Appropriate Source of GAAP
Project Objective:
Since October 1999, the American Institute of Certified Public Accountants (AICPA) has recognized the Federal Accounting Standards Advisory Board (FASAB) as the standard-setting body for federal governmental entities; therefore, the pronouncements resulting from the FASAB process represent generally accepted accounting principles (GAAP) for the entire federal government (FASAB GAAP). Nevertheless, 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 US Postal Service, certain component entities of the Department of Treasury, and some smaller entities in the executive and legislative branches have historically applied FASB GAAP and continue to do so. The primary objective of this project is to consider the appropriate source of GAAP for federal entities.
Staff Contact:
Julia Ranagan, ranaganj@fasab.gov, 202-512-7377
History of Board Deliberations (reverse chronology)
June 18-19, 2008 Board Meeting
Staff is currently considering the options for developing guidance that will reflect the views of the members as communicated at the February 2008 meeting. Refer to the February-March 2008 issue of FASAB News for further information on the February 2008 meeting.
April 16-17, 2008 Board Meeting
Staff is currently considering the options for developing guidance that will reflect the views of the members as communicated at the February 2008 meeting. Refer to the February-March 2008 issue of FASAB News for further information on the February 2008 meeting.
February 13-14, 2008 Board Meeting
At the February 14, 2008, meeting, staff presented an issue paper that contained an analysis of federal financial statement user needs; a structure developed by staff to distinguish between the different activities of the federal government (governmental-type activities, business-type activities, and fiduciary activities); three options for members to consider; and a draft survey that would be used to solicit feedback from the federal financial management community on each of the three options. The paper is available on the Appropriate Source of GAAP [Generally Accepted Accounting Principles] project page at http://www.fasab.gov/projectsgaap.html.
Under the first two of the proposed options (separate accounting and reporting by line item and separate accounting and reporting using the modified equity method), entities that engage primarily in governmental-type activities would be required to convert to FASAB GAAP while entities that engage primarily in activities that meet all of the characteristics of business-type activities would be permitted to report under FASB GAAP. No additional reporting would be required by component reporting entities unless they engage in a material amount of both governmental-type and business-type activities. Consolidating entities (and component entities that engage in both types of activities) would modify the display (either on the face of the financial statements or in the notes) to present the amounts of governmental-type activities separately from business-type activities. Under the first option (separate accounting and reporting by line item), consolidating entities would further distinguish business-type activities by the source of GAAP under which they are reported – FASB or FASAB.
Under the third proposed option (an audited note reconciliation), none of the entities would be required to convert to FASAB GAAP; however, component reporting entities would be required to present a detailed audited note that reconciles the differences between FASB GAAP and FASAB GAAP and supports the amounts submitted to Treasury for the consolidated financial report of the U.S. Government.
All three options would propose to revoke the “grandfather authority” that allowed entities to comply with FASAB GAAP by continuing to apply FASB GAAP with no additional reporting requirements.
Subsequent deliberations revealed that the sense of the Board is that no entities will be required to convert to full FASAB GAAP at this time. The Board is also comfortable with including two sources of GAAP in the consolidated financial statements except where it affects intragovernmental eliminations. Members did not vote to adopt the governmental-type and business-type structure developed by staff. The Board requested that staff meet with the sponsor workgroup to determine which line items are significant in the FASB vs. FASAB intragovernmental reconciliation and develop an exposure draft that proposes a note disclosure for those significant reconciling items only. The other options considered would be included in the basis for conclusions. The issue of budgetary reporting for entities reporting under FASB GAAP will be deferred until the matter is resolved at the governmentwide level.
December 4-5, 2007 Board Meeting
At the December 4, 2007 meeting, staff presented an informational paper to the Board members in order to provide them with a better idea of the extent of financial reporting using a primary source of generally accepted accounting principles (GAAP) other than that developed for federal entities by FASAB (e.g., GAAP developed by the Financial Accounting Standards Board (FASB)). It was thought that a closer look at the extent of the project would also serve to address open questions from the members about exactly what the impact might be to reporting entities in the executive, legislative, and judicial branches.
Staff’s paper contained a listing of all of the entities required to prepare financial statements under the Chief Financial Officers Act of 1990 as expanded by the Government Management and Reform Act of 1994 (CFO/GMRA), the Accountability of Tax Dollars Act (ATDA), and the Government Corporation Control Act (GCCA) with a link to each entity’s 2006 financial statements, if available, as well as the source of GAAP used to prepare the financial statements (FASAB vs. FASB GAAP) and the audit opinion received thereon. Information was also provided for some of the legislative branch entities as well.
Staff noted that an updated project schedule was included at the back of Appendix 1 and asked the members if they had any questions or concerns about the project proceeding as outlined at the September meeting.
The majority of the Board agreed that staff should continue as directed at the last meeting, which is to determine the user needs of the entities currently reporting under FASB, develop proposed reporting requirements that would incorporate those user needs with the needs of Treasury in compiling the consolidated financial report of the U.S. Government (CFR), and then prepare a draft survey to get feedback on the potential costs, burdens, and hurdles to providing the information necessary to satisfy the proposed reporting requirements. One member also requested that staff prepare a position paper that compares the pros and cons or strengths and weaknesses of the CFR in its current format to one that requires more consistency or homogeneity, including an analysis of the balance of governmentwide costs vs. benefits of changes as well as status quo.
