Concepts – Reporting Entity
FASAB addresses the entity issue in its Statement of Federal Financial Accounting Concepts (SFFAC) 2, Entity and Display. SFFAC 2 addresses:
- Reasons for Defining Reporting Entities
- Structure of the Federal Government
- Identifying the Reporting Entities for General Purpose Financial Reporting
- Criteria for Including Components in a Reporting Entity
- Other Aspects Concerning the Completeness of the Entity
The Board is aware of a number of entity issues. While SFFAC 2 provides criteria for determining if an entity should be included as a federal entity, questions continue regarding whether certain activities should be included with an entity. The Federal Entity project will address both the conceptual framework and standards issues. Ultimately this phase will result in potentially both a proposed concept and one or more proposed standards. A high level issue that will be considered throughout the project is what information regarding Entity and Consolidation should be in a Concepts Statement versus a Standard. The Board will consider the following issues:
Issues that may be best addressed through Concepts:
- Definition of entity / reporting entity
- Guidance / characteristics for identifying reporting entities
- Criteria for including entities / boundary of the entities
Issues that may be best addressed through Standards:
- Criteria for consolidating entities
- Reporting on other relationships–joint ventures, non-profit partnerships, other relationships that lead to an assumption of federal support without consolidation being required, etc
- Potential disclosures
While this project includes a review of the above issues and foundational notions of reporting entity contained in SFFAC 2, it focuses most heavily on the conclusive and indicative criteria. Thus, we anticipate a focus on questions relating to inclusion or exclusion of entities from the reporting entity. Nonetheless, staff will review SFFAC 2 in its entirety to identify any additional issues (such as clarity of SFFAC 2 explanations regarding entity, reporting entity and the forms taken by entities). This project will address both the conceptual framework and standards issues.
|Request(s) for Comment||Comment Letters||Final Pronouncement|
|Reporting Entity – Exposure Draft (PDF)||Comment Letters||Reporting Entity (PDF)|
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
Reporting Entity Question
At the October 2015 Board meeting, the Board received an inquiry to clarify first year presentation guidance.
Statement of Federal Financial Accounting Standards (SFFAS) 47, Reporting Entity was issued in December 2014. The financial management community is working on SFFAS 47 implementation guidance and a question was presented to confirm the Board’s position—whether prior year financials should be restated if a material change in the reporting entity results. If restated, this would mean FY 2017 financial statements would be restated when FY 2018 is presented. FASAB staff prepared briefing materials and an analysis for the Board. The briefing materials provided an analysis that staff does not believe it would be cost beneficial to restate prior year financial statements. The briefing materials (which can be found on the FASAB website) noted that the research and outreach performed during the development of Technical Bulletin 2003-1 provided sufficient analysis that a restatement for a change in entity in the federal government environment would not be appropriate because federal financial reporting objectives do not focus on the earning power or credit worthiness of the component entities of the government. The analysis also noted that based on the Board’s discussions during development of SFFAS 47, it appeared most Board members were thinking about it prospectively and did not expect restatement.
Therefore, staff believed no further Board action would be required and SFFAS 21 paragraph 13 would apply. Thus, any adjustment would be made to the beginning balance of cumulative results of operations in the statement of changes in net position; no restatement would be made to the previous year; and a high level disclosure would be made regarding the change and its effect on balances.
Staff noted that the decision results in a conflict or inconsistency with OMB Circular A-136, Financial Reporting Requirements. OMB explained the history and that it was based on Accounting Principles Board Opinion No. 20. However, OMB explained that if the intent of the Board is for this to apply to the whole federal government, OMB Circular A-136 can be updated to be consistent with the Board on this matter.
The Board agreed that prior year financial statements should not be restated upon implementation of SFFAS 47. Hence, SFFAS 21 paragraph 13 applies regarding implementation of SFFAS 47. OMB Circular A-136 will be updated to be consistent with the Board on this matter.
December 23, 2014
Statement of Federal Financial Accounting Standards (SFFAS) 47, Reporting Entity was issued on December 23, 2014.
SFFAS 47 establishes principles to identify organizations for which elected officials are accountable. The Statement also guides preparers of GPFFRs in determining what organizations to report upon, whether such organizations are considered “consolidation entities” or “disclosure entities,” and what information should be presented about those organizations. The Statement also requires information to be provided about related party relationships of such significance that it would be misleading to exclude information.
SFFAS 47 is effective for periods beginning after September 30, 2017 and early implementation is not permitted. It is anticipated that central agencies will determine if there is a need for coordinated guidance to ensure government-wide consistency.
October 22-23, 2014 Board Meeting
The proposed Statement of Federal Financial Accounting Standards 47, Reporting Entity, was forwarded to the sponsors for the 90-day review period. If we do not receive an objection from the Office of Management and Budget or the Government Accountability Office during this review period, the Board will issue the statement on December 23, 2014.
August 27-28, 2014 Board Meeting
The Board finalized deliberation on the Federal Reporting Entity project by reviewing the Reporting Entity ballot draft at the August 2014 meeting. The Board approved several minor wording changes after discussing member comments.
The Board did not approve the ballot at the meeting because one member, Mr. Steinberg, plans to submit a revised dissent. Based on timing of the revised dissent, the Reporting Entity members will be asked to ballot following the meeting. However, the Statement is anticipated to be approved in September.
June 25-26, 2014 Board Meeting
The Board continued deliberation on the Federal Reporting Entity project and reviewed a draft of all changes at the June 2014 meeting. The Board made several minor wording changes after discussing member comments. These changes will be documented in detail in the minutes of the meeting. Members concluded there are no remaining technical matters to address. A pre-ballot draft of the document will be reviewed by members after the June Board meeting, with the goal of a ballot draft for approval at the August meeting.
April 23-24, 2014 Board Meeting
The Board continued deliberation on the Federal Reporting Entity project at the April 2014 meeting. The Board made the following tentative decisions:
- Clarify the component reporting entity misleading-to-include provision
- Addition of a footnote in the standard to clarify that an organization refers to the entire organization, including activities funded by nonfederal sources. Clarifying language to address organizations partially in the budget in the basis for conclusions.
- Revisions to the Related Party language to clarify references to federal executives.
- Delay the effective date to periods beginning after September 30, 2017 and to not permit early implementation of the standard.
Additional detail regarding these topics can be found in the detailed minutes of the meeting.
The Board will review a draft of all changes at the next meeting. The formal vote on a pre-ballot draft will be after the June Board meeting discussion.
March 5-6, 2014 Board Meeting
The Board continued deliberation on the Federal Reporting Entity project at the March 2014 meeting. The Board made the following tentative decisions:
- Clarify the ‘In the Budget’ inclusion principle
- Modify language to address the notion of “temporary” relationships
- Remove the “Disclosure entity views/perspective” factor from paragraph 69 of the proposal.
- Modify text to clarify that specific disclosures listed are examples and not requirements
- Conclude that inclusion principles and attributes can be objectively applied to the central bank.
- Retain the minimum disclosures for the central bank
- Revise paragraph 77 to be consistent 73 (disclosure entity example disclosures), with the exception of the opening and paragraph 77c-which the board agreed to specific modifications during the meeting.
The Board asked for additional staff research regarding the component reporting entity misleading to include and the Organizations Partially in the Budget issue areas.
Additional detail regarding these topics can be found in the detailed minutes of the meeting.
Issue Paper for March 2014
December 18-19, 2013 Board Meeting
The Board is in the due process phase of the Federal Reporting Entity project. At this stage, the Board has considered the comment letters and public hearing testimony and will work through the issues and determine if any changes may be necessary to the proposed standards. The Board will continue this over the next several meetings. At the December 2013 meeting the Board discussed In the Budget, Misleading to Exclude, Applicability to Judicial and Legislative Branches, Term for Disclosure Organization, Notion of Temporary, FASB Based Information, and Central Bank Questions.
