Given these operational differences
between basic financial statements and RSI, the Board must determine
whether it would be more appropriate for a given item of required
information to be deemed an integral part of the basic financial
statements or RSI. The appropriateness depends on the particular
benefits (based on various federal financial reporting objectives) and
the costs (preparing, auditing, user processing, other) of making it
subject to audit (vs. more limited procedures) and varying the
potential audit opinion treatment (qualification vs. mere mention in
the auditors report).
SFFAS 25 - Page 16
SFFAS 25
Figure 1
Basic
Financial
Statements
Comparison Dimension
RSI
Usuallya
Yes
No
Audit
Auditors report
Qualified or
adverse opinion
In some cases, RSI need not physically accompany the basic financial statements in the same
document; certain GASB standards permit reference to another publicly-available report as an option
for specified RSI.
37. It should be noted that the value of information to users and the value
added by auditing it are separate, though certainly related,
considerations. For example, some information may be valuable to
some users, yet auditing it might add little value. On the other hand,
some information (e.g., aggregated financial information for a federal
agency as a whole) may not be used directly by decision makers as
input to a particular decision model, but auditing it might provide
some degree of valuable assurance about other information (e.g.,
detailed program cost or budgetary expenditure information) or
objectives of interest (e.g., internal accounting control and financerelated legal compliance). Auditing financial statements may also
deter fraud and unintentional errors of various sorts in other, more
timely reports.
38. Although not required by auditing standards, RSI has customarily been
located in a separate section of the financial report, to aid in
SFFAS 25 - Page 17
SFFAS 25
In practice, notes and RSI generally have not been commingled. Indeed, in discussing the
location of RSI it requires, FASB said, Reporting specialized information on oil and gas
producing activities in a single location within a financial report is a desired objective of this
Statement so as to make the relationship among the different types of information easier to
analyze. (FAS 69, par. 117)
In theory, RSI might be integrated with related audited information, provided the unaudited
information was suitably labeled. Whether this would be feasible and desirable in practice
may be debatable. Concern on the part of independent CPAs about litigation risk has been
among the factors that encouraged physical separation of audited information from
unaudited information.
Another practical consideration may be introduced by recent guidance from AICPA intended
to clarify the auditors ability to offer some limited assurance in relation to the financial
statements on certain RSI. This could imply a need to distinguish the RSI for which such
assurance is offered from other types of supplementary information, both required and
voluntary.
Some comments regarding FASABs Preliminary Views on Eliminating the Category
Required Supplementary Stewardship Information suggested that some people believe
there are conceptual as well as practical reasons to report different kinds of information
separately.
7
SFFAS 25 - Page 18
SFFAS 25
Factors to Consider
SFFAS 25 - Page 19
SFFAS 25
Figure 2
-Low (implies RSI) < < < < < < < < < < < < < > > > > > > > > > > > > > +High (implies basic)
<Relevance to fair presentation>
< Connection with elements of financial reporting >
< Use of historical financial data or financial transaction data >
<Preparers discretion in preparing and presenting the information>
< Strength of signal Board wishes to be sent in the financial report >
< Significance, relevance or importance of the item in light of Objectives >
< Strength of the signal the Board wishes to be sent in the auditors report >
< Relevance to measuring financial position or changes in financial position >
<Extent to which the information interests a wide audience (rather than specialists)>
<Extent to which there are not alternative sources of reliable information>
< Agreement on criteria that permit comparable and consistent reporting >
< Experience among users, preparers, and auditors with the information >
<Extent to which the information is aggregated (lacking in detail)>
< Benefit/cost ratio of using resources to ensure accuracy >
< Connection with basic financial statements >
< Reliability and/or precision possible >
< Reliability and/or precision needed >
-Low (implies RSI) < < < < < < < < < < < < > > > > > > > > > > > > +High (implies basic)
SFFAS 25 - Page 20
SFFAS 25
SFFAS 25 - Page 21
SFFAS 25
SFFAS 25 - Page 22
SFFAS 25
48. Other people may define financial reporting, and its component
categories, in terms of the comparative advantage unique to reporting
based on the information system for processing financial transactions.
SFAC 5, Recognition and Measurement in Financial Statements of
Business Enterprises, says that the financial statements . . . articulate
with each other and derive from the same underlying data (par. 5).
Some believe this idea is rooted in the basic bookkeeping paradigm
of accounting (see SFFAC 1, Objectives of Federal Financial
Reporting, paragraphs 166-168). Such a definition might be expected
to lead to accounting standards that would define the basic financial
statements in a narrow or traditional way, with other kinds of
information (e.g., performance indicators or managements assertions
about internal control) being reported as RSI.
49. Others may define the domain of financial reporting, and categories
within that domain, more broadly. A broader definition might, for
example, be expressed in terms of the objectives of federal financial
reporting, or the comparative advantage of the annual reporting and
audit cycle, which assures the production and examination of
information that GAAP say is essential to fair presentation, where
GAAP reporting is mandated by law, contract, or market forces. This
kind of broader definition might be expected to lead to standards that
would define more types of information (e.g., performance indicators
or managements assertions about internal controls) as a part of the
basic financial statements.
50. More generally, the benefit/cost ratio of using resources to assure
accuracy asks one to assess the costs of producing auditable
information and auditing it versus the benefits that could be achieved
by merely preparing the information as RSI and applying the
procedures specified at AU 558. Other things being equal, one would
avoid auditing where the cost of auditing is quite high. Similarly, to the
extent that alternative, credible sources of information exist, the cost
of auditing the information may exceed its benefits.
SFFAS 25 - Page 23
SFFAS 25
SFFAS 25 - Page 24
SFFAS 25
55. Mr. Anania believes the key issues debated by the Board prior to the
issuance of SFFAS 17 remain significant and unresolved. He believes
the Board should reconsider the technical aspects of the Social
Insurance programs from an accounting and reporting perspective
before making the change that is called for by this Statement. He cites
the following issues as some, but not all, of the issues the Board
should deliberate while keeping the original SFFAS 17 requirements in
place: (1) whether the distinction between exchange and nonexchange transactions in the Board's concepts is relevant to a liability
recognition, (2) whether the closed group (current participants)
population is the most meaningful focus for either recording a liability
or for disclosure, and (3) whether the notions of a constructive
liability or an "in substance" plan concept require consideration.
56. Further, he is concerned that not enough consideration and debate in
connection with the issuance of this Statement was focused on the
uncertainty inherent in the open group population (current and future
participants) actuarial present values required by Par. 27 (3) (c), (f)
and (g). While he acknowledges that the use of assumptions and
estimates is accepted in the recording and/or disclosure of financial
information, he has serious reservations as to whether the open group
actuarial projections that include estimates for future participants in
the plans can meet the reliability test. Those projections include
receipts and outlays for people expected to be born or immigrate to
the U.S. during the projection period (currently 75 years), as well as
individuals under 15 years of age at the time of the projection. He
believes it is imperative that this issue be fully considered before the
Statement of Social Insurance (SOSI) is reclassified as a basic
financial statement.
57. Mr. Anania also points out that audit coverage of the SOSI and other
information required by SFFAS 17 has been discussed with members
of the American Institute of Certified Public Accountants (AICPA)
FASAB Liaison Taskforce and Social Insurance Taskforce. To date,
there is no clear indication from the AICPA as to the nature of the
audit coverage and audit report that would be forthcoming from the
independent accountants engaged to audit the Social Security
Administration (SSA) financial statements, including the SOSI
information. He believes there is a direct correlation and linkage
between the reliability of measurement for recognition purposes and
the independent auditor's ability to render a meaningful report on
those elements in financial statements. The links include the use of
SFFAS 25 - Page 25
SFFAS 25
SFFAS 25 - Page 26
SFFAS 25
technical review panels.8 Mr. Anania believes that FASAB should study
this further in consultation with others, including actuaries from SSA
and the Centers for Medicare and Medicaid Services, before elevating
the SOSI as currently defined to the status of a basic financial
statement. Mr. Anania believes that the open-group projections that
are the basis of the SOSI are more sensitive to assumptions about
uncertain future events than is true for most, if not all, long-term
liabilities and basic financial statement disclosures in both private and
governmental financial reporting today.
60. Mr. Anania believes there is a further, significant issue that requires
consideration before the SOSI is reclassified as a basic statement. The
concept is articulation of the elements of the required financial
statements. Articulation refers to the linkage of an item in one
financial statement to an item reported on a different financial
statement. Articulation demonstrates the interrelationships of the
various financial statements. That linkage is demonstrated in
Appendix 1- A thru 1- F of SFFAC 2, Entity and Display. The concept
of linkage (described therein as the order and flow of Data in the
financial statements) is also very clearly depicted in a chart on page
43 of the 2001 Consolidated Financial Report of the United States
8
For example, the report of the 1999 Technical Panel includes the following observations
(available at http://www.ssab.gov/Rpt99_III.html#pgfId-1005309) under the heading,
Illustrating Uncertainty:
The current system of presenting low- and high-cost alternatives to the intermediate
assumptions is inadequate. The alternatives are useful in demonstrating the sensitivity of the
forecast to the underlying parameters (section II.G of the Trustees Report). However,
without any model of the probabilities of the underlying parameters taking on the alternative
values, there is no way to use the alternatives to form a distribution of possible outcomes. It
is inadequate to show any forecast without an indication of the uncertainty that surrounds it.
We follow previous panels in strongly recommending efforts toward stochastic modeling or
similar techniques that are better able to capture the interrelationship among assumptions.
We are not dogmatic in the recommendation, as we recognize that even stochastic modeling
requires some set of assumptions about the variance in future outcomes--for example in
fertility rates--that are hard to estimate. However, the assumptions are in some way
embedded in current methods of projection in any case.
Some modeling techniques allow for graphical presentations that are better at displaying
the range of uncertainty. What we seek is a method of displaying to policy makers and the
public just how uncertain is some average cost outcome or date of exhaustion of the Trust
Funds, and what are the probabilities that events will be close to or far from that result. That
the system might have a very high probability of being out of balance by 2 or more percent of
taxable payroll, for instance, may be worth knowing regardless of whether it has attained
actuarial balance under some set of intermediate assumptions.
SFFAS 25 - Page 27
SFFAS 25
Finally, Mr. Anania does not believe the users of the SSA and CFR
financial reports, particularly citizens and citizen intermediaries, will
be better served by the change required by this Statement. He is
concerned that the lack of linkage to the other basic statements will
not be easily understood by users willing to study the information with
reasonable diligence. Elevating the SOSI information to become a
basic financial statement without accruing a liability or recognizing an
expense based on that information might increase confusion of users
of Government reports.
62. Mr. Anania does not dissent to Par. 4 of this statement in which the
information about Risk Assumed is reclassified from RSSI to required
supplementary information (RSI) or to Par. 5, which rescinds the
current requirements for the Current Services Assessment.
63. Mr. Kull will abstain from voting on this statement. He will not dissent,
as he believes that social insurance information should be included in
the basic financial statements and notes and should be subject to
audit. However, he shares Mr. Anania's concerns, and further believes
these and other concerns need to be resolved before full
implementation takes effect, including the development of appropriate
audit standards, and the need for items in the financial statements to
be grounded in appropriate definitions of the elements of financial
reporting. His abstention from voting is intended as an expression of
his assessment that the Board has not completed work on this matter.
SFFAS 25 - Page 28
Status
Issued
Effective Date
None.
Affects
Affected by
Summary
This standard amends Statement of Federal Financial Accounting Standards 25, Reclassification of
Stewardship Responsibilities and Eliminating the Current Services Assessment, to require disclosure of
significant assumptions underlying the Statement of Social Insurance (SOSI). Disclosure means reporting
information in notes or narrative regarded as an integral part of the basic financial statements. Thus, this
amendment reclassifies significant assumptions as basic information rather than as required supplementary
information (RSI).
SFFAS 26 - Page 1
SFFAS 26
Table of Contents
Contents
Page
Summary
Introduction
Standards
Appendix B: Abbreviations
SFFAS 26 - Page 2
SFFAS 26
Introduction
1.
2.
3.
SFFAS 25 affords management the option of disclosing the significant assumptions. Par. 6
of SFFAS 25 provides that Other information required by SFFAS 17 shall be presented as
RSI, except to the extent that the preparer elects to include some or all of that
information in notes that are presented as an integral part of the basic financial
statements. (Emphasis added.)
SFFAS 26 - Page 3
SFFAS 26
Standards
Amendment of SFFAS 25
Effective Date
4.
5.
6.
SFFAS 26 - Page 4
SFFAS 26
Appendix A: Basis
for Conclusions
SFFAS 26 - Page 5
SFFAS 26
SFFAS 26 - Page 6
SFFAS 26
The Board received 8 responses to its March 12, 2004 exposure draft
on this subject. Of the responses, 5 were from federal respondents and
3 were from non-federal respondents. Seven of the eight respondents
supported the proposal. However, two supported the proposal
contingent on suggested changes.
10. One recommended that the Board also include in the note disclosure
an explanation of the uncertainty inherent in the process. The
recommendation is not without merit but cannot be adopted absent an
exposure draft proposing the change. The Board is not actively
pursuing this additional amendment to SFFAS 25. The Board believes
the nature of the information is adequately explained by the:
a. required summary of significant accounting policies,
b.disclosure of the significant assumptions,
c.language in the auditor's report on SOSI explaining that there will be
differences between the forecasts and actual results, and
d.presentation of the sensitivity analysis as required supplementary
information.
11. Another respondent requested that the Board defer the effective date
of this amendment and SFFAS 25. Occasionally, the Board has
deviated from the proposed effective date when finalizing standards
proposed in an exposure draft and this is not considered a deviation
significant enough to warrant re-exposure of the proposal. However,
to alter the effective date of a previously issued standard - in this case
SFFAS 25 - due process requires that the Board seek input on that
change through an exposure draft proposing such a change. One
example of this is the deferral of SFFAS 4, Managerial Cost Accounting
Standards for the Federal Government.
12. Since the Board is unable to alter the effective date of SFFAS 25
through this amendment, the Board is proceeding with the earlier
effective date for this amendment to ensure consistency with SFFAS
25. The Board is considering the request for deferral of SFFAS 25. An
exposure draft was issued on July 20, 2004 proposing a one-year
SFFAS 26 - Page 7
SFFAS 26
deferral of both SFFAS 25 and this standard. The Board will consider
comments on the exposure draft and may issue a statement amending
the effective dates.
Board Approval
13. This statement was approved for issuance by all members of the
Board.
SFFAS 26 - Page 8
SFFAS 26
Appendix B:
Abbreviations
AICPA
FASAB
GAAP
RSI
RSSI
SFFAC
SFFAS
SFFAS 26 - Page 9
Status
Issued
Effective Date
None.
Affects
SFFAS 7
SFFAC 2
SFFAC 3
Affected by
None.
Summary
This statement defines and addresses earmarked funds. Note that this statement uses the term earmarked
only as it is defined below. This statement does not use the term earmarked as it is sometimes used to refer
to set-asides of appropriations for specific purposes.
A statute committing the Federal Government to use specifically identified revenues and other financing
sources only for designated activities, benefits or purposes;
2.
Explicit authority for the earmarked fund to retain revenues and other financing sources not used in the
current period for future use to finance the designated activities, benefits, or purposes; and
3.
A requirement to account for and report on the receipt, use, and retention of the revenues and other
financing sources that distinguishes the earmarked fund from the Governments general revenues.
SFFAS 27 - Page 1
SFFAS 27
An earmarked fund may be classified in the unified budget as a trust, special, or public enterprise fund.
Application of this standard, however, should not be based on whether a statute or the unified budget labels
an earmarked fund as a certain type of fund. Rather, the Board intends that the term earmarked fund be
applied based on the substance of the statute and consistent with the three criteria set forth in the standard.
Reporting Requirements
The component entity will show earmarked nonexchange revenue and other financing sources, including
appropriations, and net cost of operations separately on the Statement of Changes in Net Position. The
component entity also will show the portion of cumulative results of operations attributable to earmarked
funds on the Statement of Changes in Net Position and on the Balance Sheet.
At the Government-wide level, earmarked revenue, other financing sources and net cost of operations will be
shown separately on the U.S. Government Statement of Operations and Changes in Net Position. The U.S.
Government Balance Sheet will show separately the portion of net position attributable to earmarked funds.
This standard requires that every component entity disclose the earmarked fund(s) for which it has program
management responsibility. It also requires condensed information on assets, liabilities and cost for all
earmarked funds, although it permits information on funds not presented individually to be aggregated. In
addition, it requires disclosure of any legislation that changed the purpose of or redirected a significant
portion of an earmarked fund.
Required note disclosures at the component entity level will clarify the fact that investments in Treasury
securities held by the component entity are not assets for the Government as a whole. That is, the
investments in Treasury securities are available for authorized expenditures and are thus assets of the
managing component entity. However, financing will be needed by the Government as a whole when those
investments in Treasury securities are redeemed to make expenditures.
In addition, this standard addresses those situations where several component entities each have program
management responsibility for separate, identifiable portions of the earmarked fund. By requiring each
component entity to report on only its portion of the earmarked fund, the standard assists report users in
evaluating the service efforts, costs and accomplishments of the component entity.
Effective Date
The provisions of this standard are effective for periods beginning after September 30, 2005. Early adoption is
not permitted. In the year this standard becomes effective, entities should not restate the prior period
columns of the basic financial statements and related disclosures.
SFFAS 27 - Page 2
SFFAS 27
Table of Contents
Summary
Reporting Requirements
Effective Date
Table of Contents
Introduction
Scope
Effective Date
Accounting Standards
10
Basis of Accounting
15
15
16
18
18
20
Special Accountability
21
22
Reporting Treatment
23
Board Approval
27
Appendix B: Glossary
28
29
Appendix D: Example of Note Disclosure Summary Financial Information for Component Entity
36
38
SFFAS 27 - Page 3
SFFAS 27
Introduction
1.
2.
3.
4.
GAO, Federal Trust and Other Earmarked Funds, January 2001, GAO-01-199SP, p. 12. The
term earmarked funds used by GAO in its survey differs from that established by this
standard and was not intended to reflect standards for financial reporting. The term
earmarked funds as used in either the GAO report or other governmental issuances shall
not govern the application of this standard.
SFFAS 27 - Page 4
SFFAS 27
6.
7.
The following chart shows fund types used in reporting to the Treasury
Financial Management Service (FMS) and the Office of Management
and Budget (OMB). It is intended only to show the general
relationship between fund groups and earmarked funds as classified in
this statement. Regardless of classification for reporting to the
Treasury FMS or the OMB, funds meeting the definition of earmarked
funds promulgated in this standard should be so classified and funds
not meeting the definition should not be so classified.
SFFAS 27 - Page 5
SFFAS 27
Generally Are
Subject to the
Reporting
Requirements of
this Standard
Revolving Funds....4000-4999
Intra-governmental Revolving Funds
X
X
X
8.
X
X
Analytical Perspectives, Budget of the United States Government, Fiscal Year 2005, p. 339.
SFFAS 27 - Page 6
SFFAS 27
Scope
9.
Effective Date
10. This statement is effective for periods beginning after September 30,
2005. Early adoption is not permitted. In the year this standard
becomes effective, entities should not restate the prior period columns
of the basic financial statements and related disclosures.
SFFAS 27 - Page 7
SFFAS 27
Accounting
Standards
Definition of Earmarked
Funds
2.
3.
12. The requirement to account for revenues and other financing sources
that are statutorily available only for designated activities, benefits or
purposes is usually created by statute. An earmarked fund may be
classified in the statute, the unified budget, or both, as a trust, special,
or public enterprise fund. Application of this standard, however, shall
not be based on how a statute or the unified budget labels the fund.
Rather, the Board intends that the term earmarked fund be applied
based on the substance of the statute and consistent with the three
criteria described above.
13. Fund in this statements definition of earmarked funds refers to a
fiscal and accounting entity with a self-balancing set of accounts
recording cash and other financial resources, together with all related
4
A report may be something other than stand-alone financial statements for the earmarked
fund.
SFFAS 27 - Page 8
SFFAS 27
See the FASAB exposure draft of March 2003, Accounting for Fiduciary Activities, for
more on fiduciary activity in the Federal Government and the differences between private
trust funds and Federal government trust funds.
SFFAS 27 - Page 9
SFFAS 27
Reporting for
Earmarked Funds
Financial Statement
Presentation and
Disclosures for Component
Entities
SFFAS 27 - Page 10
SFFAS 27
2.
SFFAS 27 - Page 11
SFFAS 27
2.
3.
For the U.S. Treasury and any other component entity where earmarked fund investments
are eliminated within the component entity, the note disclosure should include eliminations,
similar to the note disclosure provided by the U.S. Government-wide financial statements as
described in paragraph 30.
SFFAS 27 - Page 12
SFFAS 27
28.
The U.S. Treasury does not set aside assets to pay future
expenditures associated with earmarked funds. Instead, the cash
generated from earmarked funds is used by the U.S. Treasury for
general Government purposes.
Treasury securities are issued to the earmarked fund as evidence
of earmarked receipts and provide the fund with the authority to
draw upon the U.S. Treasury for future authorized expenditures
(although for some funds, this is subject to future appropriation).
Treasury securities held by an earmarked fund are an asset of the
fund and a liability of the U.S. Treasury, so they are eliminated in
consolidation for the U.S. Government-wide financial statements.
When the earmarked fund redeems its Treasury securities to
make expenditures, the U.S. Treasury will finance those
expenditures in the same manner that it finances all other
expenditures.
SFFAS 27 - Page 13
SFFAS 27
name/s of fund/s). The cash receipts collected from the public for an
earmarked fund are deposited in the U.S. Treasury, which uses the
cash for general Government purposes. Treasury securities are issued
to the (component entity) as evidence of its receipts. Treasury
securities are an asset to the (component entity) and a liability to the
U.S. Treasury. Because the (component entity) and the U.S. Treasury
are both parts of the Government, these assets and liabilities offset
each other from the standpoint of the Government as a whole. For
this reason, they do not represent an asset or a liability in the U.S.
Government-wide financial statements.
Treasury securities provide the (component entity) with authority to
draw upon the U.S. Treasury to make future benefit payments or other
expenditures. When the (component entity) requires redemption of
these securities to make expenditures, the Government finances those
expenditures out of accumulated cash balances, by raising taxes or
other receipts, by borrowing from the public or repaying less debt, or
by curtailing other expenditures. This is the same way that the
Government finances all other expenditures.
Financial Statement
Presentation and
Disclosures for the U.S.
Government-wide Financial
Statements
10
SFFAS 27 - Page 14
SFFAS 27
31. The information for earmarked funds should be disclosed in the notes
accompanying the basic financial statements. Information for funds
not shown individually may be aggregated (see paragraph 24). A total
column should be presented that relates the disaggregated data to the
data on the face of the principal financial statements. The net position
shown in the note disclosure should agree with the portion of net
position attributable to earmarked funds shown on the face of the
balance sheet.
32. A note disclosure should provide a reference to component reports for
additional information about individual earmarked funds.
33. A note disclosure should provide a general description of earmarked
funds and an explanation of how the Federal Government as a whole
could provide the resources represented by the earmarked funds
balance in Treasury securities.
34. An earmarked fund should not be characterized as a trust in general
purpose external financial reports of Federal entities. (The use of the
term trust fund is acceptable only in the funds official title.)
Basis of Accounting
35. All amounts reported and disclosed in the reporting entitys basic
financial statements or the notes thereto, as required in paragraphs 19
through 34, should be recognized and measured using the standards
provided in generally accepted accounting principles applicable to the
Federal Government.
36. This standard is effective for periods beginning after September 30,
2005. Early adoption is not permitted. In the year this standard
becomes effective, entities should not restate the prior period columns
of the basic financial statements and related disclosures.
SFFAS 27 - Page 15
SFFAS 27
Effect on Existing
Standards
SFFAS 27 - Page 16
SFFAS 27
SFFAS 27 - Page 17
SFFAS 27
Appendix A: Basis
for Conclusions
Federal
(Internal)
Response to Comments
Received
Non-Federal
(External)
3
Auditors
10
41. The majority of the respondents concurred with most of the provisions
of the proposed standard. Several sources expressed the opinion that
all of the disclosures should be placed in the notes to the financial
statements. The Boards reasons for requiring some reporting on the
face of the financial statements is provided in the section, Reporting
Treatment, which begins at paragraph 59 of this Appendix.
SFFAS 27 - Page 18
SFFAS 27
SFFAS 27 - Page 19
SFFAS 27
Existing Accounting
Standard Needs
Clarification
12
Ibid.
SFFAS 27 - Page 20
SFFAS 27
Special Accountability
The exposure draft, Accounting for Fiduciary Activities, discusses the differences
between private trust funds, Federal government trust funds designated as trusts by
Congress, and fiduciary funds.
14
The exposure draft, Accounting for Fiduciary Activities, was issued in March 2003.
SFFAS 27 - Page 21
SFFAS 27
Identifying Earmarked
Funds
SFFAS 27 - Page 22
SFFAS 27
Reporting Treatment
Effect on Net Position
15
Fiscal Year 2005 Historical Tables, Budget of the U.S. Government, pp. 118-119.
SFFAS 27 - Page 23
SFFAS 27
the liability of the U.S. Treasury to redeem the securities are treated as
intragovernmental eliminations when the consolidated U.S.
Government-wide financial statements are prepared. Therefore, the
consolidated net position of the Federal Government reported on the
U.S. Government-wide financial statements does not include the effect
of the claim on the U.S. Treasury that the various funds hold, just as
the consolidated net position does not include the effect of other
intragovernmental claims. Instead, the U.S. Government-wide
financial statements include the cumulative results of operations of
earmarked funds currently a large positive balance as an offset
against the cumulative results of operations of the general fund
currently a large negative balance. The result is that the financing
provided by earmarked fund operations to general fund operations
which would otherwise be financed through the issuance of debt to
the public, tax increases or other financing sources is not shown on
the face of the U.S. Government Balance Sheet.
63. This standard requires component entities to show the total amount of
cumulative results of operations attributable to earmarked funds on
the Statement of Changes in Net Position and on the Balance Sheet.
The U.S. Government-wide financial statements are subject to the
same requirement, except that the U.S. Government-wide financial
statements include the U.S. Government Statement of Operations and
Changes in Net Position instead of the Statement of Changes in Net
Position. Net position at the component level is composed of
unexpended appropriations and cumulative results of operations.
Since unexpended appropriations are not applicable at the
Government-wide level, net position equals cumulative results of
operations. Under this standard the financial statements would thus
present in a transparent manner the cumulative financing provided
by earmarked funds to the general fund that will need to be repaid in
order to use earmarked funds for the designated activities, purposes
or benefits.
64. This standard also requires that component level financial statements
include an explanation of earmarked fund investments in Treasury
securities similar to the one given in paragraphs 27 and 28. The U.S.
Government-wide financial statements are required to include an
explanation of how the Government as a whole could provide the
resources represented by the earmarked funds balance in Treasury
securities.
SFFAS 27 - Page 24
SFFAS 27
Effect on Flows
Disclosure
67. The Board determined that a number of earmarked funds were not
being reported as intended under the existing standard. Therefore, in
addition to clarifying the definition of earmarked funds, the standard
requires that each component provide either a list of all earmarked
funds for which it has program management responsibility or a
statement as to where the information can be obtained. This
requirement would ensure that no earmarked fund is omitted from the
financial statements and that users could more easily locate
information on a specific earmarked fund and determine its status.
This information would not be required at the Government-wide level
since program management responsibility does not reside at that level.
68. This standard requires condensed information on selected earmarked
funds to be disclosed individually, with aggregate condensed
information required for all others. In response to several requests
from respondents to the exposure draft, the Board included, in
paragraph 24 of this Statement, examples of quantitative and
SFFAS 27 - Page 25
SFFAS 27
Other Changes
70. If more than one component entity is responsible for carrying out the
program financed with earmarked revenues and other financing
sources, and the separate portions of the program can be clearly
identified with the responsible component entity, then each
component entity should report its portion in accordance with this
standard. In the existing standard, SFFAS 7, paragraph 87, requires
that If more than one component entity is responsible for carrying out
the program financed with the dedicated collections, then the entity
with the largest share of the activity should be responsible for
reporting all revenues, other financing sources, assets, liabilities, and
costs of the fund.16 The Board believes that this revision will assist
users to evaluate the service efforts, costs and accomplishments of the
component entity with actual program management responsibility, by
relating relevant costs directly to the associated mission and
performance.
71. For funds meeting the definition criteria of earmarked funds,
paragraph 86 of SFFAS 7 is replaced by this standard. In the opinion of
the Board, the necessary guidance is provided in this standard in
paragraph 35.
Implementation
16
SFFAS 27 - Page 26
SFFAS 27
Board Approval
73. This statement was approved for issuance by all members of the
Board.
SFFAS 27 - Page 27
SFFAS 27
Appendix B:
Glossary
SFFAS 27 - Page 28
SFFAS 27
Appendix C: Pro
Forma Illustrations
Table of Illustrations
Transactions Component Entity Receives Revenue and Purchases
Securities
1.A. Entries recording receipt of earmarked revenue by Component Entity
1.B. Entries recording the Component Entitys purchase of Treasury
Securities
1.C. Entries recording interest on Treasury Securities
Pro Forma Statements showing effect on Component Entitys basic
financial statement reporting
1.D. (1) Component Entity Statement of Changes in Net Position
1.D. (2) Component Entity Balance Sheet
Pro Forma Statements showing effect on the U.S. Government-wide
Financial Statements
1.E. (1) U.S. Government-wide Consolidation Worksheet:
1.E. (2) U.S. Government Statement of Operations and Changes In Net
Position
1.E. (3) U.S. Government Balance Sheet
SFFAS 27 - Page 29
SFFAS 27
CR
600
400
1,000
1,000
1,000
CR
Component Entity
Investments in Treasury Securities
Fund Balance with Treasury
To record Treasury securities purchased.
18
1,000
1,000
This standard does not require exchange revenue for earmarked funds to be separately shown on the Statement of Net Cost
SFFAS 27 - Page 30
SFFAS 27
1,000
1,000
1,000
1,000
10
4
6
Interest Expense
10
10
10
10
19
For classification of exchange and nonexchange interest revenue, see SFFAS 7, Appendix B, paragraphs 306-308.
SFFAS 27 - Page 31
SFFAS 27
(This is only one example of how the required information could be displayed.)
1.D. (1)
Component Entity
Statement of Changes in Net Position
Cumulative Results
Of Operations
Social Security and
All Other
Other Earmarked
Funds
Beginning balance of net position
Budgetary financing sources:
Non-exchange revenue
1.D. (2)
1,010
1,010 $
606
(404)
$
Component Entity
Balance Sheet
Social Security and
Other Earmarked
Funds
ASSETS
Fund balance with Treasury
Investments in Treasury securities
Total assets
$
$
LIABILITIES
NET POSITION
Unexpended Appropriations
Cumulative Results of Operations
Total Net Position
Total liabilities and net position
SFFAS 27 - Page 32
$
$
All Other
10 $
1,000
1,010
- $
$
1,010
1,010
1,010 $
SFFAS 27
20
This standard does not require earmarked funds to be separately shown on the Statement of Net Cost.
Component
Entity
ASSETS
Treasury General Fund Cash Account
Fund balance with Treasury
Investments in Treasury Securities
Total assets
LIABILITIES
Treasury General Fund Liability for
FBWT
Treasury BPD Liability for
Intragovernmental Debt
Total Liabilities
NET POSITION
Net Position of Other Funds
Net Position of Federal OldAge Survivors Insurance and
Other Earmarked Funds
Treasury
General
Fund
- $
10
1,000
1,010 $
- $
Treasury
BPD
SFFAS 27 - Page 33
1,010
Govtwide
1,000 $
-
- $
990
-1,000
$ 1,000
-
1,000
990 $
-1,000
-
$ 1,000
1,000 $
Eliminations
1,000 $
1,000
1,000
-10
-1,000
-1,000
-
$ 1,000
SFFAS 27
General Activities
Revenue
Less net cost of operations
Net operating cost
600
400
1,000
-1,000
----
SFFAS 27 - Page 34
$ 1,000
---
1,000
-$ 1,000
SFFAS 27
$ 1,000
Total assets
$ 1,000
LIABILITIES
NET POSITION
-1,000
SFFAS 27 - Page 35
1,000
-$ 1,000
SFFAS 27
Appendix D:
Example of Note
Disclosure
Summary Financial
Information for
Component Entity
Balance Sheet as of
September 30
(In thousands)
ASSETS
Fund balance with Treasury
Investments
Taxes and Interest Receivable
Total Assets
LIABILITIES and NET POSITION
Cumulative Results of Operations
Total Liabilities and Net Position
Statement of Net Cost For the
Period Ended September 30
Program Costs
Less Earned Revenues
Net Program Costs
Less Earned Revenues Not
Attributable to Programs
Net Cost of Operations
ABC Fund
CDE Fund
20,635
1,364,823
Other
Earmarked
Funds
15,000
9,000,000
$ 1,385,458
$ 9,015,000
$ 1,385,458
Total
Earmarked
Funds
5,000
350,000
10,000
365,000
40,635
10,714,823
10,000
10,765,458
$ 9,015,000
365,000
10,765,458
$ 1,385,458
$ 9,015,000
365,000
10,765,458
247,000
5,000
242,000
1,080,547
5,000
1,075,547
242,000
1,075,547
383,547
383,547
383,547
SFFAS 27 - Page 36
450,000
450,000
450,000
SFFAS 27
$ 1,317,760
$ 8,715,000
$ 287,000
383,547
450,000
242,000
1,075,547
451,245
750,000
320,000
1,521,245
67,698
300,000
78,000
445,698
$ 1,385,458
$ 9,015,000
$ 365,000
SFFAS 27 - Page 37
10,319,760
10,765,458
SFFAS 27
Appendix E: List of
Abbreviations
FASAB
GAO
MD&A
OMB
RSSI
SFFAC
SFFAS
Treasury FMS
U.S.
United States
SFFAS 27 - Page 38
Status
Issued
January 6, 2005
Effective Date
None.
Affects
Affected by
None.
Summary
This standard defers for one year the effective dates of Statement of Federal Financial Accounting Standards
(SFFAS) 25, Reclassification of Stewardship Responsibilities and Eliminating the Current Services
Assessment, as well as SFFAS 26, Presentation of Significant Assumptions for the Statement of Social
Insurance: Amending SFFAS 25. The provisions of these standards will be effective for periods beginning
after September 30, 2005.
SFFAS 28 - Page 1
SFFAS 28
Table of Contents
Summary
Introduction
Standards
Appendix B: SFFAS 26
Appendix C: Abbreviations
SFFAS 28 - Page 2
SFFAS 28
Introduction
1.
2.
3.
SFFAS 28 - Page 3
SFFAS 28
Standards
Amendment of SFFAS 25
4.
Amendment of SFFAS 26
5.
Effective Date
6.
SFFAS 28 - Page 4
SFFAS 28
Appendix A: Basis
for Conclusions
The Board conferred with the AICPA regarding the need for audit
guidance prior to issuing SFFAS 25. In late 2003, a task force of the
AICPA was formed to develop audit guidance. An exposure draft of the
guidance was issued by the AICPA in March 2004. The final guidance
was not issued in sufficient time to prepare for the initial
implementation date despite the extensive efforts of the AICPA.
8.
The Board issued an exposure draft proposing this deferral on July 21,
2004. Comments were received from the following sources:
FEDERAL
(Internal)
NON-FEDERAL
(External)
Auditors
9.
Structure of the
Amendment
10. SFFAS 25, par. 7 contained provisions concerning the SOSI as well as
an effective date for the provisions. SFFAS 26 replaces the
reclassification provisions of SFFAS 25 related to the SOSI and
provides an effective date for the revised provisions. The amendments
in this standard replace the prior effective dates concerning the SOSI
reclassification and information in the prior statements with a new
effective date of "periods beginning after September 30, 2005.
Appendix B presents SFFAS 26 as amended by this standard.
SFFAS 28 - Page 5
SFFAS 28
a. Agency staff was not able to prepare for the audit process due to the
uncertainty absent final audit guidance on the process.
b. Agency staff was engaged in deliberations with the AICPA task force
and unable to begin tentative preparations for the audit.
c. Contracts for audit engagements have not been expanded to
encompass the audit process to be required relative to the SOSI.
d. Funding for the expanded audit engagements could not be included
in fiscal year 2005 budget submissions.
12. The Board believes that a one-year delay is reasonable, necessary and
appropriate in light of the delayed audit guidance.
Board Approval
13. This statement was approved for issuance by all members of the
Board.
SFFAS 28 - Page 6
SFFAS 28
Appendix B: SFFAS
26
Amendment of SFFAS 25
4.
5.
6.
Effective Date
SFFAS 28 - Page 7
SFFAS 28
Appendix C:
Abbreviations
AICPA
FASAB
GAAP
HHS
RSI
RSSI
SFFAC
SFFAS
SSA
SOSI
SFFAS 28 - Page 8
Status
Issued
July 7, 2005
Effective Date
For reporting periods beginning after September 30, 2005, with the exception of the
specific paragraphs listed in par. 43 of the standard. Full implementation of the
standards is effective for periods beginning after September 30, 2008.
Affects
Affected by
None.
SFFAS 6
SFFAC 8
SFFAS 14
SFFAS 16
Summary
This standard changes the classification of information reported for heritage assets and stewardship land
provided by Statement of Federal Financial Accounting Standards 8. This standard reclassifies all heritage
assets and stewardship land information as basic except for condition information, which is reclassified as
required supplementary information (RSI). This standard requires that entities reference a note on the
balance sheet that discloses information about heritage assets and stewardship land, but no asset dollar
amount should be shown. Instead, the note disclosure provides minimum reporting requirements consistent
with the previous standards for heritage assets and stewardship land. These requirements include a
description of major categories, physical unit information for the end of the reporting period, physical units
added and withdrawn during the year, a description of the methods of acquisition and withdrawal, and
condition information.
This standard also requires two new disclosures for heritage assets and stewardship land. Specifically, this
standard requires additional reporting disclosures about entity stewardship policies and an explanation of
how heritage assets and stewardship land relate to the mission of the entity.
This standard also includes the requirements for the U.S. Government-wide Financial Statement. It provides
for a general discussion and directs users to the applicable entities financial statements for more detailed
information on heritage assets and stewardship land.
This standard amends several existing standards. The amendments rescind certain standards or parts of
certain standards due to the classification change, as well as serve as a means to incorporate all standards
specific to heritage assets and stewardship land into one document.
SFFAS 29 - Page 1
SFFAS 29
Table of Contents
Introduction
Definitions
9
11
11
11
Definitions
12
12
13
15
Effective Date
16
16
Introduction
17
Amendments to Standards
18
19
20
Exposure Draft
21
Responses to the ED
22
22
Importance to Mission
23
24
25
Supporting Documentation
26
Additional Guidance
27
28
Materiality
29
Board Approval
30
SFFAS 29 - Page 2
SFFAS 29
Introduction
1.
2.
Although some stewardship information may not link directly with the
basic financial statements because the data to be reported may be
other than in dollar terms, the Federal Accounting Standards Advisory
Board (the Board or FASAB) intended that RSSI information would
augment the basic financial statements and would receive
commensurate audit scrutiny.
3.
SFFAS 29 - Page 3
SFFAS 29
4.
5.
6.
7.
RSI was added to the accounting literature by Statement of Financial Accounting Standards
(SFAS) 25, Suspension of Certain Accounting Requirements for Oil and Gas Producing
Companies, published by the Financial Accounting Standards Board (FASB) in 1979. That
Statement has been amended, but the RSI category continues to be used in a variety of
standards published by the FASB, Governmental Accounting Standards Board (GASB), and
FASAB. The auditors responsibility for RSI is discussed in section AU 558 of the
codification of professional auditing standards published by the American Institute of
Certified Public Accountants (AICPA).
SFFAS 29 - Page 4
SFFAS 29
8.
9.
SFFAS 29 - Page 5
SFFAS 29
Standards of
Federal Financial
Accounting
Heritage Assets
(including Multi-use
Heritage Assets)
Amendments to Existing
Standards
Definitions
15. Heritage assets are property, plant and equipment (PP&E) that are
unique for one or more of the following reasons:
SFFAS 29 - Page 6
SFFAS 29
Recognition and
Measurement
Heritage Assets
19. With the exception of multi-use heritage assets (addressed in par. 22)
the cost of acquisition, improvement, reconstruction, or renovation of
heritage assets should be recognized on the statement of net cost for
the period in which the cost is incurred. The cost3 should include all
costs incurred during the period to bring the item to its current
condition (See par. 26 of SFFAS 6 for examples of the costs to be
considered).
For a full discussion of cost, including full cost, direct cost and indirect cost, see SFFAS 4,
Managerial Cost Accounting Concepts and Standards for the Federal Government. Also,
see par. 94-95, SFFAC 2, Entity and Display.
SFFAS 29 - Page 7
SFFAS 29
20. With the exception of multi-use heritage assets (addressed in par. 23)
no amounts for heritage assets acquired through donation or devise4
should be recognized in the cost of heritage assets.5
21. With the exception of multi-use heritage assets (addressed in par. 24)
transfers of heritage assets from one Federal entity to another do not
affect the net cost of operations or net position of either entity.
However, in some cases, assets included in general PP&E may be
transferred to an entity for use as heritage assets. In this instance, the
transferring entity should recognize a transfer-out of capitalized
assets.6
Multi-use Heritage Assets
22. The cost of acquisition, improvement, reconstruction, or renovation of
multi-use heritage assets should be capitalized as general PP&E and
depreciated over its estimated useful life.
23. Multi-use heritage assets acquired through donation or devise should
be recognized as general PP&E at the assets' fair value at the time
received, and the amount should also be recognized as "nonexchange
revenues" as defined in SFFAS 7, Accounting for Revenue and Other
Financing Sources.
24. Transfers of multi-use heritage assets from one Federal entity to
another are transfers of capitalized assets. The receiving entity should
recognize a transfer-in as an additional financing source and the
transferring entity should recognize a transfer-out. The value recorded
should be the transferring entitys book value of the multi-use heritage
asset. If the receiving entity is not provided the book value, the multiuse heritage asset should be recorded at its estimated fair value7.
SFFAS 7, Accounting for Revenue and Other Financing Sources, par. 258-259 explains that
stewardship PP&E is expensed if purchased, but no amount is recognized if it is received as
a donation.
6
SFFAS 7, Accounting for Revenue and Other Financing Sources, par. 74 and par. 345-346.
See SFFAS 7, Accounting for Revenue and Other Financing Sources, par. 74 for a
discussion of transfers of assets.
SFFAS 29 - Page 8
SFFAS 29
25. Entities with heritage assets should reference a note8 on the balance
sheet that discloses information about heritage assets, but no asset
dollar amount should be shown9. The note disclosure related to
heritage assets should provide the following:
a. A concise statement explaining how they relate to the mission of the
entity.
b. A brief description of the entitys stewardship policies for heritage
assets. Stewardship policies for heritage assets are the goals and
principles the entity established to guide its acquisition, maintenance,
use, and disposal of heritage assets consistent with statutory
requirements, prohibitions, and limitations governing the entity and
the heritage assets.
c. A concise description of each major category of heritage asset. The
appropriate level of categorization of heritage assets should be
meaningful and determined by the preparer based on the entitys
mission, types of heritage assets, and how it manages the assets.
d. Heritage assets should be quantified in terms of physical units. The
appropriate level of aggregation and physical units10 of measure for
each major category should be meaningful and determined by the
preparer based on the entitys mission, types of heritage assets, and
how it manages the assets. For each major category of heritage asset
(identified in c. above) the following should be reported:
1. The number of physical units by major category; major
categories should be classified by collection or non-collection
8
This standard does not prescribe a specific reference or line item entitled Heritage Assets
as it may be included with other items for which no dollar amounts are recognized (such as
stewardship land and other items that in the future may require similar non-financial
disclosure) for presentation. Instead, the standard allows entities flexibility in determining
the best presentation.
No asset dollar amount is shown, except for multi-use heritage assets, which are
capitalized and reported as part of general PP&E. See par. 22 through 24 and par. 27 for
additional explanation.
10
SFFAS 29 - Page 9
SFFAS 29
type heritage assets for which the entity is the steward as of the
end of the reporting period;
2. The number of physical units by major category that were
acquired and the number of physical units by major category that
were withdrawn during the reporting period; and
3. A description of the major methods of acquisition and
withdrawal of heritage assets during the reporting period. This
should include disclosure of the number of physical units (by
major category) of transfers of heritage assets between Federal
entities and the number of physical units (by major category) of
heritage assets acquired through donation or devise, if material.
In addition, the fair value of heritage assets acquired through
donation or devise during the reporting period should be
disclosed, if known and material.
26. Entities should report the condition11 of the heritage assets (which
may be reported with the deferred maintenance information12) as
required supplementary information. Entities should include a
reference to the condition and deferred maintenance information13 if
reported elsewhere in the report containing the basic financial
statements.
11
12
See SFFAS 6, Chapter 3, Deferred Maintenance (par. 77-84) for information regarding
definition, measurement and disclosures specific to deferred maintenance.
13
SFFAS 29 - Page 10
SFFAS 29
27. Entities should disclose that multi-use heritage assets are recognized
and presented with general PP&E in the basic financial statements and
that additional information for the multi-use heritage assets is
included with the heritage assets information.
U.S. Government-wide
Financial Statement
Disclosures14
Stewardship Land
Amendments to Existing
Standards
14
SFFAS 24, Selected Standards for the Consolidated Financial Report of the United States
Government, clarified that all existing and future standards apply to all Federal entities,
including the U.S. Government-wide Financial Statement, unless a standard specifically
provides otherwise.
SFFAS 29 - Page 11
SFFAS 29
Definitions
33. Stewardship Land is land and land rights15 owned by the Federal
Government but not acquired for or in connection with16 items of
general PP&E. Examples of stewardship land include land used as
forests and parks, and land used for wildlife and grazing.
34. Land is defined as the solid part of the surface of the earth. Excluded
from the definition are the natural resources (that is, depletable
resources, such as mineral deposits and petroleum; renewable
resources, such as timber; and the outer-continental shelf resources)
related to land. 17
35. Land and land rights owned by the Federal Government and acquired
for or in connection with items of general PP&E should be accounted
for and reported as general PP&E.
36. Land and land rights owned by the Federal Government and not
acquired for or in connection with items of general PP&E should be
reported as stewardship land.
Recognition and
Measurement
Land rights are interests and privileges held by the entity in land owned by others, such as
leaseholds, easements, water and water power rights, diversion rights, submersion rights,
rights-of-way, mineral rights, and other like interests in land.
16
Acquired for or in connection with" is defined as including land acquired with the intent
to construct general PP&E and land acquired in combination with general PP&E, including
not only land used as the foundation, but also adjacent land considered to be the general
PP&E's common grounds.
17
The Board presently has an active project to address standards for natural resources, for
which the Board is considering developing individual standards for each type of natural
resource separately. To begin the project, the Board will be addressing oil and gas
resources. The framework for the oil and gas resource phase of the project will be used as a
model when addressing the other types or logical sets of natural resources (e.g., timber,
grazing land, solid leasable minerals) in subsequent phases of the project.
SFFAS 29 - Page 12
SFFAS 29
18
19
SFFAS 7, Accounting for Revenue and Other Financing Sources, par. 258-259 explains
that stewardship PP&E is expensed if purchased, but no amount is recognized if it is
received as a donation.
20
SFFAS 7, Accounting for Revenue and Other Financing Sources, par. 74 and par. 345-346.
21
This standard does not prescribe a specific reference or line item entitled Stewardship
Land as it may be included with other items for which no dollar amounts are recognized
(such as heritage assets and other items that in the future may require similar non-financial
disclosure) for presentation. Instead, the standard allows entities flexibility in determining
the best presentation.
SFFAS 29 - Page 13
SFFAS 29
SFFAS 29 - Page 14
SFFAS 29
U.S. Government-wide
Financial Statement
Disclosures25
22
Condition is the physical state of an asset. The condition of an asset is based on an
evaluation of the physical status/state of an asset, its ability to perform as planned, and its
continued usefulness. Evaluating an assets condition requires knowledge of the asset, its
performance capacity and its actual ability to perform, and expectations for its continued
performance. The condition of a long-lived asset is affected by its durability, the quality of its
design and construction, its use, the adequacy of maintenance that has been performed, and
many other factors, including: accidents (an unforeseen and unplanned or unexpected event
or circumstance), catastrophes (a tragic event), disasters (a sudden calamitous event
bringing great damage, loss, or destruction), and obsolescence. Examples of condition
information include, among others, (1) averages of standardized condition rating codes; (2)
percentage of assets above, at, or below acceptable condition; or (3) narrative information.
23
See SFFAS 6, Chapter 3, Deferred Maintenance (par. 77-84) for information regarding
definition, measurement and disclosures specific to deferred maintenance.
24
SFFAS 14, Amendments to Deferred Maintenance Reporting Amending SFFAS 6,
Accounting for Property, Plant and Equipment and SFFAS 8, Supplementary Stewardship
Reporting, defined deferred maintenance as RSI. The Board believed that a period of
experimentation was necessary for deferred maintenance information and that classifying it
as RSI would be more appropriate during the experimentation period. The Board may revise
this standard based on experience gained during this time and the development of additional
criteria.
25
SFFAS 24, Selected Standards for the Consolidated Financial Report of the United States
Government, clarified that all existing and future standards apply to all Federal entities,
including the U.S. Government-wide Financial Statement, unless a standard specifically
provides otherwise.
SFFAS 29 - Page 15
SFFAS 29
Effective Date
43. These standards are effective for reporting periods beginning after
September 30, 2005 with the exception of the specific paragraphs
listed below. These exceptions provide for a phase-in of disclosure
requirements being reported as basic information such that these
standards will be fully implemented for reporting periods beginning
after September 30, 2008.
a. Section c and section d1 in par. 25 and 40 are effective for reporting
periods beginning after September 30, 2007;
b. Section d2 and section d3 in par. 25 and 40 are effective for
reporting periods beginning after September 30, 2008; and
c. Information that is provided an exception (described in par. a. and
b. above) to being reported as basic information during the phase-in
period is still required, but should be reported as RSI until the
exceptions expire.
44. Full implementation of the standards is effective for reporting periods
beginning after September 30, 2008. Earlier implementation is
encouraged.
Appendix A: Basis
for Conclusions
SFFAS 29 - Page 16
SFFAS 29
Introduction
SFFAS 29 - Page 17
SFFAS 29
Amendments to
Standards
26
SFFAS 8, par. 11
27
SFFAS 16 has been incorporated into the current standard for ease in understanding
because SFFAS 16 amended Chapter 2 Heritage Assets of SFFAS 8 and portions of SFFAS 6.
28
SFFAS 14 did amend the status of deferred maintenance by classifying it as RSI, however,
SFFAS 6, Accounting for Property, Plant and Equipment, provides for the information to be
reported. See SFFAS 6, Chapter 3, Deferred Maintenance (par. 77-84) for information
regarding definition, measurement and disclosures specific to deferred maintenance.
SFFAS 29 - Page 18
SFFAS 29
53. As a result, this standard incorporates all standards for heritage assets
and stewardship land into one document. The Board believes by fully
incorporating all requirements for heritage assets (including multi-use
heritage assets) and stewardship land, readers will better understand
all existing reporting requirements. However, the main issues
deliberated by the Board were the reclassification and presentation of
heritage assets and stewardship land information. The Board has not
reconsidered the definition, recognition and measurement provisions
of the current standards at this time. These provisions have been
brought forward from previous standards that were based on prior
Boards conclusions. In the future, the Board may reconsider the
recognition and measurement issues for heritage assets and
stewardship land.
29
See SFFAS 8, par. 114 which details the fact the Board believed that certain stewardship
information, should receive more audit scrutiny than it would if it were RSI
30
For additional information on these existing standards and guidance see Statement of
Financial Accounting Standards 116, Accounting for Contributions Received and
Contributions Made, GASB 34 par. 27-29 (Reporting Works of Art and Historical Treasures),
and AICPA Audit and Accounting Guide, Not-for-Profit Organizations.
SFFAS 29 - Page 19
SFFAS 29
U.S. Government-wide
Financial Statement
31
See SFFAS 25, Appendix A paragraphs 34-50 for detail on the factors. To help readers
understand the Boards deliberations, those paragraphs provide more details about some
practical and conceptual factors that affected the Boards decision whether to designate an
item as RSI or as an integral part of the basic financial statements.
32
SFFAS 29 - Page 20
SFFAS 29
Exposure Draft
61. FASAB published the exposure draft (ED) Heritage Assets and
Stewardship Land: Reclassification from Required Supplementary
Stewardship Information on August 20, 2003. Upon release of the
ED, notices and/or press releases were provided to: the Federal
Register; the FASAB News, the Journal of Accountancy, AGA Today,
the CPA Journal, Government Executive, the CPA Letter,
Government Accounting and Auditing Update, and JFMIP News; the
CFO Council, the Presidents Council on Integrity and Efficiency, the
Financial Statement Audit Network, the Federal Financial Managers
Council; and committees of professional associations generally
commenting on exposure drafts in the past.
62. Twelve letters were received from the following sources:
FEDERAL
(internal)
NONFEDERAL
(external)
Auditors
33
See SFFAC 4, Intended Audience and Qualitative Characteristics for the Consolidated
Financial Report of the United States Government par. 5
SFFAS 29 - Page 21
SFFAS 29
63. A public hearing was held on March 4, 2004. Individuals from the
Library of Congress, U.S. Department of Agriculture, Department of
Interior (including representatives from the CFO, OIG and IPA
currently performing the DOI audit), and a representative from the
Institute for Truth in Accounting testified at the public hearing. The
participants reiterated issues included in the comment letters to the
ED.
Responses to the ED
64. A majority of the respondents did not agree with heritage assets and
stewardship land information being reported as basic. Key issues
raised by respondents included the following:
a. A need for more specific guidance on categorization and
unitization for reporting heritage assets and stewardship land
information;
b. The audit implications of the standard, including the additional
audit costs by classifying the information as basic; and
c. Less useful information being presented by agencies with the
reclassification.
65. Most respondents that did not agree with heritage assets and
stewardship land information being reported as basic, recommended
that it be classified as RSI (or remain as RSSI).
66. Most respondents agreed with the Boards new disclosure
requirements and did not foresee any problems with the new
disclosure requirements
67. Most respondents did not agree with the proposed effective date for
periods beginning after September 30, 2004 in the ED. Key reasons
cited for the delay of the effective date included the need for
additional time to address implementation issues and time for
including funding in their budgets to cover the additional costs for
implementation and audit.
Board Consideration of
Comments
68. Considering that the majority of respondents did not agree with the
ED, the Board directed staff to research various issues that would
assist the Board in addressing the comments raised by respondents.
SFFAS 29 - Page 22
SFFAS 29
For example, the Board considered the current FASB and GASB
standards in this area. The Board also considered results of a review
of private museum reporting practices.
69. The Board also considered several recent government-wide initiatives
that promote accountability and stewardship over real property assets
and heritage assets such as the Federal Real Property Asset
Management Initiative, Executive Order 13327 Federal Real Property
Asset Management, and Executive Order 13287 Preserve America.
The Board believes these initiatives provide further support for the
decision to classify the heritage assets and stewardship land as basic
information and the importance of accountability for these types of
assets.
70. The Board also considered the issue of unitization and categorization
further by reviewing draft guidance prepared by the Heritage Assets
Categorization Project Team and the Accounting and Auditing Policy
Committee (AAPC) Stewardship Guidance Workgroup. The Board
believes that the draft products from these workgroups are excellent
starting points for developing comprehensive guidance on many of the
issues raised by respondents.
71. In response to the audit concerns, FASAB held a roundtable meeting
with representatives from the Office of Inspector General (OIG) and
CPA firms responsible for financial statement audits to solicit their
views on specific issues raised by respondents as well as potential
audit costs involved with implementing the standard.
72. As a result of the comments received and testimony provided at the
public hearing, as well as the above actions, the Board did make
certain revisions, which are detailed in the following paragraphs.
Additionally, reasons for not making revisions on specific issues are
detailed below.
Importance to Mission
SFFAS 29 - Page 23
SFFAS 29
respondent believed that showing the link between the agency mission
and the assets may result in less disclosure by agencies that lack a
direct link to their mission.
74. The Board understands that some agencies may have heritage assets
because of the facts described by the respondent and it is possible that
the assets may not be important to the overall mission of the agency.
However, the Board considered the new requirement to be
explanatory in nature by offering more information about the assets.
The Board did not envision the importance to the mission to be
considered in determining which heritage assets and stewardship land
should be included.
75. The Board revised the language of the new requirement to read A
concise statement explaining how they relate to the mission of the
entity. The Board believes with this language, the requirement is
flexible enough that if the assets are not related to the mission of the
entity, the entity may state that and provide additional explanation, if
they so choose.
Limiting Information
Presented
SFFAS 29 - Page 24
SFFAS 29
Categorization and
Unitization
79. The standard does not define asset categories or physical units for
reporting. The Board recognizes that there may be difficulties for
agencies in determining the appropriate level of aggregation for
reporting categories of heritage assets. However, the Board believes
that the agencies are in the best position to determine the most
meaningful level of presentation. The Board believes that ultimately
the presentation depends upon the specifics of the entityits mission,
the types of heritage assets, how it manages, and materiality
considerations. It would be difficult for the standard to define such
specific reporting requirements, as they may be unique to each entity.
80. The Board also has avoided detailed illustrations and limited specific
examples in the standard because preparers and auditors may attempt
to strictly adhere to the illustrations.
81. The standard emphasizes reporting on asset categories, rather than
individual assets. Based on comments to the ED, it appeared that this
may not have been clear to the readers. Therefore, additional
language was added to the final standard to clarify that the appropriate
level of categorization of stewardship assets and the associated
physical units should be determined by the preparer based on the
entitys mission, types of use, and how it manages the assets.
82. Entities should designate asset reporting categories that allow
inclusion and aggregation of their heritage assets and stewardship
land. Entities should determine the appropriate level of detail for their
categorization. It is helpful if entities designate asset categories that
are meaningful and reflect how the entity views the assets for
management purposes. It would also be helpful for entities to
document the reasoning for the categorization.
83. The Board recognizes that the information that is appropriate for
reporting heritage assets and stewardship land can vary from one
entity to another. The amount and level of detail of the information
presented depends, in part, on the mission of the entity and the
materiality of the assets in question. For example, categories reported
by an agency that has a stewardship mission, might be more
disaggregated than is appropriate for one that does not.
84. Defining physical units as individual items to be counted is neither
required nor prohibited. Particularly for collection-type heritage
assets, it may be more appropriate to define the physical unit as a
SFFAS 29 - Page 25
SFFAS 29
Supporting
Documentation
86. The Board has recognized in previous standards that historical records
for items acquired long ago may not have been retained.34 Based on
responses to the ED, testimony provided at the public hearing, and
discussions with the auditors at the roundtable meeting, the Board
believes this may be an issue in implementing this standard.
87. The Board understands that with the heritage assets and stewardship
land information being classified as basic, auditors may require
certain supporting documentation to fulfill audit assertions. There
may be instances where the historical documents are not available for
items acquired many years ago, prior to the effective date of this
34
SFFAS 29 - Page 26
SFFAS 29
Additional Guidance
89. The Board notes that there has been work by certain government-wide
task forces (such as the AAPC Stewardship Guidance Work Group and
the Heritage Assets Categorization Team) to address issues identified
such as standardized categories, definitions of units of measurements,
and other areas where prescriptive guidance has been requested. The
task forces contained representatives from pertinent agencies and
experts in the field, which most likely provided for a comprehensive
assessment.
90. Considering the extensive research performed by the task forces, their
draft proposals or guides which address areas such as categories and
subcategories and related physical units should be a good starting
point for additional guidance that could be included in a Technical
Release from the AAPC.
91. The Board will request that the AAPC revitalize the efforts of the
Stewardship Guidance Work Group and work towards finalization of
their draft guidance, which may ultimately be published as a Technical
Release. The guidance will be expanded where necessary to cover the
issues identified by respondents in the comment letters. For example,
the Board will suggest that the AAPC review case studies where
supporting documentation may not be available and determine other
reasonable approaches, methods, and best practices for satisfying
specific assertions that would rely on historical documents as
evidence and support.
92. The Board will suggest that the AAPC also consider the work done by
the Heritage Assets Categorization Team. FASAB staff will work
closely with the task force with the goal of finalizing the guide within
one year of the issuance of this standard.
SFFAS 29 - Page 27
SFFAS 29
Effective Date/Phased-In
Implementation
93. Most respondents to the ED and participants at the public hearing did
not agree with the proposed effective date in the ED for periods
beginning after September 30, 2004. Key reasons cited for the delay of
the effective date were the need for additional time to address issues
noted in their arguments against classifying the information as basic
and time for including funding in their budgets for the additional work
and audit costs to be incurred.
94. The Board believed the reasons provided for the delay of the effective
date were valid and justified some delay. Therefore, the Board
believed a phased implementation would provide time for entities to
address some of the issues identified and for consideration of the
strained resources facing most agencies.
95. The Board also believed that the effective date for certain disclosures
to be classified as basic should be delayed to allow time for the
issuance of the additional guidance by the AAPC. Therefore, the
standard was revised to allow for a phase-in of required reporting
disclosures as basic.
96. The standards are effective for reporting periods beginning after
September 30, 2005, with the exception of the section c (category
descriptions) and section d1 (physical units by major category for the
end of the reporting period) in par. 25 and 40 that are effective for
reporting periods beginning after September 30, 2007; and section d2
(physical units by major category that were acquired and withdrawn
during the reporting period) and section d3 (major methods of
acquisition and withdrawal during the reporting period) in par. 25 and
40 that are effective for reporting periods beginning after September
30, 2008.
97. These exceptions provide for a phase-in of disclosure requirements
being reported as basic information such that the standard will be fully
implemented for reporting periods beginning after September 30, 2008.
Information that is provided an exception (see par. above) to being
reported as basic information during the phase-in period is still
required, but should be reported as RSI until the exceptions expire. It
may be appropriate for entities to include a reference to the
information reported as RSI during the phase-in period.
98. The phased-in implementation offers additional time for agencies to
determine the proper level of aggregation for major categories, as well
SFFAS 29 - Page 28
SFFAS 29
Materiality
99. In the ED, the disclosure requirements language read Entities with
significant heritage assets/stewardship land should reference a
note The Board used the term significant to emphasize that some
entities may not be subject to the disclosure requirements due to
certain entities having only immaterial amounts of heritage assets and
stewardship land covered by this standard.
100. Although most respondents to the ED agreed that the preparer should
have flexibility in determining appropriate categories for aggregation
and that the preparer should be allowed to exercise professional
judgment in determining which assets are significant, there was some
concern raised by respondents that these judgments may be difficult
to make. Certain respondents noted that significant is difficult to
apply in the case of heritage assets and stewardship land because
there are no financial dollar amounts required to be reported.
101. The term significant was removed from the language establishing
disclosure requirements in the final standard because the Board has
stated within this standard The provisions of this Statement need not
be applied to immaterial items. Therefore, entities may omit heritage
asset and stewardship land information if they are immaterial.
102. In SFFAS 3, Accounting for Inventory and Related Property, the
introduction included a discussion on "materiality".35 It explained that
materiality has not been strictly defined in the accounting community;
rather, it has been a matter of judgment on the part of preparers of
financial statements and the auditors who attest to them. It further
explained that the determination of whether an item is immaterial
requires the exercise of considerable judgment, based on
consideration of specific facts and circumstances.
35
See SFFAS 3, Accounting for Inventory and Related Property, par. 7-15.
SFFAS 29 - Page 29
SFFAS 29
103. In its discussion in SFFAS 3, the Board relied on the FASBs concept as
modified by certain concepts expressed in governmental auditing
standards36. Par. 9 of SFFAS 3 discussed FASB's Statement of
Financial Accounting Concepts No. 2, "Qualitative Characteristics of
Accounting Information," that provides for materiality as the
magnitude of an omission or misstatement of accounting information
that, in the light of surrounding circumstances, makes it probable that
the judgment of a reasonable person relying on the information would
have been changed or influenced by the omission or misstatement.
104. Par. 9 of SFFAS 3 also explains that this concept includes both
qualitative and quantitative considerations. An item that is not
considered material from a quantitative standpoint may be considered
qualitatively material if it would influence or change the judgment of
the financial statement user. The Board believes that preparers should
consider both quantitative and qualitative characteristics when
applying materiality to this standard.
Board Approval
105. This statement was approved for issuance by all members of the
Board.
36
Par. 12 of SFFAS 3 explains that the Government Auditing Standards provide "In
government audits the materiality level and/or threshold of acceptable risk may be lower
than in similar-type audits in the private-sector because of the public accountability of the
entity, the various legal and regulatory requirements, and the visibility and sensitivity of
government programs, activities, and functions."
SFFAS 29 - Page 30
Statement of Federal Financial Accounting Standards 30: InterEntity Cost Implementation: Amending SFFAS 4, Managerial
Cost Accounting Standards and Concepts
Status
Issued
Effective Date
Affects
SFFAS 4
Affected by
None.
Summary
This standard requires full implementation of the inter-entity cost provision in Statement of Federal Financial
Accounting Standards (SFFAS) 4, Managerial Cost Accounting Standards and Concepts. By fully
implementing the provisions in SFFAS 4 (issued in July 1995) this standard will require the following for interentity cost:
Each entitys full cost should incorporate the full cost of goods and services that it receives from other
entities. The entity providing the goods or services has the responsibility to provide the receiving entity
with information on the full cost of such goods or services either through billing or other advice.
Recognition of inter-entity costs that are not fully reimbursed is limited to material items that (1) are
significant to the receiving entity, (2) form an integral or necessary part of the receiving entitys output,
and (3) can be identified or matched to the receiving entity with reasonable precision. Broad and general
support services provided by an entity to all or most other entities should not be recognized unless such
services form a vital and integral part of the operations or output of the receiving entity. (Text preceding
paragraph 105 of SFFAS 4)
This standard requires full implementation for reporting periods beginning after September 30, 2008.
SFFAS 30 - Page 1
SFFAS 30
Table of Contents
Summary
Introduction
SFFAS 30 - Page 2
SFFAS 30
Introduction
1.
2.
3.
To date, OMB has issued guidance for recognizing the following specific inter-entity costs:
(1) employees pension, post-retirement health and life insurance benefits, (2) other postemployment benefits for retired, terminated, and inactive employees, which includes
unemployment and workers compensation under the Federal Employees Compensation
Act, and (3) losses in litigation proceedings. The guidance further states that to ensure
consistency, agencies should not recognize costs other than those listed until further
guidance is provided. See Section 4.3 of OMB Bulletin No. 01-09, Form and Content of
Agency Financial Statements.
SFFAS 30 - Page 3
SFFAS 30
5.
6.
SFFAS 30 - Page 4
SFFAS 30
SFFAS 30 - Page 5
SFFAS 30
Standards of
Federal Financial
Accounting
Amendments to SFFAS 4
Effective Date
9.
SFFAS 30 - Page 6
SFFAS 30
Appendix A: Basis
for Conclusions
Introduction
11. The inter-entity cost provision in SFFAS 4 provided that each entitys
full cost should incorporate the full cost of goods and services that it
receives from other entities. However, SFFAS 4 provided for gradual
implementation of the inter-entity cost provision.
12. In 1995, the Board provided implementation guidance stating:
Implementation of this standard on inter-entity costing should be
accomplished in a practical and consistent manner by the various
federal entities. Therefore, the Office of Management and Budget
[OMB], with assistance from the FASAB staff, should identify the
specific inter-entity costs for entities to begin recognizing. OMB
should then issue guidance identifying these costs. These particular
inter-entity costs should be specified in accordance with this
standard including the recognition criteria presented below.
The OMB should consider information and advice from Treasury,
GAO, and other agencies in developing the implementation guidance.
It is anticipated that the largest and most important inter-entity costs
will be identified first. As entities gain experience in the application of
the standard, recognition of other inter-entity costs may be specified in
future guidance or required by future standards. (SFFAS 4, par. 110,
emphasis added)
13. OMB requested that the AAPC provide assistance in developing the
guidance anticipated by SFFAS 4, par. 110. The AAPC inter-entity cost
task force was formed and initial research was conducted beginning in
July 2000. The task force, chaired by James Taylor, Deputy Chief
Financial Officer of the Department of Commerce, reported the task
force research findings and recommendations to the AAPC at its May
2003 meeting. The task force report is available on the AAPC website
at http://www.fasab.gov/aapc/iecs.html.
SFFAS 30 - Page 7
SFFAS 30
SFFAS 30 - Page 8
SFFAS 30
SFFAS 4 addresses materiality at length in par. 112 and 113. Nothing in this standard or the
AAPC task force report alters that guidance. Therefore, terms such as materiality and
significance should be evaluated in the context established by SFFAS 4, par. 112 and 113.
SFFAS 30 - Page 9
SFFAS 30
21. This standard balances the concerns raised by the task force regarding
current priorities and resource constraints, and the goals of SFFAS 4.
This standard establishes a date certain for full cost accounting by
federal reporting entities. Further, by permitting early implementation
entities would be afforded the opportunity to improve full cost
recognition sooner. For those entities receiving material amounts of
non-reimbursed or under-reimbursed inter-entity goods and services,
full implementation would enhance the completeness and
comparability of cost information.
22. In addition, this standard is consistent with the initial steps taken by
the Board in Interpretation 6, Accounting for Imputed Intradepartmental Costs: An Interpretation of SFFAS No. 4 and resolves
concerns expressed by respondents to the exposure draft leading to
Interpretation 6. Interpretation 6, issued in April 2003 and effective for
periods beginning after September 30, 2004, requires recognition of
intra-departmental inter-entity costs. Some respondents to the
exposure draft leading to Interpretation 6 expressed concern
regarding the inconsistent treatment of inter- and intra-departmental
inter-entity costs. The Board then concluded that a gradual reduction
of the un-recognized inter-entity costs would be preferable to no
action. In addition, the Board opined that the experience gained with
respect to intra-departmental inter-entity costs would be useful in
addressing inter-departmental inter-entity costs. (See par. 42 of
Interpretation 6.)
23. The Board believes that this standard is essential to attaining the full
cost accounting envisioned in SFFAS 4. Further, full cost information
is essential to effective performance measurement.
Amendments to
Standards
SFFAS 30 - Page 10
SFFAS 30
Exposure Draft
FEDERAL
(internal)
NONFEDERAL
(external)
3
2
14
27. A public hearing was held on December 16, 2004. Individuals from the
Library of Congress, Department of Interior, and a representative from
the Association of Government Accountants Financial Management
Standards Board testified at the public hearing.
Responses to the ED
SFFAS 30 - Page 11
SFFAS 30
Board Consideration of
Comments
SFFAS 30 - Page 12
SFFAS 30
Additional Guidance
37. As discussed above, the Board determined that there was a need for
additional guidance. Therefore, the task force has been requested to
continue its work in this area by developing one or more Technical
Releases (TR) that will address implementation issues raised by
respondents. The Board has also suggested certain operational
guidance be issued by the Office of Management and Budget (OMB).
It should be noted that the guidance does offer a venue for agencies to
direct agency-specific questions.
38. The Board believes that the task force could build upon their already
extensive survey results and research, as well as the comment letters
and staff analysis in developing the guidance. Specifically, the task
force work may include an extensive evaluation of costs to determine
which ones may be considered Broad and General for all entities and
if possible, a list of the costs that should be considered Broad and
General for all entities would be included in the TR. The TR may also
include additional guidance or discussion on the factors Directness of
relationship to the entitys operations and Identifiability as used in
determining if a transaction should be considered material to the
receiving entity.5
SFFAS 30 - Page 13
SFFAS 30
39. It is also anticipated that the task force will collect individual interentity requests for guidance on specific cases and determine if general
guidance in the area can be provided on the issue, and if so, the TR will
provide such clarifying guidance. The actual cases will be forwarded
to OMB with the task forces recommendation, which will reference
the general guidance in the TR. However, final disposition of the
individual entity-specific cases will be determined by OMB.
40. The task force could utilize existing guidance related to cost
accounting in developing the guidance. Specifically, the CFO Councils
Cost Accounting Implementation Guide and the Joint Financial
Management Improvement Programs System Requirements for
Managerial Cost Accounting, among others, are good sources of
information.
41. Additionally, the task force may wish to solicit volunteers from the
agencies that provided comments to the ED for assistance. Also,
volunteers could be requested from agencies that successfully
implement Interpretation Number 6, Accounting for Imputed Intradepartmental Costs: An Interpretation of SFFAS No. 4 considering
the effective date for this was for periods beginning after September
30, 2004.
Effective Date
42. The proposed effective date in the ED was for periods beginning after
September 30, 2007. The Board determined that the effective date of
this standard should be delayed to periods beginning after September
30, 2008. The Board delayed the implementation date to allow the
AAPC and OMB to develop the additional guidance detailed above.
43. This Statement was approved for issuance by eight members of the
Board. Mr. Reid dissented. Mr. Anania abstained.
44. Mr. Reid dissents from this Statement because he opposes rescinding
paragraph 110. He believes that the inter-entity cost provisions should
be implemented on a step-by-step basis. Mr. Reid notes that the basis
for conclusions of SFFAS 4 states that the Board has expressed the
need to take a measured, step-by-step, practical approach to
implementing the inter-departmental costing standard. He notes that
it further explains that the Board recommended that 1) OMB, with
assistance from the FASAB staff, should identify those specific inter-
SFFAS 30 - Page 14
SFFAS 30
SFFAS 30 - Page 15
SFFAS 30
SFFAS 30 - Page 16
Status
Issued
Effective Date
None.
Affects
Affected by
SIG 31.1
Summary
This statement defines fiduciary activities as those Federal Government activities that relate to the
collection or receipt, and the subsequent management, protection, accounting, investment and disposition of
cash or other assets in which non-Federal individuals or entities (non-Federal parties) have an ownership
interest that the Federal Government must uphold. The fiduciary relationship must be based on statutory or
other legal authority and the fiduciary activity must be in furtherance of that relationship.
This statement requires Federal entities to distinguish the information relating to fiduciary activities of the
Federal entity from all other activities of that Federal entity. Fiduciary assets will not be recognized on the
balance sheet of any Federal entity. The Federal entity is required to include in its own audited financial
statements a note disclosure providing the following information about its fiduciary activities:
This requirement applies even if the Federal entity issues stand-alone audited financial statements for the
fiduciary activity. For entities managing several distinct fiduciary activities, disaggregated information is
required by activity.
The Financial Report of the United States Government (FR) will include a note disclosure describing the
nature of the fiduciary activities of the Federal Government. The FR note disclosure will provide a list of
component entities responsible for fiduciary activities and the total amount of fiduciary net assets for each
responsible component entity. The FR note disclosure will refer the reader to the component entity financial
statements for additional information about each components fiduciary activity.
SFFAS 31 - Page 1
SFFAS 31
This statement is effective for periods beginning after September 30, 2008. Early adoption is not permitted. In
the year this statement becomes effective, entities should not restate the prior period amounts presented in
the basic financial statements and notes.
SFFAS 31 - Page 2
SFFAS 31
Table of Contents
Summary
Introduction
Accounting Standard
Basis of Accounting
12
13
Effective Date
17
18
Appendix B: Glossary
29
30
30
32
32
33
43
SFFAS 31 - Page 3
SFFAS 31
Introduction
1.
2.
3.
4.
5.
SFFAS 31 - Page 4
SFFAS 31
This standard also clarifies the definition and reporting for fiduciary
cash that is on deposit in the U.S. Treasury. Fiduciary cash deposits are
referred to as Fiduciary Fund Balance with Treasury (Fiduciary
FBWT). This deposit activity is not fully addressed in Statement of
Federal Financial Accounting Standards 1, Accounting for Selected
Assets and Liabilities. SFFAS 1 explains that in some
circumstances, the entity deposits cash in its accounts in a fiduciary
capacity for the U.S. Treasury or other entities.2 However, some
unique aspects of Fiduciary FBWT are not included in SFFAS 1. For
example, SFFAS 1 defines FBWT as the aggregate amount of funds in
the entitys accounts with Treasury for which the entity is authorized
to make expenditures and pay liabilities. SFFAS 1 further explains
that Fund Balance with Treasury is an intragovernmental item.
However, Fiduciary FBWT is not an intragovernmental item; the
owner of Fiduciary FBWT is a non-Federal party. This standard
amends SFFAS 1 to distinguish fiduciary FBWT from Federal
component entities FBWT.
7.
For a description of fund groups used in reporting to the Treasury FMS and the OMB, see
the Treasury Financial Manual, Part 2, Chapter 1500.
SFFAS 31 - Page 5
SFFAS 31
Scope
8.
Effective Date
9.
Accounting
Standard
Definition and
Characteristics of
Fiduciary Activities
Definition
Characteristics
SFFAS 31 - Page 6
SFFAS 31
Cash:
Fiduciary cash may be held in a variety of ways. Cash may be
represented by balances on deposit with the U.S. Treasury4 or
commercial banks.
Investments:
Fiduciary assets may include investments in Treasury securities or in
non-Treasury securities.
Other Assets:
Fiduciary assets may include assets other than cash, e.g., real or
personal property held temporarily pending disposition, or held longterm in a fiduciary capacity.
Liabilities:
A fiduciary activity may include expenses that will be paid with
fiduciary assets. This may result in fiduciary liabilities that will be
settled with fiduciary assets.
Inflows:
A fiduciary activity may include collections of cash or other assets that
represent contributions from or for beneficiaries or revenue derived
from fiduciary assets.
The U.S. Treasury is in the Treasury Department, which is the primary fiscal agent for the
Federal Government. The Treasury Department collects money due to the United States,
makes payments, manages borrowings, performs central accounting functions, and
produces coins and currency sufficient to meet demand. The Treasury Department manages
the Governments daily cash position and borrowing as well as the investment of funds in its
custody. The Treasury Department provides Central Accounting System (CAS) services to
Federal agencies. CAS transactions involve appropriation credits, transfers-in and -out,
collections, disbursements and related adjustments. Such transactions increase or decrease
Federal entities Fund Balance with Treasury (FBWT) maintained with the Treasury
Department.
SFFAS 31 - Page 7
SFFAS 31
Outflows:
A fiduciary activity may include expenses that will be paid with
fiduciary assets and distributions of assets to the beneficiaries.
Exclusions
13. The following are excluded from the reporting requirements for
fiduciary activities, and should be recognized in the principal financial
statements of the Federal component entity and not in the fiduciary
note disclosure:
14. Amounts related to operating revenues and expenses in ways that are
consistent with the above exclusions also may be excluded.
Unpaid means that amounts withheld or garnished have not been paid to the designated
recipient of the amounts withheld or garnished.
6
See SFFAS 1, Accounting for Selected Assets and Liabilities, paragraphs 74-86.
See SFFAS 1, paragraph 85 and SFFAS 7, Accounting for Revenue and Other Financing
Sources, paragraph 37.
SFFAS 31 - Page 8
SFFAS 31
Basis of Accounting
Accounting and
Reporting for Fiduciary
Activities for
Component Entities
Reporting of Fiduciary
Activities
10
For the definition of generally accepted accounting principles see the American Institute
of Certified Pubic Accountants Professional Standards, U.S. Auditing Standards (AU)
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles.
11
SFFAS 31 - Page 9
SFFAS 31
SFFAS 31 - Page 10
SFFAS 31
12
To determine program management responsibility, Federal component entities should
consider the legislation authorizing the activity; the Memorandum of Understanding that
establishes responsibilities; and the provisions of SFFAC 2, Entity and Display.
SFFAS 31 - Page 11
SFFAS 31
should disclose the reason(s) stated by the auditors and refer the
reader to the audit opinion for further information.
b. The note disclosure should provide information on how the reader
can obtain a copy of the financial statements and the audit opinion
thereon.
23. In the initial year of implementation, prior year information should not
be displayed. In the reporting periods following the initial year of
implementation, prior period amounts should be displayed.
24. Notes to the financial statements are an integral part of the basic
financial statements, essential for complete and fair presentation in
conformity with generally accepted accounting principles for the
Federal Government.
13
SFFAS 31 - Page 12
SFFAS 31
30. Notes to the financial statements are an integral part of the basic
financial statements, essential for complete and fair presentation in
conformity with generally accepted accounting principles for the
Federal Government.
Effect on Current
Standards
31. This standard affects current standards for reporting non-entity assets.
Paragraphs 26 and 29 of SFFAS 1, Accounting for Selected Assets and
Liabilities, are amended as follows:
[26] Both entity assets and non-entity assets under an entitys custody
or management should be reported in the entitys financial statements,
except for non-entity assets meeting the definition of fiduciary
assets, which should not be recognized on the balance sheet,
but should be disclosed in accordance with the provisions of
SFFAS 31, Accounting for Fiduciary Activities. Non-entity
assets reported in recognized on an entitys financial
statementsbalance sheet should be segregated from entity assets. An
amount equal to non-entity assets recognized on the balance sheet
should be recognized as a liability (due to Treasury or other entities) in
the entitys financial statements.
[29] Non-entity cash. Non-entity cash is cash that a federal entity
collects and holds on behalf of the U.S. Government or other entities.
In some circumstances, the entity deposits cash in its accounts in a
fiduciary custodial capacity for the U.S. Treasury or other federal
component entities, or in a fiduciary capacity for non-federal
parties.
SFFAS 31 - Page 13
SFFAS 31
SFFAS 31 - Page 14
SFFAS 31
SFFAS 31 - Page 15
SFFAS 31
SFFAS 31 - Page 16
SFFAS 31
Effective Date
37. This standard is effective for periods beginning after September 30,
2008. In the initial year of implementation, comparative information
should not be restated. Earlier adoption is prohibited.
The provisions of this statement need not be applied to
immaterial items.
SFFAS 31 - Page 17
SFFAS 31
Appendix A: Basis
for Conclusions
Outreach activities
38. FASAB published the revised14 exposure draft (ED), Accounting for
Fiduciary Activities, on June 27, 2005. Upon release of the ED, notices
and/or press releases were provided to: the Federal Register; the
FASAB News, the Journal of Accountancy, AGA Today, the CPA
Journal, Government Executive, the CPA Letter, Government
Accounting and Auditing Update, the CFO Council, the Financial
Statement Audit Network, the Federal Financial Managers Council,
and committees of professional associations generally commenting on
exposure drafts in the past. Copies of the ED and letters requesting
comments were also sent to individuals who spoke at the October
2003 public hearing for the original ED, as well as to the Federal
Retirement Thrift Investment Board.
39. During the comment period, FASAB staff also gave informational
presentations at the 15th Annual Government Financial Management
Conference sponsored by Treasury Agency Services, and at July 2005
meetings of the Financial Statement Audit Network, the OMB Form
and Content Work Group, the Greater Washington Society of CPAs,
and the U.S. Standard General Ledger Boards Issues Resolution
Committee. A public hearing was also held on August 17, 2005.
Comments Received
40. The Board did not rely on the number in favor of or opposed to a given
position. Information about the respondents majority view is
provided only as a means of summarizing the comments. The Board
14
The first exposure draft was issued on April 23, 2003. Issues raised by respondents to that
exposure draft caused the Board to revise its proposal.
SFFAS 31 - Page 18
SFFAS 31
Federal
(Internal)
Non-Federal
(External)
3
3
8
42. Note: The response from one Federal agencys Office of the Inspector
General listed above under auditors, noted that the response
represented the consensus expressed by the agencys Office of the
Chief Financial Officer as well as the agencys auditors..
43. Also, one Federal agency wrote that it had no comments because the
agencys funds are primarily earmarked funds rather than fiduciary.
44. At the public hearing held on August 17, 2005, representatives from
two Federal agencies provided oral statements and answered
questions from the Board.
Summary of Comments
Definition
46. The Board believes that the substance of a transaction, rather than its
form, should be the determining factor in how it is reported.
Accordingly, this standard provides a definition and characteristics for
fiduciary activity and does not provide lists of specific funds or fund
groups. Some respondents have noted that often fiduciary activities
are managed through the establishment of a deposit fund. Therefore,
the following section is intended to assist Federal financial managers
in understanding the role of deposit funds.
SFFAS 31 - Page 19
SFFAS 31
Exclusions
Treasury Financial Manual (TFM) Volume 1, Part 2, Section 1535, available on the Internet
at http://www.fms.treas.gov/tfm/vol1/index.html
16
See FY 2006 U.S. Budget, Analytical Perspectives, pp. 372, 377 and 378-379.
17
SFFAS 31 - Page 20
SFFAS 31
nature and short duration of the activity, the Board does not believe
that fiduciary reporting of payroll withholdings and garnishments
would produce useful information.
49. Similarly, Federal component entities may hold advances received
from customers for future sales of goods or services. Such advances
represent unearned revenue. One Federal agency, in its written
response and oral testimony, noted that certain advances received
appear to meet the definition of fiduciary activity. However, this
standard excludes unearned revenue from the fiduciary reporting
requirements because unearned revenue is a routine operational
activity and the Board believes that fiduciary reporting of unearned
revenue is not warranted.
50. The standard clarifies the fact that seized property is not subject to the
fiduciary reporting requirements because seized assets do not meet
the definition of fiduciary activities. In seizure-for-forfeiture the
Government is asserting its right to the property, and is taking action
to eliminate, rather than to uphold, the ownership interest of the nonFederal party.
Reporting Standards
Basis of Accounting
52. Some members of the Board have dissented to the standard and their
reasons are presented at paragraph 63. These members oppose
requiring the disclosures to be measured in accordance with generally
accepted accounting principles. Two reasons are offered in the
written dissent.
SFFAS 31 - Page 21
SFFAS 31
53. Some of the members dissenting stated that the Board should not
impose requirements on reporting information related to non-Federal
entities. However, a majority of the Board believe that fiduciary
activities as defined in this standard are Federal program activities,
carried out by Federal employees often with federal funding of
administrative expenses. The amount and sources of financing
fiduciary activities are determined by Congress. The assenting Board
;members believe that although the assets in fiduciary funds are nonfederal assets, the responsibility for managing the assets is a federal
responsibility and the funds holding the assets are federal accounting
entities established to carry out that responsibility.
54. A major objective of general purpose financial reporting in accordance
with generally accepted accounting principles is to meet the needs of
users who have limited access to internal documents or statements
and lack the ability to demand that desired information be provided.
Most citizens and beneficiaries of fiduciary funds lack such ability.
55. Some of the members dissenting stated that the cost-benefit of the
requirement to disclose information in conformity with generally
accepted accounting principles has not been demonstrated. However,
a majority of the Board believes that the need for accountability by
public officials is sufficient in its own right to justify the requirement
to conform to generally accepted accounting principles. Further, the
Board notes that:
a. Current standards (SFFAS 7, paragraphs 83-87) already require
accrual accounting for fiduciary activities; therefore, this standard is
merely carrying forward existing requirements and is not introducing
new costs.
b. This standard requires the same basis of accounting that is required
for Federal assets, liabilities and flows. Accounting systems on that
basis are routinely in operation throughout the government and pose
no unusual costs for fiduciary activities.
c. The Board is permitting generally accepted accounting principles
for any domain (FASAB, Governmental Accounting Standards Board,
or Financial Accounting Standards Board) to be used. This should
mitigate any costs for fiduciary activities currently reporting with a
different source of generally accepted accounting principles.
SFFAS 31 - Page 22
SFFAS 31
18
SFFAS 31 - Page 23
SFFAS 31
Effective Date
59. This standard requires that fiduciary assets and liabilities be disclosed
in a note, and should not be recognized on the face of the balance
sheet. In order to facilitate the preparation of the Financial Report of
the U.S. Government, a uniform implementation date for all Federal
component entities is necessary. Accordingly, early implementation of
this standard is prohibited, and Federal component entities should not
restate prior periods in the initial year of implementation. The
effective date is intended to allow Federal agencies adequate time to
comply with the reporting requirements.
60. The Board promulgates standards for activities that are defined by
specific characteristics, and not by how an activity may be labeled in
the budget or reported to the Treasury Financial Management Service.
Paragraph 370 of SFFAS 7 addressed the group of funds designated as
deposit funds as follows:
[370] Deposit funds are accounts outside the budget that record
amounts that the Government (a) holds temporarily until
ownership is determined or (b) holds as an agent for others. The
standards and guidance in this Statement do not apply to deposit
funds except insofar as a particular deposit fund may be
classified as part of a Federal reporting entity or a disclosure may
be required due to a fiduciary relationship on the part of a
Federal reporting entity toward a deposit fund.
61. The Board decided that this paragraph was not sufficiently clear that
all deposit funds that are not disclosed in the fiduciary note should be
recognized in the principal financial statements of the Federal
component entity. Accordingly, paragraph 370 of SFFAS 7 is rescinded
by this standard and an explanatory sentence was added to paragraph
7 in the introduction section of this standard. All deposit funds that do
not meet the definition of fiduciary activities and therefore are not
disclosed in the fiduciary note must be recognized on the face of the
financial statements.
SFFAS 31 - Page 24
SFFAS 31
Board Approval
62. This statement was approved by the Board with a vote of six members
in favor of its issuance and four members, Messrs. Dacey, Patton, Reid
and Zavada, opposing its issuance.
Dissents
63. Messrs. Dacey, Patton, Reid and Zavada dissented to this standard.
Their dissent is presented below. Some members who voted to issue
the standard agree with certain of the arguments posed by the
dissenters but believe that, on balance, the standard is an
improvement in Federal financial reporting.
Dissent of Messrs. Dacey, Patton, Reid and Zavada
63. Paragraph 16 of the proposed standard requires that information
disclosed about fiduciary activities be presented on the basis of
generally accepted accounting principles. Board members Robert
Dacey, James Patton, Robert Reid, and David Zavada support
disclosure of information on fiduciary activities, but disagree with this
requirement. These members believe that, at a minimum, the words
and measured using the standards provided in generally accepted
accounting principles should be deleted from paragraph 16 and
replaced with words such as and measured on the basis of accounting
used to maintain or report the information. While these members do
not disagree that generally accepted accounting principles (GAAP)
financial reporting enhances the quality of reported financial
information, they nonetheless disagree that the Board should require
information related to fiduciary activities to be presented on a GAAP
basis. The reasons for these views and the members supporting each
of these reasons are as follows:
The Board Should Not Impose Requirements on Reporting
Information Related to Non-Federal Entities
64. Board members James Patton and Robert Reid believe that the Board
should not impose requirements on reporting information related to
non-Federal entities, including the basis of accounting to be used in
disclosures related to such non-Federal entities. Fiduciary activities,
as defined in the proposed standard, represent activities of nonFederal entities. All entities are obligated to choose the basis of
accounting that will be used to prepare financial information and
whether such information will be audited, consistent with any legal
and regulatory requirements. In some known instances and likely in
SFFAS 31 - Page 25
SFFAS 31
SFFAS 31 - Page 26
SFFAS 31
SFFAS 31 - Page 27
SFFAS 31
SFFAS 31 - Page 28
SFFAS 31
Appendix B:
Glossary
SFFAS 31 - Page 29
SFFAS 31
Appendix C:
Examples of
Fiduciary Note
Disclosure
1. Example of Fiduciary
Note Disclosure for
Federal Component
Entity
Fiduciary Activities
SFFAS 31 - Page 30
SFFAS 31
Department XYZ
Schedule of Fiduciary Activity
As of September 30, 2010 and 2009
2010
Fiduciary
Fund A
Contributions
Investment earnings
Gain (Loss) on disposition of
investments, net
Disbursements to beneficiaries
Increases in fiduciary fund balances
Fiduciary net assets, beginning of
year
Fiduciary net assets, end of year
2009
Fiduciary
Fund A
$ 233,450
116,725
6,670
2010
2010
Other
Total
Fiduciary Fiduciary
Funds
Funds
$ 116,550 $ 350,000
58,275
175,000
3,330
10,000
$ 200,000
100,000
4,000
2009
2009
Other
Total
Fiduciary Fiduciary
Funds
Funds
$ 125,000 $ 325,000
65,000
165,000
1,000
5,000
(300,150)
56,695
1,674,000
(149,850) (450,000)
28,305
85,000
1,041,000 2,715,000
(200,000)
104,000
1,570,000
(150,000) (350,000)
41,000
145,000
1,000,000 2,570,000
$ 1,730,695
2010
2009
Total Fiduciary
Fiduciary
Fund A
Funds
2009
Other
Fiduciary
Funds
2009
Total
Fiduciary
Funds
SFFAS 31 - Page 31
SFFAS 31
2. Example of Note
Disclosure for the
Government-wide
Financial Report
Fiduciary Activities
Department A
Department B
Department C
Department D
All Other
Total
FY 2010
xxxxx
xxx
xxxxx
xxxxxxx
x
$ xxxxxxxxxxxxx
$
SFFAS 31 - Page 32
FY 2009
xxxxx
xx
xxxxx
xxxxxxx
x
$ xxxxxxxxxxxxx
$
SFFAS 31
Appendix D: Pro
Forma Transactions
20
20
Section 803(a) of the Federal Financial Management Improvement Act of 1996 (P.L. 104208, Division A, Section 101(f), Title VIII) requires Federal agencies to implement the U.S.
Government Standard General Ledger (USSGL) at the transaction level. Information about
the USSGL can be found on the website of the Treasury Financial Management Service at
www.fms.treas.gov/ussgl.
SFFAS 31 - Page 33
SFFAS 31
SFFAS 31 - Page 34
SFFAS 31
Illustration #1 Federal component entity receives and holds non-Federal partys cash.
DR
Federal Component Entity
Fiduciary Fund Balance with Treasury (FBWT)
Fiduciary Collections Received from Beneficiaries
To record fiduciary cash collected.
CR
1,500
1,500
1,500
1,500
1,000
1,000
1,000
1,000
SFFAS 31 - Page 35
1,000
1,000
SFFAS 31
2B
50
50
50
50
50
50
50
50
50
50
50
50
SFFAS 31 - Page 36
50
50
SFFAS 31
Note: Accounting for appropriations requires additional budgetary entries that are not displayed here. For additional
information, refer to the Treasury Financial Manual Standard General Ledger Supplement at www.fms.treas.gov/ussgl.
Illustration #3 Federal component entity invests non-Federal partys assets in nonTreasury securities.
3A Federal component entity purchases non-Treasury securities on behalf of non-Federal party
Federal Component Entity
Fiduciary Investments in non-Treasury securities
Fiduciary Fund Balance with Treasury
To record securities purchased on behalf of non-Federal parties.
500
500
500
500
SFFAS 31 - Page 37
10
10
10
10
SFFAS 31
50
50
SFFAS 31 - Page 38
50
50
SFFAS 31
SFFAS 31 - Page 39
Treasury
GF
Treasury
BPD
10
1,000
1,010
1,000
500
(10)
(1,000)
(1,000)
(50)
50
(1,500)
(60)
(50)
(50)
50
50
50
0
SFFAS 31
Closing entries:
1,500
60
50
1,510
50
50
Interest Expense
50
50
50
50
50
50
50
50
50
50
SFFAS 31 - Page 40
Treasury
GF
Treasury
BPD
10
1,000
1,010
1,000
500
(10)
(1000)
(1,000)
(1510)
0
SFFAS 31
FY 20x2
FY 20x1
1,500
60
(50)
1,510
1,510
1,510
FY 20x2
$
10
1,000
500
$
1,510
FY 20x1
$
-
NOTE: The illustration above displays only the impact of the pro forma transactions upon the
fiduciary note disclosure. See Appendix C for a more detailed illustration of the fiduciary note
disclosure.
SFFAS 31 - Page 41
SFFAS 31
Illustration #7 Effect of Pro Forma Transactions upon Elimination Worksheet for Governmentwide reporting
IMPACT ON GOVERNMENT-WIDE
ELIMINATION WORKSHEET
ASSETS
Fiduciary Fund Balance with Treasury
Fund Balance with Treasury
Fiduciary Investments in Treasury
Securities
Fiduciary Investments in non-Treasury
securities
Treasury's Government-wide cash
account
Total assets
LIABILITIES
Treasury's Liability for Fiduciary
FBWT
Treasury's Liability for FBWT
Treasury BPD Liability for Fiduciary
Investments
NET POSITION
Fiduciary net assets
Total liabilities and net position
Federal
Component
Entity Note
Disclosure
Treasury
Bureau of
Public
Debt
10
1,000
$
1,000
-
500
$ 1,510
Treasury
General
Fund
$ (1,000)
-
1,010
$ 1,000 $ 1,010
Eliminations
- $
-
10
1,000
-
$ (1,000)
Governmentwide Balance
Sheet
$ 1,510*
10
1,000
500
1,010
$ 1,010
10
$ 1,510*
(1,000)
1,000
1,000
$ 1,510
Governmentwide Note
Disclosure
$ 1,000 $ 1,010
$ (1,000)
1,510
$
1,010
$ 1,510*
* Note:
SFFAS 31 - Page 42
SFFAS 31
Appendix E: List of
Abbreviations
FASAB
FBWT
FR
FY
GAAP
GAO
OMB
SFFAC
SFFAS
Treasury BPD
Treasury FMS
U.S.
USSGL
SFFAS 31 - Page 43
Status
Issued
Effective Date
None.
Affects
Affected by
None.
SFFAS 1, par. 86
SFFAS 2, par. 56
SFFAS 3, par. 28, 30, 35, 50, 55, 56, 66, 71, 78, 91, and 109.
SFFAS 5, par. 117 and 121
SFFAS 6, par. 45, 83, 84, 107 through 111
SFFAS 7, par. 43, 46, 65.1, and 65.3
SFFAS 10, par. 35
SFFAS 18, par, 10 and 11
Summary
This standard amends standards issued prior to January 2003 to specify disclosure requirements appropriate
for the Financial Report of the United States Government (CFR) based on the guidance contained in
Statement of Federal Financial Accounting Concepts (SFFAC) 4, Intended Audience and Qualitative
Characteristics for the Consolidated Financial Report of the United States Government.
SFFAS 32 - Page 1
SFFAS 32
Table of Contents
Summary
Introduction
Accounting Standard
Inventory
Stockpile Materials
Seized Property
Forfeited Property
Foreclosed Property
Commodities
Deferred Maintenance
10
Cleanup Cost
10
Taxes
10
10
11
11
13
Background
13
13
16
30
SFFAS 32 - Page 2
18
SFFAS 32
Introduction
1.
2.
3.
4.
5.
Scope
6.
Effective Date
7.
SFFAS 32 - Page 3
SFFAS 32
Accounting
Standard
Amendments to Existing
Standards
8.
9.
SFFAS 32 - Page 4
SFFAS 32
SFFAS 32 - Page 5
SFFAS 32
SFFAS 32 - Page 6
SFFAS 32
illustrate (1) the historical timing of tax collections and refunds, and
(2) any material trends in collection and refund patterns. SFFAS 32
provides for disclosures applicable to the U.S. government-wide
financial statements. is added to par. 65.3 as the final sentences.
14. SFFAS 10, Accounting for Internal Use Software, par. 35 is amended
by inserting the text The above listed disclosure requirements are not
applicable to the U.S. government-wide financial statements. SFFAS
32 provides for disclosures applicable to the U.S. government-wide
financial statements for these activities. is added following the
existing text for par. 35.
15. SFFAS 18, Amendments to Accounting Standards for Direct Loans
and Loan Guarantees, is amended as follows:
a. The text The U.S. government-wide financial statements need not
disclose a reconciliation between the beginning and ending balances
of the subsidy cost allowance for the outstanding direct loans and the
liability for outstanding loan guarantees reported in the U.S.
government-wide financial statements. is added to par. 10 as the final
sentence.
b. The text The above listed disclosure requirements are not
applicable to the U.S. government-wide financial statements. SFFAS
32 provides for disclosures applicable to the U.S. government-wide
financial statements for these activities. is added following the
existing text for par. 11.
Disclosure
Requirements
Applicable to the U. S.
Government-wide
Financial Statements
Inventory
SFFAS 32 - Page 7
SFFAS 32
Stockpile Materials
The term component entity is used to distinguish between the U. S. Federal government
and its components. The U. S. Federal government is composed of organizations that
manage resources and are responsible for operations, i.e., delivering services. These include
major departments and independent agencies, which are generally divided into sub
organizations, i.e., smaller organizational units with a wide variety of titles, including
bureaus, administrations, agencies, and corporations. (SFFAC No. 2, Entity and Display,
paragraphs 11-12)
SFFAS 32 - Page 8
SFFAS 32
Seized Property
Forfeited Property
Foreclosed Property
Commodities
SFFAS 32 - Page 9
SFFAS 32
Deferred Maintenance
Cleanup Cost
Taxes
SFFAS 32 - Page 10
SFFAS 32
b. the face value of loans outstanding for direct loan and loan
guarantee programs,
c. the long term cost3 of loans and guarantees outstanding for direct
loan and loan guarantee programs,
d. net loans receivable for direct loan programs,
e. the amount guaranteed by the Government for guaranteed loan
programs,
f. the subsidy expense for the reporting year for direct loan and loan
guarantee programs, and
g. a general reference to component entity reports.
References to
Component Entity
Reports
Required Note 1 on
Significant Accounting
Policies Disclosures
29. Describe the reporting entity and identify its major components.
Summarize the accounting principles and methods of applying those
principles that management has concluded are appropriate for
presenting fairly the entitys assets, liabilities, net cost of operations,
and changes in net position. Disclosure of accounting policies should
identify and describe the accounting principles followed by the
reporting entity and the methods of applying those principles. In
general, the disclosure should encompass important judgments as to
the valuation, recognition, and allocation of assets, liabilities,
expenses, revenues and other financing sources. Disclosures of
Long-term cost of direct loans and loan guarantees is the sum of (1) the subsidy cost
allowance for post-1991 direct loans, (2) the liability for post-1991 and pre-1992 loan
guarantees, and (3) allowance for uncollectible amounts for post-1991 direct loans and loan
guarantees.
SFFAS 32 - Page 11
SFFAS 32
SFFAS 32 - Page 12
SFFAS 32
Appendix A: Basis
for Conclusions
Background
31. The fiscal year 2003 CFR was discussed by the Board members at the
April 2004 FASAB meeting. During the discussion of the FY 2003 CFR,
several board members indicated a desire for the CFR to be more
accessible to the intended audience identified in SFFAC 4: citizens and
citizen intermediaries. The members believed this would require a
concise presentation. The member representing the Department of the
Treasury (Treasury) agreed and explained that the current CFR
omitted certain required disclosures for a variety of reasons. Had
these disclosure requirements been included the FY 2003 CFR it would
have been much less accessible. The member noted that earlier
FASAB standards made no distinction between component entity
disclosure requirements and CFR disclosure requirements and to fully
comply with all disclosure requirements would further lengthen the
CFR.
32. Members agreed that it would be appropriate to review disclosure
requirements established prior to the issuance of SFFAC 4 and tailor
CFR disclosure requirements to meet the current concepts. This
approach has been adopted for standards developed since SFFAC 4
was issued and the Board indicated a willingness to review past
standards if resources were not diverted from ongoing projects.
Chairman David Mosso asked Treasury to prepare a list of items it
does not consider appropriate to the CFR in light of SFFAC 4.
33. At the October 2004 FASAB meeting, the Board considered a proposal
prepared by Treasurys Financial Management Service (FMS). The
project proposal included a table of items identified for amendment.
Based on Treasurys offer to staff the project, the Board agreed to go
forward with the project.
Objectives of the
Standard
34. At the May 4-5, 2005 FASAB meeting, Board members held a general
discussion of the issues associated with the project. SFFAC 4 notes
SFFAS 32 - Page 13
SFFAS 32
that the CFR has grown in size and complexity and some have
questioned whether the CFR is trying to satisfy too many audiences
with different needs in one format. SFFAC 4 provides that citizens and
citizen intermediaries should be the audience to whom the CFR is
primarily directed and it is particularly fundamental that the CFR be
timely and understandable to the primary audience.
35. FASAB has been diligent in ensuring that its requirements are
consistent with the guidance contained in SFFAC 4 since the January
2003 issuance of SFFAS 24. SFFAS 24 clarified that SFFASs apply to
all federal entities unless a current or subsequent standard specifically
provides otherwise. Many earlier SFFASs were issued without
considering the need for less detailed disclosures for the CFR.
36. This SFFAS revisits standards issued before January 2003 and amends
many of those standards to specify substitute disclosure requirements
for the CFR or eliminate certain requirements. In its deliberations the
Board assumed that the disclosures being amended were material
disclosures but understood that SFFAC 4 was issued to provide
guidance in addressing material items since immaterial items are not
required to be reported or disclosed by FASAB standards.
37. The basis for the Boards actions with respect to this SFFAS emanates
entirely from the need to implement SFFAC 4 and do retroactively
what the Board has done prospectively since January 2003. However,
the Board has indicated that disclosure requirements eliminated or
modified for the CFR should not result in allowing the preparer to
exclude significant unusual items needed to explain changes in
balances between years.
38. This standard eliminates or modifies disclosure requirements that are
useful for assessing operating performance for a particular program
within an agency. For example, disclosures of restrictions on the use
of foreclosed property and average holding period for foreclosed
property have been eliminated. Also, disclosures of the gross cost
associated with exchange revenue and certain pricing policies have
been eliminated. If information relevant to assessing operating
performance for individual programs were included in the CFR it
would not be concise. A concise CFR will be more appealing and
therefore more accessible to citizens and citizen intermediaries. The
Board believes that including references to other sources of
information appropriately balances the appeal of a concise CFR with
SFFAS 32 - Page 14
SFFAS 32
Exposure Draft
SFFAS 32 - Page 15
FEDERAL
(Internal)
0
2
3
NON-FEDERAL
(External)
6
1
0
SFFAS 32
Responses to the ED
43. The majority of the respondents agreed with the proposed changes to
the disclosure requirements for the CFR. Additionally, a majority of
respondents felt disclosure requirements for component entity reports
should be the same as those required in the CFR.
44. Many respondents believed it would be useful to (a) provide a
summary report designed for citizen users, (b) develop a central link
to agency reports on the website, and (c) study the needs of citizen
users. The Board agrees that these are useful ideas and will consider
these suggestions as it prioritizes future work.
45. Specific concerns raised by respondents related to the omission of
disclosures of liabilities not covered by budgetary resources, forfeited
property not available for sale due to legal restrictions, details
regarding modifications to loans and loan guarantees, and the process
used by the Financial Management Service to prepare the CFR. The
Board did not believe that the concerns outweighed the benefits
derived from reducing the disclosures required for the CFR.
46. This Statement was approved for issuance by nine members of the
Board. Mr. Dacey dissented.
47. Mr. Dacey believes differences in reporting between the CFR and
other federal entities should be limited to unique or unusual reporting
issues present in the federal reporting environment.
48. Mr. Dacey noted that other accounting standard setters do not
differentiate reporting requirements between consolidated and
component entities. However, based on materiality, the information
presented in consolidated financial statements typically is aggregated
and in less detail than in component entity financial statements. Mr.
Dacey also noted that FASAB standards reinforce that the standards
need not be applied to immaterial items.
49. Mr. Dacey believes that certain information that is (1) required in
component entity reports, (2) generally consistent with requirements
of other accounting standard setters, and (3) material to the CFR,
should be required to be presented in the CFR. Such information,
some of which is currently reported in the CFR, relates to disclosure
of:
SFFAS 32 - Page 16
SFFAS 32
a. the general composition of and the basis for determining values for
inventory, operating materials and supplies, and stockpile materials,
b. estimated useful lives and depreciation methods for each major
class of property, plant, and equipment, and related capitalization
thresholds, and
c. certain credit reform information for material programs, currently
reported in the CFR.
50. Based on the Government Accountability Offices analysis, Mr. Dacey
believes that the incremental information necessary to report the
above information and conform with existing FASAB standards would
likely be nominal in relation to the current CFR (i.e., less than one
page).
51. Mr. Dacey notes the Basis for Conclusions indicates that if the
currently required information was included in the CFR, the CFR
would be less accessible to users. In other words, it would lengthen
the CFR and make it less appealing to users. However, Mr. Dacey does
not believe that the length would be significantly affected. Also,
requiring users to locate and read individual entity financial
statements to obtain such information would increase the burden on
users of the CFR and likely result in the information being less easily
accessible to users. While Mr. Dacey strongly supports the notion that
financial information about the federal government as a whole should
be presented in a manner that appeals to the broadest range of
potential users, he feels there are other means to meet this objective.
For example, Mr. Dacey noted that several agencies publish brief
summary annual reports, in addition to their financial statements, that
are intended for broader distribution and are written to be more
understandable to a non-financial user.
SFFAS 32 - Page 17
SFFAS 32
Appendix B:
Relationship of
Amendments to
New Requirements
The disclosure items addressed by this statement have either been modified
to allow aggregation or rescinded to reduce detail for government-wide
reporting consistent with guidance contained in Statement of Federal
Financial Accounting Concepts 4 Intended Audience and Qualitative
Characteristics for the Consolidated Financial Report of the United States
Government. (SFFAC 4) For purposes of understanding the impacts of the
provisions of this statement, this appendix presents the text of amendments
to existing standards along with the text of the new requirements
applicable to the CFR.
SFFAS 32 - Page 18
See Par.
Summary of Changes
No CFR disclosure would be
required.
27 and
28
SFFAS 32
10
16, 28,
29 and
30
SFFAS 32 - Page 19
SFFAS 32
10
10
17, 28,
29 and
30
18, 28,
29 and
30
(SFFAS 3.56)
SFFAS 32 - Page 20
SFFAS 32
10
10
19, 28,
29 and
30
20, 28,
29 and
30
SFFAS 32 - Page 21
SFFAS 32
10
10
11
SFFAS 32 - Page 22
21, 28,
29 and
30
22, 28,
29 and
30
SFFAS 32
11
12
SFFAS 32 - Page 23
23, 28,
29 and
30
SFFAS 32
12
24, 28,
29 and
30
SFFAS 32 - Page 24
SFFAS 32
12
Disclosures of:
The sources (applicable laws and regulations) of cleanup
requirements. The U.S. government-wide financial
statements need not disclose the sources of cleanup
requirements. (SFFAS 6.107)
The method for assigning estimated cleanup cost to current
operating periods (e.g., physical capacity versus passage of
time). The U.S. government-wide financial statements need
not disclose the method for assigning estimated cleanup
costs to current operating periods. (SFFAS 6.108)
25, 28,
29 and
30
SFFAS 32 - Page 25
SFFAS 32
13
13
13
SFFAS 32 - Page 26
SFFAS 32
14
SFFAS 32 - Page 27
26
23, 28,
29 and
30
SFFAS 32
15a
SFFAS 32 - Page 28
28
SFFAS 32
15b
27, 28,
29 and
30
SFFAS 32 - Page 29
SFFAS 32
Appendix C: List of
Abbreviations
CFR
FASAB
FASB
FMS
FY
OMB
PP&E
SFAS
SFFAC
SFFAS
U.S.
SFFAS 32 - Page 30
Status
Issued
Effective Date
None.
Affects
SFFAS 5. pars. 65, 66, 83, 95, and 157, by changing the standard for selecting
discount rates.
SFFAS 7, par. 67.1, by replacing the phrase "best estimate" with "reasonable
estimate" and "likely" with "reasonably expected"; par. 67.2 by replacing best with
reasonable.
SFFAS 17, pars. 25, 27(2), and 27(4), by replacing the phrase "best" with
"reasonable and deleted best," respectively.
Affected by
None.
Summary
During its consideration of long-term obligations, the Board discussed the need to highlight gains and losses
from changes in assumptions in federal financial reports. Some of the most significant changes in amounts on
the statement of net cost for the consolidated Financial Report of the United States Government (CFR) and
for certain component entities can result from gains and losses from changes in assumptions. This Statement
addresses that need.
This Statement applies to federal entities that report liabilities and expenses for federal employee pensions,
other retirement benefits (ORB), and other postemployment benefits (OPEB) in general purpose financial
reports prepared pursuant to Federal Accounting Standard Advisory Board standards.
This Statement requires gains and losses from changes in long-term assumptions used to estimate federal
employee pension, ORB, and OPEB liabilities to be displayed on the statement of net cost separately from
other costs. Separate display will provide more transparent information regarding the underlying costs
associated with these liabilities.
This Statement also requires disclosure of the components of the expense associated with federal employee
pension, ORB, and OPEB liabilities in notes to the financial statements. Such disclosure will provide useful
information for analysis. The information will be comparable across agencies and between postemployment
and retirement programs.
This Statement also provides a standard for selecting the discount rate assumption for present value estimates
of federal employee pension, ORB, and OPEB liabilities. There is currently uncertainty in practice in this
regard.
SFFAS 33 - Page 1
SFFAS 33
This Statement also provides a standard for selecting the valuation date for estimates of federal employee
pension, ORB, and OPEB liabilities, which will establish a consistent method for such measurements.
SFFAS 33 - Page 2
SFFAS 33
Table of Contents
Introduction
Purpose
Background
Accounting Standard
Scope
Display
10
12
Reasonable Estimates
12
12
18
Display
18
27
37
44
Appendix E: Glossary
48
49
SFFAS 33 - Page 3
42
43
SFFAS 33
Introduction
Purpose
1.
2.
Background
b.
b.
Terms in the Glossary are shown in boldface the first time they appear in this document.
SFFAS 33 - Page 4
SFFAS 33
5.
6.
7.
8.
FASAB standards that require the use of Treasury borrowing rates for
discounting do not specify a precise method for selecting such rates.
See Appendix D containing Note 11, Federal Employee and Veterans Benefits Payable,
from the FY 2006 CFR.
SFFAS 33 - Page 5
SFFAS 33
There were a number of options for the discount rate. However, the
discount rate generally required in FASAB standards is the rate on
marketable Treasury securities of similar maturity to the cash
flows of the obligation in question.
9.
SFFAS 33 - Page 6
SFFAS 33
Accounting
Standard
Scope
14. This Statement applies exclusively to entities that report liabilities for
federal employee pensions, other retirement benefits (ORB), and other
postemployment benefits (OPEB), including veterans' compensation,4
in general purpose financial reports prepared pursuant to Federal
Accounting Standard Advisory Board (FASAB) standards. This
Statement does not apply to the Federal Employees Compensation Act
(FECA) program.
15. This Statement requires the display of gains and losses from changes
in long-term assumptions used to estimate liabilities for federal
employee pensions, ORB, and OPEB, including a discount rate
assumption. For the purpose of this Statement, assumptions are
considered long-term if the underlying event about which the
assumption is made will not occur for five years or more. If the event
is one of a series of events, the entire series should be considered the
event and, thus, projected payments may commence within one year
but would be required to extend at least five years. Otherwise,
assumptions would be considered short-term.
16. This Statement does not preclude entities from displaying or
disclosing any information about the effect of changes in any
assumptions with regard to other types of activities.
17. In addition, except for the change in terminology to characterize the
preparer's "best estimate" as "reasonable estimate," this Statement
does not apply to social insurance programs for which the FASAB has
specifically provided standards in SFFAS 17, Accounting for Social
Insurance. The preparation and display of the expense and liability,
The pension program for veterans of the Department of Veterans Affairs (DVA) is not
accounted for as a federal employee pension plan under SFFAS 5 and the obligation
therefore is not recorded as a liability due to differences between its eligibility conditions
and those of federal employee pensions. The veterans pension obligation is currently
measured internally by the DVA in a manner consistent with the DVAs compensation
program.
SFFAS 33 - Page 7
SFFAS 33
Display
Component Entities
19. Component entities should display gains and losses from changes in
long-term assumptions used to measure liabilities for federal civilian
and military employee pensions, ORB, and OPEB, including veterans'
compensation, as a separate line item or line items on the statement of
net costs. See the pro forma illustration in Appendix B.
20. Selecting the gains and losses to display from changes in individual
pension, ORB, and OPEB liability assumptions to be displayed on the
statement of net cost requires judgment. The preparer should consider
quantitative and qualitative criteria. Acceptable criteria include but
are not limited to quantitative factors such as the percentage of the
reporting entity's cost that resulted from the gain or loss and the size
of the gain or loss relative to the liability; and qualitative factors
including whether the gain or loss would be of interest to decisionmakers and other users. Nothing in this standard should be construed
to preclude an entity from displaying gains or losses from changes in
short-term assumptions.
21. Pursuant to SFFAS 5, some component entities report the liability and
expense for pensions, ORB, or OPEB, while other component entities
SFFAS 33 - Page 8
SFFAS 33
$X,XXX
Expense:
Normal costa
Interest on the liability balance
Actuarial (gain)/loss:
From experience
From assumption changes
Prior service costs*
Other
Total expense
XX
XX
X
(X)
XXX
(XX)
XX
XX
$X,XXX
The terms employer entity and administrative entity are used in SFFAS 5 to distinguish
between entities that employ federal workers and thereby incur the employee costs,
including pension cost, and those that are responsible for managing and/or accounting for
the pension or the other employee plan. For example, entities that receive salaries and
expense appropriations are employer entities, while the Office of Personnel Management
(OPM) is an administrative entity because it administers the civilian retirement benefit
plans. See especially SFFAS 5, pars. 71-2 and 88. An entity may be both an employer entity
and an administrative entity, for example, when it, rather than OPM, administers a pension
plan for its employees. In such instances, that entity would be responsible for reporting
gains and losses from changes in assumptions if the conditions in paragraph 19-20 are
satisfied.
SFFAS 33 - Page 9
SFFAS 33
Governmentwide Entity
26. The governmentwide entity should display gains and losses from
changes in assumptions as a separate line item or line items on the
statement of net cost after a subtotal for all other costs and before
total cost. See the pro forma illustration in Appendix B.
27. The governmentwide entity should disclose in the notes to the
financial statements a reconciliation consistent with information
required in paragraph 22 above for pension, ORB, and OPEB liabilities.
At a minimum, reconciliations for liabilities classified as civilian,
military, and veterans compensation must be presented. See Appendix
C for an example.
SFFAS 33 - Page 10
SFFAS 33
SFFAS 33 - Page 11
SFFAS 33
33. Estimates of pension, ORB, and OPEB liability and expense in general
purpose federal financial reports should be measured as of the end of
the fiscal year (or other reporting period if applicable). Measurements
based on an actuarial valuation may be performed as of an earlier date
during the fiscal year, including the beginning of the year, with
adjustments for the effects of changes during the year in major factors
such as the pay raise and cost of living adjustment. A full actuarial
valuation as of the end of the reporting period is not required.
Measurements should reflect the entity's assumptions about the major
factors that would be reflected in a full actuarial valuation, such as the
actual pay raise, the actual cost of living adjustment, and material
known changes in the number of participants covered (enrollment)
that cause a change in the liability.
34. The valuation date in the full actuarial valuation utilized by the entity
should be consistently followed from year to year.
Reasonable Estimates
35. The entity's estimates should reflect its judgment about the outcome
of events based on past experience and expectations about the future.
Estimates should reflect what is reasonable to assume under the
circumstances. The entity's own assumptions about future cash flows
may be used. However, the entity should review assumptions used
generally in the federal government as evidenced by sources
independent of the reporting entity, for example, those used by the
Bureau of Economic Analysis for the National Income and Product
Accounts and, if its assumptions do not reflect such data, explain why
it is inappropriate to do so.
Effect on Prior
Standards
SFFAS 33 - Page 12
SFFAS 33
SFFAS 5
37. This Statement also affects current standards for selecting discount
rates. SFFAS 5, Accounting for Federal Liabilities, is amended as
follows:
65. AssumptionsFor financial reports prepared for the three primary federal plans (CSRS, FERS, and
MRS), the best available actuarial estimates of assumptions should be used to calculate the pension
expense and liability. The selection of all actuarial assumptions should be guided by Actuarial Standards
of Practice No. 4, Measuring Pension Obligations, as revised from time to time by the Actuarial Standards
Board. Accordingly, actuarial assumptions should be on the basis of the actual experience of the covered
group, to the extent that credible experience data are available, but should emphasize expected long term
future trends rather than give undue weight to recent past experience. Although emphasis should be given
to the combined effect of all assumptions, the reasonableness of each actuarial assumption should be
considered independently on the basis of its own merits and its consistency with each other assumption.
[footnote omitted]
SFFAS 33 - Page 13
SFFAS 33
66. In addition to complying with the guidance in the preceding paragraph, the discount
rate assumption for present value measurements pension liabilities should be the
interest rate on marketable Treasury securities of similar maturities to the cash
flows of the payments for which the estimate is being made. The discount rates
should be matched with the expected timing of the associated expected cash
outflow. Thus, each year for which cash flows are projected should have a separate
discount rate associated with it. However, a single average discount rate may be
used for all projected future payments if the resulting present value is not materially
different than the resulting present value using multiple-rates. the interest rate
assumption should be based on an estimated long-term investment yield for the plan,
giving consideration to the nature and the mix of current and expected plan investments
and the basis used to determine the actuarial value of assets; or if the plan is not being
funded, other long-term assumptions (for example, the long-term Federal government
borrowing rate). The underlying inflation rate and the other economic assumptions should
be consistent. The rate used to discount the pension obligation should be equal to the
long-term expected return on plan assets. The discount rates should reflect average
historical rates on marketable Treasury securities rather than give undue weight to
recent past experience with such rates. Historical experience should be the basis
for expectations about future trends in marketable Treasury securities. In
developing the average historical Treasury rates, a minimum of five historical rates
as of the appropriate reporting dates should be used for each maturity. The
historical rates used to calculate the average should be sequential (e.g. 2003-2007).
For example, for an average historical Treasury rate to be used as the discount rate
as of the end of the fiscal year 2007 for a payment due in 10 years, i.e., in 2017, a
minimum of five 10-year Treasury rates should be used. Thus, the rate on 10-year
Treasury securities as of the end of fiscal year 2007 would be one rate, the rate on
10-year Treasury securities as of the end of fiscal year 2006 would be another rate,
etc., until, at a minimum, the rates on 10-year Treasury securities for the years 2003
through 2007 were included in the average. The number of historical rates used for
the average, e.g., five yearly rates, should be consistent from period to period. The
entity should explain that its accounting policy is to be consistent in this regard
from period to period. For cash flows that are projected to occur in future years for
which Treasury securities are not available or that extend beyond the maturities for
which Treasury securities are available, e.g., beyond the 30-year security, the
preparer should incorporate in the assumed discount rate expected re-financing
rates extrapolated from historical Treasury borrowing rates.
SFFAS 33 - Page 14
SFFAS 33
83. AssumptionsAmounts calculated for financial reports prepared for ORB plans
should reflect (1) general actuarial and economic assumptions that are consistent with
those used for federal employee pensions and (2) a long-term health care cost trend
assumption that is consistent with Medicare projections or other authoritative sources
appropriate for the population covered by the plan. The discount rate assumption for
present value measurements of ORB liabilities should be developed in accordance
with paragraph 66 of this standard. be equal to the long-term expected return on plan
assets if the plan is being funded or on other long-term assumptions (for example, the
long-term Federal government borrowing rate) for unfunded plans. The administrative
entity should disclose the assumptions used.
95. The employer entity should recognize an expense and a liability for OPEB when a
future outflow or other sacrifice of resources is probable and measurable on the basis of
events occurring on or before the reporting date. For example, a reduction in force may
require an employer entity to make severance payments, unemployment reimbursements,
or other payments in future periods. Similarly, an injury on the job may require the
employer entity to make short- or long-term reimbursements to the federal workers
compensation program. A long-term OPEB liability should be measured at the present
value of future payments. This will require the employer entities to estimate the amount
and timing of future payments, and to discount the future outflow using the interest rate on
marketable Treasury borrowing rate for securities of similar maturities to the period over
which the payments are to be made. The discount rate assumption for present value
measurements of OPEB liabilities should be developed in accordance with
paragraph 66 of this standard.
SFFAS 33 - Page 15
SFFAS 33
SFFAS 7
38. This Statement also affects current standards that use the term best
estimate. SFFAS 7, Accounting for Revenue and Other Financing
Sources , is amended as follows:
67.1 Entities that collect taxes and duties should provide the following supplementary
information relating to their potential revenue and custodial responsibilities:
67.1 The estimated realizable value, as of the end of the reporting period, of
compliance assessments and, if reasonably estimable, preassessment work in
process. The amounts furnished should represent managements best estimate of
additional revenues reasonably expected likely to be collected from compliance
assessments and from pre-assessment work in process, appropriately qualified as
to their reliability. A range of amounts may be provided for pre-assessment work in
process if estimable. The change in the total(s) of compliance assessments and of
pre-assessment work in process during the reporting period also should be
provided.
67.2 If reasonably estimable, other claims for refunds that are not yet accrued but
are likely to be paid when administrative actions are completed. If estimated,
unasserted claims for refunds should be provided separately from claims filed and
may be expressed as a range of amounts. The amounts furnished should represent
managements best reasonable estimates, appropriately qualified as to their
reliability. The change in the total of these amounts during the reporting period also
should be provided.
SFFAS 17
39. Paragraphs 24-27 and 32-33 of SFFAS 17 provide the standard for
required supplementary information (sub-paragraph 27(3) and 32(3)
were re-classified as basic information by SFFAS 26, Presentation of
Significant Assumptions for the Statement of Social Insurance:
Amending SFFAS 25). Paragraph 25 of SFFAS 17 is changed as
follows:
25. The projections and estimates used should be based on the entitys best
reasonable estimates of demographic and economic assumptions, taking each
factor individually and incorporating future changes mandated by current law.
Significant assumptions should be disclosed.
SFFAS 33 - Page 16
SFFAS 33
Effective Date
42. This Statement is effective for fiscal years beginning after September
30, 2009.
The provisions of this Statement need not be applied to immaterial
items.
SFFAS 33 - Page 17
SFFAS 33
Appendix A: Basis
for Conclusions
Comments Received
A1. The Board did not rely on the number in favor or opposed to a given
position. Information about the respondents majority view is provided
only as a means of summarizing the comments. The Board considered
the arguments in each response and weighed the merits of the points
raised. The respondents comments are summarized below.
A2. Eight written responses were received from the following sources:
FEDERAL
(Internal)
Users, academics, others
Auditors
Preparers and financial managers
NON-FEDERAL
(External)
2
1
5
Summary of Comments
Display
SFFAS 33 - Page 18
SFFAS 33
between actual experience and what was assumed. And even more
dramatically, Note 11 in the CFR for FY 2005 disclosed that of the $123
billion expense for post-retirement healthcare benefit for military
personnel, $53 billion was attributed to changes in assumptions and $5
billion was from differences between actual experience and what was
assumed.
A4. The issue of volatility in reported annual expense was first brought to
the Boards attention with respect to year-to-year volatility in veterans
compensation expense amounts reported by Department of Veterans
Affairs (DVA). Large percentage changes in net cost resulted from
DVAs need to estimate future outflow for veterans compensation
benefits based on complex assumptions and cost models. Other
agencies need to make similar estimates. Small changes in the
discount rate assumption, for example, produce large fluctuations.
A5. The Board decided to propose a general standard rather than focus
solely on DVA and other employee compensation liabilities because
many programs are affected by changes in long-term assumptions.
Although pension, ORB, and OPEB programs employ long-range
assumptions to estimate liabilities and periodic expense, other
programs also involve long-term assumptions for liability and cost
estimates the dollar amounts of which are very large relative to other
financial statement items. For example, environmental liabilities
require the use of long-term assumptions.
A6. The exposure draft proposed that gains or losses from changes in
assumptions, if any, should be presented as discrete line items not
assigned to programs on the statement of net cost (SNC). The Board
believed that this disaggregation would enhance the usefulness of the
information provided on the statement of net cost. Separate display
highlights the effects of changes in assumptions, which can be
significant. Expenses assigned to programs would be distinguished
from the gains and losses from changes in assumptions. The user
would be better able to understand the operating performance of the
entity as well as the role of gains and losses from changes in
assumptions.
A7. The Board believed that the discrete display of such gains and losses
would enhance users understanding of liabilities and periodic
expense. Users, including entity managers, would understand more
about how liabilities and expense are measured; about the uncertainty
SFFAS 33 - Page 19
SFFAS 33
SFFAS 33 - Page 20
SFFAS 33
A12. Another respondent commented that the proposed standard did not
provide satisfactory guidance based on their belief that it (1) would
apply to a very limited federal audience, (2) uses high-level
generalities, and (3) should be directed to the administrative entities
for the primary federal employee benefit programs.
A13. Several respondents commented that the proposed standard is not
clear with respect to how it applies to non-actuarially prepared
liability estimates. For example, one respondent thought that it may
not be feasible to identify separate components of an annual change in
non-actuarial liabilities. Another respondent asked for more guidance
with respect to paragraph 21 in the exposure draft, which directed the
preparer to use judgment in selecting the long-term assumptions for
which gains and losses from changes are to be displayed individually
on the statement of net cost.
The Boards Conclusions regarding Display
A14. The Board decided to limit the standard to federal employee pension,
ORB, and OPEB liabilities. This decision is based on the Boards desire
to address more immediately its primary concern, which is to display
the effect of assumption changes on employee compensation
liabilities. The Board considered the requests from some respondents
for more guidance regarding how the standard would apply to other
than pension, ORB, and OPEB activities. Although in principle a
broader application is desirable, the Board believes that developing
additional guidance would significantly delay implementation of a
broad standard. Therefore, the Board concluded that limiting the
scope to pension, ORB, and OPEB liabilities would address the
specific issue presented at this time. In addition, the need for
information about the effect of assumption changes is more acute for
pension, ORB, and OPEB liabilities than for other liabilities where the
combination of factors that the preparer would have to consider is
more complex. Legal contingencies, for example, involve an array of
considerations that are not as clear-cut as for employee benefits.
A15. This decision effectively renders moot several of the respondents
concerns. First, it addresses the concern of some respondents that the
guidance was not specific enough with respect to which assumptions
are subject to the standard. Second, it addresses the concern that the
disclosure requirement of ED paragraphs 22-23 were too pensionoriented and preparers may be confused regarding how to classify
SFFAS 33 - Page 21
SFFAS 33
SFFAS 33 - Page 22
SFFAS 33
A19. The Board considered the applicability of this standard to the Federal
Employees Compensation Act program. The Board concluded that it
was not appropriate or necessary for the Department of Labor to
provide the information concerning gains and losses from changes in
assumptions to the employer agencies, nor for the employer agencies
to separately report or disclose such information. Under the particular
circumstances of FECA accounting and reporting, the Board decided
that the value of the FECA information provided pursuant to this
standard would not offset the burden and cost of providing it.
A20. Regarding the distinction between short-term assumptions and
long-term assumptions, the Board believes the standard provides
sufficient guidance. Assumptions are considered long-term if the
underlying event about which the assumption is made will not occur
for five years or more. If the event is one of a series of events, the
entire series should be considered the event and, thus, projected
payments may commence within one year but would be required to
extend at least five years. Otherwise, assumptions would be
considered short-term. The Board believes that limiting the scope of
the standard to federal employee pensions, ORB, and OPEB will
reduce the potential for misunderstanding.
A21. Regarding the comment that information about changes in short-term
assumptions might be informative, the Board agrees that there might
be instances where the display of gains and losses from changes in
assumptions that are by definition short-term in nature might be
informative. Although it does not require such display, the final
standard does not preclude displaying the effect of changes in shortterm assumptions (see paragraph 16).
A22. Regarding the comment about the propriety of the 5-year criteria for
distinguishing long-term liabilities, the proposed standard did not
define long-term liabilities. It used that term generally to describe
the types of liabilities for which components of expense should be
disclosed and for which estimates are undertaken using long-term
assumptions. The proposed standard defined long-term assumptions
as those where the underlying event about which the assumption is
made will not occur for five years or more. The Board understands the
respondents comment to involve a question about the sufficiency of
the general usage of long-term liability in the standard. The Board
believes that the usage of long-term liability, along with the specific
focus on assumptions involving events of 5 years or more, is sufficient.
SFFAS 33 - Page 23
SFFAS 33
SFFAS 33 - Page 24
SFFAS 33
SFFAS 33 - Page 25
SFFAS 33
SFFAS 33 - Page 26
SFFAS 33
A32. Regarding the request for more guidance about administrative and
employer entities, the standard now explains that, as indicated in
paragraphs A17-A18 above, the entity that reports the pension, ORB,
or OPEB liability should display the gains or losses from changes in
assumptions and disclose the relevant liability components.
10
See SFFAS 5, pars. 65 and 83, respectively, for pensions and ORB.
SFFAS 33 - Page 27
SFFAS 33
11
12
SFFAS 33 - Page 28
SFFAS 33
A39. The Board concluded in SFFAS 5 that the discount rate for pensions
and ORB, which are funded, should reflect the long-term expected
return on plan assets. The Board explained that the expected longterm rate reduces volatility, reflects the actual experience and
expectations of the primary federal plans, and is consistent with the
assumptions used in the budget.13
A40. As previously stated, current FASAB standards provide two
approaches for selecting discount rates. The first approach is the
expected long-term return on plan assets. The second approach
involves unfunded plans where an expected long-term return on plan
assets is not available and a Treasury borrowing rate is required. The
proposed standard employed one approach for all instances not
otherwise expressly provided in FASAB standards: discount rates for
present value measurements of estimated liabilities that involve longterm assumptions should be the interest rate on marketable Treasury
securities of similar maturities to the cash flows of the benefit
payment for which the estimate is being made.
A41. The Board believed that discount rates for present value
measurements of expense and liability amounts should be average
historical rates for marketable Treasury securities because they reflect
the governments borrowing cost with the public. Also, expected longterm rates reduce volatility, reflect the actual experience and
expectations of the primary federal plans, and are consistent with the
assumptions used in the budget.
A42. The proposed standard eliminated the plans investment yield as an
option for discount rates for present value measurements of expense
and liability amounts. The discount rate assumption for liabilities is
used most significantly to calculate the present value of the obligation
and the annual cost increments of net periodic cost, for example,
the normal cost component of pension expense. Both of those uses are
conceptually independent of a plan's assets, if any. If two employers
have made the same benefit promise, the FASAB believes the annual
cost increments and the present value of the obligation should be the
same even if one expected to earn an annual return of 6 percent on its
plan assets and the other had an unfunded plan.
13
SFFAS 33 - Page 29
SFFAS 33
A43. The Board noted that the Pension Protection Act of 200614 requires
fund managers to focus on long-term interest rates instead of their
particular asset holdings. The Act requires them to calculate pension
liabilities based on current bond rates rather than the expected rate or
return from an asset portfolio. Thus, high expected gains from stock
holdings will no longer be able to help diminish benefit liabilities since
they will no longer be part of the calculation.
A44. The FASAB believes that the objective of discount rates is to reflect
the time value of money. The time value of money should reflect the
single amount that, if invested at the measurement date in risk-free
investments with maturities like those of the future benefit payments
being measured, would generate the necessary cash flows to pay the
benefits when due. Marketable U.S. Treasury securities are deemed
risk free because they pose neither uncertainty in timing nor risk of
default to the holder. This single amount is the gross liability. It would
equal, conceptually, the current market value of a portfolio of Treasury
zero coupon bonds whose maturity dates and amounts would be the
same as the timing and amount of the expected future benefit
payments. In the absence of a portfolio of such zero coupon Treasury
securities, however, the federal preparer should incorporate in
assumed discount rates the re-financing rates expected to be available
on marketable Treasury securities in the future, which should be
extrapolated from historical experience.
A45. With respect to Treasury rates the Board considered average historical
rates as well as current market rates as of the reporting date. Some
prefer current market rates, arguing that interest rates can move
significantly from year to year and the use of interest rates from a prior
year (or smoothing this years rates with those from prior years) can
therefore result in significant misstatements about the current value of
future cash flows. They argue further that changing interest rate
assumptions annually would result in more accurate but also more
volatile estimates of liabilities and changes in net cost than the current
actuarial practice in the federal government of revisiting interest rate
assumptions every 3 to 5 years. They argue that the proposed display
standard is the best way to deal with volatility, i.e., by reporting on a
separate line changes in net cost due to changes in actuarial
assumptions.
14
PL No. 109-280.
SFFAS 33 - Page 30
SFFAS 33
A46. The FASAB decided to propose average historical rates rather than
single-day or market rates on the reporting date. The Board believed
that single-day rates would not reflect the long-term orientation of
most federal programs.
A47. The proposed standard was not intended to change the Boards
preference, expressed in SFFAS 5 and elsewhere, for expected future
trends rather than giving undue weight to recent past experience. With
respect to assumptions in general, FASAB standards have emphasized
expected future trends.
A48. Regarding the method of discounting cash flow in future years, the
FASAB believed that discount rates used to measure the present value
of the annual cost increments of expense should be selected that are
applicable to the various benefit periods in question. The Board
believed that annual cost increments will be more representationally
faithful if individual discount rates applicable to various benefit
deferral periods are selected. For future years extending beyond the
last for which Treasury rates are available, e.g., beyond 30-year
maturities, the proposed standard required the preparer to incorporate
in the assumed discount rate expected re-financing rates extrapolated
from historical Treasury borrowing rates. However, the proposed
standard allowed that a single average discount rate may be used for
all projected future payments if the resulting present value is not
materially different than the resulting present value using multiplerates, or for cases in which discount rates have limited influence on
current liability estimates.
A49. The proposed standard provided for the discount rates to be reviewed
at each annual reporting date and changed if materially different from
the existing rate. However, the Board preferred a stable discount rate
that would result from applying historical averages, rather than
current market rates. The Board stated that current market rates
produce a degree of volatility that is not a faithful representation of the
time value of money in long-term federal programs. The Board also
stated that implicit in the notion of stable rates is the fact that the
discount rate normally would not change every year. The preparer
would change the rate based on a significant change in the historical
average Treasury rate, as determined by the preparer, which would
reflect long-term expectations rather than the current market rate.
Thus, the proposed standard neither required nor precluded annual
changes in the discount rate. Current Office of Personnel Management
SFFAS 33 - Page 31
SFFAS 33
SFFAS 33 - Page 32
SFFAS 33
SFFAS 33 - Page 33
SFFAS 33
SFFAS 33 - Page 34
SFFAS 33
change in assumption per se. In other words, the discount rate does
not necessarily change, the period changes. There would be a oneyear rate, a two-year rate, a 5-year rate, etc., that would not
(necessarily) change each year. The average historical rate would
change only when the data dictated. The mere fact that a payment that
was due in 5 years is now due in 4 years would not constitute an
assumption change. The Board does not believe that the requirement
is conceptually inconsistent with the AEAN or other provisions of
SFFAS 5, paragraphs 63 and 82.
A63. Regarding whether to use the entitys investment return for
determining a discount rate, the Board continues to believe that
discount rates for present value measurements of federal pension,
ORB, and OPEB liabilities should be average historical rates for
marketable Treasury securities because it reflects the governments
borrowing cost with the public and therefore the time value of money
for the government. The Board also believes that there should be
consistency among federal entities. The discount rate is used to
calculate the present value of the obligation and annual cost
increments and should be the same, everything else being equal,
between funded and unfunded pension, ORB, and OPEB programs.
Moreover, overly optimistic assumptions about investment returns
have provided inaccurate financial information about public and
private sector pensions.
A64. The Board believes that the average historical Treasury rate standard
is clear and well defined. The objective is a principle-based
requirement where the reporting entity would use its judgment when
developing the rate.
A65. The Board considered the request for more guidance regarding the
number of instances to include in an average historical rate. The Board
decided to establish a minimum number of five historical Treasury
rates to include for the average. The exposure draft did not specify a
minimum or maximum number of historical Treasury rates for
developing an average. The Board believes that setting a minimum
number of historical rates to include in the average would ensure that
the discount rate captures richer experience and avoids undue focus
on the current market rate. In addition, a standard requiring a
minimum of five periodic rates for the average would not encourage
the use of so many historical rates as to render the average rate
antiquated.
SFFAS 33 - Page 35
SFFAS 33
A66. The Board was concerned regarding the possibility that the entity
would frequently change the number of Treasury rates included in the
average rate. The Boards believes that the reporting entity should be
consistent from period to period with respect to the number of rates
included in the average. SFFAC 1, Objectives of Federal Financial
Reporting, and SFFAC 2, Entity and Display, states that consistency
is one of the qualitative characteristic of accounting information.15 The
Board concluded that the standard should require the entitys
accounting policy disclosure to include the policy of consistency in
this regard, which is the intent of paragraph 31.
A67. The Board notes that a respondent criticized as vague the exception
provided in the exposure draft allowing entities to use a single rate for
discounting if the resulting present value is not materially different
than the resulting present value using the approach in the standard.
The respondent commented that the single rate would need to be
compared to the various components of expense to not materially
differ. Nonetheless, the Board believes that this exception may be
useful to preparers. If the result of applying a single composite
discount rate to the cash flows vs. individual rates is not materially
different, then the preparer may use the single rate. This exception is a
continuation of one currently in FASAB pension and ORB standards
and has been in effect since October 1996. However, the standard now
specifies that the resulting present value of the entitys single rate
should not be materially different than the resulting present value
using the approach in the standard.
