ACCOUNTING AND AUDITING POLICY COMMITTEE MEETING

FINAL MINUTES

July 12, 2001

The meeting was convened at 1:35 PM in room 4N30, of the GAO Building, 441 G St., NW, Washington, D.C.

ADMINISTRATIVE MATTERS

• Attendance

Present: Ms. Payne, Mr. Eisenhart, Ms. Geier (for Mr. Zavada) Ms. Krell, Messrs. Maharay (for Mr. Friedman) Pugh, Ritchie, Stout, and Taylor.

Absent: Mr. Friedman and Ms. Jordan.

· Minutes

The minutes of May 10, 2001 were previously approved as final, having been circulated by

E-mail to members.

· AAPC Charter and Operating Procedures

Ms. Valentine, FASAB staffer, noted that a draft of the revised Operating Procedures was circulated to the members for approval. The revised Procedures eliminated those sections that were repeated sections of the AAPC Charter. The Operating Procedures gained final approval as of June 19, 2001. The AAPC Charter had received final approval from the FASAB as of January 18, 2001. Ms. Valentine also noted that both final documents would be posted to the AAPC web page replacing the original documents.

· Project Agenda Status:

Issue #14 Stewardship Guidance Work Group

In 1998, the AAPC commissioned a multi-agency work group to draft guidance that would assist Federal entities in implementing the new standards for reporting and examining information on stewardship land and heritage assets. At its May 10, 2001 meeting, the Committee agreed to post the draft document on the AAPC web site and ask for comments.

Ms. Payne noted that the Stewardship Guidance Work Group was revising the draft based on a few internal comments received. Once those changes are made, the draft will be posted to the AAPC web site.

Ms. Payne gave a brief summary of the FASAB discussion on Preliminary Views (PV) on Eliminating the Category “Required Supplementary Stewardship Information (RSSI)” at its June 19, 2001 meeting. Ms. Payne noted that the PV proposed that the category RSSI be eliminated, and that each element of Stewardship Reporting be addressed and appropriately categorized. She also reminded the Committee that the FASAB had received comments on the PV, held a public hearing on the topic and deliberated the issues. She noted that the Board has tentatively decided to eliminate the category of RSSI and appropriately categorize each element of the reporting. The Board has asked FASAB staff to come back to the Board with an exposure draft that outlines how to categorize Stewardship Responsibilities.

Ms. Valentine reiterated the Committee’s request to acknowledge the FASAB work in this area in the notice requesting comments on the draft guidance. She stated that a draft of the notice would be circulated by email to the Committee for review before it is posted on the web with the Guide.

Issue #11 Inter-entity Costs

The discussion on Inter-Entity Costs was led by FASAB staffer, Richard Mayo. The Inter-Entity Costs survey is made up of a series of questions directed to inter-entity costs that are not fully reimbursed by the receiving entity or are not reimbursed at all. The AAPC expects that the survey will assist in identifying specific inter-entity costs that are being incurred by agencies, study their nature, and determine whether they meet the recognition criteria specified in SFFAS 4.

The members discussed certain issues identified in a staff issue paper. First, they discussed whether OMB or AAPC should provide general guidance or specific guidance. “Specific guidance” means identifying specific inter-entity costs for recognition by reporting entities. The members agree that general guidance should be provided. The members also agreed to consider addressing agency-specific questions on a case-by-case basis as needed.

The members then discussed the materiality issue. Specifically, they considered whether the materiality of an inter-entity cost should be determined on an entity basis or program basis. It was discussed in the staff issue paper that an inter-entity cost that is not material when measured on an entity basis might be material for one of the programs within the entity. Several members believed that if a cost is an integral part of the operations of a program, its materiality should be determined on the program basis. They believe recognition of inter-entity costs that are material to a program would help program cost management and program performance measurement. Other members were concerned with potential difficulties in recognizing costs material to programs. The Committee concluded that materiality is applicable and should be addressed at both the entity and the program level, however it would be advisable to address the issue in stages, with an initial focus at the entity level (i.e., audited entity level) and later at the program level. This incremental approach recognizes the current limitations of most cost accounting systems and allows agencies more flexibility in preparing for and implementing inter-entity cost requirements.