After discussing the issues the following decisions were made:
- retain the ‘in the budget’ as the first inclusion principle with modifications for clarity.
- retain the ‘misleading to exclude’ principle and with the revisions to the basis for conclusions.
- modify wording to explain applicability to the judicial and legislative branches.
- adopt the terms consolidation entity and disclosure entity.
- clarify how “temporary” relationships are to be considered.
- drop the requirement for the intra governmental note disclosure.
The Board asked for additional staff research regarding the disclosure requirements proposed for central bank activities and other matters.
Additional detail regarding these topics can be found in the detailed minutes of the meeting.
Issue Paper for December 2013
October 23-24, 2013 Board Meeting
Although the Reporting Entity project was not an agenda topic at the abbreviated October meeting, staff provided the Board with a project update. At the December meeting, specific proposed language to address the following issues will be discussed:
- Clarifying principles regarding organizations included in the budget but which may not be controlled
- Renaming “disclosure organizations”
- Reconsidering the misleading to exclude principle.
- Addressing “temporary control” within the characteristics of consolidation entity and disclosure organization.
- Discussing the application of principles to the Federal Reserve and analysis planned during the implementation period
- Reviewing the intra-governmental required note disclosure for FASB based organizations.
Note that a public hearing was held on August 28th. The transcripts will be posted at www.fasab.gov in late November.
August 28-29, 2013 Board Meeting
A public hearing on the Reporting Entity Proposed Accounting Standards was held on August 28th. Transcripts of the public hearing will be available at www.fasab.gov in late October or by contacting the FASAB office at 202 512-7350.
The Board also discussed three high-level questions related to the inclusions principles, the distinction between consolidation entities and disclosure organizations and whether to consider the alternative view. The goal was to get feedback on those areas and determine if there were other issues the Board viewed as priority for direction for staff.
As a result of the discussion, staff will prepare options for the Board to consider regarding the inclusion principles. In addition, staff will address issues raised by respondents and seek members input on revisions to the proposed standards.
Issue Papers for August 2013
June 19, 2013 Board Meeting
The Reporting Entity project was not on the Board’s agenda for the June 19, 2013 meeting. The Reporting Entity exposure draft requested written comments by July 3, 2013 and almost 40 responses have been received. Comments received after the due date will be conveyed to the Board at later meetings. To review the responses visit – /reporting-entity/
A public hearing has been scheduled in conjunction with the August 28, 2013 Board meeting and interested respondents are encouraged to participate.
April 24-25, 2013 Board Meeting
The Federal Accounting Standards Advisory Board (FASAB) recently approved the Reporting Entity exposure draft. The Board is seeking input on the proposed Statement of Federal Financial Accounting Standards addressing the Reporting Entity from federal agencies.
The FASAB developed a principles-based approach to ensure information about organizations forwhich elected officials are accountable is included in general purpose federal financial reports(GPFFR). The proposed standards provide more detailed guidance than currently exists and offer illustrations. This guidance would assist the federal community in assessing complex federal government relationships to ensure users of GPFFRs are provided with comprehensive financial information about federal reporting entities and complex relationships with organizations.
The proposed standards would require the government-wide GPFFR to include organizations that are(1) budgeted for by elected officials of the federal government, (2) owned by the federal government,or (3) controlled by the federal government with risk of loss or expectation of benefits. In addition, an organization would be included in the government-wide GPFFR if it would be misleading to exclude iteven though it does not meet one of the three inclusion principles.
The proposed standards also provide criteria for determining the most appropriate means to include information about organizations included in the GPFFR. Whether information regarding organizations is presented in consolidated financial statements or through disclosures is based on an assessment of the degree to which the following characteristics are met: the organization is financed by taxes or other non-exchange revenue, is governed by the Congress and/or the President, imposes or may impose risks and rewards on the federal government, and/or provides goods and services on a nonmarket basis.
Organizations to be included in the consolidated financial statements within the GPFFR are referred to as “consolidation entities” and are subject to the hierarchy of generally accepted accounting principles established for “federal entities” in Statement of Federal Financial Accounting Standards34. Organizations to be disclosed in the GPFFR are referred to as “disclosure organizations.” While disclosure organizations are not subject to the hierarchy of generally accepted accounting principles established for federal entities, information about such organizations is needed for accountability purposes.
The proposed standards also address organizations to be included in component reporting entity GPFFRs, minimum disclosures regarding central banking activities, and disclosures regarding related parties.
One Board member submitted an alternative view. The Board member does not believe receiverships, conservatorships, and intervention organizations should be equated with other disclosure organizations.
The proposed Statement would be effective for periods beginning after September 30, 2016. Earlie r implementation is encouraged. The exposure draft requests written comments by July 3, 2013, and encourages respondents to provide the reasons for their positions. A public hearing has been scheduled in conjunction with the August 28, 2013 Board meeting and interested respondents are encouraged to participate.
February 27-28, 2013 Board Meeting
The Federal Reporting Entity project was on the agenda both days of the February 2013 Board meeting. At the Board meeting, the Board discussed and approved proposed minimum disclosures regarding the central bank (Federal Reserve) and additional Questions for Respondents. The Board also approved editorial changes intended to avoid inferences that organizations temporarily owned or controlled are “federal reporting entities.” For example, one change was the term “disclosure entity” was replaced with “disclosure organization” to further distinguish it from “consolidation entity” and “reporting entity.”
With the approval of the changes, staff circulated a pre-ballot Reporting Entity exposure draft (ED) on March 6, 2013. One Board member submitted an alternative view. The Board member does not believe receiverships, conservatorships, and intervention organizations should be equated with other disclosure organizations. He believes guidance in the proposed standards gives the impression that these organizations are part of the federal government.
Based on the schedule, the Reporting Entity ED should be released by mid-April and the Board plans to hold a public hearing at its August 2013 meeting.
December 19-20, 2012 Board Meeting
Prior to the December meeting, members were provided with a complete Reporting Entity exposure draft for approval. Members are permitted to add alternative views to an exposure draft and two alternative views were supported by five board members. The support for these views was discussed at the December meeting to determine what, if any, changes should be incorporated in the proposal.
The first alternative view proposed requiring certain disclosures regarding the Federal Reserve System. After the discussion, the Board agreed to include minimum disclosure requirements regarding the Federal Reserve and directed staff to draft the requirements. The Board also agreed to develop Questions for Respondents regarding whether the attributes used to classify an entity as a consolidation or disclosure entity are sufficient to make a determination for a central bank (the Federal Reserve System) or other significant entities.
The second alternative view proposed excluding “Receiverships, Conservatorships, Intervention Entities” from consideration as consolidation or disclosure entities. Some members supporting the alternative view were concerned entities temporarily owned or controlled by the federal government may be viewed as “federal entities” if they are included. After discussion, the Board agreed that staff would review the document and revise wording to clarify that the reporting entity is made up of consolidation entities. In addition, editorial changes to avoid unintended inferences will be considered.
Staff will have a revised Exposure Draft at the February 2013 meeting with the draft changes. If the changes are agreed upon at the meeting, a vote may occur after the meeting.
Issue Papers for December 2012
October 24-25, 2012 Board Meeting
At its October meeting, the Board made substantial progress towards finalizing the reporting entity exposure draft (ED). The remaining topics included the related party disclosure requirements and explanatory text in the basis for conclusions (specifically addressing the Federal Reserve System). The Board also spent considerable time focusing on remaining member concerns with narrow technical and editorial matters. The Board identified needed edits on the first day of the meeting and returned on the second day of the meeting to review the resulting changes in anticipating of approving the document after the meeting.
At meeting, the Board approved the following:
- revisions to the definition of control for clarity
- a new title for the ED—Reporting Entity
- clarifications regarding the structure and terminology adopted
- a requirement that entities applying Financial Accounting Standards Board principles pursuant to paragraphs 9 through 12 of Statement of Federal Financial Accounting Standards (SFFAS) 34 provide certain disclosures regarding intra-governmental balances and amounts
- presentation requirements for entities funded by both appropriations and donations
The Board approved a neutral approach for explaining potential effects of the standards on information regarding unique entities such as the central bank.
Subsequent to the meeting, staff incorporated all of the agreed upon changes and sent a revised pre-ballot draft to members for comment. After this round of comments, members will be provided with a final document for approval. Issuance is anticipated in late 2012 or early 2013. A public hearing is planned for April 2013.
August 29-30, 2012 Board Meeting
Federal Reserve Educational Session
The Federal Reporting Entity agenda item began with an educational session on the Federal Reserve System. The session objectives were to respond to questions posed by a member regarding the Federal Reserve System and to provide an opportunity for representatives from the Federal Reserve to present information and respond to Board member questions.
The presentation addressed the transparency, governance structure, and accounting policies of the Federal Reserve System. It also provided a brief overview of the purpose, functions, and unique aspects of a central bank relating to economic policy and how this differs from fiscal policy. This provided an excellent opportunity for the members to learn more about the Federal Reserve and ask questions. The session was educational in nature and did not result in any formal decisions by the Board.
The Board discussed the draft Exposure Draft (ED) for the Federal Reporting Entity project. The session objectives were to approve changes since the last meeting to the Draft ED and to consider alternatives developed by selected Board members in an alternative draft. The Board considered key differences between the alternate draft and proposed ED.
The Board tentatively decided to:
- Remove the enumerated disclosures tailored to and required for entities exercising powers reserved to the sovereign (par. 71 in the proposed ED).
- Add “organization” to the title of the “relationship” disclosure objective to clarify that the established objective addresses both organization and relationship.
- Not include disclosure requirements for intervention entities not owned or controlled in this proposed ED.
- Replace the term ‘core’ with ‘consolidated’ and the term ‘non-core’ with ‘disclosed’ and directed staff after the vote that there was latitude regarding the term “disclosed” as it may be problematic to incorporate.
- Use both the term “included” and the term “reported” (as it was used in the alternate draft). The Board unanimously agreed staff should use the words as necessary for the flow of the document.
The last topic on the Federal Reporting Entity session was the discussion of the related party draft language and disclosure requirements. Staff provided a draft that relied heavily on listing parties to be included and excluded. In addition, the staff proposal provided room for judgment by incorporating a misleading to exclude provision.
While the Board did not have a formal vote on the language, it did appear they were in agreement with the direction. The Board requested some minor revisions—such as to move the notion of misleading to exclude (see par. 6 c in Tab C page 5) so it is more prominent, perhaps listed first, they also suggested that par. 7h provide examples of special interest groups. Staff will incorporate these and other suggestions by members.
One member also suggested that a question to respondents be considered so the Board can gather additional information if there are other organizations that should be excluded from related party reporting to better ensure there are no unintended consequences.
The exposure draft will be discussed again at the October meeting with issuance of the proposal expected before the end of the calendar year.
Issue Papers for August 2012
June 27-28, 2012 Board Meeting
At the June Board meeting, the Board discussed changes to the draft of the ED, Identifying and Reporting upon Organizations to Include in General Purpose Federal Financial Reports. Major revisions included those related to non-core disclosures and specifically requiring more detailed disclosures for non-core entities that exercise sovereign powers of government and allow judgment to drive the level of disclosure for the rest.
The Board also discussed another version of the Draft Federal Reserve Proforma Disclosure – Treasury Financial Statements. Treasury and Federal Reserve staff worked to address comments received on a prior draft presented to the Board. The Board discussed the draft and noted the improvements. Some further improvements were suggested.
The Board also discussed and approved proposed language to ensure the same core entity is not consolidated in the financial statements of more than one component reporting entity.
The Board discussed the issue of related party. Although there appears to be agreement it should be addressed, the Board directed staff to develop options for further consideration at the August meeting. Options will be based upon the following ideas:
- A narrow definition with a series of principles or examples of what to consider or exclude to help narrow the population.
- Misleading to exclude approach
- Revisions related to a revised structured proposed by a Board member
The Board also reviewed the proposed conforming amendments to Statement of Federal Financial Accounting Concepts (SFFAC) 2 and the proposed clean up of inconsistent terminology throughout SFFAC 2 presented at the meeting. Staff plans to provide a revised Concepts piece that includes additional revisions in October. The Board approved the recommendation of requiring certain minimum information regarding the CRE’s status as a component of the U.S. government as part of this project.
The Board also considered the draft illustrations in applying the standards. The Board considered the changes staff incorporated in the illustrations. Improvements were included in the preamble, the headings, and the wording of the tentative conclusions.
Issue Papers for June 2012
April 25-26, 2012 Board Meeting
At the April meeting, the Board considered the component entity reporting section of the exposure draft (ED) and discussed changes to the ED since the last meeting. The Board also discussed remaining concerns with other areas of the ED such as draft illustrations. In addition, the Board decided how to present amendments to Statement of Federal Financial Accounting Concepts 2, Entity and Display, and discussed the areas identified for amendment.
The following decisions were made at the April meeting:
- Rather than illustrative disclosure requirements, the ED should provide conditional requirements (“if this applies, then provide this information”) to meet the non-core disclosure objectives.
- Further consideration of requirements for information regarding material intragovernmental differences resulting from the application of Financial Accounting Standards Board guidance by certain core entities should be provided.
- Members unanimously agreed that staff should incorporate the conforming amendments to concepts statements into one ED.
Issue Papers for April 2012
February 22-23, 2012 Board Meeting
Representatives from Treasury and the Federal Reserve presented and discussed draft illustrations based on their interpretation of the draft exposure draft. The session was held because the Board believed the draft illustrations and interpretation of the proposed requirements for certain entities should be considered during deliberations. The Board found the presentation very informative and helpful.
The Board also discussed various proposed changes to the government-wide portion of the exposure draft (ED) and discussed remaining member concerns with the ED. The Board also considered whether the ED should be explicit regarding non-core entities that may prepare reports on a comprehensive basis of accounting other than GAAP.
The Board also considered two approaches to identifying organizations that should be included in the financial reports of component reporting entities (Option A – Administratively assigned approach and Option B – Revised inclusion principles approach). Staff recommended the administratively assigned approach because it provides that the government-wide reporting entity’s general purpose federal financial report (GPFFR) should include all organizations for which the Congress and the President are accountable. The government-wide reporting entity is the only federal reporting entity that is an independent economic entity. Disaggregation of the government-wide reporting entity into component reporting entities supports accountability and should result in each component reporting entity including in its GPFFR all core and non-core entities administratively assigned to it. This approach provides a more realistic view of how component reporting entities become accountable for organizations and how component entity boundaries are likely to be determined.
Administrative assignments to component entities are typically made in policy documents such as budget documents, laws, regulations, or strategic plans. Ultimately, component reporting entities would identify and include in their GPFFR all core and non-core entities for which they are accountable so that both the component reporting entity and government-wide GPFFR would be complete.
The following decisions were made in the federal reporting entity session:
- The Board did not recommend any specific changes to the inclusion principles based on the presentation regarding the Federal Reserve illustrative disclosures. There were suggestions regarding the disclosures and examples of information that staff will consider in determining if the disclosure requirements could be enhanced.