A68. With respect to a respondents comment about the use of expert
actuarial boards, the Board notes that such boards provide
assumptions for funding and other purposes and presumably also
would provide assumptions for general-purpose financial statements.
However, for the latter, under the standard, they would look at the
broader historical market for Treasury securities for context.
Actuaries work with requirements appropriate to specific objectives.
The Board concludes that the general requirement for average
historical rates should be retained.
A69. With respect to the request for additional guidance regarding the
phrase extrapolate from historical Treasury borrowing rates where
15
SFFAS 33 - Page 36
SFFAS 33
projected cash flows extend beyond the maturities for which Treasury
securities are available, e.g., beyond the 30-year maturity, the Board
notes that there are several methods that can be applied to extend a
yield curve for terms beyond the last available rate in the market. The
International Actuarial Associations Risk Margin Working Groups
(RMWG) recent exposure draft16 on measuring liabilities for insurance
contracts mentions that the simplest approach is to use the last
available rate (for example the 20-year rate for a 30-year cash flow),
and that a more advanced method would be to extrapolate the yield
curve with a constant slope assuming that the forward rate observed
between the last two market rates stays constant. In addition, the
RMWG ED states that a model can be applied to extend the yield curve
and cites several examples. The Board believes these approaches are
reasonable.17
16
SFFAS 33 - Page 37
SFFAS 33
18
SFFAS 33 - Page 38
SFFAS 33
SFFAS 33 - Page 39
SFFAS 33
19
20
SFFAS 33 - Page 40
SFFAS 33
SFFAS 33 - Page 41
SFFAS 33
Appendix B: Pro
Forma Statement of
Net Cost Displaying
Separate Line Item
for Gains and
Losses Due to
Changes in
Assumptions
Component Entity: Pro forma Statement of Net Cost for the Year Ended
September 30, 2007
2007 (billions)
ABC Program
ABC expenses
Less: exchange revenue
$ 223
24
199
200
(50)
150
$349
Governmentwide Entity: Pro Forma Statements of Net Cost for the Year
Ended September 30, 2007
Gross
Cost
ABC Agency...
OPM.
DVA..
XYZ..
$ 199
***
***
***
Earned
Revenue
(billions)
$ 24
**
**
**
Net
Cost
$ 223
***
***
***
** *
Other agencies..
Cost before gains/losses from
changes in assumptions.
Less: loss (plus gain) from changes in
assumptions:
146
92
54
3,060
226
2,834
ABC
OPM..
DVA..
Total cost .
150
100
110
$ 3,420
0
0
0
226
150
100
110
$ 3,194
SFFAS 33 - Page 42
SFFAS 33
Appendix C: Pro
Forma Note
Disclosure of OPEB
Liabilities and
Expense
Post Employment Actuarial Liabilities (in billions)
Military
Veterans
Balance
Sheet Total
1,496.3
1,563.0
924.8
4,062.1
Normal cost
41.5
33.4
XXX
92.4
96.9
XXX
0.2
58.5
XXX
1.9
(0.2)
25.8
4.6
XXX
XXX
XXX
135.8
219.2
XXX
(67.6)
(52.9)
XXX
1,564.5
1,729.3
XXX
48.5
26.9
1,613.0
1,756.2
1,122.6
Civilian
Beginning balance
Expense
Assumption changes
Plan amendments (prior service cost)
Actuarial (gain)/loss
Other
Total expense
Less benefits paid
SFFAS 33 - Page 43
4,491.8
SFFAS 33
Appendix D: Note
11 from FY 2006
Financial Report of
the United States
SFFAS 33 - Page 44
SFFAS 33
SFFAS 33 - Page 45
SFFAS 33
SFFAS 33 - Page 46
SFFAS 33
SFFAS 33 - Page 47
SFFAS 33
Appendix E:
Glossary
SFFAS 33 - Page 48
SFFAS 33
Appendix F: List of
Abbreviations
ANPV
CFS
CPI
ED
FASAB
FASB
GAO
GASB
OMB
OPEB
ORB
PV
RSI
SFAS
SFFAC
SFFAS
SFFAS 33 - Page 49
Status
Issued
Effective Date
Upon issuance.
None.
Affects
None.
Affected by
None.
Summary
The Federal Accounting Standards Advisory Board (FASAB) is the body designated by the American Institute
of Certified Public Accountants (AICPA) as the source of generally accepted accounting principles (GAAP)
for federal reporting entities.1 As such, the FASAB is responsible for identifying the GAAP hierarchy for
federal reporting entities. The GAAP hierarchy consists of the sources of accounting principles and the
framework for selecting the principles used in the preparation of general purpose financial reports2 of federal
reporting entities that are presented in conformity with generally accepted accounting principles. However,
the hierarchy for selecting the principles used in the preparation of general purpose financial reports by
federal reporting entities was set forth in the AICPA Statement on Auditing Standards (SAS) No. 91, Federal
GAAP Hierarchy, rather than in the authoritative literature of the FASAB. This Statement incorporates the
hierarchy into the FASABs authoritative literature.
Incorporating the GAAP hierarchy into the authoritative literature of the FASAB is not intended to cause a
sudden and dramatic change in practice for federal entities. This Statement permits those federal entities
currently applying financial accounting and reporting standards issued by the Financial Accounting Standards
Board (FASB) to continue to do so. In addition, given that the FASAB is the source of GAAP for federal
entities, the Statement clarifies that a federal entity that is preparing GAAP-based general purpose financial
reports for the first time is required to implement FASAB standards unless, in consultation with its auditors
and bodies with oversight authority, the entity clearly demonstrates that the needs of its primary users would
be best met through the application of FASB standards.
Statement of Federal Financial Accounting Concepts (SFFAC) 2, Entity and Display, discusses the criteria for defining federal
reporting entities. Also, the terms federal reporting entity and federal entity are used interchangeably throughout this Statement.
2
The term general purpose financial report is used throughout this Statement as a generic term to refer to the report that contains the
entitys financial statements that are prepared pursuant to generally accepted accounting principles. In the federal government, the
report is known as the Performance and Accountability Report or the Agency Financial Report.
SFFAS 34 - Page 1
SFFAS 34
Table of Contents
Contents
Summary
Introduction
Purpose
Materiality
Effective Date
Accounting Standards
Scope
Effective Date
Project History
Exposure Draft
11
12
Appendix B: Abbreviations
14
SFFAS 34 - Page 2
SFFAS 34
Introduction
Purpose
1.
b.
Materiality
2.
Effective Date
3.
SFFAS 34 - Page 3
SFFAS 34
Accounting
Standards
Scope
4.
The Hierarchy of
Generally Accepted
Accounting Principles
5.
b.
c.
2
The AICPA has designated the FASAB as the source of GAAP for federal reporting entities.
Therefore, FASAB GAAP would be the appropriate accounting standards for federal
reporting entities in the executive, legislative, and judicial branches.
3
For purposes of interpreting category (b), the word cleared means that the FASAB does not
object to the pronouncements issuance.
4
SFFAS 34 - Page 4
SFFAS 34
d.
Other Accounting
Literature
6.
7.
8.
SFFAS 34 - Page 5
SFFAS 34
Application of Standards
Issued by the Financial
Accounting Standards
Board
9.
The FASAB has an existing project underway that will assist the Board in determining
whether certain federal entities should be permitted to continue applying FASB GAAP and, if
so, whether additional reporting should be required. This project will also consider whether
federal entities should be permitted to convert from FASB standards to International
Financial Reporting Standards published by the International Accounting Standards Board.
SFFAS 34 - Page 6
SFFAS 34
b.
c.
d.
e.
Effective Date
13. The requirements in this standard are effective upon its issuance.
The provisions of this Statement need not be applied to immaterial
items.
SFFAS 34 - Page 7
SFFAS 34
Appendix A: Basis
for Conclusions
Project History
Application of Standards
Issued by the Financial
Accounting Standards
Board
A3. Although the FASABs standards have been recognized as GAAP for
federal entities (FASAB GAAP) since October 1999, some federal
entities follow GAAP for nongovernmental entities promulgated by the
private sector Financial Accounting Standards Board (FASB GAAP).
For example, federal government corporations, the U.S. Postal
Service, certain component entities of the U.S. Department of the
Treasury, and some smaller entities in the executive and legislative
branches have historically applied FASB GAAP and continue to do so.
SFFAS 34 - Page 8
SFFAS 34
A4. In early 2000, the FASAB recognized this practice as acceptable for
those entities that had been following FASB GAAP to avoid an
immediate and unanticipated requirement that these federal entities
follow federal GAAP after the FASAB was recognized as the Rule 203
standards-setting body for the federal government. This guidance was
published in the January March 2000 issue of FASAB News 7 and was
intended as a temporary measure in light of the unanticipated
consequences of Rule 203 recognition. The existence of the issue has
also been acknowledged in Statement of Federal Financial Accounting
Concepts (SFFAC) 2, Entity and Display (paragraph 78); Statement of
Federal Financial Accounting Standards (SFFAS) 5, Accounting for
Liabilities of the Federal Government (inside front cover and
Appendix A, paragraph 142); SFFAS 8, Supplementary Stewardship
Reporting (Introduction paragraph 40); and, SFFAS 24, Selected
Standards for the Consolidated Financial Report of the United States
Government (Appendix A, paragraph 20).
A5. Providing interim guidance on the application of standards issued by
the FASB serves to proactively address entity concerns that moving
the hierarchy of generally accepted accounting principles into the
accounting literature without addressing the use of FASB GAAP would
require a sudden and dramatic change in practice.
Application to
Legislative and Judicial
Branches
A6. The FASABs sponsors do not prescribe accounting standards for the
legislative and judicial branches. The legislative and judicial branches,
and most entities within those branches, are not currently required to
prepare general purpose financial reports and those that do prepare
statements are not subject to any requirements by the FASABs
sponsors to follow FASAB GAAP or prepare a reconciliation between
FASAB GAAP and FASB GAAP. However, as the source of GAAP for
federal reporting entities, FASAB GAAP would be the appropriate
accounting standards for these entities to adopt if they prepare GAAPbased general purpose financial reports.
Exposure Draft
A7. The Board published the exposure draft (ED), The Hierarchy of
Generally Accepted Accounting Principles for Federal Entities,
SFFAS 34 - Page 9
SFFAS 34
5
22
27
NON-FEDERAL
(External)
3
1
4
A10. The Board did not rely on the number in favor of or opposed to a given
position. Information about the respondents majority view is
provided only as a means of summarizing the comments. The Board
considered the arguments in each response and weighed the merits of
the points raised. The respondents comments are summarized below.
A11. Respondents generally agreed that the hierarchy of GAAP that
currently resides in the professional auditing literature should be
incorporated into the FASABs authoritative literature. Also,
respondents generally agreed that: 1) general purpose financial
reports prepared in conformity with accounting standards issued by
the FASB should be regarded as being in conformity with GAAP for
those federal entities that have in the past issued such reports, and 2) a
SFFAS 34 - Page 10
SFFAS 34
A14. Paragraph 5 of the Statement presents the GAAP hierarchy for federal
entities, and the Board expects practice to be governed by this
hierarchy. The hierarchy presented in the ED referred to AICPA
Statements of Position (SOP) and Practice Bulletins specifically made
applicable to federal reporting entities and cleared by the FASAB.
However, the FASB is codifying its accounting standards and SOPs
and Practice Bulletins will generally be incorporated into the
codification and have no continued authority. Because of this matter
and because no SOPs and Practice Bulletins have been specifically
made applicable to federal reporting entities and cleared by the
FASAB, these sources were removed from the hierarchy.
A15. In addition, while some respondents believed that it would be useful to
discuss the location of administrative directives within the hierarchy,
the FASAB believes that incorporating the GAAP hierarchy in the
accounting standards should be accomplished expeditiously due to
the AICPAs planned removal of the hierarchy from the auditing
standards. Since FASAB is unaware of any practice problems arising
due to the absence of explicit guidance placing each type of
administrative directive within the hierarchy, immediate action on this
SFFAS 34 - Page 11
SFFAS 34
request is not warranted.8 FASAB also notes that there are multiple
sources of administrative directives, many types of directives, and
varying processes for developing directives. Resolving placement for
all administrative directives may require significant study. Therefore,
the Board is acting to adopt the GAAP hierarchy essentially as it
currently exists in the AICPA audit literature and does not intend to
change current practices.
A16. Paragraphs 6 and 7 of the Statement provide guidance to assist readers
in understanding how the hierarchy should be considered when
preparing general purpose financial reports in conformity with GAAP.
A17. Paragraph 7 also discusses when to consider literature not discussed
in the GAAP hierarchy - Other Accounting Literature. The phrase
Other Accounting Literature is capitalized in the Statement and
included under a separate heading to indicate its distinction from the
GAAP literature. Other Accounting Literature is presented separately
from the hierarchy because the items in this category do not establish
GAAP and cannot amend existing FASAB standards, interpretations,
technical bulletins or releases, or staff implementation guidance.
Other Accounting Literature may only be relied upon by financial
statement preparers and auditors to resolve specific accounting issues
in the absence of literature in paragraph 5 of the Statement.
A18. The Board also recognizes that other standards-setting bodies are
currently considering codifying their pronouncements. As a result,
listing the titles of specific pronouncements in Other Accounting
Literature may cause difficulty in referencing those documents in the
future. Thus, paragraph 8 of the Statement refers to pronouncements
of other standards-setting bodies rather than listing specific
pronouncements.
Entities Following
FASB GAAP
A19. As noted above, the Board primarily intended to incorporate the GAAP
hierarchy into the FASABs accounting literature and did not intend to
change existing practices at this time. The Board is continuing a
separate project on reporting by federal entities that primarily apply
standards issued by the FASB. The project intends to determine
This request will be considered when the Board reviews its technical agenda to select new
projects.
SFFAS 34 - Page 12
SFFAS 34
Board Approval
A21. This statement was approved for issuance by all members of the
Board. The written ballots are available for public inspection at the
FASAB's offices.
SFFAS 34 - Page 13
SFFAS 34
Appendix B:
Abbreviations
AICPA
FASAB
FASB
GAAP
GAO
GASB
IASB
IPSASB
OMB
SAS
SFFAC
SFFAS 34 - Page 14
Status
Issued
Effective Date
Upon issuance
TR 13, Implementation Guide for Estimating the Historical Cost of General Property,
Plant, and Equipment
Affects
Affected by
None.
Summary
This standard amends Statement of Federal Financial Accounting Standard (SFFAS) 6, Accounting for
Property, Plant, and Equipment, which was issued in November 1995. SFFAS 6 provides implementation
guidance and permits estimation of the amount to be capitalized but is not specific regarding allowable
methods of estimation.
This standard also amends SFFAS 23, Eliminating the Category National Defense Property, Plant, and
Equipment, which was issued in May 2003. SFFAS 23 provides guidance for estimating historical cost and
accumulated depreciation consistent with SFFAS 6, as amended, but offers more detail regarding permissible
documentation and methods.
This standard clarifies that reasonable estimates of original transaction data historical cost may be used to
value general property, plant, and equipment (G-PP&E). The use of reasonable estimates is available to
reporting entities that have not previously prepared financial reports but who may be required or elect to do
so in the future and do not yet have adequate controls or systems to capture these costs. In addition, these
amendments also apply in those cases where entities have decided to use estimates to determine the
historical cost values of G-PP&E.
SFFAS 35 - Page 1
SFFAS 35
Table of Contents
Contents
Introduction
Purpose
Materiality
Effective Date
Accounting Standard
Scope
Project History
10
Member Views
11
Exposure Draft
13
Board Approval
14
SFFAS 35 - Page 2
SFFAS 35
Introduction
Purpose
1.
2.
3.
Note that this amendment will not extend the effective date1 of SFFAS
6 as amended, but will clarify that methods deemed acceptable by
SFFAS 23 continue to be acceptable. This amendment to SFFAS 6
clarifies that it is acceptable to use estimates to approximate the
historical cost values of G-PP&E.
4.
Thus, entities must comply with the provisions of SFFAS 6 as amended in order to obtain
an unqualified audit opinion. This ensures comparability among federal reporting entities
receiving unqualified audit opinions.
SFFAS 35 - Page 3
SFFAS 35
Materiality
5.
Effective Date
6.
The Statement will be effective upon issuance to ensure that any cost
savings available are realized as soon as possible.
SFFAS 35 - Page 4
SFFAS 35
Accounting
Standard
Scope
Estimation of G-PP&E
Historical Cost
7.
8.
9.
10. This standard clarifies that federal entities should report their G-PP&E
based on historical cost information in accordance with the asset
recognition and measurement provisions of SFFAS 6, as amended.
However, reasonable estimates of historical cost may be used to value
G-PP&E assets.
11. This standard also allows the use of reasonable estimates when an
entity determines it is necessary to revalue G-PP&E assets previously
reported.
12. The text of SFFAS 6, par. 40 and 45, and SFFAS 23, par. 10 through 18,
is amended as shown below (original paragraph numbers are
retained).
(SFFAS 6)
[40.] Although the measurement basis for valuing G-PP&E remains
historical cost, reasonable estimates may be used to establish the historical
SFFAS 35 - Page 5
SFFAS 35
Disclosure Requirements
[45.] The following are minimum general G-PP&E disclosure requirements:
(SFFAS 23)
[10.] The initial capitalization amount for G-PP&E assets previously
considered ND PP&E should be based on historical cost in accordance with
the asset recognition provisions of SFFAS 6, as amended, and should be the
initial historical cost for the base unit4A items, including any major
improvements or modifications.
[11.] This standard recognizes that determining initial historical cost for
items acquired many years prior to the effective date of this standard in an
environment in which the historical records were not required to be
retained and may therefore be inadequate not be reasonable or practical.
4A
"Base unit" refers to the level of detail considered in categorizing PP&E. Generally, the
base unit is the smallest or least expensive item of property to be categorized. The term
"base unit" may be used by others to have a different meaning--the meaning intended in this
standard is limited to that specified above [from SFFAS 6 fn 25].
SFFAS 35 - Page 6
SFFAS 35
Adjustment to
Cumulative Results of
Operations
SFFAS 35 - Page 7
SFFAS 35
[18.] The nature of the changes in accounting principle and its effect on
relevant balances should be disclosed in the current period. Financial
statements of subsequent periods need not repeat the disclosures.6
[Footnotes:]
[5]
SFFAS 35 - Page 8
SFFAS 35
Appendix A: Basis
for Conclusions
Project History
A1. At the FASAB September 2007 meeting, the Board discussed technical
agenda options. During the discussion, members expressed support
for an effort to reduce the cost expected to be incurred at the
Department of Defense (DoD) as it establishes the historical cost for
G-PP&E during the coming years.
A2. The discussion documented a number of concerns relating to DoD
accounting. In addition, concerns regarding group and composite
depreciation have been raised since the meeting. Collectively,
concerns regarding G-PP&E were summarized as follows:
a.
b.
c.
d.
e.
A3. In considering these issues, the Board agreed that issues a. through d.,
can and should be addressed quickly due to the potential that more
costly solutions will be used in the absence of guidance. The Board
agreed that these issues could be addressed without significantly
affecting the Boards ongoing projects.
A4. With respect to issue e., evaluation of existing standards, the Board
agreed that this issue should be considered when the Board makes
decisions on its technical agenda. As noted by one of the members,
considerable time has been devoted to the question of G-PP&E
accounting. A project on this topic is likely to be controversial and
demand staff and Board time. Therefore, undertaking the project
should be considered in the broad context of agenda setting. In August
SFFAS 35 - Page 9
SFFAS 35
A5. Regarding the permissibility of estimates (issue a), the Board agreed
that it should consider amending the standards. It is not unreasonable
to read SFFAS 6, as amended, to provide for the use of the SFFAS 23
initial capitalization methods only when assigning cost to G-PP&E
acquired before the effective dates of SFFAS 6 or 23. The Board agreed
to clarify this through a relatively narrow amendment of SFFAS 23. A
draft exposure draft (omitting the Boards basis for conclusions) was
presented at the December 2007 FASAB meeting. The draft (1)
provided an additional five year window for the Department of
Defense and a rolling five year window for agencies not previously
producing financial reports to rely on SFFAS 23 methods and (2)
provided new guidance regarding estimation of the in-service date.
Subsequent Board discussions discouraged a proposal that would
establish a date-certain timeframe for the use of reasonable estimates
when determining the historical cost values of G-PP&E.
A6. Staff did not request immediate action by the Board on the draft ED.
The Board generally supported the proposal so staffs next steps were
to inquire with selected agencies and members of the audit community
to confirm that the guidance is needed. In addition, staff reviewed
fiscal year 2007 agency reports to determine if agencies other than the
Department of Defense face similar challenges with respect to
developing G-PP&E systems, using SFFAS 23 methods, and could be
expected to incur significant costs to arrive at acceptable estimates
absent explicit guidance.
A7. With respect to the three remaining issues noted in par. A3.,
(group/composite depreciation, deployed assets, and cost
accounting), staff recommended and the Board agreed to request that
the Accounting and Auditing Policy Committee (AAPC) consider these
issues. Staff suggested that a task force develop implementation
guidance within the boundaries of the current standards. The AAPC
has accepted the project and a task force is actively engaged in
developing guidance.
SFFAS 35 - Page 10
SFFAS 35
Member Views
A8. SFFAS 6 was issued in November 1995 and was effective in fiscal year
1998. In addition, SFFAS 23, Eliminating the Category National
Defense PP&E, was issued in May 2003 and was effective in fiscal year
2003. In 2002, the Accountability of Tax Dollars Act established a
requirement for many agencies that did not previously produce
audited financial statements to do so. As a result, in fiscal year 2003
many agencies were required to comply with SFFAS 6 for the first
time. Therefore, certain entities were not afforded an implementation
period because they began preparing financial statements after the
effective date of SFFAS 6.
A9. This Statement permits continued application of the SFFAS 23 initial
capitalization guidance. The Statements primary objective is a cost
effective method for attaining compliance with SFFAS 6 as amended.
This method is available to reporting entities that have not previously
prepared financial reports but who may be required or elect to do so in
the future and do not yet have adequate controls or systems to capture
these costs. In addition, these amendments also apply in those cases
where entities decide to use estimates to determine the historical cost
values of G-PP&E.
A10. An entity may find that it is not practical to determine the historical
cost of G-PP&E based on the original transaction data because it is
either not cost effective to do so or documentation is inadequate. Cost
effectiveness may be based on an analysis of various cost factors
associated with determining those historical cost values. An entity
may also determine it impractical when the original transaction data
historical cost documentation has not been maintained or when the
historical cost data has been maintained but not in a manner that
facilitates the timely valuation of G-PP&E. An entitys inadequate
systems and/or processes that do not facilitate the ready and timely
collection of data for the valuation of G-PP&E may lead to an
assessment that valuation based on original transaction data is not
cost effective.
A11. The Board initially included cost effectiveness and practical as the
basic criteria to be met before the use of reasonable estimates when
valuing G-PP&E in accordance with the asset recognition and
measurement provisions of SFFAS 6, as amended, would be permitted.
The Board later decided against including the above basic criteria.
Such criteria are open to interpretation and likely to lead to subjective
and inconsistent application.
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A12. The Board stresses to federal entities that the measurement basis for
G-PP&E remains historical cost; however, reasonable estimates are
allowed. The Board believes entities should use judgment regarding
the decision to use estimated historical cost in lieu of original
transaction based data. The Board also notes that estimates are widely
used throughout the financial statements. In this case, estimates
should provide a reasonable approximation of historical cost; the
measurement basis required for G-PP&E.
A13. The Board is aware that these amendments will not resolve all the
concerns surrounding accounting for G-PP&E. However, allowing
estimates as entities are working towards implementing systems and
processes that can capture historical data would be beneficial. The
Board is also relying on other means, such as laws and regulations
relating to systems and controls, to encourage entities to continue to
develop adequate systems and processes.
A14. The Board also debated at length whether to establish a date-certain
time frame or have an open-ended approach for the use of reasonable
estimates when determining the historical cost values of G-PP&E. The
debate included both pros and cons to a date-certain approach. One of
the pros to the date-certain approach is that entities will have a
specific goal (i.e., time frame) to work towards. The con to the datecertain approach is that there is a risk that the benefits of the standard
could be voided if the entity does not or cannot meet the date-certain
time frame. The debate also included pros and cons to an open-ended
approach. The pros include flexibility and the opportunity to test
various methodologies when determining the best estimation method.
The cons include the prolonged use of estimates when not
appropriate.
A15. The Board decided against a proposal that would establish a datecertain time frame for the use of reasonable estimates when
determining the historical cost values of G-PP&E. The Board does not
want to penalize an entity simply because it may take the entity longer
to implement the necessary systems and processes to ensure the
adequate capture of historical cost values. In addition, the Board
believes that the use of reasonable estimates is proper given the
appropriate disciplines surrounding the use of estimates.
A16. The Board encourages those federal entities that use estimates to
approximate the historical cost values of G-PP&E to establish
SFFAS 35 - Page 12
SFFAS 35
Exposure Draft
A18. FASAB published the exposure draft (ED), Estimating the Historical
Cost of General Property, Plant, and Equipment -- Amending
Statements of Federal Financial Accounting Standards 6 and 23 on
November 14, 2008. Upon release of the ED, notices and/or press
releases were provided to: The Federal Register, the FASAB News, the
Journal of Accountancy, AGA Today, the CPA Journal, Government
Executive, the CPA Letter, Government Accounting and Auditing
Update, the Financial Statement Audit Network, the Federal Financial
Managers Council, and committees of professional associations
commenting on past exposure drafts.
A19. Thirty-one comment letters were received from the following sources:
FEDERAL
(Internal)
Users, academics, others
Auditors
Preparers and financial managers
3
20
NON-FEDERAL
(External)
7
1
A20. A majority of the respondents agreed with the Board that reasonable
estimates may be used upon initial capitalization as entities implement
G-PP&E accounting for the first time, as well as by those entities who
previously implemented G-PP&E accounting.
A21. Based on comments received on the exposure draft, the Board agreed
that internal use software, when the software meets the criteria for GPP&E in accordance with SFFAS 10, Accounting for Internal Use
Software, should also be included in the scope of this standard.
SFFAS 10 specifies that if internal use software meets the criteria for
SFFAS 35 - Page 13
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Board Approval
A23. This Statement was approved for issuance by all members of the
Board. The written ballots are available for public inspection at the
FASABs offices.
SFFAS 35 - Page 14
Status
Issued
Effective Date
The following phase-in of reporting requirements as basic information provides for full
implementation for reporting periods beginning after September 30, 2012.
a. These standards are effective for periods beginning after September 30, 2009.
b. Information should be reported as RSI for the first three years of implementation
(fiscal years 2010, 2011, and 2012).
c. Beginning in fiscal year 2013, the required information should be presented as
specified in paragraphs 12 - 42.
d. Earlier implementation is encouraged.
None.
Affects
None.
Affected by
None.
Summary
This standard requires:
1.
2.
A basic financial statement in the consolidated financial report of the U.S. Government (CFR) presenting
for all the activities of the federal government:
a.
the present value of projected receipts and non-interest spending under current policy without
change,
b.
the relationship of these amounts to projected Gross Domestic Product (GDP), and
c.
changes in the present value of projected receipts and non-interest spending from the prior year.
b.
SFFAS 36 - Page 1
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c.
3.
the likely impact of delaying corrective action when a fiscal gap exists.
b.
c.
These requirements will be implemented following a three-year transition period beginning in fiscal year (FY)
2010 during which all information may be presented as RSI. Beginning in FY 2013, the required information
will be presented as a basic financial statement, disclosures and RSI as designated within the standards.
The required information will help readers of the CFR assess whether future budgetary resources will likely
be sufficient to sustain public services and to meet obligations as they come due.1 Such an assessment is an
important objective of federal financial reporting requiring prospective information about receipts and
spending, the resulting debt, and how these amounts relate to the economy.
Statement of Federal Financial Accounting Concepts (SFFAC) 1, paragraphs 135 and 139.
SFFAS 36 - Page 2
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Table of Contents
Contents
Summary
Introduction
Purpose
Materiality
Effective Date
Accounting Standards
Scope
Definitions
Valuation Date
13
Projection Periods
13
14
Disclosures
14
16
18
Effective Date
18
19
Project History
19
22
23
Policy Assumptions
24
26
27
28
Summary Measures
29
30
32
34
35
37
37
Other comments
38
Board Approval
39
40
40
SFFAS 36 - Page 3
SFFAS 36
42
42
2. Demographic Trends
45
47
48
49
50
52
8. Fiscal Gap
52
53
53
55
59
60
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Introduction
Purpose
1.
2.
3.
4.
In this standard, public services refers to all goods, benefits and services provided by the
government. Federal public services include but are not limited to the provision of goods,
transfer payments (such as Social Security benefits) or other financial benefits (such as loan
guarantees), as well as national defense, transportation safety and national parks.
4
SFFAS 36 - Page 5
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Objectives of Basic
Financial Statement
(Comprehensive LongTerm Fiscal Projections
for the U.S.
Government) and
Accompanying
Disclosures and
Required Supplementary
Information
5.
6.
7.
8.
Terms defined in the Glossary are shown in bold-face the first time they appear.
Note that fiscal sustainability reporting does not extend to supporting a detailed
assessment of whether current policy without change regarding federal public services and
taxation is optimal; rather, it addresses the fiscal outlook if current policy is continued
without change.
SFFAS 36 - Page 6
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Materiality
Effective Date
SFFAS 36 - Page 7
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Accounting
Standards
Scope
Definitions
b.
a share of the present value of the GDP for the projection period,
and/or
c.
10
GDP is the total market value of all final goods and services produced domestically during
a given period of time. The components of GDP are: private sector consumption and
investment, government consumption and investment, and net exports (exports-imports).
11
Since interest is factored into the present value calculation, the fiscal gap as a share of
spending is expressed as a share of spending excluding interest (non-interest spending).
SFFAS 36 - Page 8
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12
In the federal budget process, discretionary spending refers to outlays from budget
authority that is controlled by annual appropriation acts. Annual appropriation acts are
required to fund the continuing operation of all federal programs that are not mandatory.
Mandatory spending includes entitlement authority such as Social Security and Medicare
and payment of interest on the national debt. Congress controls mandatory spending by
controlling eligibility and setting benefit and payment rules, rather than by annual
appropriation acts. For additional information, see A Glossary of Terms Used in the Federal
Budget Process, GAO-05-734SP. Available at: http://gaoweb.gao.gov (accessed May 7, 2009)
SFFAS 36 - Page 9
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change regarding public services and taxation along with other factors
such as projected economic and demographic trends.
20. Projections of deficits, surpluses, and debt are a central feature of
Fiscal Sustainability Reporting. Projections are not forecasts or
predictions; they are designed to depict results that may occur under
various conditionsfor example, what if current policy without change
regarding federal government public services and taxation are
continued in the future? Projections are useful to display alternative
future scenarios, but it is important to clearly explain the nature of the
information being presented.
21. Long-term projections are derived from models that rely heavily on
assumptions. There is an expectation that such models will evolve
over time. Therefore, this Statement provides guiding principles for
selecting assumptions. The guiding principles address three types of
assumptions: policy, economic, and demographic.
22. Policy assumptions address the factors under the direct control of the
federal government concerning the taxes and other receipts to be
received by the federal government and the public services to be
provided by the federal government.
23. Economic assumptions address the economic factors that are not
under the direct legislative control of the federal government (for
example, inflation and growth in GDP).
24. Demographic assumptions address projected population trends (for
example, birth rates, mortality rates, and net immigration).
25. When combined, policy, economic, and demographic assumptions
determine the future projected receipts and spending.
26. To illustrate the distinction between policy, economic and
demographic assumptions: consider the application of policy,
economic and demographic assumptions to the Social Security
program. Assumptions relating to future Social Security eligibility and
benefit formulas represent policy assumptions. Assumptions about
productivity growth and inflation represent economic assumptions.
Assumptions about the future population represent demographic
assumptions.
SFFAS 36 - Page 10
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b.
SFFAS 36 - Page 11
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(3) Current law may include provisions that have been changed
in a consistent direction over a period of time. For example,
the statutory limit on federal debt has been consistently
raised. A current-law policy assumption would be that
Treasury borrowing will never increase beyond the dollar
amount of the current statutory limit. In such situations a
simple projection of current law would not reflect the
implicit current policy without change.
29. Assumption of a uniform growth rate for all types of receipts and
spending is not required. Assumptions may be based on, but are not
limited to, the notion that non-interest spending or receipts are likely
to:
a.
b.
c.
13
Inflation is growth in a general measure of prices, usually expressed as an annual rate of
change.
14
15
SFFAS 36 - Page 12
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Valuation Date
Projection Periods
16
Factors affecting feasibility include but are not limited to the timing of the enactment of
legislation and the ability of the preparers to revise the financial statements and/or the
ability of the auditors to audit the revised information prior to the issuance of the financial
statements and/or the audit opinion.
17
SFFAS 36 - Page 13
SFFAS 36
Basic Financial
Statement
36. The basic financial statement, Long-Term Fiscal Projections for the
U.S. Government, should state the projection period and display the
following projected amounts as both present value dollars and as a
percentage of the present value of GDP for the projection period
indicated:
a.
b.
c.
37. After the initial year of implementation, the basic financial statement
should also present comparative amounts for the current year and
prior year, and the net change for each line item from the prior year as
both present value dollars and as a percentage of the present value of
GDP for the projection period indicated.
38. Fiscal gap information should be provided, either on the face of the
financial statement or in the disclosures.
Disclosures
b.
18
Full payment of amounts due to Social Security and Medicare HI Trust Funds must be
included as receipts for Medicare and Social Security, and outlays for rest of government.
SFFAS 36 - Page 14
SFFAS 36
c.
d.
e.
f.
19
a.
b.
c.
d.
e.
SFFAS 36 - Page 15
SFFAS 36
Required Supplementary
Information
trends in:
(1) historical and projected Treasury debt held by the public as
a share of GDP,
(2) historical and projected receipts and spending, and
(3) historical and projected deficits and surpluses for a
progression of years beginning at least 20 years before the
current year and, at a minimum, extending to the end of the
projection period used in the basic financial statement.
These amounts should be presented at regular time intervals
(for example, every five years or ten years).
b.
20
Currently means as of the date of Board approval of this SFFAS in June 2009.
SFFAS 36 - Page 16
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may be (1) the rising cost of health care and (2) demographic
trends. Information about how such factors have changed and
are expected to change over time is necessary to assist the reader
in understanding the factors that influence fiscal projections.
c.
d.
42. RSI should also include an explanation of the significance of the data
presented or other information that puts the data into context.
Options for context may include but are not limited to:
a.
b.
c.
SFFAS 36 - Page 17
SFFAS 36
43. RSI should discuss the implications of the trends in receipts and
spending for periods following the end of the projection period. This
requirement may be met by providing projections for an infinite
horizon or a narrative discussion.
Effective Date
b.
c.
d.
21
For example, a link to a more detailed report such as the Presidents Budget, a
Congressional Budget Office report, or the Trustees Report (Status of the Social Security
and Medicare Program) may be provided. Note that the Trustees Report is available at:
http://www.ssa.gov/OACT/TR/ (accessed May 7, 2009).
SFFAS 36 - Page 18
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Appendix A: Basis
for Conclusions
Project History
b.
c.
A2. The FASAB considered what information would most likely help
readers of the consolidated financial report of the U.S. Government
(CFR) assess whether future budgetary resources will likely be
sufficient to sustain public services and meet obligations as they come
due.
A3. Discussion of such long-term fiscal issues has been described in terms
such as fiscal sustainability. In the exposure draft (ED), the Boards
working definition of fiscal sustainability was the federal
22
SFFAS 36 - Page 19
SFFAS 36
23
Determining how much a government can departin magnitude and/or durationfrom this
general notion of fiscal sustainability is beyond the scope of the Boards efforts.
SFFAS 36 - Page 20
SFFAS 36
years (FY 2010, 2011, and 2012). Beginning in fiscal year 2013, the
required information will be presented as a basic financial statement,
disclosures and RSI as designated within the accounting standards
(paragraphs 12 - 42).24
A8. Upon release of the ED, notices and press releases were provided to:
a.
b.
FASAB News;
c.
d.
e.
NON-FEDERAL
(External)
14
3
5
A11. The Board did not rely on the number in favor of or opposed to a given
position. Information about the respondents majority view is provided
24
See paragraph A38 for a discussion of the effective date for basic information.
SFFAS 36 - Page 21
SFFAS 36
NON-FEDERAL
(External)
5
1
1
SFFAS 36 - Page 22
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A16. Current law may contain provisions for scheduled social insurance
benefit payments as well as provisions that restrict spending on
certain social insurance programs, for example, Social Security and
Part A of Medicare, to the amounts available in the Social Security or
Medicare trust fund accounts, respectively, plus inflows of earmarked
receipts. A current law policy assumption would not be feasible in this
case since both requirements can not be met simultaneously. Thus, an
interpretation of current policy without change will be necessary.
A17. Current law also may include tax provisions that expire within several
years, along with a historical trend of extending those tax provisions
before they expirebut only for a short period, such as one year. In
such situations, current law would indicate that the tax provisions will
expire on schedule, while a projection based upon current policy
without change for taxation together with reasonable expectations
based on recent historical trends may indicate that the tax provisions
will be extended.
Fiscal Sustainability Task Force Input Regarding Policy Assumptions
A18. A majority of the task force technical experts agreed that policy
assumptions for the basic financial statement that are consistent with
current policy without change25 regarding federal public services and
taxation would be useful for readers of the CFR in assessing whether
future budgetary resources will likely be sufficient to sustain public
services and to meet obligations as they come due.
A19. A majority of the task force technical experts believe that for
mandatory spending on social insurance programs, a modified version
of current law (ignoring the exhaustion of the Social Security and
Medicare Hospital Insurance trust fund accounts see paragraph
A16), which might also be termed current services, represents the
most useful assumption for projecting spending for social insurance
programs. However, a minority believe that any deviation from
current law requires a subjective judgment that can be biased.
25
Current policy without change as defined in this Statement is not equivalent to constant
dollar amounts. Current policy without change is to be considered with respect to the
service or benefit being provided (or scheduled to be provided) and the general relationship
of taxation to the economy (for example, taxable income, GDP, or some other base).
SFFAS 36 - Page 23
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27
For example, the CBO projects that the rate of inflation will be lower than the rate of GDP
growth for 2007-2017. See page xi, The Budget and Economic Outlook: Fiscal Years 2008 to
2017 (January 2007). Available at: http://www.cbo.gov (accessed May 7, 2009).
SFFAS 36 - Page 25
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A27. In drafting the final Statement, the Board also improved the clarity of
the requirements for policy assumptions by re-ordering the content of
this section. The guiding principles for when a departure from
current law may be appropriate are stated first, followed by specific
examples.
Economic and Demographic Assumptions
A28. Economic and demographic assumptions are different in scope from
policy assumptions. Economic and demographic assumptions include
such factors as economic growth, inflation, birth rates, net
immigration, and longevity. The elements of economic and
demographic assumptions are generally influenced more by a variety
of external factors than by direct legislative impact.
A29. The ED proposed that the reporting requirements for Fiscal
Sustainability Reporting should not dictate specific economic and
demographic assumptions, but should require that the primary
displays for Fiscal Sustainability Reporting should use economic and
demographic assumptions that are consistent with the economic and
demographic assumptions for Social Security and Medicare in the
SOSI.
A30. Although a majority of respondents concurred with the EDs proposed
broad and general guidance on economic and demographic
assumptions, the GAO noted that in some cases, the assumptions,
particularly the economic assumptions, may need to differ. For
example, an appropriate unified discount rate for all projected
receipts and non-interest spending in the basic financial statement
may differ from either the Social Security or Medicare discount rates.
Increasing the flexibility in the requirement would allow the use of the
most appropriate discount rate and permit changes to other
assumptions as appropriate. The GAO noted that such differences in
assumptions used in the basic financial statement and those in the
SOSI for Social Security and Medicare should be appropriately
disclosed.
A31. The Board decided to allow the flexibility recommended by the GAO
and to require disclosure for significant differences. (See
paragraphs 31 and 40c.)
SFFAS 36 - Page 26
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b.
c.
d.
e.
f.
A34. A majority of the members decided that (a) through (e) above should
be included as minimum requirements for the basic financial
statement, with the format of the elements left to the discretion of the
preparer. An illustrative statement is included in Appendix B. In
addition, the Board concluded that the concept of fiscal gap should be
explained and reported, either on the face of the financial statement or
in the disclosures. An illustrative example is shown in Appendix B on
the face of the illustrative basic financial statement.
A35. The Board concluded that disaggregation of specific major programs
would be left to the discretion of the preparer.
A36. A majority of respondents agreed with the general guidance proposed
in the ED: that major programs should be shown separately. However,
respondents suggestions that named specific examples of major
programs indicated that many respondents interpreted the illustrative
SFFAS 36 - Page 27
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SFFAS 36
b.
c.
SFFAS 36 - Page 29
SFFAS 36
28
OECD draft report, Fiscal Futures, Institutional Budget Reforms, and Their Effects:
What Can Be Learned?, to be published in OECD Journal on Budgeting in 2009.
29
See additional discussion of the basic financial statement in paragraphs A32 through A37.
SFFAS 36 - Page 30
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b.
c.
d.
Two technical experts believe that even present value per capita
amounts can be misinterpreted, because the reader will compare
the amount with current salary levels and not understand the role
of potential future productivity increases.
e.
A48. After a discussion of the above issues, the Board decided not to
include per capita measures in the proposed reporting requirements.
Several of the respondents to the ED indicated strong support for per
capita amounts. Three respondents recommended per capita amounts
on the face of the financial statement. One respondent specifically
recommended a detailed per capita format titled U.S. Taxpayer
Personal Credit Card Statement.
SFFAS 36 - Page 31
SFFAS 36
b.
c.
d.
SFFAS 36 - Page 32
SFFAS 36
assumption is that after 75 years (or some other interval, T), the
system will have settled into a steady state in which rates of
growth of costs and tax revenues are thereafter constant,
although not necessarily equal.30
A53. Arguments in favor of an infinite horizon:
a.
Unless trends are level towards the end of the period, projections
may be subject to the moving window effect, where shortfalls
(or surpluses) increase significantly from one reporting year to
the next due to the change in the projection period. For example,
if a projection period is 75 years, the activity in year 76 is
outside the projection period for that year, but will be included in
the projection period for the following year. An infinite horizon
would avoid the moving window effect that occurs when there
are significant changes to an estimate from one year to the next
that are caused by the passage of time.
b.
A54. The Board believed that the advantages of both finite and infinite
horizons were sufficiently compelling to propose in the ED that both
finite and infinite-horizon information should be provided, although
only one projection period should be used for the basic financial
statement. The ED proposed that whichever type of projection period
is selected for the primary display, the other type of projection period
would have been presented with the disclosures.
A55. The Board also believed that one of the projection periods used (in
either the basic financial statement or the narrative section) should be
consistent with that used for the SOSI. This would ensure consistency
between major line items in the SOSI (for example, projected
earmarked receipts and spending for Social Security and Medicare)
30
Sustainable Social Security- What Would It Cost? National Tax Journal, Vol. LVI, No. 1,
Part 1, March 2003, page 34. Available at http://ntj.tax.org
/wwtax/ntjrec.nsf/5DC000487120304885256D8E0054C858/$FILE/Lee.pdf (accessed
May 7, 2009).
SFFAS 36 - Page 33
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b.
31
Since interest is factored into the present value calculation, the fiscal gap as a share of
spending is expressed as a share of spending excluding interest.
SFFAS 36 - Page 34
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b.
c.
b.
SFFAS 36 - Page 36
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c.
d.
SFFAS 36 - Page 37
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Appendix B:
Example Formats
and Illustrations
As of XXXX XX,
20XX (Prior
Year)
% of
PV
the
Dollars
PV of
in
GDP*
trillions
Receipts
Medicare
Social Security
All Other Receipts
XX.X
X.X%
$ XX.X
X.X%
XX.X
X.X%
XX.X
X.X%
XX.X
X.X%
XX.X
X.X%
$ XXX.X
X.X%
$ XX.X
X.X%
Medicare
$ XX.X
X.X%
$ XX.X
X.X%
Medicaid
XX.X
X.X%
XX.X
X.X%
Social Security
Total Receipts
X.X
X.X%
X.X
X.X%
X.X
X.X%
X.X
X.X%
Non-Interest Spending
X.X
X.X%
X.X
X.X%
XX.X
X.X%
XX.X
X.X%
X.X
X.X%
Major Program A
X.X
X.X%
XX.X
X.X%
X.X
X.X%
Major Program B
X.X
X.X%
XX.X
X.X%
X.X
X.X%
XX.X
X.X%
XX.X
X.X%
X.X
X.X%
$ XXX.X
X.X.%
$ XX.X
X.X%
X.X
X.X%
$ XX.X
X.X%
$ XX.X
X.X%
X.X
X.X%
SFFAS 36 - Page 40
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To maintain the current [or date] level of U.S. Treasury debt held by the
public to GDP, actions would need to be taken to increase receipts or
decrease non-interest spending by a net present value of $XX.X trillion or
X% of GDP. To accomplish this reduction, annual receipts would need to
increase by XX.X% or annual non-interest spending would have to decrease
by XX.X% (or some combination of these two options).
Note: Amounts are estimated based upon guidance for selecting
assumptions provided in this Statement. Receipts and non-interest
spending include repayment of borrowings from the trust fund accounts for
Social Security and Medicare (estimated as 0.X percent of GDP).
SFFAS 36 - Page 41
SFFAS 36
Examples of
Selected Narrative
and Graphics
The following examples display and/or describe narrative and graphics that
might supplement the basic financial statement in a manner consistent with
the standard.
These illustrations are illustrative only and do not represent
authoritative guidance. Illustrations are not provided for all
requirements.
Examples are provided in this appendix for the following:
1. Rising Cost of Health Care
42
2. Demographic Trends
45
47
48
49
50
52
8. Fiscal Gap
52
53
53
1.
Paragraph 41b provides that RSI should explain and illustrate major factors
that are expected to have a significant impact upon future receipts and
spending. For example, if rising federal spending on health care is a major
factor in the long-term spending projections, the disclosure might include
the following:
a.
SFFAS 36 - Page 42
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b.
SFFAS 36 - Page 43
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SFFAS 36 - Page 44
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2.
Demographic Trends
Paragraph 41b requires that RSI explain and illustrate the major factors that
are expected to have a significant impact upon future receipts and spending
of the federal government, one example of which may be demographic
trends. The narrative might describe demographic trends and briefly
explain the major drivers of change in demographic trends, for example,
trends in longevity and birth rates, and refer the reader to more extensive
coverage of the topic in other existing reports, for example, the Social
Security and Medicare Trustees Reports. The narrative could describe the
change in the ratio of workers to retirees and how this change relates to
long-term fiscal outlook for social insurance programs. Alternatively,
simple age demographics rather than workforce participation could be
used (in other words, over 64 instead of retired) provided that they are
used consistently.
A simple graphic to accompany and illustrate the narrative may follow the
format of the example shown below. The illustrative sample format below
is called an age/gender pyramid. The graphic could display two or three
age/gender pyramids side-by-side, for example:
1.
2.
the current year (or other baseline year, for example, 2000); and
3.
SFFAS 36 - Page 45
SFFAS 36
2000
1950
95+
95+
95+
90-94
90-94
90-94
85-89
85-89
85-89
80-84
80-84
80-84
75-79
75-79
75-79
70-74
70-74
70-74
65-69
65-69
65-69
60-64
60-64
60-64
55-59
55-59
55-59
50-54
50-54
50-54
45-49
45-49
45-49
40-44
40-44
40-44
35-39
35-39
35-39
30-34
30-34
30-34
25-29
25-29
25-29
20-24
20-24
20-24
15-19
15-19
15-19
10-14
10-14
10-14
5-9
5-9
5-9
0-4
0-4
7
0-4
Percent
Percent
% male
% male
% female
% female
Percent
% male
% female
32
The European Commission defines the total dependency ratio as the Population under 15
and over 64 as a percentage of the population aged 15-64. European Economy: Special
Report 1/2006, page 313.
SFFAS 36 - Page 46
SFFAS 36
Paragraph 41a requires that RSI explain and illustrate the historical and
projected trends for a progression of years. Illustrations 3, 4 and 5
display how this might be accomplished.
3.
SFFAS 36 - Page 47
SFFAS 36
4.
Historical
Projected
20
10
0
-10
Data sources:
Historical: Office of Management and Budget, Table 13-2, Chapter 13,
Stewardship, Analytical Perspectives, FY 2008 Budget
Projections: Government Accountability Office, Long-Term Fiscal
Simulation Data, Alternative Scenario. Available at:
http://www.gao.gov/special.pubs/longterm/data.html (accessed May 7,
2009)
SFFAS 36 - Page 48
SFFAS 36
5.
A graphic could display the projected trends in Treasury debt held by the
public as a percentage of GDP, for a progression of years beginning at least
20 years before the current year and extending to all future years projected
in the basic financial statement. This graphic could illustrate the
assumption that increased borrowing would occur to finance the difference
between projected receipts and spending.
Illustration 5: Increase in Federal Debt Held by the Public
Historical
Projected
SFFAS 36 - Page 49
SFFAS 36
6.
SFFAS 36 - Page 50
SFFAS 36
120
2009
2030
2040
92.9
100
80
60
43.6
69.8
40
20
0
-20
-40
30.9
-60
-80
Spending
would
need to decrease 37.4%
or some combination
of the two
46.1
59.7
-100
-120
Percent decrease in spending
needed to close
the fiscal gap
SFFAS 36 - Page 51
SFFAS 36
7.
Alternative 1
Alternative 2
Receipts:
Medicare
Social Security
All Other
Total Receipts
Spending:
Medicare
Medicaid
Social Security
Major Program A
Major Program B
Rest of Government
Total Non-Interest Spending
Non-Interest Spending in Excess of Receipts
8.
Fiscal Gap
SFFAS 36 - Page 52
SFFAS 36
See Illustration 5: Trends in Treasury Debt Held by the Public on page 1414.
SFFAS 36 - Page 53
SFFAS 36
SFFAS 36 - Page 54
SFFAS 36
Appendix C:
Frequently Asked
Questions (FAQs)
These FAQs were included in the exposure draft to aid respondents. They
are not required in the CFR.
FAQ 1. What is Fiscal Sustainability Reporting?
Fiscal Sustainability Reporting is the short term for Comprehensive
Long-Term Fiscal Projections and Accompanying Narrative and Graphics in
the Financial Report of the U.S. Government.
FAQ 2. What is GDP?
A nations gross domestic product, or GDP, is one of the ways for measuring
the size of its economy. The GDP of a nation is defined as the market value
of all final goods and services produced within a country in a given period
of time. The most common approach to measuring and understanding GDP
is the expenditure method:
GDP = consumption + investment + government spending + (exports
imports)
FAQ 3. a. What is the debt-to-GDP ratio?
b. Why does the debt-to-GDP ratio matter?
a. The debt-to-GDP ratio, for the purposes of federal financial
reporting, is the amount of federal (Treasury) debt held by the
public divided by GDP. [An alternative ratio would be the
amount of total public debt (federal, state, and local) divided by
GDP.]
b. The debt-to-GDP ratio provides an indication of a nations
ability to repay its public debt by comparing the size of its debt
to the size of its economy. For example, during the formation of
the European Union (EU), one of the conditions for initial
membership in the EU, which included eligibility to convert its
currency to the Euro, was that each nation had to meet certain
conditions, including debt-to-GDP ratio. Generally, higher debtto-GDP ratios are believed to result in lower economic growth
and private investment as well as higher interest costs. Many
economists believe that persistent debt-to-GDP levels over 100%
are unhealthy. In addition, the debt-to-GDP ratio cannot
continue to rise indefinitely, because at some point (although
SFFAS 36 - Page 55
SFFAS 36
SFFAS 36 - Page 56
SFFAS 36
Policy assumptions address the factors under the direct control of the
federal government concerning the taxes and other receipts to be
received by the federal government and the public services to be
provided by the federal government. Policy assumptions address
projected spending rules for both mandatory and discretionary
spending as well as the framework for assessing taxes and fees.
Economic assumptions address the economic factors that are not
under the direct legislative control of the federal government (for
example, inflation and growth in GDP).
Demographic assumptions address projected population trends (for
example, birth rates, mortality rates, and net immigration).
Fiduciary Activities are defined in SFFAS 31, Accounting for Fiduciary Activities.
SFFAS 36 - Page 57
SFFAS 36
accounts for Social Security and Medicare) and private-sector trust funds,
FASABs Statement of Federal Financial Accounting Standards (SFFAS) 27,
Identifying and Reporting Earmarked Funds, prohibits the use of the
term trust fund for earmarked funds (federal trust funds) except when
referring to the legal title of the fund. SFFAS 27 also requires the following
note disclosure when accounts designated as trust funds in the budget of
the federal government use their excess funds to buy Treasury securities:
35
The U.S. Treasury does not set aside assets to pay future expenditures
associated with earmarked funds. Instead, the cash generated from
earmarked funds is used by the U.S. Treasury for general government
purposes.
Treasury securities are issued to the earmarked fund as evidence of
earmarked receipts and provide the fund with the authority to draw
upon the U.S. Treasury for future authorized expenditures. (For some
funds, the drawdown is subject to future appropriation).
Treasury securities held by an earmarked fund are an asset of the fund
and a liability of the U.S. Treasury, so they are eliminated in
consolidation for the U.S. government-wide financial statements.
When the earmarked funds Treasury securities are redeemed to make
expenditures, the U.S. Treasury will finance those expenditures in the
same manner that it finances all other expenditures.35
See SFFAS 27, Identifying and Reporting Earmarked Funds, paragraphs 16 and 27.
SFFAS 36 - Page 58
SFFAS 36
Appendix D: List of
Abbreviations
CBO
CFR
ED
FAQ
FASAB
FY
GAAP
GAO
GDP
IPSASB
OASDI
OECD
OMB
RSI
SFFAC
SFFAS
SOSI
U.S.
SFFAS 36 - Page 59
SFFAS 36
Appendix E: Fiscal
Sustainability
Reporting Task
Force
SFFAS 36 - Page 60
SFFAS 36
SFFAS 36 - Page 61
Status
Issued
April 5, 2010
Effective Date
None.
Affects
Affected by
None.
Summary
For federal financial reporting, social insurance comprises five programs Social Security, Medicare, Railroad
Retirement, Black Lung, and Unemployment Insurance. However, two programs, Social Security and
Medicare, are of special significance because of the high rate of participation among citizens, the fiscal
challenges related to the programs, and the challenges associated with incorporating estimates of future cash
flows of this magnitude in financial statements. Therefore, the Federal Accounting Standards Advisory Board
(FASAB or the Board) has devoted substantial resources to considering how fundamental questions about
social insurance programs should be addressed through federal financial reporting. These questions include
whether the government can sustain these programs as currently constructed, whether the governments
financial condition improved or deteriorated as a result of its efforts to provide these and other programs, and
how long these programs will be able to provide benefits at current levels.
From the outset of this project, members have agreed on the objectives of financial reporting for social
insurance programs and yet have had different views about how best to achieve the objectives. For example,
all members have agreed that it is extremely important to provide useful financial information about the
sustainability of social insurance programs, and that such information should be presented for the
government as a whole in the consolidated Financial Report of the United States Government.1 Members
have agreed that social insurance information should be included in the basic financial statements and should
be transparent that is, readily understandable to an interested, non expert reader. Members also have
agreed that the financial report should highlight any long-range fiscal imbalances anticipated in social
insurance programs. All members have supported several innovations, including a new basic financial
statement presenting changes in the amounts presented on the statement of social insurance. However,
members have had different views about what should be reported on certain financial statements.
1
To that end the Board recently issued Statement of Federal Financial Accounting Standards 36, Reporting Comprehensive Long-Term
Fiscal Projections for the U. S. Government.
SFFAS 37 - Page 1
SFFAS 37
The key difference among members is in regard to the timing of the recognition of expense and liability for
social insurance programs. Some members believe that an expense is incurred and a liability arises for social
insurance programs during the working lives of participants, and that some portion of the benefits
accumulated at the balance sheet date should be recognized as a liability. Other members agree with
Statement of Federal Financial Accounting Standards (SFFAS) 17, Accounting for Social Insurance, that an
expense is incurred and a liability arises for social insurance programs when the participants have met all
eligibility requirements and the amount is due and payable.
This Statement of Federal Financial Accounting Standards represents a compromise. It provides enhanced
reporting but does not resolve the two strongly held views regarding when the obligating event occurs for
social insurance programs and, thus, when the liability and expense definitions are met within those
programs. Therefore, this Statement does not change the liability and expense recognition and measurement
from that required in SFFAS 17.2
SFFAS 17 requires certain information about social insurance programs, and this Statement requires the
following:
1. Critical information about costs, assets and liabilities, social insurance commitments, budget flows,
and the long-term fiscal projections together in one section in managements discussion and analysis
(MD&A).3
2. A table or other singular presentation of key measures in MD&A.
3. A new summary section for the statement of social insurance.
4. A new basic financial statement to present the reasons for changes during the reporting period in the
open group measure reported on the statement of social insurance.
Although opinions continue to differ regarding when the obligating event occurs for social insurance
programs, and thus the question of when the liability and expense occur within those programs continues to
be discussed, this Statement fulfills a desire held by all the members to present other information that will
significantly improve readers understanding of the status and results of the governments social insurance
programs.
2
SFFAS 17 established a due and payable liability standard for social insurance programs. Under that standard the expense
recognized for the reporting period is the benefits paid during the period plus any increase (or less any decrease) in the liability from
the end of the prior period to the end of the current period. The liability is the social insurance benefits due to be paid to or on behalf
of beneficiaries at the end of the reporting period but not disbursed until after the end of the period, including claims incurred but not
reported.
3
This Statement applies only to the government-wide entity and to component entities that prepare a statement of social insurance.
SFFAS 37 - Page 2
SFFAS 37
Table of Contents
Contents
Introduction
Purpose
Background
Materiality
Effective Date
Accounting Standard
Scope
Definitions
11
12
13
Valuation Date
13
Sensitivity Analysis
14
14
Effect on SFFAS 17
15
Effective Date
18
19
Background
19
20
22
23
25
26
30
Board Approval
45
46
47
52
54
SFFAS 37 - Page 3
SFFAS 37
Introduction
Purpose
1.
2.
b.
c.
d.
This Statement applies only to the government-wide entity and to component entities that
prepare a statement of social insurance.
2
Terms defined in the Glossary are shown in bold-face the first time they appear.
SFFAS 37 - Page 4
SFFAS 37
Background
3.
4.
5.
6.
7.
SFFAS 37 - Page 5
SFFAS 37
The SOSI was a first step in the process of developing information for
an assessment of sustainability of specific programs in governmentwide financial reports and in the financial reports of component
entities that administer social insurance programs. The SOSI is based
on long-range actuarial estimates of future costs. SFFAS 17 requires
certain supplementary information as well, including presentations of
future cash flow as a percentage of taxable payroll and Gross
Domestic Product (GDP). The SOSI and required supplementary
information (RSI) provide information that helps users analyze the
effect of benefit payments to different participants under current law,
as well as economic and demographic changes (e.g., in the cost of
health care and in life expectancies).
9.
Materiality
Effective Date
SFFAS 37 - Page 6
SFFAS 37
Accounting
Standard
Scope
Medicare also includes a Part C. The Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) created the Medicare Advantage (MA) program that is
sometimes referred to officially as Part C. MA provides Parts A, B, and now D through
private health insurance plans. Those who are entitled to Part A and enrolled in Part B may
choose to join a MA plan, if there is a plan available in their area. MA plans have their own
providers or a network of contracting health care providers. All MA plans are currently paid
a per capita premium, assume full financial risk for all care provided to beneficiaries, and
must provide all Medicare-covered services. Many MA plans offer additional Medicare
services such as prescription drugs and vision and dental benefits to beneficiaries. The
federal governments commitment for components of Part C (i.e., hospital, physician, drugs)
would be the same as for Parts A, B, and D and would be accounted for accordingly.
SFFAS 37 - Page 7
SFFAS 37
Definitions
Legislation enacted in 1974 restructured railroad retirement benefits into two tiers, so as to
coordinate them more fully with Social Security benefits. The first tier is based on combined
railroad retirement and Social Security credits, using Social Security benefit formulas. The
second tier is based on railroad service only and is comparable to the pensions paid over and
above Social Security benefits in other industries.
Pursuant to SFFAS 17, a statement of social insurance is not prepared for the UI program;
SFFAS 17 specifies other reporting for the UI program. Thus, for the purposes of this
Statement, the UI program is not a component entity that presents a SOSI.
SFFAS 37 - Page 8
SFFAS 37
Managements
Discussion and Analysis
SFFAS 37 - Page 9
SFFAS 37
b.
c.
Net costs
ii.
iii.
Total revenue and net operating costs (for the governmentwide entity only)
Total assets
ii.
Total liabilities
iii.
Net position
See the definitions of closed group and open group in pars. 15-22. The Black Lung
benefits program serves a population that is closed to new entrants; therefore, for that
program, the open and closed groups would be the same.
SFFAS 37 - Page 10
SFFAS 37
ii.
d.
e.
Statement of Social
Insurance
SFFAS 37 - Page 11
SFFAS 37
Statement of Changes in
Social Insurance
Amounts
7
Currently, these component entities are the Social Security Administration, the Department
of Health and Human Services, the Centers for Medicare and Medicaid Services, the Railroad
Retirement Board, and the Department of Labor.
SFFAS 37 - Page 12
SFFAS 37
Required Supplementary
Information other than
MD&A
33. This Statement does not eliminate or otherwise affect the SFFAS 17
requirements for supplementary information8 except that actuarial
projections of annual cash-flow in nominal dollars are no longer
required for either component entities that present a SOSI or the
government-wide entity.
Valuation Date
SFFAS 17, paragraph 27(1) requires certain long-range projections of social insurance cashflow.
SFFAS 37 - Page 13
SFFAS 37
Sensitivity Analysis
Government-wide Entity
Accounting and
Reporting
39. The standard for government-wide accounting and reporting for social
insurance programs is the same as that for component entities that
present a SOSI unless otherwise indicated. However, the level of
detail at the government-wide level should be less than at the
component level.
SFFAS 37 - Page 14
SFFAS 37
Effect on SFFAS 17
26.
All projections and estimates required in these standards should be made
as of a date (the valuation date) as close to the end of the fiscal year being reported
upon ("current year") as possible and no more than one year prior to the end of the
current year. This valuation date should be consistently followed from year to year.
All projections and estimates required by this Statement should be made as of a
date (the valuation date) as close to the end of the fiscal year being reported on
(current year) as possible and no more than one year prior to the end of the
current year. This valuation date should be consistently followed from year to year.
If, after the valuation date, but prior to the end of the fiscal year, policy changes are
enacted that could materially affect the basic statement, the projections should be
adjusted, if feasible, as if the policy changes took place as of the valuation date. If
not feasible, the entity should disclose an estimate of the magnitude of the effect of
the policy change on the projection or, if not possible, disclose that it was not
possible to reasonably estimate the effect. In any case, the nature of the policy
change should be disclosed. If policy changes are enacted after the end of the
fiscal year, but prior to the issuance of the financial statements, the financial
statements should disclose the nature of the policy change and, if known, the
estimated effect on the projections.
26A. The entity should provide a brief statement explaining that the SOSI
amounts are estimates based on current conditions, that such conditions may
change in the future, and that actual cost may vary, sometimes greatly, from the
estimated cost. The entity should state that the amounts of the open (and closed)
group measures depend on the assumptions used and that actual experience is
likely to differ from the estimate. For example:
SFFAS 37 - Page 15
SFFAS 37
ii.
Certain social insurance programs (i. e., SMI, Black Lung benefits, and UI) are
either not financed by earmarked payroll taxes or are financed by state-determined
payroll taxes on employers that can vary by state and by employer; therefore these
programs are not required to provide this estimate.
8
This requirement does not apply to the RRB, Black Lung, and UI programs.
SFFAS 37 - Page 16
SFFAS 37
SFFAS 37 - Page 17
SFFAS 37
Effective Date
41. This Statement is effective for periods beginning after September 30,
2010.
The provisions of this statement need not be applied to immaterial items.
SFFAS 37 - Page 18
SFFAS 37
Appendix A: Basis
for Conclusions
Background
A1. Expense and liability recognition for social insurance programs (as
well as potential expense and liability recognition for other nonexchange transactions and government-acknowledged events) has
been a long-standing source of controversy. In its 19 years of
operation the Board has issued several exposure drafts, a standard,
and a preliminary views document related to social insurance
reporting as follows:
A2. For SFFAS 17 the Board identified five programs as social insurance
programs.
SFFAS 37 - Page 19
SFFAS 37
b.
c.
A4. Through SFFAS 25 and 26, the Board re-classified the SOSI from
required supplementary stewardship information to basic
information. The SOSI became subject to a full audit in fiscal year
2006 and significant assumptions were required to be disclosed.
A5. SFFAS 17, 25, and 26 substantially improved the information presented
in general-purpose external financial reports of the U.S. government
and its component entities. However, in 2004 the Board decided to
reconsider the question of liability and expense recognition. A
majority of members serving at that time concluded that the
compromise that produced SFFAS 17 did not recognize the accruing
cost of social insurance programs in each reporting period and the
accumulated liability for benefits payable at a determinable date under
current law. Nor did it fully explain the change in the net present value
of program-related cash flows. Hence, in 2004, the Board initiated a
new social insurance project, and a Preliminary Views document was
issued in October 2006.
A6. In the Preliminary Views document, the Board presented two views
a Primary View and an Alternative View of proposed changes in the
information provided about the effect of social insurance programs.
Under the Primary View proposal, social insurance expense would
have been recognized on the statement of net cost when participants
SFFAS 37 - Page 20
SFFAS 37
SFFAS 37 - Page 21
SFFAS 37
Different Views
Regarding the Obligating
Event
SFFAS 37 - Page 22
SFFAS 37
Fiscal Sustainability
Reporting
A17. After the public hearing on the Preliminary Views on social insurance
on May 23, 2007 and initial discussions in the summer of 2007, the
Board decided to suspend work on the social insurance standard
briefly while it developed fiscal sustainability reporting further. The
Preliminary Views document mentioned the Boards unanimous
interest in fiscal sustainability reporting and the Alternative View
presented examples of what it might look like.
A18. The Board issued an exposure draft on fiscal sustainability11 in August
2008, and subsequently a final standard, SFFAS 36, in September
11
Reporting Comprehensive Long-Term Fiscal Projections for the U.S. Government, Issued
August 29, 2008.
SFFAS 37 - Page 23
SFFAS 37
2009.12 SFFAS 36 requires that the CFR present information that will
help readers assess whether future budgetary resources will likely be
sufficient to sustain public services and to meet obligations as they
come due, including social insurance. The Board concluded that this
requires presenting current and projected levels of all federal
spending, federal receipts, and federal debt in relation to the economy.
A19. The fiscal sustainability standard is comprehensive. It requires:
a.
b.
c.
i.
ii.
iii.
ii.
iii.
A20. The Board believes that these projections will provide meaningful
information essential to assessing whether future budgetary resources
12
SFFAS 37 - Page 24
SFFAS 37
Social Insurance
Revisited: The Exposure
Draft of November 2008
SFFAS 37 - Page 25
SFFAS 37
SFFAS 37 - Page 26
SFFAS 37
A29. Another member dissented because he felt SFFAS 17 did not require a
clear unambiguous disclosure of a reasonable estimate of the
governments social insurance liability/obligation. That member
argued that the due and payable liability would result in a reported
financial position that would appear to many as significantly
misleading, at best, and clearly not commensurate with the significant
financial implications of this critical national issue. The member
noted that SFFAS 17 required the net present value of future benefits
related to the open group but not the closed group, and that the
absence of the specified closed group measure was significant
because some suggest that the closed group measure represents an
appropriate estimate of the social insurance liability.
A30. Lastly, a third dissenter argued that the removal of the closed group
number from the published financial statements removed any
forthright indication of the existence of any obligations to
participants. He asked what the governments repeated promises
meant if there is no obligation to the participating public. He argued
that the closed group number is an important indicator of financial
stress to be faced by the next generation of Americans, and is a proxy
for an economic liability or an implicit liability. He mentioned that
proposals to add social insurance benefits or increase social insurance
taxes or to make other changes in the program should be evaluated by
Congress and the public against these absolute numbers and the
strength of the governments commitment to honor the indicated
obligations. Finally, he argued that the SOSI should be a basic
financial statement, which it later became with SFFAS 25 and SFFAS
26.
A31. Some current Board members believe that the closed group measure is
the best measure of the social insurance obligation and that the effect
of the change in this measure during the reporting period is an
economic cost that should be reported on the statement of net cost.
However, other members agree that the closed group measure is the
best measure of the obligation but do not believe the effect of the
change in this measure during the reporting period is appropriate for
the statement of net cost. They view future revenues that are included
in the measure as contingent revenues, and they believe all other
future inflows and/or revenues included in the balance sheet and the
statement of net cost relate to earned revenues.
SFFAS 37 - Page 27
SFFAS 37
A32. The Board notes that federal credit accounting, insurance accounting,
and accounting for which fair value measures are utilized currently
incorporate future inflows and outflows in the measure of liability and
expense, and that the basis for including future revenue in current
year cost and liability measures depends on the obligating event to
which they relate. If they relate to a past event, e.g., an insured event,
then they are appropriate measures of cost. If they relate solely to a
future event, e.g., future insurance policies in the program, then they
should be excluded from current costs and from liability
measurement. The key is the event not the fact that the cash flow is in
the future. They cite current FASAB insurance standards in SFFAS 513
that include future revenue when calculating the net liability.
A33. Since the two views regarding liability and expense recognition
persisted and the likelihood of achieving a satisfactory majority one
way or the other was remote, and since the Board wished to further
improve social insurance reporting, the Board concluded that a
compromise was necessary. In developing the exposure draft of
November 2008 (SI ED), the Board believed that a fair presentation of
the financial position, condition, and results of operations requires
that the closed group measure be provided as part of a balanced
package of information. The Board believed that the closed group
measure represents a reasonably good estimate of the net
responsibility of future taxpayers, under current laws, to pay benefits
to current participants. Although this amount is subject to change due
to changing long-range demographics and other factors, it is not as
volatile as the computation under the open group measure that
includes all current and future participants over a projection period,
e.g., the next 75 years. It relates only to individuals who already are
participating in the program.
