Debt Cancellation

FASAB Contact, Melissa Batchelor, batchelorm@fasab.gov, 202-512-5976

Technical Clarifications of Existing Standards (TCES) Project Description:

Members of the Board and the federal financial management community have expressed a general concern that federal entity resources are increasingly constrained. Some believe the Board should evaluate existing requirements and eliminate any unnecessary requirements. When appropriate, the Board explores opportunities to engage with the community on changes to existing standards and areas where clarification may be needed.

TCES addresses requests for guidance that align with the above goals and provide benefits that clearly exceed costs. To accomplish these goals, ongoing efforts may include providing additional forums for preparers, auditors, and users to identify requirements they believe are unnecessary and where clarification may be needed (this can be accomplished through an open-ended written request for input or round table discussions). The Board will assess requests against the reporting objectives. The Board may address these requests through the appropriate level of GAAP guidance.

Debt Cancellation Project Objective:

As part of the TCES project, this sub-project considers whether paragraph 313 of SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, which pertains to debt cancellation needs to be clarified.

The objective is to respond to a request for guidance from stakeholders by issuing clarifying guidance regarding debt cancellation as included in paragraph 313 of SFFAS 7. For example, the Board will clarify that debt cancellation activity should be reported on the statement of changes of net position.

HISTORY OF BOARD DELIBERATIONS

February 26-27, 2020

At the February 2020 Board meeting, the Board considered an initial staff draft, Debt Cancellation: An Interpretation of SFFAS 7 paragraph 313. The Board first discussed paragraph 313 of Statement of Federal Financial Accounting Standards (SFFAS) 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, at the October 2019 Board meeting and agreed that an Interpretation would be used at the December 2019 meeting.

The Board agreed to allow time for additional research request by the two members and requested that staff consult with the reporting entities affected by the recent debt cancellation to determine whether staff’s draft Interpretation would have resolved the issues.

The Board agreed to delay further consideration of the debt cancellation exposure draft (ED) pending research into prior debt cancellations and other historical circumstances.

February 26-27, 2020 – Tab G (PDF)

December 17-18, 2019

At the December 2019 meeting, the Board considered two potential Interpretation topics under the evaluation of existing standards project.

At the October 2019 meeting, the Board had agreed that paragraph 313 of SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, which pertains to debt cancellation, needed clarification.

The Board agreed that the terms “gain and loss” as used in paragraph 313 need clarification or an explanation that those terms are not required for presentation. It is important to clarify that debt cancellation activity is reported on the statement of changes in net position. An Interpretation will be used to clarify these items. A member requested that a question be included in the exposure draft (ED) that requests feedback on whether the proposed Interpretation resolves ambiguity that may exist in paragraph 313 and provides the necessary clarification.

The Board also agreed that SFFAS 1, Accounting for Selected Assets and Liabilities, paragraph 31, which pertains to non-entity fund balance with Treasury (FBWT), required clarification. The issue relates to how monies received in deposit funds from non-federal sources in anticipation of an order should be reported and presented on the financial statements. The Board agreed that an Interpretation would be the appropriate generally accepted accounting principles vehicle to address the SFFAS 1, paragraph 31 non-entity FBWT issue.

Issue Paper for December 17-18, 2019 – Tab B (PDF)

October 23-24, 2019

The Board considered whether paragraph 313 of SFFAS 7, which pertains to debt cancellation, needs to be revised. Messrs. Soltis and Bell requested that FASAB review paragraph 313 of SFFAS 7 because they believed there may be a disconnect in requirements related to debt cancellation. This is based on an issue raised during the FY 2018 audit cycle.

The Board agreed that fundamentally paragraph 313 is accurate, but it may be the imprecision of the terms “gain/loss” that is the issue. The Board also discussed that a presentation issue may exist and may be related to how U.S. Standard General Ledger accounts roll up to the statement of changes in net position. The Board believed it may be important to clarify that the categorization or captioning is not important as long as it is on the statement of changes in net position.

The Board agreed that the issue regarding debt cancellation required generally accepted accounting principles (GAAP) clarification. Specifically, the guidance would clarify that debt cancellation is reported on the statement of changes in net position but need not be presented as a specific “gain/loss” line item. The guidance would also provide for enhanced disclosures as appropriate.

Most Board members agreed that the issue should be resolved with the lowest level of GAAP guidance afforded. The Board will consider options at the next Board meeting.

Issue Paper for October 23-24, 2019 – Tab H (PDF)