Official Releases.

GASB Statement No. 36 ... FASAB Statement No. 18 ... Ethics Interpretation

Space considerations prevent publishing here the appendices to GASB Statement no. 36. Since the appendices often are important to understanding GASB statements, readers are advised to obtain complete copies. For additional copies of GASB statements and/or information on applicable prices and discount rates, contact the GASB order department, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116. Telephone: [phone].

Statement No. 36 of the Governmental Accounting Standards Board--Recipient Reporting for Certain Shared Nonexchange Revenues

(An amendment of GASB Statement No. 33)

SUMMARY

This Statement provides symmetrical accounting treatment for certain shared revenues by superseding paragraph 28 of GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. Statement 33 requires governments that share portions of their derived tax or imposed nonexchange revenues to account for the sharing as a voluntary or government-mandated nonexchange transaction, as appropriate. However, paragraph 28 of that Statement required governments that receive those shared portions to account for the sharing as a derived tax or imposed nonexchange transaction--that is, differently than the provider government. As a result, in certain circumstances, the provider and recipient governments would recognize the sharing of revenues at different times. This Statement eliminates that timing difference by requiring recipient governments to account for the sharing of revenues in the same manner as provider governments.

Additionally, this Statement removes the prior guidance in paragraph 28 that required recipient governments to accrue revenues equal to cash received if notification of the amount was not available in a timely manner. This Statement allows other estimation methods by requiring recipient governments to use a reasonable estimate of the amount to be accrued.

CONTENTS

Introduction/1
Standards of Governmental Accounting and Financial
Reporting/2
   Amendment of Statement 33/2
Effective Date and Transition/3
Appendix A: Background Information/4-8
Appendix B: Basis for Conclusions/9-15
Appendix C: Illustrations--Derived Tax and
   Imposed Nonexchange Revenues Administered
   or Collected by Another Government/16-17
Appendix D: Codification Instructions/18

INTRODUCTION

1. GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, issued in December 1998, provides guidance on accounting and financial reporting for nonexchange transactions. Since the release of that Statement, questions have arisen concerning differences between the provisions of paragraph 28 and the recognition requirements for government-mandated and voluntary nonexchange transactions.

STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING

Amendment of Statement 33

2. This Statement removes the exception to the accounting and financial reporting requirements of Statement 33 for government-mandated and voluntary nonexchange transactions by superseding paragraph 28 of that Statement with the following paragraph:

   On the other hand, a government may share its own derived tax revenues or
   imposed nonexchange revenues with other governments. For example, a state
   (provider) may share a portion of the revenues resulting from its sales tax
   with local governments. Both the provider and recipient governments should
   comply with the requirements of this Statement for voluntary or
   government-mandated nonexchange transactions, as appropriate. Because some
   recipient governments receive these shared revenues through a continuing
   appropriation,(x) they may rely on periodic notification by the provider
   government of the accrual-basis information necessary for compliance. If
   notification by the provider government is not available in a timely
   manner, recipient governments should use a reasonable estimate of the
   amount to be accrued.

EFFECTIVE DATE AND TRANSITION

3. This Statement should be implemented simultaneously with Statement 33.

The provisions of this Statement need not be applied to immaterial items.

This Statement was adopted by unanimous vote of the seven members of the Governmental Accounting Standards Board:

Tom L. Allen, Chairman
Robert J. Freeman, Vice-chairman
Cynthia B. Green
Edward M. Klasny
Edward J. Mazur
Paul R. Reilly
Richard C. Tracy

Space considerations prevent publishing here the appendices to FASAB Statement no. 18. Since the appendices often are important to understanding FASAB statements, readers are advised to refer to the complete document. The full text of Statement no. 18 can be found online at www.financenet.gov/fasab. htm. A copy also can be requested from the Federal Accounting Standards Advisory Board, 441 G Street, N. W., MailStop 6K17V, Washington, D.C. 20548.

Statement of Federal Financial Accounting Standards No. 18--Amendments to Accounting Standards for Direct Loans and Loan Guarantees in SFFAS No. 2

The Federal Accounting Standards Advisory Board was established by the Secretary of the Treasury, the Director of the Office of Management and Budget (OMB) and the Comptroller General in October 1990. It is responsible for promulgating accounting standards for the U.S. Government. The board publishes statements of federal financial accounting standards.

EXECUTIVE SUMMARY

I. This Statement presents amendments to certain portions of Statement of Federal Financial Accounting Standards No. 2, Accounting for Direct Loans and Loan Guarantees, (SFFAS No. 2), which was issued in August 1993. The objective of these amendments is to improve financial reporting for subsidy costs and performance of Federal credit programs.

II. During 1998 and early 1999, the Board discussed issues related to reporting the credit subsidy expense and credit subsidy reestimates in general. The Board concluded that certain portions of SFFAS No. 2 should be amended so that more useful information on credit programs' subsidy costs and performance will be provided to citizens, Congress, program managers, and other users of Federal financial information. The amendments were proposed for public comment in an Exposure Draft published in March 1999. After considering comments, the Board decided to adopt the following amendments:

a. Report subsidy reestimates in two distinct components: the interest rate reestimate and the technical/default reestimate.

   The former is a reestimate due to a change in interest rates from the rate
   assumed in budget preparation and used in calculating the subsidy expense
   to the rates that are prevailing at the time the direct or guaranteed loans
   are disbursed. The latter is a reestimate due to changes made in projected
   cash flows under the terms of the direct loans or loan guarantees after
   reevaluating all the risk factors as of the financial statement date,
   except for the effect of interest rate reestimates.

b. Display a reconciliation between the beginning and the ending balances of the subsidy cost allowance for direct loans and the liability for loan guarantees, reported in an entity's balance sheet.

   The reconciliation displays activities that affect the subsidy cost
   allowance or the loan guarantee liability, such as the subsidy expense for
   direct or guaranteed loans disbursed during the reporting period, subsidy
   reestimates, fees received, interest supplements paid, loans written off,
   claim payments made to lenders, recoveries obtained, and other adjustments.

c. Provide a description of program characteristics and disclose: (i) the amounts of direct or guaranteed loans disbursed in each program during the reporting year, (ii) the estimated subsidy rates for the total subsidy and the subsidy components at the program level in the current year's budget for the current year's cohorts, (iii) events and changes in economic conditions, other risk factors, legislation, credit policies, and subsidy estimation methodologies and assumptions, that have had a significant and measurable effect on subsidy rates, subsidy expense, and subsidy reestimates, and (iv) events and changes in conditions that have occurred and are more likely than not to have a significant impact but the effects of which are not measurable at the reporting date.

   Reporting entities should discuss how those events and changes have
   affected or would affect credit programs' subsidy costs, subsidy
   reestimates, and the subsidy rates estimated in the budget.

III. In addition to requiring reconciliation for the balances of direct loan allowance and loan guarantee liability on an entity-wide basis as prescribed in this statement, the Board recognizes that reconciliation on a program-by-program basis can better reveal information relevant to program performance. Since the program-by-program reconciliation was not proposed for public comment in the March 1999 ED, the Board has not received input on this option. Because the proposal appears to have merit, the Board has decided to issue an exposure draft to propose program-by-program reconciliation for major programs in addition to the entity-wide reconciliation.

TABLE OF CONTENTS

Executive Summary
Introduction
   Purpose
   Background
   Effective Date
Accounting Standards for Direct Loans and
   Loan Guarantees
   Subsidy Reestimates--An Amendment to
     SFFAS No. 2
   Reconciliation
   Disclosure and Discussion
Appendix A: Basis for Conclusions
   Subsidy Reestimates
   Reconciliation
   Disclosing Subsidy Rates
   Disclosure and Discussion
   The Effective Date
   Vote for Approval
Appendix B: Illustrative Reporting Formats
Appendix C: The Accounting Standards in
   SFFAS No. 2
Glossary

Introduction

Purpose

1. The purpose of this Statement is to amend accounting standards for direct loans and loan guarantees by adding the following requirements: (a) report subsidy reestimates in two components: interest rate reestimates and technical/default reestimates, (b) display in a note to financial statements a reconciliation between the beginning and ending balances of loan guarantee liability and the subsidy cost allowance for direct loans, and (c) provide disclosure and discussion for changes in program subsidy rates, subsidy expense, and subsidy reestimates.

Background

2. During 1998 and 1999, the Board held discussions on what improvements could be made to financial reporting for credit subsidy rates, subsidy expense, and subsidy reestimates.(1) During the discussions, the Board directed its staff to conduct a survey in two issue areas: (a) How difficult is it for agencies to prepare and report subsidy data, and (b) What subsidy data are useful to users of Federal agency financial reports.

3. In June 1998, representatives of the Small Business Administration and the Department of Education made presentations to the Board on their experience and capabilities for preparing subsidy cost data for direct loans and loan guarantees. The presentations indicated that to meet the budgeting requirements, agencies must have systems and procedures to estimate for each cohort of direct loans or loan guarantees the subsidy rates, subsidy expense, and subsidy reestimates in components as currently required in preparing the budget. The presentations indicated that if a sound system is in place, the information on subsidy rates, subsidy expense, and subsidy reestimates could be retrieved and aggregated on a program or entity basis to meet the financial reporting requirements.

