FINAL MINUTES

The meeting was called to order at 9:00 A. M.

• Attendance

The following members were present: Chairman Mosso, Dr. Blessing, Messrs. Blum, Calder, Chapin, Jackson, Murphy, Reid, and Toye.

The minutes of the April 16-17 meeting were approved as amended: On page 1, the discussion of the 1997 Consolidated Financial Statement was summarized by stating that the Board had a general discussion on the CSF. On page 3, at the end of the first paragraph, the last line was eliminated and a period was placed after "available."

Ms. Comes reported on the current projects on the agenda. AAPC members are reviewing a document prepared by the AAPC task force on Credit Reform; she said that AAPC members were concerned that the document did not provide for auditor judgment and was too prescriptive for auditors. Two new projects added to AAPC agenda are (1) AAPC sponsorship of a task force to consider guidance on stewardship land and heritage assets, and (2) certain issues raised by a task force comprised of representatives from agencies with property-seizing recommendations for consistent reporting of non-valued and forfeited items in accordance with SFFAS 3. Also, Board members reviewed the April 9 minutes.

Mr. Tom Armstrong, the GAO legal adviser to FASAB, framed the issue of what "probable" means. A member discussed the issue as related to SFFAS 5, Accounting for Liabilities in the Federal Government, indicating that "probable" means "more likely than not" and not "certain." Many expressed the belief that there would always be a gap between the information auditors are looking for on contingencies relating to lawsuits and the information lawyers are willing to provide in light of their professional standards. Members were divided regarding the consequences. Some believed that auditors look to sources other than lawyer's representations and others believed it creates a scope limitation.

The Board agreed that a panel would be assembled to discuss the issue at the next Board meeting. Representatives would be invited from the American Bar Association, the Department of Commerce General Counsel, and the American Institute of CPAs. The discussion would also address the appropriate means for dealing with the problem (e.g., whether it was an issue for accounting standard settors or for auditors).

•Credit Reform Issues

Board members indicated that they would like to assess the usefulness of the subsidy components information required in par. 25, SFFAS No. 2, and how difficult it is for the agencies to prepare the information. At this meeting, representatives of the Small Business Administration and the Department of Education made presentations on reporting credit subsidy components. Those presentations were intended to explain to the Board the amount of work required by par. 25 and the procedures or systems that the agencies have in place to produce the required data.

SBA's Presentation

SBA's presentation was led by John Kushmen, Director for Financial Administration, with Robert Montgomery (accounting staff) and Anthony Robinson (budgeting staff). John Kushmen opened the presentation stating that SBA has a system to develop subsidy rates on a cohort basis and it is capable of separating subsidy into components and reporting the subsidy components on a program basis.

Anthony Robinson said he is a member of the AAPC Credit Task Force which developed the proposal to amend par. 25. He said he has worked on both the accounting side and the budget side of credit reform at SBA. From his experience, he found that Congress is primarily interested in budget data. He said that financial reports should present data that is relevant to the needs of Congress. In his view, the current requirement in par. 25 does not provide useful information and he favors the AAPC Task Force proposal.

Anthony Robinson said that SBA has built a data base for credit reform loans and loan guarantees, using the "Microsoft Access" software. He explained transaction records are coded and stored in the data base. Information on any aspects of credit activities and at various levels of aggregation and combination can be retrieved though queries instantly. For example, information on claim payments can be retrieved by cohort, sub-program, program, or by regions. The data base serves both the budgeting and financial reporting purposes.

Using a spreadsheet, the presenters pointed to the total amount of subsidy costs and subsidy component rates that were retrieved from the data base for individual sub-programs and for each reporting year. The numbers were posted on the spreadsheet. Based on that data, the amounts of subsidy expense components for each sub-program were easily calculated on the spreadsheet by multiplying the rates to the total subsidy expense.

A Board member asked whether SBA ever talked to Congressional appropriation committees about the usefulness of the information in financial statements, and whether they cared about any trend analysis. Robinson said they were only interested in one number, the total subsidy cost, and the net amount of reestimates.

Another Board member asked whether lending institutions in the private sector which are in a position to compete with SBA for loan business had shown any interest in SBA's subsidy information. Robinson said that banks are more interested in information by cohorts, including interest subsidy, defaults, and recovery rates of each cohort.

A Board member asked whether it is fair to say that the current system was developed to comply with the needs of credit reform, for example, analyzing data on a cohort basis, and at the same time, the system also accommodates the financial reporting requirements. John Kushmen stated that cohort data based on loan originations are important for budget analysis. He said from a management perspective, portfolio data are also important. Managers need to analyze defaults, delinquencies, recoveries, banks' claims on a program portfolio basis. The Board member further asked that "Since you have the system and the data to comply with budget requirements, do you need to do a lot of extra work in order to meet the financial reporting requirements?" Robinson said "No, it is fairly simple to retrieve data for financial reporting." At this juncture, a Board member said that the key question is whether the currently required data is useful. He said if it is not useful, regardless of whether it can be produced, we should switch to another set of data that is more useful.

Education's Presentation

Education's presentation was led by Maureen Smith, Director for Financial Management Operations, with William Graham (budgeting staff), William Fleming (Loan Reporting), and Eileen Parlow (accounting staff). William Graham said that Education has a computerized subsidy estimation model for loans and loan guarantees, using more than two thousand assumptions. The subsidy estimation process is from bottom up: from risk category level to cohorts, and to programs. The model's data output is used in budgeting, financial reporting, and program management. The staff reviews and updates the model assumptions and subsidy rates continuously.

William Graham said Congressional appropriation committees look very closely to the subsidy estimates and related analyses. He said there seem to be two types of users: the top level decision makers, such as senators, representatives, and top level department officials, who are interested in the bottom line figure - the total subsidy cost; however, staff members behind them want to know detailed information. He said Congressional staff looked very hard at the default rates and ways to reduce defaults.

A Board member asked how information in the system, such as default rates, is used by management. Graham explained that management focuses on risk areas, the high risk loans in particular. He said providing default information is the system's No. 1 goal for "gate-keeping" to stop making loans with unacceptable default risks. However, he said the information is provided to management from the system rather then through financial statements. Information on financial statement is too aggregated for management use.

Maureen Smith said Education has enhanced disclosure in the footnote on subsidy costs in its financial statements for fiscal year 1997, which received an unqualified audit opinion.

• Management's Discussion and Analysis (MD&A)

FASAB Staff explained that the draft sent to the Board reflected the discussion at the prior meeting plus subsequent input from Messrs. Calder, Chapin, Jackson and Mosso. Referring to the earlier discussion of whether to change the definition of the word "probable," staff noted that the term also is used in MD&A, and that FASAB's proposed guidance differs from the SEC's in that regard. In calling for management to present forward-looking information, the SEC uses "likely" to indicate a threshold lower than the 80% or 90% subjectively assessed probability that, research has indicated, is often used in private sector practice when auditors and preparers are applying FASB 5. The SEC wants to encourage preparers to be more forthcoming in their forward-looking information. The glossary entry for "probable" in the draft MD&A document notes that FASAB does not use the term "likely" when discussing forward-looking information, but rather uses "probable," which is defined as "more likely than not." The Chairman noted the difficulty in defining words that can't truly be quantified.

Staff noted that the new draft standard defines MD&A as RSI instead of OAI, but the standard is rather general. The new draft is intended to provide flexibility for preparers, but--if GASB's experience is an indication--there may be implications for attestors. In response to concerns expressed by some who commented on GASB's proposal to require MD&A as RSI, GASB met with AICPA's Auditing Standards Board and AICPA's Government Accounting and Auditing Committee. GASB concluded that its standard for MD&A would define MD&A as RSI, but--unlike FASAB's proposal--MD&A would be limited to information in the financial statements and notes. It would not include forward-looking information.

Staff also noted that the draft now before FASAB included language intended to make it clear that OMB had authority to set more explicit or specific requirements for MD&A than were defined by this standard.

A Member said that there seemed to be more emphasis on performance than on financial statements in the draft. Another Member agreed. A Member observed that the draft continues to call for associating costs with outputs, which is a practical challenge for many agencies. Another Member observed that the draft is written broadly to require discussion of whatever performance information the agencies have available.

A Member said that having the concepts in front of the standard seemed to interfere with understanding. This Member believed the standard section was in fairly good shape, but suggested moving the concepts to an appendix, and perhaps deferring the implementation date. Performance information is important, but because the standard is for RSI and is not very prescriptive, it should not be a problem for the auditor. The document should be reexposed, however, given concern about due process and credibility for FASAB's process as GAAP.

A Member said he did not object to reexposing. He would let the effective date be part of exposure because people may see the standard as no more demanding than 97-01's current requirements for an "overview." There should be questions to respondents about RSI status, and about forward-looking information. He was concerned that an appendix might increase the perception that concepts were enforceable.

The Chairman observed that the concepts could be a separate statement. Another Member said that was his preference. He then asked whether RSI status would call for enough auditor involvement with performance information.

A Member said auditor involvement comes about because, and to the extent that, the performance information would be subject to testing that might be specified by other requirements, not because the MD&A would be subject to testing. MD&A is not the original place information will appear, except perhaps some forward-looking information. OMB's audit bulletin now tries to address performance information from an internal control viewpoint, but does not require substantive testing, e.g., examination, for performance information. The first Member said this would be a good approach, assuming the reporting schedule is satisfactory; i.e., if the performance information is not required to be reported in MD&A before it appears in a performance report.

Staff noted the new language at lines 25 and following in the diagram on page 6. This was added to elaborate on "incorporation by reference." Whatever is incorporated in the general purpose federal financial report by reference is subject to whatever audit requirements apply to the other report. The addition says that the MD&A itself is RSI, but the Board expects that the material incorporated by reference will be treated like accompanying information.

Referring to a statement of objectives in the concepts section, a Member observed that it seemed unrealistic to expect assurance in an audit of financial statements that internal controls are "adequate to assure that performance information is adequately supported." Another Member responded that OMB's audit bulletin calls for the auditor to gain an understanding of whether the performance information is supported by data in the systems, using "systems" in the broadest sense. It does not ask the auditor to validate the accuracy of the data, but asks the auditor to look at the systems to assure that there are controls to assure existence and completeness, i.e., "all and only." He noted that GFOA call for management to assert its responsibility for controls.

Staff noted that this section of the MD&A concepts was based on the fourth objective in SFFAC 1, and that--as a concept--it requires nothing. A Board Member said that, to him, assurance that "all and only" the proper performance data were included implies assurance about accuracy, which goes beyond what he understood GASB to contemplate in connection with Service Efforts and Accomplishments Reporting. Another Member said that "accuracy" to him implies that there are other criteria beyond existence and completeness. He said we don't have criteria analogous to financial accounting standards for performance information.

A Member said he liked the way MD&A brings information together. This is particularly important regarding performance because, unless federal financial statements have performance information, they won't continue to be produced. This is because governmental financial statements don't accomplish what financial statements do in private sector, unless the financial information is related to performance measures. Another Member said bringing this information together was part of the objective of the Accountability Report.

A Member agreed with this goal conceptually, but said we need time for implementation. He asked what was meant on page 7 of the draft concepts, by the addition to the first bullet of "and corrective action taken or planned." A Member suggested that it relates to performance. The first Member questioned whether this was appropriate language. Another Member said that management would want to use the opportunity to explain problems and adjustments regarding performance plans. The Board agreed that it would be better to speak in terms of "explanation and/or actions planned" regarding performance.

Another Member questioned an addition to the standard on page 34, para. 62. The standard should not require the CIO's input, he said. It should be left to management to decide who should be involved. The Board agreed to delete this.

The Chairman reviewed the Board's decisions: the draft will be split and revised to assure it appears balanced in its emphasis on financial statements and performance measurement. It will be reexposed for 60 days. One exposure draft will be a statement of standards, the other a statement of concepts. Respondents will be asked to comment on the RSI status and the implementation date.

Executive Director Comes said that at last meeting the Board wanted more information on four topics. [Only two were discussed due to time limitations.]

Ms. Comes said she understands that Treasury does not plan to use a Custodial Balance Sheet. A working group has been meeting each week to develop alternatives. The group includes representative from OMB, GAO, Treasury. She also has been attending. The Board has several options, discussed on the second page of a document sent to the Board.

A Member directed attention to page 12 of that document, a consolidated schedule of assets and liabilities. He said it shows what he regards as the fallacy of custodial balance sheets. Staff at his agency understand custodial activity, but don't feel the same way about the balance sheet. They find it hard to distinguish agency assets and liabilities (i.e., those that should be recognized on the agency's balance sheet) from custodial assets and liabilities.

Ms. Comes said that, if the Board wished to take action, one option would be for FASAB to publish an Interpretation of Statements 1 and 7 to say that custodial balance sheets are prohibited. Another option would be to perform research on the usefulness of custodial balance sheets. A third option would be to provide guidance to Treasury on how to apply the current reporting model.

The Board Member representing the Department of the Treasury noted that they started with the custodial concept because GAO recommended this treatment for IRS collections. Other agencies then talked about applying it. Treasury had traditionally separated governmentwide accounting from its internal appropriation and program accounting. Treasury established an advisory group for FY97 statements, and after study put a lot of items in the custodial report. Now Treasury is trying to take as much as possible back to face of Treasury Departmental financial statements. But putting the Government's cash on Treasury's balance sheet means the agency's financial statements don't articulate because the operations that affect cash are the other agencies' operations. Treasury can report the debt and have its statements articulate, but it is not the Department's debt. Treasury could try to force these items on to its financial statements, but this could destroy the usefulness of the Treasury departmental statements, and would make them different from any other department.

A Member said if that if you added up 24 agencies, you would miss the debt and cash of the "General Fund" of the Government. You might say the custodial statement would be the "General Fund." Another Member said we need a 25th statement. The Member representing Treasury said that this in effect is what we do in preparing the CFS; he had recommended including the Government's debt and cash in schedules with the Treasury Departmental statements.

Another Member said different people have different expectations. He would expect to see these items on Treasury's Balance Sheet. He suggested a combining balance sheet that would show the departmental assets and liabilities, the Governmental assets and liabilities, and the total.

A Member observed that the debt of the Commonwealth of Virginia, like that of most states, does not appear on the balance sheet of the state's Treasury Department. Some state agencies have debt, and report it, but not the general debt of the Commonwealth. Debt appears on the financial statements of the Commonwealth. Thus, there is precedent for not having governmentwide debt on an agency's financial statements. One could have an exhibit that is not a basic financial statement.

Another Member suggested that it is hard to compare federal and state financial reports. Some Members disputed this, saying the comparison was apt. The first Member replied that the Federal Balance Sheet's focus on "net position" was different. He believes that foreign loans should be on the Treasury Department's financial statements.

The Chairman asked whether the Board needed to say anything? The Member representing the Treasury noted that working group is dealing with it for FY98 reports. He did not believe FASAB needed to address it now, though Ms. Comes' involvement with the group was helpful and should continue.

A Member asked about having a "25th" statement. The Member representing the Treasury said that approach would be satisfactory, but more needs to be decided about exactly what should be displayed and how.

Another Member asked why not have schedules of debt and assets, without showing net worth. There is no relationship between the numbers, he thought, so there should be no suggestion one is available to pay the other. The debt is not debt of the Department or of any subset of the U.S.; it does not affect financial position of a federal agency.

The Member representing Treasury said that was what he meant by schedules. A Member asked, who is there to argue with what Treasury proposes? The Member representing Treasury noted that Form and Content mentions debt. The Member representing OMB said that OMB could deal with that. Another Member said that the issue involved a reporting entity issue, which was not FASAB's to address, as well as a display issue.

A Member said that he was concerned about reporting paper transactions with agencies instead of real debt. If we have real cash, why not a real liability? Debt held by trust funds is not real, in his view, yet politicians and reporters like to quote the 5 trillion dollar figure as if it ought to be paid off.

The Member representing Treasury said that we do separate them, but legally we have just as much responsibility to pay the trust funds as we do the holder of a savings bond; we eliminate the intragovernmental debt in consolidation. Another Member said don't make it strange, a balance sheet is a balance sheet.

The Member representing Treasury said the working group will try to develop a couple of options--all in one versus a "25th" entity.

2. Possible new project on Statement of Financing and Statement of Budgetary Resources

The Executive Director said she had responses to a survey of CFOs on this issue. The issue also has been discussed at the CFO Council. Agencies that don't have a lot of bureaus seem to be able to prepare the statements: e.g. Social Security has done so. Others, such as Interior, have tried but have encountered problems. Staff felt that a combined Budgetary statement could provide much of the benefits of auditing the budgetary information, and would serve as a starting point for the Statement of Financing. These are essential end goals. Permitting combined reporting, plus allowing RSI status for the Statement of Financing for a couple of years, would allow time to sort out what needs to be done.

A Member said combining without eliminating may raise more questions than it will answer. There will be numbers that will make it appear that obligational authority appropriated has been exceeded. Another Member said there is a possible elimination issue both for intra- and inter-agency transactions.

Ron Longo, an observer, responded to a question from a Board member. He explained that agencies have always reported on budget execution by appropriation account; they were not asked to identify obligations across these budgetary accounts. The Member representing Treasury added that the SGL had a requirement that proprietary accounts identify interagency transactions because we were going to have consolidated financial statements. We never thought that we were going to need to prepare a consolidated budgetary statement until FASAB called for this information. Therefore there is no requirement, and has never been a requirement, to distinguish intragovernmental budgetary transactions. Another member added that the problem is one of display, not control. We have obligational control.

The Chairman observed that the question was whether FASAB could and should give some relief to the agencies confronted with the requirement. A Member noted that for larger agencies it is much more of a problem. There are other technical problems in terms of accounts that are not available too. Not all receivables and payables are associated with revenue, he said. Therefore, given everything else we are asking them to do, and that the real solution is likely to involve systems changes, and given the programming challenges to prepare for the year 2000, we should put this requirement on the back burner.

Another Member objected, saying that the standard has been out for two years. A Member said that was true, but "there is such a bow wave, you are lucky to get through last year's requirements without focusing a year ahead."

The Member representing Treasury noted that OMB and Treasury have not put down a requirement for this; we did not figure out that we needed to do so when we came up with innovative statements. Another Member said he would prefer not to defer completely, but would have disclosure. He would tell agencies "don't total it" [i.e., report on budget execution on a disaggregated basis], or "total it [combine without eliminations] but explain the total" as they do in the state and local environment [where the combined total is labeled "memorandum only"]. There is risk in presenting a total. He has heard OMB people say they want this information audited, so he doesn't want to defer. Yet people don't manage by combined or consolidated appropriations, so the Statement is of questionable significance. He would rather deal with its defects, but does not clearly envision a solution. Another Member said he thought that a combining statement wouldn't do great harm.

Staff noted that offsetting collections should, at least in theory, take care of most if not all the double counting. The Statement of Financing would begin with the combined numbers, and [as with the Statement of Budgetary Resources] there would be some off-setting of the double counting though the reduction for offsetting collections. In theory the eliminations problem would largely take care of itself in the first two lines of the Statement of Financing; however, this has not been tested in practice.

Beyond this, however, larger agencies say that they can't prepare the Statement of Financing because of other problems. They are concerned about programming resources and accounting staff. In some cases, cross-walks from existing SGL accounts to lines in the Statement are not sufficient, by themselves, to prepare the Statement. Trained accountants then will need to do account analysis, in some cases rather extensive analysis of transactions.

Staff recommended RSI status for a time. The Executive Director noted that this could be seen as a form and content issue. The Member representing OMB agreed, but noted that--as some Members had discussed at lunch--OMB has followed FASAB's concepts and standards and wanted to continue to work with FASAB. Others agreed that FASAB should issue some kind of guidance. A Member said that the Statement of Financing is a bigger problem for agencies than the Statement of Budgetary Resources.

A Member said it was a question of priorities. He would let those who can't do it get qualified opinions. Another Member said FASAB should not put requirements in place that are impossible in the given time frame. He doesn't argue with the standard, but we know now it will require more lead time. We don't serve the user community well if we put out a standard that is impossible as a practical matter.