- The Board agreed the standard should remain silent on the use of other comprehensive basis of accounting and if such bases differ from GAAP it will be up to the professional judgment of the auditor and preparer to determine if the differences are significant.
- Board members unanimously agreed with the staff recommendation to further develop the administratively assigned approach for component reporting entities.
Staff will further develop the component reporting entity language for the next meeting.
Issue Papers for February 2012
December 19-20, 2011 Board Meeting
At the December 2011 meeting, there were discussions on the government-wide portion of the federal entity project as well as the component entity phase. The updated exposure draft (ED), reviewed by members reflected decisions from the October Meeting and other changes suggested by board members and staff. These changes included the following
- Revised Language for the Consolidation of Financial Accounting Standards Board (FASB)-based Information without Conversion as well as the additional language in the basis for conclusions
- Revised Language for Addressing the Federal Reserve System
- Editorial changes to streamline several sections
The following resulted regarding issues specific to the government-wide portion of the ED:
- The Board agreed the title will change to “Identifying and Reporting upon Organizations to Include in the General Purpose Federal Financial Reports”
- The Board approved draft language for recognizing core entities are federal entities for GAAP purposes.
- The Board voted to maintain paragraph 19 (In the Budget) with one minor edit.
- The Board generally agreed to the other changes and revisions to the ED.
In discussing the component entity phase of the project, the Board considered issues relating to adapting the first inclusion principle—In the Budget—for application by component entities. The Board also discussed the notion of the complete economic entity as it relates to component entities because there was concern about whether the financial statements provide a complete representation of the component entity’s operations.
The following major decisions were made:
- The Board agreed that the basis for conclusions should discuss the reasons for the limitation that “the statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity.”
- The Board agreed the exclusion or exception for federal financial assistance should also apply at the component entity level.
- The Board decided staff should not attempt to develop additional principles for instances where an organization identified in the budget should not be considered part of the larger organization under which it is identified. Members noted they remain open to considering suggested wording if offered by one of the members supporting the development of such principles.
Issue Papers for December 2011
October 26-27, 2011 Board Meeting
At the October Board meeting, the Board was requested to approve the revised language for the remaining government-wide reporting entity open issues and provide feedback on the completed government-wide portion of the Exposure Draft (ED). Specifically, the Board was asked to approve the revised language for the consolidation of FASB-based information without conversion and the revised language for non-core entity disclosures. The Board was also asked to vote on options for addressing the Federal Reserve. Additionally, the Board discussed issues raised by a Board member regarding the scope of the ED and the type of entities considered non-core.
The Board decided the following at the October meeting:
- The Board agreed the document could be clarified by staff (1) revising the title (presently “Government-wide and Component Reporting Entities”) to a more descriptive option such as “Identifying Organizations to Include in Federal Financial Reports and Related Disclosure Requirements” and (2) acknowledging in the executive summary and basis for conclusions the continuum among non-core entities. [Note: Staff will present title options at the next meeting that align with the revised structure]
- The Board approved the revised language to address the consolidation of FASB based financial statements by deleting the explicit disclosure requirements previously proposed.
- The Board approved the revised language for Disclosures for Non-core entities.
- The Board agreed a listing of non-core entities would not be a required disclosure.
- The Board voted to rescind sections of SFFAC 2 that explicitly excluded certain entities and include a brief explanation in the basis for conclusions.
- The Board approved the draft Basis for Conclusions (overall structure, detail, and rationale proposed) with the understanding changes would be incorporated for decisions made at the October meeting. In addition, certain members plan to forward editorial comments after the meeting.
- The Board will not issue a Preliminary Views document or a Discussion Memorandum to solicit input on the government-wide portion
- Staff will address the GAAP issue with a narrow clarification that core entities are federal entities.
Issue Papers for October 2011
August 24-25, 2011 Board Meeting
The Board discussed guidance for the consolidation of information based on Financial Accounting Standards Board (FASB) guidance without conversion to federal financial accounting standards. The Board had earlier tentatively decided FASB-based information could be consolidated with FASAB amounts with disclosure of the accounting policies as needed. The Board had agreed the disclosure would not reconcile the two GAAP based amounts but instead report on material policy differences, related amounts, and describe the accounting policies. Therefore, no amounts would change (other than as a result of eliminations) in preparing the consolidated government-wide statements.
After considering the staff proposed language for the standards and Basis for Conclusion, the Board decided to make clear the above disclosures would be required where the FASB amounts are material to the line item and there is a difference in accounting principle or standards. It will also ensure focus would be on material FASB amounts and ensuring the language is clear that only those that contributed significantly to the separately reported amount are required to be listed.
The Board also considered revisions to the disclosures regarding non-core entities. The Board had previously requested staff to include a reference to non-core entity financial statements in the examples for non-core disclosures and to clarify that the items examples of information that may be disclosed and are not specific requirements.
The reference was added to the list of examples and the preamble to the list of examples was revised so it was clear the examples are not required. A footnote brought additional clarity that the individual examples were not all required as it stated “No individual example is itself a required disclosure. Therefore, the examples are not alternatives or substitutes one for another. Instead, a disclosure that provides an understanding of the potential financial impact should be provided.”
Although the Board agreed the change was clearer in demonstrating they were examples (versus requirements) several members believed the geography could use adjusting while continuing the focus on risks. The Board requested staff prepare a revised disclosure section for non-core entities that focuses on three broad objectives — the nature of the relationship, nature and magnitude of the activity during the period, and the future risks and exposures–and the examples of information that support those three objectives would be included in their totality to support all three objectives.
The Board also discussed the Component Reporting Entity phase of the project. The primary objective was to review options for approaching the component entity phase of the federal entity project. Staff recommended the overall framework for the component entity standards should be the same and generally consistent with what has been established for the government-wide (principles for inclusion in the component entity and consolidation). For example, the component entity core accountability would be with top management or the organization’s head and the boundaries of the entity would be based on the operations for which the head is responsible. The Board requested staff develop more detailed options on the component reporting entity approach for the Board’s consideration.
Issue Papers for August 2011
June 22-23, 2011 Board Meeting
The Board reviewed options for identifying related parties in the context of the federal government. Staff’s recommendation that greater parameters on related parties would be needed given the federal government’s role and its potential ‘related party relationships’ could be vast. Without parameters the cost of meeting this type of requirement and related disclosure would be high and users might be overwhelmed with information.
The Board did not come to a full agreement at the June meeting on this issue because some questioned whether the category was needed. Staff will incorporate the revisions and suggestions agreed to by the Board into the related party language. The Board will determine at a later date if the related party issue will be addressed in the entity project.
The Board also considered issues regarding consolidation of information from entities having different fiscal year ends, consolidation of FASB based information for core entities, and disclosure of information relating to non-core entities.
The Board agreed to the following regarding the consolidation issues:
- remain silent regarding the consolidation of core entities with different fiscal year-ends.
- consolidation of FASB and FASAB based information is acceptable in the government-wide statements with disclosure of material differences in methods used or policies for specified amounts. However, no reconciliation of the differences between the two GAAP based amounts would be required.
- approved the wording for the basis of accounting for non-core entities, however the Board requested staff revisit the wording of the required disclosures for non-core entities. (See action item related to this issue.)
The Board also considered a staff developed draft illustration guide with example entities. The draft guide was intended to demonstrate how the proposed standard would be applied and, for two of the example entities, the draft guide included different scenarios to illustrate how a change in circumstances can lead to a different outcome. Board members agreed with the decisions illustrated in the draft guide and offered suggestion.
For the next meeting, Staff will
- develop revised language for the consolidation of FASB statements
- revisit the required disclosure for non-core entities, specifically craft language that incorporates a reference to the financial information as an example of an option
- continue illustration examples.
