Some changes are in store for FASAB because of the October 19, 1999 American Institute of Certified Public Accountants (AICPA) decision to approve Rule 203 Status for FASAB. Rule 203 Status formally recognizes FASAB as the standard setting body for Generally Accepted Accounting Principles, or GAAP for Federal entities.

Federal accounting standards create a category of information unique to federal financial reporting. Examples of information that would be reported in this category include weapons systems, museums and monuments, parks and recreation areas, infrastructure assets, education and training of the general public, and research and development.

The idea of a new category of information, called "required supplementary stewardship information" (RSSI), was developed during deliberations leading to SFFAS 6, Accounting for Property, Plant, and Equipment. Some of the audit and reporting implications of RSSI were first articulated in the Implementation Guide published with SFFAS 7, Accounting for Revenue and Other Financing Sources.(See the chart entitled, "Categories of Information and Auditor’s Normal Role in Current and New Standards" on page 5 of this newsletter).

Required Supplementary Information (RSI) is information that is required to accompany the financial statements, but it is not an integral part of the financial statements per se (see AICPA’s Codification of Auditing Standards, AU 558). Accordingly, the auditor must note absence of RSI, but this does not constitute a qualification on the financial statements per se.

RSSI, on the other hand, was intended to be treated as an integral part of the financial statements so far as the auditor’s report goes, so that absence of the RSSI would imply a qualification in the auditor’s report. Audit fieldwork requirements for RSSI, on the other hand, were to be defined by OMB and GAO; they might be the same as for RSI, or something different. RSSI would not necessarily be audited like basic information. The intent was to send a stronger signal in the auditor’s report than RSI status would accomplish, without necessarily requiring more audit fieldwork. It would also provide a mechanism to deal with the audit implications of adding new kinds of information to the financial report. At the time the Implementation Guide was prepared, it was thought that either AICPA or GAO would need to amend audit standards to provide for this new category of information (See diagram entitled, "Categorizing Information Determined Essential to Fair Presentation as Basic, RSI, RSSI, or OAI" on page 6 of this newsletter).

OMB’s audit bulletin currently allows for a "review" level of assurance for RSSI. Review-level assurance involves less work and responsibility on the part of the auditor than does examination level assurance (expressing an opinion). The draft bulletin for FY 2000, however, calls for all RSSI to be treated as basic information for fieldwork as well as reporting purposes. That is, all basic information would receive opinion level or examination level assurance, using the audit standards or the attestation standards as appropriate.

An attest engagement is one in which a practitioner is engaged to issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. Audit standards can be seen as a subset of attestation standards. Audit standards guide the auditor’s examination of financial statements. Attestation standards guide the auditor’s examination of other kinds of information, including forecasts, projections, internal controls, and other nonfinancial data. FASAB standards call for a variety of information that goes beyond historical financial statements.

For example, FASAB has tentatively indicated an interest in eliminating the RSSI category, because some people have suggested that RSSI is widely perceived as less important than basic information, yet that was not the Board’s intent. If the Board were to eliminate the RSSI category, the items of information now called for as RSSI would be re-categorized as RSI or as basic information. Any such change in standards will require considerable time. The Board will need to deliberate on how each item of RSSI should be categorized, then an exposure draft of a standard would be published for comment and those comments would need to be considered. Accordingly, for the purposes of planning FY 2000 audits, preparers and auditors should look to the OMB audit bulletin for guidance on how to deal with items that federal accounting principles refer to as RSSI.

At its October 28-29 1999, meeting, the Board continued discussing its project on the study of National Defense Property, Plant and Equipment (PP&E) issues. It decided:

• not to conduct a joint project proposed by the Department of Defense because such a joint effort might have the appearance of compromising the Board’s independence;
• to support the Department of Defense’s independent project on National Defense PP&E issues by providing input to the Statement of Work and coordinating and sharing workpapers and other material; and
• to continue its staff project addressing key conceptual issues on National Defense PP&E.

