Application of the Liability Definition

Project Objective:

The primary objective of this project is to reconsider the recognition, measurement and display of liability and expense, potential new elements/statements, and all related disclosures for commitments of the federal government that could potentially result in a net outflow of resources. This project is considered a companion research project to the liability element and social insurance projects to help determine the government-wide impact of proposals currently under review by the Board.

Program Summary

The Application of the Liability Definition was closed in August 2011. Related research has been subsumed by the broader Risk Assumed project.

September 27-28, 2006
At the September 28, 2006, meeting, staff presented the results of the survey that was circulated to the federal CFO and IG community to solicit feedback on the enhancements to the liability class definitions and the listing of sub-classes drafted by staff. Based on a review of the responses to the survey and a discussion of the difficulty in defining only four classes for such a diverse group of transactions and events, the Board directed staff to develop a framework for identification of obligating events at the sub-class level (e.g., grants, insurance, benefit programs, etc.) rather than at the class level. Once the obligating events are identified at the sub-class level, the Board should be able to determine how or if additional grouping by major class might be accomplished.

Issue Paper for September 2006 (PDF)

July 26-27, 2006
Staff circulated a survey to the federal CFO and IG community to solicit feedback on the enhancements to the class definitions drafted by staff and the completeness of the liability sub-classes based on the feedback from the task force. Responses were requested by August 15, 2006 . Staff plans to compile the responses and provide a summary to the board at the September meeting.

Issue Paper for July 2006 (PDF)

May 24-25, 2006
At the May 24 board meeting, staff presented a status report on the project, explaining that the liability classification task force had held two meetings – the first on April 12 and the second on May 11 – and briefly summarizing the results of the two meetings.

Staff recommended to the board that it take the input from the task force, update the class definitions and the subclasses, and then create a survey of five or six questions for wider distribution to the federal community for comment.

As there were no objections by the members to staff’s recommendation, staff will circulate a survey to the federal community to solicit feedback on the enhancements to the class definitions drafted by staff and the completeness of the liability sub-classes based on the feedback from the task force.

Issue Paper for May 2006 (PDF)

March 29-30, 2006
Staff presented the board members with a copy of the packet that was sent to individuals in the federal financial management community, inviting them to participate in a task force on liability classification. The task force was approved by the Board as part of the revised project plan presented at the January 2006 board meeting. The task force invitation packet was sent to members of the Federal Financial Management Council and Financial Statement Audit Network, as well as several independent public accounting firms (IPA). Staff received a fairly good response rate, with representation from numerous agencies and three IPAs. The first meeting of the task force was held on Wednesday, April 12, 2006 ; the second meeting will be held on Thursday, May 11, 2006 .

Issue Paper for March 2006 (PDF)

January 11-12, 2006
Staff presented the Board with a revised project plan that includes the four classes of liabilities from SFFAS 5 (exchange transactions, nonexchange transactions, government-related events, and government-acknowledged events), maps transaction types to each of the four classes, and proposes the engagement of a task force. The plan also proposes the following five tasks:

  • Task One – Test the four Classes and Sub-classes of Liabilities through the use of a task force.
  • Task Two through Five – Develop principles for determining when an obligating event has occurred and related recognition criteria for each of the four liability classes, prepare standards for each sub-class, and issue an exposure draft.

Staff solicited input and approval from the Board on the revised project plan.

The Board was in overall agreement with the revised project plan. Several Board members indicated that they preferred that tasks two through five be completed concurrently; they would favor issuing one complete exposure draft over one exposure draft for each class. Two Board members indicated that they would like to see an enhanced discussion on how conditions relate to the determination of obligating event as the project progresses. Staff will begin completion of Task One by assembling a task force of individuals representative of the federal financial management community and each of the four classes of liabilities.

Issue Paper for January 2006 (PDF)

October 5-6, 2005
At the October 2005 meeting, staff presented the following three potential liability classification options:

  1. Option 1 – Apply New Liability Definition to Current SFFAS 5 Liability Classes
  2. Option 2 – Apply New Liability Definition to Liability Classes by Transaction Type
  3. Option 3 – Apply New Liability Definition to Liability Classes by Relationship Type

Staff stated that after considering the advantages and disadvantages to selecting each option and the degree of flexibility, effectiveness, and feasibility that might potentially result from choosing each of the options, the staff recommendation is that the Board members select option 2.

After a brief discussion, Mr. Mosso took a poll of the Board members regarding their preferences for the three options. The Board members overwhelmingly selected option 1 as their preference; however, several of the Board members that selected option 1 noted that even though they were selecting option 1, they recognized that option 1 would still require some revision or enhancements to what is contained in SFFAS 5. Staff will provide members with a revised list of liability classes based on option 1 with the different transaction types in option 2 incorporated.

Issue Paper for October 2005 (PDF)

August 17-18, 2005
At the August 17, 2005 , meeting, staff summarized the project results to date and presented three options for continuing:

  • Present educational sessions on IASB and FASB work on expected values and obligations;
  • Begin developing an operational approach to different classes of liabilities; or,
  • Divert staff resources to another project.