A34. The open group measure represents the net present value of all
expenditures to or on behalf of the open group population and all
13
SFFAS 5, par. 113: The liability for life insurance includes both the liability for unpaid
claims and a liability for net future policy benefit outflows. The [latter] represents the
expected present value of future outflows to be paid to, or on behalf of, existing
policyholders, less the expected present value of future net premiums to be collected from
those policyholders. The liability is estimated using appropriate financial or actuarial
methods that include assumptions applicable at the time the insurance contracts are
made and in accordance with existing law and related policy . Changes in the liability for
future net policy benefit outflows that result from periodic re-estimations would be
recognized as expense in the period in which the changes occur.
SFFAS 37 - Page 28
SFFAS 37
b.
c.
d.
e.
f.
SFFAS 37 - Page 29
SFFAS 37
Respondents Comments
on the Exposure Draft
NONFEDERAL
(External)
14
1
5
A38. Balance sheet presentation raised difficult issues for the Board with
respect to the SI ED. In the Preliminary Views document of October
2006, the Board had discussed its differing views of liability and
expense recognition, views which have been and remain divergent.
A39. For the SI ED the Board proposed a compromise. Instead of changing
the due and payable liability measure of SFFAS 17, the Board
proposed new reporting featuring the closed group measure of the
social insurance commitment as the link or common thread among
MD&A, the balance sheet, the SOSI, and the new statement of changes
in social insurance amounts. Thus, the closed group measure would
14
SFFAS 17, paragraphs 22-23 and 30 state that, except for Unemployment Insurance, the
government-wide and component entities should recognize a liability (and a related
expense) for those social insurance benefits that are due and payable to or on behalf of
beneficiaries at the end of the reporting period, including claims incurred but not reported.
For UI, a liability (and related expense) would be recognized for (1) amounts due to states
and territories for benefits they have paid to beneficiaries but for which the states and
territories have not withdrawn funds from the federal unemployment trust fund (UTF) as of
fiscal year end, and (2) estimated amounts to be withdrawn from UTF and benefits paid by
states and territories after fiscal year end for compensable days occurring prior to fiscal year
end. A UI expense will also be recognized for the reporting period for amounts withdrawn
from the Federal UTF by states and territories to pay benefits to beneficiaries that pertain
solely to the current reporting period. Such costs would be recognized as a component of
expense and not as a reduction of the recognized liability. Amounts paid that pertain to and
reduce the liability recognized in the prior reporting period pursuant to this paragraph, items
(1) and (2), would not be recognized as an expense of the current reporting period.
SFFAS 37 - Page 30
SFFAS 37
have been presented, among other places, as a line item on the balance
sheet below assets, liabilities, and net position. It would not have been
included in the totals for these classifications, but would have been
part of a package of information.
A40. In the SI ED, the members who supported this proposal stated their
belief that the closed group measure is important for analysis of social
insurance. The closed group measure represents the net present value
as of the reporting date of the commitment of future social insurance
participants and future general taxpayers to provide benefits to
current participants over the latters lifetime, based on the current
participants past and future work in covered employment. The closed
group measure also provides a perspective on the financing challenges
for the program. It would be relevant to those who are assessing
options for dealing with those challenges. The measure would not
only draw attention to the challenge but would also quantify it in a way
that can support further analysis and decision-making.
A41. The proposed balance sheet reporting would have affected the
reporting model. Again, the proposal was to present the closed group
measure as a line item on the balance sheet below assets, liabilities,
and net position and not included in the totals for these classifications.
The line item was not presented formally as a new element of financial
statements within the context of the SFFAC 515 definitions, e.g., a
commitment. The Board explained that it was not formally
proposing a new definition or concepts underlying a new reporting
model at that time. In order to offer improvements in a timely manner,
the Board left open certain questions regarding the reporting model
and the elements of federal financial reporting. However, the Board
indicated there were areas where additional conceptual work would
be undertaken.
A42. Members believe that the current concepts need to do a better job of
explaining unique federal accounting issues. Concepts need to
explain, for example, why the power to tax is not an asset but
nonetheless is relevant to assessing the sustainability or the financial
condition of the federal government; why current deficits are indeed
bad but that the problem is actually long-range rather than short-
15
SFFAS 37 - Page 31
SFFAS 37
range; why the timing of a cash flow problem is important, and why
the point estimates on the balance sheet have limitations for assessing
financial condition. Members believe that the fiscal sustainability
reporting established in SFFAS 36 substantially improves the
information communicated regarding financial condition. The Board
plans to continue to consider reporting concepts in the Financial
Reporting Model Phase of its Conceptual Framework Project.
A43. The subjects of the balance sheet and the open vs. closed group
measures of the social insurance commitment raise fundamental
issues. Over the years, some members and others have asked why
social insurance should be treated differently than other programs that
are funded by annual appropriations, and why social insurance should
be selected for the balance sheet but not other programs, e.g., food
stamps, school lunches. They do not believe that a strong basis has
been established for saying social insurance programs are the ones to
highlight through liability recognition and others can be excluded. In
this regard some members believed one of the drawbacks of the SOSI
is that it does not provide a comprehensive view of government
liabilities-commitments-expectations. They note that the information
provided pursuant to SFFAS 36 will provide that view.
Respondents Comments
Regarding the Balance
Sheet
SFFAS 37 - Page 32
SFFAS 37
A47. The Board was of two views on the question of displaying the closed
group measure (or any similar measure) on the balance sheet below
assets, liabilities, and net position and not included in the totals for
these classifications. Some members favored the compromise
approach and wished to alter the presentation either through
changes to the balance sheet or development of a new basic financial
statement. Those who opposed the new line item on the balance sheet
argued that readers would not have a basis for understanding the new
element on the balance sheet, and/or that the closed group measure is
not comparable to amounts reported on the balance sheet, and/or
other significant long-term commitments should be presented, and/or
the SOSI is adequate. Further, these members were not persuaded
that the proposals presented to alter the presentation on the balance
sheet by presenting the open group instead of the closed group or to
instead create a new basic financial statement were necessary. Thus,
since the Board could not establish a clear majority in favor of the new
line item, it decided not to go forward with the proposed balance sheet
presentation of the closed group measure as a commitment.
A48. The Board then discussed developing a new basic financial statement
that would present the key measures from the financial statements in
one place. Ultimately, the Board agreed to require the key measures in
a table or other singular MD&A presentation, and integrate the work
on a new basic financial statement with the Reporting Model Project.
SFFAS 37 - Page 33
SFFAS 37
Respondents Comments
Regarding the Statement
of Social Insurance and
the Statement of
Changes in Social
Insurance Amounts
A52. The Board concludes that the SOSI should have a summary section as
described in the SI ED. Although it decided not to go forward with a
line item on the balance sheet for the closed group measure, as
explained above, the Board is going forward with the MD&A
discussion and associated table or other singular presentation of key
measures and with the SCSIA. Thus, the closed group measure and
the open group measure continue to be fundamental information. The
summary section of the SOSI will illustrate the components of these
measures and how the closed group measure relates to the open group
measure.
A53. The summary will present both the net present value of the
commitment to the current participants (the closed group measure)
and to all participants (the open group measure) over the projection
period. The Board decided that the closed group measure should be
presented on the SOSI and addressed in MD&A to enrich the
discussion of the open group measure and to give the reader a better
understanding of the generational implications of financing social
insurance programs.
A54. The Board concludes that the SCSIA will greatly enhance the value of
the presentation and should be required since it has substantial
support in the community as well as among Board members.
SFFAS 37 - Page 34
SFFAS 37
A55. As stated above, the Board provided MD&A standards and guidance in
SFFAC 3, Concepts for Managements Discussion and Analysis and
SFFAS 15. SFFAC 3 provides concepts and a foundation for the
standards presented in SFFAS 15.
A56. The MD&A standards in SFFAS 15 are brief. SFFAS 15 requires the
entitys financial report to include MD&A, which it categorizes as RSI.
SFFAS 15 requires the entitys MD&A to contain sections that address
the entitys mission and organization structure, performance goals and
results, financial statements, and systems, controls, and legal
compliance.16 It also requires MD&A to include forward-looking
information regarding the possible future effects of the most
important existing, currently-known demands, risks, uncertainties,
events, conditions, and trends, while encouraging forward-looking
information about the possible effects of anticipated future demands,
events, conditions, and trends.17 SFFAS 15 does not specify the
contents for each section. SFFAC 3 provides some concepts in that
regard.
A57. For the SI ED, the Board proposed to provide additional specific
standards for the financial statement analysis section of MD&A for the
government-wide entity and for component entities that present a
SOSI. Based on SFFAC 3,18 the Board proposed that, in the section
devoted to financial statement analysis, management should explain
critical measures and key amounts and why changes occurred and
what the change indicates or implies for the program; and, how the
costs and commitments incurred will be financed.
A58. In addition, in the SI ED the Board proposed to require forwardinglooking information about anticipated future demands, events,
conditions, and trends related to social insurance. In SFFAC 3, the
Board had said management should include information about
anticipated future demands and events to the extent feasible and
16
17
18
SFFAS 37 - Page 35
SFFAS 37
Respondents Comments
Regarding MD&A
A62. The Board concludes that the MD&A provisions of the social
insurance standard provide flexibility and are not overly prescriptive;
nor will they result in redundancy. The Statement incorporates MD&A
concepts from SFFAC 3 that currently are not being adequately
addressed. Moreover, the Board believes that the long-term nature of
social insurance programs requires that management discuss
anticipated future demands, events, conditions, and trends as well as
those currently existing.
19
SFFAS 37 - Page 36
SFFAS 37
A63. However, the Board did make significant changes to the proposed
standard after considering respondents comments and the views of
Board members. First, the Board decided that MD&A should
emphasize the open group measure rather than the closed group
measure.
A64. In addition, the Board decided to require a table or other singular
presentation of key measures in MD&A rather than make it optional,
as proposed in the SI ED (see paragraph 25). In the SI ED, the Board
had required and continues to require a narrative discussion of key
measures in MD&A of the government-wide entity and component
entities that present a SOSI, as described in paragraphs 23-27, and
provided an option whereby the entity could array the key measures in
a table or schedule. The Board decided to require a table or other
singular presentation because it will significantly enhance the
presentation by helping users grasp the relationship between social
insurance amounts and other costs, assets and liabilities, budget
deficits, and sustainability projections, and therefore the table or other
singular presentation should not be optional.
A65. In addition, a table or other singular presentation will relate the basic
financial statements to each other. The basic financial statements in
the federal reporting model do not all articulate with one another.
Amounts reported on the balance sheet or statement of net cost, for
example, do not tie directly to the present values of the cash flows
over the next 75 years that are presented in the SOSI and now the
SCSIA, which are also basic statements. A table or other singular
presentation will bring all of the pieces of the unique federal reporting
model together in a single place. To make this function of the table or
other singular presentation explicit, the Board changed the wording of
the standard (see paragraph 24) so that the preparer is directed to
certain basic financial statements to obtain the key measures.
A66. Lastly, the Board decided not to require the discussion and the table or
other singular presentation to be in the section of the MD&A devoted
to financial statement analysis. The Board had designated the
financial statement analysis section of MD&A, which is one of the
sections required by SFFAS 15, because the key measures to be
discussed come from the financial statements. Instead, the Board
decided to allow it to be wherever in MD&A the preparer thinks will be
effective, as long as the specified information is presented together.
However, the Board believes that the information should be presented
SFFAS 37 - Page 37
SFFAS 37
A67. The proposed standard did not affect the statements of net cost of
social insurance entities and the government-wide entity. Some
argued that the change in the social insurance closed group measure
or other net present value during the reporting period is an economic
cost. The economic cost of social insurance programs has been
debated by the Board over the years. Some current Board members
believed that the change in the closed group measure is an economic
cost and were concerned that it is not highlighted on the statement of
net cost in the SI EDs compromise proposal.
A68. These members noted that SFFAC 5 defines expense as an outflow of
or other decrease in assets, an increase in liabilities, or a combination
of both that results in a decrease in the governments net position
during the reporting period.20 SFFAC 5 defines liabilities as a present
obligation of the federal government to provide assets or services to
another entity at a determinable date, when a specified event occurs,
or on demand.21 A present obligation requires a past transaction or
other event.22 These members believed that a past transaction or other
event occurs when social insurance participants work in covered
employment and pay payroll taxes, that an economic cost is being
incurred.
A69. Some members noted that accrual accounting has a universal
definition: expenses are recognized when incurred. They believed that
only through accrual accounting can cost or financial position of an
entity be measured, which is why generally accepted accounting
principles primarily require accrual accounting. They believe the
current focus on cash flow or on pay-as-you-go financing with
payroll taxes matched against current benefit payments is
misleading. They believe that payroll taxes received from those
currently working in covered employment should be matched not
against benefits payments to current retirees but against the economic
20
21
22
SFFAS 37 - Page 38
SFFAS 37
SFFAS 37 - Page 39
SFFAS 37
SFFAS 37 - Page 40
SFFAS 37
Respondents Comments
Regarding the Statement
of Net Cost
23
See http://www.ssa.gov/OACT/NOTES/actnote.html.
24
SFFAS 37 - Page 41
SFFAS 37
Respondents Comments
Regarding Note
Disclosure
SFFAS 37 - Page 42
SFFAS 37
A87. The Board believes that the accrued benefit obligation would give
interested readers a generally understood frame of reference and
another perspective on social insurance programs. However, the
Board decided not to require it in this standard. The Board is
persuaded that, given that several measures of the social insurance
obligation are already reported in the financial statements, disclosing
another number would likely be overwhelming or confusing, rather
than enhancing the readers understanding of the governments social
insurance obligations. In addition, the Board is persuaded that,
although the SSA provides the amount for Social Security, the accrued
benefit obligation is not calculated for Medicare, and there was
significant reluctance among members to apply the concept to
Medicare or to develop it further for that purpose.
25
26
SFFAS 37 - Page 43
SFFAS 37
Respondents Comments
Regarding Sensitivity
Analysis
A93. The Board continues to believe that a flexible yet focused approach to
sensitivity analysis is best. Thus, the standard continues to require
sensitivity analysis of the closed and open group measures that in the
preparers best judgment effectively communicates with the users.
Thus, the preparer would consider future trends, the utility of the
information to the users and policy-makers, and the relative burden on
its resources.
27
For the final standard, this is now the open group measure.
SFFAS 37 - Page 44
SFFAS 37
A94. The Board decided not to include a statement that preparers may
consider stochastic modeling. The Board weighed the cautionary
responses in that regard from the American Academy of Actuaries and
the Chief Actuary of the Social Security Administration. The Board
believes that the flexibility of the standard will allow the preparers and
their advisors to illustrate sensitivity of the open and closed group
measures by varying individual assumptions or by other means they
believe are meaningful and comprehensible.
Valuation Date
Board Approval
A98. This Statement was approved for issuance by all members of the
Board. The written ballots are available for public inspection at the
FASAB office.
SFFAS 37 - Page 45
SFFAS 37
Appendix B:
Illustrative Table of
Key Measures
Table of Key Measures
2008
billions of dollars
2007
2006
Costs
Net costs
Total taxes and other revenues
Net operating cost
($3,671)
2,661
(1,010)
($2,903)
2,627
(276)
($2,890)
2,441
(449)
$1,975
$1,581
$1,497
5,836
5,319
1,023
12,178
($10,203)
5,078
4,769
940
10,787
($9,206)
4,868
4,679
866
10, 413
($8,916)
($42,970)
($40,948)
($38,851)
(40,948)
(2,022)
($38,851)
(2,097)
($35,689)
(3,162)
($455)
($163)
($248)
($XX,XXX)
($XX,XXX)
($XX,XXX)
Net Position
Assets
Less: liabilities, comprising
Federal debt held by the public
Federal employee & veterans benefits
Other liabilities
Total liabilities
Net position (assets net of liabilities)
Social Insurance Commitments
Net present value (NPV) of future cash flows for all participants over
the next 75 years (open group), end of fiscal year
NPV of future cash flow for all participants over the next 75 years
(open group), beginning of fiscal year
Change in NPV
Budget Results
Unified budget deficit
Spending in Excess of Receipts
Spending in excess of receipts (see long-term projections statement)
SFFAS 37 - Page 46
SFFAS 37
Appendix C:
Illustrative
Statement of Social
Insurance, Part I,
Government-wide
SOSI
pp
********UNAUDITED***********
2006
2005
2004
2008
2007
$ 542
18,249
17,566
$ 477
17,515
16,121
$ 533
16,568
15,006
$ 464
15,290
13,696
$ 411
14,388
12,900
36,357
34,113
32,107
29,450
27,699
(6,958)
(29,091)
(6,933)
(6,329)
(27,928)
(6,619)
(5,866)
(26,211)
(6,480)
(5,395)
(23,942)
(5,816)
(4,933)
(22,418)
(5,578)
(42,911)
(40,876)
(38,557)
(35,153)
(32,929)
$ (6,555)
$ (6,763)
$ (6,450)
$ (5,703)
$ (5,230)
SFFAS 37 - Page 47
SFFAS 37
SFFAS 37 - Page 48
2008
$ 202
6,320
5,361
2007
$
178
5,975
4,870
2006
$
192
5,685
4,767
2005
$
162
5,064
4,209
2004
$
148
4,820
4,009
11,883
11,023
10,644
9,435
8,977
(2,747)
(17,365)
(4,506)
(2,558)
(15,639)
(5,118)
(2,397)
(15,633)
(3,904)
(2,179)
(12,668)
(3,417)
(2,168)
(12,054)
(3,246)
(24,619)
(23,315)
(21,934)
(18,264)
(17,468)
$(12,736)
$(12,292)
$(11,290)
$ (8,829)
$ (8,491)
2008
2007
2006
2005
2004
$ 461
3,859
1,158
433
3,184
1,172
409
3,167
906
363
2,900
924
332
2,665
891
5,478
4,789
4,482
4,187
3,888
(1,986)
(14,949)
(4,262)
(1,834)
(12,130)
(4,257)
(1,773)
(12,433)
(3,407)
(1,622)
(11,541)
(3,408)
(1,475)
(10,577)
(3,277)
(21,197)
(18,221)
(17,613)
(16,571)
(15,329)
$(15,719)
$(13,432)
$(13,131)
$(12,384)
$(11,441)
SFFAS 37
SFFAS 37 - Page 49
2008
$ 123
1,380
604
2,107
2007
$
2006
167
1,627
611
2,405
173
1,700
492
2,365
2005
$
185
1,790
572
2,547
(581)
(6,527)
(2,856)
(9,964)
$ (7,857)
2008
(794)
(7,273)
(2,699)
(10,766)
$ (8,361)
2007
(792)
(7,338)
(2,121)
(10,251)
$ (7,886)
2006
(880)
(7,913)
(2,440)
(11,233)
$ (8,686)
2005
5
43
54
102
5
41
54
100
5
40
56
101
4
37
41
82
2004
$
176
1,857
618
2,651
(773)
(7,566)
(2,431)
(10,770)
$ (8,119)
2004
$
4
37
39
80
(97)
(88)
(26)
(212)
$ (109)
2008
$
5
(93)
(86)
(26)
(205)
$ (105)
2007
$
5
(92)
(84)
(25)
(201)
$ (100)
2006
$
4
(84)
(73)
(16)
(173)
$
(91)
2005
$
5
(81)
(72)
(14)
(167)
$
(87)
2004
$
4
$(42,970)
$(40,948)
$(38,853)
$(35,688)
$(33,364)
SFFAS 37
2008
$ 1,333
(12,369)
(11,036)
2007
$
1,260
(11,608)
(10,348)
2006
$
1,312
(10,920)
(9,608)
2005
2004
1,178
(10,160)
(8,982)
$ 1,071
(9,430)
(8,359)
29,851
(67,950)
(38,099)
28,342
(63,056)
(34,714)
27,160
(61,699)
(34,539)
25,081
(56,137)
(31,056)
23,767
(52,687)
(28,920)
(49,135)
(45,062)
(44,147)
(40,038)
(37,279)
Future participants (those under age 15, and those to be born and to
immigrate during period):
Revenue (e.g., contributions and earmarked taxes)
Expenditures for scheduled future benefits
Present value of future revenue less future expenditures
24,743
(18,578)
6,165
22,828
(18,714)
4,114
21,227
(15,933)
5,294
19,442
(15,092)
4,350
18,457
(14,542)
3,915
$(42,970)
$(40,948)
$(38,853)
$(35,688)
$(33,364)
SFFAS 37 - Page 50
SFFAS 37
********UNAUDITED***********
2006
2005
2004
2008
2007
$ 542
(6,958)
(6,416)
$ 477
(6,329)
(5,852)
$ 533
(5,866)
(5,333)
$ 464
(5,395)
(4,931)
$ 411
(4,933)
(4,522)
18,249
(29,021)
(10,772)
17,515
(27,928)
(10,413)
16,568
(26,211)
(9,643)
15,290
(23,942)
(8,652)
14,388
(22,418)
(8,030)
(17,218)
2,238
$(14,980)
(16,265)
2,048
$(14,217)
(14,976)
1,859
$(13,117)
(13,583)
1,687
$(11,896)
(12,552)
1,531
$(11,021)
$ 17,566
(6,933)
10,633
$ 16,121
(6,619)
9,502
$ 15,006
(6,480)
8,526
$ 13,696
(5,816)
7,880
$ 12,900
(5,578)
7,322
(6,555)
2,238
$(4,317)
(6,763)
2,048
$(4,715)
(6,450)
1,859
$(4,591)
(5,703)
1,687
$(4,016)
(5,230)
1,531
$(3,699)
SFFAS 37 - Page 51
SFFAS 37
Appendix D:
Illustrative
Statement of
Changes in Social
Insurance Amounts
Social
Security
Net present value (NPV) of future revenue less
future expenditures for current and future
participants (the open group) over the next 75
years, beginning of the year
$(6,763)
Social Insurance,
Open Group Measure
Other (e.g.,
Medicare Medicare
Railroad
HI
SMI
Retirement)
$(12,292) $(21,793)
Total
$ (100)
$(40,948)
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
208
(443)
(1,783)
(4)
(2,022)
$(12,735) $(23,576)
$(104)
$(42,970)
$(6,555)
The following note examples are adapted from the Social Security
Trustees Report. The explanations of the changes will depend on the
social insurance program in question.
1.
SFFAS 37 - Page 52
SFFAS 37
report. Also, slightly faster rates of decline in death rates are assumed
ultimately for ages 15-64 in this years report. These changes in
ultimate rates are based on the continuing strong declines in mortality
recently experienced by men at these ages and a belief that the lower
rates of decline experienced by women since 1982 will not continue in
the future. All of the mortality changes result in a decrease
(worsening) in the open group measure of about $200 billion.
2.
3.
There were no legislative changes since the last report that are
projected to have a significant effect on the long-range OASDI
actuarial balance.
4.
Several methodological improvements and updates of programspecific data are included in the 2008 measures. These changes to
programmatic data and methods result in a combined increase
(improvement) in the open group measure of about $171 billion.
SFFAS 37 - Page 53
SFFAS 37
Appendix E: List of
Abbreviations
CFR
CFS
CPI
DI
DOL
ED
exposure draft
FASAB
FASB
GAO
GASB
GDP
HHS
IPSASB
MA
Medicare Advantage
MD&A
Medicare HI
OASI
OMB
SFFAS 37 - Page 54
SFFAS 37
RRB
RSI
SCNP
SCSIA
SFAS
SFFAC
SFFAS
SI ED
SMI
SNC
SOSI
SSA
UI
Unemployment Insurance
UTF
SFFAS 37 - Page 55
Status
Issued
Effective Date
None.
Affects
None.
Affected by
None.
Summary
This standard requires the value of the federal governments estimated petroleum royalties from the
production of federal oil and gas proved reserves to be reported in a schedule of estimated federal oil and gas
petroleum royalties. In addition, this standard requires the value of estimated petroleum royalty revenue
designated for others to be reported in a schedule of estimated federal oil and gas petroleum royalties to be
distributed to others. These schedules are to be presented in required supplementary information (RSI) as
part of a discussion of all significant federal oil and gas resources under management by the entity.
This Statement is effective as RSI for periods beginning after September 30, 2011. Earlier implementation is
encouraged. It is the Boards intent that the information required by this Statement transition to basic
information after being reported as RSI for a period of three years. Prior to the conclusion of the three-year
RSI period, the Board plans to make a determination as to whether the information will transition to basic
information as financial statement recognition or note disclosure. This Statement will remain in effect until
such time a determination is made.
SFFAS 38 - Page 1
SFFAS 38
Table of Contents
Contents
Summary
Introduction
Purpose
Materiality
Effective Date
Standards
Scope
Definitions
Accounting and Reporting of Federal Oil and Gas Resources by Component Entities
Schedule of Estimated Federal Oil and Gas Petroleum Royalties to be Distributed to Others
Annual Valuation of Estimated Petroleum Royalties and Petroleum Royalties to be Distributed to Others
Consolidated Financial Report (CFR) of the United States Government Reporting Requirements
11
Effective Date
12
13
Project History
13
15
16
16
Undiscovered Resources
17
Reserves
18
21
Conceptual Aspects of Federal Oil and Gas Resources as an Asset for Estimated Petroleum Royalties and a
Liability for the Portion of Revenue to be Distributed to Non-Federal Entities
22
Recognition Criteria
22
22
29
30
30
Comment Letters
30
Field Testing
31
34
34
Comment Letters
35
Board Approval
39
SFFAS 38 - Page 2
SFFAS 38
Appendix B: Illustrations
40
Appendix C: Abbreviations
53
54
SFFAS 38 - Page 3
SFFAS 38
Introduction
Purpose
Materiality
1.
2.
The Board believes that federal oil and gas resources represent federal
assets and accounting for and reporting information about these
assets would enhance accountability for and stewardship over assets
of the federal government.
3.
This Statement provides for a more complete accounting for oil and
gas resources available to the federal government. Accounting for the
federal governments royalty share of proved reserves as an asset
and reporting information on that asset as required supplementary
information (RSI) would provide transparency regarding the value and
changes in value of these significant assets and result in information
that contributes to meeting federal financial reporting objectives.
4.
Terms defined in Appendix D: Technical Terms or the Glossary are shown in bold-face the
first time they appear.
SFFAS 38 - Page 4
SFFAS 38
Effective Date
5.
6.
7.
8.
9.
Federal lands contain a variety of natural resources other than oil and
gas proved reserves that are not specifically addressed by this
Statement. This Statement does not require or preclude entities from
reporting information about other types of federally-owned natural
resources; however, this Statement should be considered in
conjunction with SFFAS 7, Accounting for Revenue and Other
Financing Sources, when applying SFFAS 34 to other types of
federally-owned natural resources.2
Standards
Scope
2
SFFAS 7, par. 45, requires, in instances where there are virtually no costs incurred in
earning exchange revenue, that federal entities recognize the revenue as a financing source
on the statement of changes in net position, rather than the statement of net cost.
SFFAS 38 - Page 5
SFFAS 38
Definitions
Accounting and
Reporting of Federal Oil
and Gas Resources by
Component Entities
Schedule of Estimated
Federal Oil and Gas
Petroleum Royalties
13. Extensive federal oil and gas resources exist on public lands
throughout the country and on the Outer Continental Shelf (OCS).
These resources will provide economic benefits to the federal
government through revenue from leasing activities and the collection
of royalties on production. The federal government controls access to
these resources.
14. Federal oil and gas resources are made up of two primary components
reserves and undiscovered resources. Reserves can be further
defined as either proved or unproved while undiscovered resources
can be further defined as either recoverable or non-recoverable. See
Figure 1 Components of Federal Oil and Gas Resources in the basis
for conclusions for an illustration of the universe of federal oil and gas
resources and a further breakdown of its components.
15. The value of the federal governments estimated petroleum royalties
from the production of federal oil and gas proved reserves should be
reported in a schedule of estimated federal oil and gas petroleum
royalties by the component entity that is responsible for collecting
SFFAS 38 - Page 6
SFFAS 38
SFFAS 38 - Page 7
SFFAS 38
Schedule of Estimated
Federal Oil and Gas
Petroleum Royalties to be
Distributed to Others
Calculating the present value of future federal royalty receipts employs the use of a number
of estimates including estimating when the proved reserves will be produced over time,
future oil and gas prices, and the possibility and extent of royalty-free production.
Unforeseen circumstances may result in situations where it is not possible for the entity to
reasonably estimate the present value of future federal royalty receipts. In these situations,
it may be possible to estimate current price. Current price, sometimes referred to as a
fresh-start or remeasured price, is a general term for various attributes measured as of a
financial statement date subsequent to the period of initial recognition, including
replacement price, market price, and settlement price.
SFFAS 38 - Page 8
SFFAS 38
Annual Valuation of
Estimated Petroleum
Royalties and Petroleum
Royalties to be Distributed
to Others
27. The estimated petroleum royalties asset value and petroleum royalties
to be distributed to others should be valued at the end of each fiscal
year.
The term obligation is used in this Statement with its general meaning of a duty or
responsibility to act in a certain way. It does not mean that an obligation of budgetary
resources is required for a liability to exist in accounting or financial reporting or that a
liability in accounting or financial reporting is required to exist for budgetary resources to be
obligated.
SFFAS 38 - Page 9
SFFAS 38
b.
c.
d.
e.
f.
SFFAS 38 - Page 10
SFFAS 38
Consolidated Financial
Report (CFR) of the
United States
Government Reporting
Requirements
g.
h.
i.
b.
SFFAS 38 - Page 11
SFFAS 38
Effective Date
30. The standards are effective as RSI for periods beginning after
September 30, 2011. Earlier implementation is encouraged.
31. It is the Boards intent that the information required by this Statement
transition to basic information after being reported as RSI for a period
of three years. Prior to the conclusion of the three-year RSI period, the
Board plans to make a determination as to whether the information
will transition to basic information as financial statement recognition
or note disclosure. This Statement will remain in effect until such time
a determination is made.
SFFAS 38 - Page 12
SFFAS 38
Appendix A: Basis
for Conclusions
Project History
A1. The project began with the formation of a task force to conduct
research. The task force produced a discussion paper in June 2000
entitled Accounting for the Natural Resources of the Federal
Government (see http://www.fasab.gov/ pdffiles/natresrpt.pdf to
access the report). In 2002, the Board resumed active consideration of
the issues raised by the task force after a deferral to address other
issues.
A2. The Board was interested in determining whether values for federal
natural resources, or some surrogate, should be capitalized and
reported on the balance sheet. The Board members believed that
capitalizing federal natural resources could increase accountability for
their management and improve the comprehensiveness, relevance,
and consistency of federal financial statements. The Board members
agreed to address each type of natural resource (e.g., fluid leasable
minerals such as oil and gas, solid leasable minerals such as coal and
timber, etc.) in separate phases. Federal oil and gas resources were
addressed first because of the literature available in other domains,
the extensive historical information on federal lease programs and
royalty collections, and the large amount of revenue received in
exchange for federal oil and gas resources.
A3. The Board indicated that the pertinent questions were (1) what, if
anything, should be recognized as an asset; and, (2) what is the source
and reliability of quantity information. They believed the source and
the reliability of the information would have a bearing on where
information should be reported.
A4. The extractive industries activities for oil and gas can be divided into
two categoriesupstream activities (exploration and production
activities) and downstream activities (transportation, refining, and
marketing activities). Upstream activities can be divided into the
following phases:
SFFAS 38 - Page 13
SFFAS 38
a.
Prospecting5
b.
c.
Exploration
d.
e.
Development
f.
Production
A5. Downstream activities take place after the production phase of the
upstream activities through to the point of sale and can be divided into
the following phases:
a.
b.
Shipping
c.
Refining
d.
e.
A6. The national assessment of federal oil and gas resources performed by
the federal government is similar to the prospecting phase of the
extractive industries upstream activities. It is the only activity
performed by the federal government that is similar to the extractive
industries activities.
A7. The Board noted that, based on discussions about oil and gas lease
activities in the private sector, new models for accounting and
reporting on the federal governments oil and gas activities would be
needed because the current federal model is incomplete and federal
activities are not similar to private sector activities.
Prospecting usually involves researching and analyzing an areas historic geologic data and
carrying out topographical, geological, and geophysical studies.
SFFAS 38 - Page 14
SFFAS 38
A8. The Board released two exposure drafts (EDs) to solicit comments on
its proposed requirements for accounting for federal oil and gas
resources. The original ED, Accounting for Federal Oil and Gas
Resources, was released on May 21, 2007. A revised ED by the same
name was released on July 6, 2009. The board considered the
comments received on the two EDs and related field testing in
reaching its current position.
A9. Federal lands contain a variety of natural resources that are not
specifically addressed by this Statement, including coal, gold, and
silver, as well as timber and grazing rights. Originally, the Board
intended to address each category of resources in separate phases as
noted in paragraph A2. Although in principle a broader application
was desirable to several Board members, the majority believes that the
Board has already devoted a substantial amount of time to the oil and
gas standard and developing additional guidance for the other types of
resources would significantly delay implementation of a broad
standard. Therefore, because federal oil and gas resources represent
the most significant portion of all federal natural resources, the
majority of members felt it was important to begin recognizing them as
soon as possible.
A10. Nonetheless, the majority of the members believe that the substance
of the standards developed for federal oil and gas resources may serve
as a good analogy for other categories of federal natural resources.6
Therefore, while this Statement does not specifically address other
types of federal natural resources, the Board believes that this
Statement should be considered when applying SFFAS 34, The
Hierarchy of Generally Accepted Accounting Principles, Including
the Application of Standards Issued by the Financial Accounting
Standards Board, to other types of federal natural resources. As a
result, while not explicitly encouraging agencies to recognize other
categories of natural resources, the Board included paragraph 9 to
explicitly state that this Statement does not require or preclude
entities from reporting information about other types of federallyowned natural resources; however, members believe this Statement
should be considered in conjunction with SFFAS 7, Accounting for
SFFAS 38 - Page 15
SFFAS 38
A12. SFFAS 31, Accounting for Fiduciary Activities, par. 12, states that
Fiduciary assets may include assets other than cash, e.g., real or
personal property held temporarily pending disposition, or held longterm in a fiduciary capacity. Both the original and revised EDs
included a paragraph on fiduciary oil and gas resources that required
similar reporting for fiduciary proved oil and gas reserves. However,
one of the respondents to the revised ED raised a question of whether
fiduciaries are required to value non-monetary assets. In addition, the
Board discussed whether there are currently any oil and gas reserve
activities that would meet the definition of fiduciary activity.7 Since
this Statement requires RSI reporting for federal oil and gas proved
reserves and would not trigger reporting under SFFAS 31, the Board is
deferring the issue of whether reporting should be required for
fiduciary proved oil and gas reserves. No reporting on fiduciary oil
and gas resources is required as a result of this Statement. The Board
will revisit the issue of reporting on fiduciary oil and gas resources
either through the issuance of the technical bulletin mentioned in
paragraph A11 or when the Board revisits accounting and reporting for
federal oil and gas resources in three years as discussed in paragraph
A38.
Members questioned whether the federal government currently assumes any fiduciary
responsibility for non-federal oil and gas leases beyond the collection of royalties.
SFFAS 38 - Page 16
SFFAS 38
Undiscovered Resources
b.
SFFAS 38 - Page 17
SFFAS 38
Reserves
unproved reserves
(1) unproved possible reserves
(2) unproved probable reserves
b.
proved reserves
(1) proved undeveloped reserves
(2) proved developed reserves
(a)proved developed non-producing reserves
(b)proved developed producing reserves
SFFAS 38 - Page 18
SFFAS 38
SFFAS 38 - Page 19
SFFAS 38
A27. On the following page, Figure 1 Components of Federal Oil and Gas
Resources provides a summary of the information presented in the
preceding paragraphs. The shaded boxes in the figure represent the
availability of information as follows:
See footnote 8.
SFFAS 38 - Page 20
SFFAS 38
Figure 1 Components
of Federal Oil and Gas
Resources
Accounting
Standards
Undiscovered Resources
Undiscovered
NonRecoverable
Resources
Reserves
Undiscovered
Economically
Recoverable
Resources
Proved Reserves
Unproved Reserves
Unproved
Possible
Reserves
Unproved
Probable
Reserves
Proved
Undeveloped
Reserves
Proved
Developed
Reserves
Proved
Developed
Non-Producing
Reserves
Proved
Developed
Producing
Reserves
Existing
Accounting
Standards
Bonus bid, rent, royalty revenue accounted for as custodial activity by the component entity
and recognized as a financing source on the CFR and component entity
statement of operations and changes in net position
New
Accounting
Standards
x Bonus bid, rent, royalty revenue accounted for as custodial activity by the component
entity and recognized as a financing source on the CFR and component entity
statement of operations and changes in net position
SFFAS 38 - Page 21
SFFAS 38
Conceptual Aspects of
Federal Oil and Gas
Resources as an Asset
for Estimated Petroleum
Royalties and a Liability
for the Portion of
Revenue to be
Distributed to NonFederal Entities
Recognition Criteria
Consideration of Asset
Recognition or Disclosure
10
SFFAC 5, par. 5.
11
SFFAC 5, par. 7.
SFFAS 38 - Page 22
SFFAS 38
12
13
SFFAS 38 - Page 23
SFFAS 38
SFFAS 38 - Page 24
SFFAS 38
SFFAS 38 - Page 25
SFFAS 38
A43. Concerning the dollar amount to be reported for the estimated federal
royalty share of proved reserves, the Board considered various
measurement attributes and methods, including the following:
a.
b.
c.
d.
A44. After deliberating on the above attributes and methods, the Board
decided that defining a measurement attribute in terms that are
common to the oil and gas industry would be the best approach.
Therefore, the Board proposed to use a regional average first purchase
price for oil and lease condensate, a regional average first purchase
price for natural gas plant liquids (NGPLs), and a regional average
wellhead price for gas to value federal estimated petroleum royalties.
This measurement approach was included in the May 2007 ED.
A45. Also included in the May 2007 ED was an alternative view from the
Board member representing the Congressional Budget Office,
expressing the view that fair value is the appropriate basis for valuing
federal oil and gas resources. At the time, the other Board members
had rejected fair value because of the lack of current transactions
between market participants involving the sale of the federal royalty
share for proved oil and gas reserves.
SFFAS 38 - Page 26
SFFAS 38
A46. In conjunction with the comment period on the May 2007 ED, the
Board requested that the proposal be field tested by the U.S.
Department of the Interior (DOI). After reviewing the results of the
field testing performed by DOI (see paragraphs A61 through A68) and
talking with DOI representatives (see paragraphs A69 and A70) about
the alternative methodology that it developed, the Board determined
that the estimates that are developed should approximate the present
value of future federal royalty receipts on proved reserves known to
exist as of the reporting date. The estimates should be based on the
best information available at fiscal year-end, or as close to the fiscal
year-end as possible. In addition, discount rates as of the reporting
date for present value measurements of federal oil and gas assets and
liabilities should be based on interest rates on marketable Treasury
securities with maturities consistent with the cash flows being
discounted.
A47. While present value is typically considered to be a method for
measuring fair value, the present value measurement approach
required by this standard is based on an entity-specific discount rate,
specifically the interest rates on marketable Treasury securities, and
does not consider the price that market participants demand for
bearing the uncertainty inherent in the cash flows (i.e., neither the
cash flows nor the discount rate is adjusted for a market risk
premium). A typical fair value measurement (e.g., Statement of
Financial Accounting Standards (SFAS) 157, Fair Value
Measurements14) is determined based on the assumptions that market
participants would use in pricing the asset. A measurement that does
not include an adjustment for the market risk premium would not
represent a fair value measurement since market participants would
include one in pricing the petroleum royalties. Therefore, the present
value measurement approach required by this standard is not a
market-based fair value measure.
A48. There is some concern that DOI may not be able to implement and/or
obtain a favorable audit opinion on the present value methodology
that it proposed as a result of its field testing. To permit additional
flexibility in the measurement methods for valuing federal estimated
petroleum royalties, the Board has also determined that market-based
methods for measuring fair value or other methods for measuring
14
SFFAS 38 - Page 27
SFFAS 38
SFFAS 38 - Page 28
SFFAS 38
Consideration of Liability
Recognition or Disclosure
15
The term obligation is used in this Statement with its general meaning of a duty or
responsibility to act in a certain way. It does not mean that an obligation of budgetary
resources is required for a liability to exist in accounting or financial reporting or that a
liability in accounting or financial reporting is required to exist for budgetary resources to be
obligated.
16
17
SFFAS 38 - Page 29
SFFAS 38
also receives a very small portion of the revenue collected to fund its
operations. The amount used to fund its operations is legislated by
Congress as part of the component entitys annual appropriation. For
example, the amount received by the component entity was
approximately one percent (1%) of annual revenues collected in 2006.18
A56. The Board believes that in addition to presenting a schedule of the
estimated petroleum royalties to be received, the component entity
responsible for collecting royalties should also present a schedule of
the estimated petroleum royalties to be distributed to others because
nearly all of the revenue from royalties, lease sales, and rent are
ultimately distributed to others (e.g., the general fund of the U.S.
Treasury, other federal agencies, and state governments).
A57. When rights to a future royalty stream are identified to be sold, the
value of those rights should be reported in RSI as future royalty rights
identified for sale. Reporting the approximate value at the balance
sheet date alerts the reader to the pending sale and the potential value
of the asset to be sold.
A58. The value of the future royalty rights identified for sale is based on the
specific field identified for sale. Because the fields are known, this
provides a more field specific value for the rights identified to be sold.
A59. The original ED, Accounting for Federal Oil and Gas Resources, was
issued May 21, 2007 with comments requested by September 21, 2007.
However, because the Board received a request for the comment
period to be extended and because few responses had been received,
the Board agreed to extend the comment period until January 11, 2008.
Comment Letters
A60. Eight comment letters were received on the original ED. The
following points present a high-level summary of the comments
received:
18
The one percent was derived by dividing [Note 23. Custodial Distributions to MMS,
Revenues to Fund Operations] by [Total Revenue on the Statement of Custodial Activity] for
2006.
SFFAS 38 - Page 30
SFFAS 38
Field Testing
a.
b.
c.
d.
e.
f.
g.
h.
i.
A61. In addition to the comment letters received on the original ED, the
Board also considered the results of a field test of the proposed
standards performed by a DOI field test team. The field test team
consisted of MMS Offshore Minerals Management Economics and
Resource Evaluation experts and petroleum engineers; Bureau of
Land Management petroleum engineers and resource evaluation
SFFAS 38 - Page 31
SFFAS 38
b.
c.
the need to exclude royalty relief volumes and estimate the value
of commodities received in kind and delivered to the Department
of Energy to fill the Strategic Petroleum Reserve;
d.
e.
the effect of estimates such as the royalty accrual and prior year
production adjustments made in the current year;
SFFAS 38 - Page 32
SFFAS 38
f.
g.
h.
i.
the need to revise all, or almost all, of the existing posting models
in the accounting system.
A65. The field test team also completed a field test questionnaire using a
present value approach. This questionnaire included many of the
same concerns as noted in paragraphs A63 and A64 above. In addition,
the present value approach also incorporated present value
calculations for factors such as the present value of royalties received
over time, estimates of future gas prices, transportation allowances,
and discount and inflation rates.
A66. In both estimates (the ED view as well as the present value view), the
field test team used share of production as a proxy for share of proved
reserves. One of the members expressed concerns about the use of
production as a proxy for underlying reserves because it assumes (1)
the same percentage of reserves are brought to market each year from
all locations (or at least, on average between federal and non-federal)
and (2) too much year to year variance in production patterns makes
underlying reserve estimates fluctuate by an equal amount.
A67. Staff asked an oil and gas analyst at the Congressional Budget Office
for his thoughts on the methodology. He responded that he
understands the concern with the first assumption because it is likely
that not the same fraction of reserves will be accessed in each year.
However, he stated that averaging between federal and non-federal
would control for some of that variance, though it is not possible to
know just how much. He stated that this simplifying assumption is
fairly reasonable given the approximate nature of the analysis. The
analyst noted that with the second assumption, the variance might be
eliminated or reduced by using a moving average rather than a year-toyear measure. For example, a 5-year or 10-year moving average of
SFFAS 38 - Page 33
SFFAS 38
A71. The revised ED, Accounting for Federal Oil and Gas Resources, was
issued July 6, 2009, with comments requested by September 8, 2009.
A72. Upon release of the revised ED, notices and press releases were
provided to The Federal Register, FASAB News, The Journal of
Accountancy, AGA Today, the CPA Journal, Government Executive,
the CPA Letter, Government Accounting and Auditing Update, the
CFO Council, the Council of Inspectors General on Integrity and
Efficiency, the Financial Statement Audit Network, and committees of
professional associations generally commenting on exposure drafts in
the past.
A73. This broad announcement was followed by direct mailings or e-mails
of the revised ED to:
a.
SFFAS 38 - Page 34
SFFAS 38
b.
c.
d.
e.
f.
A74. In addition, the ED was publicized during the FASAB Update session
at the Financial Statement Audit Network monthly meeting on July 21,
2009, and at the Department of the Treasurys 19th Annual
Government Financial Management Conference on August 5, 2009.
A75. To encourage responses, reminder notices were sent to the FASAB
Listserv and each of the above individuals/organizations on August 20,
2009.
Comment Letters
A76. Nine comment letters were received from the following sources:
FEDERAL
(Internal)
Users, academics, others
Auditors
Preparers and financial managers
SFFAS 38 - Page 35
NON-FEDERAL
(External)
2
1
6
SFFAS 38
b.
c.
d.
19
Exit price is the price that would be received to sell an asset or paid to transfer a liability
(FASB ASC 820-10-20).
SFFAS 38 - Page 36
SFFAS 38
e.
f.
g.
h.
i.
SFFAS 38 - Page 37
SFFAS 38
SFFAS 38 - Page 38
SFFAS 38
Board Approval
A82. This statement was approved for issuance by all members of the
Board. The written ballots are available for public inspection at the
FASAB's offices.
SFFAS 38 - Page 39
SFFAS 38
Appendix B:
Illustrations
SFFAS 38 - Page 40
SFFAS 38
Region 1
$4,500,000
Region 2
$3,960,000
Region 3
$2,880,000
Region 4
$3,240,000
$3,420,000
Total
$18,000,000
500,000
500,000
5,500,000
250,000
440,000
440,000
4,840,000
220,000
320,000
320,000
3,520,000
160,000
360,000
360,000
3,960,000
180,000
380,000
380,000
4,180,000
190,000
2,000,000
2,000,000
22,000,000
1,000,000
$11,250,000
$9,900,000
$7,200,000
$8,100,000
$8,550,000
$45,000,000
Region 1
$2,625,000
250,000
250,000
3,000,000
125,000
Region 2
$2,310,000
220,000
220,000
2,640,000
110,000
Region 3
$1,680,000
160,000
160,000
1,920,000
80,000
Region 4
$1,890,000
180,000
180,000
2,160,000
90,000
Region 5
$1,995,000
190,000
190,000
2,280,000
95,000
Total
$10,500,000
1,000,000
1,000,000
12,000,000
500,000
Total Onshore
$6,250,000
5,500,000
$4,000,000
$4,500,000
$4,750,000
$25,000,000
Total Offshore
and Onshore
$17,500,000
$15,400,000
$11,200,000
$12,600,000
$13,300,000
$70,000,000
Offshore
Dry Gas
Wet Gas
NGPLs
Oil
Condensate
Total Offshore
Onshore
Dry Gas
Wet Gas
NGPLs
Oil
Condensate
SFFAS 38 - Page 41
SFFAS 38
Region 1
$5,250,000
1,000,000
1,000,000
7,250,000
500,000
Region 2
$4,620,000
880,000
880,000
6,380,000
440,000
Region 3
$3,360,000
640,000
640,000
4,640,000
320,000
Region 4
$3,780,000
720,000
720,000
5,220,000
360,000
$3,990,000
760,000
760,000
5,510,000
380,000
Total
$21,000,000
4,000,000
4,000,000
29,000,000
2,000,000
$15,000,000
$13,200,000
$9,600,000
$10,800,000
$11,400,000
$60,000,000
Region 1
$4,000,000
500,000
500,000
4,750,000
250,000
Region 2
$3,520,000
440,000
440,000
4,180,000
220,000
Region 3
$2,560,000
320,000
320,000
3,040,000
160,000
Region 4
$2,880,000
360,000
360,000
3,420,000
180,000
Region 5
$3,040,000
380,000
380,000
3,610,000
190,000
Total
$16,000,000
2,000,000
2,000,000
19,000,000
1,000,000
Total Onshore
$10,000,000
$8,800,000
$6,400,000
7,200,000
$7,600,000
$40,000,000
Total Offshore
and Onshore
$25,000,000
$22,000,000
$16,000,000
$18,000,000
$19,000,000
$100,000,000
Offshore
Dry Gas
Wet Gas
NGPLs
Oil
Condensate
Total Offshore
Onshore
Dry Gas
Wet Gas
NGPLs
Oil
Condensate
SFFAS 38 - Page 42
SFFAS 38
20X2
$56,000,000
$80,000,000
420,000
600,000
1,330,000
1,900,000
350,000
500,000
10,500,000
15,000,000
$68,600,000
$98,000,000
Other
20
20
SFFAS 38 - Page 43
SFFAS 38
SFFAS 38 - Page 44
SFFAS 38
SFFAS 38 - Page 45
SFFAS 38
Federal Onshore
$900,000
$200,000
$1,100,000
600,000
100,000
700,000
NGPLs Royalty
300,000
100,000
400,000
1,500,000
300,000
1,800,000
100,000
40,000
140,000
$3,400,000
$740,000
$4,140,000
$200,000
$40,000
$240,000
2,000
2,000
Subtotal
$202,000
$40,000
$242,000
Total
$3,602,000
$780,000
$4,382,000
Oil Royalty
Lease Condensate Royalty
Subtotal
Rent
Bonus Bid
SFFAS 38 - Page 46
Total
SFFAS 38
Federal Offshore
Federal Onshore
$1,000,000
$225,000
$1,225,000
700,000
150,000
850,000
NGPLs Royalty
400,000
150,000
550,000
1,600,000
325,000
1,925,000
100,000
60,000
160,000
$3,800,000
$910,000
$4,710,000
$200,000
$50,000
$250,000
3,000
3,000
Subtotal
$203,000
$50,000
$253,000
Total
$4,003,000
$960,000
$4,963,000
Oil Royalty
Lease Condensate Royalty
Subtotal
Rent
Bonus Bid
Total
SFFAS 38 - Page 47
SFFAS 38
Quantity
(in thousands)
Purchase
Price ($)
Royalty
Rate (%)
60,100,000,000
$4.00/Mcf
14.0%
40,000,000,000
$4.00/Mcf
15.0%
2,000,000
$23.00/Bbl
9.0%
11,000,000
$40.00/Bbl
13.0%
2,100,000
$29.00/Bbl
15.0%
NGPLs (Bbl)
Oil (Bbl)
Lease Condensate (Bbl)
Quantity
(in thousands)
Purchase
Price ($)
Royalty
Rate (%)
58,100,000,000
$5.00/Mcf
12.0%
36,800,000,000
$5.00/Mcf
13.0%
1,900,000
$24.00/Bbl
8.0%
10,000,000
$42.00/Bbl
11.0%
2,000,000
$30.00/Bbl
13.0%
NGPLs (Bbl)
Oil (Bbl)
Lease Condensate (Bbl)
The tables above provide the quantity, purchase price, and royalty rate by
category of estimated petroleum royalties at the end of the current and
prior reporting periods.
SFFAS 38 - Page 48
SFFAS 38
SFFAS 38 - Page 49
SFFAS 38
Sales Volume
(Mcf)
Royalty Revenue
Earned ($)
[Region 1]
2,800,000
$8,100,000
$1,200,000
N/A
[Region 2]
2,900,000
7,300,000
1,100,000
N/A
[Region 3]
3,000,000
7,700,000
1,200,000
4,000,000
[Region 4]
2,800,000
6,200,000
900,000
N/A
[Region 5]
2,700,000
4,500,000
700,000
N/A
14,200,000
$33,800,000
$5,100,000
$4,000,000
Totals
Sales Volume
(Mcf)
Royalty Revenue
Earned ($)
[Region 1]
1,800,000
$5,400,000
$800,000
N/A
[Region 2]
1,900,000
4,800,000
700,000
N/A
[Region 3]
2,000,000
5,100,000
800,000
N/A
[Region 4]
1,800,000
4,100,000
600,000
N/A
[Region 5]
1,800,000
3,000,000
400,000
N/A
9,300,000
$22,400,000
$3,300,000
N/A
Totals
SFFAS 38 - Page 50
SFFAS 38
Sales Volume
(Bbl)
Royalty Revenue
Earned ($)
[Region 1]
500,000
$7,100,000
$1,000,000
N/A
[Region 2]
400,000
5,700,000
800,000
N/A
[Region 3]
500,000
10,200,000
1,400,000
3,200,000
[Region 4]
400,000
8,900,000
1,300,000
N/A
[Region 5]
300,000
7,200,000
1,100,000
N/A
2,100,000
$39,100,000
$5,600,000
$3,200,000
Totals
Sales Volume
(Bbl)
Royalty Revenue
Earned ($)
[Region 1]
300,000
$4,500,000
$700,000
N/A
[Region 2]
300,000
5,600,000
800,000
N/A
[Region 3]
100,000
1,800,000
100,000
N/A
[Region 4]
4,500,000
11,500,000
1,800,000
N/A
[Region 5]
4,500,000
9,100,000
1,700,000
N/A
9,700,000
$32,500,000
$5,100,000
N.A
Totals
SFFAS 38 - Page 51
SFFAS 38
Sales Volume
(Bbl)
Royalty Revenue
Earned ($)
[Region 1]
80,000
500,000
70,000
N/A
[Region 2]
70,000
600,000
90,000
N/A
[Region 3]
50,000
200,000
20,000
N/A
[Region 4]
500,000
1,200,000
200,000
N/A
[Region 5]
500,000
1,000,000
190,000
N/A
1,200,000
$3,500,000
$570,000
N/A
Totals
SFFAS 38 - Page 52
SFFAS 38
Appendix C:
Abbreviations
ASC
Bbl
Barrels
CFR
DOI
ED
Exposure Draft
EIA
FASAB
FASB
Mcf
MMS
OCS
NGPLs
RSI
SFFAC
SFAS
SFFAS
U.S.
United States
USGS
SFFAS 38 - Page 53
SFFAS 38
Appendix D:
Technical Terms
Undiscovered Resources
21
Unless otherwise noted, the definitions in this section were adapted from (1) the OCS
Report, Estimated Oil and Gas Reserves, Gulf of Mexico, December 31, 2000, MMS 2003-050;
available online at https://www.gomr.mms.gov/PDFs/2003/2003-050.pdf; last accessed
December 2, 2009 and (2) the OCS Report, Estimated Oil and Gas Reserves Pacific Outer
Continental Shelf as of December 31, 1997, MMS 99-0023; available online at
http://www.mms.gov/omm/pacific/offshore/oil-gaspdfs/99-0023.pdf; last accessed December
2, 2009.
SFFAS 38 - Page 54
SFFAS 38
the last update in 2006.22 Since 1995, the USGS has not conducted an
overall update for onshore and state waters, but has conducted
assessments updates on a basin or area level.
The assessment considers recent geophysical, geological, technological,
and economic information and uses a geologic play analysis approach for
resource appraisal.
Undiscovered resources are hydrocarbons estimated on the basis of
geologic knowledge and theory to exist outside of known accumulations.
They are presumed to occur in unmapped and unexplored areas. The
speculative and hypothetical resource categories comprise undiscovered
resources. Undiscovered resources are classified as either undiscovered
non-recoverable resources or undiscovered recoverable resources.
22
MMS Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the
Nations Outer Continental Shelf, 2006 (MMS 2006 Assessment); available online at
http://www.mms.gov/revaldiv/ PDFs/2006NationalAssessmentBrochure.pdf; last accessed
December 2, 2009.
SFFAS 38 - Page 55
SFFAS 38
Reserves
1.
2.
Unproved Reserves
After a lease qualifies under Title 30, Section 250.115/116 of the Code of
Federal Regulations, the MMS Field Naming Committee reviews the new
producible lease to assign it to an existing field or, if the lease is not
associated with an established geologic structure, to a new field.
Regardless of where the lease is assigned, the reserves associated with the
lease are initially considered to be unproved reserves. Unproved reserves
are based on geologic or engineering information similar to that used in
23
MMS Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the
Nations Outer Continental Shelf, 2003 Update; available online at
http://www.mms.gov/revaldiv/PDFs/2003 NationalAssessmentUpdate.pdf; last accessed
December 2, 2009.
24
SFFAS 38 - Page 56
SFFAS 38
Proved Reserves
SFFAS 38 - Page 57
SFFAS 38
End of the terms in Figure 1 that are defined under the subheading
Definitions of Resource and Reserve Components and
Subcomponents
---------------------------Other Definitions
Adjustments: The quantity which preserves an exact annual reserves
balance within each State or State subdivision. These adjustments are the
yearly changes in the published reserve estimates that cannot be attributed
to the estimates for other reserve change categories because of the survey
and statistical estimation methods employed. For example, variations as a
result of changes in the operator frame, different random samples or
imputations for missing or unreported reserve changes, could contribute to
adjustments.25
25
Energy Information Administration, U.S. Crude Oil, Natural Gas, and Natural Gas Liquids
Reserves 2007 Annual Report, Glossary (EIA 2007 Annual Report Glossary); available online
at http://www.eia.doe
.gov/oil_gas/natural_gas/data_publications/crude_oil_natural_gas_reserves/cr.html; last
accessed December 2, 2009.
SFFAS 38 - Page 58
SFFAS 38
26
A crude oil stream is crude oil produced in a particular field or a collection of crude oils
with similar qualities from fields in close proximity, which the petroleum industry usually
describes with a specific name, such as West Texas Intermediate (EIA-182 Domestic Crude
Oil First Purchase Report Instructions; available online at
http://www.eia.doe.gov/pub/oil_gas/petroleum/survey_forms/eia182i.pdf; last accessed
December 2, 2009).
29
30
SFFAS 38 - Page 59
SFFAS 38
31
32
MMS OCS Estimated Oil and Gas Reserves Gulf of Mexico, December 31, 2005 (MMS 2009022); available online at http://www.gomr.mms.gov/PDFs/2009/2009-022.pdf; last accessed
December 2, 2009.
SFFAS 38 - Page 60
SFFAS 38
First Purchase Price: The actual amount paid by the first purchaser for
crude oil as it leaves the lease on which it was produced.33 A first
purchase constitutes a transfer of ownership of crude oil during or
immediately after the physical removal of the crude oil from a production
property for the first time.
Gas: A mixture of hydrocarbon compounds and small quantities of various
nonhydrocarbons existing in the gaseous phase or in solution with crude oil
in natural underground reservoirs at reservoir conditions.34
Hydrocarbon: An organic chemical compound of hydrogen and carbon in
the gaseous, liquid, or solid phase. The molecular structure of hydrocarbon
compounds varies from the simplest (methane, a constituent of natural gas)
to the very heavy and very complex.35
Lease: Any contract, profit-share arrangement, joint venture, or other
agreement issued or approved by the United States under a mineral leasing
law that authorizes exploration for, extraction of, or removal of oil or gas.36
Lease Condensate: A mixture consisting primarily of pentanes and
heavier hydrocarbons which is recovered as a liquid from natural gas in
lease or field separation facilities. This category excludes natural gas plant
liquids, such as butane and propane, which are recovered at downstream
natural gas processing plants or facilities.37
Natural Gas Plant Liquids (NGPLs): Those hydrocarbons in natural gas
that are separated as liquids at natural gas processing plants, fractionating
and cycling plants, and, in some instances, field facilities. Lease
condensate is excluded. Products obtained include ethane; liquefied
petroleum gases (propane, butanes, propane-butane mixtures, ethanepropane mixtures); isopentane; and other small quantities of finished
33
Adapted from Form EIA-182 Domestic Crude Oil First Purchase Report Instructions.
34
35
EIA Glossary.
36
37
SFFAS 38 - Page 61
SFFAS 38
products, such as motor gasoline, special naphthas, jet fuel, kerosene, and
distillate fuel oil.38
Net of Sales and Acquisitions39: The net change in the quantity of reserve
estimates, either positive or negative, as a result of reserves gained through
purchase and deducted through sale during the report year.
New Discoveries in Old Fields: The volumes of proved reserves of crude
oil, natural gas, and/or natural gas liquids discovered during the report year
in new reservoir(s) located in old fields.40
New Field Discoveries: The volumes of proved reserves of crude oil,
natural gas and/or natural gas liquids discovered in new fields during the
report year.41
Oil: See Crude Oil.
Outer Continental Shelf (OCS): All submerged lands seaward and
outside the area of lands beneath navigable waters. Lands beneath
navigable waters are interpreted as extending from the coastline 3 nautical
miles into the Arctic Ocean, the Atlantic Ocean, the Pacific Ocean, and the
Gulf of Mexico, excluding the coastal waters off Texas and western Florida.
Lands beneath navigable waters are interpreted as extending from the
coastline 3 marine leagues into the Gulf of Mexico off Texas and western
Florida.42
Play: A group of pools that share a common history of hydrocarbon
generation, migration, reservoir development, and entrapment.43
38
EIA Glossary.
39
Acquisitions are the volume of proved reserves gained by the purchase of existing fields or
properties, from the date of purchase or transfer (EIA 2007 Annual Report Glossary).
40
41
Ibid.
42
43
SFFAS 38 - Page 62
SFFAS 38
44
Ibid.
45
46
For a more detailed explanation of proved reserves and its components, see the section of
Appendix D titled Definitions of Resource and Reserve Components and Subcomponents.
SFFAS 38 - Page 63
SFFAS 38
Region: The term region or regional refers to the geographic area or areas
for which estimated petroleum royalties are calculated.47
47
For example, offshore federal oil and gas resources have typically been classified into
regions such as: Alaska Region the Federal Outer Continental Shelf Alaska; Pacific Region
the Federal OCS Pacific (Washington, Oregon, and California); Gulf of Mexico (GOM)
Region the Federal OCS Gulf of Mexico (Texas, Louisiana, Mississippi, Alabama, and GOM
portion of Florida); and Atlantic Region the Federal OCS Atlantic portion of all East Coast
States.
For onshore federal oil and gas resources, the U.S. Department of Energy typically divides
the United States into regions, which are referred to as Petroleum Administration for
Defense Districts (PADD), for planning purposes. The result is a geographic aggregation of
the 50 States and the District of Columbia into five Districts, with PADD I further split into
three sub-districts, as follows:
PADD III (Gulf Coast) Alabama, Arkansas, Louisiana, Mississippi, New Mexico, and
Texas.
PADD V (West Coast) Alaska, Arizona, California, Hawaii, Nevada, Oregon, and
Washington.
SFFAS 38 - Page 64
SFFAS 38
48
49
50
Ibid.
51
SFFAS 38 - Page 65
SFFAS 38
federal government, as lessor, may take part or all of its oil and gas royalties
in kind (a volume of the commodity) as opposed to in value (money).
Under the oil royalty-in-kind program, the government sells oil at fair
market value to eligible refiners who do not have access to an adequate
supply of crude oil at equitable prices.52
Royalty Rate: A proportionate interest in the production value of mineral
deposits due the lessor from the lessee in accordance with a lease
agreement.53
Royalty Relief: Existing statutes authorize MMS to grant royalty relief to
operators on the production of oil and gas resources from federal oil and
gas leases. Royalty relief is the reduction, modification, or elimination of
any royalty to operators to promote development, increase production, or
encourage production of marginal resources on certain leases or categories
of leases.54
Sales Value: The proceeds received for the sale of a product. Sales value is
calculated by multiplying the sales volume by unit price.
Sales Volume: The volume, or quantity, of the product that is sold. The
sales volume is measured in thousand cubic feet (Mcf) for gas and in
barrels (Bbl) for oil.
Technically Recoverable Resources: The term used to describe the total
quantity of undiscovered recoverable resources and unproved reserves.
Proved reserves are not included in the estimated quantity of technically
recoverable resources.
Wellhead Price: The value of the purchased natural gas at the mouth of the
well. In general, the wellhead price is considered to be the sales price
obtainable from a third party in an arm's length transaction. Posted prices,
requested prices, or prices as defined by lease agreements, contracts, or tax
regulations should be used where applicable.55
52
53
Ibid.
54
43 U.S.C. 1337(a).
55
EIA Glossary.
SFFAS 38 - Page 66
Status
Issued
August 4, 2010
Effective Date
Upon issuance
None.
Affects
Affected by
None.
Summary
The American Institute of Certified Public Accountants (AICPA) Statements on Auditing Standards (SAS) AU
section 560, Subsequent Events, includes accounting and financial reporting guidance that is not discussed in
the authoritative literature that establishes accounting principles. The objective of this Statement is to
incorporate that guidance into the authoritative literature of the FASAB. Insofar as AU Section 560
established principles pertaining to the preparation of basic information and required supplementary
information (RSI)1 it would be more appropriately included in the accounting and financial reporting
standards of the FASAB than in the auditing literature. Accordingly, this Statement does not establish new
accounting guidance but rather incorporates the existing guidance (to the extent appropriate in the federal
government environment) into the FASAB standards. In developing this Statement, the FASAB also
considered incorporating existing AICPA guidance regarding an entitys ability to continue as a going concern
and related party transactions. However, for reasons presented in the basis for conclusions (Appendix A), the
FASAB does not provide accounting standards in these areas at this time.
The requirements in this Statement will improve financial reporting by incorporating authoritative accounting
and financial reporting literature into a single source and thereby better enabling entities to prepare basic
information and RSI in conformity with generally accepted accounting principles (GAAP). The Statement
addresses the circumstances under which an entity should recognize or disclose events or transactions
occurring after the end of the reporting period but before issuance of the financial report.
The FASAB is in the process of reclassifying all items of required supplementary stewardship information (RSSI). Once the Board
reclassifies all the items, the RSSI category will be eliminated. Until such time, this Statement also applies to RSSI.
SFFAS 39 - Page 1
SFFAS 39
Table of Contents
Summary
Introduction
Purpose
Materiality
Effective Date
Accounting Standards
Scope
Definitions
Subsequent Events
Effective Date
Subsequent Events
Going Concern
Related Parties
Exposure Draft
10
Board Approval
13
Appendix B: Abbreviations
14
SFFAS 39 - Page 2
SFFAS 39
Introduction
Purpose
1.
Materiality
2.
Effective Date
3.
4.
5.
Accounting
Standards
Scope
Terms defined in the glossary (Appendix C) are in boldface type the first time they appear
in this Statement.
SFFAS 39 - Page 3
SFFAS 39
Definitions
6.
7.
8.
9.
Basic information and RSI are required components of a financial report prepared in
conformity with GAAP. In the federal government environment, a financial report is known
as a Performance and Accountability Report or an Agency Financial Report and may include
other components required by legislation or administrative directives.
3
The FASAB is in the process of reclassifying all items of required supplementary
stewardship information (RSSI). Once the Board reclassifies all the items, the RSSI category
will be eliminated. Until such time, this Statement also applies to RSSI.
SFFAS 39 - Page 4
SFFAS 39
Subsequent Events
SFFAS 39 - Page 5
SFFAS 39
Effect on Current
Standards
SFFAS 39 - Page 6
SFFAS 39
Effective Date
19. The requirements in this Statement are effective upon its issuance.
The provisions of this Statement need not be applied to immaterial items.
SFFAS 39 - Page 7
SFFAS 39
Appendix A: Basis
for Conclusions
Subsequent Events
A4. The FASAB believes that incorporating the accounting and financial
reporting guidance essentially as it exists in the AICPA literature
would only change the source of the guidance and not significantly
affect practice. Upon evaluating the auditing literature for subsequent
events, the FASAB decided that the guidance is readily adaptable to
the federal government environment with only minor terminology
enhancements.
Going Concern
SFFAS 39 - Page 8
SFFAS 39
A7. On the other hand, the FASAB noted that some federal government
component units may experience fiscal challenges and may need to
seek additional funding from Congress to continue their missions. In
such instances and because SFFAS 36 only applies to the CFR, the
FASAB expects that the entity would address the matter in the
Managements Discussion and Analysis (MD&A) section of its financial
report. SFFAS 15, Managements Discussion and Analysis,
paragraph 3 provides guidance for reporting information in an entitys
MD&A.
Related Parties
A8. AU Section 334, Related Parties, attributes the requirement for related
party disclosures to the Financial Accounting Standards Boards
(FASB) Accounting Standards Codification (ASC) 850 (Statement of
Financial Accounting Standards 57), Related Party Disclosures, and
provides indicators of related party transactions. The FASAB
determined that the related party guidance was not readily adaptable
to the federal government and discussed the applicability of related
FASAB projects and current federal financial reporting practices to the
issue of related party transactions.
SFFAS 39 - Page 9
SFFAS 39
A9. The FASAB has an on-going Federal Entity project that is intended to
define and characterize federal reporting entities and to establish
criteria for including various organizational units in a reporting entity.
Also, the project will involve research on the various types of
relationships that the federal government has established to carry out
its public policy functions. The FASAB believes that it would be
premature to incorporate the related party guidance before it
completes its Federal Entity project. Consequently, the FASAB
decided to conduct research on related parties as part of the Federal
Entity project and use the research results to develop related party
guidance applicable to the federal government environment.
A10. In addition, the FASAB noted that federal agencies typically purchase
goods and services from other federal agencies or organizational units
within the same agency and the FASAB has provided guidance to
assist in reporting this activity. The guidance includes, but is not
limited to:
a.
b.
c.
d.
A11. The FASAB expects that this statement will not alter current reporting
practices. However, some are concerned that reporting practices may
change if the auditing guidance changes before the Federal Entity
project is completed. If so, the FASAB would issue a Technical
Bulletin to assist the federal financial reporting community.
Exposure Draft
A12. The Board published the exposure draft (ED), Subsequent Events:
Codification of Accounting and Financial Reporting Standards
Contained in the AICPA Statements on Auditing Standards, on
October 20, 2009, with comments requested by December 28, 2009.
Upon release of the ED, notices and press releases were provided to:
the Federal Register, FASAB News, the Journal of Accountancy, AGA
SFFAS 39 - Page 10
SFFAS 39
Today, the CPA Journal, Government Executive, the CPA Letter, and
Government Accounting and Auditing Update, the CFO Council, the
Council of Inspectors General on Integrity and Efficiency, the
Financial Statement Audit Network, and committees of professional
associations generally commenting on EDs in the past.
