Statement of Federal Financial Accounting Standard (SFFAS) 4, Managerial Cost Accounting Standards and Concepts, issued in July 1995 and effective in fiscal year 1998, provides the following requirement for inter-entity cost:
Each entity’s full cost should incorporate the full cost of goods and services that it receives from other entities. The entity providing the goods or services has the responsibility to provide the receiving entity with information on the full cost of such goods or services either through billing or other advice.
Recognition of inter-entity costs that are not fully reimbursed is limited to material items that (1) are significant to the receiving entity, (2) form an integral or necessary part of the receiving entity’s output, and (3) can be identified or matched to the receiving entity with reasonable precision. Broad and general support services provided by an entity to all or most other entities should not be recognized unless such services form a vital and integral part of the operations or output of the receiving entity. (Text preceding paragraph 105 of SFFAS 4)
SFFAS 4 provided for gradual implementation of this requirement.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
August 17-18, 2005
SFFAS 30, Inter-Entity Cost Implementation: Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts was issued on August 15, 2005 . This standard requires full implementation of the inter-entity cost provision in SFFAS 4 in FY 2009.
SFFAS 4 requires that reporting entities report the full costs of outputs in general purpose financial reports. The full cost of an output should include the costs covered by other reporting entities. These costs are referred to as “inter-entity costs.” SFFAS 4 recognized the difficulties in attaining this goal and provided for gradual implementation of inter-entity costing. This standard establishes a date certain for implementation of the inter-entity cost provision.
This standard requires full implementation of the full cost standards in FY 2009. This is eleven years after the implementation of managerial cost accounting standards by the federal government. Cost information is an important element of performance measurement and this standard will ensure all material costs are included in full cost measures.
The standard is effective for reporting periods beginning after September 30, 2008 with earlier implementation encouraged. The standard affords time to provide needed guidance before the effective date. The Board anticipates the release of one or more Technical Releases that will address implementation issues during this time. Entities may also use the time period between the issuance of this standard and the actual effective date to establish reimbursable agreements, seek implementation guidance on specific issues if necessary, and develop internal guidance on recognizing inter-entity costs.
June 22-23, 2005
The Board approved the Inter-Entity Cost Implementation draft statement of federal financial accounting standards for issuance. The statement was forwarded to the sponsors for review. Although the Board vote is final, there is a 90 day clearance for OMB and GAO to offer an objection. FASAB anticipates the release of the final standard in August 2005.
May 4-5, 2005
The Board approved the Inter-Entity Cost Implementation draft statement of federal financial accounting standards for issuance. The statement was forwarded to the sponsors for review. Although the Board vote is final, there is a 90 day clearance for OMB and GAO to offer an objection.
March 2-3, 2005 Meeting:
Staff prepared a pre-ballot Inter-Entity Cost Implementation draft statement of federal financial accounting standards for the March 2005 Board meeting for the Board.s consideration. The pre-ballot Basis for Conclusions was updated to include the Board.s actions and due process resulting from the comments received on the exposure draft and the public hearing. The Basis for Conclusions included detail about the forthcoming guidance from the AAPC. In addition, the Basis for Conclusions included Mr. Reid.s dissent.
At the March 2005 Board meeting, the Board indicated that there were no technical issues for discussion on the pre-ballot Inter-Entity Cost Implementation. The Board Members indicated that there were some minor editorial comments that they would forward to staff. The Board anticipates receiving a ballot Inter-Entity Cost Implementation draft statement of federal financial accounting standards for vote before the next Board meeting.
December 15-16, 2004 Meeting:
The Board held a public hearing on the ED and comments in conjunction with the December 2004 Board meeting. Individuals from the Library of Congress, Department of Interior, and a representative from the Association of Government Accountants (AGA) Financial Management Standards Board (FMSB) provided testimony to the Board. Details from the testimony are available in the December 2004.
