Risk Assumed

Project Objective:

A project on risk assumed was added to the agenda for the August meeting after all members designated it as a high priority during the agenda-setting session held in April 2011 (see the minutes from the technical agenda discussion at the April 2011 meeting).

FASAB standards on risk assumed are currently limited to insurance contracts and explicit guarantees (other than loan guarantees). In order to meet the stewardship and operating performance objectives of federal financial reporting, it is important that the federal government reports all significant risks assumed, not just risks related to insurance contracts and explicit guarantees.

Why Why is a project on risk assumed needed?		What What questions / issues does the Risk Assumed Project plan to address?
Existing FASAB standards on risk assumed are limited to insurance contracts and explicit guarantees (other than loan guarantees) The federal government has a variety of responsibilities and consequently assumes a range of risks Current FASAB guidance may not result in full disclosure of the significant risk assumed by the federal government		What are the significant risks assumed by the federal government? How should those risks be defined? What are the appropriate recognition and measurement criteria for those risks? How should those risks be reported? Should current FASAB standards be revised?

The primary objective of this project is to study the significant risks assumed by the federal government and develop (a) definitions of risk assumed, (b) related recognition and measurement criteria, and (c) disclosure and/or required supplementary information (RSI) guidance that federal agencies can apply consistently in accordance with GAAP.

Note: This project will subsume and close the Application of the Liability Definition project. The objective of the Application of the Liability Definition project was to reconsider the recognition, measurement and display of liability and expense, potential new elements/statements, and all related disclosures for commitments of the federal government that could potentially result in a net outflow of resources. In September 2007, the board decided to postpone the project until additional progress could be made in developing conceptual guidance.

HISTORY OF BOARD DELIBERATIONS (reverse chronology)

February 27-28, 2013 Board Meeting

During the February meeting’s technical agenda session the Board agreed to address the risk assumed project using a phased approach given the challenges inherent in addressing such a broad topic (i.e., exposures that could result in future outflows of the federal government). Insurance and non-loan guarantees will be addressed in the first phase of the project. This approach will allow development of principles for measuring and reporting risk where risk is most clearly identifiable – insurance and guarantees providing explicit indemnification to identified parties.

Tab F (PDF)

December 19-20, 2012 Board Meeting

The Risk Assumed project was not discussed at the December 2012 board meeting.  Staff is continuing to research options for addressing the inconsistent and duplicative reporting on the risks assumed by insurance and guarantee programs to present to the board at a future meeting at which time members will decide whether to (1) issue a separate exposure draft on insurance and guarantees, or (2) hold out for a more comprehensive standard on all significant future outflows of the federal government.

October 24-25, 2012 Board Meeting

The Risk Assumed project was not discussed at the October 2012 board meeting.  Staff is continuing to research options for addressing the inconsistent and duplicative reporting on the risks assumed by insurance and guarantee programs to present to the board at a future meeting at which time members will decide whether to (1) issue a separate exposure draft on insurance and guarantees, or (2) hold out for a more comprehensive standard on all significant future outflows of the federal government.

August 29-30, 2012 Board Meeting

At the August 29, 2012, board meeting, members agreed that staff should continue to approach the risk assumed project from a broad perspective but focus current efforts most heavily on reporting by insurance and guarantee programs. Staff will begin to develop options for addressing the inconsistent and duplicative reporting on the risks assumed by insurance and guarantee programs to present to the board at a future meeting at which time members will decide whether to (1) issue a separate exposure draft on insurance and guarantees, or (2) hold out for a more comprehensive standard on all significant future outflows of the federal government.

Tab E (PDF)

April 25-26, 2012 Board Meeting
The risk assumed project was not on the agenda at the April meeting; however, an update was provided on the project’s status. The risk assumed project is taking a broad look at all types of transactions and events that may result in future outflows as a result of the federal government’s mission, operations, and current or past actions. Staff is currently developing task forces on two explicit groupings of risk assumed: (1) commitments and obligations, including contracts, grants, and treaties and (2) insurance and guarantees. Other task forces will follow as the project progresses.

Issue Paper for April 2012 (PDF)

August 24-25, 2011 Board Meeting
At the August 24, 2011, board meeting, members discussed a project plan proposal from staff. Members strongly supported staff’s plan so staff will begin preliminary research on the Risk Assumed Project by developing an inventory of risk assumed by the federal government, a detailed task force plan, and a list of potential task force members.

Issue Paper for August 2011 (PDF)