A13. This broad announcement was followed by direct mailings of the
exposure draft to the Subcommittee on Federal Financial
Management, Government Information, and International Security,
Committee on Homeland Security and Governmental Affairs, United
States Senate, and the Subcommittee on Government Management,
Organization, and Procurement, Committee on Oversight and
Government Reform, House of Representatives.
A14. The Board received 17 responses from the following sources:
FEDERAL
(Internal)
Users, academics, others
Auditors
Preparers and financial managers
Totals
3
11
14
NON-FEDERAL
(External)
2
1
3
SFFAS 39 - Page 11
SFFAS 39
The FASAB has re-categorized all RSSI items except for stewardship investments. Once
the FASAB reclassifies the remaining RSSI item, the category will be eliminated. See SFFAC
6, par. A15.
SFFAS 39 - Page 12
SFFAS 39
Board Approval
A19. This statement was approved for issuance by all members of the
Board. The written ballots are available for public inspection at the
FASAB's offices.
SFFAS 39 - Page 13
SFFAS 39
Appendix B:
Abbreviations
AICPA
ASC
AU
CFR
FASAB
FASB
GAAP
MD&A
OAI
RSI
RSSI
SAS
SFAS
SFFAC
SFFAS
SFFAS 39 - Page 14
Status
Issued
Effective Date
For periods beginning after September 30, 2011. Earlier implementation encouraged.
None.
Affects
Affected by
None.
Summary
Deferred maintenance and repairs (DM&R) is maintenance and repair activity that was not performed when it
should have been or was scheduled to be and which is put off or delayed to a future period. Although DM&R
is not sufficiently measurable to support recognition or disclosure as basic information, it is nonetheless a
cost and has been reported as required supplementary information (RSI). Information about DM&R has been
required because the information is important to help financial statement users assess the efficiency and
effectiveness of the federal governments management of property, plant, and equipment. The Board believes
reliable government-wide data are needed to assist users in making assessments related to property, plant,
and equipment.
This Statement amends Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for
Property, Plant, and Equipment (PP&E). The amendments (1) clarify that deferred maintenance reporting
includes deferred repairs, (2) revise the examples of maintenance and repair activities to better reflect current
practices and encompass activities associated with heritage assets, multi-use heritage assets and stewardship
land as well as equipment and other personal property, and (3) address issues related to the distinction
between maintenance, repairs, and new capital expenditures.
These amendments represent a first step toward improving reporting on deferred maintenance and repairs.
The Board is working, and will continue to work, closely with stakeholders interested in improving
management of and reporting on federal PP&E and related deferred maintenance. By addressing definitional
issues as a first step, the Board will facilitate continued cooperation with stakeholders toward improved
financial reporting especially as it plans to address measurement and reporting issues.
SFFAS 40 - Page 1
SFFAS 40
Table of Contents
Summary
Introduction
Purpose
Materiality
Standards
Scope
Effective Date
Appendix B: Abbreviations
22
SFFAS 40 - Page 2
SFFAS 40
Introduction
Purpose
1.
2.
Federal Real Property Disposal Enhancement Act of 2009. H.R. 2495, 111th Congress, 1st
Session. Federal Real Property Disposal Pilot Program. S. 1667, 110th Congress, 2nd Session.
Presidential Executive Order 13327, Federal Real Property Asset Management signed
February 4th, 2004 established the following policy in Section 1, It is the policy of the
United States to promote the efficient and economical use of America's real property
assets and to assure management accountability for implementing Federal real property
management reforms. Based on this policy, executive branch departments and agencies
shall recognize the importance of real property resources through increased management
attention, the establishment of clear goals and objectives, improved policies and levels of
accountability, and other appropriate action.
3
This Statement uses the phrase technical community to refer to agency personnel
responsible for the management of property, plant, and equipment including technical issues
such as maintenance and repair.
SFFAS 40 - Page 3
SFFAS 40
3.
4.
Scope
5.
Effect on Existing
Standards - SFFAS 6
6.
Materiality
Standards
SFFAS 40 - Page 4
SFFAS 40
b.
c.
d.
Paragraph 83
At a minimum, the following information shall be presented as
required supplementary information for all PP&E (each of the
four categoryies established in SFFAS 6 the PP&E standard
should be included).
Identification of each major class [footnote 6 to remain; omitted here for brevity]
of asset for which maintenance and repairs haves been deferred.
SFFAS 40 - Page 5
SFFAS 40
SFFAS 40 - Page 6
SFFAS 40
Effective Date
8.
SFFAS 40 - Page 7
SFFAS 40
Appendix A: Basis
for Conclusions
Project History
A9. In late 2008 the Board reviewed its technical agenda and initiated a DM
project. The DM project was highly ranked by constituents who
provided input on the Boards technical agenda. A FASAB task force
was convened to study the findings of a past review and recent federal
and industry developments. The task force is addressing issues in two
phases (1) definitions and (2) measurement and reporting. This
Statement is the result of the definitions phase. It addresses areas the
task force identified as needing clarification. The task force developed
definitional options for the Boards consideration and the amendments
in this Statement are intended to clarify important matters. The Board
notes that the minimum required supplementary information currently
required at paragraph 83 of SFFAS 6 may be further modified as a
result of the outcome of subsequent work related to the measurement
and reporting phase of this project.
A10. Concerning the goal of DM&R reporting, the Board believes there is
confusion regarding what is required in the financial reports under the
current definitions. The Boards ultimate goal for DM&R information is
that it serves as a useful tool for all decision makers, including
Congress, oversight bodies, management, and citizens. To be useful, it
must provide information about needed M&R that has yet to be
performed. Therefore, management should present a reasonable
estimate(s) of the cost of maintenance and repair activities that it
would have performed in support of its mission if resources had been
available in the past. In addition, management should provide
explanatory material.
SFFAS 40 - Page 8
SFFAS 40
A12. M&R planning requires decisions about the level of condition to which
an asset should be maintained for example, as new condition or
fair condition. When management elects to use the condition
assessment survey method, SFFAS 6 also requires that information
concerning requirements or standards for acceptable condition be
reported; assisting users in understanding what condition the agency
judges to be acceptable. The Board acknowledges that a view exists
among certain practitioners and users of DM&R information that
because SFFAS 6 guidance allows decisions about acceptable levels of
condition it is too flexible. Further, it requires agencies to rely heavily
on unspecified human judgment in the area of acceptable condition.
A13. Preparers and users who hold this view opine that unless FASAB
includes guidance defining acceptable condition in the DM&R
standards, agencies will continue to have disparate goals regarding
DM&R. In their opinion, this could lead to (a) inaccurate DM&R
reporting because of inconsistent definitions of acceptable
condition, (b) flawed M&R planning, and (c) DM&R reporting that is
not informative to readers. After careful consideration of this view,
the Board believes that the guidance these preparers/users seek would
be management policies. Providing such guidance is not an
appropriate role for an accounting standards setting body. The Board
believes that the standards provide general guidance to be coupled
with managerial judgment based on such factors as agency mission
and asset use. In the next phase of the project, the Board will ask the
task force to consider factors that management might appropriately
consider in determining acceptable condition.
Summary of Outreach
Efforts
A14. The Exposure Draft was issued May 4, 2010 with comments requested
by June 25, 2010. Upon release of the exposure draft, notices and
press releases went to The Federal Register, FASAB News, the
SFFAS 40 - Page 9
SFFAS 40
Table 1.0
Summary of Respondent Types to DM&R Maintenance Definition
Exposure Draft
RESPONDENT
TYPE
FEDERAL
(Internal)
NON-FEDERAL
(External)
TOTAL
Preparers and
financial
managers
28
29
Users,
academics,
Auditors
Total
31
34
A18. The Board did not rely on the number in favor of or opposed to a given
position. Information about the respondents majority view is provided
only as a means of summarizing the comments. The Board considered
SFFAS 40 - Page 10
SFFAS 40
the arguments in each response and weighed the merits of the points
raised. The following paragraphs discuss respondent comments and
Board decisions.
A19. The task force reported much confusion regarding the proper
treatment of repairs. Due to this confusion, some agencies may not be
reporting deferred repairs. As a result, the Board proposed that the
term deferred maintenance should be revised to deferred
maintenance and repairs. The majority of respondents agreed with
the Boards proposal to add repairs to the title and body of the
revised definition in order to clarify that deferred repairs as well as
deferred maintenance need to be reported.
A20. Two respondents objected based on the assumption that repairs
cannot be planned. However, this is not always nor usually the case.
There are in fact many repairs that can be planned for based on
historical and statistical analyses such as a study of failure rates. Also,
not all repairs are of an emergency or corrective nature as some
repairs are adaptive which lend themselves to planning. Some
agencies have programs in-place that attempt to predict repairs and in
some cases these predictions can cover over 90% of the repair activity
over a two year time horizon. For example, roof maintenance plans
include an analysis of the condition assessment which can forecast
when a roof (or portion thereof) might fail and require repair.
A21. The remaining respondent who disagreed believes including repairs
will cause continued confusion due to the lack of definition for this
term. However, based on both the task forces recommendation as
well as the majority of respondents who are in favor of this change, it
is apparent that the community-at-large believes that including this
term helps to clarify conflicting interpretations and divergent
practices. Although the Board does not believe that from an
accounting point of view, maintenance and repairs should be
distinguished from each other, it does recognize that some within the
technical community do make a distinction. Accordingly, the original
definition6 by virtue of excluding other than normal repairs
contributes to the underreporting of deferred maintenance and repairs
as well as the lack of consistency both within and among agencies.
While it is the Boards intention that for financial reporting purposes
SFFAS 40 - Page 11
SFFAS 40
M&R not be treated separately, the Board acknowledges the view that
maintenance generally retains an assets functionality whereas repair
generally restores an assets functionality.
A22. It should be noted that although the Board believes that repairs
should be added to the definition, it does acknowledge that various
interpretations surrounding unique circumstances may warrant future
guidance.
SFFAS 40 - Page 12
SFFAS 40
b.
c.
d.
e.
f.
g.
SFFAS 40 - Page 13
SFFAS 40
and (2) it does not intend at this time making any definitional
changes that would require an agency to change its capitalization
policies or criteria.
Phrase
Elimination:Acceptable
Services and Expected life
b.
c.
A26. The Board considered each of the arguments presented and decided
eliminating this phrase helps to eliminate ambiguity and reflect actual
asset management practices.
a.
First, the Board notes that the changes made to the maintenance
and repairs definition are limited to the application of this
standard in regards to presenting DM&R information in RSI.
Therefore, elimination of the expected life reference does not
infringe on managements determination of an assets acceptable
condition. Furthermore, because the definition is limited to
DM&R, the Board does not believe the expected life concept
used for capitalization and depreciation is impacted in any
meaningful way.
SFFAS 40 - Page 14
SFFAS 40
b.
c.
A27. Two issues were raised by respondents who did not agree with the
proposed change from originally intended to current use. First, it
was noted that current use will be misunderstood and misapplied
and instead the Board should adopt the phrase the use for which it is
currently configured. Second, it was noted that current use would
be a poor benchmark for definitional purposes and that the original
intent could in fact be ascertained via reviewing various agency
documents. The Board notes that the task force considered the term
proposed by the respondent and found it to be problematic because it
introduces a new term without a consistent meaning. For example,
the term configure raises questions as to definition. Specifically,
configured when and by whom? Does this imply a purely technical
SFFAS 40 - Page 15
SFFAS 40
Other Comments
Capital Improvements
b.
c.
d.
A29. The Board believes that the existing goal of differentiating those
activities that might be considered capital improvements (or new
assets) from M&R should be maintained. DM&R reporting addresses
concerns about management of existing assets. While unmet capital
SFFAS 40 - Page 16
SFFAS 40
It should be noted that the revised maintenance and repair definition as contained in this
standard is intended to be the basis for the numerator so that a uniform reporting
requirement definition exists throughout federal government. Condition Index (CI) is a
general measure of the constructed assets condition at a specific point in time. CI is
calculated as the ratio of Repair Needs to Plant Replacement Value (PRV). Formula: CI = (1
- $repair needs/$PRV) x 100. Source: 2009 GSAs Guidance For Real Property Inventory
Reporting dated July 14, 2009.
SFFAS 40 - Page 17
SFFAS 40
DM&R on Non-capitalized
General PP&E
a.
b.
c.
d.
e.
f.
g.
h.
A33. While views were sought on this issue, no changes in practice relating
to DM&R on non-capitalized general PP&E should result from this
Statement. SFFAS 6, paragraph 83, provides minimum reporting
SFFAS 40 - Page 18
SFFAS 40
ii.
iii.
iv.
v.
vi.
SFFAS 40 - Page 19
SFFAS 40
b.
ii.
iii.
iv.
v.
vi.
vii
Board Deliberations
35. The Board discussed respondent input but has made a decision only
regarding the proposed amendments to SFFAS 6 relating to the
SFFAS 40 - Page 20
SFFAS 40
Board Approval
A36. This statement was approved for issuance by all members of the
Board. The written ballots are available for public inspection at the
FASAB's offices.
SFFAS 40 - Page 21
SFFAS 40
Appendix B:
Abbreviations
CFO
DM
DM&R
FASAB
FFC
FRPC
FRPP
GAAP
GAO
GSA
M&R
OMB
PP&E
RSI
SFFAC
SFFAS
SFFAS 40 - Page 22
snoi taterpretnInterpretation
I
of Federal Financial Accounting Standards 1:
Reporting on Indian Trust Funds in General Purpose Financial
Reports of the Department of the Interior and in the
Consolidated Financial Statements of the United States
Government: An Interpretation of SFFAS 7
Status
Issued
Effective Date
None.
Affected by
Interpretation 1 - Page 1
Status
Issued
Effective Date
Affects
None.
Affected by
Summary
The Federal entitys management, as advised by the Justice Department, must determine whether it is
probable that a legal claim will end in a loss for the Federal entity and the loss is estimable. If the loss is
probable and estimable, the entity would recognize an expense and liability for the full amount of the
expected loss. The expense and liability would be adjusted periodically, as necessary, based on any changes in
the estimated loss. The Federal entity involved in the litigations shall discuss in a footnote to the financial
statements the Judgment Funds role in the payment of a possible loss.
Once the claim is either settled or a court judgment is assessed against the Federal entity and the Judgment
Fund is determined to be the appropriate source for the payment of the claim, the liability should be removed
from the financial statements of the entity that incurred the liability and an other financing source amount
(which represents the amount to be paid by the Judgment Fund) would be recognized. If the Judgment Fund
is responsible for only a portion of the claim or settlement, the imputed financing source amount would
reflect only that amount to be paid by the Judgment Fund on behalf of the Federal entity. Once the claim is
either settled or a court judgment is assessed and the Judgment Fund is determined to be the appropriate
source for payment of the claim, the Judgment Fund would recognize an expense and an accounts payable or
a cash outlay for the full cost of the loss.
Interpretation 2 - Page 1
Interpretation 2
Table Of Contents
Contents
Page
Introduction
Interpretation
Interpretation 2 - Page 2
Interpretation 2
Introduction
1.
2.
The clarification addresses (1) how Federal entities should report the
costs and liabilities arising from claims to be paid by the Treasury
Judgment Fund and (2) how the Judgment Fund should account for
the amounts that it is required to pay on behalf of Federal entities.
This interpretation has been prepared on the basis of the following
three accounting Standards:
Interpretation
Accounting by the
Federal Entity
3.
Interpretation 2 - Page 3
Interpretation 2
full amount of the expected loss1. The expense and liability would be
adjusted periodically, as necessary, based on any changes in the
estimated loss. The Federal entity involved in the litigations shall
discuss in a footnote to the financial statements the Judgment Funds
role in the payment of a possible loss.
4.
Accounting by the
Treasury Judgment Fund
5.
Once the claim is either settled or a court judgment is assessed and the
Judgment Fund is determined to be the appropriate source for
payment of the claim, the Judgment Fund would recognize an expense
and an accounts payable or a cash outlay for the full cost of the loss.
According to SFFAS 4, the imputed financing source amount
recognized by the Federal entity and the expense recognized by the
Judgment Fund would be eliminated at the Federal consolidated
financial report level.
Effective Date
6.
See paragraph 73 in SFFAS #7 for the complete discussion on Financing Imputed for Cost
Subsidies.
Interpretation 2 - Page 4
Interpretation 2
Appendix A: Basis
For Conclusions
7.
8.
9.
See paragraphs 89 - 104 and 105 - 115 in SFFAS #4 for the complete discussion on Full Cost
and Inter-entity Costs, respectively.
Interpretation 2 - Page 5
Interpretation 2
Appendix B:
Illustrative Journal
Entries
Based on the above noted accounting standards and the generalized events
described below, the conceptual journal entries7 should be as follows:
Federal entity entries:
The Federal entitys management, through the advisement of the Justice
Department, has determined that the probability of the legal claim ending in
a loss against the Federal entity is probable and the loss is estimable. The
entity would recognize an expense and liability for the full amount of the
expected loss. The expense and liability would be adjusted as necessary
based on any changes in the estimated loss.
Entry #1:
DR. Expense
CR. LiabilityLegal claims
Once the claim is either settled or a court judgment is assessed against the
Federal entity and the Judgment Fund is determined to be the appropriate
source for payment of the claim, the liability should be removed and an
other financing source recognized. If the Judgment Fund is responsible for
only a portion of the claim or settlement, the imputed financing source
amount would only reflect that amount paid by the Judgment Fund on
behalf of the Federal entity.
Entry #2:
DR. LiabilityLegal claims
CR. Imputed Financing SourceExpenses Paid by Other Entities*
Treasury Judgment Fund entries:
The claim is either settled or a court judgment is assessed and the
Judgment Fund is determined to be the appropriate source for payment.
Actual journal entries are under the authority of the Standard General Ledger.
Interpretation 2 - Page 6
Interpretation 2
Entry #3:
DR. Expenses Paid for Other Entities*
CR. Cash or Fund Balance with Treasury
*According to the Cost Accounting Standard, the imputed financing source
and expenses paid for other entities amounts would be eliminated at the
consolidation level.
Interpretation 2 - Page 7
Status
Issued
Effective Date
None.
Affected by
None.
Summary
Pension and retirement health care liabilities in general purpose federal financial reports prepared pursuant
to SFFAS 5 shall be measured as of the end of the fiscal year (or other reporting period if applicable). This
measurement shall be performed following the end of the period reported, but does not have to be based on a
full actuarial valuation as of the end of the reporting period. The measurement shall, however, reflect the best
available estimates of the major factors that would be reflected in a full actuarial valuation. This measurement
may be based on an actuarial valuation performed as of an earlier date during the fiscal year, including a
beginning-of-year actuarial valuation, with suitable adjustments for the effects of changes during the year in
major factors such as the pay raise, cost of living adjustment, etc.
Interpretation 3 - Page 1
Interpretation 3
Table Of Contents
Contents
Page
Introduction
Interpretation
Scope of Interpretation
Effective Date
Interpretation 3 - Page 2
Interpretation 3
Introduction
Interpretation
1.
2.
3.
4.
Interpretation 3 - Page 3
Interpretation 3
Scope of
Interpretation
5.
Effective Date
6.
Interpretation 3 - Page 4
Interpretation 3
7.
8.
9.
Interpretation 3 - Page 5
Status
Issued
Effective Date
None.
Affected by
None.
Summary
Changes in normal costs due to re-estimates of demographic and economic assumptions should be accounted
for by the administrative entity as a change in accounting estimate. The effect of the change should be
recognized in current and future years.
When the employer entitys total payment for FERS and CSRS exceeds the related total pension expense as
defined in SFFAS No. 5, the entity should account for the excess payment as a transfer-out. The entity should
include the transfer-out when determining results of operations on its statement of changes in net position.
Any FERS-related payment that exceeds the FERS-related pension expense should be offset against any
imputed financing resulting from a CSRS-related payment being less than CSRS-related pension expense in
calculating the amount of the transfer out. Only when the total pension payment exceeds total pension
expense would a transfer-out be recognized.
Interpretation 4 - Page 1
Interpretation 4
Table Of Contents
Contents
Page
Introduction
Interpretation
Scope of Interpretation
Effective Date
Interpretation 4 - Page 2
Interpretation 4
Introduction
1.
2.
3.
The employer entity payment rates for the two major civilian pension
systemsthe Federal Employees Retirement System (FERS) and the
Civil Service Retirement System (CSRS)are provided in law and are
not the same. For FERS, the payment rate is the employer entitys
normal cost less the amount contributed by its employees; for FERS,
the payment rate and the pension expense rate under SFFAS No. 5
theoretically would be the same, since both would be based on the
same principle: that pension expense and employer payments to the
pension trust fund equal normal cost less the employees contribution.
For most CSRS, employer payments to the pension trust fund are by
law set at seven percent of salaries which is substantially less than
normal costs and therefore also less than pension expense based on
normal cost.
4.
5.
Service cost and/or normal coststhe terms are used synonymously in SFFAS No. 5
are defined in SFFAS No. 5 as that portion of the actuarial present value of pension plan
benefits and expenses that is allocated to a valuation year by the actuarial cost method.
1
Interpretation 4 - Page 3
Interpretation 4
7.
8.
For FY 1997, OPM has indicated that employer entities are unlikely to
report total payments to the trust fund in excess of total pension
expense (based on normal cost) at the entity-wide level, although it is
possible, because the amount of the CSRS contribution deficiency is
more than the excess FERS payment. However, OPM believes that it is
probable that total payments will exceed total pension expense (based
on normal cost less employee contributions ) in future years.
This is separate from OPMs annual recalculation of the actuarial liability which can result
in actuarial gains and losses the accounting for which is provided in SFFAS No. 5.
Interpretation 4 - Page 4
Interpretation 4
Interpretation
9.
ii.
The amounts used for CSRS are from the example in SFFAS No. 5, paragraph No. 78.
Interpretation 4 - Page 5
Interpretation 4
iii.
635,000
630,000
5,000
13. Example #2: Assuming the same facts as in the paragraph immediately
above except that the employer entity makes a payment of $640,000
($580,000 FERS-related and $60,000 CSRS-related) instead of $630,000,
then the entity would recognize a net transfer-out of the amount that
the FERS-related excess payment ($580,000 - $535,000 = $45,000)
exceeded the CSRS-related under payment ($100,000 - $60,000 =
$40,000) as follows:
635,000
5,000
640,000
Interpretation 4 - Page 6
Interpretation 4
a.
670,000
630,000
40,000
DR. Transfer-out
35,000
35,000
35,000
35,000
Interpretation 4 - Page 7
Interpretation 4
680,000
40,000
640,000
DR. Transfer-out
(FERS $580,000 - $535,000 = $45,000)
45,000
(2)
45,000
40,000
40,000
Scope of
Interpretation
Effective Date
17. This interpretation should be applied for reporting periods that end on
or after September 30, 1997. The FASAB has reviewed and agreed with
this interpretation. After this interpretation is signed by the FASAB
members who represent the Department of the Treasury, the Office of
Interpretation 4 - Page 8
Interpretation 4
Basis For
Conclusions
Interpretation 4 - Page 9
Status
Issued
December 1998
Effective Date
None.
Affected by
None.
Summary
Entities that receive nonexchange revenue collected on their behalf by another entity should recognize the
revenue based on the best available evidence at the time the financial report is prepared. This provision of
paragraph 60 of SFFAS 7 is intended to require recognition of the excise tax true up of the difference
between amounts transferred to trust funds based on estimates by Treasurys Office of Tax Analysis and the
actual amount subsequently determined by IRS. IRS certifies the third quarter actual amount in December.
The intent of paragraph 60 is to recognize this true up amount as a receivable or payable. The Board did not
intend to impose push down accounting that would require entities such as trust funds that receive boxes
collected on their behalf to recognize a portion of IRSs net taxes receivable.
Intrepretation 5 - Page 1
Intrepretation 5
Table Of Contents
Contents
Page
Introduction
Interpretation
Effective Date
Intrepretation 5 - Page 2
Intrepretation 5
Introduction
1.
Interpretation
2.
Effective Date
3.
1
Certification of the actual amount for the fourth quarter is not currently available from IRS
until the end of March, which is too late to be included in the financial statements for the
prior fiscal year.
Intrepretation 5 - Page 3
Intrepretation 5
4.
5.
6.
Intrepretation 5 - Page 4
Status
Issued
Effective Date
None.
Affects
Affected by
Summary
Par. 110 of SFFAS 4, states Implementation of this standard on inter-entity costing should be accomplished in
a practical and consistent manner by the various federal entities. Therefore, the Office of Management and
Budget (OMB), with assistance from the FASAB staff, should identify the specific inter-entity costs for entities
to begin recognizing. OMB should then issue guidance identifying these costs
Some of those involved with preparing and auditing financial statements for part of a department or larger
reporting entity have asked whether par. 110 of SFFAS 4, when considered in conjunction with section 4.3 of
OMB Bulletin 01-09, Form and Content of Agency Financial Statements, limits the recognition of imputed
intra-departmental costs, i.e. costs between reporting entities that are part of the same department or larger
reporting entity (other than the U.S. government as a whole).
This interpretation clarifies that par. 110 of SFFAS 4 does not limit the recognition of imputed intradepartmental costs. This interpretation further explains that reporting entities should account for imputed
intra-departmental costs in accordance with the full cost provisions of SFFAS 4. To account for the full cost of
a program and its output(s), reporting entities should recognize imputed intra-departmental costs.
Interpretation 6 - Page 1
Interpretation 6
Table of Contents
Section
Page
Introduction
Summary of Issue
Interpretation
Scope of Interpretation
Effective Date
Interpretation 6 - Page 2
16
Interpretation 6
Introduction
1.
2.
SFFAS No. 4 explains that for some inter-entity costs, the provider will
be reimbursed by the recipient for the full cost. Therefore, the full
cost of these inter-entity goods and services will be recognized in the
recipient entitys accounts through the normal recording of
transactions. SFFAS No. 4 also specifies that inter-entity costs not
fully reimbursed by the receiving entity should be recognized at full
cost. To accomplish this recognition, the receiving entity should
recognize an imputed financing source (SFFAS No. 4, par. 109 and
SFFAS No. 7, par. 73) for the difference between the actual payment (if
any) and the full cost. To facilitate discussion of the issue addressed in
this interpretation, we will refer to costs that are not fully reimbursed
as imputed costs whether or not recognized by the recipient.1
3.
Reporting entity as used in this interpretation refers to any entity that issues general
purpose financial statements as discussed in par. 29 of SFFAC No. 2, Entity and Display.
Interpretation 6 - Page 3
Interpretation 6
Summary of Issue
4.
Activities between reporting entities that are not part of the same
department or larger reporting entity other than the U.S. government
as a whole are considered inter-departmental. Activities between
reporting entities that are part of the same department or larger
reporting entity (such as bureaus, components or responsibility
segments within a department) are considered intra-departmental.
Appendix B provides an illustration of inter-departmental and intradepartmental relationships.
5.
6.
7.
8.
This interpretation clarifies that par. 110 of SFFAS No. 4 does not limit
the recognition of imputed intra-departmental costs. This
interpretation further explains that reporting entities should account
for imputed intra-departmental costs in accordance with the full cost
provisions of SFFAS No. 4. To account for the full cost of a program
and its output(s), reporting entities should recognize imputed intradepartmental costs.
Interpretation 6 - Page 4
Interpretation 6
Interpretation
9.
10. Imputed inter-departmental costs are the unreimbursed (i.e. nonreimbursed and under-reimbursed) portion of the full costs of goods
and services received by the entity from a providing entity that is not
part of the same department or larger reporting entity other than the
U.S. government as a whole.
11. Imputed intra-departmental costs are the unreimbursed portion of
the full costs of goods and services received by the entity from a
providing entity that is part of the same department or larger reporting
entity (i.e. other bureaus, components or responsibility segments
within the department or larger reporting entity).
12. Appendix B provides an illustration of inter-departmental and intradepartmental relationships.
13. Reporting entities should account for and recognize imputed intradepartmental costs in accordance with the full cost provisions of
SFFAS No. 4. To account for the full cost of a program and its
output(s), reporting entities should recognize imputed intradepartmental costs.
14. The recognition criteria in par. 112-113 of SFFAS No. 4 (which
provides general criteria to determine which costs should be
recognized) apply to both imputed intra-departmental and interdepartmental costs. Accounting and reporting for imputed intradepartmental and inter-departmental costs that are recognized should
be consistent and in accordance with par. 108-109 and 114-115 of
SFFAS No. 4, which provide specific accounting examples.
15. Reporting entities should disclose on the face of the financials or in
the notes to the financial statements, which are an integral part of the
basic financial statements, both imputed intra-departmental and interdepartmental financing sources that are recognized.
Interpretation 6 - Page 5
Interpretation 6
Scope of
Interpretation
Effective Date
Interpretation 6 - Page 6
Interpretation 6
Appendix A: Basis
for Conclusions
Summary of Issue
Interpretation and
Explanation, Including
Definition of Terms
Interpretation 6 - Page 7
Interpretation 6
recognition3, this limitation applies solely to imputed interdepartmental costs. Par. 110 of SFFAS No. 4 does not limit the
recognition of imputed intra-departmental costs.
22. The limitation is necessary with respect to imputed inter-departmental
costs, because government-wide guidance is necessary to assure that
imputed inter-departmental costs are accounted for and recognized in
a practical and consistent manner. This limitation is not necessary
with respect to the recognition of imputed intra-departmental costs.
Department management can define responsibility segments for a
department, and it can determine and implement comparable and
consistent cost accounting policy in accordance with SFFAS No. 4
within the department. It does not need external guidance to set
policy or external authority to enforce it.
23. Imputed intra-departmental costs are the unreimbursed portion of the
full costs of goods and services received by the entity from a providing
entity that is part of the same department or larger reporting entity (ie.
other bureaus, components or responsibility segments within the
same department or larger reporting entity.) An example of an
imputed intra-departmental cost would be within the Department of
Justice, the Drug Enforcement Agency (DEA) may perform drug
processing (lab testing, results, etc.) for the Federal Bureau of
Investigation without reimbursement.
24. Imputed inter-departmental costs are the unreimbursed portion of the
full costs of goods and services received by the entity from a providing
entity that is not part of the same department or larger reporting entity
other than the government as a whole. An example of an imputed
inter-departmental cost would be for drug processing provided by
With respect to the limitations on recognition of imputed inter-departmental costs, par. 110
of SFFAS No. 4 indicates that OMB will provide guidance. Specifically, OMB Bulletin No. 0109 provides such guidance and states the following costs should be recognized: (1)
employees pension, post-retirement health and life insurance benefits, (2) other postemployment benefits for retired, terminated, and inactive employees which includes
unemployment and workers compensation under the Federal Employees Compensation
Act, and (3) losses in litigation proceedings. Currently, a task force of the Accounting and
Auditing Policy Committee is identifying other potential inter-departmental costs for
recognition and related guidance that should lead to consistency among departments
recognizing inter-entity costs.
Interpretation 6 - Page 8
Interpretation 6
Although the example is an imputed inter-departmental cost, current OMB guidance does
not include this particular cost as one to be recognized. See footnote 3 for additional detail
regarding the current OMB guidance and the project to identify other costs for recognition.
Interpretation 6 - Page 9
Interpretation 6
Accounting and
Implementation
30. The recognition criteria in par. 112-113 of SFFAS No. 4 apply to both
imputed intra-departmental and inter-departmental costs. The
standard explains that the determination of whether the cost of nonreimbursed or under-reimbursed goods and services should be
recognized requires the use of judgment. Ultimately, the decision
should be based on the specific facts and circumstances of each case,
with consideration of the degree to which inclusion or exclusion
would change or influence the actions and decisions of reasonable
persons relying on the information. (SFFAS No. 4, par. 113)
31. Accounting and reporting for imputed intra-departmental and interdepartmental costs that are recognized should be consistent and in
accordance with par. 108-109 and par.114-115 of SFFAS No. 4 which
provide specific accounting examples. The standard requires that the
receiving entity recognize the full cost of the goods or services that it
receives. To the extent that reimbursement is less than full cost, the
receiving entity should recognize the difference as a financing source.
32. Reporting entities should disclose both imputed intra-departmental
and inter-departmental financing sources that are recognized. This
will allow the readers of the financial statements to understand how
much a reporting entity is subsidized by other reporting entities within
the department or larger reporting entity, versus those outside of the
department. Additionally, it would be of particular importance when
the reporting entity is producing stand-alone financial statements, as
the intra-departmental costs and financing sources would not be
eliminated. However, intra-departmental costs and financing sources
would be eliminated for any consolidated financial statement covering
both reporting entities, which is consistent with par. 109 of SFFAS No.
4, but disclosure of such financing sources should be included in the
notes to the financial statements. Par. 244-246 of SFFAS No. 4
provides additional discussion of consolidated financial reports that
include both the providing entity and the receiving entity.
Interpretation 6 - Page 10
Interpretation 6
Results of Questionnaire
to Executive Agencies
Responses to the
Exposure Draft (ED)
35. The Board issued the Exposure Draft Accounting for Imputed Intradepartmental Costs: An Interpretation of SFFAS No. 4 in November
2002. The Board received twelve responses on the exposure draft
from the following sources:
Federal
(internal)
Nonfederal
(external)
Auditors
Interpretation 6 - Page 11
Interpretation 6
Respondents Supporting
the ED
37. All but two of the respondents supported the interpretation and agreed
that reporting entities should recognize imputed intra-departmental
costs. One respondent stated that entities should be able to determine
intra-departmental costs and apply consistent internal cost
methodologies in accordance with SFFAS No. 4. Another respondent
elaborated that including these costs will inform readers of the
financial statements of significant costs and ensure full and complete
information for decision makers.
38. Although the majority of respondents supported the interpretation,
most did not agree with the proposed effective date in the ED--for
reporting periods beginning after September 30, 2002 (FY 2003.) Since
most departments do not currently recognize imputed intradepartmental costs and the interpretation will not be finalized until the
middle of FY 2003, the respondents indicated that it would be difficult
to implement during FY 2003. The Board recognizes that
implementation may require reviews and studies of intra-departmental
activities. Therefore, the Board believes allowing more time for
implementation is appropriate. The Board agrees and the effective
date of this interpretation has been changed to periods beginning after
September 30, 2004, with earlier implementation encouraged.
39. Respondents supporting the ED did offer some additional comments
for the Boards consideration. In particular, one respondent suggested
that the proposed interpretation goes beyond what is required in
SFFAS No. 4, and therefore should be covered in an amendment rather
than an interpretation. The Board believes that the interpretation is a
clarification of par. 110 of SFFAS No. 4 and does not impose any new
requirements.
Respondents Opposing
the ED
40. Two respondents did not agree that agencies should be required to
recognize imputed intra-departmental costs. Specifically, both
respondents believed that it would be inconsistent to require
recognition of imputed costs at the intra-departmental level but not at
the inter-departmental level. It is important to note that the Board
believes that recognition of imputed inter-departmental costs is also
required. However, when par. 110 of SFFAS No. 4 is considered in
Interpretation 6 - Page 12
Interpretation 6
b.
c.
In 1998, the CFO Council published the CFO Council Cost Accounting Implementation
Guide that urged agencies to enter into reimburseable agreements and thus, reduce the pool
of goods and services provided at less than full cost. Therefore, implementation of the
guidance should have resulted in a decline in unrecognized inter-departmental costs.
Interpretation 6 - Page 13
Interpretation 6
within a department. The experience gained through the intradepartmental efforts may lead to (1) full cost inter-departmental
fees based on the improved cost information and (2) the
availability of information and methodologies needed for imputed
inter-departmental costs.
43. A task force of the Accounting and Auditing Policy Committee (AAPC)
is currently identifying inter-departmental costs for recognition and
guidance that will assist departments and improve consistency. The
Board believes addressing the implementation issues and identifying
these types of imputed intra-departmental costs for recognition within
the department will ultimately assist with the obstacles in the
recognition of imputed inter-departmental costs.
44. One respondent requested that the interpretation clarify how the
broad, general support criteria within par. 112 of SFFAS No. 4 would
be applied to imputed intra-departmental costs. Par. 112 of SFFAS No.
4 (which provides general criteria to determine which costs should be
recognized) discusses the criteria of broad and general support and
recognizes that some entities provide support to all or most other
federal entities, generally as a matter of their mission. The costs of
such broad services should not be recognized as an expense (or asset)
by the receiving entities when there is no reimbursement of costs.
However, the standard discusses if the service is an integral and
necessary part of the receiving entitys operations and outputs, those
costs should be recognized.
45. The standard offers the example of check writing services by the
Department of Treasury that may be considered a broad and general
service to most federal entities, but may be considered an integral part
of operations to entities such as the Internal Revenue Service and the
Social Security Administration. Utilizing this example and applying
the broad and general support criteria to imputed intra-departmental
costs, the Internal Revenue Service may be required to recognize these
imputed costs if they are determined to be an integral part of their
operations and meet the standard for recognition, but the U.S.
Customs Service (which is also a part of Treasury) may not recognize
these costs as they may not be considered an integral part of their
operations.
46. When appropriate, reporting entities should also consider the costing
methodology standard of SFFAS No. 4 that addresses cost
Interpretation 6 - Page 14
Interpretation 6
Board Approval
47. This interpretation was approved for issuance by all members of the
Board.
Interpretation 6 - Page 15
Interpretation 6
Appendix B
Illustration of Interentity Relationships
The following chart provides an illustration of the inter-departmental and intra-departmental relationships.
Department
A
Department
B
(Larger Reporting
Entity Under the
Govt-wide)
(Larger Reporting
Entity Under the
Govt-wide)
Bureau 1
(Component/
Responsibility
Segment)
Office
Office
Bureau 2
(Component/
Responsibility
Segment)
Bureau 1
(Component/
Responsibility
Segment)
7
Office
Office
Office
Office
The lines labeled 1-7 represent goods and services provided between reporting entities.
Inter-departmental--The dashed lines (labeled 1-4) represent activities between reporting entities that are not
part of the same department or larger reporting entity and are considered inter-departmental. The provision of
goods or services result in inter-departmental costs and if the providing entity is not fully reimbursed,
paragraph 110 of SFFAS No. 4 applies and when considered in conjunction with section 4.3 of OMB Bulletin
01-09, recognition of imputed inter-departmental costs is limited to those specifically identified by OMB.
Intra-departmental--The solid lines (labeled 5-7) represent activities between reporting entities that are part of
the same department or larger reporting entity (such as bureaus, components or responsibility segments within
a department) and are considered intra-departmental. The provision of goods or services result in intradepartmental costs and if the providing entity is not fully reimbursed, recognition of imputed intra-departmental
costs is required to achieve full cost recognition, in accordance with SFFAS No. 4.
Interpretation 6 - Page 16
Status
Issued
March 2007
Effective Date
None.
Affects
SFFAS 3
Affected by
None.
Interpretation 7 - Page 1
Interpretation 7
Table of Contents
Page
Introduction
Purpose
Scope
Exclusion
Materiality
Effective Date
Interpretation
Definitions
Disclosure Requirements
Appendix B: Glossary
11
12
16
Interpretation 7 - Page 2
Interpretation 7
Introduction
Purpose
1.
Scope
2.
3.
Exclusion
4.
Materiality
5.
Effective Date
6.
Interpretation 7 - Page 3
Interpretation 7
Interpretation
Definitions
7.
8.
9.
Recognition and
Measurement
Items Intended for Sale
(Inventory)
10. Inventory items intended for sale that are held for remanufacture may
be valued in accordance with either paragraphs 20-22 or paragraphs
Terms appearing for the first time in bold are defined in the Glossary, Appendix D of this
document.
The process of inspection may include holding an item until an inspection can be done.
Interpretation 7 - Page 4
Interpretation 7
13. Items held for remanufacture that meet the definition of Operating
Materials and Supplies, if significant, may be recognized as a
category of operating materials and supplies and valued in accordance
with paragraphs 32-33 or paragraphs 42-44 of SFFAS 3.
14. Items held for remanufacture that meet the definition of Operating
Materials and Supplies should be initially valued at less than the value
The paragraphs of SFFAS 3 that are cited in this document are displayed in Appendix C.
Interpretation 7 - Page 5
Interpretation 7
Disclosure
Requirements
Component Entity
Report Disclosures
15. The disclosures for inventory items held for remanufacture should
conform with paragraph 35 of SFFAS 3.
16. The disclosures for items held for remanufacture that meet the
definition of Operating Materials and Supplies should be in
accordance with the requirements of paragraph 50 of SFFAS 3. If
significant, Operating Materials and Supplies held for remanufacture
may be disclosed as a separate category.
17. For the Financial Report of the U.S. Government, there is no provision
for valuation or recognition that is different from requirements for the
component level.
The provisions of this Interpretation need not be applied to immaterial
items.
Interpretation 7 - Page 6
Interpretation 7
Appendix A: Basis
for Conclusions
Project History
A1. Accounting for the federal governments physical assets that are held
as inventory or as operating materials and supplies is complex and has
been addressed in numerous FASAB Standards.4 The Board
continues to address issues as they arise. In March of 2006, the
Department of Defense (DoD) Deputy Chief Financial Officer sent a
letter to the Board (see Appendix D) requesting specific guidance for
items held for remanufacture.
A2. The DoD requested that SFFAS 3 be amended to provide standards for
inventory held for remanufacture. The DoD noted that the category of
inventory held for repair is not defined in the standards, and that the
valuation methods for held for repair in paragraphs 32-33 of SFFAS 3
are not cost effective to apply to items held for remanufacture within
the moving average cost method, since the moving average cost of a
serviceable item changes continually.
Outreach Activities
A3. FASAB published the ED on August 1, 2006. Upon release of the ED,
notices and/or press releases were provided to: the Federal Register,
the FASAB News, the Journal of Accountancy, AGA Today, the CPA
Journal, Government Executive, the CPA Letter, Government
Accounting and Auditing Update, the CFO Council, the Financial
Statement Audit Network, the Federal Financial Managers Council,
and committees of professional associations generally commenting on
exposure drafts in the past. During the comment period, FASAB staff
also contacted agencies that were likely to have remanufacturing
activity to ensure that they were aware of the EDs scope and
comment period. FASAB staff also met with representatives of
agencies with significant remanufacture activities.
Inventory: see SFFAS 3; Property Plant & Equipment: see SFFAS 6, amended by SFFAS 10,
14, 16 and 23.
Interpretation 7 - Page 7
Interpretation 7
A4. Six written comments were received from the following sources:
Source of comments
Users, academics,
others
Auditors
Preparers and
financial managers
Federal
(Internal)
Non-Federal
(External)
1
1
4
A5. Among the issues identified by respondents were: items meeting the
definition of Property, Plant and Equipment; inconsistent use of
numerous acceptable methodologies within an agency; and the
difficulty of distinguishing between routine maintenance and minor
repair versus remanufacture.
Inconsistent Practice
within Agencies
A8. One respondent noted that there are inconsistent accounting practices
within an agency, and that the proposed Interpretation, which points
out numerous acceptable options, might exacerbate this problem.
Interpretation 7 - Page 8
Interpretation 7
Definition and
Exclusions
Repair versus
Remanufacture
Inventory Valuation
Interpretation 7 - Page 9
Interpretation 7
A13. Given the common objectives described above for the two categories
and the absence of clear distinctions between the two categories, the
Board does not believe that an amendment is needed. The Board
believes that in some circumstances the only thing that distinguishes
the remanufacturing process from the production process is that the
raw materials include items previously in service.
A14. The Board believes that the intent of paragraphs 17-34 of SFFAS 3 is
that an item held for remanufacture should be initially valued at less
than the value of a new or serviceable item, and that as the work on
the item progresses, the value of the item should be increased
accordingly. The Board believes that any of the three methods (the
allowance method or the direct method, described in paragraphs 32-33
of SFFAS 3 or the historical production cost method described in
paragraphs 21 and 43 of SFFAS 3) would provide results that would
meet this objective.
Effective Date
Board Approval
A17. This interpretation was approved for issuance by all members of the
Board.
Interpretation 7 - Page 10
Interpretation 7
Appendix B:
Glossary
Interpretation 7 - Page 11
Interpretation 7
Appendix C:
Relevant Citations
of Current
Standards
Interpretation 7 - Page 12
Interpretation 7
Interpretation 7 - Page 13
Interpretation 7
[39] The cost of goods shall be removed from operating materials and
supplies (i.e., the asset account) and reported as an operating expense in
the period they are issued to an end user for consumption in normal
operations.
[40] If (1) operating materials and supplies are not significant amounts, (2)
they are in the hands of the end user for use in normal operations, or (3) it
is not cost-beneficial to apply the consumption method of accounting, then
the purchases method may be applied to operating materials and supplies.
The purchases method provides that operating materials and supplies be
expensed when purchased.
[41] An end user is any component of a reporting entity that obtains goods
for direct use in the component's normal operations. Any component of a
reporting entity, including contractors, that maintains or stocks operating
materials and supplies for future issuance shall not be considered an end
user.
[42] Valuation Under the Consumption Method. Operating materials
and supplies shall be valued on the basis of historical cost.
[43] Historical cost shall include all appropriate purchase and production
costs incurred to bring the items to their current condition and location.
Any abnormal costs, such as excessive handling or rework costs, shall be
charged to operations of the period. Donated operating materials and
supplies shall be valued at their fair value at the time of donation. Operating
materials and supplies acquired through exchange of nonmonetary assets
(e.g., barter) shall be valued at the fair value of the asset received at the
time of the exchange. Any difference between the recorded amount of the
asset surrendered and the fair value of the asset received shall be
recognized as a gain or a loss.
[44] The first-in, first-out (FIFO); weighted average; or moving average cost
flow assumptions shall be applied in arriving at the historical cost of ending
operating materials and supplies and cost of goods consumed. In addition,
any other valuation method may be used if the results reasonably
approximate those of one of the above historical cost methods (e.g., a
standard cost or latest acquisition cost system).
[50] Disclosure Requirements.
Interpretation 7 - Page 14
Interpretation 7
Interpretation 7 - Page 15
Interpretation 7
Appendix D: Letter
from Department of
Defense Deputy
Chief Financial
Officer
Interpretation 7 - Page 16
Interpretation 7
inventory and for sale to new customers. More importantly, both often
enhance products with upgrades which incorporate new technologies,
reduce obsolescence, extend useful life, increase safety, and improve
reliability.
Regardless of the technical processes, or the definition attached to the
process, we believe that certain, fundamental attributes must be considered
in the accounting solution when inventory items are repaired:
Interpretation 7 - Page 17
Interpretation 7
Interpretation 7 - Page 18
Interpretation 7
Interpretation 7 - Page 19
Interpretation 7
Teresa McKay
Deputy Chief Financial Officer
Interpretation 7 - Page 20
Status
Issued
June 2000
Effective Date
June 2000
None.
Affects
None.
Affected by
None.
TB 2000-1 - Page 1
Table Of Contents
Contents
Page
TB 2000-1 - Page 2
1.
2.
3.
4.
TB 2000-1 - Page 3
5.
7.
Determination of the length of the exposure period will depend on the nature and urgency
of the issue. The Board generally prefers that exposure periods be longer than the minimum
required and expects that normally exposure periods will be for at least 30 days.
TB 2000-1 - Page 4
8.
9.
10. Each Technical Bulletin will specify an effective date and transition
provisions for initial application. While the FASAB expects that most
Technical Bulletins will be applied prospectively, Technical Bulletins
may require retroactive application if appropriate in the
circumstances.
11. The FASAB monitors the procedures for issuing FASAB Technical
Bulletins and may modify these procedures from time to time. Any
modification will be announced publicly.
12. FASAB Technical Bulletins are generally in question-and-answer
format and are published with this legend:
The Federal Accounting Standards Advisory Board has authorized its
staff to prepare FASAB Technical Bulletins to provide timely guidance
on certain financial accounting and reporting problems, in accordance
with section III. I. 5 of the Boards rules of procedure, as amended and
restated through October 1, 1999 and the procedures described in
FASAB Technical Bulletin 2000-1, Purpose and Scope of FASAB
Technical Bulletins and Procedures for Issuance. The provisions of
Technical Bulletins need not be applied to immaterial items.
The FASAB has reviewed this Technical Bulletin and a majority of its
members do not object to its issuance.
TB 2000-1 - Page 5
Status
Issued
Effective Date
Affects
None.
Affected by
None.
Summary
This technical bulletin is intended to clarify the required reporting of costs and liabilities resulting from legal
claims (i.e., judgments and settlements) against the Federal government. Standards issued by FASAB have
precedence over other authoritative guidance for Federal entities. This technical bulletin supplements any
relevant Federal standards, but is not a substitute for and does not take precedence over the standard.
This technical bulletin requires that all liabilities and costs related to legal claims (i.e., judgments and
settlements) must be attributed to the component entities responsible for the programs or activities that
contributed to the claims, or to their successor component entities. This attribution follows the general
principle that all transactions or events reported on the consolidated statements should be attributed to some
Federal component entity.
TB 2002-1 - Page 1
Table of Contents
Page
Contents
Table Of Contents
Introduction
Effective Date
Technical Guidance
Issue
General Principles
Implementation
TB 2002-1 - Page 2
Introduction
3.
Effective Date
4.
Background
5.
6.
TB 2002-1 - Page 3
b.
c.
7.
8.
Technical Guidance
Issue
The term component entity is used to distinguish between the U. S. Federal government
and its components. The U. S. Federal government is composed of organizations that
manage resources and are responsible for operations, i.e., delivering services. These include
major departments and independent agencies, which are generally divided into sub
organizations, i.e., smaller organizational units with a wide variety of titles, including
bureaus, administrations, agencies, and corporations. (SFFAC No. 2, Entity and Display,
paragraphs 11-12) Use of component entity in this technical bulletin is only intended to
distinguish between the U.S. Federal governments consolidated financial statements and
financial statements of its components.
TB 2002-1 - Page 4
General Principles
9.
Implementation
a.
b.
TB 2002-1 - Page 5
TB 2002-1 - Page 6
Appendix A: Basis
For Conclusions
14. This Technical Bulletin exposure draft was issued in March 2002.
During the 30-day comment period 12 comment letters were received.
Eight of the respondents either said they agreed with or had no
comment on the proposed guidance. Three other respondents
commented on specific sections of the guidance and one additional
respondent disagreed with the proposed guidance. The respondents
comments are summarized below. The Board does not simply rely on
the number of respondents in favor of or opposed to a given position.
The Board considers the arguments in each response and weighs the
merits of the points raised. Information about respondents views is
provided only as a means of summarizing the comments.
Federal
Non-federal
Auditors
TB 2002-1 - Page 7
b.
In 1956, Congress enacted a permanent, indefinite appropriation ("the Judgment Fund") for
the payment of final judgments that were "not otherwise provided for" (i.e. which cannot
legally be paid from any existing appropriation or fund). Payments from the judgment
appropriations may be made only upon certification by Financial Management Service,
Department of the Treasury. Treasury's role is to "oversee" the use of this appropriation.
TB 2002-1 - Page 8
financial statements. Staff and the Board believe TJF should not bear
the responsibility of recording all unassigned legal costs, as each
component entity should accumulate and report the costs of its own
activities. In addition, the TJF is merely the funding mechanism for
many of the legal settlements and judgments against the Federal
government.
17. Therefore, staff concluded that entities should first apply the cost
methodology principles provided in SFFAS 4 and that all legal costs
must be allocated to a component entity, whether those costs are paid
by the entity or by the Treasury Judgment Fund. This principal is
consistent with those outlined in the Interpretation 2, Accounting for
Treasury Judgment Fund Transactions. However, in instances when
it is impossible for component entities to agree on a reasonable cost
assignment or allocation basis, the entities should recognize costs and
liabilities as directed by OMB. In addition, the Federal entities
involved will be required to fully disclose all pertinent information
related to the legal costs.
TB 2002-1 - Page 9
Status
Issued
Effective Date
Immediate
None.
Affects
Affected by
None.
TB 2002-2 - Page 1
Table of Contents
Contents
Page
References
Question
Response
Effective Date
TB 2002-2 - Page 2
References
Question
1.
Response
b.
c.
outlays.
2.
3.
4.
The reporting entity should disclose that the Presidents Budget with
actual numbers for the fiscal year has not yet been published, explain
when it is expected to be published, and indicate where it will be
available. The information called for by paragraph 79(g) for the prior
fiscal year should be included in the current financial report (unless it
was included the entitys prior report, as will be the case in the first
year in which the financial report is published before the Presidents
Budget).
5.
For example, a department that issued its financial report for FY 2001
in March of 2002 would have included the information called for by
paragraph 79(g) in that report, because the Presidents Budget with
that information had been published before the departments financial
TB 2002-2 - Page 3
6.
The Federal Accounting Standards Advisory Board has authorized its staff
to prepare FASAB Technical Bulletins to provide guidance on certain
financial accounting and reporting problems on a timely basis, pursuant to
the procedures described in FASAB Technical Bulletin 2000-1 Purpose
and Scope of FASAB Technical Bulletins and Procedures for Issuance.
The provisions of Technical Bulletins need not be applied to immaterial
items.
TB 2002-2 - Page 4
Appendix:
Background
Information and
Consideration of
Comments
Received
7.
8.
9.
10. The Board reviewed the proposed TB and the comments at its meeting
on August 8, 2002. The TB was revised as discussed in paragraph 9
and distributed to the Board. FASABs Executive Director determined
that a majority of the FASAB did not object to the TB as revised, and
accordingly posted the TB to www.fasab.gov.
TB 2002-2 - Page 5
Status
Issued
Effective Date
None.
Affects
None.
Affected by
None.
Summary
I.
This technical bulletin answers certain questions arising from the creation of the Department of
Homeland Security and other transfers of operations between federal entities directed by the Homeland
Security Act of 2002. Standards issued by the Federal Accounting Standards Advisory Board (FASAB)
have precedence over other sources of generally accepted accounting principles for Federal entities.
This technical bulletin supplements any relevant Federal standards, but is not a substitute for and does
not take precedence over standards and interpretations issued by FASAB.
II.
Legacy entities will segregate the net costs of continuing and transferred operations, and recognize
a transfer-out for assets and liabilities transferred. Segregation of the net cost is required for both
current and prior period net cost.
b.
Transferred entities will segregate the net costs of continuing and transferred operations for
components of the transferred entity that (1) were not transferred from the legacy entity or (2)
subsequent to the creation of the Department of Homeland Security were no longer included in the
transferred entitys operations. Transferred entities will recognize a transfer-out for assets and
liabilities transferred. Segregation of the net cost is required for both current and prior period net
cost.
c.
Department of Homeland Security and other receiving entities will recognize assets and liabilities
received at book value1 and recognize a transfer-in. Financial statements based on the transfers
and actual operations subsequent to the transfer will be presented.
Book value is the net amount at which an asset or liability is carried on the books of account (also referred to as carrying value or
amount). It equals the gross or nominal amount of any asset or liability minus any allowance or valuation amount.
TB 2003-1 - Page 1
III. Guidance on segregating the net costs of continuing and transferred operations is consistent with
Financial Accounting Standard 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Guidance on transfers of assets and liabilities is consistent with Statement of Federal Financial
Accounting Standards 7, Accounting for Revenue and Other Financing Sources.
TB 2003-1 - Page 2
Table of Contents
Page
Contents
Introduction
Effective Date
Technical Guidance
Scope
10
10
12
13
Respondents Request for Guidance on the Statements of Custodial Activity and Changes in Net Position
14
15
Statement of Financing
16
16
Effective Date
17
18
Appendix C: Excerpt From Financial Accounting Standard 144, Accounting For The Impairment Or
Disposal Of Long-lived Assets
19
TB 2003-1 - Page 3
Introduction
1.
Effective Date
2.
3.
4.
Technical Guidance
Scope
a.
b.
The HS Act provides for the transfer of functions, personnel, assets, and liabilities. The
term functions includes authorities, powers, rights, privileges, immunities, programs,
projects, activities, duties, and responsibilities. The term operations is more commonly
used in accounting literature and is sometimes used as a substitute for functions in this
document.
2
TB 2003-1 - Page 4
c.
APB 20 Is Not
Applicable
5.
6.
No. APB 20 should not be applied to any of the changes resulting from
transfers of functions among federal entities due to the HS Act.
7.
8.
Guidance is provided for transferred entities because it is possible that functions would be
transferred back to the legacy entity. The Office of Management and Budget (OMB) plan for
Department of Homeland Security (DHS) specifically provides that any functions of those
entities that are not directly related to securing the homeland will continue to be allocated to
the agencies and subdivisions in which they are currently incorporated.
This Technical Bulletin addresses questions related to applying FAS 144 to a federal
reporting entity. While this Technical Bulletin discusses many aspects of applying FAS 144, it
does not provide a comprehensive illustration.
FAS 144, par. 41 states that a component of an entity comprises operations and cash flows
that can be clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity.
Paragraph 47(a) requires the following disclosure: A description of the facts and
circumstances leading to the expected disposal, the expected manner and timing of that
disposal, and, if not separately presented on the face of the statement, the carrying
amount(s) of the major classes of assets and liabilities included as part of a disposal group.
TB 2003-1 - Page 5
10. For all periods presented, legacy entities should report material
amounts of gross cost, exchange revenue, and net cost for transferred
or discontinued components of the entity (as defined by par. 41 of FAS
144 - see page 19). In some cases, functions may be discontinued or
transferred but may not be components of the entity as defined in
par. 41 of FAS 144. If functions are not components of the entity
there is no requirement to separately report the functions results of
operations under FAS 144.
11. The Statement of Net Cost should present a sub-total for Net Cost of
Continuing Operations immediately before the presentation of
amounts related to transferred and/or discontinued operations. All
elements related to transferred and/or discontinued operations should
be appropriately labeled. For example, for transferred operations:
$XX
Transferred Operations:
Cost of Transferred Operations
Exchange Revenue from Transferred Operations
Net Cost of Transferred Operations
Net Cost
$ XX
XX
XX
$XX
12. What amount should legacy entities report for the transfer of
assets and liabilities?
All affected entities are components of the Federal Government as a whole. Thus, all
statements should clearly distinguish between operations that are transferred versus truly
discontinued. While the operations may be discontinued at one entity they may be
continued at another entity. Thus, the term transferred may be more appropriate.
TB 2003-1 - Page 6
13. SFFAS 7, par. 74, provides that transfers between entities without
reimbursement should be recognized as transfers-in8 or out on the
Statement of Changes in Net Position. The amount transferred is
equivalent to the book value9 of all assets and liabilities transferred.
14. This SFFAS 7 guidance precludes application of FAS 144s requirement
that gains and losses be included in the results of operations of
discontinued or transferred operations (FAS 144, par. 37 and 43).
15. Does FAS 144 require legacy entities to segregate the
Statements of Budgetary Resources and Financing between
continuing and transferred and/or discontinued operations?
16. No. There are no FAS 144 requirements that would apply to the
Statements of Budgetary Resources and Financing.10
Accounting by Transferred
Entities
Book value is the net amount at which an asset or liability is carried on the books of
account (also referred to as carrying value or amount). It equals the gross or nominal
amount of any asset or liability minus any allowance or valuation amount.
10
While these statements may be affected by transactions related to the HS Act, this
Technical Bulletin provides guidance on application of FAS 144 in light of existing federal
guidance. FAS 144 requirements relate primarily to exchange transactions as well as events
associated with operations. Thus, FAS 144 requirements do not extend to these statements.
TB 2003-1 - Page 7
and 47(a) and par. 10 and 11 above and report separately the results of
continuing and transferred operations.11
19. What additional disclosures should a transferred entity
preparing free-standing entity-level financial statements
provide?
20. Transferred entities should disclose:
Accounting by Receiving
Entities
a.
b.
c.
d.
11
For example, an entity may transfer to DHS except for certain functions that remain with
the legacy entity. If these un-transferred functions are carried out by a component of the
entity as defined in FAS 144 par. 41 and the associated amounts are material, the related
revenues and costs would be reported under transferred operations per par. The Statement
of Net Cost should present a sub-total for Net Cost of Continuing Operations immediately
before the presentation of amounts related to transferred and/or discontinued operations.
All elements related to transferred and/or discontinued operations should be appropriately
labeled. For example, for transferred operations:.
12
The net amount at which an asset or liability is carried on the books of account (also
referred to as carrying value or amount). It equals the gross or nominal amount of any asset
or liability minus any allowance or valuation amount.
TB 2003-1 - Page 8
23. The net effect of the assets and liabilities received will be recognized
as a transfer-in on the receiving entitys Statement of Changes in Net
Position. Note that it is possible to have a negative transfer-in at the
receiving entity because liabilities transferred may exceed assets
transferred.
24. Receiving entities will prepare financial statements based on the
transfers and actual operations subsequent to the transfer.
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Appendix A: Basis
For Conclusions
25. The Federal Accounting Standards Advisory Board has authorized its
staff to prepare FASAB Technical Bulletins to provide timely guidance
on certain financial accounting and reporting problems, in accordance
with section III. I. 5 of the Boards rules of procedure, as amended and
restated through October 1, 1999 and the procedures described in
FASAB Technical Bulletin 2000-1, Purpose and Scope of FASAB
Technical Bulletins and Procedures for Issuance. The provisions of
Technical Bulletins need not be applied to immaterial items.
26. An exposure draft was issued March 21, 2003 and the Board
considered responses to the exposure draft at its April 24, 2003 public
meeting. The FASAB has reviewed this Technical Bulletin and a
majority of its members do not object to its issuance.
27. This appendix discusses some factors considered significant by staff
in reaching the conclusions in this Technical Bulletin. It includes the
reasons for accepting certain approaches and rejecting others. Some
factors were given greater weight than other factors. The guidance
enunciated in the technical guidance section---not the material in this
appendix---should govern the accounting for specific transactions,
events or conditions
TB 2003-1 - Page 10
b.
c.
d.
13
Financial reporting should provide information that is useful to present and potential
investors and creditors and other users in making rational investment, credit, and similar
decisions. The information should be comprehensible to those who have a reasonable
understanding of business and economic activities and are willing to study the information
with reasonable diligence.
Financial reporting should provide information to help present and potential investors and
creditors and other users in assessing the amounts, timing, and uncertainty of prospective
cash receipts from dividends or interest and the proceeds from the sale, redemption, or
maturity of securities or loans. Since investors' and creditors' cash flows are related to
enterprise cash flows, financial reporting should provide information to help investors,
creditors, and others assess the amounts, timing, and uncertainty of prospective net cash
inflows to the related enterprise.
Financial reporting should provide information about the economic resources of an
enterprise, the claims to those resources (obligations of the enterprise to transfer resources
to other entities and owners' equity), and the effects of transactions, events, and
circumstances that change its resources and claims to those resources.
TB 2003-1 - Page 11
34. FAS 144 addresses discontinued operations and provides for separate
reporting of the results of operations associated with discontinued
operations. The standard provides a definition of component of an
entity (FAS 144, par. 41, see page 19) as well as criteria for
determining if the activity of the component has been discontinued
(FAS 144, par. 42, see page 19).
35. Under the HS Act, functions may be discontinued at the legacy entity,
but not discontinued by the government-as-a-whole. Therefore, the
term transferred operations should be substituted for discontinued
operations when appropriate. This will ensure that the reader does not
TB 2003-1 - Page 12
b.
37. This will result in the most useful presentation since it produces a
consistent and understandable result across all entities.
38. Respondents to the March 21, 2003 exposure draft supported the
staffs assertion that FAS 144 is applicable. Some respondents
suggested that the scope of the Technical Bulletin be expanded so that
FAS 144 would be applied to any future changes at the federal level.
Staff has not incorporated this suggestion but has recommended that
the Board consider it when an opportunity to address new issues
arises in the future.
b.
c.
14
Discontinued operations may be appropriate in the event that material functions are
discontinued.
TB 2003-1 - Page 13
41.
b.
c.
44. In this case, staff elected to rely on practices developed through full
due process in other domains by searching GAAP for nongovernmental entities for relevant requirements. FAS 144 was found to
be the best fit for this circumstance. In relating the FAS 144 guidance
to the federal reporting model, staff was mindful that FAS 144
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Statement of Budgetary
Resources
48. As mentioned in par. 44, FAS 144 does not require segregation of
information beyond the results of continued and discontinued
operations. Since the Statement of Budgetary Resources does not
report the results of operations, FAS 144 would not support a
requirement that federal entities segregate elements of the Statement
of Budgetary Resources between continuing and
transferred/discontinued budgetary and reconciling elements. For
reasons similar to those provided in paragraphs 42 through 46, staff
does not believe this Technical Bulletin should require segregation of
the elements of this statement.
49. Staff also notes that the Statement of Budgetary Resources presents
information intended to support the budgetary integrity reporting
objective. This reporting objective provides that Federal financial
reporting should assist in fulfilling the governments 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 governments budget for a particular fiscal year and
related laws and regulations.(SFFAC 1, par. 112)
TB 2003-1 - Page 15
Statement of Financing
52. SFFAS 7 indicates that the purpose of the Statement of Financing is:
.. to explain how budgetary resources obligated during the period
relate to the net cost of operations for that reporting entity. This
information should be presented in a way that clarifies the relationship
between the obligation basis of budgetary accounting and the accrual
basis of financial (i.e., proprietary) accounting. By explaining this
relationship through a reconciliation, the statement provides
information necessary to understand how the budgetary (and some
nonbudgetary) resources finance the cost of operations and affect the
assets and liabilities of the reporting entity. (SFFAS 7, par. 95)
53. Staff does not believe that SFFAS 7 envisioned explanations of these
relationships in greater detail than the reporting entity level. To
impose a greater disaggregation would, in staffs opinion, require
greater due process than afforded for a Technical Bulletin.
54. Some respondents agreed that the result of applying FAS 144 was
desirable but asserted that standards tailored to the unique federal
environment and reporting model should be developed. Staff believes
this Technical Bulletin provides important guidance in response to an
immediate need. Given the limited due process associated with
Technical Bulletins, staff believes that in this case it was
TB 2003-1 - Page 16
Effective Date
55. The effective date of this Technical Bulletin -- for reporting periods
beginning after September 30, 2002 is necessary due to the timing of
the HS Act. Staff does not routinely issue pronouncements that are
effective in the period issued but must do so in this case to provide
timely guidance.
TB 2003-1 - Page 17
Appendix B:
Accounting
Principles Board
Opinion 20
TB 2003-1 - Page 18
Appendix C:
Excerpt From
Financial
Accounting
Standard 144,
Accounting for the
Impairment or
Disposal of LongLived Assets
FAS144, Par. 41
41. For purposes of this Statement, a component of an entity comprises
operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the
entity. A component of an entity may be a reportable segment or an
operating segment (as those terms are defined in paragraph 10 of
Statement 131), a reporting unit (as that term is defined in Statement
142), a subsidiary, or an asset group (as that term is defined in
paragraph 4).
42. The results of operations of a component of an entity that either has
been disposed of or is classified as held for sale shall be reported in
discontinued operations in accordance with paragraph 43 if both of
the following conditions are met: (a) the operations and cash flows of
the component have been (or will be) eliminated from the ongoing
operations of the entity as a result of the disposal transaction and (b)
the entity will not have any significant continuing involvement in the
operations of the component after the disposal transaction. (Examples
12-15 of Appendix A illustrate disposal activities that do or do not
qualify for reporting as discontinued operations.)
43. In a period in which a component of an entity either has been disposed
of or is classified as held for sale, the income statement of a business
enterprise (or statement of activities of a not-for-profit organization)
for current and prior periods shall report the results of operations of
the component, including any gain or loss recognized in
accordance with paragraph 37 [emphasis added], in discontinued
operations. The results of operations of a component classified as held
for sale shall be reported in discontinued operations in the period(s) in
which they occur. The results of discontinued operations, less
applicable income taxes (benefit), shall be reported as a separate
component of income before extraordinary items and the cumulative
effect of accounting changes (if applicable). For example, the results
of discontinued operations may be reported in the income statement
of a business enterprise as follows:
TB 2003-1 - Page 19
$XXXX
Income taxes
XXX
24
$XXXX
XXXX
XXXX
XXXX
$XXXX
24
This caption shall be modified appropriately when an entity reports an extraordinary item or the
cumulative effect of a change in accounting principle or both in accordance with Opinion 20. If
applicable, the presentation of per-share data will need similar modification.
b.
TB 2003-1 - Page 20
c.
Reporting a Long-Lived
Asset or Disposal Group
Classified as Held for Sale
Disclosure
25
Paragraph 3 of FASB Statement No. 88, Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, defines
settlement as a transaction that (a) is an irrevocable action, (b) relieves the employer (or
the plan) of primary responsibility for a pension benefit obligation, and (c) eliminates
significant risks related to the obligations and the assets used to effect the settlement. A
settlement is directly related to the disposal transaction if there is a demonstrated direct
cause and effect relationship and the settlement occurs no later than one year following the
disposal transaction, unless it is delayed by events or circumstances beyond an entitys
control (refer to paragraph 31).
TB 2003-1 - Page 21
b.
c.
d.
Examples 1215Reporting
Discontinued Operations
The entity decides to exit the beauty care business and commits
to a plan to sell the product group with its operations. The
TB 2003-1 - Page 22
The entity decides to remain in the beauty care business but will
discontinue the brands with which the losses are associated.
Because the brands are part of a larger cash-flow-generating
product group and, in the aggregate, do not represent a group
that on its own is a component of the entity, the conditions in
paragraph 42 for reporting in discontinued operations the losses
associated with the brands that are discontinued would not be
met.
Example 13
A27. An entity that is a franchiser in the quick-service restaurant business
also operates company-owned restaurants. For that entity, an
individual company-owned restaurant is the lowest level at which the
operations and cash flows can be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the entity.
Therefore, each company-owned restaurant is a component of the
entity.
a.
TB 2003-1 - Page 23
b.
Example 14
A28. An entity that manufactures sporting goods has a bicycle division that
designs, manufactures, markets, and distributes bicycles. For that
entity, the bicycle division is the lowest level at which the operations
and cash flows can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the entity. Therefore, the
bicycle division is a component of the entity.
A29. The entity has experienced losses in its bicycle division resulting from
an increase in manufacturing costs (principally labor costs).
a.
b.
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TB 2003-1 - Page 25
Status
Issued
Effective Date
None.
Affects
None.
Affected by
Summary
I.
This technical bulletin clarifies the required reporting of liabilities and related expenses arising from
asbestos-related cleanup costs. Standards issued by FASAB have precedence over other authoritative
guidance for federal entities. This technical bulletin supplements any relevant federal standards, but is
not a substitute for and does not take precedence over standards and interpretations issued by FASAB.