4. A questionnaire on data usefulness was sent to congressional staff members who had been involved in Federal credit programs. Oral and written responses were received from a number of the staff members and were presented to the Board at its October 1998 meeting. All of those who responded indicated that for appropriation and oversight purposes, they needed more rather than less detailed data on subsidy costs for direct loans and loan guarantees. They preferred that subsidy data be reported by component in both rates and dollar amounts. Furthermore, they said that they would like to compare initial budget expectations with current reestimates and to know causes that explain changes in subsidy rates.

5. The Board agreed that the subsidy cost information reported by Federal credit agencies could be improved by adopting the following requirements: (a) report subsidy reestimates by component, (b) display in a note to financial statements a reconciliation between the beginning and ending balances of the subsidy cost allowance for direct loans and the liability for loan guarantees, and (c) provide disclosure and discussion that would help the reader understand the changes in Federal credit programs' subsidy costs and performance. These requirements were proposed in the Exposure Draft issued in March 1999 (the March 1999 ED).

6. The Board received comments from twelve respondents. Of those respondents, ten were from Federal agencies (including the CFO Council of the Federal Government), and two were from the private sector. They were generally in favor of the Board's proposals to improve financial reporting for credit programs' subsidy costs and performance. However, some of them expressed different views on some of the proposals, which are addressed in Appendix A, Basis for Conclusions. After considering the comments, the Board decided to issue in this final statement all of the amendments proposed in the March 1999 ED.

7. The Board considered and agreed with the view that reconciliations for direct loan allowance and loan guarantee liability on a program-by-program basis can better reveal variations in program characteristics and performance. Since the program-by-program reconciliation was not proposed for public comment in the March 1999 ED, the Board has not received input on this option. Because the proposal appears to have merit, the Board will issue an exposure Draft to propose reconciliation for major programs in addition to the entity-wide reconciliation prescribed in this statement.

Effective Date

8. The accounting standards prescribed in this statement are effective for periods beginning after September 30, 2000. Earlier implementation is encouraged.

ACCOUNTING STANDARDS FOR DIRECT LOANS AND LOAN GUARANTEES

Subsidy Reestimates--An Amendment to SFFAS No. 2

9. Paragraph 32 in SFFAS No. 2 is amended to read:

   Credit programs should reestimate the subsidy cost allowance for
   outstanding direct loans and the liability for outstanding loan guarantees
   as required in this standard. There are two kinds of reestimates: (a)
   interest rate reestimates, and (b) technical/default reestimates(2).
   Entities should measure and disclose each program's reestimates in these
   two components separately. An increase or decrease in the subsidy cost
   allowance or loan guarantee liability resulting from the reestimates is
   recognized as an increase or decrease in subsidy expense for the current
   reporting period.

   (A) An interest rate reestimate is a reestimate due to a change in interest
   rates from the interest rates that were assumed in budget preparation and
   used in calculating the subsidy expense to the interest rates that are
   prevailing during the time periods in which the direct or guaranteed loans
   are disbursed. Credit programs may need to make an interest rate reestimate
   for cohorts from which direct or guaranteed loans are disbursed during the
   reporting year. If the assumed interest rates that were used in calculating
   the subsidy expense for those cohorts differ from the interest rates that
   are prevailing at the time of loan disbursement, an interest rate
   reestimate for those cohorts should be made as of the date of the financial
   statements.

   (B) A technical/default reestimate is a reestimate due to changes in
   projected cash flows of outstanding direct loans and loan guarantees after
   reevaluating the underlying assumptions and other factors that affect cash
   flow projections as of the financial statement date, except for any effect
   of the interest rate reestimates explained in (a) above. In making
   technical/ default reestimates, reporting entities should take into
   consideration all factors that may have affected various components of the
   projected cash flows, including defaults, delinquencies, recoveries, and
   prepayments. The technical/default reestimate should be made each year as
   of the date of the financial statements.

Reconciliation

10. In a note to the financial statements, reporting entities should display a reconciliation between the beginning and ending balances of the subsidy cost allowance for outstanding direct loans and the liability for outstanding loan guarantees reported in the entities' balance sheet. The reconciliation is accomplished by adding to or subtracting from the beginning balance the dollar amounts of the following items: (a) the subsidy expense recognized in the four components as defined in paragraphs 25 through 29 for direct or guaranteed loans disbursed during the reporting year, (b) the two types of subsidy reestimates as defined in paragraph 32, and (c) other adjustments. For direct loans, the other adjustments include loan modifications, fees received, loans written off, foreclosed property or other recoveries acquired, and subsidy allowance amortization. For loan guarantees, the other adjustments include loan guarantee modifications, fees received, interest supplements paid, claim payments made to lenders, foreclosed property or other recoveries acquired, and interest accumulated on the loan guarantee liability. The requirement to display reconciliation applies to direct loans and loan guarantees obligated or committed on or after October 1, 1991, the effective date of the Federal Credit Reform Act of 1990. Reporting entities are encouraged but not required to display reconciliations for direct loans and loan guarantees obligated or committed prior to October l, 1991, in schedules separate from the direct loans and loan guarantees obligated or committed after September 30, 1991.