A Member said it is not totally impossible; for centralized agencies it can be done with a lot of work to analyze accounts, but it is not feasible for agencies like Agriculture. They [Ted David at Agriculture] are asking FASAB give them an extra year, and propose that they submit it to OMB by June 1. The SGL Issues Resolution Committee has had numerous meetings on this from the outset of SFFAS 7, though it did not come to the Board's attention. Several Members said more than one year is needed to be reasonable.

The Board discussed its options. A Member noted that agencies need quick guidance. He suggested that for 1998 they should submit the Statement of Financing to OMB, for 1999 it should be RSI, and for 2000 basic information. Another Member agreed that it was too late in the fiscal year to do much, except tell agencies it was not necessary. A member noted that OMB could still require it, independent of standard, and just call it accompanying information.

A majority of the Board agreed that FASAB would expose an ED that would propose to defer the Statement of Financing for two years, with the understanding that OMB would work with agencies to assure they can implement the standard in subsequent years. It was noted that four new standards became effective in FY 98; the Board can now see the work load involved more clearly. Because there was no comprehensive field test of the new standards, neither the Board nor the Agencies were fully aware of the impact. As we learn more, we may be able to simplify or clarify the requirements.

Two Members opposed deferral, because the Statement gives useful information; the auditor's opinion should be qualified if this information is not present. One Member supported RSI status as an interim solution that would provide some incremental improvement.

• IRS request for Modification of SFFAS 7

The Board heard a presentation on the work of a task force dealing with implementation of SFFAS 7 at the IRS. Presenters included Lisa Fiely, Controller and Director for Financial Management of the IRS; Greg Kane, Chief, Office of Accounts Receivable for IRS; Gregory Kutz, Associate Director AIMD/GAO; and Stephen Sebastian, Assistant Director, AIMD/GAO.

Mr. Kutz explained that the task force had prepared a slide presentation, issues papers, and a "marked up" version of the nonexchange section of SFFAS 7, to show possible technical amendments. The task force had also reviewed some relevant portions of SFFAS 1. He noted that last year IRS had received an unqualified opinion on its financial statements for the first time, thus establishing a reliable baseline for collections and other information. Taxes receivable were estimated based on a statistical sample in aggregate because there is no general or subsidiary ledger for taxes. IRS plans further implementation of SFFAS 7, including the accrual adjustment and enhanced disclosures.

The group had prepared 6 issues papers regarding implementation concerns. Some provisions of SFFAS 7 were predicated on the assumption that the tax systems modernization effort, "TSM," would be successful, but that [or equivalent improvements under subsequent initiatives] now appears to be 10 or 15 years away. Thus, while IRS can comply with the basic requirements of SFFAS 7, some parts are beyond its capabilities. The task force recommended a two year deferral of paragraphs 60, 63, 65, and 67 to allow the Board time to agree on the proposed revisions and technical corrections, expose an amendment to SFFAS 7, and deliberate on the comments.

This deferral would leave IRS with financial statements that include:

1. revenue by aggregated tax type

2. refunds paid

3. gross and net taxes receivable

4. refunds payable

5. useful disclosures

IRS ISSUE 1--REPORTING OF TAXES RECEIVABLE BY TAX TYPE

OMB's Bulletin on Form and Content illustrates reporting taxes and tax receivables by type of tax. Some people believe this is required by SFFAS 7 and SFFAS 1, but staff involved with developing SFFAS 7 did not think this was intended. The Board Member who served as the project manager for SFFAS 7 noted that SFFAS 7 calls for categories (risk categories, age, etc.) of receivables in the context of information needed to determine proper loss reserves. He thought nothing needs to be changed in SFFAS 7 to permit IRS to report taxes and taxes receivable categorized as IRS wishes.

Mr. Sebastian noted that SFFAS 7 refers to SFFAS 1, and that SFFAS 1's provisions for loss reserves are fairly prescriptive. Those provisions were written in the context of accounting for banks and thrift institutions. He suggested the Board might want to add language to SFFAS 7 that would be appropriate guidance for determining the tax receivable loss allowance, but he did not recommend doing so by tax type. The collection rate will vary by tax type; to determine the allowance by type would greatly increase the sample size and work for IRS and GAO. For example, Mr. Kutz noted, old estate tax receivables are more collectable than some other types. The Member who was in charge of FASAB's project on accounting for revenue said distinguishing by type was not required if they did a big enough aggregate sample.

