February 27 2008 FASAB Update 1 Disclaimer o

February 27, 2008 FASAB Update 1

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

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

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

Active FASAB Projects o o o o 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 5

Fiscal Sustainability Reporting o Purpose n n 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 6

Fiscal Sustainability Reporting o Current Proposals n Long-term projections o o n 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 7

Social Insurance o Purpose n Provide information on o o 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 n n Social Insurance programs have high participation among citizens Fiscal challenges 8

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

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

Revisiting Conceptual Framework Financial Reporting Model o Purpose n n n o 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 n n Explain each financial statement Ensure all objectives are adequately addressed by the model 11

Revisiting Conceptual Framework - Entity o Purpose n n o o 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 12

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

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

Changes in Assumptions & Selecting Discount Rates o Exposure Draft Proposed: n n n 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 15

Estimating the Cost of Legacy PP&E o Purpose: n o Background: n n n o Reduce the cost of compliance through amendment to standards. 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? 16

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

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

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

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

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