Staff noted that there are fundamental disagreements between the Board members, particularly on whether the liability is the future sacrifice itself or the stand-ready obligation to make that sacrifice. As a result, continuing to review individual programs one by one would probably not result in the timely settlement of many of these differences.

After a brief discussion, the Board members unanimously agreed that the project should continue but should focus on classes of liabilities from this point forward, rather than a review of individual programs. Staff will research potential classes of liabilities and present a list of options for the Board to consider.

Issue Paper for August 2005 (PDF)

June 22-23, 2005
At the June 22, 2005 meeting, staff presented an analysis of the Corporation for National and Community Service’s (the Corporation) Service Award Liability. Staff selected this program as an example of a government program that recognizes a liability before the due and payable point even though it is a nonexchange transaction and not all conditions have been met for the member to have a legal claim to the award. The Corporation currently recognizes a liability for each member after he has completed 15 percent of his term of service.

Staff compared the Corporation’s program to the other programs presented by staff at prior meetings (Supplemental Security Income, Milk Income Loss Contract, and Feed Grains Direct and Counter-Cyclical Payment) and suggested that the point at which the member applies for the program could be considered the obligating event based on the same logic applied by staff to the other programs (the point at which a mutual understanding/”meeting of the minds” has been formed).

Board members did not make a formal decision on the obligating event at this meeting, but did agree that it seems appropriate for the Corporation to recognize some amount earlier than due and payable for this program. However, under current FASAB SFFAS 5, a liability would not be recognized until due and payable if the transaction is characterized as nonexchange.

In addition, several Board members debated whether (1) the program was actually nonexchange and (2) the liability should, in fact, either be recognized in full after the member has completed service or on a prorated basis as he is performing service. The alternative recognition points proposed by members would still result in earlier recognition than due and payable, which for this program, is after a member has completed his full term of service and incurred eligible educational expenses.

Issue Paper for June 2005 (PDF)

May 4-5, 2005
At the May 4, 2005 meeting, staff presented a discussion of alternative obligating events for two farm support programs administered by the Farm Service Agency – the Milk Income Loss Contract program and the Feed Grains Direct and Counter-Cyclical Payment program. Staff presented an analysis of several potential obligating events and recommended that the submission of the contract and documentation of supporting evidence be selected as the obligating event for both programs. Board members did not make a formal decision on the obligating event at this meeting, but tentatively agreed that the government’s determination of eligibility could be considered a measurement issue rather than a necessary step in determining whether or not a liability exists. Some members also discussed whether the point that the program is created could be considered a valid alternative obligating event. Staff plans to provide the board with an analysis of the views presented at this meeting as well as a presentation on the Corporation for National and Community Service’s Service Award Liability.

Issue Paper for May 2005 (PDF)

March 2-3, 2005 Meeting:
At the March 3, 2005 meeting, staff presented a discussion of alternative obligating events for the Supplemental Security Income (SSI) program. SSI is administered by the Social Security Administration and has some striking similarities to the Social Security program being reviewed concurrently by staff on the Social Insurance Liabilities Project (see project summary above). Staff recommended that the determination of eligibility be selected as the obligating event for SSI. Board members found the analysis to be very helpful but reserved a decision on the obligating event for SSI until a more finalized definition of liabilities is agreed upon in the Concepts project (see project summary above). The analyses are considered helpful to the Board in their efforts to develop a liability definition that is appropriate across a wide range of government programs. The Board requested that staff pick one or two other programs to review and come back to the Board at a subsequent meeting to discuss alternative obligating events and display options for the selected program(s).

Issue Paper for March 2005 (PDF)

December 15-16, 2004 Meeting:
Project was not on the agenda for December.

October 20-21, 2004 Meeting:
An updated project plan was provided to the Board members at the October 20, 2004 meeting. Board members discussed the usefulness of concurrent research on potential liabilities, disclosures, and new elements related to other government programs and agreed that staff should pick two or three programs to review. Staff will come back to the Board in March with alternative obligating events and display options for the selected programs.

Issue Paper 10/20-21/2004 (PDF)


August 25-26, 2004 Meeting:
At the August 25, 2004 meeting, fact sheets prepared for Medicaid, Food Stamps, Temporary Assistance for Needy Families, and Supplemental Security Income were provided for the Board’s information in conjunction with the Social Insurance Liability Project presentation. Additional information will be gathered on various government programs in order to assist the Board in making a determination of proper liability recognition for various government events.

Issue Paper 8/25-26/2004 (PDF)


Deliberations prior to August 2004

This project was formally introduced at the April 2004 meeting. It has naturally evolved from the Social Insurance Liability Project due to the need to concurrently review other commitments undertaken by the Federal Government that may be more accurately portrayed with additional liability recognition, disclosure, and/or display requirements beyond due and payable.

At the April 29, 2004 meeting, the Board discussed the staff’s preliminary plan for the project under the title “Long-Term Commitments.” The Board expressed a preference to characterize the project primarily as research at that point and directed staff to prepare a list of the major programs to be reviewed (i.e., Medicaid, Food Stamps, etc) before approving a formal project plan.

At the July 1, 2004 meeting, the Board requested relevant background information on other Federal programs in order to compare and contrast how the liability recognition criteria being studied as part of the social insurance project may be applied to other government programs. It was agreed that this information would be provided at the August meeting.