Statement of Federal Financial Accounting Standards No. 30--inter-entity cost implementation.

(Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts)

The Federal Accounting Standards Advisory Board (FASAB or "the 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 United States Government. These standards are recognized as generally accepted accounting principles (GAAP) for the Federal Government.

SUMMARY

This standard requires full implementation of the inter-entity cost provision in Statement of Federal Financial Accounting Standards (SFFAS) 4, Managerial Cost Accounting Standards and Concepts. By fully implementing the provisions in SFFAS 4 (issued in July 1995) this standard will require the following for inter-entity cost:

   Each entity's full cost should incorporate
   the full cost of goods and services that it receives
   from other entities. The entity providing
   the goods or services has the responsibility
   to provide the receiving entity with
   information on the full cost of such goods
   or services either through billing or other
   advice.

   Recognition of inter-entity costs that are
   not fully reimbursed is limited to material
   items that (1) are significant to the receiving
   entity, (2) form an integral or necessary part
   of the receiving entity's output, and (3) can
   he identified or matched to the receiving entity
   with reasonable precision. Broad and
   general support services provided by an entity
   to all or most other entities should not be
   recognized unless such services form a vital
   and integral part of the operations or output
   of the receiving entity. (Text preceding paragraph
   105 of SFFAS 4)

This standard requires full implementation for reporting periods beginning after September 30, 2008.

TABLE OF CONTENTS

Summary
Introduction
Standards of Federal Financial Accounting
   Amendments to SFFAS 4
   Effective Date
Appendix A: Basis for Conclusions
   Introduction
   Amendments to Standards
   Exposure Draft
   Responses to the ED
   Board Consideration of Comments
   Additional Guidance
   Effective Date
   Board Approval and Dissent
Appendix B: List of Abbreviations

INTRODUCTION

1. The inter-entity cost provision in SFFAS 4 provided that each entity's full cost should incorporate the full cost of goods and services that it receives from other entities. SFFAS 4 provided for gradual implementation because recognition of the full cost of goods and services provided by one federal entity (the providing entity) to another federal entity (the receiving entity) (1) required adequate cost accounting systems and (2) engaged all federal agencies in identifying the costs of under-reimbursed goods and services.

2. Thus, an orderly means for consistently implementing the standard was viewed as necessary. The Board's implementation guidance provided "the Office of Management and Budget [OMB], with assistance from the FASAB staff, should identify the specific inter-entity costs for entities to begin recognizing. OMB should then issue guidance identifying these costs" (1) The inter-entity costs were to be specified in accordance with SFFAS 4, including the recognition criteria. (2) It was anticipated that the largest and most important inter-entity costs would be identified first.

3. OMB requested that the Accounting and Auditing Policy Committee (AAPC) provide assistance in developing the guidance anticipated by SFFAS 4. The AAPC Inter-entity Cost Task Force (task force) was formed and initial research was conducted beginning in July 2000. The task force reported its research findings and recommendations to the AAPC at its May 2003 meeting. The task force noted that the current limitation (3) on recognizing inter-entity costs was an impediment to progress towards full costing. However, the task force did not find material non-reimbursed or under-reimbursed inter-entity costs for which government-wide guidance was warranted. The task force report is available on the AAPC website at http://www.fasab.gov/ aapc/iecs.html.

4. This standard follows the extensive research and recommendations by the AAPC task force addressing inter-entity cost guidance. Although the task force report acknowledged that restricting the recognition of inter-entity costs is an impediment to full costing, it recommended continued deferral of SFFAS 4's inter-entity cost requirements while encouraging reimbursable agreements for inter-entity provision of goods and services.

5. This standard is intended to balance the concerns expressed by the task force and the ultimate goals of SFFAS 4 related to full cost. SFFAS 4 clarified that full cost was intended to relate resources to outputs regardless of the funding source:

   The full cost of a responsibility segment's
   output is the total amount of resources used
   to produce the output. This includes direct
   and indirect costs that contribute to the output,
   regardless of funding sources. It also includes
   costs of supporting services provided
   by other responsibility segments or entities.
  (SFFAS 4, par. 89)

6. Ultimately, attaining full cost is critical to improving performance measurement. SFFAS 4 states:

   Measuring performance is a means of improving
   program efficiency, effectiveness, and
   program results. One of the stated purposes
   of the GPRA of 1993 is to "... improve the
   confidence of the American people in the
   capability of the federal government, by systematically
   holding federal agencies accountable
   for achieving program results" (SFFAS
   4, par. 34)

Measuring costs is an integral part of measuring performance in terms of efficiency and cost-effectiveness. Efficiency is measured by relating outputs to inputs. It is often expressed by the cost per unit of output. While effectiveness in itself is measured by the outcome or the degree to which a predetermined objective is met, it is commonly combined with cost information to show "cost-effectiveness." Thus, the service efforts and accomplishments of a government entity can be evaluated with the following measures:

(1) Measures of service efforts which include the costs of resources used to provide the services and non-financial measures;

(2) Measures of accomplishments which are outputs (the quantity of services provided) and outcomes (the results of those services); and

(3) Measures that relate efforts to accomplishments, such as cost per unit of output or cost-effectiveness. (SFFAS 4, par. 35, emphasis added)

Thus, ..., performance measurement requires both financial and non-financial measures. Cost is a necessary element for performance measurement, but is not the only element. (SFFAS 4, par. 36, emphasis added)

7. This standard establishes a date certain--reporting periods beginning after September 30, 2008--for full cost accounting by federal reporting entities. This standard affords time to provide needed guidance before the effective date. The Board anticipates the release of one or more Technical Releases that will address implementation issues during this time. Entities may also use the time period between the issuance of this standard and the actual effective date to establish reimbursable agreements, seek implementation guidance on specific issues if necessary, and develop internal guidance on recognizing inter-entity costs.

STANDARDS OF FEDERAL FINANCIAL ACCOUNTING

Amendments to SFFAS 4

Amendments to Existing Standards

8. Statement of Federal Financial Accounting Standard (SFFAS) 4, Managerial Cost Accounting Standards and Concepts, Inter-Entity Costing, par. 110 is rescinded.

9. The sentence "Such recognition, however, should be made in accordance with the implementation guidance issued by OMB as discussed above" is rescinded from par. 111 of SFFAS 4.

Effective Date

10. This standard is effective for reporting periods beginning after September 30, 2008. Earlier implementation is encouraged.

FASAB Board Members

David Mosso, Chairman

Joseph V. Anania, Sr. (through July 15, 2005)

Claire Gorham Cohen

Robert E Dacey (from August 1, 2004)

John A. Farrell

James M. Patton

Robert N. Reid

Elizabeth Robinson

Alan H. Schumacher

David M. Zavada

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

(1) SFFAS 4, par. 110.

(2) See SFFAS 4 par. 111-113 for recognition criteria.

(3) To date, OMB has issued guidance for recognizing the following specific inter-entity costs: (1) employees' pension, post-retirement health and life insurance benefits, (2) other post-employment benefits for retired, terminated, and inactive employees, which includes unemployment and workers compensation under the Federal Employees' Compensation Act, and (3) losses in litigation proceedings. The guidance further states that to ensure consistency, agencies should not recognize costs other than those listed until further guidance is provided. See Section 4.3 of OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements.