FASAB Contact: Robin Gilliam, firstname.lastname@example.org, (202) 512-7356
The Board will address risk reporting through the MD&A and Note Disclosure projects.
The issuance of Statement of Federal Financial Accounting Standards (SFFAS) 51, Insurance Programs, on January 18, 2017, effectively concluded the first phase of the risk reporting project (formerly the risk assumed project). For the history of the risk reporting project and milestones for phase I, please see http://www.fasab.gov/ra-insurance-programs/.
In phase II, the Board will holistically review significant risk events other than adverse events covered by SFFAS 51, Insurance Programs, to determine accounting standards that provide concise, meaningful, and transparent information regarding the potential effect on the fiscal health of the federal government.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
The Board agreed in April 2019 to a number of amendments to MD&A through the Risk Reporting and Reporting Model Phase I: MD&A and Stewardship Investments Improvements projects. The decision to merge the projects into the MD&A Amendments project was presented to the Board in June 2019 to best utilize staff resources.
The Risk Reporting project will remain an active project through the risk reporting and forward-looking work being done in MD&A Amendments. Future work for Risk Reporting may continue through the Notes Disclosure project phase II, once the concepts are published for phase I.
April 24-25, 2019
At the April 2019 Board meeting, staff presented preparer interview responses. Staff also recommended amending SFFAS 15, instead of proposing an Interpretation. An amendment would be necessary to provide the additional guidance about financial effects of risk events. This is because “financial effects” is not specified in the standards. Staff also emphasized that SFFAC 3, Management’s Discussion and Analysis, is written like an SFFAS, so portions of SFFAC 3 should be incorporated into SFFAS 15.
Ms. Payne shared the history of the Board’s development of SFFAC 3 and SFFAS 15.
The Board originally worked on MD&A during the window in which it was seeking GAAP recognition from the American Institute of CPAs. SFFAC 3 is written more like an SFFAS to holistically describe MD&A even though it was exposed as a concepts statement.
During the response period, the audit and preparer community said that if FASAB wanted to achieve a GAAP-based statement that always included MD&A, the Board must create standards that required it. The Board, therefore, quickly used the MD&A outline from SFFAC 3 and proposed SFFAS 15 as required supplementary information.
In Ms. Payne’s opinion, the guidance in SFFAC 3 is not concepts-based but standards-based and should be read by preparers to understand what to include in MD&A.
The Board agreed to amend SFFAS 15 with guidance from SFFAC 3. Members agreed that SFFAS 15 should be principles-based and risk reporting should be agency specific.
Therefore, staff will
- present options for how to discuss “financial effects” in MD&A;
- work on amendments for SFFAC 3 and SFFAS 15 simultaneously;
- include a definition that distinguishes between risks versus problems and financial versus non-financial effects of risk; and
- present amendments to SFFAS 15 that allow for MD&A discussion to improve in relation to an agency’s enterprise risk management process.
Issue Paper for April 24-25, 2019 – Tab B (PDF)
February 27, 2019
The Board did not discuss the risk reporting project at the February Board meeting. However, staff conducted interviews to help develop the Interpretation for paragraph 3 of SFFAS 15 that addresses forward-looking information. Staff will present findings from the interviews and recommendations for the Interpretation at the April Board meeting.
December 19-20, 2018
At the December 2018 meeting, members discussed the current status of risk reporting under SFFAS 15, paragraph 3 on forward-looking information. During the meeting, the Board discussed the intent of SFFAS 15 in relation to the forward-looking information provided by agencies’ in their 2017 MD&As.
Members agreed that the original intent for forward-looking information was to focus on the financial effects of risks on amounts in the financial statements even though the word “financial” was not specifically included in SFFAS 15, paragraph 3. However, this is not the information that agencies are providing.
Members also agreed that forward-looking information should include a discussion of the short-term financial effects, as well as the possible long-term material financial effects of financial statement balances. Short-term effects relate to the budget cycle, while long-term effects may be defined by an agency’s life cycle to complete program missions.
Members agreed that staff should prepare an Interpretation to clarify how to discuss risk in MD&A and explain what is meant by financial effect and time horizon. Additional guidance may be included in the Interpretation, such as sensitivity tests and/or best practices.
To develop the Interpretation, staff will conduct a number of agency interviews to understand what guidance preparers need to discuss short- and long-term financial effects of risks.
Members agreed that the Interpretation addressing forward-looking information discussed in SFFAS 15, paragraph 3 will be separate from the Interpretation that will address MD&A structure. This is to avoid losing the risk reporting clarification within the formatting clarification.
Issue Paper for December 19-20, 2018 – Tab G (PDF)
October 24-25, 2018
The Board did not discuss the risk reporting project at the October 2018 Board meeting. Staff is developing a direct loans and loan guarantees (DL-LG) pilot for the note disclosures project. FASAB anticipates engaging a task force from February through June of 2019 to determine if the DL-LG disclosures are relevant, consistent, efficient, and effective.