II.
Prior to this technical bulletin, most federal entities had recognized liabilities for the removal of asbestos
that posed an immediate health threat (i.e., friable asbestos), but many federal entities had not prepared
an estimate of cleanup costs for the future removal of asbestos that did not pose an immediate health
threat (i.e., nonfriable asbestos). Therefore, it was determined that additional guidance was needed to
clarify that entities need to estimate all asbestos-related cleanup costs and not just those costs related to
asbestos that requires immediate cleanup.
Federal entities will (1) estimate both friable and nonfriable asbestos-related cleanup costs and (2)
recognize a liability and related expense for those costs that are both probable and reasonably
estimable, consistent with the current guidance in Statement of Federal Financial Accounting
Standards (SFFAS) 5, Accounting for Liabilities of the Federal Government; SFFAS 6, Accounting
for Property, Plant, and Equipment, Chapter 4: Cleanup Costs; and Technical Release (TR) 2,
Determining Probable and Reasonably Estimable for Environmental Liabilities in the Federal
Government.
b.
Federal entities will disclose information related to friable and nonfriable asbestos-related cleanup
costs that are probable but not reasonably estimable in a note to the financial statements, consistent
with SFFAS 5, SFFAS 6, and TR 2.
TB 2006-1 - Page 1
Table of Contents
Abbreviations
Introduction
Technical Guidance
Scope
Background
Federal Entities Should Estimate Asbestos-Related Cleanup Costs and Recognize a Liability and Related
Expense for those Costs that are Probable and Reasonably Estimable
General PP&E
Liabilities
Expenses
10
11
Note Disclosures
12
Effective Date
13
14
22
26
Appendix D: Definitions
27
TB 2006-1 - Page 2
Abbreviations
CAA
CERCLA
CFO
CFR
EPA
FAS
FASAB
FASB
FIN
GAAP
IPA
NESHAP
NOA
PP&E
RCRA
SFFAC
SFFAS
TR
TB 2006-1 - Page 3
Introduction
1.
2.
3.
This guidance affects all federal entities that own buildings, facilities,
ships, or other tangible property, plant, and equipment (PP&E) that
contain any form of asbestos.
4.
5.
6.
7.
8.
Technical Guidance
Scope
TB 2006-1 - Page 4
Background
9.
What is asbestos?
TB 2006-1 - Page 5
Temporary closure or shutdown would also include the scheduled closure or shutdown of
PP&E in order to conduct cleanup activities.
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The term obligation is used in this bulletin with its general meaning of a duty or
responsibility to act in a certain way. It does not mean that an obligation of budgetary
resources is required for a liability to exist in accounting or financial reporting or that a
liability in accounting or financial reporting is required to exist for budgetary resources to be
obligated.
Laws and regulations approved as of the balance sheet date, regardless of the effective date
of those laws and regulations, shall be considered.
TB 2006-1 - Page 8
Per SFFAS 5, par. 33, probable is defined as that which can reasonably be expected or is
believed to be more likely than not on the basis of available evidence or logic.
TB 2006-1 - Page 9
TB 2006-1 - Page 10
TB 2006-1 - Page 11
Note Disclosures
b.
c.
TB 2006-1 - Page 12
d.
e.
49. For asbestos-related cleanup costs that are deemed to be probable but
not reasonably estimable, the entity should disclose the presence of
asbestos in its facilities and the inability to reasonably estimate an
amount of the total cleanup costs.5 SFFAS 32, par. 25, provides for
disclosure requirements related to cleanup costs for the U.S.
government-wide financial statements.
Effective Date
50. This technical bulletin is effective for reporting periods beginning after
September 30, 2011. Earlier adoption is encouraged.
For example, asbestos may be contained within walls, flooring, or roofing and is
inaccessible without destroying or weakening the existing structure or disturbing the
asbestos, which would be undesirable. Without experience with a similar site and/or
conditions, it may not be possible for the entity to reasonably estimate the cost to remove
and dispose of the asbestos contained therein.
TB 2006-1 - Page 13
Appendix A: Basis
for Conclusions
The Federal Accounting Standards Advisory Board has authorized its staff
to prepare FASAB technical bulletins to provide timely guidance on certain
financial accounting and reporting problems, in accordance with the
Boards rules of procedure, as amended and restated through December
2003, and the procedures described in FASAB Technical Bulletin 2000-1,
Purpose and Scope of FASAB Technical Bulletins and Procedures for
Issuance. The provisions of technical bulletins need not be applied to
immaterial items.
This appendix discusses some factors considered significant by staff in
reaching the conclusions in this technical bulletin. It includes the reasons
for accepting certain approaches and rejecting others. Some factors were
given greater weight than other factors. The guidance enunciated in the
technical guidance section not the material in this appendix should
govern the accounting for specific transactions, events or conditions.
A1. In March 2006, a representative from one of the CFO Act agencies
informed FASAB staff that its IPA requested that the agency
reconsider its accounting for nonfriable asbestos-related cleanup
costs for fiscal year 2006. The agency contacted FASAB due to the
extensive work that would be required to estimate its liability for
nonfriable asbestos-related cleanup costs and the implications for
other federal agencies. The agency estimates that it has
approximately 3,300 6,000 facilities that contain nonfriable asbestos
that are not already included as part of its material environmental
disposal liability calculation.
A2. FASAB staff was also contacted by a second CFO Act agency
regarding the same issue. This second agency, which utilizes the same
IPA as the first agency, stated that it was planning to prepare an
estimate of its fiscal year 2006 asbestos liability for both friable and
nonfriable asbestos-related cleanup costs absent guidance from the
FASAB to the contrary.
A3. FASAB staff contacted the IPA directly and spoke with its
representatives about the rationale for requesting the agencies to
estimate a liability for nonfriable asbestos-related cleanup costs. The
IPA representatives stated that the agencies had previously cited the
inconsistency in reporting of these liabilities by federal entities and
organizations that followed FASB standards as the basis for not
recognizing a liability for nonfriable asbestos-related cleanup costs.
TB 2006-1 - Page 14
TB 2006-1 - Page 15
TB 2006-1 - Page 16
occurs at the end of the useful life of the PP&E or at regular intervals
(scheduled phase cleanup) during that life. SFFAS 5 applies to all
environmental liabilities not specifically covered in SFFAS 6, including
cleanup resulting from accidents or where cleanup is an ongoing part
of operations. TR 2 offers guidance on determining probable and
reasonably estimable for environmental liabilities. The estimation of a
liability for asbestos-related cleanup costs is not explicitly addressed
by SFFAS 5, SFFAS 6, or TR 2, but staff believes it is covered under the
requirements of these pronouncements.
A10. One key notion contained in FIN 47 that is not stated as explicitly in
either SFFAS 6 or TR 2 is the notion that no building will last forever;
it would be hard to support a claim that the federal government will be
able to maintain a building forever without having to eventually
cleanup the asbestos contained therein. The federal government is
subject to the same laws and regulations regarding control and
abatement of air pollution as nongovernmental entities.8 Therefore, if
one were to agree that the notion of probability of settlement applies
to infinity rather than the foreseeable future, it is probable (more
likely than not) that the federal government will be required to meet
any legal obligations at some point in the future for the cleanup of
asbestos in all of its facilities, whether they are sold, renovated, or
demolished or collapse. Based on SFFAS 5 and 6 and TR 2, the
question then becomes whether the federal liability for cleanup of
asbestos is reasonably estimable.
A11. TR 2, Section 2, provides guidance on determining reasonably
estimable environmental liabilities. This guidance recommends
completion of a remedial investigation/feasibility study upon which to
base an estimate and/or experience with similar site and/or conditions.
Estimated costs should be based on the cleanup plan, assuming
current technology and current cost. These costs can include the
costs to remove, contain, and/or dispose of the hazardous waste
requiring cleanup. The SFFAS 5 measurement attribute settlement
cost (best represented by the current cost to cleanup) differs
significantly from the FIN 47 measurement attribute fair value. Fair
value incorporates the effects of uncertainty. Staff believes that
settlement cost is more difficult to measure since it does not allow for
different outcomes, each of which may be just as likely as the others.
8
Toxic Substances Control Act (15 USC 2619) and Clean Air Act (42 USC 7418)
TB 2006-1 - Page 17
TB 2006-1 - Page 18
A15. In the past, some federal entities have cited the inconsistency in
reporting of asbestos-related liabilities by federal entities and
organizations that followed FASB standards as the basis for not
recognizing a liability for nonfriable asbestos-related cleanup costs.
Therefore, the effective date of this technical bulletin for reporting
periods beginning after September 30, 2009 is established to allow
federal entities the time to complete remedial investigation/feasibility
studies or take similar steps in order to comply with this guidance.
Earlier adoption is encouraged.
A16. A draft concepts statement, Definition and Recognition of Elements
of Accrual-Basis Financial Statements, is currently under
consideration by the Board and was issued as an exposure draft in
early June 2006. This concepts statement proposes new definitions of
five elements of accrual-basis financial statements asset, liability,
revenue, expense, and net position. These new definitions, if issued as
final, would be used as the building blocks for new standards issued
by the Board in the future. However, since the concepts statement will
go through extensive due process before being finalized and
subsequently used to develop new standards, this technical bulletin is
being issued under the existing standards for the federal government.
If changes are made to the cleanup standards in the future, the
consideration of asbestos-related cleanup costs would be
incorporated into the new standards accordingly.
A17. The exposure draft, Technical Bulletin 2006-1, Recognition and
Measurement of Asbestos-Related Cleanup Costs, was issued June 1,
2006 with comments requested by June 30, 2006. Upon release of the
exposure draft, notices and press releases were provided to The
Federal Register, FASAB News, The Journal of Accountancy, AGA
Today, the CPA Journal, Government Executive, the CPA Letter,
Government Accounting and Auditing Update, the CFO Council, the
Presidents Council on Integrity and Efficiency, Financial Statement
Audit Network, the Federal Financial Managers Council, and
committees of professional associations generally commenting on
exposure drafts in the past. To encourage responses, reminder notices
were provided to the FASAB Listserv on June 20th and June 29th.
TB 2006-1 - Page 19
A18. Eleven comment letters were received from the following sources:
FEDERAL
(Internal)
1
0
6
NON-FEDERAL
(External)
3
1
0
A19. In addition to the official count in paragraph A18, two federal agencies
wrote that they had reviewed the exposure draft and determined that
it required no changes or did not have a major impact to their current
reporting practices.
A20. The Board considered responses to the exposure draft at its July 27,
2006 board meeting. The majority of the respondents agreed with the
proposed guidance. Specific concerns raised by respondents related
to asbestos being considered a hazardous waste, the lack of legal
requirements to remove nonfriable asbestos in good condition,
applicability of the technical bulletin to naturally occurring asbestos
and other contaminants, and the issue of liability recognition versus
note disclosure. Most concerns raised by respondents related to
definition and scope of the proposed guidance. Clarifying language
was added to address these concerns.
A21. Several respondents that were strongly opposed to the proposed
guidance argued that because there is no legal requirement to cleanup
nonfriable asbestos, it is not appropriate to estimate a liability for
nonfriable asbestos. The Board has agreed that while legal
enforceability may provide additional evidence that a liability exists, it
is not a prerequisite. The guidance in this technical bulletin is
requiring that the entity estimate the economic impact that the
existence of asbestos has on the financial position of the entity.
Therefore, if asbestos is present in any form in an entitys PP&E at
year-end, the entity is required to estimate the costs that will be
incurred at any point in the future to comply with all related laws and
regulations regarding the asbestos already in existence as of the
reporting date. The entity is only required to prepare a best estimate
of costs that will eventually be incurred. The entity is not required to
estimate costs for cleanup of asbestos that will never occur (e.g.,
nonfriable asbestos that will never become friable). Language was
added to clarify the intent of the guidance.
TB 2006-1 - Page 20
A22. One respondent to the exposure draft stated that the technical bulletin
should make a distinction between the treatment of cleanup costs for
heritage assets and multi-use heritage assets. Based on a review of
existing standards, it was noted that SFFAS 6 (as originally
pronounced) provided for capitalization of certain costs related to
multi-use heritage assets as general PP&E. In addition, SFFAS 6,
Chapter 4, Cleanup Costs, differentiated between stewardship PP&E
and general PP&E for purposes of estimating cleanup costs but did not
specifically reference multi-use heritage assets. Although not
explicitly stated, staff believes that it was the intent of the previous
Board that the cleanup cost standards for general PP&E apply to all
assets classified as general PP&E, including multi-use heritage assets.
A23. The Board has reviewed this technical bulletin, and a majority of its
members do not object to its issuance.
TB 2006-1 - Page 21
Appendix B:
Illustration of
Asbestos-Related
Cleanup Costs
This appendix illustrates one method of complying with the guidance in this
technical bulletin.9 The example shown in this appendix is for illustrative
purposes only. Applying this technical bulletin may require consideration
of estimated cost components other than those shown here.
Example of Accounting
for Asbestos-Related
Cleanup Costs
$ 1,000
10,000
5,000
12,000
20,000
$48,000
The formulas used in this illustration are taken from SFFAS 6, Appendix D Illustration of
Cleanup Cost.
TB 2006-1 - Page 22
Calculation of Liability
Amount to be
Recognized upon
Implementation
At the end of 2006, the estimated total cleanup costs were $48 million. The
following calculations show the amounts that should have been recognized
at the end of 2006 if the technical bulletin had been in effect since the
facility began operation on October 1, 1970:
(a x b/c) d = l where,
a = total cleanup cost estimated as of end of period
b = cumulative capacity used at end of period10
c = total estimated capacity11
d = amount previously recognized as expense beginning of period
l = liability to be recognized at the end of 2006
($48,000 x 36/50) - $0 = l
$48,000 x .72 - $0 = l
$34,560 = l
Dr. Change in Accounting Principle
$34,560
$34,560
2006
$34,560
$34,560
10
If recognition of the costs is based on the passage of time rather than physical capacity, the
cumulative amount of time passed since the associated PP&E began operating shall be
substituted.
11
If recognition is based on the passage of time, the estimated useful life of the associated
asset shall be substituted.
TB 2006-1 - Page 23
$48,000
$48,000
This approach can only be used if the related PP&E has been in service for a substantial portion of its
estimated useful life and costs are not intended to be recovered primarily through user charges.
TB 2006-1 - Page 24
Calculation of Annual
Expense and Accrued
Liability Amounts
In years 2007 through 2020, the following calculation shows the amount to
be recognized annually:
(a x b/c) = l
($48,000 x 1/50) = l
($48,000 x .02) = l
$960 = l
Dr. Cleanup Expense
$960
$960
Payment of Cleanup
Costs
One of the following entries would be made when cleanup costs are
eventually incurred and subsequently paid, based on actual cleanup costs:
If cleanup costs equal outstanding liability (i.e., $48,000):
Dr. Cleanup Liability
$48,000
$48,000
$48,000
$43,000
$ 5,000
TB 2006-1 - Page 25
$48,000
$ 2,000
$50,000
Appendix C:
AsbestosContaining
Materials
Note: The following list does not include every product/material that may
contain asbestos. It is intended as a general guide to show which types of
materials may contain asbestos.
Sample List of Potential Asbestos-Containing Materials
Cement Pipes
Cement Wallboard
Cement Siding
Boiler Insulation
Breaching Insulation
Cooling Towers
Flooring Backing
Acoustical Plaster
Decorative Plaster
Textured Paints/Coatings
Electrical Cloth
Spray-Applied Insulation
Chalkboards
Blown-in Insulation
Roofing Shingles
Fireproofing Materials
Roofing Felt
Base Flashing
Fire Doors
Caulking/Putties
Laboratory Gloves
Adhesives
Fire Blankets
Wallboard
Fire Curtains
Joint Compounds
Spackling Compounds
TB 2006-1 - Page 26
Appendix D:
Definitions
TB 2006-1 - Page 27
Status
Issued
Effective Date
None.
Affects
Technical Bulletin 2006-1, par. 50, by replacing the year "2009" with "2011."
Affected by
None.
Summary
This Technical Bulletin defers for two years the effective date of Technical Bulletin 2006-1, Recognition and
Measurement of Asbestos-Related Cleanup Costs. The guidance in Technical Bulletin 2006-1 will be effective
for periods beginning after September 30, 2011.
TB 2009-1 - Page 1
Table of Contents
Summary
Technical Guidance
Scope
Effective Date
Appendix B: Abbreviations
TB 2009-1 - Page 2
Technical Guidance
Scope
1.
This guidance affects all federal entities that own buildings, facilities,
ships, or other tangible property, plant, and equipment (PP&E) that
contain any form of asbestos and present general purpose financial
reports in conformance with Statement of Federal Financial
Accounting Standards 34, The Hierarchy of Generally Accepted
Accounting Principles, Including the Application of Standards
Issued by the Financial Accounting Standards Board.
Amendment of
Technical Bulletin
2006-1
2.
Effective Date
3.
TB 2009-1 - Page 3
Appendix A: Basis
for Conclusions
The Federal Accounting Standards Advisory Board has authorized its staff
to prepare FASAB Technical Bulletins to provide timely guidance on certain
financial accounting and reporting problems, in accordance with the
Boards rules of procedure, as amended and restated through April 2004,
and the procedures described in FASAB Technical Bulletin 2000-1, Purpose
and Scope of FASAB Technical Bulletins and Procedures for Issuance.
The provisions of Technical Bulletins need not be applied to immaterial
items.
This appendix discusses some factors considered significant by staff in
reaching the conclusions in this Technical Bulletin. It includes the reasons
for accepting certain approaches and rejecting others. Some factors were
given greater weight than other factors. The guidance enunciated in the
technical guidance section not the material in this appendix should
govern the accounting for specific transactions, events or conditions.
A1. In March 2009, FASAB staff members received a request from the
federal agency members of the Accounting and Auditing Policy
Committee (AAPC) disposal subgroup, excluding the audit
representatives, that the implementation of Technical Bulletin 2006-1,
Recognition and Measurement of Asbestos-Related Cleanup Costs, be
delayed until October 1, 2011 because of the reporting complexity,
limited resources, and shifting priorities within the federal
government due to the American Recovery and Reinvestment Act
(ARRA). This request was not supported by all members of the AAPC
disposal subgroup.
A2. The request stated that when Technical Bulletin 2006-1 was released
with an effective implementation date for reporting periods after
September 30, 2009, federal agencies began to evaluate their ability to
estimate their asbestos-related cleanup cost liability. The subgroups
research into facility management practices has shown that agencies
do not track asbestos in buildings, structures, or equipment except on
a limited basis. Asbestos in building materials is only federallyregulated under limited conditions. Most asbestos is regulated by
states resulting in decentralized data collection and management to
address state-specific requirements. Additionally, there is limited
guidance available on the collection and reporting of asbestos-related
cleanup costs. For example, there is some confusion as to whether
federal agencies will be able to model costs or whether they will need
to assess each building and structure individually. Once AAPC
TB 2009-1 - Page 4
completes and releases its implementation guidance on asbestosrelated cleanup costs, agencies will need to develop agency-specific
guidance, collect data, and prepare their cost estimates. In many
cases, new or substantially modified tracking systems may be
required.
A3. The request also noted that federal agencies now face the
implementation of ARRA and its impact on federal land managers. For
example, the Department of the Interior (DOI) has received more than
$3 billion for infrastructure and other projects. This is a two-year
funding that must be executed for creating jobs and boosting the
economy. Many of the facility, engineering, and environmental staff
that would work to develop asbestos cost estimates are now
committed to executing this historic endeavor and would not be able
to shift priorities to work on asbestos-related liability estimates.
A4. In considering the subgroups request for delayed implementation of
Technical Bulletin 2006-1, FASAB staff reviewed deferrals the FASAB
has made in the past and discussed Technical Bulletin 2006-1 and the
subgroup request at length with representatives from DOIs National
Park Service, Office of Environmental Policy and Compliance, and
Office of Finance; the Government Accountability Office; and the
Department of State.
A5. When staff originally proposed Technical Bulletin 2006-1, the Board
questioned why staff was providing such a long implementation period
for a standard that was already in effect; the Technical Bulletin
restates the requirements in Statement of Federal Financial
Accounting Standards (SFFAS) 6, Accounting for Property, Plant and
Equipment, and specifically applies them to asbestos. Staff had
responded that there was some conflicting guidance in place that had
resulted in inconsistent reporting among agencies.1 The extended
implementation period was established to provide federal entities with
the time to incorporate the resource requirements into their budget
requests and complete remedial investigation / feasibility studies or
take similar steps in order to comply with the guidance.
A6. However, there are several agencies that have been actively working
toward compliance with the Technical Bulletin since it was issued in
1
TB 2009-1 - Page 5
TB 2009-1 - Page 6
TB 2009-1 - Page 7
NON-FEDERAL
(External)
2
2
13
A13. The Board considered responses to the exposure draft at its August 27,
2009, public meeting. Sixteen of the 17 respondents were in favor of
deferring the effective date. One respondent did not comment on the
proposal. Since there was no opposition to the deferral proposal in
the ED, staff recommended that the proposal be issued as final.
A14. The Board has reviewed this Technical Bulletin, and a majority of its
members do not object to its issuance.
TB 2009-1 - Page 8
Appendix B:
Abbreviations
AAPC
ARRA
DOI
FASAB
GSA
PP&E
SFFAS
TB 2009-1 - Page 9
sesaeleR lacinhceFederal
T
Financial Accounting and Auditing Technical Release 1:
Audit Legal Representation Letter Guidance
Status
Issued
March 1, 1998
Effective Date
Affects
None.
Affected by
None.
Summary
Management of the Federal reporting entity is responsible for adopting policies and procedures to identify,
evaluate and account for litigation, claims and assessments as a basis for the preparation of financial
statements, including those handled by outside legal counsel. Management is responsible for reporting loss
contingencies in accordance with the requirements of Statement of Federal Financial Accounting Standards
No.5. This may require consultation by management and its legal department with DOJ, as well as other
outside legal counsel.
The auditor should request that management send a letter of audit inquiry to legal counsel with whom
management has consulted concerning litigation, claims and assessments. Management of the Federal
reporting entity and its legal department are responsible for providing the auditor with a legal representation
letter.
TR 1 - Page 1
Technical Release 1
Table Of Contents
Contents
Page
Issue
Background
References
TR 1 - Page 2
Technical Release 1
Issue:
Who should be the source of audit legal representation letters in cases
where Department of Justice attorneys are handling legal matters on behalf
of other Federal reporting entities?
Background:
This issue was raised by the Department of Justice (DOJ) in relation to
Interpretation No. 2, Accounting for Treasury Judgment Fund Transactions,
issued by the Federal Accounting Standards Advisory Board (FASAB),
however it is applicable to any situation where outside legal counsel is
handling legal matters on behalf of a Federal reporting entity.
FASAB Interpretation No. 2 states that "the Federal entitys management, as
advised by the Justice Department, must determine whether it is probable
that a legal claim will end in a loss for the Federal entity and the loss is
estimable." DOJ is concerned that the language in the Interpretation will
lead agencies to conclude that DOJ is the sole source of audit legal
representation letters in cases where DOJ attorneys are handling legal
matters on behalf of other Federal reporting entities.
Recommended Implementation Guidance
Management of the Federal reporting entity is responsible for adopting
policies and procedures to identify, evaluate and account for litigation,
claims and assessments as a basis for the preparation of financial
statements in accordance with the requirements of the Chief Financial
Officers Act of 1990 and the Government Management Reform Act of 1994.
These include litigation, claims and assessments handled by legal counsel
outside of the Federal reporting entitys legal department.
Management of the Federal reporting entity is responsible for ensuring that
loss contingencies, including those arising from litigation, claims and
assessments, are presented in the financial statements in accordance with
the requirements of Statement of Federal Financial Accounting Standards
No.5, Accounting for Liabilities of the Federal Government. This may
require consultation by management and its legal department with DOJ, as
well as other outside legal counsel, to ensure the accuracy and
completeness of the presentation of matters related to litigation, claims and
assessments in the Federal reporting entitys financial statements. Such
TR 1 - Page 3
Technical Release 1
TR 1 - Page 4
Technical Release 1
TR 1 - Page 5
Technical Release 1
TR 1 - Page 6
Status
Issued
Effective Date
None.
Affects
None.
Affected by
Summary
Agencies that must deal with environmental contamination should first refer to the hierarchy of accounting
standards contained in the current Office of Management and Budget (OMB) Bulletin on Form and Content
of Agency Financial Statements for guidance. Standards issued by Government Accountability Office (GAO)
and OMB have precedence over other authoritative guidance for federal entities. This technical release
supplements the relevant federal standards, but is not a substitute for and does not take precedence over the
standards.
TR 2 - Page 1
Technical Release 2
Table Of Contents
Contents
Page
Introduction
TR 2 - Page 2
19
Technical Release 2
Introduction
Scope
The recognition and measurement provided in SFFAS #6 are subject to the criteria for
recognition of liabilities included in SFFAS #5. That is, liabilities shall be recognized when
the following conditions are met:
-- a past transaction or event has occurred,
-- a future outflow or other sacrifice of resources is probable, and
-- the future outflow or sacrifice of resources is measurable.
TR 2 - Page 3
Technical Release 2
Section 1:
Determining
Probable
Environmental
Liabilities
Description of Issue
2
In the case of cleanup as an ongoing part of operations [i.e., the operation or activity
generates hazardous waste that is cleaned up as it is created (e.g., hospitals regularly
dispose of hazardous materials)], a liability may not need to be recognized if the need to
cleanup and the full cleanup occur in the same reporting period. However, the total cost of
cleanup should be recognized in the period the cleanup need arises. Refer to footnote 15 for
further information.
3
TR 2 - Page 4
Technical Release 2
Likely Contamination,
2.
3.
4.
Diagram 1.1 illustrates the above tests. These tests for probability assume
that a past transaction or event has occurred (i.e., past or present
operation, contribution and/or transportation of waste), and apply to both
active and closed sites. A narrative discussion of each of these tests for
probability follows on Diagram 1.1.
TR 2 - Page 5
Technical Release 2
1.
Likely
Contamination?
Not Probable
No
Yes
Track 1
Track 2
2.
Government Related
and Legally Liable?
No
3.
Government
Acknowledged?
Not Probable
No
Yes
Yes
3a.
Monies Appropriated/
Transaction Occurred?
Probable
Not Probable
N
No
Yes
Probable to the
Extent of Costs
Incurred
a
If no known technology exists, then it would be probable to the extent of any required study costs,
costs associated with containment, or any other monies obligated or spent. However, given that the
actual remediation is not feasible, the actual remediation costs would not meet the probable criteria.
TR 2 - Page 6
Technical Release 2
Diagram 1.1 shows that there are two primary tracks for determining
whether a federal agencys environmental responsibilities meet the
probable criterion. The first track is when contamination is known, is
related to federal government operations, and represents a legal liability.
The second track is when the federal government knows of contamination,
and although the contamination is not government related and the
government is not legally liable, the government acknowledges financial
responsibility for cleanup. For both tracks, if no known technology exists,
then the probability criterion is met only to the extent of likely
expenditures (e.g., for study costs and containment). A more detailed
discussion of the various components of Diagram 1.1 follows.
1.
TR 2 - Page 7
Technical Release 2
2.
3.
5
Legally liable is defined, generally, as any duty, obligation or responsibility established by a
statute, regulation, or court decision, or where the agency has agreed, in an interagency
agreement, settlement agreement, or similar legally binding document, to assume
responsibility for cleanup costs. Legal liability should be determined in consultation with the
entitys legal counsel. [See American Bar Associations (ABA) Statement of Policy Regarding
Lawyers Responses to Auditors Request for Information (December 1975). Also see
American Institute of Certified Public Accountants (AICPA) Professional Standards,
Auditing Standards (AU) Section 337C -- source SAS No. 12.]
6
Federal entities should consider the Environmental Protection Agencys (EPA) National
Priorities List [which identifies potentially responsible parties (PRP)] when determining
probability.
7
The Federal government has broad responsibility to provide for the publics general
welfare. The Federal government has established programs to fulfill many of the general
needs of the public and often assumes responsibilities for which it has no prior legal
obligation. Statement of Federal Financial Accounting Standards No. 5, 30.
8
This Release does not propose a position regarding environmental contamination caused by
natural disasters which may become the responsibility of the Federal Emergency
Management Agencys (FEMA).
TR 2 - Page 8
Technical Release 2
Section 2:
Determining
Reasonably
Estimable
Environmental
Liabilities
Description of Issue
TR 2 - Page 9
Technical Release 2
2.
3.
These tests for reasonably estimable are applied after a transaction or event
has occurred that meets the definition of probable as discussed in Section
1; tests apply to both active and closed sites. The analysis should consider
all significant sites, with the information rolled up into an entitywide
estimate. Cost estimates should be based on current technology. Diagram
2.1 on page 11 illustrates the application of these tests. A discussion of each
of the three tests follows Diagram 2.1. The discussion concludes with issues
related to quantification of the estimate and guidance for active sites.
Overall, it must be emphasized that every effort should be made to develop
an estimate.
Disclosure requirements when the criteria for reasonably estimable are not met are as
follows:
- the nature of the environmental damage and
- an estimate of the possible liability, an estimate of the range of the possible liability, or a
statement that such an estimate cannot be made.
10
TR 2 - Page 10
Technical Release 2
Probable
a
1.
RI/FS or other
Study Completed?
No
2.
Experience w/
Similar Site and/or
Conditions?
Yes
3.
Technology
Available to
Remediate?
Yes
No
No
Yes
Remediation
Not Reasonably
Estimable
Not Currently
Reasonably
Estimable
Recognize
Estimated Cost of
Study, if required
Reasonably
Estimable
4.
Recognize Best
Estimate or Low
End of Range* at
Current Cost
Recognize
Estimated
Cost to Contain
b
b
b
*Low end of range could be
containment, if containment
is chosen as the option to
be pursued.
Probable refers to track 1 (government related) which is found in Section 1. Track 2 (government
acknowledged) is not applicable.
With all tracks, see SFFAS #6 PAR. 107-111 and SFFAS #5 par. 40-42 for disclosure requirements.
Diagram 2.1 begins with the assumption that costs associated with
environmental damage has already met the test for probable. This is a direct
continuation of the left-side track of Diagram 1.1 on the definition of
TR 2 - Page 11
Technical Release 2
probable (i.e., the agency has met probable under government related and
is legally liable; see Section 1). As it relates to the probable second track
(i.e., government acknowledged), probable is only met to the extent that
monies have been appropriated or authorized (through authorization
legislation) and costs have been incurred (e.g., services rendered). In these
situations, a definitive dollar figure has already been determined and an
estimate is not required. Therefore, the following discussion refers to
determining whether something is reasonably estimable only as it relates
to government related and legally liable.
1.
2.
TR 2 - Page 12
Technical Release 2
11
RCRA (Resource Conservation and Recovery Act) regulations require owners of hazardous
waste disposal facilities to implement post-closure maintenance and monitoring activities
for a minimum of 30 years. When developing estimates of these operation and maintenance
(O&M) costs, EPA generally assumes that O&M activities will be required for 30 years. In
most instances, containment costs should be determined on the basis of a minimum of 30
years. It would be expected that in the case of nuclear contamination, different tri-party
agreements, technical problems, or other circumstances may lead to the use of a
substantially longer time frame than for typical RCRA or CERCLA (Comprehensive
Environmental Response Compensation and Liability Act of 1980) sites.
TR 2 - Page 13
Technical Release 2
12
This Release uses SFFAS No. 5s definition of probable, which is more likely than not
(see par. 33 of SFFAS No. 5). This Release applies the contingent liability criteria (i.e.,
probable, reasonably possible, and remote) from SFFAS No. 5 to all environmental liability
estimates, whether or not they meet the criteria (see par. 36 of SFFAS No. 5).
TR 2 - Page 14
Technical Release 2
(2) share of amounts related to the site that will not be paid by
other PRPs.13
If an agency shares responsibility with nongovernmental PRPs for a
government related event, the agency should recognize the share that
management believes it is more likely than not the agency is legally
liable for.14 Where the federal government shares responsibility with
nongovernmental PRPs and agency management has decided to
accept the nongovernmental PRPs share of the responsibility for the
damage (i.e., a government acknowledged event), the agency would
also recognize a liability for the PRPs share once the criteria of
appropriation or authorization legislation and a transaction have
occurred, causing another party to expect payment (e.g., contractor
has performed site cleanup).
Thus far, this technical release has dealt with costs for past environmental
contamination of property, plant, and equipment (PP&E) related to active
and closed sites. In addition, SFFAS No. 6 outlines accounting treatment for
future environmental contamination of PP&E at active sites. The following
shows how environmental cleanup costs15 for active sites should be
recognized for general and stewardship PP&E under SFFAS No. 6.
General PP&E
There are two implementation methods for general PP&E in service at the
effective date of the standard. Under the first method, the agency would
estimate the total cleanup costs (based on current cost to perform the
13
Costs referred to in this section are for decontamination and decommissioning (D&D) only,
not operating costs. D&D costs are those incurred after plants or equipment become inactive
and require cleanup. Operating costs are period costs that flow through the Statement of
Operations and Changes in Net Position. A liability is not recognized for operating costs.
TR 2 - Page 15
Technical Release 2
cleanup16) that will be required at the end of the PP&Es useful life. The
agency would recognize the estimated cost as a prior period adjustment for
the portion of the total estimated cleanup costs related to that portion of
the PP&Es useful life that has already expired.
To illustrate, assume implementation of SFFAS No. 6 on October 1, 1996.
Using the illustration below, and assuming a facility was placed in service at
the beginning of fiscal year 1992 with a 20-year useful life, the agency would
first estimate the total costs (based on current cost) required to clean up
the contaminated facility at the presumed plant closure at the end of fiscal
year 2011 ($20 billion). From that estimate (as of October 1, 1996), the
amount that relates to that portion of the PP&Es useful life that has already
expired (4/20 of $20 billion, or $4 billion) would be charged to net position
and the fiscal year 1996 prorata portion would be charged to expense.
Active Facility
Today's Date:
General PP&E
life
Oct 1,1991
1996
2011
Placed in service
Beginning with fiscal year 1997, the agency would annually recognize a
prorata portion of the estimated total cleanup costs based on the remaining
useful life of the subject PP&E. In our example, for fiscal year 1997, for this
plant (with an estimated remaining useful life of 15 years), the agency
would recognize 1/15 of the total estimated remaining cleanup cost of
$15 billion, or $1 billion. The probable criterion was met under Diagram 1.1
once the PP&E was placed in service. The reasonably estimable criterion
16
Current cost should be based on existing laws, technology and management plans (SFFAS
No. 6, paragraph 188).
TR 2 - Page 16
Technical Release 2
18
TR 2 - Page 17
Technical Release 2
Stewardship PP&E
19
The FASAB is currently developing an exposure draft that proposes to change the term
federal mission PP&E to national defense PP&E and to alter the definition.
[SFFAS No. 11]
TR 2 - Page 18
Technical Release 2
This appendix lists some of the laws that relate to environmental cleanup. It
is not intended to be a comprehensive list of all pertinent laws. Federal
agencies should check with their Office of General Counsel to determine
which laws are applicable to their agency.
B.
C.
D.
Administered by EPA
Established a program to identify sites (National Priorities List)
a. Typically abandoned or inactive sites
b. Can be applied to sites still in operation
3. Set up trust fund to cover costs (with attempts to recover)
4. Detailed standards for remediation and settlement provisions and authorized criminal sanctions
5. Entities may have joint and several liability for cleanup
Resource Conservation and Recovery Act (RCRA)
1. Permits issued by EPA for facilities used or being used to manage hazardous waste (includes
generating, treatment, storage, and disposal)
2. Covers both closed and active facilities
Clean Air Act
Clean Water Act
II.
IV.
State laws
A. For federal cleanup activities, state standards can apply, which are at least as stringent as federal
laws
V.
Foreign Laws
TR 2 - Page 19
Status
Issued
Effective Date
None.
Affects
None.
Affected by
TR 3 - Page 1
Status
Issued
January 2004
Effective Date
Immediately
Volume II References
Affects
Affected by
None.
Summary
This technical release amends the guidance for auditors to audit credit subsidy estimates provided in
Technical Release 3: Preparing and Auditing Direct Loan and Loan Guarantee Subsidies under the Federal
Credit Reform Act (TR3), July 1999. The original technical release (July 1999) contained both audit and
accounting guidance. Technical Release 6 contains only the guidance for preparing estimates.
TR 3 (Revised) - Page 1
Table of Contents
Contents
Page
Introduction
Background
Materiality
Effective Date
Audit Tests for Direct Loan and Loan Guarantee Subsidy Estimates
Identifying Material and High Risk Credit Programs for Internal Control and Substantive Testing
Assessing Inherent Risk and the Effects of Information Technology
8
11
12
Control Activities
15
17
Risk Assessment
18
Monitoring
19
19
20
20
22
23
26
27
28
33
38
39
TR 3 (Revised) - Page 2
30
Introduction
1.
2.
3.
4.
5.
This technical release does not address loan asset sales and does not
provide complete guidance for administrative expenses and pre-1992
direct loans and loan guarantees. Guidance on these areas can be
found in SFFAS Nos. 2, 18, & 19 and OMB Circular No. A -11 and OMB
Bulletin No. 01-09. Additional guidance on loan asset sales will be
addressed separately in the future.
TR 3 (Revised) - Page 3
Background
6.
Accounting and
Budgeting Guidance
7.
Federal agencies are required to account for direct loans and loan
guarantees in accordance with Statement of Federal Financial
Accounting Standards No. 2, Accounting for Direct Loans and Loan
Guarantees (SFFAS No. 2), SFFAS No. 18, Amendments to Accounting
Standards for Direct Loans and Loan Guarantees, and SFFAS No. 19,
Technical Amendments to Accounting Standards for Direct Loans and
Loan Guarantees.
8.
9.
Materiality
TR 3 (Revised) - Page 4
Effective Date
12.
The overall purpose of auditing the subsidy estimation and reestimation process is to provide reasonable assurance that the
reported credit program receivables and related foreclosed property
and related allowance for subsidy, liabilities for loan guarantees, and
subsidy expense, are reasonably stated in the financial statements and
provide reliable and useful information for decision makers. Since the
audit should be conducted in three phases--planning, internal control,
and substantive testing--this technical release is organized in the same
way. Due to the complexity of credit subsidy estimates, thorough
planning is key to an effective and efficient audit. The auditor must
also assess the agency's internal control and the risk of errors and
irregularities that may cause a material misstatement in the financial
statements. Based on this assessment, the auditor can determine the
nature, timing, and extent of substantive testing to determine whether
the credit subsidy estimate is reasonable in the context of the financial
statements taken as a whole.
13.
TR 3 (Revised) - Page 5
p.
TR 3 (Revised) - Page 6
q.
r.
17. One way for the auditor to maximize audit efficiency is to focus on the
key assumptions, i.e., those assumptions that have the greatest impact
on the credit subsidy rate and hence, the credit subsidy amount. To
identify key assumptions, the auditor should evaluate and retest
selected areas of management's credit subsidy sensitivity analysis.
For example, in performing this analysis, agency management may
have varied the subsidy estimate assumptions by a fixed amount, such
as 10 percent in either direction, and was thus able to identify the
1
The auditor should actively coordinate general and application control reviews of
financial management systems to ensure that they focus on controls over key cash flow
reports such as defaults or prepayments as well as the controls over the cash flow
spreadsheets. Further, the auditor should consider evaluating controls over the agency's use
of the OMB Credit Subsidy Calculator. For a detailed discussion of the audit procedures
related to the OMB Credit Subsidy Calculator, refer to the Report of Independent
Accountants and Independent Verification and Validation (Y2K) Documents Pertaining to
the Credit Subsidy Calculator, available on OMBs Federal Credit Support Page prepared by
the Budget Analysis Branch: http://www.omb.gov/credit. These audit procedures have been
included in this technical release in summary form.
2
TR 3 (Revised) - Page 7
20. In order for the auditor to maximize efficiency and effectiveness when
selecting programs for internal control testing and substantive testing,
the auditor should focus efforts on material programs. Generally,
material programs have higher inherent risk than immaterial
programs. Materiality is defined in Financial Accounting Standards
Board Statement of Financial Concepts No. 2, Qualitative
Characteristics of Accounting Information, as "the magnitude of an
omission or misstatement of accounting information that, in the light
of surrounding circumstances, makes it probable that the judgment of
a reasonable person relying on the information would have been
changed or influenced by the omission or misstatement." Thus, items
of little importance are less likely to affect the financial statement
TR 3 (Revised) - Page 8
22. This list is designed to assist the auditor in identifying material and/or
high-risk programs. The above list is not designed to replace
professional judgment. For example, a credit program could have a
relatively small subsidy expense because the agency nets gross
subsidy expense components with offsetting fees, in accordance with
SFFAS No. 2 and the Credit Reform Act. However, the auditor should
not focus solely on the net subsidy expense. Rather, the auditor
TR 3 (Revised) - Page 9
should consider the gross amounts of the subsidy expense and fees,
the total loans receivable, and/or the total liability for loan guarantee
account when determining whether the program is material.
23. Past audit experience should be considered since it may indicate that
the program should be retested again this year when, for example,
significant internal control weaknesses were discovered in the prior
year's audit. Conversely, past audit experience may allow the auditor
to reduce the level of current year testing for the program. Factors
that should be considered in determining the appropriate level of
detailed substantive testing for material programs include:
The number of years since the last time the program was
included in internal control and substantive testing,
The results of the preliminary assessment of risk,
Changes in economic events that affect the current cash
flow assumptions,
The level of employee turnover, and
Changes in program characteristics, terms of credit, or
implementation.
24. Finally, when inherent risk is low and the agency's control
environment is strong, the auditor may consider testing credit
programs on a rotating basis. In determining whether rotational
testing is appropriate, the auditor should consider (1) the results of
prior audit experience, (2) the length of time since the program was
tested, (3) the materiality of the program, and (4) the auditor's
assessment of inherent and control risk.
25. Upon completion of the internal control testing, the auditor may wish
to revise the assessment of which programs are material and/or high
risk. For example, the auditor's preliminary risk assessment may not
be supported by the results of the internal control testing. When the
results of the internal control testing lead the auditor to conclude that
the internal control is not operating effectively, the auditor may revise
the risk assessment for programs originally expected to have low risk.
As a result, the auditor should include these programs in the detailed
substantive testing. On the other hand, the auditor may decide to
reduce the extent of detailed substantive testing for a material
program based on the results of internal control testing.
TR 3 (Revised) - Page 10
TR 3 (Revised) - Page 11
28. As noted above, the auditor should select material programs for
internal control and detailed substantive testing. In this way, the
auditor will more effectively and efficiently focus audit efforts on the
programs that are most significant to the users of the financial
statements. In some instances, more than one program will utilize the
same system of internal control. Thus, the auditor would need only
test the system once to gain assurance on all related programs. This
section provides guidance for the auditor to use in evaluating the
agency's internal control for material and/or high-risk credit programs
so that the auditor can determine the nature, timing, and extent of
substantive tests to perform on credit reform related accounts such as
subsidy expense, allowance for subsidy, and liabilities for loan
guarantees. The auditor needs to evaluate the agency's internal
control before updating the preliminary assessment of the control
risk.4
29. Due to the complexity of credit reform, it is necessary for the auditor
to obtain a good understanding of the internal control components to
design effective substantive tests. If, after evaluating the agency's
internal control, the auditor assesses control risk at a high level, the
auditor will need to obtain most, if not all, of the audit assurance from
substantive tests. Thus, the auditor will need to expand the level of
detailed substantive testing. However, if the auditor determines that
control risk is low based on the evaluation of the agency's internal
control, the auditor has more assurance concerning the accuracy of
the information generated within that structure. Thus, the auditor may
be able to reduce the level of detailed substantive testing.
4
Control risk is the risk that a material misstatement could occur in a financial statement
assertion and will not be prevented, detected, and corrected on a timely basis by the entity's
internal control structure.
TR 3 (Revised) - Page 12
b.
c.
d.
e.
In this technical release, the term "agency management" is used in the same context as it is
used in OMB Circular A-123 and may include any individual Federal manager responsible for
ensuring that credit reform is implemented efficiently and effectively to achieve intended
program results. Agency management could include, but is not limited to, the Chief
Financial Officer, Director of Budget, and Controller.
TR 3 (Revised) - Page 13
f.
g.
h.
i.
j.
TR 3 (Revised) - Page 14
k.
Control Activities
disburses over more than one year, the auditor should determine
whether the agency used a disbursement year basis. If the agency
used a cohort basis, the auditor should determine why the agency
did not use a disbursement year basis and whether the use of
cohort level cash flows has had a material effect on the subsidy
calculation. If the effect is material, the auditor should
recommend that the agency prepare cash flows on a
disbursement year basis to eliminate the problem.
Determine whether agencies have controls over access to the
OMB Credit Subsidy Calculator, e.g., confirmation of passwords,
and determine whether these controls adequately protect the
model from unauthorized use and corruption.
32. Control activities are the policies and procedures designed to ensure
that management directives are carried out. Control activities have
various objectives and are applied at various organizational and
functional levels. Control activities can include physical controls,
segregation of duties, performance reviews, and information
processing. When assessing management's assignment of
responsibility and delegation of authority for ensuring the efficient and
effective implementation of credit reform, the auditor should consider
doing the following.
a.
b.
c.
d.
TR 3 (Revised) - Page 15
e.
f.
g.
TR 3 (Revised) - Page 16
33. Once specific controls related to the above activities have been
identified, additional tests should be designed to ensure that the
agency's controls are operating as designed. The auditor should
consider using dual purpose testing to combine the internal control
testing with substantive testing as appropriate. Dual purpose testing is
discussed in more detail in the section on substantive testing of
subsidy estimates in this technical release.
Information and
Communication
34.
b.
Cash flow identifiers are listed in the document, How to organize cash flow estimates in a
spreadsheet file, which is available on the Federal Credit Support Page
(http://www.omb.gov/credit). The document includes various elements the agency must
consider when estimating net cash flows, such as disbursements, principal payments,
interest payments, fees and other income, defaults, etc.
TR 3 (Revised) - Page 17
c.
Risk Assessment
35. The risk assessment process is an internal process used by the agency
to (1) identify and analyze the relevant risks to achieving its objectives
and (2) develop a plan to mitigate the identified risk. The auditor
should obtain sufficient knowledge of the agency's risk assessment
process to understand how management identifies, evaluates, and
mitigates risks relevant to developing reliable credit subsidy
estimates. In evaluating the risk assessment process, the auditor
should determine if management developed a strategic plan with goals
and objectives for ultimately improving the reliability of estimates.
The auditor should determine whether this plan addresses (1) clearly
defining the data requirements, (2) developing an effective
information store and modeling methods as described in issue paper
96-CR-7 Model Credit Program Methods and Documentation for
TR 3 (Revised) - Page 18
Monitoring
36.
Substantive Testing of
Subsidy Estimates
37.
TR 3 (Revised) - Page 19
General Approach to
Substantive Testing
38. The following four steps provide a general approach for performing
substantive testing. Detailed guidance on implementing these four
general steps follows. The nature, timing, and extent of substantive
tests will be significantly influenced by the auditor's assessment of the
internal control environment. This section is written under the
premise that the agency has established effective internal
control. The next section includes a discussion of the impact of
ineffective controls on the nature, timing, and extent of substantive
testing as well as the impact on the audit opinion.
a.
b.
c.
d.
Impact of Ineffective
Internal control on
Substantive Testing
Professional standards stated in AU Section 350.24 that "sample items should be selected in
such a way that the sample can be expected to be representative of the population.
Therefore, all items in the population should have an opportunity to be selected."
TR 3 (Revised) - Page 20
TR 3 (Revised) - Page 21
43. The procedures for selecting a sample of cohorts depend upon the type
of information to be gleaned from the sample and the desired
precision of sample estimates. The sampled cohort is tested to
determine whether the credit reform process is working as defined
and more specifically, whether the related balance sheet and
statement of net cost line items are reasonably stated. In order to gain
audit efficiencies, the auditor should consider utilizing dual purpose
testing9 for a representative sample of cohorts selected from material
credit programs. In this way, the auditor will be able to gain assurance
from the same sample that both the internal control structure is
effective and that the account balance is reasonably stated in relation
to the financial statements taken as a whole. When more than one
program utilizes the same system of internal control, the auditor
should only test the system once to gain assurance on all related
programs and their cohorts. To utilize representative sampling, the
auditor must select sample items in such a way that each item in the
population has an opportunity to be selected and the estimators are
appropriate for the selection methods. In this way, the sample and the
resulting estimate or projection are expected to be representative of
the population from which the sample was selected. In addition,
sufficient sample sizes are necessary in order for the auditor to arrive
at meaningful conclusions.
44. The auditor may wish to stratify the population of cohorts into
homogeneous groups prior to selecting the sample to improve
sampling efficiency. For example, the auditor may stratify the cohort
population into the following three significant groups: (1) material
cohorts of such a magnitude that the auditor will test them all, (2)
material cohorts that the auditor will sample for testing, and (3)
immaterial cohorts that will be subjected to analytical review
procedures. For some agencies, the small number of cohorts may
prohibit using this sampling approach. In these instances, the auditor
should focus on selecting a representative sample in a nonstatistical
manner, i.e., using auditor's judgment to select material cohorts for
testing to obtain sufficient coverage of the balance being audited or
doing a 100 percent sample.
Dual purpose testing often improves audit efficiency by performing multiple audit
procedures on a single sample, e.g., internal control attribute and substantive testing.
TR 3 (Revised) - Page 22
46.
10
TR 3 (Revised) - Page 23
47. The following are examples of the types of tests the auditor can
perform on a representative sample of cohorts selected for dual
purpose testing:
a.
b.
c.
d.
e.
11
TR 3 (Revised) - Page 24
f.
g.
h.
i.
j.
12
OMB has established a four-step process, outlined in Circular A-11, for agencies to
calculate technical reestimates for the budget less often than every fiscal yearsubject to
OMB approval. However, this guidance does not allow agencies to omit material technical
reestimates from the current year financial statements or to postpone including material
technical reestimates in the financial statements until a subsequent year. Conversely, the
OMB process may require agencies to make technical reestimates for the budget that are not
material to the financial statements.
TR 3 (Revised) - Page 25
k.
l.
m.
n.
o.
Analytical Review
Procedures
TR 3 (Revised) - Page 26
b.
c.
d.
e.
f.
49.
13
Although scanning is not usually considered an analytical procedure on its own, this
technique could be used to investigate unusual fluctuations in subsidy amounts or
corroborate management's explanation of variances between projected cash flows and
actual cash flows.
TR 3 (Revised) - Page 27
Concluding on the
Reasonableness of
Estimates
TR 3 (Revised) - Page 28
TR 3 (Revised) - Page 29
Appendix A:
Acceptable Sources
of Documentation
for Subsidy
Estimates and
Reestimates
Actuarial studies,
TR 3 (Revised) - Page 30
6.
14
For example, past data may document the historical relationship between interest rates,
whereas an independent study may demonstrate how trends in past data are expected to
change in the future.
TR 3 (Revised) - Page 31
TR 3 (Revised) - Page 32
Appendix B:
Technical Glossary
Allowance for Subsidy
Assumptions
Case level
the agency's projection of the dollar amount for the scheduled cash flows
and deviations from scheduled cash flow items for each year over the life of
the cohort.
Cash flows
TR 3 (Revised) - Page 33
Cohort
the balance maintained in the general ledger that represents the difference
between the current outstanding loans receivable balance and the present
value of estimated cash outflows minus the present value of the estimated
cash inflows over the remaining life of the direct loans. The subsidy
allowance is subtracted from the loans receivable balance when calculating
the net loans receivable balance. A similar account may also be used for
defaulted guaranteed loans.
Econometrics
Financing Account
Fund
TR 3 (Revised) - Page 34
Inputs
in the context of Federal credit, cash flow data elements used to develop
spreadsheet calculations.
Internal control
Key assumptions
the balance maintained in the general ledger that represents the present
value of estimated cash outflows minus the present value of the estimated
cash inflows over the remaining life of the outstanding loan guarantees.
Liquidating Account
the budget account that includes all cash flows to and from the Government
resulting from pre-1992 direct loans or loan guarantees, unless they have
been modified and transferred to a financing account.
Negative Subsidy
Receipt Account
the budget account for the receipt of amounts paid from the financing
account when there is a negative subsidy cost for the original estimate or a
downward reestimate. For mandatory programs, negative subsidies and
downward reestimates may be credited directly to the program account as
offsetting collections from non-Federal sources.
TR 3 (Revised) - Page 35
Program
Program Account
the budget account into which an appropriation to cover the subsidy cost of
a direct loan or loan guarantee program is made and from which such cost
is disbursed to the financing account. Program accounts usually receive a
separate appropriation for administrative expenses.
Risk category
Service or line of
business
TR 3 (Revised) - Page 36
TR 3 (Revised) - Page 37
Appendix C:
Summary of
Reestimate
Requirements
Interest Rate
Reestimate
Technical
Reestimate
The table below summarizes the reestimate requirements for the budget
and financial statement presentations.
Budget
Financial Statement
Frequency:
Frequency:
Timing:
Timing:
Frequency:
Frequency:
Timing:
Timing:
TR 3 (Revised) - Page 38
Appendix D:
Summary of
Selected Reporting
Requirements15
15
Principal Statements
Balance Sheet
Statement of Changes in
Net Position
Statement of Budgetary
Resources
Statement of Financing
15
TR 3 (Revised) - Page 39
Note Disclosures
By program or fund:
Loans receivable gross,
Interest receivable,
*Presentation by Program or Fund required by OMB Bulletin 01-09. Foreclosed property,
Comparative data (current and prior years) for Note disclosures
Allowance for subsidy cost (present value), and
required by OMB Bulletin 01-09. SFFAS No. 18 requires the
Net value of assets related to direct loan programs (and loan
reconciliation of the subsidy cost allowance for direct loans and not
guarantee programs)
defaulted guaranteed loans.
Total amount of loans disbursed for current and prior years
Reconciliation between the beginning and ending balance of
the subsidy cost allowance at the reporting entity level
Guaranteed Loans by Program or Fund
*Presentation by Program or Fund required by OMB Bulletin 01-09.
Comparative data (current and prior years) for Note disclosures
required by OMB Bulletin 01-09.
By program or fund:
Present value of post-1991 liabilities for loan guarantees
Face value of guaranteed loans outstanding,
Amount of outstanding principal guaranteed
Reconciliation between the beginning and ending balance of
the loan guarantee liability at the reporting entity level
TR 3 (Revised) - Page 40
By program or fund:
Total subsidy expense, and its components
Total subsidy expense for modifications
Total subsidy expense for reestimates, and their components,
for current and prior year (interest and technical)
Subsidy rates for the total subsidy cost, and its components,
for the current year
Total administrative expense
Description of the characteristics of loan programs
Discussion of events and changes in economic conditions,
other risk factors, legislation, credit policies and subsidy
estimation methodologies and assumptions that have a
significant and measurable effect on subsidy rates, subsidy
expense and subsidy reestimates
Nature of the modification of direct loans or loan guarantees,
discount rate used to calculate the modification expense, and
basis for recognizing a gain or loss relating to the
modification.
Restrictions on the use/disposal of foreclosed property,
number of properties held and average holding period by type
or category, number of properties for which foreclosure
proceedings are in process and changes from prior years
accounting methods
Status
Issued
Effective Date
None.
Affects
None.
Affected by
None.
Summary
An analysis of changes for all material non-valued seized property should be disclosed in the financial
statement footnotes in the same manner as prescribed for non-valued forfeited property.
TR 4 - Page 1
Technical Release 4
Table Of Contents
Contents
Page
Introduction
Background
Discussion of Issues
TR 4 - Page 2
Technical Release 4
Introduction
Guidance for the accounting and reporting of seized and forfeited property
held by Federal entities is provided in the Statement of Federal Financial
Accounting Standard No. 3, Accounting for Inventory and Related
Property (SFFAS No. 3), issued in October 1993. This Technical Release is
intended to clarify the required reporting of non-valued seized and forfeited
property.
Agencies that must deal with non-valued seized and forfeited property
should first refer to the hierarchy of accounting standards contained in the
current Office of Management and Budget (OMB) Bulletin on Form and
Content of Agency Financial Statements for guidance. Standards issued by
Government Accountability Office (GAO) and OMB have precedence over
other authoritative guidance for federal entities.1 This technical release
supplements the relevant federal standards, but is not a substitute for and
does not take precedence over the standards.
This Technical Release includes a discussion of the issues and
recommended implementation guidance that is intended to clarify the
reporting of non-valued seized and forfeited property. This guidance also
provides more detailed terminology relating to the measurement of these
non-valued items (see Appendix A ... [See consolidated glossary in
Appendix E of this document] for the list of terms).
Background
The Federal Accounting Standards Advisory Board recommends accounting concepts and
standards to its principals; the Department of the Treasury, the Office of Management and
Budget, and the General Accounting Office. If all three principals approve a
recommendation it is issued by OMB and GAO.
TR 4 - Page 3
Technical Release 4
sell upon forfeiture. Federal agencies that seize these types of items have
had difficulty in applying the concept of materiality and in the reporting of
these types of items since they do not have monetary value. Consequently,
Federal agencies have independently determined what types of non-valued
property should be disclosed in the financial statements under SFFAS No. 3
and the units of measure, resulting in inconsistent disclosures between
agencies and disclosures that lacked meaningful information.
While non-valued seized property does not have a monetary value to the
Federal government, the sensitive nature of much of this type of property
requires the same level of accountability and security as valued property, if
not more. Agencies should ensure that their systems of internal control are
adequate to provide sufficient accountability and security over this
property in order to meet the reporting requirements provided in SFFAS
No. 3.
SFFAS No. 3 prescribes that seized property shall be accounted for in the
financial records of the entity that is operating as the central fund (see
SFFAS No. 3, para. 60). Central funds are established to finance the costs of
the seizure, management, and disposition of property, and to receive the
proceeds from the sale or disposition of that property. However, since nonvalued items do not have a financial value, the central fund is not
responsible for reporting these items.2 Accordingly, the seizing or custodial
entity is responsible for maintaining sufficient internal records to maintain
control over these items and would have reporting responsibility for nonvalued items.
Chapter 3 of the Statement of Federal Financial Accounting Concepts No. 1,
Objectives of Federal Financial Reporting (SFFAC No. 1), identifies the
users of Federal financial reports and their information needs. Federal
financial report users need information to assess the accountability,
stewardship, and operating performance of Federal agencies and programs.
To address the information needs of Federal financial report users, Chapter
4 of SFFAC No. 1 defines the objectives of financial reporting as budgetary
integrity, operating performance, stewardship, and systems and control.
The discussion of these objectives emphasizes the concepts of the entitys
control over, accountability of, and accomplishment of Federal programs
and activities.
This is generally because the central fund does not take custody of nonvalued items.
TR 4 - Page 4
Technical Release 4
Discussion of Issues
The disclosure requirements for seized and forfeited property are outlined
in paragraphs 66 and 78 of SFFAS No. 3. Among the requirements is a
footnote disclosure to contain: a description of the composition of the
property; the methods of valuing the property; restrictions on the use of
forfeited property; changes from prior year accounting methods, if any; and
an analysis of changes in seized and forfeited property. The analysis of
changes in seized and forfeited property should provide the dollar value
and number of properties on hand at the beginning of the year, seizures and
forfeitures made during the year, property disposed of and method of
disposition, and property on hand at the end of the year. This information
should be presented by type of property where material.
While SFFAS No. 3 provides adequate guidance for reporting seized and
forfeited items with a financial value, the standard has not been interpreted
and applied consistently with respect to non-valued items. Paragraph 148 of
SFFAS No. 3 states that the standard was revised to address the disclosure
requirements for non-valued items. For these items, the standard does not
require the reporting of financial value, but it clearly requires the disclosure
of all material forfeited property, including those items with no financial
value. However, the standard does not address the disclosure of non-valued
seized items. As a result, some reporting entities with seizing authority
disclose non-valued seized items, and others do not. Clarification of the
standard as it relates to non-valued seized items is needed to ensure
consistent implementation.
TR 4 - Page 5
Technical Release 4
Recommended
Implementation
Guidance
TR 4 - Page 6
Technical Release 4
Illegal Drugs
Cannabis
Kilograms
Cocaine
Kilograms
Heroin
Kilograms
Methamphetamine/Amphetamine
Various
Other Categories3
Firearms and Explosives
Various
Legal Firearms
Number
Illegal Firearms
Number
Ammunition
Rounds
Explosives
Counterfeit
Number
Credit Cards
Number
Number
Note: This is not intended to be an all-inclusive list. Other categories should be considered as
appropriate.
Other categories include material amounts of other drugs seized, to be separately reported
by liquid weight, dry weight, tablets, or other appropriate measurement.
TR 4 - Page 7
Technical Release 4
Appendix A:
Glossary
TR 4 - Page 8
Status
Issued
Effective Date
None.
Affects
None.
Affected by
None.
Summary
I.
TR 5 - Page 1
Technical Release 5
Table Of Contents
Contents
Page
Table Of Contents
Introduction
Question 1
Response
Question 2
Response
Question 3
Response
Question 4
Response
Question 5
Response
Question 6
Response
TR 5 - Page 2
Technical Release 5
Introduction
1.
2.
3.
b.
c.
Questions And
Responses
Question 1
4.
TR 5 - Page 3
Technical Release 5
Response
5.
6.
Question 2
7.
Response
8.
TR 5 - Page 4
Technical Release 5
Question 3
9.
Response
10. In situations where software and the hardware on which it runs have
independent service lives, the determination of the useful life of the
software should be viewed independently of the useful life of the
hardware. This determination should be made on a case by case basis
for each Federal agency and is at the discretion of management of the
agency. The rationale for this determination should be documented.
11. For integrated software, SFFAS 10, Paragraph 22, states the following.
Computer software that is integrated into and necessary to operate
general PP&E, rather than perform an application, should be
considered part of the PP&E of which it is an integral part and
capitalized and depreciated accordingly (e.g., airport radar and
computer-operated lathes). The aggregate cost of the hardware and
software should be used to determine whether to capitalize or expense
the costs.
Question 4
Response
13. Although SFFAS 10 did not address licensing within the body of the
standard, the FASAB did state its belief in the Basis for Conclusions6
5
TR 5 - Page 5
Technical Release 5
Question 5
TR 5 - Page 6
Technical Release 5
upgrades? This may include upgrades that may either extend the
useful life of the software or provide additional functionality.
Response
Question 6
Response
18. For these types of bulk purchases Federal entities should follow the
guidance as stated in SFFAS 10, paragraph 24.
Each federal entity should establish its own threshold as well as
guidance on applying the threshold to bulk purchases of software
programs (e.g., spreadsheets, word-processing programs, etc.) and to
modules or components of a total software system. That guidance
should consider whether period cost would be distorted or asset
values understated by expensing the purchase of numerous copies of a
9
10
TR 5 - Page 7
Technical Release 5
TR 5 - Page 8
Status
Issued
January 2004
Effective Date
Immediately
Technical Release No. 3 (Revised): Auditing Estimates for Direct Loan and Loan
Guarantee Subsidies under the Federal Credit Reform Act Amendments to
Technical Release No. 3 Preparing and Auditing Direct Loan and Loan
Guarantee Subsidies under the Federal Credit Reform Act
Affects
Technical Release 3: Preparing and Auditing Direct Loan and Loan Guarantee
Subsidies under the Federal Credit Reform Act
Affected by
None.
Summary
This technical release amends the implementation guidance for agencies to prepare and report credit subsidy
estimates provided in Technical Release 3: Preparing and Auditing Direct Loan and Loan Guarantee
Subsidies under the Federal Credit Reform Act (TR3), July 1999. The original technical release (July 1999)
contained both audit and accounting guidance. Technical Release 3 (revised) contains only the guidance for
auditing estimates.
TR 6 - Page 1
Technical Release 6
Table of Contents
Contents
Page
Introduction
Background
Materiality
Effective Date
OMB Role
11
14
Reestimates
17
25
30
TR 6 - Page 2
Technical Release 6
Introduction
1.
c.
3.
Federal agencies are required to account for direct loans and loan
guarantees in accordance with Statement of Federal Financial
Accounting Standards No. 2, Accounting for Direct Loans and Loan
TR 6 - Page 3
Technical Release 6
5.
6.
This technical release does not address loan asset sales and does not
provide complete guidance for administrative expenses and pre-1992
direct loans and loan guarantees. Guidance on these areas can be
found in SFFAS Nos. 2, 18, & 19 and OMB Circular No. A -11 and OMB
Bulletin No. 01-09. Additional guidance on loan asset sales will be
addressed separately in the future.
SFFAS No. 2, paragraph 17. Also see SFFAS No. 2 paragraph 66.
TR 6 - Page 4
Technical Release 6
Background
7.
Since the Credit Reform Act of 1990 was passed, agencies have
struggled with the numerous challenges in implementing the various
provisions of the act--especially formulating credit subsidy estimates.
This technical release is designed to provide guidance on the
preparation of credit subsidy estimates. There are three parts of
subsidy: initial subsidy, modifications of subsidy and reestimates of
subsidy. A goal of this technical release is to provide implementation
guidance that will ensure greater financial statement consistency with
the accounting standards set forth in Statement of Federal Financial
Accounting Standards (SFFAS) No. 2, Accounting for Direct Loans
and Loan Guarantees, SFFAS No. 18, Amendments to Accounting for
Direct Loans and Loan Guarantees, and SFFAS No. 19, Technical
Amendments to Accounting for Direct Loans and Loan Guarantees.2
8.
The technical release begins with a discussion of the OMBs role in the
credit subsidy estimation and re-estimation process. It continues by
addressing procedures for preparing estimates and reestimates-including acceptable interim alternatives in the absence of the ideal
data store and estimation methods. This technical release also
provides guidance on acceptable sources of documentation for
subsidy estimates and reestimates.
Materiality
9.
Effective Date
OMB Role
11. Under the Federal Credit Reform Act of 1990, as amended, OMB is
responsible for subsidy estimates published in the Presidents Budget.
OMB has delegated the authority to the agencies to calculate estimates
but retains the responsibility and final approval of subsidy estimates,
reestimates, and modification cost estimates. For agencies that have
2
Authoritative guidance for the recognition of many transactions under credit reform is also
included in SFFAS No. 7, Accounting for Revenue and Other Financing Sources, Appendix
B, "Guidance for the Classification of Transactions," paragraphs 362-365 and 368 - 369.
TR 6 - Page 5
Technical Release 6
credit programs, OMB provides guidance and specific tools for credit
budgeting.
12. OMB Circulars A-11 Preparation, Submission, and Execution of the
Budget and A-129 Policies For Federal Credit Programs and Non-Tax
Receivables provide guidance to agencies on definitions, procedures
and rules for calculating subsidy estimates and reestimates for the
Presidents Budget and modification cost estimates, obligation of
budget authority for the credit programs cost, and credit and
receivables policy.
13. The Credit Subsidy Calculator (CSC) is a computer program provided
to the agencies to calculate the cost of direct loans and loan
guarantees using the agencies cash flow estimates. The OMB Circular
A-11 requires that all agencies with credit programs must use the CSC
to discount the credit subsidy estimate and reestimate cash flows that
they are responsible for generating.
14. OMB provides spreadsheets and instructions to calculate reestimates
and interest paid and received for financing accounts.3
15. Each year, in preparing the Presidents Budget, OMB provides agencies
with a set of economic assumptions that must be used when
determining budget estimates. Some of these assumptions, such as
gross domestic product (GDP), are used for both credit programs and
others. For credit programs specifically, the economic assumptions
include the discount rates, which are derived from the Treasury yield
curve, used to calculate subsidy estimates. The discount rates are
built into the most recent version of the CSC. Prior year actual
discount rates and credit related assumptions are available from OMB
ten business days prior to the close of the fiscal year.
The CSC and spreadsheets for calculating reestimates and financing account interest are
available on the Federal Credit Support Page (http://www.omb.gov/credit).
TR 6 - Page 6
Technical Release 6
Preparing Direct
Loan and Loan
Guarantee
Estimates
16.
Preparing reliable and timely direct loan and loan guarantee subsidy
estimates must be a joint effort between the budget, CFO and program
offices at each agency. These offices should work together to ensure
that the procedures and internal control4 outlined in this section are
implemented and operating as designed. However, some agencies may
not be able to effectively implement all of these procedures, since they
have not yet developed the ideal data stores or methods of estimation
necessary. Therefore, until the required information on all cash
disbursements and collections related to direct or guaranteed loans
can be collected at the case level and summarized, by cohort and
program, the acceptable alternatives identified in this technical
release will need to be utilized to provide the necessary information
for developing subsidy estimates.
4
Internal control is an integral component of an organizations management that provides
reasonable assurance regarding the achievement of reliable financial reporting, effective and
efficient operations, and compliance with applicable laws and regulations. Internal control
consists of the control environment, risk assessment, control activities, information and
communication and monitoring.
TR 6 - Page 7
Technical Release 6
TR 6 - Page 8
Technical Release 6
6.
Actuarial studies,
For example, past data may document the historical relationship between interest rates,
whereas an independent study may demonstrate how trends in past data are expected to
change in the future.
TR 6 - Page 9
Technical Release 6
TR 6 - Page 10
Technical Release 6
Overall CFO/Budget
Procedures and Internal
Control
Calibration is the degree of precision within the model, i.e., the model's ability to accurately
predict the cash flows of a given credit program. The degree of calibration within the model
can be documented by charts or graphs showing projected cash flows versus the actual cash
flows by year and cohort. This document would analyze the variance between projected
cash flows and actual cash flows over time.
TR 6 - Page 11
Technical Release 6
Reestimates may not be required in all cases where material differences exist between the
initial budgetary estimate and the actual cash flows. For example, if offsetting differences
exist in cash flows, such as positive difference in default recoveries and a negative
difference in fees, a reestimate may not be necessary.
TR 6 - Page 12
Technical Release 6
Neither the Federal Credit Reform Act as enacted in 1990 nor its amendments in the
Balanced Budget Act of 1997 explicitly states that modifications do not include routine
administrative workouts. However, the definition of modification in the 1990 Act was
interpreted as excluding routine administrative workouts, and the definition in the 1997
amendments is interpreted in the same way. This interpretation is consistent with paragraph
44 of SFFAS No. 2. Further, the Joint Explanatory Statement of the Committee of
Conference on H.R. 2015, the Balanced Budget Act of 1997, states that "workouts are not
assumed to be included in the definition of modifications. The conference agreement does
not change the treatment of workouts as implemented under the Federal Credit Reform Act
of 1990."
