Concepts – Objectives
FASAB’s work on its conceptual framework is intended to ensure that federal financial accounting standards are based on a sound framework of objectives and concepts regarding the nature of accounting, financial statements, and other communications methods. The overall conceptual framework should:
- provide structure by describing the nature and limits of federal financial reporting,
- identify objectives that give direction to standard setters,
- define the elements critical to meeting financial reporting objectives and describe the statements used to present elements,
- identify means of communicating information necessary to meeting objectives and describe when a particular means should be used, and
- enable those affected by or interested in standards to understand better the purposes, content, and characteristics of information provided in federal financial reports.
FASAB’s review of the objectives of federal financial reporting and of the objectives of FASAB itself comprises one project. The review focuses on the first two objectives listed above for the overall conceptual framework. In the process, it should also address to some extent the last objective listed.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
September 27-28, 2006
Staff provided members with the final report entitled, FASAB’s Strategic Directions—Clarifying FASAB’s Near-Term Role in Achieving the Objectives of Federal Financial Reporting that incorporated comments received at the last meeting. The final document is a report (rather than a standard) and can be issued with approval from the Chairman. Absent further comments, staff will seek the Chairman’s approval to release the report in early November 2006. There will be a press release to issue the report and the report will be posted on the FASAB homepage.
July 26-27, 2006
Staff presented an update on the Objectives project at the July 2006 Board meeting and provided the Board with a revised report entitled, FASAB’s Strategic Directions—Clarifying FASAB’s Near-Term Role in Achieving the Objectives of Federal Financial Reporting. Staff noted that a draft of the document had been circulated to Board members and a review team that included participants from the Roundtable Meetings. The feedback from the Board members and review team was positive with minimal comments received. Staff incorporated the comments in the revised report that was included in members’ July 2006 meeting materials.
Board members expressed that they were pleased with the revised report overall and they provided suggestions to help improve its clarity. Board members also discussed whether the document should present FASAB’s plans regarding international public sector accounting standards. It was noted that the purpose of the document was to express FASAB’s strategic thinking in relation to the objectives of financial reporting, rather than presenting a formal strategic plan. Including a discussion on this topic may cause some to misinterpret that FASAB is committing to more actively engage in international public sector accounting standards. Also, it was noted that the Board currently shares draft standards with the international public sector and monitors their work. However, limited resources preclude the Board from having a more active role. The Board directed staff to explore whether FASAB’s present activities regarding international public sector accounting standards could be included considering the scope of the document.
Staff noted that because the document is a report, rather than a standard, staff can issue the report upon approval from the Chairman. Accordingly, staff will incorporate the Board member comments received and provide members with a revised document for their review. Absent further comments, staff will seek the Chairman’s approval to release the report.
May 24-25, 2006
Staff presented the Board with an updated White Paper on Objectives and analysis of GASB and FASB strategic plans at the May meeting. Staff discussed that the most significant change to the white paper was the addition of a section that discusses an assessment of FASAB’s role in relation to the broad objectives of financial reporting. Staff believed that each of the objectives were equally important and did not attempt to rank the objectives. Instead, staff presented an assessment that included two levels of focus for FASAB in the near-term as follows:
Primary Focus Objectives —Primary Focus Objectives are those objectives where there is the greatest opportunity for FASAB to play a direct role in developing standards to achieve the stated objectives, based on its comparative advantage and other factors. Therefore, the Operating Performance and Stewardship objectives would be considered the primary focus objectives.
Secondary Focus Objectives —Secondary Focus Objectives are those objectives where there is not the greatest opportunity for FASAB to play a direct role in developing standards to achieve the stated objectives, based on its comparative advantage and other factors noted above. In contrast to primary focus objectives, FASAB believes that it will play an indirect role in developing standards that would meet these objectives in the near-term. The Budgetary Integrity and Systems and Control objectives would be considered the secondary focus objectives.
Board members discussed the staff’s proposed assessment of FASAB’s role. While they agreed with the overall assessment, some members believed that labels other than “primary” and “secondary” could be used for the focus categories. However, staff noted that the two categories (primary and secondary) were established because, throughout the project, the Board has expressed a need to address the fact that there are objectives that FASAB has not dealt with as much as others. The need will still exist if the categories are eliminated.
Members acknowledged that FASAB appears to have more of a comparative advantage in achieving the primary objectives (Operating Performance and Stewardship) and a supporting role in the secondary objectives (Budgetary Integrity and Systems and Control). Staff will revisit the terminology used to categorize FASAB’s role in relation to the objectives.
The Board discussed that strategic planning has merits and that a strategic plan could be used to narrow-down where the Board will focus over the next 3-5 years. However, as noted by the staff analysis of other standard-setter’s strategic planning efforts, the strategic planning process requires significant amounts of Board and staff time. These factors could overwhelm the Board’s resources as it seeks to accomplish a challenging technical agenda.