If you are interested in joining the DL-LG note disclosure task force, please email Robin Gilliam at email@example.com.
August 29-30, 2018
To better reflect the objectives, the risk assumed – phase II project was renamed to the risk reporting project.
The Board reviewed the measurement uncertainty framework it had requested at the October 2017 meeting. Because measurement uncertainty affects a number of estimates throughout the financial statements, the Board revisited the status of the risk assumed project. Members noted that the focus on risk assumed improved decisions in a number of projects despite the challenge of identifying specific risk measures.
Members agreed that the risk assumed project should continue but is not likely to result in a specific measure of “risk assumed.” To avoid this expectation, the Board decided to change the project name to “risk reporting.” Members directed staff to work with the project leads of the reporting model phase I: MD&A and stewardship investments improvements project and the note disclosures project. Through this collaboration, the risk reporting project could address the principles needed for reporting financial and non-financial risks as well as the principles needed to account for measurement uncertainty.
Issue Paper for August 29-30, 2018 – Tab F (PDF)
June 27-28, 2018
The risk assumed project collaborated with the MD&A improvements project at the June Board meeting. Please see June 27-28, 2018, in the Reporting Model Phase I: MD&A and Stewardship Investments Improvements project page for the update.
April 25-26, 2018
During the April 2018 meeting, staff presented the gaps for reporting RA as identified from the nine round tables conducted over the past year. Many round table participants were interested in reporting on full program costs, including key risk factors and assumptions. Some believed a clearer understanding of uncertainties regarding estimates would help facilitate better management decisions and an understanding of financial performance. These gaps will help to establish a framework for reporting RA holistically in the financial reports. This framework may include new or updated note disclosures and improvements to MD&A.
For information on MD&A improvements related to RA, please see the reporting model phase I: MD&A and stewardship investments improvements project page.
Issue Paper for April 25-26, 2018 – Tab E (PDF)
February 21-22, 2018
As part of the risk assumed project, the Board hosted an enterprise risk management (ERM) risk profiling education session. The panel discussed the following:
- Ms. SallyAnne Harper, a founding member and immediate past president of the Association for Federal Enterprise Risk Management (AFERM), provided a high-level review of federal ERM.
- Mr. Tom Brandt, the Chief Risk Officer at the Internal Revenue Service (IRS) and AFERM President Elect, presented a review of IRS’s risk profiling processes, including risk identification, categorization, assessment, quantification, measurement, and modeling.
- Mr. Mike Wetklow, Deputy Chief Financial Officer (CFO) and Division Director for Financial Management, National Science Foundation (NSF), presented NSF’s ERM implementation process, including a discussion about risk appetite as an integral part of risk profiling.
- Mr. Daniel Fodera, Lead Management Analyst, Program Management Improvement Team, Directors of Field Services, Federal Highway Administration (FHWA), explained the tools used in ERM risk profiling, including the use of a heat map at FHWA.
The Board learned the following main points:
- Risk assessment is integrated into strategic planning and investment decision making to determine priorities and objectives.
- Senior management is responsible for setting risk appetite to determine the most significant risks that could impact the organization’s strategic mission.
- Risk appetite includes an analysis of both the likelihood and impact of events.
- Most agencies are just beginning to develop their ERM processes; a few are moving into a more mature model.
Directly following the education session, the Board discussed whether to leverage ERM risk profiling as identified in OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control.
The Board agreed that staff should explore how to incorporate OMB A-123 risk profiling in the project; however members noted the following concerns:
- The Board should determine what type of risks to focus on: performance/programmatic—MD&A and/or financial impact—disclosure notes.
- The Board should determine what risks are not currently included in financial reports through working groups and determine the consequences of not including certain risks.
- The Board should consider producing best practices guidance if the standards are complete and agencies need additional help.
- The Board should prevent risk identification from turning into a compliance exercise that might affect the ERM process.
- The Board should consider how agency internal ERM processes might be affected by external financial reporting and the related audit.
Educational Session for February 2018 – Tab A (PDF)
Educational Session Presentation – (PDF)
Issue Paper for February 2018 – Tab B (PDF)
Appendices for February 2018 – Tab B Appendices (PDF)
December 20, 2017
The Board did not discuss the risk assumed project at the December 2017 Board meeting. However, staff continued to work on the gap analysis, including how to profile risks and user expectations.
October 25-26, 2017
According to the project objective, the risk assumed project strives … to determine accounting standards that provide concise, meaningful, and transparent information regarding the potential impact to the fiscal health of the federal government. However, understanding what risks affect U.S. financial sustainability and why they do is very challenging. Therefore, as part of the ongoing gap analysis, staff reviewed SFFAS 2, Accounting for Direct Loans and Loan Guarantees, to learn how risk is currently disclosed in the financial statements.
Staff conducted research with the Department of Education, Department of Housing and Urban Development, Small Business Administration, and the Government Accountability Office and learned that agencies cannot specifically identify their users. In addition, reporting is inconsistent, extremely detailed, and burdensome. This not only affects preparers, but also users.
