Clifton Larson Allen Federal Government Accounting and Auditing

Clifton. Larson. Allen Federal Government Accounting and Auditing Conference FASAB Update Wendy Payne, CPA, CGFM Tuesday, January 20, 2015 1

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

OVERVIEW � 25 Years �Fiscal Sustainability �Our Annual Report and Three-Year �Federal Reporting Entity �Review of Current Projects: ◦ Reporting Model ◦ Risk Assumed ◦ Leases ◦ Public-Private Partnerships ◦ Department of Defense Plan 3

“…legislators generally considered management reform about as exciting as sorting cranberries…” ◦ Michael D. Serlin, Born-again financial management. Government Executive (May 1996). Sustained Management Reform 4

25 Years of Standards-Setting 5

Fiscal Sustainability 6

Social Insurance Summary (in billions of $s) 2013 Participants who have attained eligibility age: Revenue $ Expenditures for scheduled benefits 2, 101 (18, 175) Present value of future expenditures in excess of future revenue (16, 074) Participants who have not attained eligibility age: Revenue 38, 362 Expenditures for scheduled benefits (76, 262) Present value of future expenditures in excess of future revenue (37, 900) Closed Group - Total present value of future expenditures in excess of future revenue (53, 974) Future participants: Revenue 32, 851 Expenditures for scheduled benefits (18, 575) Present value of future expenditures in excess of future revenue Open Group - Total present value of future expenditures in excess of future revenue 14, 276 $ (39, 698) Source: Financial Report of the US Government FY 2013 7

Long-Term Fiscal Projections 2013 Dollars in Trillions % of GDP Social Security Payroll Taxes 46. 1 4. 2 Medicare Payroll Taxes 15. 4 1. 4 Individual Income Taxes 113. 2 10. 4 41. 5 3. 9 216. 2 19. 7 Social Security 62. 4 5. 7 Medicare Part A 23. 5 2. 2 Medicare Parts B & D 24. 4 2. 2 Medicaid 25. 2 2. 3 Defense Discretionary 23. 1 2. 1 Non-defense Discretionary 27. 5 2. 5 Other Mandatory 34. 0 3. 1 Total Non-interest Spending 220. 2 Non-interest Spending less Receipts 4. 0 0. 4 Receipts: Other Receipts Total Receipts Non-interest Spending: Fiscal Gap as a percent of GDP 1. 7 Source: Financial Report of the US Government FY 2013 8

FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD Annual Report Fiscal Year Ended September 30, 2014 Three-Year Plan Fiscal Years 2015 -2017 Comments Requested by January 31, 2015 9

FASAB Annual Report �Beginning in 2010 FASAB was asked to issue an annual report to facilitate oversight. � http: //www. fasab. gov/about/our-annual-reports/ �Provides: ◦ A progress update ◦ Member feedback on continued conformance to the criteria for a GAAP-standards setting body �Combined with our Three-year plan. 10

Three-Year Plan We need your input! 11

Research Project – Tax Expenditures �Tax provisions – obscure & complex �Decisions on tax expenditures are not made annually – so the performance of tax provisions is not monitored. �What provisions are like “foregone revenue”? Equivalent to spending?

Research Project - Reconciling Budget and Accrual Information �Government-wide Reconciliation: ◦ Net Cost to the Surplus(Deficit) �Component Entity Reconciliation: ◦ ‘Net Cost’ to ‘Obligations Incurred and Other Resources’ 13

Other Potential Projects �Electronic Reporting �Asset Retirement Obligations �Intangibles �Revenue �Summary or Popular Reporting �Research and Development

Federal Reporting Entity – SFFAS 47 (effective FY 2018) – � Include in General Purpose Federal Financial Reports (GPFFR) all organizations: �budgeted for, �controlled with potential for risk or reward, or �owned � Does not specifically address ◦ Provides for judgment about: particular entities. �Inclusion �Classification �Disclosure 15

Federal Reporting Entity (CONT. ) Distinguish between consolidation entities and disclosure organizations �Consolidation entities are: �supported by general taxes, and �on-going decision making, and �are more clearly linked to elected officials. �Information for consolidation entities is to be consolidated in financial statements. 16