April 27-28, 2011 Board Meeting
At the April meeting, the Board reviewed the staff proposed factors to consider for disclosures regarding non-core accountable entities (e.g., those included but not consolidated in the U.S. government financial statements). Flexibility in disclosure of non-core accountable entities is provided because the range of non-core accountable entities is broad and different disclosures may be required to meet the reporting objectives for different non-core entities. Providing this flexibility allows the preparer to present information necessary to meet reporting objectives while also providing an understanding of the potential effect of the relationship on the core entity’s financial statements.
The factors approved by the Board to assist the preparer in making the determination include: relevance to reporting objectives, nature of the potential benefits or risks/exposures associated with the relationship, organization views/perspective, complexity of the relationship, extent to which the information interests (or may be expected to interest) a wide audience, and extent to which there are not alternative sources of reliable information. The Board agreed with the rest of the proposed factors to consider for non-core disclosures for entities that are not consolidated.
The Board agreed the broad classes of non-core entities in the ED are presented primarily as a way to help identify non-core entities and assist preparers. The Board generally agreed with the staff proposed disclosures for non-core entities. The Board requested staff clarify the flexibility intended in the disclosure requirements such as that information may be presented aggregated for a class of non-core entities, by individual non-core entity, or in various notes regarding investments in non-core entities.
The Board agreed the Illustrative guide accompanying the proposal should present a mix of examples including some that are not debatable and some are because they fall in the center between core and non-core. It was agreed the logic and decisions should be explained with caution of avoiding instances that might be applied in the wrong situations.
Staff will do the following:
- Develop a revised related party section
- Additional research and outreach, including inquiring of the audit community and the task force as necessary regarding the auditor’s responsibility for condensed information for information presented on non-core entities (particularly where there is a different basis of accounting or different year ends)
- Review the control indicators to ensure they are clear and consistent
February 23-24, 2011 Board Meeting
At the February meeting, staff presented proposed standards to establish a broad principle regarding what entities represented core government entities and non-core entities. Core (or general) government entities:
- Generally provide goods and services on a non-market basis, and are financed through taxes and other non-exchange revenues.
- Receive taxpayer support
- Accountability rests with elected officials
- Substantially all the risks and rewards fall to the taxpayer.
- Their governance structure is vertically integrated as evidenced by the establishment oforganizational authorities and budgets by elected officials, and the appointment of organizational leaders through the political process.
- May provide core federal government goods and services but are more likely to provide goods and services on a market basis.
- Receive limited or no taxpayer support.
- Accountability rests with elected officials but elected officials have less direct involvement in decision making than is true in core government entities.
- Limited risks and rewards fall to the taxpayers.
- In some cases, the relationship with the federal government is not expected to be permanent.
The Board approved the distinction between core and non-core entities. The Board also agreed with the general notion that entities in the budget are core entities that should be consolidated. Staff will determine possible exceptions to the budget consolidation rule and options for addressing. Staff will develop factors and criteria to assist in determining information that should be presented for non-core entities.
December 16-17, 2010 Board Meeting
At the December 2010 meeting, the Board approved staff’s revised approach to the proposed standard which focuses on consolidation principles. The Board also agreed with the approach to Related Parties; where most of the entities meeting consolidation principles would be consolidated (as part of the core government) or not consolidated (due to being non-core) but disclosed, and related parties would be identified where substantial influence exists.
The Board agreed with maintaining flexibility in the disclosures but there should also be factors provided to bring clarity to the proposal. The Board agreed with maintaining a ‘Misleading to Exclude Principle’ to allow for unforeseen relationships to be resolved through judgments about fair presentation.
Although the Board agreed with the approach and some parts of the proposal, the Board requested staff to define and add a description of the different relationships to the beginning of the document.
Staff agreed to work on the following suggestions to the proposal for the next meeting:
- Narrative and definitions describing the categories and relationships of the following: core or primary government, accountable or affiliated entities and related parties;
- Consider the factors in the nature and extent of the disclosures for each of the relationships (there needs to be flexibility, but there should be some factors to help guide preparers to bring clarity to the proposal);
- Flow of the related party discussion; and
- Other changes suggested by Board members.
The Board agreed the focus of the next meeting should be on the relationships, definitions, and related attributes or criteria for each.
October 27-28, 2010 Board Meeting
The Federal Entity Task Force will meet on November 17th to discuss an issue paper on Related Parties. The Task Force will also consider different versions/approaches to an Exposure Draft on the Federal Entity that would be forwarded to the FASAB Board at the December meeting.
August 25-26, 2010 Board Meeting
The Board discussed the following issues at the August meeting:
- Issue 1- Wrap up of Conclusive Principle Open Items
- Issue 2- Approach for Considering the Indicative Principles for INCLUSION
- Issue 3- Indicative Principles Comparison to SFFAC 2 Criteria
- Issue 4: Indicative Principle—Majority Ownership (Board decided at the June Board meeting to address Minority Interest in the Proposed Statement)
The Board resolved issue items 1, 3 and 4. Specifically, the Board agreed to be silent regarding financing accounts not listed in the budget which is similar to how the Board agreed it would address the issue of entities partially in the budget. Instead, staff may include additional explanation in the basis for conclusions. The Board appeared in agreement that the indicative principles are consistent with the criteria presented in SFFAC 2. There is some question regarding how the current indicative criteria ‘exercising sovereign power’ aligned with control. The Board agreed minority interests would not be addressed in the entity standard, instead there would be a footnote simply stating for interest less than 50 apply the GAAP hierarchy.
The Board did not resolve issue 2 and requested staff to work on several items for the December Board meeting. Staff will reconsider if the Statement should have a distinction between conclusive and indicative principles. Staff will develop approximately three total packages or versions for the Board’s consideration: 1.) One version would be similar to the Draft presented with refinements, and clarifications about the exclusions, developed presentations and disclosures and possibly some related party options. 2.) One version would allow more judgment up front in determining the boundary of what’s in the reporting entity by considering principles in the aggregate and 3.) One version would focus more directly on Related Parties with more fully developed presentation options and the ‘established by’ principle would be deemphasized or dropped.
June 23-24, 2010 Board Meeting
The Board discussed the following issues related to the federal entity project at the June Board meeting:
- Issue 1- Clarification that financing accounts for any entity should be considered in the conclusive principle
- Issue 2- Entities partially in the budget (Museums and Performing Arts Organizations)
- Issue 3- Project Scope Expanded to Include Consolidation Issues Related to Entities with a Different Source of GAAP and Different Year Ends
- Issue 4- Introduction to the Indicative Principles
- Issue 5- Tone of Indicative Principles (“includes” or “may include”)
- Issue 6- Clarification of 1st Indicative Principle– Legal status of entities
- Issue 7- Clarification of 2nd Indicative Principle—Majority Ownership
Staff will reconsider an alternative approach to the indicative principles and develop options for the Board’s consideration. There is support for an approach that would look at the principles collectively or in the aggregate in order to consider all criteria in determining if an entity is within the boundaries of the reporting entity.
April 28-29, 2010 Board Meeting
At the April 2010 meeting, the Board discussed the following issue areas and staff recommendations related to the federal entity project:
- Clarification of language for entities receiving subsidies that are listed in the budget
- Clarification that all accounts for any entity should be considered in the conclusive principle
- Entities partially in the budget
- Identifying Reporting Entities and Federal Entities Subject to FASAB
- Terminology & Definitions
- Principles for both the government-wide reporting entity and component reporting entities should be addressed within one proposed Statement
Detail staff analysis of each issue was included in the staff paper and can be found on the active project page referenced above.