September 19-20, 2007
At the September 20, 2007, FASAB meeting, staff updated the members regarding
the progress on the project since it was last on the agenda in May 2007. At
that meeting, members had asked staff to meet with FASAB’s sponsors
to agree on the most pressing issue to be addressed related to the appropriate
source of GAAP for federal entities. In July 2007, FASAB staff and
representatives from each of the three sponsors formed a workgroup and jointly
developed a recommendation that would address the issues with the governmentwide
consolidation. Staff noted that there was not widespread support for
requiring full conversion to FASAB standards so the recommendation did not
address primary reporting at the component entity level.
Staff noted that there are several potential options that the members have to address the issue. Staff referred to the three options contained in the staff discussion paper:
- Option A – Take no action
- Option B – Implement workgroup recommendation
- Option C – Initiate FASAB project to address specific differences
Staff briefly summarized the workgroup’s recommendation, which is
to (1) permit entities currently following GAAP set by the Financial Accounting
Standards Board (FASB) to continue to do so but require that they present
in their individual financial statements an audited footnote reconciliation
of the differences between FASB GAAP and FASAB GAAP that would support the
numbers submitted to Treasury via the Governmentwide Financial Report System
(GFRS) for the consolidated Financial Report of the U.S. Government (CFR);
and (2) revoke the “grandfather authority” that allowed entities
to comply with FASAB GAAP by continuing to directly follow the FASB hierarchy
(see FASAB News, Issue 60, Jan.-Mar. 2000, pg. 2 at http://www.fasab.gov/fasabnews/janmar00.pdf).
The majority of the Board requested that staff further develop Option B (implement
workgroup recommendation) but include additional information about financial
statement user requirements for entities that are preparing FASB-based statements. Some
members also requested to see a draft survey requesting cost information about
the proposed changes to component level reporting, an assessment of the indirect
impact on the legislative and judicial branches, and more information on whether
entities that begin preparing financial statements for the first time should
be permitted to prepare FASB-based financial statements under certain conditions.
May 23-24, 2007
At the May 24, 2007, FASAB meeting, staff provided an analysis of various
characteristics of the ten entities that were profiled in the March 2007
briefing materials. The characteristics that staff reviewed were grouped
into the following eight categories: (A) General Profile of the Entities;
(B) Size of the Entity; (C) Likely Users of the Financial Statements; (D)
Title of General Purpose Federal Financial Report; (E) Financial Statements
Presented; (F) Main Line Items; (G) Compliance with FASAB Standards and USSGL
Requirements; and, (H) Primary Differences between FASAB Standards and FASB
Standards. From the population of characteristics contained in the
eight areas listed above, staff selected 16 characteristics that it deemed
most relevant to the determination of the appropriate source of GAAP. Using
those 16 characteristics, staff provided a draft framework for determining
which source of GAAP would be more appropriate for a given entity utilizing
a non-weighted scoring mechanism.
At the May meeting, staff also provided feedback from various members of the federal financial management community in the form of a brief survey that was circulated to the preparers and auditors of the ten selected entities to provide information on the expected benefits and perceived costs and burdens associated with various approaches to resolving any concerns regarding the source of GAAP. Staff summarized the sense of the comments received from the respondents, which were generally not in favor of converting from FASB GAAP to FASAB GAAP.
After discussion of the options, the Board directed FASAB staff to coordinate with GAO, OMB, and Treasury on potential solutions to the issue and, if possible, come back to the Board with a draft framework that could be used to determine the appropriate source of GAAP for federal entities.
March 21-22, 2007
At the March 22, 2007, FASAB meeting, staff presented a project plan and background
information that included entity profiles and excerpts from financial statements
for the following ten federal entities that have historically followed FASB
GAAP: Community Development Financial Institution, Corporation for National
and Community Service, Federal Deposit Insurance Corporation, Federal Prison
Industries (Unicor), Government National Mortgage Association (Ginnie Mae),
Millennium Challenge Corporation, Office of Thrift Supervision, Pension Benefit
Guaranty Corporation, Tennessee Valley Authority, and U.S. Mint (the Mint
switched to FASAB GAAP beginning with its fiscal year 2005 financial statements).
Staff outlined a number of possible outcomes of the project and the pros and cons of each option, provided a draft project timeline, and requested Board input on the next proposed phase in the project – “Analyze and document similarities and differences that might prove helpful in developing guidance on which source of GAAP is most appropriate.” The Board approved additional research on the project at that time.
Deliberations prior to March 2007
This project was initiated in January 2006 after the topic was considered a top priority as a result of (1) the Board’s October 2004 agenda-setting session, and (2) subsequent consideration of comments on the July 2005 invitation to comment (ITC) on the four projects selected by the Board for consideration. Prior to the March 2007 Board meeting, staff had completed the first two phases in the proposed project plan – “Select 10 federal entities that are following the FASB GAAP hierarchy” and “Complete profiles of the 10 federal entities with respect to each entity’s mission, structure, operations and size based on revenue, sources of financing, SFFAC 2 conclusive and indicative criteria for including components in a reporting entity, and significant accounting policies.”