Federal Reporting Entity (CONT. ) �Disclosure organizations are: �somewhat independent from elected officials, and �may be financially self-sustaining. �Information regarding such organizations is to be disclosed in notes with an emphasis on risk. 17

Federal Reporting Entity �Also (CONT. ) addresses: ◦ What entities are subject to SFFAS 34 – the GAAP hierarchy for federal entities ◦ What organizations to include in component reporting entity GPFFR ◦ How to deal with: � FASB-basis information for consolidation entities �Different year ends for disclosure organizations ◦ Related parties ◦ Amendments to SFFAC 2, Entity and Display 18

Current Projects 19

Reporting Model � Seeking to enhance the benefits of accrual basis financial statements � Input to the Board: ◦ ◦ User needs surveys, focus groups, and roundtables FASAB Task Force on Government-wide Financial Reports (Dec 2010) CFO Act 20 -Year Report Input from task forces focusing on agency level reporting on cost, budget and performance ◦ Statement of spending pilots ◦ Study of other sovereign government practices 20

Reporting Model (cont. ) – Research Results – Participants want particular or specialized information to meet their needs: ◦ Understandability of financial information ◦ Centralized source for obtaining data �Move toward real-time data �Address program managers needs ◦ Integrated data �Financial and non-financial performance information ◦ Program level cost information ◦ Add forward-looking information in agency reports 21

Reporting Model (cont. ) – Research Results – Improvement Needed in the Statement of Net Cost: ◦ Now - cost by strategic goal ◦ Some prefer to focus on “cost” by organizations, programs, or projects ◦ Matching cost and output (and eventually outcome) is not so easy! ◦ Same terms used differently by different disciplines (cost per the budget versus cost per accrual principles versus cost per program evaluators) 22

RISK ASSUMED � Current Standards are limited to insurance contracts and explicit guarantees (other than loan guarantees). ◦ When implementing policy initiatives to stabilize financial markets and the economy, the federal government explicitly assumed risks previously considered by some to have implied backing of the federal government. ◦ In order to meet the stewardship and operating performance objectives of federal financial reporting � It is important that the federal government report all significant risks assumed, not just risks related to insurance contracts and explicit guarantees. 23

RISK ASSUMED (cont. ) - Three Phases �Phase I: Insurance and [Non-Loan] Guarantees �Phase II: Entitlement Programs, including: �National Defense, �Security and Disaster response �Other potential effects on future outflows: ◦ regulatory actions, ◦ Government Sponsored Enterprises (GSEs), etc. �Phase III: �Commitments �Obligations �Other risk areas 24

RISK ASSUMED (cont. ) - Insurance & Guarantee Phase � Define federal Insurance and [Non-Loan] Guarantee programs � Improve terminology (“premium deficiency” and “subsidy”) � Address measurement uncertainty � Disclose risk assumed 25

Leases Are all leases financings? 26

Leases (cont. ) � FASAB is partnering with GASB to develop standards for governmental organizations. � Tentative decision to establish a single model (with exceptions for short-term arrangements). ◦ Leases create assets consisting of the “right to use” a resource. ◦ Leases create liabilities consisting of the obligation to pay for the resource. � The focus may be on the interest cost associated with leases. 27

Public-Private Partnerships Due to budget pressures, federal agencies have increasingly turned to public-private partnerships (e. g. , PPPs, P 3 s) to accomplish goals � Transparency of the full costs and risks of such partnerships is the overall objective � Specific objectives include: ◦ Defining terms (e. g. , service concession arrangements, P 3 s) ◦ Providing guidance for the recognition and measurement of: ◦ assets and liabilities ◦ revenues and expenses ◦ risks ◦ Consider implications for other arrangements related to P 3 s (saleleaseback or other long-term arrangements). 28

Do. D Implementation Guidance �SFFAS 3 – Are estimates for inventory and related property permitted? �Research and development – when is it capitalizable? �Internal Use Software 29

Questions? 30

Contact and Website Information �General inquiries can be directed to fasab@fasab. gov �Phone: 202 512 -7350 �www. FASAB. gov ◦ Listserv (sign up for emails) ◦ Exposure Drafts ◦ Active Projects – assigned staff �My contact info: ◦ paynew@fasab. gov ◦ (202) 512 -7357 31