Mr. Kane noted that IRS has an open GAO recommendation regarding this, because IRS did not consider the individual pieces. Mr. Kutz added that GAO plans to close this recommendation, but thought the standard's language might be amended to clarify what was required. A Board Member agreed that paragraph 46 of SFFAS 1 could be read as so prescriptive that it would create problems if applied to tax receivables. The Member who managed the Board's project on accounting for revenue agreed that such an interpretation was possible, but said that SFFAS 7 was not written to perpetuate an estimation process, but was intended to call for an accounting process.

Mr. Kane said that IRS has an inventory of assessments it must put into 3 populations:

IRS tries to use coding to determine when the taxpayer agreed, but does not distinguish that way for its own operations.

A Member said that dealing with this required not a deferral, but a technical correction, or interpretation until some future amendment of SFFAS 7. Mr. Kutz noted that Form and Content also would need to be amended.

IRS ISSUE 4: REPORTING REVENUE (COLLECTIONS) BY DEFINED TAX TYPE ON THE STATEMENT OF CUSTODIAL ACTIVITY

Paragraph 63 of SFFAS 7 refers to appendix B, which classifies revenues as exchange or nonexchange revenues. OMB's guidance on Form and Content was based on the assumption that display should follow the categories identified in appendix B. The Member who led the Board's project on accounting for revenue explained that Appendix B only was intended to distinguish exchange from nonexchange revenue; it is authoritative for that purpose only. The Member representing OMB said OMB will change its Form and Content guidance to avoid the implication that display by these types is required. A Member suggested that this issue and issue one might be dealt with by a letter from FASAB and OMB, as well as the change in Form and Content guidance.

IRS ISSUE 3: DISCLOSURES REGARDING MATERIAL REVENUE-RELATED TRANSACTIONS

SFFAS 7 calls for disclosure of penalties, interest, abatements, etc. during the year. Mr. Sebastian noted that this appears to envision a crosswalk from beginning to end-of-year balances of taxes receivable and tax refunds payable, but IRS has problems in providing this information regarding the specific components of its pool of unpaid assessments. Total unpaid assessments were $214 billion at the end of 1997. Only $28 billion represented net taxes receivable, i.e., acknowledged by taxpayer or court and probably collectible. (Gross taxes receivable was projected to be $90 billion at 9/30/97.) This was determined by sample because IRS does not have subsidiary ledgers to track transaction-by-transaction. GAO projected both the properly classified balances and the net collectible amount for taxes receivable.

Mr. Kane explained that IRS must keep 10 years of unpaid assessments on the books by law. Pursuant to SFFAS 7, they divide this into 3 pieces: taxes receivable, compliance assessments, and write-offs. Then GAO tests the classifications and projects the results. IRS takes a snapshot of the master file every month. It is not a subsidiary ledger; the old snapshot disappears.

Mr. Sebastian suggested revising SFFAS 7 to require this information as RSI instead of basic information, and to allow for the fact that more detailed information may be available for audit over time.

The Member who led the project on accounting for revenue said the information is essential for performance evaluation and accountability; there would be no accountability over abatements and other IRS exercise of discretion without it. The information should be basic information because it needs to be audited.

A Member suggested making the disclosure for one population. The Chairman said that more work should be done to develop and evaluate this idea, and to help the Board decide whether SFFAS 7 would need to be amended.

Further discussion of this and other issues was deferred to the next FASAB meeting.

The next regular meeting is scheduled for August 6 and 7 in Room 7C13.

(The Board will hold a public hearing tomorrow, June 26, on the Exposure Draft, Property, Plant, and Equipment )

The meeting adjourned at 4:55 P.M.

FINAL MINUTES

The hearing was called to order at 9:00 A. M.

The following members were present: Chairman Mosso, Dr. Blessing, Messrs. Calder, Chapin, Jackson, Murphy, Reid, and Toye. Mr. Blum was not present.

Chairman Mosso opened the hearing. In introductory remarks he noted the importance of knowledge and views gained from public hearings such as this. Thereupon, he called upon the first presenter to begin.

Copies of the transcripts are available for review at FASAB staff offices.

The hearing ended at 4:07 P.M.