February 27, 2008

1. February 27, 2008 FASAB Update

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

3. Primary Focus of FASAB • Stewardship--Information on whether: • the government’s financial condition improved or deteriorated • programs are sustainable as currently constructed • Operating Performance—Information to evaluate: • The service efforts, costs and accomplishments of government • The manner in which these are financed • Management of the entity’s assets and liabilities

4. Technical Agenda Setting • The Board will review its current slate of projects in April. • Roundtables suggest the following Emerging Issues: • Cost Accounting – Tighter Standards Needed? • Evaluating Existing Standards • Deferred Maintenance and Asset Impairment • Lease Accounting • Application of the Liability Definition

5. Active FASAB Projects • Fiscal Sustainability Reporting • Social Insurance • Revisiting Conceptual Framework • Changes in Assumptions • Oil and Gas Resources (Omitted) • Source of GAAP (Omitted) • Legacy PP&E Estimates • AAPC – Technical Releases

6. Fiscal Sustainability Reporting • Purpose • Provide information to help readers determine whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due.  • Enhance understanding of long-term fiscal issues

7. Fiscal Sustainability Reporting • Current Proposals • Long-term projections • Present values of receipts and outlays for major programs, such as Social Security and Medicare, and all other • Present values of receipts and outlays also as a percent of present value of GDP • Narrative discussion and graphs • Consistent time horizons for all components of report • Summary Display with net present value as the “bottom line” – fiscal imbalance

8. Social Insurance • Purpose • Provide information on • Impact on the government’s financial condition and position as a result of the programs • Whether social insurance programs are sustainable • Likelihood social insurance programs will be able to provide benefits to those planning on receiving them • Background • Social Insurance programs have high participation among citizens • Fiscal challenges

9. Social Insurance • Information that may be presented • Present value of program revenues and scheduled benefits • Causes of the changes in present values during the reporting period • Assumption changes • Legislation • Future amounts attributable to events during the period(?) • RSI • Cash flow projections as a percent of GDP and taxable payroll • Dependence ratio • Sensitivity analysis Italicized items are currently required by standards. • Issues • What is essential social insurance information? • How should information be displayed? • When expense and liability should be recognized?

10. Revisiting Conceptual Framework • Completed Phases: • Review Objectives • Elements • Remaining Phases: • Financial Reporting Model • Entity • Measurement Attributes • Review and Maintenance…

11. Revisiting Conceptual Framework - Financial Reporting Model • Purpose • Guidance for selecting methods of communicating information • Stewardship objective requires long-range projections & other information • Enhance comparability and consistency • Revisiting SFFAC 2, Entity and Display • Explain each financial statement • Ensure all objectives are adequately addressed by the model

12. Revisiting Conceptual Framework - Entity • Purpose • Ensure users provided with complete financial information • Guidance on whether certain activities should be included with an entity. • Revisiting SFFAC 2, Entity and Display • Will also lead to standards

13. Revisiting Conceptual Framework - Measurement • Purpose • Critical aspect of financial reporting • Defining “measurement attributes” • Guidance for selecting measurement attributes • Enhance consistency in standards

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

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

16. Estimating the Cost of Legacy PP&E • Purpose: • Reduce the cost of compliance through amendment to standards. • Background: • Some LARGE agencies do not have systems to capitalize cost as PP&E is acquired. • The benefits of PP&E accounting are realized primarily through timely data derived from quality systems. • The cost of estimating cost may exceed the benefits of doing so. • Issue: When do you stop permitting estimation based on less rigorous documentation?

17. AAPC Status and Activities • AAPC is the source for level D GAAP (Technical Releases). • Representatives from central agencies, IG and CFO communities, and FASAB. • Implementation guidance can be provided relatively quickly. • Recently Completed efforts: • Inter-entity cost implementation • Stewardship Land/Heritage Assets Implementaton • Active Effort – General PP&E Q&A

18. AAPC – Q&A regarding General PP&E • Concerns raised regarding the level of precision sought during audits and continuing questions regarding permissible treatments. • Questions expected regarding: • Group and Composite depreciation methods • Capitalization of indirect cost • Spare parts • Deployed assets

19. Recently Issued • SFFAC 5, Definitions of Elements and Basic Recognition Criteria for Accrual- Basis Financial Statements • Defines 5 elements • Provides basic recognition criteria

20. Convergence with Public Sector Accounting Standards Setters • FASAB monitors others’ progress on standards - seeking opportunities to collaborate • Members attend meetings • Staff track projects • First Joint Meeting of FASAB and GASB scheduled for Aug 2008 (Measurement Attributes) • IPSASB liaisons maintained.

21. FASAB On-Line Resources • www.fasab.gov • All exposure drafts and final pronouncements. • Electronic mailing list for updates. • Active project pages include deliberative material.