TR 6 - Page 13
Technical Release 6
Specific Fund/Program
Procedures and Controls
36. Procedures in place should ensure that cash flow estimates for
budgetary and financial statement reporting purposes are based on
actual cash flows in previous years to the extent it is appropriate.
Agencies should compare budgeted to actual cash flows to ensure that
the cash flow models reflect the actual cash flows from the accounting
records. Where material differences exist between the initial
budgetary estimate and the actual cash flows, the differences should
be investigated and reestimates and/or adjustments should be made as
TR 6 - Page 14
Technical Release 6
9
Reestimates may not be required in all cases where material differences exist between the
initial budgetary estimate and the actual cash flows. For example, if offsetting differences
exist in cash flows such as a positive difference in default recoveries and a negative
difference in fees, a reestimate may not be necessary.
10
The root of the cash flow assumption is the starting point for the assumption, i.e., there are
no preceding formulas or related inputs that would affect the assumption.
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11
OMB contracted with an independent public accounting firm to review the OMB Credit
Subsidy Calculator's compliance with the Credit Reform Act. Results of the audit may be
obtained from the applicable OMB program examiner or OMBs Budget Analysis Branch.
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whether not eliminating the error could have any impact on the
subsidy rate calculation. Also, if applicable, the agency should
determine whether the suppression of any error messages was
appropriate by checking the agency's cash flow spreadsheet to
determine whether the "suppress warnings" command was used and
assess the impact these suppressed error messages could have on the
cash flows.
46. The agency should review trends in the direct loan subsidy allowance
account balance and/or the liability for loan guarantees account
balance as compared to the outstanding balances of loans and/or
guarantees. Any unusual fluctuations identified should be investigated
and explained. When unusual fluctuations occur, an analysis by
cohort may be helpful to identify the causes.
Reestimates
47.
OMB Circular A-11 has established criteria for when agencies should
calculate credit subsidy reestimates for the budget. It states that
"interest rate reestimates of the subsidy cost of a cohort of direct loans
or loan guarantees must be made when a cohort has substantially
disbursed (i.e., when at least 90 percent of the direct loans or
guaranteed loans have been disbursed.) The computation should be
made after the close of the fiscal year in which this criterion is met,
unless a later time within the same fiscal year is approved by the OMB
representative with primary budget responsibility for the credit
account"; and that "technical reestimates of the subsidy cost of a
cohort of direct loans or loan guarantees must be made after the close
of each fiscal year as long as the loans are outstanding, unless a
different plan is approved by the OMB representative with primary
budget responsibility for the credit account. The different plan might
be with regard to the time when reestimates are made within the year
or the frequency of reestimates." If the plan allows technical
reestimates to be made less frequently than every year, it should
require technical reestimates to be made for any year when any one of
four conditions is met.12 The period for which reestimates are to be
calculated includes the first year that loans were disbursed.
12
These four conditions are: (1) based on periodic schedules established in coordination
with OMB, (2) when a major change in actual versus projected activity is detected, (3) when
a material difference is detected through monitoring "triggers" developed in coordination
with OMB, and (4) when a cohort is being closed out.
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13
OMB has an alternative method of computing reestimates, the balances approach,
which compares (a) the net present value of the best current estimate of the remaining cash
flows with (b) the net balance owed to Treasury (for direct loan programs) or the net
balance on deposit with Treasury (for loan guarantee programs). In estimating the net
present value of the remaining cash flows, agencies would still need to estimate future cash
flows based on actual experience with cash flows to date and forecasts of other factors.
They would therefore still need to maintain historical cash flow data, at the subsidy
component level, to analyze the sources of error in the estimates of cash flows for past
periods.
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Interest Rate
Reestimate
Technical
Reestimate
Budget
Financial Statement
Frequency:
Frequency:
Timing:
Timing:
Frequency:
Frequency:
Annually unless a different plan is approved by OMB regardless of financial statement materiality. In
addition, reestimates should be recorded in the
Budget whenever made for financial statement
purposes.
Timing:
Timing:
50.
14
If the interest rate assumption is a key assumption, agencies should consider using
sensitivity analysis, as discussed in the section entitled Specific Fund/Program Procedures
and Controls, to determine whether the change in interest would have a material affect on
the financial statements. To do this, agencies would need to repeatedly adjust the interest
rate by predetermined increments, e.g., plus or minus 100 basis points, and re-run the
revised cash flows through the OMB Credit Subsidy Calculator to determine the impact on
the subsidy rate. Agencies should then multiply the revised subsidy rate by the assumed
disbursement amount, to calculate financial statement impact. As a result, agencies will be
able to document the amount of interest rate change that would be necessary, under an
assumed disbursement amount, to materially affect the financial statements.
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b.
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c.
53. In years for which reestimates are made, they should normally be
made as of September 30 of the reporting period using a data base that
is complete through the same date. If OMB has approved a plan to
make reestimates at another time during the year, this will be
acceptable for financial statement purposes if the following conditions
are met:
a.
15
The technical reestimate of the subsidy cost is made for a 12month period ending not earlier than March 31, using actual
transaction data through March 31 of the reporting year.
Agencies may also use actual transaction data beyond the March
31 date through to the end of the reporting period. The
reestimated subsidy cost is compared with the previous estimate
of the subsidy cost for the year ended September 30.15 The
See footnote 12 for a discussion of the "balances approach" for calculating reestimates.
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b.
c.
d.
16
A revised technical reestimate in this context is limited to the change in the reestimate
due to revised discount rates and not to any difference in cash flows.
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17
Fair presentation of subsidy estimates in the financial statements may differ from
estimates in the budget.
18
OMB has established a four-step process, outlined in OMB Circular A-11, that allows for
calculating budgetary technical reestimates for the budget at times other than the beginning
of each fiscal year following the year in which the initial disbursement was made, as long as
the loans are outstanding (subject to OMB approval). However, this does not allow agencies
to omit material reestimates from the current year financial statements or to postpone
including material technical reestimates in the financial statements until a subsequent year.
Conversely, the OMB process may require agencies to make technical reestimates for the
budget that are not material to the financial statements.
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58. If the cause of the reestimate affects the cash flows of future cohorts,
the assumptions used to produce cash flow estimates and/or the
method of estimating cash flows should be revised appropriately for
the budget estimates of future cohorts.
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Appendix A:
Technical Glossary
Allowance for Subsidy
Assumptions
Case level
the agency's projection of the dollar amount for the scheduled cash flows
and deviations from scheduled cash flow items for each year over the life of
the cohort.
Cash flows
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Cohort
the balance maintained in the general ledger that represents the difference
between the current outstanding loans receivable balance and the present
value of estimated cash outflows minus the present value of the estimated
cash inflows over the remaining life of the direct loans. The subsidy
allowance is subtracted from the loans receivable balance when calculating
the net loans receivable balance. A similar account may also be used for
defaulted guaranteed loans.
Econometrics
Financing Account
Fund
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Inputs
in the context of Federal credit, cash flow data elements used to develop
spreadsheet calculations.
Internal control
Key assumptions
the balance maintained in the general ledger that represents the present
value of estimated cash outflows minus the present value of the estimated
cash inflows over the remaining life of the loan guarantees.
Liquidating Account
the budget account that includes all cash flows to and from the Government
resulting from pre-1992 direct loans or loan guarantees, unless they have
been modified and transferred to a financing account.
Negative Subsidy
Receipt Account
the budget account for the receipt of amounts paid from the financing
account when there is a negative subsidy cost for the original estimate or a
downward reestimate. For mandatory programs, negative subsidies and
downward reestimates may be credited directly to the program account as
offsetting collections from non-Federal sources.
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Program
Program Account
the budget account into which an appropriation to cover the subsidy cost of
a direct loan or loan guarantee program is made and from which such cost
is disbursed to the financing account. Program accounts usually receive a
separate appropriation for administrative expenses.
Risk category
Service or line of
business
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Appendix B:
Summary of
Selected Reporting
Requirements19
19
Principal Statements
Balance Sheet
Statement of Changes in
Net Position
Statement of Budgetary
Resources
Statement of Financing
19
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Note Disclosures
By program or fund:
Loans receivable gross,
Interest receivable,
*Presentation by Program or Fund required by OMB Bulletin 01- Foreclosed property,
09. Comparative data (current and prior years) for Note
Allowance for subsidy cost (present value), and
disclosures required by OMB Bulletin 01-09. SFFAS No. 18
Net value of assets related to direct loan programs (and loan
requires the reconciliation of the subsidy cost allowance for direct
guarantee programs)
loans and not defaulted guaranteed loans.
Total amount of loans disbursed for current and prior years
Reconciliation between the beginning and ending balance of the
subsidy cost allowance at the reporting entity level
Guaranteed Loans by Program or Fund
*Presentation by Program or Fund required by OMB Bulletin 0109. Comparative data (current and prior years) for Note
disclosures required by OMB Bulletin 01-09.
By program or fund:
Present value of post-1991 liabilities for loan guarantees
Face value of guaranteed loans outstanding,
Amount of outstanding principal guaranteed
Reconciliation between the beginning and ending balance of the
loan guarantee liability at the reporting entity level
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By program or fund:
Total subsidy expense, and its components
Total subsidy expense for modifications
Total subsidy expense for reestimates, and their components,
for current and prior year (interest and technical)
Subsidy rates for the total subsidy cost, and its components,
for the current year
Total administrative expense
Description of the characteristics of loan programs
Discussion of events and changes in economic conditions,
other risk factors, legislation, credit policies and subsidy
estimation methodologies and assumptions that have a
significant and measurable effect on subsidy rates, subsidy
expense and subsidy reestimates
Nature of the modification of direct loans or
loan
guarantees, discount rate used to calculate the modification
expense, and basis for recognizing a gain or loss relating to
the modification.
Restrictions on the use/disposal of foreclosed property,
number of properties held and average holding period by type
or category, number of properties for which foreclosure
proceedings are in process and changes from prior years
accounting methods
Status
Issued
Effective Date
Immediately
None.
Affects
None.
Affected by
None.
Summary
The purpose of this technical release is to provide technical guidance to the National Aeronautics and Space
Administration (NASA) regarding the accounting treatment of NASAs space exploration equipment for
financial reporting purposes. At issue is whether it is permissible to treat the acquisition or development costs
of any of this equipment as research and development costs. The objective of this technical release is to
provide guidance to NASA on the application of the current FASAB standards.
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Table of Contents
Page
Abbreviations
Introduction
Purpose
Scope
Effective Date
Background
Overview
Technical Guidance
10
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Abbreviations
AAPC
AICPA
CFO
DoD
FAS
FASAB
FASB
GAAP
NASA
ND
OMB
PP&E
R&D
RTD&E
SFFAC
SFFAS
SIG
TR
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Introduction
Purpose
1.
Scope
2.
3.
4.
5.
On July 12, 2006, NASA wrote to the AAPC requesting guidance for the
accounting treatment of the National Aeronautics and Space
Administration (NASA) space exploration equipment. With a series of
changes to the accounting standards governing space exploration
equipment, including the reclassification of Federal Mission Property
in SFFAS 23 Eliminating the Category National Defense Property,
Plant, and Equipment, NASA found existing guidance unclear
Effective Date
Background
Overview
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Related Accounting
Literature
In the letter to the AAPC, NASA posed three questions that it deemed
central to resolving the ambiguity in the existing Federal Accounting
Standards Advisory Board (FASAB) standards. These questions are as
follows:
1.
2.
Can space exploration equipment that does not meet the criteria
for General Property, Plant & Equipment (PP&E) as defined in
the FASAB Statement of Federal Financial Accounting Standards
(SFFAS) 6, Accounting for Property, Plant and Equipment, be
treated as a period expense?
3.
7.
The AAPC formed a task force to address NASAs questions and agreed
to provide a Technical Release to guide NASA in the implementation of
the standards.
8.
b.
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c.
d.
e.
g.
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Technical Guidance
9.
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18. SIG 23.1, issued to clarify the intent of the FASAB in its issuance of
SFFAS 23, stated that, assets being recognized due to the
implementation of SFFAS 23 should be characterized in accordance
with the asset definitions in SFFAS 6 and other accounting
standards. The genesis of the guidance was the narrow reading of
the provision of SFFAS 23, which stated that The amendments in
this Statement Classify all assets previously considered to be
National Defense Property, Plant, and Equipment as general PP&E and
the provisions for general PP&E contained in SFFAS 6, as amended,
are to be applied. The essence of the guidance was to point out that
the FASABs intent was to have preparers follow existing standards in
the classification of assets. It was not the FASABs intent to require
that preparers follow SFFAS 6 without regard to the nature of the
underlying asset. Accordingly, the concept discussed in SIG 23.1
should be applied, i.e., the definitions included in the accounting
standards may be used to determine the classification and treatment
of space exploration equipment and not limited to the category of
General PP&E, but be categorized in accordance with the definitions
of SFFAS 6 and other accounting standards.
19. The FASAB standards in and of themselves do not preclude the
expensing of space exploration equipment; as stated, the
characteristics of the transactions or events should govern accounting
treatment.
The provisions of this Technical Release need not be applied to
immaterial items.
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Appendix A: Basis
for Conclusions
A1. NASAs request for guidance is based their need for clarification on the
specific accounting guidance on the classification of space exploration
equipment. The need for clarification is based on the many changes in
the standards related to property, plant, and equipment. In 1995,
SFFAS 6 originally defined space exploration equipment as Federal
Mission PP&E. In 1998, FASAB classified space exploration equipment
as PP&E in SFFAS 11 and also replaced the definition of Federal
Mission Property with National Defense (ND) PP&E. In 2003, SFAS 23
rescinded SFFAS 11 in its entirety and reclassified ND PP&E as
General PP&E. In addition to eliminating the category ND PP&E, this
rescission purged the term space exploration equipment1 from the
authoritative literature.
A2. In 2004, the Department of Defense (DoD) questioned whether the
FASAB actually intended to require that all items falling under the ND
PP&E definition in SFFAS 23 be classified as General PP&E. DoD
submitted a discussion paper in July 2004 to the FASAB staff. As a
result, SIG 23.1 was released. Under this guidance, ND PP&E was not
limited to the category of General PP&E. SIG 23.1 states that assets
being recognized due to the implementation of SFFAS 23 should be
categorized in accordance with asset definitions in SFFAS 6 and other
accounting standards any items not properly classified as General
PP&E should be valued in a manner consistent with definitions in
existing standards to determine the relevant asset class.
A3. The Committee believes that NASA, in making determinations about
the accounting treatment of transactions and events, should use its
judgment in applying the standard that most appropriately reflects the
characteristics of the transactions or events. One purpose of the
hierarchy established in the AICPA Statement on Auditing Standards
91 is to permit other accounting literature to be considered in the
absence of specific guidance in the FASAB standards. If it is
determined that space exploration equipment meets the criteria for
capitalization and has predominant characteristics of property, plant
and equipment, then the accounting requirements in SFFAS 6 should
be applied; however if the costs incurred for space exploration
"Space exploration equipment" included items intended to operate above the atmosphere
for space exploration purposes, and any specially designed equipment to aid, service, or
operate other equipment engaged in the exploration of space. (See SFFAS 6, par. 52.)
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0
0
0
NONFEDERAL
(External)
1
0
0
The one respondent agreed with the guidance as it was written and added
the following comments. The hierarchy of accounting standards provides
for the use of FASB standards in this case. SFAS 2 also covers the subject in
sufficient detail to enable NASA to apply it to its research and development
costs.
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Status
Issued
Effective Date
Immediately
None.
Affects
None.
Affected by
None.
Summary
The purpose of this technical release is to provide guidance to federal entities on three aspects of full costing
specified in SFFAS 4: (1) guidance on costs that should be considered Broad and General for all entities, (2)
guidance on Directness of Relationship to entity's operations as used in determining if a transaction should
be considered material to the receiving, and (3) guidance on Identifiability as used in determining if a
transaction should be considered material to the receiving entity.
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Table of Contents
Contents
Page
Introduction
Purpose
Effective Date
Background
Overview
Technical Guidance
13
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Introduction
Purpose
1.
Scope
2.
Effective Date
3.
4.
Background
Overview
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Related Accounting
Literature
5.
6.
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Technical Guidance
7.
8.
9.
10. If any Broad and General goods or services are considered both
integral and material to a receiving entitys operations, the receiving
entity should report such goods or services as inter-entity costs. In
these cases it is incumbent on the receiving entity to request cost
information from the providing entities. Examples of services that are
integral to the operations of the receiving entity include check writing
by the Department of Treasury (Treasury) for the Internal Revenue
Service and the Social Security Administration. (See first example in
Table I).
1
SFFAS 4, par. 112 states: Broad, general support -- Some entities provide broad, general
support to many, if not all, reporting entities in the federal government. Most often this type
of support involves the establishment of policies and/or the provision of general guidance.
The costs of such broad services should not be recognized as an expense (or asset) by the
receiving entities when there is no reimbursement of costs. Thus the standard does not
apply when support is of a general nature provided to all or most entities of the federal
government.
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Treasury
Treasury
Treasury
Collection Services
The collection function includes managing the collection of federal revenues
such as individual and corporate income tax deposits, customs duties, loan
repayments, fines, and proceeds from leases.
Treasury
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DOJ
DOJ
GSA
GSA
DOL
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DOL
OPM
EOP
All Support Functions Performed by the Executive Office of the President (EOP)
The predominant mission of the Executive Office of the President is to assist the
President in overseeing the preparation of the federal budget and to supervise its
administration in executive branch agencies. In helping to formulate the
President's spending plans, the Office of Management and Budget (OMB)
evaluates the effectiveness of agency programs, policies, and procedures,
assesses competing funding demands among agencies, and sets funding
priorities. OMB ensures that agency reports, rules, testimony, and proposed
legislation are consistent with the President's Budget and with Administration
policies.
In addition, OMB oversees and coordinates the Administration's procurement,
financial management, information, and regulatory policies. In each of these
areas, OMB's role is to help improve administrative management, to develop
better performance measures and coordinating mechanisms, and to reduce any
unnecessary burdens on the public.
GAO
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Appendix A: Basis
for Conclusions
A1. On June 2, 2006, the FASAB Executive Director sent out the
Questionnaire Pertaining to the Full Implementation of Inter-Entity
Costing to the CFOs and IGs. The questionnaire provided a listing and
description of services the AAPCs Inter-Entity Task Force (task force)
believed were Broad and General costs, provided a series of questions
pertaining to Broad and General costs, directness of relationship to
the entitys operation, and identifiability of the good or service
provided to the receiving entity, and asked for comments.
A2. Based on responses to the questionnaire cited above, the task force
summarized and reviewed the responses, and discussed and
researched the available literature and practical aspects of
implementation. As a result of this research, the task force issued an
exposure draft of this technical release for comment.
A3. The exposure draft, Clarification of Standard Relating to InterEntity Costs, was issued June 4, 2007 with comments requested by
August 6, 2007. Fourteen comment letters were received from the
following sources:
FEDERAL
(Internal)
NON-FEDERAL
(External)
Auditors
10
A4. The AAPC (or Committee) considered responses to the exposure draft
at its September 27, 2007 AAPC meeting. The majority of the
respondents agreed with the proposed guidance. Specific concerns
were raised by several respondents related to the discussions
pertaining to directness of relationship to entity operations and to
identifiability. Clarifying language was added to these sections to
address those concerns.
A5. The task force also reviewed the responses received on the exposure
draft. The task force discussed whether revisions to the technical
release were needed, and made several recommendations to revise the
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Status
Issued
Effective Date
Immediately
None.
Affects
None.
Affected by
None.
Summary
This technical release is intended to assist federal entities in reporting information on heritage assets (HA)
and stewardship land (SL) in accordance with new federal accounting standards. Federal entities are required
to report descriptive, non-financial information on HA/SL as basic information in their financial reports, in
accordance with Statement of Federal Financial Accounting Standards (SFFAS) 29, Heritage Assets and
Stewardship Land.
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Table of Contents
Page
Contents
Acronyms
Introduction
Purpose
Scope
Effective Date
Background
6
7
8
9
10
10
12
Identification
12
Categorization
20
Quantification
25
32
Assessing Condition
32
Reporting Condition
33
41
42
44
45
Appendix D: Glossary
51
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Acronyms
AAPC
AICPA
AGA
AT
AU
CFR
CFO
CPA
ED
FAM
FASB
FASAB
FMFIA
GAO
GASB
JFMIP
OMB
OIG
PP&E
RSI
RSSI
SFFAC
SFFAS
SNC
HA
SL
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Introduction
Purpose
1.
2.
3.
4.
5.
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Scope
6.
Effective Date
7.
Background
8.
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9.
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10. Effective dates for transitioning the above HA/SL information from
RSI to basic financial information (i.e., a note disclosure to the
financial statements) begin for periods:3
Section I.
Materiality
Considerations
See SFFAS 29 for details on the phase-in of disclosure requirements being reported as basic
information.
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Accountability and
Decision Usefulness
SFFAC 1, par. 105 states, The federal government derives its just powers from the consent
of the governed. It therefore has a special responsibility to report on its actions and the
results of those actions. Providing this information to the public, the news media, and
elected officials is an essential part of accountability in government.
6
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are still in the early stages of reporting. Users needs will likely
become more clearly identified as the required disclosures are made
available and attract users who rely on it for making decisions.7 In the
meantime, attempting to make materiality determinations about
HA/SL information based solely on undetermined user needs (i.e.,
decision usefulness) is an uncertain approach. Therefore, for HA/SL,
the current focus for considering materiality should be based on
accountability. Citizens want assurances that the HA/SL entrusted to
the government are protected and used for the purposes intended.8
Congress, executives, and program managers need to demonstrate to
those to whom they are accountable that they have, in fact, protected
those resources and used them well.
Measurement Issues
19. For the federal government HA/SL, there is no unifying theme upon
which to base quantitative measures of materiality, such as, total
assets or total expenses because there is no common unit of measure,
such as dollars, that can be used to evaluate the effect of omissions
and misstatements among HA/SL categories. In other words, HA/SL
managements focus is on whether in the aggregate the categories
reported for HA/SL are a complete presentation of HA/SL for which
the entity is accountable. For example, management might report
quantities for five separate and dissimilar categories of HA such as
6,000 linear feet of archival documents, 4,000 cubic feet of
archeological artifacts, 2,500 paleontological items, 1,000 pieces of
artwork, and 500 geological specimens. These diverse categories have
different measurement attributes that are not readily quantifiable in
monetary units.
20. Therefore, each entity should identify and apply the qualitative factors
that will govern their HA/SL note disclosure. Choosing qualitative
materiality factors is a practical means to achieve straightforward and
See SFFAC 1, par. 75-87; SFFAC 4, par. 6-9; and SFFAS 6, Basis for Conclusions, par. 123 for
a summary of the users of federal financial reports and their stewardship information needs.
Citizens include individual citizens as well as citizen intermediaries (i.e., the general
news media and more specialized users such as trade journals); public interest and advocacy
groups; state and local legislators and executives; and analysts from corporations, academe,
and elsewhere. According to SFFAC 1, par. 76 and SFFAC 4 par. 7, Citizen intermediaries
devote more time to reading, analyzing and interpreting more detailed information that they
analyze, summarize and pass on to Citizens for further application. (SFFAC 4, par. 16)
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Qualitative Factors to
Consider
Financial Presentation,
Disclosure and
Meaningful Aggregation
10
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11
Particularly for collection-type heritage assets, it may be more appropriate to define the
physical unit as a collection, or a group of assets located at one facility, and then count the
number of collections or facilities. (SFFAS 29, footnote 10).
12
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Section II.
Identification,
Categorization, and
Quantification
Identification
General Issues
13
14
15
16
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Heritage Assets
18
An example of such a site is the U.S. DOE Nevada Test Site on which various archeological
sites have been identified. Most were left by the ancestors of the present-day Indian tribes,
Paiutes and Shoshones. These sites include rock shelters, brush houses, fire pits for
cooking, and artifacts on ground surfaces.
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19
One example of a cultural landscape is Fort Bragg. This cultural landscape is unique
because of its continued use for defense related purposes and the influences to the
landscape that result from defense related activities.
Another example that encompasses three overlapping cultural landscapes is the Department
of Energy (DOE) Hanford site. The first landscape represents a rich archeological and
ethnographic landscape that has existed for more than 10,000 years where local American
Indian tribes still revere the area for its spiritual and cultural importance, as they continue
the traditions practiced by their ancestors.
The second landscape embodies the experiences of the immigrants who started arriving in
the mid-19th century. Following the explorers and fur traders who passed through the area
were miners, ranchers, and then farmers. In 1943, the U.S. Government acquired the land for
a secret wartime project and approximately 1,500 families were forced to move. Today, the
former residents and their families recall the homes they had to leave and see the remains of
their farms and towns as symbols of the sacrifice they made to the war effort.
The third landscape is associated with World War II and the subsequent Cold War. The
government acquired the land in 1943 to build large industrial facilities to produce
plutonium, which served a vital role in the nation's defense. Hanford's mission expanded
during the Cold War era to include research and development activities associated with the
peaceful uses of atomic energy. Today, the remains of the facilities and legacy wastes
document an important part of the nuclear age story.
20
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39. Example 1: Assets in the Nations capital that are currently identified
as multi-use heritage assets include the Department of the Treasury
and the Government Accountability Office (GAO) buildings. The main
Treasury Building is used predominately for agency operations but
also has historical significance as evidenced by its National Historic
Landmark status. The GAO building qualifies as a multi-use heritage
asset because it is listed in the National Register of Historic Places,
and it is being used in general government operations.
40. Example 2: The Hoover Dams predominant use is an operational dam
providing hydro power, recreation, and water supply. It is also a
National Historic Landmark and a museum facility. Therefore, it is
considered a multi-use heritage asset.
41. Example 3: A Supervisors Office for a National Forest is identified as
a multi-use heritage asset because it provides administrative office
space for Forest Service personnel who manage operations of the
forest. While its predominant use is for administrative office space, the
office is also listed on the National Register of Historic Places because
of its age and unique log architectural design.
42. Examples 4 and 5 below describe assets that are not multi-use heritage
assets because they do not meet the definition of HA or are exempt
from classification as multi-use HA.
43. Example 4: The Punta Gorda Lighthouse is an operational lighthouse
that is capitalized and reflected on the balance sheet. Even though the
lighthouse is a contributing property to an historic site and has
attributes that are considered historically valuable, these attributes
are common to many other historic structures in the country.
Management has determined that the lighthouse is not a multi-use
heritage asset, because according to the managing agencys internally
documented procedures for identifying heritage assets, the lighthouse
does not meet the necessary level of historic significance for
disclosure.
44. Example 5: The Jefferson National Expansion Memorial (St. Louis,
MO) has incidental administrative offices and shop space located in
the memorial. In this case, the memorial should be reported as a
heritage asset.
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Stewardship Land
21
SFFAS 6, par. 25. The phrase acquired for or in connection with is defined as including
land acquired with the intent to construct general PP&E and the land acquired in
combination with general PP&E, including not only land used as the foundation, but also
adjacent land considered to be the general PP&Es common grounds, according to SFFAS
29, footnote 16.
22
23
Examples where land would have an unidentifiable, nominal, or insignificant cost would
include federally owned lands that were part of the Louisiana Purchase in 1803 (Louisiana,
Arkansas, Oklahoma, Missouri, Iowa, Kansas, Nebraska, South Dakota, Montana, and parts
of Minnesota, Wyoming, and Colorado), the Gadsden Purchase in 1853 (parts of Arizona and
New Mexico), and the Oregon Territory where American title was established in 1846 by the
Spanish-American Compromise (Washington, Oregon, and part of Idaho). These lands do
not have an identifiable cost because the land was acquired at nominal cost (in current
dollar value) or at no cost at all. These lands are part of the originally constituted Americas
public domain land. Much of this land is no longer under federal ownership. What
remains under federal ownership today is generally referred to as the public lands.
The concept of identifiable cost in determining whether land is stewardship land does not
apply to situations where land logically would have an identifiable cost but that cost is
unknown due to inadequate accounting, weak or no internal controls, or other imprudent
actions.
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N
Used with General
PP&E? (See par. 45)
SL
N
Identifiable or
significant cost?
(See par. 46)
General PP&E
See SFFAS 29, par. 39 and 40.d. (3) for the discussion on SL transfers.
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this case, the land would be reported on the balance sheet with a
dollar value along with other capital assets.
49. Example 2: Agency 1 has been granted specific legislative authority to
sell tracts of land that were originally public domain land (currently
classified as SL) to the public and to retain a portion of the proceeds25
from those sales to purchase environmentally sensitive tracts of land
from the public in locations prescribed by the enabling legislation.
The purchased land may be retained and managed by Agency 1 or it
may be transferred to another federal agency (Agency 2) for
management of the SL (e.g., for use as wildlife habitat, forest
production, or other SL use). At the point when the sale and purchase
transactions occur, the cost/value of the land sold and purchased is
known. However, this SL is not associated with general PP&E and
therefore is classified as SL.
50. In this example, Agency 1 would report a reduction in the quantity of
SL reflecting the disposal (sale) transaction. When land is
subsequently purchased, Agency 1 would show an increase in the
quantity of SL reflecting the purchase transaction. If the purchased
land is transferred to Agency 2, Agency 1 would show a reduction in
the quantity of SL reflecting the transfer to Agency 2 for management.
Agency 2 would reflect an increase in its quantity of SL. No monetary
amounts relating to land would be reported on the balance sheet.
51. When each agency develops its footnote disclosures, the actual
increase or decrease in categories and/or physical units depends on
how each agency in the example chooses to categorize and quantify its
SL. In this example, Agency 1 has a multiple-use category26 and
quantifies its land by management unit. As such, if a management unit
were reduced or increased in size but not eliminated or created, there
would be no net change in its reporting. Agency 2 has a major
category of use of conserving, protecting, and enhancing fish and
25
Generally speaking, federal agencies can sell and purchase land. However, without
specific legislative authority, they cannot retain proceeds from the sales of land for any
agency purpose. Proceeds from the sale of land would normally be transferred to the
General Fund of the Treasury.
26
An example of multiple-use land is when legislation requires the use of multiple natural
resources (i.e., domestic livestock grazing, fish and wildlife development, mineral
exploration and production, rights-of-way, outdoor recreation, and timber production)
related to the SL and no single use is predominant.
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Categorization
General Issues
Designation of Categories
54. The determination of which HA/SL warrant presentation in separate
categories is related to whether they are material based on
27
28
29
The phrase major category of land use is not specifically defined in SFFAS 29. However,
based on the definition of land (the solid part of the surface of the earth), one might
reasonably assume that the land functions as the foundation for natural resources and as a
basin for water resources (water being a natural resource). It is the natural resources that
land-management agencies manage, and it is the resources for which they authorize use.
Hence, the phrase major category of land use can be implied to mean major category of
resource use.
30
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Heritage Assets
31
32
33
Par. 25 item c.
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58. Some examples of categories of HA, which are not intended to be all
encompassing, include:
Monuments,
Landmarks,
Landscapes,
National Parks,
Museums,
Cemeteries,
Libraries, and
Districts or Regions.
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Grand Staircase also has a long and dignified human history; it is a place where one can
see how nature shapes human endeavors in the American West, where distance and aridity
have been pitted against our dreams and courage. The monument presents exemplary
opportunities for geologists, paleontologists, archeologists, historians, and biologists.
35
Congress granted the President authority to designate national monuments in the
Antiquities Act of 1906, which specifies that the laws purpose is to protect objects of
historic or scientific interest. In addition to national monuments created through
presidential action, Congress establishes national monuments by passing a law to create
each individual monument with its own purpose (generally to protect natural or historic
features).
36
The Statue of Liberty was dedicated on October 28, 1886, and was designated a National
Monument on October 15, 1924. Located on 12-acre Liberty Island in New York Harbor, the
Statue of Liberty was a gift of international friendship from the people of France to the
people of the United States and is one of the most universal symbols of political freedom and
democracy.
37
Ellis Island was incorporated as part of the Statue of Liberty National Monument on May
11, 1965. Between 1892 and 1954, approximately 12 million steerage and third class
steamship passengers, who entered the United States through the port of New York, were
legally and medically inspected at Ellis Island.
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Stewardship Land
Official designation;
Prior financial investment in preservation, protection,
interpretation, or use; or
An agency approved management plan.
63. Where parcels of land have more than one use, the predominant use of
the land should be considered the major use. In cases where land has
multiple uses, none of which is predominant, a description of the
multiple uses should be presented in note disclosure. The appropriate
level of categorization of SL use should be meaningful and determined
by management based on the entitys mission, types of SL use, and
how it manages the assets.
Stewardship Land Examples
64. Example 1: An example of a multiple-use category includes SL for
which legislation prescribes the multiple use that will be achieved or
authorized on the same tract(s) of land including, but not limited to
domestic livestock grazing, fish and wildlife development and
utilization, mineral exploration and production, rights-of-way, outdoor
recreation, and timber production.38
65. Because the legislation requires multiple-use of all of the natural
resources related to the SL, with no single use being predominant, the
major category of use is multiple. However, a description of the
multiple uses should be presented. Categorization of SL could be
disclosed by geographic management unit, such as a state or region or
perhaps a lower level management unit such as a field, district, or area
jurisdiction. The management units could be reported consistent with
the manner in which they are managed, that is, by a specific land use
38
SFFAS 29 par. 34 and footnote 17 specifically exclude the natural resources related to the
land.
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plan (or management plan), which specifies how the natural resources
related to the land will be used over a long-term period (i.e., one or
more decades).
66. Example 2: SL is categorized as recreational when this is the
predominate use of the land. Within this category, the physical units
could be reported as a region, park, district, or other field unit
jurisdiction.
67. Example 3: SL can also be categorized by function. Land can support
such activities as education, transportation systems, and farming and
grazing. For example, the mission of an agency may be to enhance the
quality of life, promote economic opportunity, and carry out
responsibilities to protect and improve trust assets such as providing
schools and other opportunities for learning. Physical units within this
category could be reported as townships, parcels, tracts, acres, or
other units.
68. Example 4: An agency manages lands (that were formally public
domain lands and were withdrawn)39 for the purpose of constructing
statutorily-authorized federal water projects and their associated
canals, laterals, and drains to (a) provide water for agricultural,
municipal, and industrial uses; (b) maintain flood control; and (c)
generate power. In this federal water projects category, the number of
units could be the number of major projects consisting of numerous
related divisions, units, features, or facilities.
Quantification
General Issues
39
"Withdrawal" of public lands means the removal or withholding of public land, by statute
or Secretarial Order, from operation of some or all of the public land laws.
40
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41
Many trail systems consist of segments managed by one or more federal agencies as well
as by non-federal entities. For purposes of this example, each federal agency would be
responsible for disclosing that which it manages.
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Supporting Documentation
80. In the Basis for Conclusions of SFFAS 29, par. 86-88, the FASAB briefly
discusses the fundamental problems associated with providing
corroborating documentation to auditors on historical assets which
predate the effective date of the standard, and were acquired in an
environment in which the historical records were not required to be
retained and therefore may not exist or be inadequate. The following
section addresses some of the complexities associated with
documenting Americas stewardship lands and heritage assets.
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Figure 1:
81. The public domain once stretched from the Appalachian Mountains to
the Pacific. Of the approximate 1.8 billion acres of public land
acquired by the United States, about two-thirds went to individuals,
corporations, and the states. The remaining public domain was set
aside for national forests, wildlife refuges, national parks and
monuments, and other public purposes.
82. The majority of the public domain that remains today is stewardship
land. As identified in the above graphic, this land was acquired
through various purchases and cessions prior to 1870. During these
early periods (1776 to the early/mid 1900s) few envisioned the need for
the kinds of records, documents, and statistics that are required today.
Acquisitions and disposals of land, whether from purchase, cession, or
treaty, were not documented in the same manner as land transactions
in more modern times. For example, as identified in item 6 of the
above graphic, the boundary of the Louisiana Purchase was not well
defined which led to a dispute between Spain and the United States
resulting in the boundary adjustment of 1819. Surveys of the public
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land east of the Mississippi River began in 1785. Two years later,
survey of only 4 ranges (about 144 square miles) had been completed.
Much of the stewardship land remains unsurveyed today.
83. Definitive documentation on the majority of these lands is not
available; therefore management must choose alternative methods of
satisfying managements assertions for these assets. For assessing
land, for example, these alternatives could mirror areas defined in the
Categorization section of this document, such as the number of
areas of recreational use, geographic management areas, and federal
water projects of fish hatcheries.
84. HA also have many of the same documentation problems since
antiquities laws and preservation acts did not go into effect prior to
artifacts having been collected and preserved. Many of these assets
may reside in federal and nonfederal repositories. However, records
and detailed listings from these periods generally do not exist. In
more recent times, legislation has strengthened the laws and rules
regarding preservation and documentation over these assets.42
Methodology for Developing Supporting Documentation
85. Ideally, agencies should have a historical file evidencing ownership of
HA/SL. But, when original property records or other documentation
(for example, deeds, tax assessments, insurance records, etc.) for
HA/SL do not exist, a methodology needs to be employed in order to
develop alternative documentation to support managements
assertions of federal ownership. For example, maintenance or
renovation contracts, historical maintenance records or a history of
payment of invoices, minutes of meetings, historical data bases,
surveys of land records, a history of past/historical practices (e.g.,
establishing defacto ownership), or other relevant sources of
42
For example, The Antiquities Act of 1906 provides authority for the President to establish
National Monuments and gives authority to the Secretaries of Agriculture and Interior to
issue permits for investigation and collection of resources from federal land and for
collections . . . to be made for permanent preservation in public museums; The Museum
Properties Management Act of 1955 authorizes the Secretary of the Interior through the
National Park Service to preserve objects found within individual national parks; and the
National Historic Preservation Act of 1966 directs the Secretary of the Interior to promulgate
regulations that ensure that significant prehistoric and historic artifacts and associated
records are deposited in an institution with adequate long-term curatorial capabilities.
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Section III.
Assessing and
Reporting Condition
Assessing Condition
43
SFFAS 29 footnote 11 states in part: Condition is the physical state of an asset. The
condition of an asset is based on an evaluation of the physical status/state of an asset, its
ability to perform as planned, and its continued usefulness.
45
46
For example, the existing state of the Liberty Bell (i.e., cracked and unable to ring) does
not necessarily mean that the condition of the bell is poor.
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Reporting Condition
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Heritage Assets
47
The Basis for Conclusions to SFFAS 6 highlights the importance of safeguarding HA/SL.
48
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49
SFFAS 6, Basis for Conclusions, par. 125 states that the government "...must demonstrate
that it is being an appropriate steward for these assets..." and must be able to answer basic
questions such as "Is the government effectively managing and safeguarding its assets?"
Note disclosures should answer this question. However, the assertion that HA are
safeguarded is a significant statement that implies management controls are operating
effectively, and entities making this assertion should have a credible basis for doing so.
50
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Stewardship Land
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52
53
A solid part of the surface of the earth exclusive of depletable and renewable natural
resources.
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54
Standards for determining and reporting deferred maintenance are contained in SFFAS 6,
which requires disclosures related to the condition and the estimated cost to remedy
deferred maintenance of PP&E.
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Section IV:
Government-Wide
Reporting
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Appendix A: Basis
for Conclusions
A1. The HA/SL taskforce that developed this technical release was
comprised of over a dozen different entities, varying in size, with
experts in the field who had significant responsibility for heritage
assets and/or stewardship land. The taskforce approached this
implementation guide project by addressing the specific areas in
SFFAS 29 that focus on identification, categorization, quantification
and condition of these assets. The taskforce believed that the most
meaningful information to guide preparers was through examples of
how entities currently or in the past have identified, categorized and
quantified heritage assets and stewardship land, as well as how they
assessed their condition.
A2. This technical release provides a variety of examples that are
representative of the many types of stewardship assets in existence.
In addition, this technical release provides numerous ways to disclose
heritage assets and stewardship land since SFFAS 29 allows entities
considerable latitude and flexibility in achieving the objective of
relevant and reliable information for users.
A3. Typically standards or technical releases do not address materiality.
The taskforce believes that since no dollar amounts are assigned to
these assets and that traditional materiality judgments about financial
information are primarily quantitative and focused on dollar amounts
that materiality needed to be addressed. Thus, the taskforce provided
an approach for considering materiality to give preparers
implementation guidance in applying materiality to heritage assets
and/or stewardship land.
A4. As a result of the taskforce deliberations, it reached a consensus on
the material presented in this technical release.
A5. The exposure draft, Implementation Guide for Statement of Federal
Financial Accounting Standards 29: Heritage Assets and
Stewardship Land, was issued June 11, 2007 with comments
requested by August 13, 2007. Four comment letters were received
from the following sources:
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FEDERAL
(Internal)
NON-FEDERAL
(External)
Auditors
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Appendix B:
Excerpts from
SFFAS 29 Heritage
Assets and
Stewardship Land
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Appendix C:
Illustrative
Disclosures
Footnote Disclosure
Heritage Assets:
Stewardship Land:
55
Clinical medicine and technical agriculture are the responsibilities of the National Library
of Medicine and National Agricultural Library, respectively.
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Agency X meets its mission by managing the lands and their various
resources so that they are utilized in the combination that will best meet the
needs as well as the enjoyment of both present and future generations of
the American people. These resources include both natural and cultural HA
of scenic, scientific, and historical value. The management of the lands and
their associated HA are the essence of the Agencys mission.
The agency has been entrusted with stewardship responsibility for the
management of natural resources on and beneath Americas SL as legislated
through P.L. 94-579. Land use plans, developed with public involvement,
are the mechanism by which use and levels of use are determined. The
agency is required to develop, maintain, and, when appropriate, revise land
use plans that divide the land into tracts or areas.
The agencys stewardship mission is to be environmentally responsible for
commercial and non-commercial uses of the natural resources (depletable
and renewable) associated with SL. P.L. 94-579 prescribes the uses that will
be achieved or authorized on the land. The agency has 4 major categories
of use: multiple; recreation; cultural, schools, and housing; and
reclamation/irrigation. (The agency will provide a description of each
major category of use in its note disclosure.)
1.
Multiple use:
a.
b.
c.
d.
e.
f.
Grazing:
Wildlife:
Minerals:
Rights-of-Way:
Recreation:
Timber:
2.
Recreation:
3.
4.
Reclamation/Irrigation:
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Category of Use
200W
Balance
200X
Additions
Note 1
200X
Withdrawals
Note 1
200X
Net
Change
200X
Balance
Condition
Note 2
Multiple Use
118
-1
117
Acceptable
Recreation
388
388
Acceptable
80
Acceptable
220
Acceptable
Cultural/Schools/
Housing
1
79
Reclamation/
Irrigation
221
Total
806
-1
-1
805
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Heritage Assets
Cemeteries
Federal
Memorials
Non-Federal
Memorials
24
25
24
25
Required Supplemental
Information (RSI)
Disclosure (Par. 26 of SFFAS
29)
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Example 5: Library of
Congress
The Library of Congress has the worlds largest library collection, including
research materials in over 450 languages and various media. Providing
access to this collection inevitably puts it at risk and could impair the
Librarys ability to serve the Congress and other users in the future.
However, the collections exist to be used, and management accepts the
responsibility of mitigating risk to the collections at the same time it fulfills
its mission of service to the Congress and the nation. Therefore, the Library
has chosen to balance the usage of the collection with the long-term
preservation requirements of the collections.
As of September 30, 20XX, the collections were determined to be in a
useable condition for fulfilling its service mission. During fiscal 20XX, only
a very small percentage of materials were removed from the collection
because of damage caused by use and/or deterioration of the medium. The
ultimate useful life of a library item varies by its medium (e.g., book, film,
tape, manuscript, disk), and the manner in which it is used and stored.
The Library employs a variety of methods to prolong the useful life of its
deteriorating materials, including:
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Appendix D:
Glossary
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Status
Issued
June 2, 2010
Effective Date
Upon issuance
None.
Affects
None.
Affected by
None.
Summary
This technical release is intended to address important implementation questions regarding the consistent
application of TB-2006-1 as it relates to asbestos cleanup costs associated with facilities and installed
equipment. As federal agencies develop their approach to implementing SFFAS 6 and TB 2006-1 for
recognition of cleanup cost associated with asbestos, it has become apparent that an implementation strategy
is needed to ensure consistent reporting of asbestos cleanup liabilities. Many federal agencies continue to
struggle with interpreting SFFAS 6 and Technical Bulletin 2006-1 and determining a cost effective standard
implementation methodology. This guidance provides additional clarification of SFFAS 6 and TB 2006-1 and a
framework for identifying assets containing asbestos, assessing the asset to collect information and/or
develop key assumptions in applying acceptable methodologies to estimate asbestos cleanup costs for federal
facilities and installed equipment.
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Table of Contents
Page
Contents
Introduction
Purpose
Scope
Effective Date
Background
Overview
Technical Guidance
Methodology for Identifying and Estimating Cleanup Costs Associated with Asbestos
Appendix A: Basis for Conclusions
5
11
Background
11
11
12
12
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Introduction
Purpose
1.
2.
b.
The estimate shall be included as part of the estimated total cleanup cost. (SFFAS 6 par.
94)
Includes those assets within general PP&E, heritage and stewardship categories
Installed equipment fixture is defined in GAO-01-179SP Appropriation Law-Vol. IV (16191) as those equipment items that are (1) permanently attached to the realty, or (2) if not
permanently attached, (a) it is necessary and indispensable to the completion and operation
of the building, or (b) the structure was designed and built for the purpose of housing the
equipment.
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Scope
Effective Date
3.
4.
5.
6.
Background
Overview
For the purpose of this document, real property is defined as federal facilities and installed
equipment; and includes 1) real property acquired through capital leases, including
leasehold improvements; and 2) real property owned by the reporting entity in the hands of
others (e.g., state and local governments, colleges and universities, or federal contractors).
5
TB 2006-1, Summary II
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Related Accounting
Literature
7.
8.
b.
c.
d.
Technical Guidance
Methodology for
Identifying and
Estimating Cleanup
Costs Associated with
Asbestos
9.
10. The following steps may be taken to identify real property that may
contain asbestos.
a.
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b.
c.
ii.
iii.
11. Once steps have been taken to identify real properties that are
expected to contain asbestos, each real property or group of real
properties should be assessed to collect the information in paragraphs
a and b below. For purposes of developing asbestos cleanup cost
estimates, reasonable assumptions8 can be made in some cases to
make up for a lack of actual data.
Real property may be sorted into groups by category, type, and/or locations. Examples of
categories might include buildings, and other structures. Examples of types might include
railroad tracks, power lines, and sidewalks. Locations may be facilities or sites recently built
and known to be asbestos free. A combination of categories, types, and/or locations may
also be used.
7
Assumptions include renovation or demolition method, the quantity and quality of asbestos
to be removed (paragraphs11. a and b) and other information that affects cost (e.g., asbestos
survey, sampling, removal, and non-routine materials management). As additional
information becomes available, the federal entity should reevaluate its key assumptions and
make necessary adjustments to the cost estimate and liability.
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a.
ii.
b.
c.
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a.
b.
c.
d.
13. Once the estimated asbestos cleanup cost associated with the
removal, containment or disposal of the real property has been
determined, that cost should be recognized in accordance with SFFAS
6.11
14. If the asbestos cleanup cost cannot be estimated using any of the
methodologies in paragraph 12, the agency should estimate and
recognize any other identifiable costs (e.g., asbestos survey) as
outlined in TR 2 (Section 2: Determining Reasonably Estimable
Environmental Liabilities (2.) Experience with Similar Site and
/or Conditions).
15. In accordance with SFFAS 6, paragraph 96, Estimates shall be revised
periodically to account for material changes due to inflation or
deflation and changes in regulations, plans and/or technology. New
cost estimates should be provided if there is evidence that material
changes have occurred; otherwise estimates may be revised through
indexing.12 As additional information becomes available, key
10
See paragraphs 98 and 101, and Technical Bulletin 2006-1, paragraph 37.
12
TB 2006-1, paragraph 34: As reestimates are made, the cumulative effect of changes in
total estimated asbestos-related cleanup costs related to current and past operations shall be
recognized as expense and the liability adjusted in the period of the change in estimate
(SFFAS 6 par. 99). In certain scenarios, such as when cleanup costs have been fully
expensed, the reestimate may result in a credit to expense for that year.
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Appendix A: Basis
for Conclusions
Background
A1. In January 2008, the Accounting and Audit Policy Committee (AAPC),
established the General Property, Plant, & Equipment (G-PP&E) Task
Force to assist in developing implementation guidance for federal GPP&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 task force includes federal agency representatives who
are experiencing G-PP&E implementation issues and those who have
G-PP&E implementation best practices to share with the federal
community.
A2. The AAPC G-PP&E task force was divided into four subgroups that
will each address a set of related issues. Each subgroup meets
separately on a regular basis to discuss its set of issues and report
back to the full task force on its progress towards the development of
implementation guidance. The four subgroups are:
G-PP&E Acquisition
G-PP&E Use
G-PP&E Disposal
G-PP&E Records Retention
A3. This guidance was developed by the Disposal subgroup. The subgroup
included members from the following federal agencies:
Recognition versus
Disclosure of Asbestos
Cleanup Costs
Department of Defense
Department of Energy
Department of the Interior
Government Accountability Office
General Services Administration
National Aeronautics and Space Administration
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Reasonable Cost
Estimate
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2.
3.
4.
5.
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FEDERAL
(Internal)
Users, academics, others
Auditors
Preparers and financial
managers
NON-FEDERAL
(External)
2
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Appendix B:
Illustrations -Examples of
Practice
The examples shown in this appendix are for illustrative purposes only.
The explanations and illustrations are presented to show how the standards
may be applied but are not standards themselves. These illustrations are
general in nature and may not apply to specific cases that appear similar
but have unique circumstances.
The following examples illustrate the estimation of asbestos-related clean
up costs associated with future repair/renovation or demolition projects at
the time the asset is placed in service
I.
b.
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Status
Issued
June 2, 2010
Effective Date
Upon issuance
None.
Affects
None.
Affected by
None.
Summary
This technical release is intended to address cleanup costs associated with equipment as it applies to SFFAS 1,
5, 6 and TR 2. The guide focuses on cleanup of hazardous waste associated with equipment. It focuses on
when cleanup costs should be recognized as an environmental liability and when it should be expensed as a
cost of routine operation. In addition the guide includes two examples one example is associated with
equipment cleanup when a liability should be recognized and one is associated with equipment cleanup when
the costs should be expensed as routine operations. This proposed technical release provides steps that can
be followed to help federal entities consistently apply existing standards. The guidance will also assist federal
entities to provide reasonable estimates of cleanup costs associated with the disposal of equipment assets,
when required.
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Table of Contents
Page
Summary
Introduction
Purpose
Scope
Effective Date
Background
Overview
Technical Guidance
Diagram 1: Recognizing Environmental Liabilities for Equipment Disposal in Compliance with Technical Release 2 and
SFFAS 1, 5 and 6
11
12
Appendix B: Illustrations
15
15
18
Appendix C: Abbreviations
22
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Introduction
Purpose
1.
Scope
2.
3.
SFFAS 6 Par. 87: Cleanup may include, but is not limited to, decontamination,
decommissioning, site restoration, site monitoring, closure, and post closure costs.
3
SFFAS 1 paragraph 74: Accounts payable are amounts owed by a federal entity for goods
and services received from, progress in contract performance made by, and rents due to
other entities.
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Effective Date
4.
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Background
Overview
5.
6.
5
SFFAS 6, paragraph 88: This standard applies only to cleanup costs from Federal
operations known to result in hazardous waste which the Federal Government is required by
Federal, state and/or local statutes and/or regulations that have been approved as of the
balance sheet date, regardless of the effective date, to cleanup (i.e., remove, contain or
dispose of). These cleanup costs meet the definition of liability provided in SFFAS 5
[Statement of Recommended Accounting Standards no. 5, Accounting for Liabilities of the
Federal Government (SRAS no. 5)].
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Related Accounting
Literature
7.
b.
c.
d.
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Technical Guidance
Cleanup Costs
Associated with
Equipment at Disposal
8.
SFFAS 6 paragraph 98: Recognition of the expense and accumulation of the liability shall
begin on the date that the PP&E is placed into service, continue in each period that
operation continues, and be completed when the PP&E ceases operation.
SFFAS 6 paragraph 97: A portion of estimated total cleanup costs shall be recognized as
expense during each period that general PP&E is in operation. This shall be accomplished in
a systematic and rational manner based on use of the physical capacity of the associated
PP&E (e.g., expected usable landfill area) whenever possible. If physical capacity is not
applicable or estimable, the estimated useful life of the associated PP&E may serve as the
basis for systematic and rational recognition of expense and accumulation of the liability.
TR 11 - Page 7
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10
Technical Release 2 establishes guidance for when costs associated with environmental
damage meet the probable and reasonably estimable criteria.
11
SFFAS 6 Note 68: The unit of analysis for estimating liabilities can vary based on the
reporting entity and the nature of the transaction or event. The liability recognized may be
the estimation of an individual transaction or event; or a group of transactions and events.
For example, an estimate of the cleanup costs could be made on a facility by facility basis, or
an entity by entity basis.
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Cleanup Costs
Associated with
Equipment during
Ongoing Operations
12
13
SFFAS 6 paragraph 93: Other cleanup costs, such as those resulting from accidents or
where cleanup is an ongoing part of operations, are to be accounted for in accordance with
liability standards and are not subject to the recognition guidance provided in this standard.
This guidance does not apply to these other types of cleanup since the cleanup effort is not
deferred until operation of associated PP&E ceases either permanently or temporarily.
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14
Technical Release 2 establishes guidance for when costs associated with environmental
damage meet the probable and reasonably estimable criteria.
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Appendix A: Basis
for Conclusions
A1. In January 2008, the Accounting and Audit Policy Committee (AAPC)
established the General Property, Plant, & Equipment (G-PP&E) task
force to assist in developing implementation guidance for federal GPP&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 task force includes federal agency representatives
who are experiencing G-PP&E implementation issues and those who
have G-PP&E implementation best practices to share with the federal
community.
A2. The G-PP&E task force was divided into four subgroups that will
address a set of related issues. The subgroups meet separately on a
regular basis to discuss their set of issues and report back to the full
task force on its progress towards the development of implementation
guidance. The four sub-groups are
G-PP&E Acquisition
G-PP&E Use
G-PP&E Disposal
G-PP&E Records Retention
A3. This guidance was developed by the Disposal subgroup. The subgroup
included members from the following federal agencies:
Department of Defense
Department of Energy
Department of the Interior
Government Accountability Office
General Services Administration
National Aeronautics and Space Administration
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FEDERAL
(Internal)
Users, academics, others
Auditors
Preparers and financial
managers
NON-FEDERAL
(External)
2
15
Cleanup costs are the costs of removing, containing, and/or disposing of (1) hazardous
waste from property, or (2) material and/or property that consists of hazardous waste at
permanent or temporary closure or shutdown of associated PP&E.
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Appendix B:
Illustrations
The examples shown in this appendix are for illustrative purposes only.
The explanations and illustrations are presented to show how the standards
may be applied but are not standards themselves. These illustrations are
general in nature and may not apply to specific cases that appear similar
but have unique circumstances.
Example 1: Decommissioning of Used Perchloroethylene Dry
Cleaning Equipment
A dry cleaning operation uses the hazardous material perchloroethylene
(perc). Perc is a colorless liquid with mild odor used primarily as a dry
cleaning solvent. Perc is highly volatile; 80-85% of the chemical used
annually is released into the atmosphere with only 1% to water. The
greatest health risk presented by perc is inhalation by industry workers.
Studies of industry workers indicate a probable linkage between
prolonged exposure and certain cancers.
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decommissioning. The second and third columns of the table list the
regulatory categorization (i.e., EPA Hazardous Waste code), and method for
managing the waste, respectively. The fourth column indicates if the
hazardous waste is regulated and managed in a manner that is routine to
the operations or unique to decommissioning and disposing of the
equipment at the end of its useful life.
Table 1. Hazardous Waste from Dry Cleaning Operations and Decommissioning
Waste
EPA HW
Code
Waste
Management
Method
Reuse/recycle
on-site or Ship
to TSDF3
Routine/
Unique
Accounting
Practice
Rationale
Spent Solvent
F0021,
D0392
Routine
Operational
expense
(SFFAS 1)
F002,
D039
Ship to TSDF
Routine
Distillation
Residues
F002,
D039
Ship to TSDF
Routine
Cooked Powder
Residues
F002,
D039
Ship to TSDF
Routine
Unused Perc
D039
Routine
Wastewater from
equipment
cleaning
F002,
D039
Reuse/recycle
on-site or
return to
distributor
Ship to TSDF
Operational
expense
(SFFAS 1)
Operational
expense
(SFFAS 1)
Operational
expense
(SFFAS 1)
Operational
expense
(SFFAS 1)
Reuse/recycle exempts
waste or same
waste/mgmt as
operational
Same waste/mgmt as
operational
Used Filter
Cartridges
Routine
Operational
expense
(SFFAS 1)
Same waste/mgmt as
operational
Same waste/mgmt as
operational
Reuse/recycle exempts
waste
Same waste/mgmt as
operational
All hazardous waste from this equipment falls under the same regulatory
requirements (F002, D039) and waste management method (ship to TSDF),
or it is recycled and not disposed as a hazardous waste. The hazardous
waste removed at decommissioning is the same as waste from ongoing
operations and managed the same, as determined by the regulatory
requirements. Thus, the cost associated with removal and disposal of the
waste produced at decommissioning is recognized as a liability/payable and
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Source of Waste
Waste Management
Method
Routine/
Unique
Accounting
Practice
Rationale
Asbestoscontaining
materials
(ACM)
Disposal in ACM
approved landfill16
Unique
Accrued Liability
(SFFAS 6,
paragraph 98)
Unique operation
and disposal of
regulated waste.
Unique
Accrued
Liability(SFFAS
6, paragraph 98)
Recover and
recycle.
Routine
Operational
Expense (SFFAS
1)
Unique operation
and disposal;
TSCA18 requires
PCB removal
from metal prior
to further
processing.
Recovery of
useful materials
(e.g., metal, fuel)
is not a liability.
PCB
Containing
Waste
Waste Oil
(Petroleum
products)
16 17 18
16
One contractor disposed electrical cables with asbestos-containing sheathings in their
entirety, thereby greatly increasing the volume of ACM waste. Others removed the
sheathings to recycle the copper cables. Also, some managed all thermal insulation as ACM
rather than sample to determine exact amounts.
17
Contractors in States that did not adopt EPAs PCB Mega Rule need to sample and
dispose all PCB waste as TSCA regulated waste. Other States that did adopt the rule allow
disposal of PCB Bulk Product Waste (BPW) in a (non-hazardous) Solid Waste Landfill.
18
Toxic Substance Control Act (TSCA) effective 1/1/77 authorizes EPA to control any
substance that was determined to cause unreasonable risk to public health or the
environment.
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Source of Waste
Waste Management
Method
Routine/
Unique
Accounting
Practice
Rationale
Mercury
Fluorescent light
tubes, fire detectors,
tank level indicators
Ship transducers,
ballast, paint
coatings
Universal waste
recycling.
Routine
Routine
recycling.
Transferred to
scrap metals
recycler, RCRA
exempt.
Sale and reuse with
disclosure to
buyers
Routine
Operational
Expense
(SFFAS 1)
Operational
Expense
(SFFAS 1)
Routine
Operational
Expense
(SFFAS 1)
Routine
Operational
Expense
(SFFAS 1)
RCRAhazardous
paint coatings
on metal
Equipment
with RCRAhazardous
materials
CFCs
Contained in
equipment
Small refrigerators,
water coolers, small
freezer units
Routine
recycling of
useful
materials.
Recovery of
useful
materials
(e.g., metal,
fuel) is not
liability.
Routine
recycling.
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Appendix C:
Abbreviations
ACM
CARC
CFC
PCB
PERC
RCRA
TSCA
TSDF
TR 11 - Page 22
Status
Issued
August 4, 2010
Effective Date
None.
Affects
None.
Affected by
None.
Summary
This technical release addresses materiality considerations, risk assessment, and procedures for estimating
accruals for grant programs, including acceptable procedures until sufficient relevant and reliable historical
data is available for new grant programs or changes to existing programs. This technical release also provides
guidance on acceptable sources of documentation for grant accrual estimates; internal controls, including
monitoring of internal controls and validation of grant accrual estimates; training of grantees; and monitoring
of grantee reporting.
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Table of Contents
Page
Summary
Introduction
Purpose
Scope
Effective Date
Background
Overview
Technical Guidance
Definitions
Preparing Accrual Estimates for New Grant Programs or Changes to Existing Grant Programs
10
12
13
14
16
Project History
16
16
Comments Received
17
18
Effective Date
18
Appendix B: Illustrative Decision Tree Diagrams for Developing and Validating Grant Accruals
19
22
26
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Introduction
Purpose
1.
Scope
2.
Effective Date
3.
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Technical Release 12
Background
Overview
4.
Related Accounting
Literature
5.
b.
c.
d.
e.
Agencies must recognize and report balances due to or advanced to grantees at the end of
the reporting period. Adjustments are needed to provide for eligible expenses that grantees
have incurred as of the reporting date but have not yet reported to the agencies. Since these
adjustments are based upon estimates, they are referred to as accrual estimates in this
guidance. In particular:
Advances: Amounts issued as advances must be adjusted, even if grantees have not yet
reported expenses incurred. (See SFFAS 1, Accounting for Selected Assets and
Liabilities, par. 57-59.)
Accounts Payable: Where there is no advance or no remaining advance, agencies must
estimate amounts payable to grantees. (See SFFAS 5, Accounting for Liabilities of the
Federal Government, par. 24-25.)
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Technical Guidance
Definitions
6.
Materiality
Considerations and Risk
Assessment
7.
8.
31 USC Section 6302 excludes the following from the definition of a grant agreement:
agreements under which is provided only -
(A) direct United States Government cash assistance to an individual;
(B) a subsidy;
(C) a loan;
(D) a loan guarantee; or
(E) insurance.
SFFAS 3, paragraph 14. See Attachment 1 for the full discussion of materiality from
SFFAS 3.
4
TR 12 - Page 5
Technical Release 12
9.
a.
b.
c.
d.
For grant programs that are immaterial to the statement of net cost
and/or that have a lower risk of misstatement, management might
consider validating estimates less frequently.
Preparing Accrual
Estimates for Grant
Programs
11. Preparing reliable and timely accrual estimates for grant programs
must be a joint effort between the budget, financial, and program
offices at each agency. These offices should work together to ensure
that the procedures and internal control recommendation5s outlined in
this TR are implemented and operating as designed. However, some
agencies may not be able to effectively implement all of these
procedures, because they have not yet developed the necessary data
stores and/or methods for preparing grant accrual estimates.
Therefore, until sufficient relevant historical information on grant
programs is available, the alternatives outlined in this TR should be
utilized for developing grant accrual estimates.
5
Internal control is an integral component of an organizations management that provides
reasonable assurance regarding the achievement of reliable financial reporting, effective and
efficient operations, and compliance with applicable laws and regulations. Internal control
consists of the control environment, risk assessment, control activities, information and
communications and monitoring. Source: Summarized from Internal Control Integrated
Framework, issued by the Committee of Sponsoring Organizations (COSO), consisting of
the American Institute of CPAs (AICPA), the Institute of Management Accountants (IMA),
the Institute of Internal Auditors (IIA), Financial Executives International (FEI), and the
American Accounting Association (AAA). See
http://www.aicpa.org/audcommctr/toolkitsnpo/Internal_Control.htm (accessed 3-12-2010)
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12. Agencies should document and maintain support for the data and
assumptions used to develop grant accrual estimates. The
documentation will facilitate the agencys review of the assumptions, a
key internal control, and will also facilitate the auditors testing of the
estimates. Documentation should be complete and stand on its own,
i.e., a knowledgeable independent person could perform the same
steps and replicate the same results. If the documentation were from
a source that would normally be destroyed, then copies should be
maintained in the file for the purpose of reconstructing the estimates.
13. For both existing grant programs and new or modified grant programs,
managements documentation of relevant program design factors may
include:
a.
b.
c.
d.
b.
c.
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d.
e.
ii.
iii.
iv.
v.
vi.
f.
g.
h.
i.
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c.
20. When expert opinion is used as an interim measure, the agency should
document the experts qualifications, such as professional or academic
certification or length of experience, as well as the basis for the stated
opinion. In addition, the following documents should be maintained in
support of the experts opinion:
i.
ii.
Internal Controls:
Developing Grant
Accrual Estimates
TR 12 - Page 10
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b.
c.
d.
e.
f.
g.
h.
Calibration is the degree of precision within the model, i.e., the models ability to accurately
predict the trends of expenses incurred for a given grant program. The degree of calibration
within the model can be documented by charts or graphs showing projected expenses
incurred versus the actual expenses incurred by reporting period. This document would
analyze the variance between projected and actual expenses incurred by grantees.
7
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i.
Monitoring Internal
Controls
OMB Circulars are not applicable to legislative and judicial branch entities. However, the
general principles are appropriate for federal reporting entities in the legislative and judicial
branches.
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Validation of Grant
Accrual Estimates
b.
28. When developing grant accrual estimates, agencies only have access
to data that is available at the time. The nature and reliability of
available grant data varies widely and, because of the relationship
between the grantor and the grantee, is often only indirectly
influenced by management. The validation process includes an
understanding that estimates are inherently uncertain, and that
management must use judgment in determining:
a.
b.
TR 12 - Page 13
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11
12
At the time of this writing, grant recipients predominantly report expenditures. However,
expenses may be reported in some cases and in the future.
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Appendix A: Basis
for Conclusions
Project History
b.
c.
d.
Summary of Outreach
Efforts
A4. The exposure draft (ED), Accrual Estimates for Grants, was issued
March 22, 2010, with comments requested by April 22, 2010. Upon
release of the exposure draft, notices and press releases were
provided to:
a.
TR 12 - Page 16
Technical Release 12
b.
FASAB News
c.
d.
e.
f.
Comments Received
FEDERAL
(Internal)
0
4
NON-FEDERAL
(External)
3
2
15
19
0
5
A7. The majority of responses concurred with all aspects of the proposed
guidance. Revisions were made for the following reasons:
a.
b.
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c.
Netting of Grant-Related
Advances and Accounts
Payable
A8. The ED included the following proposed guidance on netting grantrelated advances and accounts payable on the face of the balance
sheet with a requirement to report grant-related advances and
accounts payable in a note to the financial statements:
Display
[26] When grant accrual estimates are prepared on an aggregate
level, agencies may display a net amount on the balance sheet
and report estimated disaggregated advances and liabilities in a
note. (An illustrative example is displayed in Appendix C,
Illustrative Example of Note on Netting Grant Advances and
Accrued Liabilities.)
A9. Although a majority of respondents concurred with the proposed
guidance, a significant minority found the language confusing. In
addition, the language appeared to allow netting in certain
circumstances and to prohibit it in other circumstances, which was
not the intent of the proposed TR. The AAPC believes that significant
revisions to the guidance would be needed to clarify it. Generally,
significant revisions are adopted only after providing an opportunity
for public comment. Given the time involved in issuing a revised ED
for comment, the AAPC decided to delete the proposed guidance on
netting from this TR. The AAPC expressed willingness to address the
issue of netting in the future if needed.
Effective Date
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Appendix B:
Illustrative Decision
Tree Diagrams for
Developing and
Validating Grant
Accruals
TR 12 - Page 19
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Does relevant
and reliable
historical data
exist?
Yes
No
Search
database for
historical trends.
Does
similar
historical
data exist?
Yes
Analyze
similarities
and
differences.
Apply historical
trend data to
most recent
data.
Apply to most
recent data.
Post accrual
estimate.
Post accrual
estimate.
No
Determine a
reasonable
basis for
initial
estimate
(e.g.,
straight-line
projection).
Post accrual
estimate.
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No
Was difference
caused by misuse of
information available
2
at the time?
Yes
No
Incorporate adjustment
into current period
estimate
Update data used to
calculate accrual estimate
for future periods.
Consider updating
process for estimating
accrual.
1.
See SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles, Amendment of
SFFAS 7, Accounting for Revenue and Other Financing Sources, paragraph 11.
2.
See SFFAS 21, paragraph 10.
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Appendix C:
Relevant Citations
of Existing
Guidance
13
14
15
16
SFFAS 5, Footnote [12] Goods or services may be provided under the terms of the
program in the form of, for example, contractors providing a service for the government on
the behalf of the disaster relief beneficiaries.
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Appendix D: AAPC
Grants Accounting
Task Force
Wendy M. Payne, Task Force Chair (AAPC Chair)
Task Force Working Group:
Department of Health and Human Services
DJ Business Solutions
Department of Transportation
Grant Thornton LLP
Kforce Government Solutions
Department. of Justice
Department of Justice
KPMG LLP
KPMG LLP
Clifton Gunderson LLP
Patricia Irving
Denise Joseph
Katherine Lambert
Shal Malhotra
Jim McKay
Marcia Paull
Frank Ramos
Catherine Supernaw
Derek Thomas
Denise Wu
TR 12 - Page 26
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TR 12 - Page 27
Status
Issued
June 1, 2011
Effective Date
Upon issuance
None.
Affects
None.
Affected by
None.
Summary
This technical release addresses the historical cost estimating of G-PP&E. The guide provides direction on
types of estimating methodologies and the documentation to support the valuation estimates of G-PP&E. This
guidance provides a foundation for preparers to exercise judgment in formulating those estimates. The
examples outlined illustrate the use of various estimating methodologies to derive the historical cost of GPP&E in accordance with existing guidance permitting use of estimates.
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Table of Contents
Page
Summary
Introduction
Purpose
Scope
Effective Date
Background
Overview
Technical Guidance
Examples of Practice
7
9
12
13
16
19
Appendix B: Abbreviations
22
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Introduction
Purpose
1.
2.
3.
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b.
c.
This implementation guide provides examples that federal entities can use
as guidelines when developing G-PP&E estimates of original transactional
data historical costs in accordance with the standards.
Scope
5.
6.
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Effective Date
7.
Overview
8.
Related Accounting
Literature
9.
Background
Other Relevant
Literature
a.
b.
c.
Technical Guidance
Examples of Practice
11. The examples outlined in this guide illustrate the use of various
estimating methodologies to derive the historical cost of G-PP&E in
TR 13 - Page 5
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b.
c.
Expenditures,
d.
e.
Estimates may be based on information such as, but not limited to, budget,
appropriations, engineering documents, contracts, or other reports
reflecting amounts to be expended.