On October 26, 2017, staff presented these findings at the Board meeting to determine if members wanted to pilot amendments to SFFAS 2 to develop a framework for how to address risk assumed holistically.
Members agreed and requested that staff
- identify user groups to analyze risk factors, beyond those used to calculate credit subsidy reestimates, to help build a risk profile;
- develop a framework for how to discuss measurement uncertainty;
- consider how to discuss the “why” behind the “what” of risk;
- present sensitivity analysis at a future meeting; and
- pilot amendments to SFFAS 2 to develop a model/framework for how to address risk assumed holistically.
Issue Paper for October 25-26, 2017 – Tab G (PDF)
August 30-31, 2017
The Board did not discuss the risk assumed project at the August Board meeting. Staff has been researching the reporting and disclosures for direct loans and loan guarantees, one of the risk assumed categories under consideration for update. Staff thanks the Department of Education, the Department of Housing and Urban Development’s Federal Housing Administration, and the Small Business Administration for meeting to discuss their credit models and reporting. Agency information will be consolidated and presented to the Board.
June 21-22, 2017 Board Meeting
At the June 22, 2017, Board meeting, members discussed focus group feedback to determine which suggestions should be included in risk assumed reporting.
Members do not want to include
- discussions that predict unforeseen catastrophes and their potential financial impact;
- trends for using emergency funding as an indicator of fiscal exposure to risk shocks;
- comparisons of estimates to actuals; or
- management of past risk events.
Members do want to
- include past events that affect the current financial position; and
- include and define major risk events with a relationship to long-term sustainability that are not already reported.
Members also reviewed the USAFacts 10-K risk section—Item 1A Risk Factors—to determine if it was an appropriate model for reporting risk assumed in the federal financial report. Members did not favor a separate risk section. They did want meaningful, streamlined information presented as a broad analysis, rather than specific details within already existing disclosures. Members agreed to continue using the risk exposure categories provided in tab G, appendix C as a foundation for the ongoing gap analysis.
Issue Papers for June 2017 – Tab G (PDF)
April 26-27, 2017 Board Meeting
The Board did not discuss the risk assumed project at the April 2017 Board meeting. However, staff did hold two focus groups, one with Government Accountability Office experts and one with non-federal experts, to gauge understanding of the current risk assumed information provided in the government-wide financial reports. Staff thanks participants for sharing their insights. This information will be consolidated and presented to the Board as part of the gap analysis.
February 22, 2017
This project was not discussed at the February 2017 meeting.
December 19-20, 2016
At the December 20, 2016, Board meeting, the Board approved a framework for the risk assumed gap analysis. Members agreed that categories should not be a laundry list of events but instead should be principle-based and broad enough to encompass current and future significant risk events. The scope will include past and future events and whether uncertainty is adequately explained. Staff will review past financial reports to understand what was included before and after recent large events, such as the 2008 financial crisis, at the agency and government-wide levels.
Staff will utilize roundtable discussions to discover if current disclosures are clear, relevant, and add value in relation to the available standards. If roundtable participants do not feel that current disclosures are clear, relevant, or valuable, the group will discuss what is missing and should be included.
Staff will work on the gap analysis over the next several months and present findings and recommendations to the Board upon completion.
Issue Paper for December 2016 – Tab G (PDF)
October 19-20, 2016 Board Meeting
At the October 19, 2016, Board meeting, the risk assumed – phase II began.
The Board reviewed staff’s high-level gap analysis presented in table 1: Analysis of Federal Accounting Standards in Relation to the IMF [International Monetary Fund] Recommendations for Disclosing Fiscal Risks and table 2 from the Australian Statement 8: Statement of Risks.
The Board agreed that an extensive gap analysis is necessary to determine the risk information that the consolidated financial report of the U.S. Government includes and how it is presented, the extent to which FASAB can align with enterprise risk management (ERM), and the Board’s preference for presenting risk assumed information going forward.
For the gap analysis, the Board agreed to determine the following:
- If federal government reporting is transparent enough for estimates and uncertainty around significant risks with a focus on broad risk categories, such as an economic downturn where revenues go down and benefit program costs go up
- If there is a significant gap in reporting to be addressed for individual risk items, such as treaties, commitments by the federal government, and inter-governmental dependencies with state and local governments
- How to present summarized risk events at the government-wide level for cross-cutting agency efforts, such as disaster relief, with access to detail at the agency level
In relation to FASAB aligning with the ERM effort, the Board recognizes that agencies are in different phases of development and implementation of ERM. The Board understands that ERM is not a CFO finance-focused project, but there are questions about who is doing the risk assumed project for the whole government. Therefore, FASAB appreciates agencies’ efforts and their willingness to share their progress to determine if FASAB’s risk assumed project can align with ERM.
In conclusion, staff will develop a gap analysis for discussion over a number of future Board meetings to determine how to present risk assumed information going forward.
Issue Paper for October 2016 – Tab 2
The Office of Management and Budget Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control