It was also emphasized that materiality should be addressed primarily as a financial management accounting and reporting issue rather than an auditing issue. Audit materiality is at a higher threshold than materiality for purposes of preparing financial statements and managerial cost accounting. In addition certain applications of inter-entity costing below the financial statement level, for example costing program performance measures, may not be subjected to audit.

The members also discussed if the following services provided should be viewed as “broad and general support services.”

n Legal services provided by the Department of Justice

n Fund transfer and disbursement services performed by Treasury’s FMS

n Benefit programs administrative services provided by OPM, Labor, and Treasury

Finally, the members discussed an issue raised by EPA about a provision in paragraph 109, SFFAS No. 4. That paragraph states that to recognize the full cost of inter-entity goods and services, receiving entities should obtain cost information from providing entities. That paragraph further states that “If such information is not provided, or is partially provided, a reasonable estimate may be used by the receiving entity.” EPA states that the estimates would be unreliable since some of the goods and services are unique and represent a limited market. EPA is concerned that the estimates may cause problems to auditors who must seek supporting evidence. EPA suggests that paragraph 109 be amended to require providing entities develop and provide the cost information. Most AAPC members recognize that receiving entities may not be able to make reasonable estimates when they are not able to get information from the providing entity. One member stated that causing problems to auditors should not be the primary issue. The true issue is, is Management satisfied that estimates are reasonable.

Ms. Payne noted that we would reconvene the task force after conferring with task force chair, David Zavada, and come back to the next AAPC meeting with some additional issues and discussion.

Issue # 20 Draft Proposed Technical Release 6, Assigning Costs and Liabilities to Agencies that Result from Legal Claims against the Federal Government

In mid-1999 the AAPC had been asked to provide guidance to Federal entities on the accounting and reporting of costs and liabilities as they relate to allocating those cost and liabilities resulting from legal claims against the Federal government. Ms. Valentine noted that the TR was approved by a majority of the AAPC as of April 11, 2001, by a vote of nine approvals and one dissent. The document was then forward to the FASAB on May 18, 2001 for approval.

The issue was also discussed at the June 18, 2001 FASAB meeting. Ms. Valentine noted that the Board voted three for and five opposed to the proposed TR. The basis for the objection was that the Board believes that all costs need to appear in an agency-level statement before flowing into the consolidated statements. Ms. Payne asked the members if they wanted to revise the proposed TR language to conform to the thoughts of the FASAB. The other option would be to not accept the project back on the agenda of the AAPC and leave it in the hands of the FASAB for any further consideration. One member stated that he would not like to revise the TR based on the conditions set by the FASAB since the proposed TR had been subjected to extensive deliberation, which included consideration of the views expressed by the FASAB, and had been approved by a near unanimous vote. Other members asked to review the minutes from the June 18 FASAB meeting to get a better idea of the Board discussion on the topic. Ms. Payne agreed to send those final minutes to the members as soon as they became available. Ms. Payne also stated that she would send a ballot to the members to vote on whether or not to accept the project back on the AAPC agenda before the next meeting.

· Agenda Committee Report

Mr. Pugh, chair of the AAPC Agenda Committee, reported that there were no new issues to be brought to the AAPC.

· New Business

None

· Acknowledgements

Ms. Payne noted that AAPC member F. Jay Lane has resigned his position at the DoD Office of the Inspector General and has also resigned his seat on the AAPC. Mr. Lane’s position was the at-large seat, which is appointed by the FASAB Steering Committee. The Steering Committee has publicized in the FASAB News that they will be reviewing candidates for the position in both the private and public arena.

· Next Meeting

The next meeting will be on Thursday, September 13, 2001.

· Adjournment

The meeting was adjourned at 3:10 PM.