15. The following examples provide methods used to estimate G-PP&E
historical costs. However, the examples are for illustrative purposes
only. The examples are not all-encompassing and agencies may
identify other more useful and relevant estimating methodologies. The
examples are not meant to be step-by-step instructions on how to
develop estimating methodologies. Users of this guidance should use
the information provided in these examples to develop their own
reasonable estimating methodologies. Federal entities implementing
this guidance are also encouraged to discuss any new estimation
methodologies with their auditors prior to implementation.
EXAMPLE 1 Deflation of Current Replacement5
16. The following example describes an estimation methodology used by
Agency A to establish an estimate of the original cost of a building
constructed in 1984. Agency A uses the estimated construction cost of
the building in present day dollars and then discounts that value back
Some of the information used in this example was obtained from the Public Sector
Accounting Standards Board (PSAB) of the Canadian Institute of Chartered Accountants
/Asset Management Newsletter No. 16 (prepared by KPMG).
TR 13 - Page 7
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to the year in which the asset was constructed. Agency A takes the
current replacement costs of similar items and deflates those costs,
through the Consumer Price Index (CPI). Note that other indices from
the Department of Labors Bureau of Labor Statistics also may be
appropriate but were not selected for use in this example.
Population of Data
17. The agency determined the cost of replacing the building in its same
physical form (with substantially the same materials and design); then
the agency used a pricing index to discount the current asset cost to its
estimated cost at the time of acquisition or construction.
Assumptions Used
18. The following assumptions were used to estimate the cost of the
building and land.
Calculation of Estimate
a.
b.
c.
d.
e.
For simplicity the example uses the Consumer Price Index to discount current replacement
costs to the year of original purchase or construction. In some cases, the Consumer Price
Index may be the only option. However, for some assets a more precise pricing index might
be available. For example, the Department of Labor's Bureau of Labor Statistics has an
extensive table of indices.
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Building
Addition
Total Building
Land
Total
Analysis of Data
2008 Reproduction
Cost
$8,000,000
$500,000
$8,500,000
$1,500,000
$10,000,000
Cost Index
19XX/2008
.4505
.6960
.4100
Estimate of
Original Cost
$3,604,000
$348,000
$3,952,000
$615,000
$4,567,000
20. Once the estimated historical cost of the building was established, the
cost was amortized to the 2008 opening balance sheet date using
appropriate depreciation rates in order to establish the opening net
book value.
Table 2:
At October
1, 2008
Building
Addition
Total
Building
Land
Total
Age/Useful
Life Years
24/40
9/15
Estimated
Historical Cost
$3,604,000
348,000
3,952,000
Accumulated
Depreciation
$2,162,400
208,800
2,371,200
Net Book
Value
$1,441,600
139,200
1,580,800
615,000
$4,567,000
0
$2,371,200
615,000
$2,195,800
Population of Data
TR 13 - Page 9
Technical Release 13
a.
Assumptions Used
on-site vouching,
ii.
iii.
b.
c.
d.
e.
23. The following assumptions were used to estimate the cost of the sea
vessels.
a.
b.
TR 13 - Page 10
Technical Release 13
c.
Analysis of Data
Calculation of Estimate
b.
c.
d.
e.
f.
25. Agency B then analyzed the financial statement impact of the appraisal
process to determine needed adjustments.
TR 13 - Page 11
Technical Release 13
Table 3:
ASSET
CLASS (#)
Delivery
Start
Delivery End
Vessel Class I
FY96
(16 VSLS)
FY04
Vessel Class II
FY 98
(65 VSLS)
Totals
FY06
System
Acquisition
Cost per
Fixed Asset
Records
Appraisal
Value less
Fixed Asset
Records
Depreciation
Expense
$3.0M
Net Change
$607.9M
Appraisal
Value less
Fixed Asset
Records
Acquisition
Cost
$(60.1)M
287.4M
7.6M
(5.7)M
1.9M
$895.3M
$(52.5)M
$(2.7)M
$(55.2)M
$(57.1)M
Population of Data
TR 13 - Page 12
Technical Release 13
29. Once the work group had both a project specific inventory of all real
property assets and a breakout of the actual capitalized costs by
project and class, they began the process of assigning a value to each
asset within a project not to exceed the total project cost. Utilizing all
available real estate records, project records, assistance from cost
estimating personnel, comparative data at other projects, real estate
financial information, operations data, engineer estimates, plus video
tapes, photographs, narrative descriptions of the structure and
professional judgment the work group either used actual cost or
estimated the cost of each asset ensuring the total dollars assigned
agreed with the total cost for each project as recorded in Agency Cs
financial subsystem.
EXAMPLE 4 Use of Budget and Appropriation Information
30. The following example outlines steps for estimating the historical cost
of existing assets using budget and appropriation information.
Assumptions Used
a.
b.
b.
c.
Documentation
b.
TR 13 - Page 13
Technical Release 13
b.
Table 4 below shows the FY 2007- Funded aircraft cost based on amounts
included in the Budget.
Table 4 - Calculations to Determine the Cost of FY 2007-Funded Aircraft
($ in Millions)
Procurement cost for 9 aircraft based on budget
$722.6
estimates
Less support equipment*
(81.1)
Total cost for the 9 aircraft
$641.5
$ 71.38
*The supporting equipment is subtracted from the aircraft procurement cost in order to capitalize this
equipment separate from the cost of the aircraft.8
TR 13 - Page 14
Technical Release 13
c.
Table 5 below shows the amount of the congressional appropriation for the
aircraft less the value of excluded amounts. Excluded amounts were based
on detail included in the Budget.
Table 5 - Appropriation Amount Less Excluded Items for Aircraft
($ in Millions)
Provided in FY 2007 Appropriations Act
725.0
Less support equipment (Based on budget detail)*
(81.1)
Adjusted appropriated amount for the 9 aircraft
643.9
71.5
*The funding for support equipment was not separately identified in the appropriation. For cost
purposes, the amount included in the Budget estimate ($81.1M) was used.
d.
643.9
(9.9)
634.0
70.4
TR 13 - Page 15
Technical Release 13
*The capitalized cost may not exceed the appropriated amount as adjusted by Departmental
reprogramming and congressional rescissions, (i.e., the amount shown in Table 6).
34. Documentation
a.
Population of Data
TR 13 - Page 16
Technical Release 13
Analysis of Data
TR 13 - Page 17
Technical Release 13
Calculation of Estimate
TR 13 - Page 18
Technical Release 13
Appendix A: Basis
for Conclusions
G-PP&E Acquisition
G-PP&E Use
G-PP&E Disposal
G-PP&E Records Retention
Department of Defense
Department of Energy
Department of the Interior
Government Accountability Office
General Services Administration
National Aeronautics and Space Administration
TR 13 - Page 19
Technical Release 13
A5. This implementation guide provides examples that federal entities can
use as guidelines when developing G-PP&E estimates of original
transactional data historical costs in accordance with the standards.
A6. The AAPC released the exposure draft (ED), Implementation
Guidance for Estimating the Historical Cost of General Property,
Plant, and Equipment on December 10, 2010. Upon release of the ED,
notices and/or press releases were provided to: The Federal Register,
the FASAB News, the Journal of Accountancy, AGA Today, the CPA
Journal, Government Executive, the CPA Letter, and committees of
professional associations commenting on past exposure drafts.
A7. Fifteen letters were received from the following sources:
FEDERAL
(Internal)
Users, academics, others
Auditors
Preparers and financial managers
NON-FEDERAL
(External)
2
3
10
Records Retention
Requirements Presented
in the Exposure Draft
TR 13 - Page 20
Technical Release 13
TR 13 - Page 21
Technical Release 13
Appendix B:
Abbreviations
AAPC
AICPA
AUP
CEFMS
CIP
COEMIS
DIS
FAR
FASAB
FASB
GAO
G-PP&E
GRS
IPA
NARA
OIG
OMB
PB
PP&E
SAS
SFFAS
TR
USACE
USCG
TR 13 - Page 22
Status
Issued
Effective Date
None.
Affects
SFFAS 23
Affected by
None.
Summary
The implementation guidance resolves an inconsistency between the implementation guidance provided in
SFFAS 23 and definitions in existing standards.
SIG 23.1
Table Of Contents
Contents
Page
Summary
Background
Effective Date
SIG 23.1
Background
1.
Staff Implementation
Guidance
2.
The above text suggests that all items formerly considered ND PP&E
should be classified as PP&E. In addition, par. II of SFFAS 23 provides
that all items previously considered ND PP&E are classified as
general PP&E. Par. 6b of SFFAS 23 also refers to classification as
general PP&E.
3.
4.
5.
6.
SIG 23.1
7.
8.
9.
Effective Date
Status
Issued
Effective Date
None.
Affects
SFFAC 31
Affected by
None.
Summary
This implementation guidance addresses questions on implementation of SFFAS 31, Accounting for Fiduciary
Activities that were raised by federal preparers.
SIG 31.1
Table of Contents
Summary
Background
Effective Date
12
12
SIG 31.1
Background
Staff
Implementation
Guidance
1.
2.
3.
4.
SFFAS 31
[8] This statement provides financial reporting standards for fiduciary
activities in the general purpose financial statements for Federal
entities. The standard does not affect reporting in the Budget of the
United States or special-purpose reports.
5.
Accordingly, SFFAS 31 does not apply to (a) reports such as standalone audited financial statements that are prepared under an "other
comprehensive basis of accounting" (which may be considered
"special purpose reports") or (b) individual statements provided to
beneficiaries.
6.
SIG 31.1
7.
8.
9.
SFFAS 31 provides:
SFFAS 31
[20] For component entities with several distinct fiduciary activities,
summary financial information required in paragraph 18 should be
provided for each fiduciary activity presented individually.
Information for fiduciary activities not presented individually (see
paragraph 21) may be aggregated.
[21] Selecting fiduciary activities to be presented individually requires
judgment. The preparer should consider both quantitative and
qualitative criteria. Acceptable criteria include but are not limited
to: quantitative factors such as the percentage of the reporting
entity's fiduciary net assets or inflows; and qualitative factors such
as whether a fiduciary activity is of immediate concern to
beneficiaries, whether it is politically sensitive or controversial,
whether it is accumulating large balances, or whether the
information provided in the fiduciary note disclosure would be the
primary source of financial information for the public.
10. Paragraph 20 of SFFAS 31 identifies the summary financial
information that should be provided for each fiduciary activity
presented individually and explains that this financial information
should be presented as aggregated for all activities not presented
individually. Paragraph 21 of SFFAS 31 recognizes that judgment
should be exercised in deciding if any fiduciary activities should be
presented individually. For example, subject to the considerations in
paragraphs 20 and 21, an entity might present summary financial
information for:
a.
b.
SIG 31.1
c.
d.
11. The entity may present simply "total fiduciary funds" as a single
column. Alternatively, the entity may present the information by
program office to facilitate performance measurement. Yet another
option is to present information by class of beneficiary.
12. Q 3: In some cases several bureaus within an agency or
department perform activities that result in fiduciary balances
that are distributed by another bureau of the agency. Should
each bureau include fiduciary activities disclosures in its stand
alone audited financial statements?
13. If the activity meets the definition of fiduciary activity it should be
disclosed as such in each bureau's stand alone audited financial
statements. (See paragraph 5 of this document for clarification
regarding special purpose reports.)
14. Per SFFAS 31, par. 10, in a fiduciary activity a Federal entity collects or
receives and subsequently manages, protects, accounts for, invests,
and/or disposes of cash or other assets in which non-Federal
individuals or entities (or "non-Federal parties") have an ownership
interest that the Federal Government must uphold.
15. For an activity to meet the definition of a fiduciary activity, the Federal
entity has to:
a.
b.
SIG 31.1
b.
SIG 31.1
SIG 31.1
SIG 31.1
SFFAC 2
[78] Some of a reporting entity's components are likely to be required by
law or policy to prepare and issue financial statements in
accordance with accounting standards other than those
recommended by FASAB and issued by OMB and GAO, e.g.,
accounting standards issued by the Financial Accounting Standards
Board or accounting standards established by a regulatory agency.
Those components should continue to issue the required reports.
The reporting entities of which the components are a part can issue
consolidated, consolidating, or combining statements that include
the components' financial information prepared in accordance with
the other accounting standards. They need to be sensitive, however,
to differences resulting from applying different accounting
standards that could be material to the users of the reporting entity's
financial statements. If these differences are material, the standards
recommended by FASAB and issued by OMB and GAO should be
applied. The components would need to provide any additional
disclosures recommended by FASAB and included in the OMBissued standards that would not be required by the other standards.
SFFAS 1
[12] Except as otherwise noted, the accounting and reporting provisions
of the accounting standards recommended in this Statement need
not be applied to items that are qualitatively and quantitatively
immaterial.
[13] The determination of whether an item is material depends on the
degree to which omitting or misstating information about the item
makes it probable that the judgment of a reasonable person relying
on the information would have been changed or influenced by the
omission or the misstatement.
SIG 31.1
SFFAS 3
[8] The accounting and reporting provisions of the Board's accounting
standards need not be applied to immaterial items. The
determination of whether an item is immaterial requires the exercise
of considerable judgment, based on consideration of specific facts
and circumstances.
[9] FASB's Statement of Accounting Concepts No. 2, "Qualitative
Characteristics of Accounting Information," discusses the concept
of materiality. According to this statement, the determination of
whether an item is material depends on the degree to which omitting
or misstating information about this item makes it probable that the
judgment of a reasonable person relying on the information would
have been changed or influenced by the omission or the
misstatement. This concept includes both qualitative and
quantitative considerations. An item that is not considered material
from a quantitative standpoint may be considered material if it
would influence or change the judgment of the financial statement
user.
31. In addition, the AICPA Code of Professional Conduct, Rule 203 states
(bold added):
SIG 31.1
SIG 31.1
Effective Date
Basis for
Conclusions
A1. After the issuance of SFFAS 31, several federal agencies had questions
about its implementation. Staff drafted an initial draft SIG based upon
questions from agencies and hosted a public meeting to discuss the
draft.
A2. Revised draft SIG was posted for public comment for the required twoweek comment period. Seven comment letters were received. Six
comment letters were from federal preparers and one was from a nonfederal professional organization. Based upon comments received,
staff drafted revised SIG and forwarded it to the Board on March 3,
2009 for a 15-day review period. The final SIG was issued on March 19,
2009.
secidnepAppendix
A
A: Topical Index
This index provides references to the topics in this Volume. References to the original statements are
organized as follows: The first character indicates that it is a Concepts Statement (C), a Standards Statement
(S), or an Intrepretation (I), or a Technical Release (T). This letter is followed by a number to indicate which
statement it refers to. The number is followed by a P for paragraph which is followed by the paragraph
number(s).
In addition to accounting topics, the index lists certain agencies or programs that have been used in illustrations or that have unique provisions within the standards.
TOPIC
SFFAS/C#
A
ACCOMPLISHMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C1P128-129
ACCOUNTABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C1P73-74
ACCOUNTS PAYABLE
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P74-80
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P151-156
ACCOUNTS RECEIVABLE
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P40-52
Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P53-55
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P116-133
Interest on Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P53-55
Sales of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P301
ACCRUAL ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P168-169
ACQUISITION COST
General PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S6P26
ADVANCES (see also "Other Current Liabilities")
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P57-61
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P137-139
AGRICULTURE, DEPARTMENT OF
Inter-entity costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S4P225
AMORTIZATION
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P147
Direct Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S2P30-32
Investments in Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . S1P70-71
APPROPRIATIONS (see also "Other Financing Sources")
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P331-332
Unexpended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P71-72
ASSESSMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P53-55
AUDIT
Legal Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T1
AUTHORITY TO BORROW
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P112-113
Appendix A - Page 1
TOPIC
SFFAS/C#
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P34-35
B
BAD DEBT (see also "Uncollectibles")
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P44-51
Loans
post-1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S2P71-72
pre-1992 direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S2P47
BAILOUT ENTITIES (see also "Entity"). . . . . . . . . . . . . . . . . . . . . . . . . C2P50
BALANCE SHEET (see also "Display") . . . . . . . . . . . . . . . . . . . . . . C2P84-85
BANK DEPOSIT INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P284
BUDGET ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P13-21
BUDGETARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P77-82
BUDGETARY INTEGRITY
Budget Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P46
Budget Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C21P63-64
Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P6
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P56
Focus of SFFAC #1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P42
Information for Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P110
Objective 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P112-121
User Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P89-91
BUDGETARY RESOURCES
character of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P24
Financial & budgetary accounting . . . . . . . . . . . . . . . . . . . . . .S7P203-225
reporting of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P77-82
Statement of Budgetary Resources . . . . . . . . . . . . . . . . . . . . C2P104-105
BUSINESS-TYPE ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S6P23-24
C
CANCELLATION OF DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P313
CAPITAL LEASES
Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S5P43-46
Property, Plant and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S6P20
CAPITALIZATION THRESHOLD
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S6P148-149
PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S6P13
CASH
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P27-30
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P103-105
CASH BASIS OF ACCOUNTING
financial reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P25-26
Appendix A - Page 2
TOPIC
SFFAS/C#
Appendix A - Page 3
TOPIC
SFFAS/C#
Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P250-255
D
DEDICATED COLLECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P83-87
DEFERRED MAINTENANCE
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S6P171-181
Reporting on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S6P77-84
Required Supplementary Information . . . . . . . . . . . . . . . . . . . . .S14P5-11
DEPRECIATION
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SP153-156
expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S6P35-39
DIRECT LOANS AND LOAN GUARANTEES
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S18P11
Reconciliation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S18P10
Subsidy Reestimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S18P9
DIRECT LOANS
(see also "Federal Credit Reform Act of 1990") . . . . . . . . . . . . . . . S2P22
DIRECTED FLOWS OF RESOURCES
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P69
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P198-202
DISCOUNT ON BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P69
DISPLAY
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P84-85
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P54-112
Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P74-83
Flow Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P58-62
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P68-73
Required Supplementary Stewardship Information. . . . . . . . . . . . S8P21
Statement of Budgetary Resources . . . . . . . . . . . . . . . . . . . . C2P104-105
Statement of Changes in Net Position . . . . . . . . . . . . . . . . . . . . . . C2P100
Statement of Custodial Activities . . . . . . . . . . . . . . . . . . . . . . C2P101-103
Statement of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P95-102
Statement of Net Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P86-99
Statement of Program Performance Measures. . . . . . . . . . . C2P106-111
Stock Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P57
DONATIONS
definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P258
General PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S6P30
PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S6P26
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P62
Appendix A - Page 4
TOPIC
SFFAS/C#
E
EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P201
EMPLOYEE BENEFITS
Contributions to health benefit plans . . . . . . . . . . . . . . . . . . . S7P318-319
Contributions to pension
and other retirement benefit plans . . . . . . . . . . . . . . . S7P316-317
Unemployment benefits and workers comp. . . . . . . . . . . . . . S7P320-321
ENTITY
Bailout Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P50
Federal Reserve System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P47
Government Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . . .C2P48-49
Including Components
Conclusive Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P41-42
Criteria for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P39-40
Indicative Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P43-46
Reporting Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C2P29-38
ENTITY ASSETS
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P25-26
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P100-102
ENTITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C2P9-53
ENVIRONMENTAL LIABILITIES
Probable and Reasonably Estimable . . . . . . . . . . . . . . . . . . . . . . . . . . . T2
ENVIRONMENTAL LIABILITIES (see also "Cleanup Cost")
Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P35-42
EXCHANGE REVENUE (see also "Revenue") . . . . . . . . . . . . . . . . . S7P33-47
F
FAIR VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S6P20
FEDERAL ACCOUNTING STANDARDS
ADVISORY BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C1P23-29
FEDERAL COMMUNICATIONS COMMISSION
Auction of the radio spectrum . . . . . . . . . . . . . . . . . . . . . . . . . S7P278-279
FEDERAL CREDIT REFORM ACT OF 1990
Interest on post-1991 direct loans . . . . . . . . . . . . . . . . . . . . . . . . . S7P280
Loan Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S2P23
Sales of direct loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P302
Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S2P24-32
FEDERAL CROP INSURANCE
Illustration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P110
FEDERAL DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P47-55
FEDERAL DEPOSIT INSURANCE
Appendix A - Page 5
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Illustration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P110
FEDERAL EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . .S7P285-288
FEDERAL EMPLOYEE RETIREMENT SYSTEM . . . . . . . . . . . . . . . . . S5P61
FEDERAL FINANCIAL REPORTING ENVIRONMENT. . . . . . . C1P177-179
FEDERAL MISSION PROPERTY, PLANT, AND EQUIPMENT
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S8P120-121
FEDERAL RESERVE SYSTEM
Deposits of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P256-257
Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P47
FINANCIAL POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P180-182
FINANCIAL REPORTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P21-70
FINES AND PENALTIES
definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P260-262
delinquent taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P263
FORECLOSED PROPERTY
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S3P79-91
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S3P154-158
Sales of Property Associated with Pre-1992 Direct
Loans and Loan Guarantees. . . . . . . . . . . . . . . . . . . . . . . . S7P300
FOREIGN CURRENCY (see also "Cash") . . . . . . . . . . . . . . . . . . . . . . . S1P27
FORFEITED PROPERTY
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S3P67-78
Basis for Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S3P139-153
Forfeiture Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P264-269
FULL COST (see also "Managerial Cost Accounting") . . . . . . . . . .S4P89-104
FUND BALANCE WITH TREASURY
Authority to borrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P35
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P106-115
Clearing account balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P32
Contract Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P34
Obligated balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P37
Unobligated balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P37-38
FUND BALANCE WITH TREASURY . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P38
FUNDED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P94-96
G
GAINS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P293-304
GENERAL SERVICES ADMINISTRATION
Inter-entity costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S4P225
Appendix A - Page 6
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HARBOR MAINTENANCE TRUST FUND
User Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P249
I
INCOME TAX BURDEN
Post 1999 Direct Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P69.1
INDIAN TRUST FUNDS
Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I1P3
INSURANCE AND GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . . . . S5P97-121
INTER-ENTITY COSTS (see also "Managerial Cost Accounting")S4P105-115
INTEREST
Post 1999 Direct Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P280
Receivables from custodial activities . . . . . . . . . . . . . . . . . . . . . . S7P281
Received by on fund from another . . . . . . . . . . . . . . . . . . . . . . . . S7P309
Received by Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P327
Treasury securities held by revolving funds . . . . . . . . . . . . . . S7P322-323
Treasury securities held by trust and special funds . . . . . . . S7P306-308
Treasury securities held by trust revolving funds . . . . . . . . . S7P324-325
Uninvested funds received by financing accounts . . . . . . . . . . . S7P326
INTEREST METHOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P71
INTEREST RECEIVABLE
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P55-56
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P134-136
INTEREST, DIVIDENDS, AND RENTS . . . . . . . . . . . . . . . . . . . . . S7P272-273
INTERNAL USE SOFTWARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P8-36
INTRAGOVERNMENTAL ASSETS AND LIABILITIES
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P18-24
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P98-99
INVENTORY HELD FOR SALE
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P27-28
Appendix A - Page 7
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JUDGMENT FUND
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I2P3
JUSTICE, DEPARTMENT OF
Diversion fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P283
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P264-269
L
LABOR, DEPARTMENT OF
State unemployment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P247-248
LAST-IN, FIRST-OUT METHOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P132
LATEST ACQUISITION COST
Inventory & Related Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P23
LEGITIMACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P109
LIABILITIES
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P19
Exchange transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S5P22-23
Government-acknowledge events . . . . . . . . . . . . . . . . . . . . . . . .S5P30-32
Government-related events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S5P27-29
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S12P10-11
Nonexchange transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S5P24-25
LIFE INSURANCE PREMIUMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P284
LOAN GUARANTEES (see also "Federal Credit Reform Act of 1990")S2P23
LOSSES ON CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P36
LOSSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P293-304
LOWER OF COST OR MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . .S3P118-120
M
MANAGEMENT DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . S7P191
MANAGEMENTS DISCUSSION AND ANALYSIS
Basic Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C3P1
Discussion and Analysis of Performance . . . . . . . . . . . . . . . . . C3P42-49
Discussion and Analysis of Systems, Controls, Compliance . C3P40-41
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NATIONAL FLOOD INSURANCE
Illustration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P110
NATIONAL SCIENCE FOUNDATION
Inter-entity costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S4P225
NET COSTS
Display . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P100
Exchange Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P43-44
NET POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P84
NON-ENTITY ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S1P26
NONEXCHANGE REVENUE
Recognition by Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I5P2
NONEXCHANGE REVENUE (see also "Revenue") . . . . . . . . . . . . . S7P48-69
Appendix A - Page 9
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O
OBLIGATIONS INCURRED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P96
OFFICE OF PERSONNEL MANAGEMENT
Retirement costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P51
OPERATING MATERIALS AND SUPPLIES
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S3P36-50
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P34
OTHER CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . .S1P158-160
OTHER FINANCING SOURCES
Appropriations
Unexpended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P71
Used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P72
Financing Imputed for Cost Subsidies. . . . . . . . . . . . . . . . . . . . . . . S7P73
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P70
Transfers of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P74-75
OTHER FINANCING SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P70-75
OTHER POSTEMPLOYMENT BENEFITS. . . . . . . . . . . . . . . . . . . . .S5P94-96
OTHER RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . .S5P79-93
OUTCOME
Indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P206-208
Information on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S8P93
Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S8P99
OUTER CONTINENTAL SHELF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P274
OUTPUT
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S8P99
Information on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S8P93
Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P205
OVERSEAS INVESTMENT INSURANCE
Illustration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P110
P
PENALTIES (see also "Fines and Penalties") . . . . . . . . . . . . . . . . . . . . S7P61
Appendix A - Page 10
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RAILROAD RETIREMENT BOARD . . . . . . . . . . . . . . . . . . . . . . . . S7P341-343
RECOGNITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P19
RECONCILIATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P91-94
REFUNDS
Exchange Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P41
Nonexchange Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P57-58
RELEVANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P161
RELIABILITY
Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P160
Performance measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P109
RENTS AND ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P274-277
REPAIR ALLOWANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P32-33
REPORTING ENTITY (see also "Entity") . . . . . . . . . . . . . . . . . . . . .C2P29-53
REPORTING OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C1P105-150
REQUIREMENT FOR COST ACCOUNTING
Appendix A - Page 11
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SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P294-300
Appendix A - Page 12
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SALES OF
Goods and services
intragovernmental
by a revolving fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P314
by other than a revolving fund . . . . . . . . . . . . . . . . . . . . . S7P315
Goods and services in undercover operations . . . . . . . . . . . . . . . S7P271
Goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P270
Government assets other than PP&E,
forfeited and foreclosed property . . . . . . . . . . . . . . . . . . . S7P294
PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P295-296
SECURITIES AND EXCHANGE COMMISSION
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P282
SEIGNIORAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P305
SEIZED PROPERTY
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P59-66
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P139-153
SOCIAL INSURANCE
Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S8P36-37
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S8P116-117
Characteristics of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S17P15-21
Entity Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S17P22-27
Governmentwide Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S17P29-32
SOCIAL SECURITY (see also "Social Insurance")
Federal employees coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P310
Recognition and Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . S8P116
SOFTWARE
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P8-36
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P32-34
Capitalizable Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P16-18
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P8-9
Development Phases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P10-14
Enhancements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P25-27
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S10P28-31
SOVEREIGNTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P50
STANDARD COST
Cost Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S4P160-162
Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P123-128
System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S3P22
STATE, DEPARTMENT OF
Inter-entity costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S4P225
Appendix A - Page 13
TOPIC
SFFAS/C#
T
TAX BURDEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P69
TAX EXPENDITURES
Definition of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P192-197
OAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P69
TAX GAP
Nonexchange Revenue Gap . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P188-191
OAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P69
TAXES AND DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P49-60
TIMELINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1P162
TIMELINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P109
TRANSFERS OF ASSETS
Cash and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P344
Stewardship PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P345-346
TRANSFERS OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P74-75
TREASURY SECURITIES
Accounting for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P62-73
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S1P140-150
TREASURY, DEPARTMENT OF
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P264-269
TRUST FUND
Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P68
Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2P19-20
Excise Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P60
Over- & Under-funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P177
Social Security Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P60
U
UNCOLLECTIBLE AMOUNTS
Bad Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P39-40
Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S7P126-131
Appendix A - Page 14
TOPIC
SFFAS/C#
V
VETERANS AFFAIRS, DEPARTMENT OF
Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P110
Medical Care Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P182-184
Responsibility Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S4P188
Whole Life Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S5P115
Whole Life, Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . S5P191-193
W
WEAPONS SYSTEM
Federal Mission PP&E. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S7P50-51
Appendix A - Page 15
Concept
SFFAC 1
SFFAC 2
SFFAC 3
SFFAC 4
SFFAC 5
SFFAC 6
Statement
SFFAS 1
9/30/93
SFFAS 2
9/30/93
SFFAS 3
9/30/93
SFFAS 4
9/30/97
SFFAS 5
9/30/96
SFFAS 6
9/30/97
SFFAS 7
9/30/97
SFFAS 8
9/30/97
SFFAS 9
9/30/97
SFFAS 10
9/30/00
SFFAS 11
9/30/98
SFFAS 12
9/30/97
SFFAS 13
9/30/98
SFFAS 14
9/30/98
SFFAS 15
9/30/99
SFFAS 16
9/30/99
SFFAS 17
9/30/99
SFFAS 18
9/30/00
SFFAS 19
9/30/02
SFFAS 20
9/30/00
SFFAS 21
9/30/01
SFFAS 22
9/30/00
Appendix B - Page 1
9/30/02
SFFAS 24
Selected Standards for the Consolidated Financial Report of the United States
Government
9/30/01
SFFAS 25
9/30/02
SFFAS 26
SFFAS 27
SFFAS 28
SFFAS 29
9/30/2005
SFFAS 30
9/30/2005
SFFAS 31
9/30/2008
SFFAS 32
9/30/2005
SFFAS 33
9/30/2009
SFFAS 34
Upon issuance
SFFAS 35
Estimating the Historical Cost of General Property, Plant, and Equipment -Amending Statements of Federal Financial Accounting Standards 6 and 23
Upon issuance
SFFAS 36
9/30/2009
SFFAS 37
9/30/2010
SFFAS 38
9/30/2011
SFFAS 39
SFFAS 40
9/30/2005
9/30/2005
Upon issuance
Upon issuance
Technical
Bulletin
9/30/2011
Date
Issued
2000-1
6/1/00
2002-1
Assigning to Component Entities Costs and Liabilities that Result from Legal
Claims Against the Federal Government
7/1/02
2002-2
9/1/02
2003-1
Certain Questions and Answers Related to the Homeland Security Act of 2002
2006-1
9/28/2006
2009-1
9/22/2009
Appendix B - Page 2
6/1/03
Interpretations
I-1
3/12/97
I-2
3/12/97
I-3
8/29/97
I-4
I-5
I-6
I-7
Technical
Releases
TR-1
TR-2
TR-3
2/99
TR-3 (Revised)
Auditing Estimates for Direct Loan and Loan Guarantee Subsidies under the
Federal Credit Reform Act Amendments to Technical Release No. 3 Preparing
and Auditing Direct Loan and Loan Guarantee Subsidies under the Federal
Credit Reform Act
1/04
TR-4
7/31/99
TR-5
5/14/02
TR-6
Preparing Estimates for Direct Loan and Loan Guarantee Subsidies under the
Federal Credit Reform Act Amendments to Technical Release No. 3 Preparing
and Auditing Direct Loan and Loan Guarantee Subsidies under the Federal
Credit Reform Act
TR-7
5/25/2007
TR-8
2/20/2008
TR-9
2/20/2008
TR-10
6/2/2010
TR-11
6/2/2010
TR-12
8/4/2010
TR-13
6/1/2011
12/19/97
12/98
6/00
3/16/2007
Date
Issued
3/1/98
3/15/98
Staff
Implementation
Guidance
1/04
Date issued
SIG 23.1
1/31/2006
SIG 33.1
3/19/2009
Appendix B - Page 3
B.
Selections and Appointments. The GAO, OMB, and Treasury members will be selected by their
respective agencies. The six non-federal members will be selected by the Sponsors. In selecting the
non-federal members, the Sponsors shall:
(1) seek nominations from a wide variety of sources;
(2) consider, among other criteria, an individual's
(A) broad professional background, and
(B) expertise in federal government accounting, financial reporting, and financial
management; and
(3) consider the recommendations of a panel convened by the chairperson.
Appendix C - Page 1
Tenure. The GAO, OMB, and Treasury members shall serve at the discretion of their respective
agency heads. The six non-federal members will serve initial terms of up to five years with a
possible reappointment for one additional term of up to five years.
D.
Duties. The Board will consider accounting concepts and standards. The Board will not set or
propose budget concepts, standards, and principles. In considering accounting concepts and
standards, consideration will be given to the budgetary information needs of executive agencies and
the needs of users of Federal financial information. Board recommendations on accounting
concepts or standards will be submitted to the Comptroller General, the Secretary of the Treasury,
the Director of the Office of Management and Budget, and the Director of the Congressional Budget
Office.
E.
Meetings and Agendas. The Board will meet whenever necessary or at the request of the
Comptroller General, the Secretary of the Treasury, or the Director of OMB, and will establish
detailed working procedures. Board members will be expected to attend all meetings.
F.
Funding. The Sponsors shall share in funding the Board on an equitable basis.
Staff. A core group of qualified technical staff will support the Board in carrying out its duties and
functions. The staff will spend its time working on Board matters and, from time to time, may be
augmented with staff assigned from government departments or agencies or other organizations.
B.
Task Forces. The Board may appoint task forces as necessary to advise it on a variety of accounting
matters. Task forces will play an important role in the accounting standard-setting process. They
will provide expert views and recommend solutions to issues or problems.
Section 3. Accounting Concept and Standard-Setting Process. The Board will follow a six-step process for
considering accounting concepts and standards. The steps in the process are:
(1) Identification of accounting issues and agenda decisions,
(2) Preliminary deliberations,
(3) Preparation of initial documents (issues papers and/or discussion memorandums),
(4) Release of documents to the public, public hearings, and considerations of comments,
(5) Further deliberations, exposure draft, and consideration of comments, and
Appendix C - Page 2
(6) At least a two-thirds majority vote reached among Board members in favor of proposed
concepts and standards submitted to the Comptroller General, the Secretary of the Treasury, and
the Director of OMB.
The Board will determine the detailed procedures necessary to implement these steps.
Section 4. Concepts and Standards. Concepts and standards provide a frame of reference for resolving
accounting issues.
When the Board has developed a proposed concept or standard, the Board shall submit it to the Comptroller
General, the Director of OMB, and the Secretary of the Treasury for their review. If, within 90 days after its
submission, the Comptroller General or the Director of OMB, (or both) objects (object) to the concept or
standard, then it shall not be issued and will be returned to the Board for further consideration; provided
however, that the Comptroller General or the Director of OMB, may, in the event that unanticipated
circumstances make it difficult for the Comptroller General or the Director of OMB to complete the 90 day
review timely, extend the review time for one additional 90 day period. If the Comptroller General or the
Director of OMB implements such an extension, he or she will notify the FASAB Chair. If neither the
Comptroller General nor the Director of OMB objects to the concept or standard during the review time
provided in this paragraph, including any extension of the review time, then it shall be issued and become a
final concept or standard of the Board. Concepts and standards will be announced in the Federal Register.
A proposed Interpretation or Technical Release shall be submitted to the members of the Board representing
the three Sponsors for their review. If, within 45 days after its submission, any one of the members
representing a Sponsor objects to the proposed Interpretation or Technical Release, then it shall be returned
to the Board for further consideration. If, within 45 days after its submission, none of these officials objects to
the Interpretation or Technical Release, then it shall become final. Final Interpretations and Technical
Releases will be announced in The Federal Register.
The Sponsors agree that standards set and promulgated following the Boards Rules of Procedure are
recognized to have substantial authoritative support, and those accounting standards contrary to such
promulgation are not. The Sponsors retain their authorities, separately and jointly, to establish and adopt
accounting standards for the federal government.
Section 5. Termination. Any modification to this memorandum shall be effective if agreed to by each of the
three signatory agencies. This memorandum shall remain in effect until 120 days after one of the Sponsors
provides notice of intent to terminate the agreement.
Appendix C - Page 3
Section 6. Effective Date. This memorandum of understanding is effective when executed by the Sponsors.
___/s/_________________________
____________
Timothy F. Geithner
Secretary of the Treasury
12/3/2009
___/s/_________________________
____________
Peter R. Orszag
Director, Office of Management
and Budget
11/2/2009
____/s/________________________
____________
Gene L. Dodaro
Acting Comptroller General of the
United States
10/5/2009
Appendix C - Page 4
[This appendix lists sources where one can get individual documents that are issued between updates of
the Codification. These and other relevant resources are listed here.]
FASAB -- www.fasab.gov
Office of Management and Budget -- www.whitehouse.gov/omb
Government Accountability Office -- www.gao.gov
Treasury Financial Management Service -- www.fms.treas.gov
Appendix D - Page 1
Abandoned Property
Property of any type over which the rightful owner has relinquished
possession and any claim of an ownership interest, without assertion of an
adverse right to possession and control by the federal government. This
would include property left at a government facility and unclaimed by the
rightful owner following notice of intent to dispose. This property is a type
of seized property.
Abatement
Accountability Reports
Accrual Accounting
Appendix E - Page 1
Activity
Activity Analysis
Activity-based Costing
Actual Cost
Actual Custody
Appendix E - Page 2
Actuarial Balance
The difference between the summarized cost rate and the summarized
income rate over a given valuation period.
A recognized actuarial technique used for establishing the amount and the
incidence of employer contributions or accounting charges for pension
costs under a pension plan.
A change in the value of an estimated liability (or the benefit plan's assets)
resulting from experience different from that assumed or from a change in
an actuarial assumption. Past experience is reflected in current costs
through actuarial gains and losses.
Actuarial Liability
Actuarial Status
A system of applying the entry age normal actuarial cost methodology using
aggregate population models or groups instead of applying it individual by
individual.
Allocations
Appendix E - Page 3
Allotment
Ammunition
Amortization
Anticipated
Appendix E - Page 4
Applied Research
Apportionment
Appropriation
Assessments
Assets
Appendix E - Page 5
Attribution
Assumptions
Appendix E - Page 6
Authority To Borrow
Avoidable Cost
A cost associated with an activity that would not be incurred if the activity
were not performed.
Basic Financial
Statements
Basic Information
Basic Research
Appendix E - Page 7
Beneficiary
Betterment
The Black Lung program consists of two parts: Part B and Part C.
Recipients who filed claims from 1970 to mid-1973 are covered by Part B;
all other recipients are covered by Part C.
Book Value
Appendix E - Page 8
Budget
The Budget of the United States Government setting forth the Presidents
comprehensive financial plan for allocating resources. The Government
uses the budget system to allocate resources among its major functions and
individual programs. The budget process has three main phases:
formulation, congressional action on the budget, and execution. Some
presentations in the budget distinguish between on-budget and offbudget totals. On-budget totals reflect the transactions of all
Government entities except those excluded from the unified budget totals
by law. Likewise, off-budget totals reflect the transactions of Government
entities that are excluded from the unified budget totals by law. Currently
excluded are the social security trust funds and the Postal Service Fund.
The on- and off-budget totals are combined to derive unified or
consolidated totals for Federal activity. The budget amounts and
references in this exposure draft refer to the unified budget. [See FY 2003
Budget of the United States Government: Analytical Perspectives, Budget
System and Concepts and Glossary.]
Budget Authority
Appendix E - Page 9
Budget Obligation
Budget Outlay
Budget Receipt
Budget Surplus Or
Deficit, Unified
The unified budget surplus is the excess of budget receipts over budget
outlays during a fiscal year and a deficit is the excess of budget outlays over
budget receipts during a fiscal year. [See FY 2003 Budget of the United
States Government: Analytical Perspectives, Budget System and Concepts
and Glossary.] (SFFAS 24)
Budget, Unified
The budget presents combined on- and off-budget totals to derive totals for
Federal activity, which is sometimes called the unified budget. The offbudget receipts and outlays of the Social Security trust funds and the Postal
Service Fund are added to the on-budget receipts and outlays to calculate
the unified budget totals.
Budgetary Accounting
Budgetary accounting is the system that measures and controls the use of
resources according to the purposes for which budget authority was
enacted; and that records receipts and other collections by source. It tracks
the use of each appropriation for specified purposes in separate budget
accounts through the various stages of budget execution from
appropriation to apportionment and allotment to obligation and eventual
outlay. This system is used by the Congress and the Executive Branch to set
priorities, to allocate resources among alternative uses, to finance these
Appendix E - Page 10
Budgetary Resources
Capital Leases
Leases that transfer substantially all the benefits and risks of ownership to
the lessee.
Capitalize
To record and carry forward into one or more future periods any
expenditure the benefits or process from which will then be realized.
Cash Accounting
The agencys projection of the dollar amount for the scheduled cash flows
and deviations from scheduled cash flow items for each year, e.g., over the
life of a cohort of loans.
Appendix E - Page 11
Cash Flows
Category I nonfriable
asbestos-containing
material (ACM)
Category II nonfriable
ACM
Central Fund
Changes In Accounting
Principles
Cleanup Costs
Closed Group
Appendix E - Page 12
Cohort
Collateral
Collections
Common Cost
Appendix E - Page 13
Component Entities
Composite Depreciation
Methodology
Condition
Condition Assessment
Surveys
Appendix E - Page 14
Constant Dollar
A dollar value adjusted for changes in the average price level. A constant
dollar is derived by dividing a current dollar amount by a price index. The
resulting constant dollar value is that which would exist if prices had
remained at the same average level as in the base period. Any changes in
such constant dollar values would therefore reflect only changes in the real
volume of goods and services, not changes in the price level. Constant
dollar figures are commonly used to compute the real value of the gross
domestic product and its components and to estimate the real level of
Federal receipts and outlays. (GAO Budget Glossary)
Constructive Custody
Contributions
Consumption Method
Contingency
Contra Account
Appendix E - Page 15
Contract Authority
Controllable Cost
A cost that can be influenced by the action of the responsible manager. The
term always refers to a specified manager since all costs are controllable by
someone.
Cost
Cost Allocation
Cost Assignment
A process that identifies costs with activities, outputs, or other cost objects.
In a broad sense, costs can be assigned to processes, activities,
organizational divisions, products, and services. There are three methods of
cost assignment: (a) directly tracing costs wherever economically feasible,
(b) cause-and-effect, and (c) allocating costs on a reasonable and
consistent basis.
Cost-benefit Analysis
Appendix E - Page 16
Cost Driver
Any factor that causes a change in the cost of an activity or output. For
example, the quality of parts received by an activity, or the degree of
complexity of tax returns to be reviewed by the IRS.
Cost Finding
Cost Rate
The ratio of expenditures for the program to the taxable payroll for the
year.
Covered Employment
Covered Worker
Credit Program
For the purpose of this Statement (SFFAS 19), a federal program that
makes loans and/or loan guarantees to nonfederal borrowers.
Appendix E - Page 17
Current Liabilities
Amounts owed by a federal entity for which the financial statements are
prepared, and which need to be paid within the fiscal year following the
reporting date.
Current Services
Assessment
Custodial Agency
Debt-to-GDP Ratio
The debt-to-GDP ratio, for the purposes of federal financial reporting, is the
amount of federal (Treasury) debt held by the public divided by gross
domestic product. [An alternative ratio would be the amount of total public
debt (federal, state, and local) divided by GDP.]
Dedicated Collections
(Or Taxes)
Appendix E - Page 18
Default
Deferred Maintenance
and Repairs
Maintenance and repairs that were not performed when they should have
been or were scheduled to be and which, therefore, are put off or delayed
for a future period.
Demographic
Assumptions
Deposit Fund
Depreciation
Accounting
Development
Differential Cost
Direct Cost
Appendix E - Page 19
Direct Loan
Directed Flows Of
Resources
Disclosure
Discount
The difference between the estimated worth of a future benefit and its
present value; a compensation for waiting or an allowance for returns from
using the present value of these returns in other ways.
Discount Rate
Discretionary Spending
Appendix E - Page 20
Donated Capital
Drawbacks
Earmarked
Earmarked Fund
Appendix E - Page 21
The U.S. Treasury does not set aside assets to pay future expenditures
associated with earmarked funds. Instead, the cash generated from
earmarked funds is used by the U.S. Treasury for general government
purposes.
Treasury securities are issued to the earmarked fund as evidence of
earmarked receipts and provide the fund with the authority to draw
upon the U.S. Treasury for future authorized expenditures (although for
some funds, this is subject to future appropriation).
Treasury securities held by an earmarked fund are an asset of the fund
and a liability of the U.S. Treasury, so they are eliminated in
consolidation for the U.S. Government-wide financial statements.
When the earmarked fund's Treasury securities are redeemed to make
expenditures, the U.S. Treasury will finance those expenditures in the
same manner that it finances all other expenditures.1
Earmarked Taxes
Econometric Model
Appendix E - Page 22
Jerry M. Rosenberg, Ph.D., Wiley & Sons, New York, 1982, hereafter cited as
Rosenbergs Dictionary.)
Economic Assumptions
Economic assumptions address the economic factors that are not under the
direct legislative control of the federal government (for example, inflation
and growth in GDP).
Economic Life
End User
Any component of a reporting entity that obtains goods for direct use in its
normal operations. The component may also be a contractor.
Entitlement Period
The period (such as, monthly) for which benefits become due.
Entitlement Program
Entity
Appendix E - Page 23
Errors
Estimated Cost
Event
Exchange Revenue
Exchange Transaction
A transaction that arises when each party to the transaction sacrifices value
and receives value in return.
Executory Contract
A contract which has not been performed by all parties to it. (Trascona,
Joseph L., Business Law, William C. Brown C. Publishers, 1981)
Appendix E - Page 24
Executory Cost
Those costs such as insurance, maintenance, and taxes incurred for leased
property, whether paid by the lessor or lessee. (Financial Accounting
Standards Board, Statement of Financial Accounting Standards No. 13,
Accounting for Leases)
Expected Value
Expended
Appropriations
Expenditure
Expense
Expired Appropriations
(Accounts)
See entity.
Appendix E - Page 25
Fiduciary
(noun) A Federal entity that holds assets in trust for non-Federal parties in
which the non-Federal parties have an ownership interest that the Federal
Government must uphold.
(adjective) Relating to the process of the collection or receipt, and the
management, protection, accounting, investment and disposition by the
Federal Government of cash or other assets in which non-Federal
individuals or entities have an ownership interest that the Federal
Government must uphold.
Fiduciary Activity
Fiduciary Asset
Fiduciary Collections
Cash that is held in the U.S. Treasury and administered by a Federal entity
on behalf of fiduciary beneficiaries.
Fiduciary Relationship
Appendix E - Page 26
Financing Account
A cost flow assumption; the first goods purchased or produced are assumed
to be the first goods sold.
Fiscal Gap
The fiscal gap is the change in non-interest spending and/or receipts that
would be necessary to maintain public debt at or below a target percentage
of GDP. The fiscal gap is the net present value of projected non-interest
spending2 minus projected receipts, adjusted by the decrease (or increase)
in public debt required to maintain public debt at the target level for the
stated projection period. The fiscal gap may be expressed as:
(a) a summary amount in present value dollars,
(b) a share of the present value of the GDP3 for the projection period,
and/or
(c) a share of the present value of projected receipts or projected noninterest spending.
Fiscal Sustainability
Reporting
Since interest is factored into the present value calculation, the fiscal gap as a share of
spending is expressed as a share of spending excluding interest.
3
GDP is the total market value of goods and services produced domestically during a given
period. The components of GDP are consumption (both household and government), gross
investment (both private and government), and net exports.
Appendix E - Page 27
Fixed Cost
A cost that does not vary in the short term with the volume of activity. Fixed
cost information is useful for cost savings by adjusting existing capacity, or
by eliminating idle facilities. Also called Non-Variable Cost or Constant
Cost.
Forecast
Foreclosure
Forfeited Property
Friable ACM
Appendix E - Page 28
Full-absorption Costing
Full Cost
Fund
Fund has more than one meaning. Depending on the context it may mean
merely a resource as in funds available to pay an obligation. Or, for
budgetary accounting, it may mean Federal funds or "trust funds," the two
major groups of funds in the budget.4 The Federal funds include all
transactions not classified by law as being in trust funds. The main
financing component of the Federal funds group is referred to as the
General Fund, which is used to carry out the general purposes of
Government rather than being restricted by law to a specific program and
consists of all collections not earmarked by law to finance other funds.
A fund can also mean a fiscal and accounting entity with a self-balancing set
of accounts recording cash and other assets, together with all related
liabilities and residual equities or balances, and changes therein, which are
segregated for the purpose of carrying on specific activities or attaining
4
An explanation of the two major categories of Federal Funds and Trust Funds may be
found in Chapter 22, "Trust Funds and Federal Funds," of Analytical Perspectives, Budget of
the U.S. Government, Fiscal Year 2006.
Appendix E - Page 29
Fully Insured
A Federal entity's fund balance with the Treasury is the aggregate amount
of funds in the entity's accounts with Treasury for which the entity is
authorized to make expenditures and pay liabilities. Fund balance with
Treasury is an intra-governmental item. From the component entity's
perspective, a fund balance with Treasury is an asset because it represents
the entity's claim to the Federal Governments resources. However, from
the perspective of the Federal Government as a whole, it is not an asset;
and while it represents a commitment to make resources available to
Federal departments, agencies, programs and other entities, it is not a
liability. An entity's fund balance with Treasury is increased by, among
other things, amounts collected and credited to a fund that the entity is
authorized to spend or use to offset its expenditures. Disbursements made
to pay liabilities or to purchase assets, goods, and services, investments in
Treasury or other securities, transfers and reimbursements to other entities
Appendix E - Page 30
Garnishments
General Fund
Accounts for receipts not earmarked by law for a specific purposes, the
proceeds of general borrowing, and the expenditure of these moneys.
(OMB, The Budget System and Concepts)
Land and land rights owned by the Federal Government that are acquired
for or in connection with items of general PP&E.
General Purpose
Financial Reports
Reports intended to meet the common needs of diverse users who typically
do not have the ability to specify the basis, form, and content of the reports
they receive.
Good
Governmentacknowledged Events
Events that are not a liability in themselves, but are those events that are
of financial consequence to the federal government because it chooses to
respond to the event.
Governmental Receipts
Collections from the public that result primarily from the exercise of the
Government's sovereign or governmental powers. Governmental receipts
consist mostly of individual and corporation income taxes and social
insurance taxes but also include excise taxes, compulsory user charges,
customs duties, court fines, certain license fees, gifts and donations, and
deposits of earnings by the Federal Reserve System. They are compared to
outlays in calculating a surplus or deficit. (OMB, The Budget System and
Concepts)
Appendix E - Page 31
Government-related
Events
Grants
31 USC Sec. 6304 defines grants as follows: An executive agency shall use a
grant agreement as the legal instrument reflecting a relationship between
the United States Government and a State, a local government, or other
recipient when (1) the principal purpose of the relationship is to transfer a
thing of value to the State or local government or other recipient to carry
out a public purpose of support or stimulation authorized by a law of the
United States instead of acquiring (by purchase, lease, or barter) property
or services for the direct benefit or use of the United States Government;
and (2) substantial involvement is not expected between the executive
agency and the State, local government, or other recipient when carrying
out the activity contemplated in the agreement.
A nation's gross domestic product is one of the ways for measuring the size
of its economy. The GDP of a nation is defined as the total market value of
all final goods and services produced domestically during a given period of
time. The components of GDP are:
GDP = private sector consumption and investment + government
consumption and investment + net exports (exports - imports).
Group Depreciation
Methodology
Hazardous Waste
Appendix E - Page 32
Heritage Assets
Property, plant, and equipment that are unique for one or more of the
following reasons: historical or natural significance; cultural, educational or
artistic (e.g., aesthetic) importance; or, significant architectural
characteristics.
Historical Cost
Initially, the amount of cash (or its equivalent) paid to acquire an asset;
subsequent to acquisition, the historical amount may be adjusted for
amortization.
Human Capital
Inventory
Inventory is tangible personal property that is (1) held for sale, (2) in the
process of production for sale, or (3) to be consumed in the production of
goods for sale or in the provision of services for a fee.
Impacts
Appendix E - Page 33
Imputed Financing
The unreimbursed portion of the full costs of goods and services received
by the entity from a providing entity that is part of the same department or
larger reporting entity (i.e. other bureaus, components or responsibility
segments within the department or larger reporting entity). (Interpretation
6)
Income Rate
The ratio of contributions and tax income to taxable payroll for the year.
Incremental Cost
The increase or decrease in total costs that would result from a decision to
increase or decrease output level, to add a service or task, or to change any
portion of operations. This information helps in making decisions such as
to contract work out, undertake a project, or increase, decrease, modify, or
eliminate an activity or product.
Indirect Cost
Internal Controls
Insurance And
Guarantee Programs
Appendix E - Page 34
Inter-entity
Interest
The service charge for the use of money or capital, paid at agreed intervals
by the user, commonly expressed as an annual percentage of outstanding
principal.
Interest Method
Interest Rate
The price charged per unit of money borrowed per year, or other unit of
time, usually expressed as a percentage.
Intergenerational Equity
Intergenerational equity refers to the extent that different age groups are
required to assume the financial burdens for services provided to other age
groups.
Internal Control
Appendix E - Page 35
Intragovernmental Fund
Land
Land is the solid part of the surface of the earth. Excluded from the
definition of land are the natural resources (that is, depletable resources
such as mineral deposits and petroleum; renewable resources such as
timber, and the outer-continental shelf resources) related to land.
A cost flow assumption; the last goods purchased are assumed to be the
first goods sold.
Appendix E - Page 36
A method that provides that all like units that are held be valued at the
invoice price of the most recent like item purchased, less any discounts,
plus any additional costs incurred to bring the item to a form and location
suitable for its intended use.
Legacy Entity
Liability
Life-cycle Costing
Liquidating Account
The budget account that includes all cash flows to and from the
government resulting from pre-1992 direct loans or loan guarantees (those
originally obligated or committed before Oct. 1, 1991), except those pre1992 direct loans and loan guarantees that have been directly modified and
transferred to a financing account. (See OMB Circular A-11)
Loan Guarantee
Any guarantee, insurance, or other pledge with respect to the payment of all
or part of the principal or interest on any debt obligation of a nonfederal
borrower to a nonfederal lender but does not include the insurance of
deposits, shares, or other withdrawable accounts in financial institutions.
(OMB Circular A-11)
Loan Guarantee
Commitment
Appendix E - Page 37
Long-term Assumptions
Lower Of Cost Or
Market
Maintenance
Managerial Cost
Accounting System
Mandatory Spending
Appendix E - Page 38
Marketable Treasury
Securities
Debt securities, including Treasury bills, notes, and bonds, that the U.S.
Treasury offers to the public and are traded in the marketplace. Their bid
and ask prices are quoted on securities exchange markets.
Market-based Treasury
Securities
Market Value
Measurable
Medicare
Appendix E - Page 39
Military Missions
Model
Modeling
Model Parameters
The values that identify a unique model from the general form. For
example, y=2x+3 has parameters a=2 and b=3 for the simple regression
model class. Note that model parameter is sometimes used in credit
reform documents in lieu of the more appropriate term input variable in
the spreadsheet.
Modification
Appendix E - Page 40
Modification Adjustment
Transfer
Moving Average
Multi-use Heritage
Assets
Negative Subsidy
Account
the budget account for the receipt and/or expenditure of amounts paid from
the financing account when there is a negative subsidy for the original
estimate or a downward reestimate (not necessarily used for mandatory
programs).
Total costs incurred by the reporting entity less exchange revenue earned
during the period. This is the bottom line of the statement of net costs.
[See SFFAC 2, Entity and Display, pars. 86-99 and Appendix 1-B; and OMB
Bulletin 01-09, Form and Content, Section 4.8, Net Cost of Operations.]
At the CFR level, the difference between the net cost of operations and,
essentially, all non-exchange revenue. (SFFAS 24)
Appendix E - Page 41
The estimated amount that can be recovered from selling, or any other
method of disposing of an item less estimated costs of completion, holding
and disposal.
Nominal Dollar
Nonexchange Revenue
Nonexchange
Transaction
Non-Federal Individuals
or Entities
Nonfederal Physical
Property
Nonfriable ACM
Appendix E - Page 42
Nonrecognized events
Subsequent events that provide evidence with respect to conditions that did
not exist at the end of the reporting period but arose subsequent to that
date.
Non-Valued Fiduciary
Assets
Fiduciary assets for which required disclosure does not include dollar
values. Non-valued fiduciary assets may include land held in trust.
Fiduciary non-valued assets should be disclosed in accordance with
generally accepted accounting principles.5
The normal cost component of expense is the actuarial present value of the
future cash outflows for which a reporting entity becomes obligated during
the reporting period. For pensions, ORB, and OPEB, it represents that
portion of the actuarial present value of benefits and expenses attributed to
the valuation year by the benefit plan formula to work in covered
employment or other service rendered by the participant in the period. The
normal cost is a component of the annual expense and liability of the
program and is not affected by the funded status of the plan.
Obligated Balances
The net amount of obligations in a given account for which payment has not
yet been made. (JFMIP Standardization Project)
Obligation
In the future, the Board may require dollar values for certain categories. In the event of
such a change in accounting principles, the affected categories would no longer be included
in non-valued fiduciary assets.
Appendix E - Page 43
Obligations
Offsetting Collections
Offsetting Receipts
Operating Lease
Appendix E - Page 44
Opportunity Cost
The discount rate originally used to calculate the present value of direct
loans or loan guarantee liabilities, when the direct or guaranteed loans were
disbursed. [Special Term from SFFAS 2]
Other Accompanying
Information
Other Postemployment
Benefits (OPEB)
Other Retirement
Benefits (ORB)
Appendix E - Page 45
such as health care, tuition assistance, or legal services, which are provided
to retirees as the need for those benefits arises, such as certain health care
benefits. Or they may be defined in terms of monetary amounts that
become payable on the occurrence of a specified event, such as life
insurance benefits. (Financial Accounting Standards Board, Statement of
Financial Accounting Standard No. 106, Employers Accounting for
Postretirement Benefits Other than Pensions)
Outcome
Outlay
Output
Appendix E - Page 46
Output Measure
Ownership Interest
Payroll withholdings
Performance
Measurement
Policy Assumptions
Policy assumptions address the factors under the direct control of the
federal government concerning the taxes and other receipts to be received
by the federal government and the public services to be provided by the
federal government. Policy assumptions address projected spending rules
for both mandatory and discretionary spending as well as the framework
for assessing taxes and fees.
Direct loans obligated after September 30, 1991. [Special Term from SFFAS
2]
Appendix E - Page 47
Post-1991 Loan
Guarantees
Loan guarantees committed after September 30, 1991. [Special Term from
SFFAS 2]
Post-modification
Liability
The present value of the net cash outflows of the loan guarantees estimated
at the time of modification under the post-modification terms, and
discounted at the interest rate applicable to the time when the modification
occurs on marketable Treasury securities that have a comparable maturity
to the remaining maturity of the guaranteed loans under post-modification
terms (simply stated, the post-modification terms at the current rate).
(Special Term from SFFAS 19)
Post-modification Value
The present value of the net cash inflows of direct loans estimated at the
time of modification under post-modification terms and discounted at the
interest rate applicable to the time when the modification occurs on
marketable Treasury securities that have a comparable maturity to the
remaining maturity of the direct loans under post-modification terms
(simply stated, the post-modification terms at the current rate). (Special
Term from SFFAS 19)
Pre-modification Value
The present value of the net cash inflows of direct loans estimated at the
time of modification under pre-modification terms and discounted at the
interest rate applicable to the time when the modification occurs on
marketable Treasury securities that have a comparable maturity to the
remaining maturity of the direct loans under pre-modification terms
(simply stated, the pre-modification terms at the current rate). (Special
Term from SFFAS 19)
Pre-modification
Liability
The present value of the net cash outflows of loan guarantees estimated at
the time of modification under the pre-modification terms and discounted
at the interest rate applicable to the time when the modification occurs on
marketable Treasury securities that have a comparable maturity to the
remaining maturity of the guaranteed loans under pre-modification terms
(simply stated, the pre-modification terms at the current rate). (Special
Term from SFFAS 19)
Appendix E - Page 48
Pre-1992 Loan
Guarantees
Direct loans obligated before October 1, 1991. [Special Term from SFFAS
2]
Premium Deficiency
A condition under which a liability for future policy benefits using current
conditions exceeds the liability for future policy benefits using contract
conditions. In such cases, the difference should be recognized as a charge
to operations in the current period.
Principal Financial
Statements
See SFFAC 2, paragraph 74, for a listing of the financial statements and
other information that a financial report should include. The FASAB
considers principal financial statements an essential part of a reporting
entitys financial reporting, and therefore recommends authoritative
guidelines for the measurement and presentation of the information.
[SFFAC 2, Entity and Display, paragraph 71, footnote 12.] (See also Basic
Financial Statements)
Appendix E - Page 49
Probable
Process
Process Costing
A method of cost accounting that first collects costs by processes and then
allocates the total costs of each process equally to each unit of output
flowing through it during an accounting period.
Product
Program Account
The budget account into which an appropriation to cover the subsidy cost
of a direct loan or loan guarantee program is made and from which such
cost is disbursed to the financing account. Usually, a separate amount for
administrative expenses is also appropriated to the program account. (OMB
Circular A-11)
Appendix E - Page 50
Projection
Property, Detained
Property, Embargoed
Property that may be legal to possess or own in the U.S., but whose
import/export is prohibited (e.g., Iranian carpets, Cuban cigars).
Appendix E - Page 51
Property, Forfeited
Property, Prohibited
Property, Seized
Appendix E - Page 52
Seized for other purposes - Property the federal government has seized
for purposes other than for evidence, for forfeiture, or for tax purposes.
Examples of property in this category include seizures for satisfaction of
debts owed the government, for protection of public safety or navigation
(adrift vessel), and for preservation of environmental conditions (sinking
vessel). This includes property seized for these other governmental
purposes that also may be used in an evidentiary proceeding.
Proprietary Accounting
Public Services
Purchases Method
Railroad Retirement
Program
Reappropriation
Appendix E - Page 53
Reasonably Estimable
Receipts
Receiving Entity
Recognition (Or
Recognize)
The term recognition bears the same meaning as used by the Financial
Accounting Standards Board in its conceptual statements. Recognition is
the process of formally recording or incorporating an item into the financial
statements of an entity as an asset, liability, revenue, expense, or the like. A
recognized item is depicted in both words and numbers, with the amount
included in the statement totals. Recognition comprehends both initial
recognition of an item and recognition of subsequent changes in or removal
of a previously recognized item. (Financial Accounting Standards Board,
Statement of Financial Accounting Concepts No. 5, A Replacement of FASB
Concepts Statement No. 3, para. 6.)
Recognize
Recognized events
Record
Recourse
Appendix E - Page 54
the maker or acceptor. The holder in due course must have met the legal
requirements of presentation and delivery of the instrument to the maker of
a note or acceptor of a draft and must have found that this legal entity has
refused to pay for or defaulted in payment of the instrument.
Reestimate
Regulated ACM
Refers to (a) Friable ACM, (b) Category I nonfriable ACM that has become
friable, (c) Category I nonfriable ACM that will be or has been subjected to
sanding, grinding, cutting, or abrading, or (d) Category II nonfriable ACM
that has a high probability of becoming or has become crumbled,
pulverized, or reduced to powder by the forces expected to act on the
material in the course of demolition or renovation operations regulated by
this subpart. (40 CFR 61.141)
Reimbursements
Repairable
Replacement Cost
Required Information
Appendix E - Page 55
Required Supplementary
Information
Required Supplementary
Stewardship
Information (RSSI)
Research And
Development
Responsibility Segment
Responsibility Center
Appendix E - Page 56
Revenue
Revenue Adjustment
Revolving Fund
Risk Category
The rate on risk-free monetary assets that have maturity dates or durations
that coincide with the period covered by the cash flows. See Time Value of
Money below.
Seized Property
Appendix E - Page 57
Seizing Agency
The agency that seizes property as a part of its law enforcement activities.
Sensitive Items
Service
The Social Security Act governs most operations of the Social Security
program. The original Social Security Act is Public Law 74-271, enacted
August 14, 1935. With subsequent amendments, the Social Security Act
consists of 20 titles, of which four have been repealed. The OASDI program
is authorized by Title II of the Social Security Act.
Social Insurance
Programs
Special Fund
Federal fund accounts for receipts earmarked for specific purposes and the
associated expenditure of those receipts. (OMB, The Budget System and
Concepts)
Specific Identification
An inventory system in which the seller identifies which specific items are
sold and which remain in ending inventory.
Spreadsheets
Appendix E - Page 58
Standard Costing
Standard Costs
State and local governments generally include: the 50 States and the District
of Columbia; cities, counties, townships, school districts, special districts,
public authorities, and other local governmental units as defined by the
Bureau of the Census; and Puerto Rico, the Virgin Islands, and other US
territories.
Stewardship
Stewardship
Investments
Stewardship Land
Land and land rights owned by the Federal Government that are not
acquired for or in connection with items of general PP&E.
Stewardship
Responsibilities
Appendix E - Page 59
Subsequent events
Events or transactions that affect the basic information or RSI that occur
subsequent to the end of the reporting period but before the financial report
is issued.
Subsidy Cost
Support Costs
Tax Expenditure
Tax Gap
Appendix E - Page 60
Taxable Payroll
Terminal Dividends
Title
An accounting method that includes the actual acquisition cost of each item
held plus the costs of any additions, improvements, alterations,
rehabilitations, or replacements that extend the useful life of an asset.
Traceability
Transaction
Appendix E - Page 61
Transferred Entity
Transfers Between
Appropriation/Fund
Accounts
Occur when all or part of the budget authority in one account is transferred
to another account when such transfers are specifically authorized by law.
The nature of the transfer determines whether the transaction is treated as
an expenditure transfer or a non- expenditure transfer. (JFMIP
Standardization Project)
Treasury Warrant
Trust Funds
The term "trust funds" is often colloquially used to refer to Trust Fund
Accounts (see definition below). Although earmarked monies are
predominantly in funds that are designated by law as trust funds, the
meaning of the term "trust" in the Federal Government differs significantly
from its meaning in the private sector. Whereas earmarked funds in the
Federal Government are distinct from fiduciary activities, a trust in the
private sector necessarily involves a fiduciary relationship. An earmarked
fund should not be characterized as a "trust" in general purpose external
financial reports of Federal entities. (The use of the term "trust fund" is
acceptable only in the fund's official title.)
Accounts that are designated by law as trust funds, for receipts earmarked
for specific purposes and the associated expenditure of those receipts.
Collections may come from the public (e.g., earmarked taxes or user
charges) or from intra-budgetary transfers. More than 150 Federal
Government trust funds exist, of which the largest and best known finance
several major benefit programs (including Social Security and Medicare)
and certain infrastructure spending (the Highway and the Airport and
Airway trust funds).
Appendix E - Page 62
Uncontrollable Cost
Unemployment
Insurance (UI)
Appendix E - Page 63
Unit Cost
Unobligated Balances
Balances of budgetary resources that have not yet been obligated. (JFMIP
Standardization Project) Unobligated balances expire (cease to be available
for obligation) for:1-year accounts at the end of the fiscal year;
multiple-year accounts at the end of the period specified;no-year
accounts only when they are 1) rescinded by law, 2) purpose is
accomplished, or 3) when disbursements against the appropriation have
not been made for 2 full consecutive years. (GAO Budget Glossary).
Useful Life
Valuation Account
(Allowance Or Reserve)
An account that partly or wholly offsets one or more other accounts; for
example, accumulated depreciation is a valuation account related to
specific depreciable assets and allowance for bad debts is a valuation
account related to accounts receivable. If a valuation account is deducted
from the related asset or liability it is sometimes referred to as a contraasset or contra-liability account.
Valuation (Or
Accounting Valuation)
Valuation methods and bases are numerous and varied; and may be
expressed quantitatively and in monetary terms. Application may be made
to a single asset, a group of assets, or an entire enterprise, as determined by
various bases and methods.
Valuation date
A date as close to the end of the fiscal year being reported upon as possible
and no more than one year prior to the end of the reporting year.
Value-added Activity
Appendix E - Page 64
Variable Cost
A cost that varies with changes in the level of an activity, when other factors
are held constant. The cost of material handling to an activity, for example,
varies according to the number of material deliveries and pickups to and
from that activity.
Variance
(1) The amount, rate, extent, or degree of change, or the divergence from a
desired characteristic or state. (2) The difference for a year or less between
the elements (direct material, direct labor, factory overhead) of standard
cost and actual cost. The term applies to (a) a money difference or (b)
changes in the character or purpose of amounts expended.
Weighted-average
Policies that provide insurance over the insureds entire life and the
proceeds (face amount) are paid only upon death of the insured.
Write-off
Appendix E - Page 65
AAPC
ABA
ACM
AEAN
AFDC
AICPA
ANPV
APB
APV
ARB
AU
AUP
CARC
CBO
CCC
CEFMS
CERCLA
CFC
CFO
CFO Act
CFS
CFR
CIP
COEMIS
COLA
CPI
CSRS
D&D
DI
DIS
DM&R
DoD
DOL
DOJ
ED
EDP
EPA
ESAA
EUCA
FAQ
FAR
Appendix F - Page 1
FASAB
FASB
FECA
FEMA
FERS
FFC
FIFO
FMFIA
FRPC
FRPP
FTCA
FUA
FUTA
FY
GAAP
GAGAS
GAO
GASB
GDP
GLTDAG
GPFFR
GPFS
GPRA
G-PP&E
GRS
GSA
GSE
HHS
HI
IBNR
IPA
IPSASB
JFMIP
LAC
LCM
LIFO
MA
MD&A
M&R
MRS
NARA
NCGAS
Appendix F - Page 2
NIPA
NPR
NPV
O&M
OAI
OASDI
OASI
OECD
OIG
OMB
ORB
OPEB
PB
PBGC
PCB
PERC
PP&E
PRP
PSA
PUC
PV
RCRA
RI/FS
RRB
RSI
RSSI
SAS
SCNP
SCSIA
SEC
SFAS
SFFAC
SFFAS
SGL
SMI
SNA
SNC
SOP
SOSI
SSA
TB
TR
Appendix F - Page 3
TSCA
TSDF
UI
U.S.
USACE
USCG
UTF
VA
Appendix F - Page 4