Disclosure and Discussion

11. The disclosure and discussion requirements are prescribed in paragraphs 11 (A) through 11 (C):

   (A) Reporting entities should provide a description of the characteristics
   of the programs that they administer, and should disclose for each program:
   (a) the total amount of direct or guaranteed loans disbursed for the
   current reporting year and the preceding reporting year, (b) the subsidy
   expense by components as defined in paragraphs 25 through 29, recognized
   for the direct or guaranteed loans disbursed in those years, and (c) the
   subsidy reestimates by components as defined in paragraph 32 for those
   years.

   (B) Reporting entities should also disclose, at the program level, the
   subsidy rates for the total subsidy cost and its components for the
   interest subsidy costs, default costs (net of recoveries), fees and other
   collections, and other costs, estimated for direct loans and loan
   guarantees in the current year's budget for the current year's cohorts.
   Each subsidy rate is the dollar amount of the total subsidy or a subsidy
   component as a percentage of the direct or guaranteed loans obligated in
   the cohort. Entities may use trend data to display significant fluctuations
   in subsidy rates. Such trend data, if used, should be accompanied with
   analysis to explain the underlying causes for the fluctuations.

   (C) Reporting entities should disclose, discuss, and explain events and
   changes in economic conditions, other risk factors, legislation, credit
   policies, and subsidy estimation methodologies and assumptions, that have
   had a significant and measurable effect on subsidy rates, subsidy expense,
   and subsidy reestimates. The disclosure and discussion should also include
   events and changes that have occurred and are more likely than not to have
   a significant impact but the effects of which are not measurable at the
   reporting date. Changes in legislation or credit policies include, for
   example, changes in borrowers' eligibility, the levels of fees or interest
   rates charged to borrowers, the maturity terms of loans, and the percentage
   cfa private loan that is guaranteed.

Ethics Interpretation

Ethics interpretations and rulings are promulgated by the executive committee of the professional ethics division to provide guidelines as w the scope and application of the rules but are my intended to limit such scope or application. Publication clan interpretation or ethics ruling in the Journal of Accountancy constitutes notice to members. A member who departs from interpretations or rulings shall have the burden of justifying such departure in any disciplinary hearing.

(The Professional Ethics Executive Committee has made editorial revisions to the paragraph preceding the interpretations under rule 101 of the Code of Professional Conduct [AICPA, Professional Standards, ET section 101.01]. Added text is in boldface italics; deleted text is struck through.)

INTERPRETATIONS UNDER RULE 101

In the performance of professional services requiring independence, a member should consult the rules of his or her state board of <s>public</s> accountancy, his or her state CPA society <s>if applicable</s>, the Independence Standards Board if the member's report will be filed with <s>client is a registrant of</s> the U.S. Securities and Exchange Commission, the U.S. Department of Labor (DOL) if the member's report will be filed with <s>client or tee client's sponsor is required to report to</s> the DOL, the AICPA SEC Practice Section (SECPS) if the member's firm is a member of the SECPS, and any <s>other regulatory or private</s> organization that issues or enforces standards of independence that would apply to the member's engagements. Such <s>bodies</s> organizations may have independence <s>interpretations</s> requirements or rulings that <s>significantly</s> differ from <s>and</s> (e.g., may be <s>are</s> more restrictive than) those of the AICPA.

Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments, public benefit corporations and authorities, public employee retirement systems, and public utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 2 discusses the applicability of this Statement.

(x) As used in this Statement, continuing appropriation refers to an appropriation that, once established, is automatically renewed without further legislative action, period after period, until altered or revoked.

(1) The discussions were initiated by the Credit Reform Task Force of the Accounting and Auditing Policy Committee (AAPC) which proposed that paragraph 25 in SFFAS No. 2 be amended to require disclosure of subsidy rates estimated in the budget for the current year cohorts in lieu of reporting the dollar amounts of the subsidy components. That proposal was discussed in the March 1999 ED. The Board accepted the Task Force proposal for disclosing subsidy rates, but did not remove the requirement for reporting the dollar amounts of subsidy expense components.

(2) The term "technical/default reestimate" used in this statement is identical in meaning to the term "technical reestimate" used in OMB Circular A-11, as revised in July 1999.

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