While additional detail of the deliberations can be found in the minutes, the Board agreed to the following at the April 2010 Board Meeting:
- The clarifying language for entities receiving subsidies that are listed in the budget presented by staff.
- The issue Clarification that all accounts for any entity should be considered in the conclusive principle would be addressed further in relation to the component reporting entity and staff will determine if language is still necessary for the government-wide reporting entity.
- For entities partially in the budget, the entity as a whole should be included in the federal reporting entity. The issue of how they would be presented or displayed would be addressed at the end of the federal entity project along with other unique relationships.
- The use of terms and definitions for government-wide reporting entity and component reporting entity.
- Incorporate language from SFFAC 2 that related to Identifying Reporting Entities into the Draft ED and didn’t anticipate staff revisiting these areas.
- Issue one Statement covering principles for both the government-wide reporting entity and component reporting entities.
Staff will continue presenting additional issue areas for the Board’s consideration at the next meeting.
Issue Papers for April 2010
February 24-25, 2010 Board Meeting
The February Board meeting discussion focused on issue areas related to the federal entity conclusive principle and staff recommendations. Staff presented an issue paper to the Board outlining the following specific issues:
- Issue 1: Conclusive really just means in the Budget
- Issue 2: Exceptions when applying the conclusive principle
- Issue 3: Entities partially on budget
- Issue 4: Basis for Conclusions language related to the Conclusive Principle
The Board discussed the issues at length (see the February 2010 Board Minutes for detail discussion) before agreeing to revise the proposal. The Board determined the conclusive principle would only be applicable at the government-wide entity level, not at the component entity level. The Board directed staff to restructure the federal entity proposed standard to incorporate a two tier approach. The two tier approach would first define the federal entity (government-wide entity) as the first tier which includes both the conclusive and indicative principles for defining the boundary of the reporting entity. The second tier would define component entities which only include indicative principles for defining the reporting entity (inclusion in the budget would be an indicative criterion at the component reporting entity level.)
December 16-17, 2009 Board Meeting
The Federal Entity project discussion at the December meeting focused on a summary of the Federal Reserve Briefing that was held in November. It also provided for staff to obtain Board concurrence on issue areas and planned actions for the Federal Entity project. The Board also discussed the recent GAO Report Federally Created Entities-An Overview of Key Attributes as many of the conclusions and points of interest of the report further support issues identified in the federal entity project.
The Board discussed the summary of the Federal Reserve briefing to the Federal Entity Task Force. The session was very informative and provided an overview about the Federal Reserve’s transactions with the federal government, its governance, and its current accounting policies.
The Board discussed staff’s assessment of what issues remain to be addressed or resolved in the project and staff’s recommendation for next steps or planned actions. Details about each issue as well as staff recommended actions can be found in the staff issue paper for the December meeting. The issues included the following (not presented in any particular order):
- Issue 1: What about the Federal Reserve?
- Issue 2: Conclusive Really Just Means in the Budget
- Issue 3: Unintended Consequences of Proposed Standard
- Issue 4: Entities Partially on Budget
- Issue 5: Legal status or legislation
- Issue 6: Confirm Board’s Views on Reporting Model Interface
- Issue 7: Clarification of Ownership Indicative Principle
- Issue 8: Criteria for Consolidation
- Issue 9: Misleading to Exclude
- Issue 10: Temporary Exclusion
- Issue 11: Exception for Agency Mission-Related Interventions
- Issue 12: Flowchart
- Issue 13: Related Parties
- Issue 14: Amendments to SFFAC 2
The Board agreed with staff’s identification of open issues on the Federal Entity Project and the planned actions. Staff will address the open issues at upcoming meetings and continue to develop an ED on the Federal Reporting Entity.
October 21-22, 2009 Board Meeting
The Board discussed a staff draft paper with revised principles and related criteria for defining the boundaries of the federal reporting entity at the October Board meeting. The draft included the Conclusive Principle for entities in the President’s budget. The draft also presented indicative principles for entities: Existing as a matter of law within or established by the federal government to fulfill a public purpose or federally related mission; Over which the federal government has the ability to exercise control with expected benefits or risk of loss; or In which the federal government has a majority ownership interest.
The revised approach would capture the majority of entities within the boundary of the federal reporting entity by first assessing entities against the conclusive principle. This principle is consistent with existing concepts in Statement of Federal Financial Accounting Concepts (SFFAC) 2, Entity and Display. The budget should as a general rule, be comprehensive of the full range of Federal activities and staff believes that a decision by the Office of Management and Budget or the Congress to include an entity in the budget settles the matter of the entity being “federal.” The conclusive principle represents a starting point in analysis and the indicative principles are a second test necessary to ensure completeness in the context of the federal financial reporting objectives.
The draft also presented a Misleading to Exclude Principle for entities not meeting the conclusive or indicative principles, but for which exclusion would cause the federal reporting entity financial statements to be misleading or incomplete. The draft also contained a Temporary Exclusion for conditions that are not likely to remain in existence permanently.
The Board discussed the principles and related criteria and offered comments on improving the draft. (Specific comments can be found under the Minutes for the October Board meeting. Staff will work towards an Exposure Draft (ED) on the Federal Reporting Entity by incorporating the Board member comments discussed in the meeting.) Staff will develop criteria for determining when entities meeting indicative principles are consolidated and proposed disclosures for entities that are not consolidated. Staff will also consider ways to test the proposal, either case studies before or field testing in conjunction with the ED. Staff is also working with representatives from the Federal Reserve on performing an assessment of how the Federal Reserve would be presented based on the draft principles. A briefing with the Federal Reserve and Federal Entity Task Force has been scheduled for November 18th.
August 26-27, 2009 Board Meeting
Staff provided the Board with a summary of the most recent Federal Entity Task Force meeting. The Board discussed a staff paper related to federal government interventions. The paper discussed that the federal government with its broad responsibilities may be required to take certain actions or intervene in certain situations that are deemed necessary and one must consider the intent of these actions in determining financial reporting presentation. The paper discussed that consolidation of these types of organizations may lead to less meaningful presentation and alternatives should be considered. The Board agreed federal government interventions such as the types detailed in the staff paper should not be consolidated. The Board believes there should be one category for temporary. The Board believes temporary can be more than one year, but not permanent. The Board briefly discussed options for display (discrete component unit presentation, condensed financial statements, detailed note disclosures) but didn’t make a definitive decision yet. The Board discussed that some of the other unique relationships (such as FFRDCs) may be suited for component unit discrete presentation similar to GASB’s model.
Issue Papers for August 2009
June 17-18, 2009 Board Meeting
The Federal Entity project was not an agenda topic at the June Board meeting. However, staff did provide a brief update on project activities. The Board had previously directed staff to proceed cautiously on the federal entity project by continued outreach regarding some of the more complex issues. During June 2009, staff met with representatives from the Federal Reserve to discuss the relationship between the Federal Reserve / Federal Reserve Banks and the Federal government.
Staff also met with the Federal Entity Task Force on July 14th 2009. The task force will continue to address issues and explore alternative presentations and disclosures for the Board’s consideration.
April 22-23, 2009 Board Meeting
At the April meeting, the Board discussed a Staff Draft of an Exposure Draft entitled Federal Reporting Entity. The Draft ED captured most of the concepts agreed to by the federal entity task force and was the first time the Board has seen the draft ED. There were several open items, but staff hoped providing the draft in an ED format would allow members to have a better understanding of the proposal. The objective of the meeting was to obtain Board members high level comments and input on things such as scope, structure, principles and other areas that need to be addressed, researched further or required a detailed analysis for the Board’s consideration.