After the public hearing, the Board voted to move forward on finalizing the proposed standard for issuance and finalizing the implementation guidance plan. The Board did request that staff revise the implementation guide plan to reflect that potentially the AAPC could issue two Technical Releases—the first being earlier and would address issues other than case studies—such as the listing Broad and General and additional guidance on the criteria factors. The second technical release could address the case studies, if warranted.
October 20-21, 2004 Meeting:
At the October 2004 Board meeting, staff presented a Draft Guidance Plan on Full Implementation of Inter-Entity Costing that detailed the forthcoming guidance related to the implementation of full inter-entity costing. The draft guidance plan details the intent to request the AAPC Inter-Entity Task Force to continue its work in this area by developing a Technical Release that will address various areas raised by respondents. The draft plan also suggested certain operational guidance to be issued by the OMB. It should be noted that the guidance does offer a venue for agencies to direct agency-specific questions.
Based on staff recommendation, the Board determined that the effective date for implementation should be delayed; implementation would be for periods beginning after September 30, 2008. This delay in the effective date would allow time for the issuance of the forthcoming Technical Release.
The Board reaffirmed its decision to hold a public hearing on December 16, 2004. The Board agreed that the Draft Guidance Plan on Full Implementation of Inter-Entity Costing should accompany the News Release for the public hearing for consideration by participants.
August 26-26, 2004 Meeting:
At the August 2004 Board Meeting, staff presented an analysis of the comment letters received on the ED. A total of 21 letters were received and staff presented the following high-level summary of responses to questions posed in the ED:
- 12 of 21 agree with the Board’s proposal that the inter-entity cost provisions of SFFAS 4 be fully implemented for reporting periods beginning after September 30, 1997. In other words, 9 of 21 disagree with the Board’s proposal.
- 13 of 21 agree with the alternative view proposal to implement the inter-entity cost provisions by identifying specific costs to be recognized on a step-by-step basis. Staff explained that there was an overlap of 4 respondents agreeing with both the ED proposal and the alternative view.
- 11 of 21 believe that there are now non-reimbursed or under-reimbursed inter-entity costs meeting the recognition criteria in SFFAS4.
- 14 of 21 believe that federal entities will seek additional reimbursable agreements or modify existing agreements (e.g., by increasing fees) because non-reimbursed or under-reimbursed inter-entity costs may be recognized.
- 10 of 21 believe that additional guidance is needed to apply the factors in determining whether an inter-entity cost is material to the receiving entity.
- 9 of 21 believe that additional guidance is needed to apply the broad and general support exception.
Based on the comments received, staff recommended that there should be additional guidance provided on certain areas and that it could be accomplished through staff implementation guidance or a technical release (versus within the proposed standard.) Staff also recommended that the implementation date be delayed an additional year to allow for the development of the guidance. The Board tentatively agreed with staff recommendations and requested that staff develop a draft plan of guidance that would include the partnerships, timelines, and types of guidance that would be envisioned from the different sources—AAPC, staff, etc. In addition, the Board agreed that a public hearing should be held on the ED and it was set for December 16, 2004.
Deliberations prior to August 2004
An exposure draft entitled Inter-Entity Cost Implementation: Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts was issued on April 26, 2004. . See FASAB Web site /documents-for-comment/ for a copy of the ED. T he proposal in the exposure draft would require full implementation of the full cost standards in FY 2008 by a mending Managerial Cost Accounting Standards to require inter-entity cost implementation .
A government-wide group had been working to provide guidance on implementing this requirement. The government-wide group recently recommended that guidance be deferred due to higher priority demands on resources. FASAB staff initiated a proposal to establish a date certain for implementation.
The ED presented the government-wide group’s findings and requested comments on the FY 2008 date certain implementation as well as more extensive questions regarding implementation of the standard. Two members opposed the issuance of the proposal. Members supporting the proposal requested that more information be included in the exposure draft and that respondents be asked specific questions about the impact of the change.
- FASAB Contact: Melissa Batchelor, firstname.lastname@example.org, 202-512-5976