Staff will present a detailed list of the issues being studied at the December Board meeting.

At the October 28-29, 1999 meeting, the Board continued discussing reporting requirements for major acquisitions at the entity level. To assist in its discussions, the Board was given a background paper on how information on major acquisition programs related to its financial reporting objectives, its mission, and its existing accounting standards.

The Board focused on a) whether the types of major acquisitions presented on an illustrative report would meet the Board’s financial reporting objectives; and, b) whether there was an existing budgetary reporting requirement that might make unnecessary the Board's proposed report.

At the conclusion of its discussions, the Board was split. Those who supported reporting on major acquisitions at the program level believe that such reporting:

• highlights the significance and materiality of the major acquisitions;
• provides better accountability to the American people;
• measures the full cost of procurement with greater accuracy; and,
• provides a more complete picture of the total cost of a capital asset--life cycle cost.

Those who did not support reporting on major acquisitions at the program level believe:

• it is management information that should not be included in the annual reports;
• other FASAB standards (the managerial cost and PP&E standards) adequately address the measurement requirements of capital assets; and,
• such reporting would duplicate reports that Congress and management already get and that are already available.

For the next Board meeting, the Chairman asked staff to further analyze the pros and cons of reporting on major acquisitions at the program level, and to assess if there might be project applications in a) the President's Capital Budgeting Commission study, and b) OMB Circular A-11, Part 3, major acquisition reporting requirements.

The U.S. General Accounting Office has issued its revised "Standards for Internal Control in the Federal Government," (GAO/AIMD-00-21.3.1). This publication updates and replaces the previous standards first issued in 1983 in accordance with the Federal Managers’ Financial Integrity Act (FMFIA) of 1982, and generally referred to as the "Green Book." The new standards are effective for fiscal year 2000 and apply to reports required by FMFIA for that year.

The standards update was performed primarily in response to (1) the effect upon internal control as a result of rapid advances in information technology management, (2) a greater recognition of the role of human capital management as an important factor in internal control, and (3) the need to implement updates of the standards used in the private sector where useful in the Federal Government environment. The new standards also reflect the increased emphasis upon internal control inherent in important legislation such as the Chief Financial Officers Act of 1990, the Government Performance and Results Act of 1993, and the Federal Financial Management Improvement Act of 1996. These standards provide the overall framework for Federal agencies to establish and maintain internal control and to identify and address major performance and management challenges and areas at greatest risk for fraud, waste, abuse, and mismanagement. They will be useful to both program and financial managers in all Federal departments and agencies in meeting their missions and objectives and in achieving financial accountability.

The format of the new standards, as well as the concepts expressed by them, are consistent with those contained in the document "Internal Control – Integrated Framework" published in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission. The GAO document defines internal control as an integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: (1) effectiveness and efficiency of operations, (2) reliability of financial reporting, and (3) compliance with applicable laws and regulations. There are five broad standards that define the minimum level of quality acceptable for internal control in Government and provide a basis against which agency internal control can be evaluated. These five standards cover the areas of (1) Control Environment, (2) Risk Assessment, (3) Control Activities, (4) Information and Communications, and (5) Monitoring.

In developing the new standards, GAO subjected them to a very lengthy, rigorous, and thorough process of public exposure, comment, and revision. Two separate exposure drafts were issued and many comments were received from the accounting, audit, and academic communities. The final version was coordinated with the Office of Management and Budget and officials of the Chief Financial Officers Council.

On the second day of the December Board meeting, December 14, the meeting will conclude at 3:00. Then at 3:30, formal ceremonies for the AICPA to bestow Rule 203 Status on FASAB will be held in the Cash Room of the Department of the Treasury. Interested persons are invited to attend and must supply entry information (name, birthdate, Social Security Number) prior to attendance.

The next meeting of the AAPC will be January 20, at 1:30, in room 4N30 of the General Accounting Office Building, 441 G Street, NW, Washington, DC, 20548.