Certain Board members expressed concern that there were complex issues related to ownership and control that needed further consideration. The members believed the Board should consider an outreach strategy that would include work groups and expert panels. After discussion, the Board agreed to proceed cautiously on the federal entity project by scoping out some of the more complex issues. The key issues will allow the Board to determine an appropriate outreach strategy. Staff will also explore alternative presentations and disclosures for some of the unique relationships.
February 25-26, 2009 Board Meeting
The Federal Entity project was not discussed at the February Board meeting. Staff is continuing work toward an Exposure Draft for the Board’s consideration.
December 17-18, 2008 Board Meeting
The primary objective for the December Board meeting was to provide an educational session on the Federal Reserve and other English speaking nations’ central bank systems so that Board members could determine if whether to address the Federal Reserve explicitly in the federal reporting entity project. The briefing materials contained a staff paper with information on the Federal Reserve with appendices of Board of Governors Financial Statements and the Combined Financials Statements for the Federal Reserve Banks as well as brief summary of other Central Banks.
Staff presented the ownership of the Federal Reserve is much different when compared to other central banks researched. All of the other central banks were owned 100% by the respective government. In addition, treatment of the central banks in the consolidated government-wide financial statements differs among the countries, with two countries fully consolidating the central bank activities.
Staff also noted the difference in ownership and structure with the Federal Reserve Banks could lead to looking at the issue of whether the Federal Reserve System in its entirety (including both the Board of Governors and the Federal Reserve Banks) should be part of the federal reporting entity or alternatively looking at each individually may be more appropriate. Staff also explained that explicit consideration does not necessarily mean the Federal Reserve would be consolidated in the Federal Entity; it may lead to determining there should be some other specific disclosures.
The Board agreed that staff will continue working toward finalizing an Exposure Draft in the Federal Entity project and the Federal Reserve would be considered as part of the Federal Entity project once the criteria are finalized.
October 22-23, 2008 Board Meeting
At the October Board meeting, staff presented a summary of the most recent Federal Entity Task Force meeting. In addition, staff provided a brief summary of the results of the Survey on Boundaries of the Federal Reporting Entities and the Federally Funded Research and Development Centers (FFRDC) Survey. The survey provided the following general observations (detailed analysis and results of the survey can be found in the October Board Materials):
- The results of the survey demonstrated that much of the CFO and IG community does not rely on the current Concepts statement and there is a need for the boundaries of the reporting entity to be addressed in a Standard.
- The survey provided an opportunity to gather information on the current staff proposal. Most of the respondents agreed with the three general principles and suggested this would be a more comprehensive approach.
Staff explained the federal entity task force met to discuss the results of the surveys and to determine next actions and recommendations. Based on the respondents agreeing with the general principles and approach, the task force agreed it would be best to move forward finalizing language in the proposed standard. The Board agreed with the recommendation.
The task force recommended the issue of whether the Federal Reserve System should be included or excluded from the federal reporting entity should be revisited. The Board agreed with this recommendation. Staff will provide an educational session at the next Board meeting by providing background materials on the Federal Reserve and determining how other countries treat central banking systems.
August 20-21, 2008 Board Meeting
Staff continued to analyze responses received on the Survey on Boundaries of the Federal Reporting Entities and the Federally Funded Research and Development Centers (FFRDC) Survey. Staff summarized the results of the surveys for consideration by the Federal Entity Task Force. The Federal Entity Task Force will meet on September 17, 2008 to discuss the results and next steps in the project. Staff will brief the Board at the next Board meeting.
June 18-19, 2008 Board Meeting
The Federal Entity project was not on the agenda for the June Board meeting. However, staff provided the Board with an update to explain the status and provide an opportunity for members to discuss any issues or questions during the Administrative session of the Board meeting.
Staff explained that the Survey on Boundaries of Federal Reporting Entities was distributed to the financial management community in mid-May. The survey seeks information on organizations considered questionable or unique when assessed in relation to the boundaries of the reporting entity and criteria used in the assessment. The survey also seeks feedback on certain aspects of SFFAC 2 as well as input on current proposals.
Staff also explained that staff developed and distributed a separate survey directly to (Federally Funded Research and Development Centers) FFRDCs on June 16, 2008. The survey seeks information to gain a better understanding of FFRDCs’ perspective of how they view their relationship with the federal government. The survey seeks information on the relationship with the federal government, other organizations that may influence the FFRDC, and current financial reporting.
Staff explained results from the surveys would be presented to the Board at the next meeting.
May 2008–Survey distributed to CFO & IG community
FASAB sent out a survey to the Chief Financial Officers and Inspectors Generals. The survey (Survey on Boundaries of Federal Reporting Entities) will assist FASAB in the Federal Entity project. FASAB formed a task force with representatives from the financial management community to assist staff in developing the standards. The task force agreed it would be helpful to survey the community to determine organizations considered questionable or unique when assessed. The survey seeks information on those types of organizations, current financial reporting treatment, and criteria used to assess whether to include the organization in the reporting entity or not. The survey also seeks feedback on certain aspects of SFFAC 2 as well as input on current proposals.
The community’s input will assist us in more efficiently and effectively developing new standards related to the boundaries of the federal entity and consolidation. We are requesting responses be emailed to email@example.com or faxed to 202-512-7366 by June 30, 2008.
April 16-17, 2008 Board Meeting
At the April 2008 Board meeting, staff provided the Board with an update on the project and the Federal Entity Task Force. The Federal Entity Task Force held its first meeting in late February. The summary of key points developed by the task force included:
- A survey of the community to identify organizations would be helpful
- Preference for a principles-based approach in the standard
- Proposed standard should address consolidation and other disclosures
- General principles stand alone
- All branches of the federal government should report
- Ownership is separate from control
- Control is key factor in assessing boundaries
- Exceptions and other organizations to be considered at future federal entity task force meetings
- Separate meeting with intelligence representatives to occur
The Board approved staff recommendations for next steps in the Federal Entity project. Specifically, staff will distribute a survey to the federal financial management community to obtain feedback and examples of ‘questionable’ organizations that have been considered in determining the boundaries of entities. The survey will also assess current treatment and criteria used. Staff will also send a separate survey directly to FFRDCs to gather information. Additionally, staff plans to work with Treasury, GAO and the task force to further research issues with the legislative and judicial branches and assess whether it is material to the CFS. Staff will also continue work with the task force on developing specific definitions, finalizing the principles and developing criteria for the boundaries of the reporting entity.
February 13-14, 2008 Board Meeting
FASAB formed the Federal Entity Task Force to assist in developing the proposed standards on the boundaries of the reporting entity and consolidation. The task force has approximately 20 members with representatives from various CFO and OIG organizations as well as OMB, GAO, and Treasury. The task force also has representatives from agencies that deal with hybrid organizations (such as FFRDCs) and intelligence agencies because of their unique nature. The first task force meeting is February 20, 2008. Staff will report back to the Board after meeting with the task force.
December 4-5, 2007 Board Meeting
At the December 2007 meeting, the Board discussed an updated outline paper on the boundaries of the federal reporting entity. The paper highlighted that all organizations within the three branches of the federal government are part of the federal reporting entity. In addition, the federal reporting entity includes all organizations that:
- the federal government is directly financially accountable for or owns;
- the federal government exercises control over; or
- the nature and significance of their relationships with the federal government are such that the exclusion would cause the government’s financial statements to be misleading or incomplete.
The outline paper included specific, detailed criteria for each of the broad areas identified as well as an expanded introduction that included a discussion of component reporting entities. The Board members provided general comments on the paper. The comments are detailed in the December Board Minutes.