Given that the White Paper already addresses key aspects of strategic planning and the limited amount of FASAB resources, the Board agreed to publish the White Paper as the document that communicates its strategic directions and staff will revise the White Paper for public issuance. The Board may later consider enhancements to the White Paper if it finds that the document does not serve well in this capacity. The Board discussed due process options for the document. Considering resource and time constraints, the Board agreed to subject the white paper to a review by a team of constituents familiar with FASAB’s work and federal financial reporting efforts. The review team would consist of some of the roundtable participants and Board members.
March 29-30, 2006
Staff presented summaries and analysis of the four roundtable meetings on each of the objectives of federal financial reporting. In summary, participants agreed that the federal financial reporting objectives were broad, but remain valid. Also, the participants did not feel that FASAB should limit itself by eliminating any of the objectives, and there were no suggestions that additional financial reporting objectives are needed. The Board members discussed whether federal financial reporting objectives should remain broad and the Board noted that FASAB does appear to have a comparative advantage in stating the objectives of federal financial reporting. The Board acknowledged the original Board did a lot of good thinking when developing the objectives and forums such as the roundtables are good ways to determine whether the objectives are still valid after gaining experience. After discussing concerns regarding the Systems and Control objective, the Board agreed to retain the current broad objectives of federal financial reporting.
Given that the Board decided to retain the broad objectives of federal financial reporting, the Board discussed how to best articulate FASAB’s role in relation to such objectives. The Board considered the staff recommendation to amend SFFAC 1 and develop a strategic plan. The Board discussed that amending SFFAC 1 could take up considerable resources. Additionally, Board members believed that it would be best to define the scope of the strategic planning project. Accordingly, the different options for articulating FASAB’s role in relation to those objectives required further Board assessment. Staff will continue to develop the white paper on federal financial reporting objectives and prepare an analysis of strategic plans from other standards-setters to assist the Board in its evaluation.
January 11-12, 2006
Staff presented the summaries and analysis for the Budgetary Integrity and Operating Performance Roundtable meetings at the January 2006 meeting. Staff explained that the participants at the both roundtables discussed the importance of the objectives in federal financial reporting and they discussed issues and methods that could enhance achievement of the objectives and concerns with the financial statements used to achieve the objectives. Staff explained that most of the participants at both roundtables agreed that the objectives were very broad, but believed that was the intent.
Staff explained that the participants did not expect FASAB or financial statement reporting to meet all the objectives alone. Staff explained that based on the discussions and the analysis of the first two roundtables, it appears that a feasible approach for the Board to consider (as it moves forward) is to develop a strategic plan or strategic objectives for FASAB (versus amending the objectives). Staff explained that the strategic plan would identify the objectives from SFFAC 1 that most influence FASAB’s direction for the next 3-5 years.
Most of the Board members were pleased with the results of the roundtables and supported the focus on strategic planning efforts as a means to define FASAB’s role and articulate FASAB’s short term goals. The Board also noted that there are several issues related to changes in the environment and FASAB’s comparative advantage in the Draft White Paper on Objectives. The Board requested that staff elaborate further on accrual accounting, internal versus external users, proper matching of expenses and revenues, and the advantages of GAAP in the white paper. The Board also discussed that many of the topics from the white paper will ultimately be brought into a new concepts statement or perhaps an amendment to Concepts 1.
Staff will present the summaries and analysis for the Stewardship and Systems and Control Roundtable meetings at the March Board meeting. Staff will also continue with and elaborate on certain topic areas in the Draft White Paper on Objectives.
At the October 2005 Board meeting, staff presented the Board with a status of the Roundtable Meetings on the Objectives of Financial Reporting. Specifically, staff members have completed two of the four roundtable meetings on the objectives of federal financial reporting. Staff completed the first meeting on the Budgetary Integrity objective on September 19, 2005 , and completed the second meeting, regarding the Operating Performance objective, on September 28, 2005 . Transcripts of the meetings will be prepared and staff will analyze the meeting results and prepare a summary.
Staff also provided the Board with the meeting materials for the remaining Roundtable Meetings. The schedule for the remaining roundtable meetings are as follows: Stewardship on November 29, 2005 and Systems and Control on December 6, 2005 . The Board members reviewed the staff proposed meeting materials and provided input.
Staff will proceed with conducting the remaining roundtable meetings and present detailed issues at the January 2006 Board meeting.
August 17-18, 2005
At the August 2005 Board meeting, staff presented a revised plan that included moving forward with the roundtable meetings because the main focus for the Objectives Phase of the Concepts Project is to evaluate the federal financial reporting objectives. Staff provided an overview of the staff team’s plan for conducting the roundtable meetings. Staff plans to conduct four roundtable meetings–one for each objective of federal financial reporting. All the meetings will be completed by the end of calendar year 2005. Staff plans to include individuals from the following for participation: IG audit community, CFO financial statement preparation community, IPA firms, GASB, former FASAB Board members, OMB, GAO, Treasury, CBO, Public Interest Groups, Congressional staff members, and any other subject matter expert deemed appropriate.
