Reporting on FASAB Projects

This is a highly significant project. Accounting for social insurance programs has been addressed before by FASAB — most prominently in SFFAS 17 that includes a Statement of Social Insurance that allows amounts for various social insurance programs to be aggregated. Also, SFFAS 17 requires considerable information including cash flow information. Up to this point, social insurance programs have not been treated as creating liabilities except for amounts due and payable. (Social Security and Medicare are the major social insurance programs.)

At the January 2006 FASAB meeting, FASAB voted 6-4 to recognize actuarial liabilities on the balance sheet for social insurance programs. FASAB's Chairman called for a vote (non-binding) to determine support for the project. FASAB had received letters from GAO's Comptroller General David Walker, Treasury Secretary John Snow, and the Social Security Administration's Chief Actuary opposing liability recognition for social insurance programs beyond amounts due and payable. Also, OMB and CBO opposed such recognition. FASAB members representing GAO, Treasury, OMB, and CBO opposed going forward with a social insurance project that would recognize actuarial liabilities for Social Security and Medicare Part A based on meeting eligibility criteria. GAO, Treasury, and OMB are the FASAB sponsors and FASAB operates under the general oversight of its sponsors (who along with CBO finance FASAB's operations.) As noted above, the vote to recognize actuarial liabilities was 6-4. The six affirmative votes all came from non-federal FASAB members.

OMB and/or GAO can veto a standard. If that were to happen, it is likely that the American Institute of Certified Public Accountants (AICPA) would withdraw its support of FASAB as a standard setting body for the accounting profession due to a lack of independence. FASAB would no longer establish generally accepted accounting principles (GAAP) for the accounting profession.

At the March FASAB meeting, the Board decided to treat Medicare Parts B and D the same as Part A. (The alternative would have been to treat Medicare Parts B and D as insurance programs.) The obligating event for Medicare Parts A, B, and D will be acquiring 40 credits. For Social Security, acquiring credits beyond 40 credits will be new obligating events. FASAB also decided to require a sensitivity analysis for social insurance programs but not to specify what the analysis should look like. Treasury's board member speaking for Treasury, OMB, and GAO indicated that the term liability should not be used for the actuarially determined amounts for Social Security and Medicare since this would make reforming these unsustainable programs more difficult. Such amounts could be reported on the balance sheet with credit balances but it would not be acceptable to use the "L word". Treasury's board member implied that a final standard with the actuarially determined amounts described as liabilities would receive a veto. The current FASAB Chairman Dave Mosso and the future Chairman Tom Allen indicated that alternative terminology and alternative balance sheet classification could be considered but the basic reasoning of the document and the liability definition would not be changed. FASAB agreed to move to a pre-ballot exposure draft (the final step before issuing an exposure draft) by a vote of 6-4 with all of the affirmative votes coming from non-federal members.

At the May FASAB meeting, FASAB again by a vote of 6-4 (all affirmative votes coming from non-federal members) agreed to go forward with an exposure draft. The OMB Director had sent a letter on May 1 to FASAB opposing going forward with an exposure draft recognizing actuarial liabilities for social insurance programs (earlier GAO's Comptroller General and the Secretary of the Treasury had sent similar letters to FASAB) and at the May FASAB meeting a letter signed by OMB's Director, GAO's Comptroller General, the Secretary of the Treasury, and the OPM Director opposing recognizing actuarial liabilities for social insurance programs was provided to FASAB members. In addition, GAO's Comptroller General David Walker made a presentation at the May FASAB meeting during which he vigorously opposed recognizing actuarial liabilities for social insurance programs. He implied that he would veto a recommended standard that recognized such amounts as liabilities (presumably the OMB Director would also veto such a recommended standard). Based on decisions made at the May FASAB meeting, the draft exposure draft was revised to ensure that the arguments of the minority point of view are given generous treatment throughout the document. The gravity of the situation and the importance of the subject matter warrant a departure from the normal practice whereby minority views receive more limited exposure.

At the July FASAB meeting, the Board began to consider the revised draft exposure draft on accounting for social insurance. Soon discussion turned to issuing a preliminary views document rather than an exposure draft (the federal members pushed this idea). This would allow for the finalization of element definitions before an exposure draft on accounting for social insurance is issued (an exposure draft was recently issued regarding elements with comments due by August 5, 2006). Also, a preliminary views document provides more flexibility for presenting majority and minority opinions. The current FASAB Chairman Dave Mosso, the future FASAB Chairman Tom Allen, and the FASAB Executive Director Wendy Comes along with the four federal members expressed support for the idea of issuing a preliminary views document provided that the effective date (FY 2010) for a new standard on accounting for social insurance not be changed. By a vote of 7-3 the Board agreed to move ahead with a preliminary views document — it is expected that one year will be added to the process by utilizing a preliminary views document but the benefit will be unimpeachable due process so that if there eventually is a veto, no one could say the process was at fault. It is expected that a preliminary views document will be issued for comments shortly after the September 27-28 meeting.

Professor Jim Patton (a non-federal member) noted that if the 6-4 votes (taken at earlier meetings) for issuing an exposure draft included the federal members in the majority, there would never have been a consideration of issuing a preliminary views document — an exposure draft would have been issued. Earlier in the meeting, Professor Patton provided a two page document to board members describing the actions of the Sponsors (through their representatives on the Board) as actions that impair the perceived and actual independence of the Board. In his two page document Professor Patton wrote: "Federal members have made it clear that they do not intend to yield sovereignty to the FASAB and that they will act to prevent implementation of standards and concepts statements that they do not agree with." Professor Patton concluded his two page document by saying: "If the FASAB is not going to be an independent body producing conceptually sound, stable reporting standards for the federal government, perhaps it would be better to save the government some money and revert to federal employees setting federal reporting standards as they see fit."

At the September FASAB meeting, the Board discussed a preliminary views document entitled Accounting for Social Insurance, Revised. This 150 page document fully explains the majority and minority views and solicits comments. The Board agreed to issue the preliminary views document and hearings will be held in May 2007. Chairman Dave Mosso leaves the board in December 2006 upon completing his ten year term as Chairman. Tom Allen, a current non-federal member, will become Chairman in January 2007. On November 21 FASAB announced that Norwood Jackson will become a non-federal member starting in January 2007. (Mr. Jackson was OMB's FASAB member from 1995-1999.)