FASAB staff plans to form a task force to share the outline paper for comment. The task force will include members from the CFO, OIG, and IPA as well as specific representatives from quasi government / hybrid organizations (such as FFRDCs), and intelligence agencies because of their unique nature. The task force will assist in developing the proposed standard on the boundaries of the reporting entity and consolidation. The task force will develop case studies testing the proposed criteria. Staff (and the task force) will concentrate on the areas identified by Board members for consideration. Staff will report back to the Board after meeting with the task force.
September 19-20, 2007 Board Meeting
Staff presented an issue paper at the September meeting that discussed general principles that will be relied upon in establishing the boundaries of the Federal Reporting Entity. Staff recommended the Federal Reporting Entity include entities, organizations, transactions, and activities for which:
- the federal government is financially accountable;
- the federal government exercises control over; and
- the nature and significance of their relationship with the federal government are such that the exclusion would cause the government’s financial statements to be misleading or incomplete.
Staff also presented an outline of a proposed standard to assist with understanding how the general principles would be conveyed in a proposed standard. The general principles are consistent with the framework established in SFFAC 2 but will allow for an expansion of the detailed criteria that may go beyond what is in SFFAC 2 and resolve some of the outstanding issues.
The Board agreed with the general principles that will be relied upon in establishing the boundaries of the Federal Reporting Entity. Staff will move forward on developing detailed criteria for each. Staff will also form a task force to assist in developing the new standards related to the federal entity and consolidation. The task force will consist of representatives from the financial management community. The task force will be helpful when considering the consolidation of unique relationships and activities.
July 25-26, 2007
The Federal Entity project plan anticipated the project would result in both a proposed Concepts Statement and a Standards Statement and it would be important to delineate between what would be included in a Concepts versus Standards as we move forward. Staff prepared outline papers for each —a Proposed Concepts Statement on the Reporting Entity and a Proposed Standards Statement on the Reporting Entity and Consolidation which were included in the July briefing materials.
Originally, staff anticipated obtaining feedback on the outline paper for the proposed concepts paper at the July meeting. However, there was mixed feedback from Board members regarding the approach moving forward on the project. Specifically, some members were in favor of developing a proposed concept statement, while others believe the approach should be to go directly to developing a standard to address shortcomings in the entity area. Therefore, the July Board meeting was used to get the consensus of the Board on the direction for moving forward on the project. Staff presented three options to the Board and explained the options differ in how much conceptual work would be addressed in the project as follows:
- *No Concepts Statement
- Focus on Developing Proposed Standards relating to Boundaries of the Federal Reporting Entity
* NO FOCUS ON REVISING SFFAC 2–SFFAC 2 would remain unless it is determined the proposed standards are not consistent with the concepts developed over 10 years ago. If so, portions of SFFAC 2 relating to entity would be amended accordingly.
- *Brief Proposed Concepts Statement Communicating the Federal Reporting Entity is Broader than the U.S. Government Legal Entity (No discussion of organizational structure, defining levels, etc.)
- Focus on Developing Proposed Standards relating to Boundaries of the Federal Reporting Entity
* SOME FOCUS ON REVISING SFFAC 2. Focus on potential revisions to SFFAC 2 would be concurrent with developing proposed standards.
- *Proposed Concepts Statement Communicating the Federal Reporting Entity is Broader than the U.S. Government Legal Entity and Communicating Organizational Structure of the U.S. Government, Definitions of Terms and Relationships, etc. (as presented in Outline Paper in July Board Materials)
- Develop Proposed Standards relating to Boundaries of the Federal Reporting Entity
* SFFAC 2 entity portion (par. 1-53) would be rescinded and replaced with the new Proposed Concepts on the Federal Reporting Entity.
Based on input from the Board, staff summarized that the best approach for moving forward on the Entity Project would be option 2 while including certain aspects of option 3. Specifically, staff will focus on developing proposed standards relating to the boundaries of the reporting entity and specific criteria for each. In addition, staff will concurrently work on amendments to SFFAC 2. Staff will also determine ways to include a discussion of key terms, organizational structure, etc. in the proposed amendments to SFFAC 2 and proposed standards. Staff will also form a task force to assist with efforts in the project.
May 23-24, 2007
The Entity Project was not an agenda item at the May 2007 meeting. However, staff continues to research topics and draft proposals for consideration by the Board. Staff will present an update at the July 2007 Board meeting.
March 21-22, 2007
The March 2007 briefing paper discussed the issue area—Definition of entity / reporting entity. In assessing how entity / reporting entity should be defined for federal financial reporting purposes, staff considered the following questions:
- Does FASAB already define entity / reporting entity?
- Should there be a distinction between Entity and Reporting Entity?
- Is there a relationship between the reporting entity concept and the objectives of federal financial reporting? If so, should this be articulated?
- How do U.S. standard-setters and National and International standard-setters define Entity /Reporting Entity?
- Would a definition be best articulated in Concepts or Standards?
The issue paper is a first in a series of papers to consider several different aspects of the federal entity concept. Staff plans to devote the next several Board meetings to issue papers that will address the following:
- Characteristics of a Reporting Entity
- Boundaries of a Reporting Entity
- Kinds of “things” that could be included in an entity—the types of transactions, events and entities that may be encompassed within a reporting entity, e.g., other entities, activities, guarantees, functions, etc.
- Overall scope of the Federal Government Reporting Entity
The intent of assessing the definition of entity / reporting entity at the beginning of the project was to finalize terms and definitions to avoid future misunderstandings and misconceptions. Current FASAB standards and concepts utilize several different terms—such as entity, reporting entity, federal reporting entity, component entity, component reporting entity, Federal Government entity when referring to entity.
Currently, there has been a diverse approach to defining the term entity and reporting entity among other standard setters. For example, FASB and IASB do not define the terms, whereas GASB defines different levels for entity depending on the context, such as reporting unit, governmental unit, reporting entity and Financial Reporting entity.
Staff did not believe it was feasible to make a recommendation regarding a proposed definition for entity and reporting entity at this point because staff believed it would be helpful to assess the scope of the federal government as well as the characteristics of entities. Staff believes there is the potential of overlap between the definition of entity and the characteristics of an entity.
January 17-18, 2007
Staff presented the Federal Entity Project Plan to the Board. Staff explained the project is part of the overall Conceptual Framework Project and is expected to last approximately three years. The project plan identifies issue areas that will be addressed in the project as well as milestone dates and included several appendices that contain pertinent excerpts from existing concepts, standards, and other reports that relate to the entity and consolidation issue from U.S., national and international standard setters that will be analyzed in greater detail throughout the project.
Staff obtained the Board’s feedback on the scope of the project, overall approach of the project, and issue areas identified. Overall, the Board members agreed with the Federal Entity Project Plan. Board members agreed that there are a number of entity issues, including a lot of unique government relationships that will need to be considered. Board members suggested that staff consider the following:
- reporting financial activities for which an entity may be responsible
- “unit of analysis” issue as it relates to the kinds of “things” that would be included in an entity-other entities, activities, guarantees, functions, etc
- often by law or regulation, a certain activity is required to publish a financial statement
- federally funded research development centers
- public-private partnerships in other countries
- situations where the government is contracting out things that used to be a government function
- Boards, councils, etc. that are not considered part of the federal government because they are not in the Budget, yet the President appoints the members
- consider what type of “related party disclosures” should be to disclose information about unique relationships (not be part of the federal entity)
- implication of the language in the Accountability for Tax Dollars Act
Staff will move forward on the Federal Entity Project. Staff plans to focus on the “unit of analysis” issue as it relates to the kinds of “things” that would be included in an entity-other entities, activities, guarantees, functions, etc. Staff will also begin research on Issue 1: Definition of Entity / Reporting Entity.
- FASAB Contact: Melissa Batchelor, firstname.lastname@example.org, 202-512-5976