Staff also presented an updated Draft White Paper on Objectives and a Draft Participants Package for the Board’s review. The Draft White Paper on Objectives provides the purpose of the project, where the Board is in the process, major changes since SFFAC 1 was issued, and how the roundtables will play a part in the Board’s consideration of the objectives. The Draft Participants Package included questions for consideration and the main discussion topics for the roundtable meetings.
The Board approved the staff plan to move forward with the roundtable meetings and suggested some minor changes to the draft documents.
June 22-23, 2005
Staff presented a portion of the Draft White Paper on Objectives. The Board discussed whether concepts are for the Board or for the Board and the profession. The Board also discussed the evolution of FASAB’s role. Staff will continue drafting portions of the white paper related to the nature and limits of federal financial reporting. In addition, staff will begin to plan for the roundtable meetings to be held later this year (fall and winter.) The roundtables will be on each of the four reporting objectives and will provide the Board with insights from experts involved in specific areas, as well as those external to the accounting community. The roundtables will also serve as an outreach opportunity with the goal of engaging the community.
May 4-5, 2005
Staff is proceeding with drafting a white paper based on the outline approved by the Board. With respect to elements, staff plans to present information regarding recognition criteria at the June meeting.
March 2-3, 2005
At its March meeting, the Board considered and approved a draft outline of its white paper on objectives. Staff will proceed with drafting a white paper based on the outline. With respect to elements, the Board considered draft essential characteristics of a liability. The Board discussed the nature of present obligations in the federal environment and how federal entities might be .required to settle. obligations. The Board requested that staff present information regarding recognition criteria for the next meeting.
December 15, 2004
The Board discussed possible “comparative advantages” of federal accounting in general, and of GAAP reporting in particular. The Board received material on some related concepts, including “completeness,” “neutrality,” “economic reality,” and “representational faithfulness.” The Board requested a “white paper” that will provide information about the reporting that is done by federal agencies and will summarize information about the comparative advantage of accounting and financial reporting. It will mention the roles played by audit, the accrual accounting model, and the Board’s independence. Among other topics, the paper will also address fair presentation in conformance with a specified “accounting hierarchy,” and whether this hierarchy should be part of the federal accounting literature.
Minutes [to be linked to the minutes page for December 2004]
October 20, 2004
In October the Board decided not to assert the conceptual primacy of “accountability” over “decision usefulness” in the context of objectives for federal financial reporting.
Minutes for October 2004
August 25, 2004
In August the Board’s discussion on objectives focused on methods to “narrow down” the Board’s focus from the broad objectives described in SFFAC 1. Some Board members have suggested that such a narrowing would be desirable. In connection with this, the Board considered the extent to which it should rely on “decision usefulness” or “users’ information needs” versus “accountability” as a foundational concept to shape its work.
Minutes for August 2004
Deliberations prior to August 2004
In June 2004 the Board discussed four options for how to proceed with the project.
- Develop a working paper on the objectives of the Federal Accounting Standards Advisory Board (or GAAP based financial reports)
- Develop and publish “strategic objectives” for FASAB (or GAAP based financial reports)
- Develop a Statement of Federal Financial Accounting Concepts on the Objectives of the Federal Financial Accounting Standards Advisory Board (or GAAP- based financial reports)
- Amend SFFAC 1 by clarifying the Board’s role relative to broad objectives
In April 2004 the Board considered three alternatives (and alternative rationales) for amending paragraph 150 of SFFAC 1, which deals with systems and control. The Board did not reach a conclusion.
In March 2004, the Board discussed whether to revise or eliminate the “Systems and Control” objective but did not reach a conclusion.
At the October 2003 meeting discussion focused on the “budgetary integrity” and “operating performance” objectives. The Board discussed its comparative advantage, and the implications for its agenda. The Board expressed general satisfaction with the operating performance objective.
In August 2003, the Board received background information about finance-related laws and about the evolution of reporting on internal control. Members received a copy of the SEC Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial Reporting System of a Principles-Based Accounting System .
In June 2003 FASAB decided not to pursue a new users’ needs study. The Board discussed implications of: (1) the dual “internal/external” focus asserted in SFFAC 1, (2) the “budgetary integrity” objective, and (3) the idea expressed in SFFAC 1 that multiple information sources and systems, including many outside FASAB’s purview, contribute to achieving the objectives described in SFFAC 1.
In April 2003, Ms. Justine Rodriguez of the Office of Management and Budget provided background on the development of SFFAC 1 Objectives of Federal Financial Reporting and discussed the stewardship chapter of the Analytical Perspectives volume of the President’s Budget.
The Board reviewed a draft project plan in February 2003.