GASB issued an exposure draft of a proposed statement, The Financial Reporting Entity, an amendment of GASB Statements No. 14 and No. 34. The proposed statement is intended to improve guidance for including, presenting and disclosing information about component units and equity interest transactions of a financial reporting entity.


Component units are legally separate organizations that state and local governments include in their financial reports. The proposal would modify the existing criteria for inclusion of organizations that are “fiscally dependent” on a government by adding a requirement that the potential component unit and the primary government also have a financial benefit or burden relationship. In cases where the government determines it would be misleading to exclude an organization that does not meet the financial accountability concept from its financial reports, the proposal would clarify the manner in which that determination should be made.


The proposal also would amend the criteria for “blending,” or the reporting of component units as if they were part of the primary government. It also would clarify the reporting of equity interests in legally separate organizations. Provisions of the proposal would be effective for financial statements for periods beginning after June 15, 2012, with earlier application encouraged.


Comments are due June 30. The ED is available at GASB plans to have a public hearing on the proposal at its regular meeting on Aug. 3, beginning at 1 p.m. at its offices in Norwalk, Conn.


  The Federal Accounting Standards Advisory Board (FASAB) issued Statement of Federal Financial Accounting Standards (SFFAS) no. 37, which requires additional discussion and analysis of social insurance programs, enhances the statement of social insurance, and creates a new financial statement presenting the causes of change in the net present value of the 75-year open group social insurance measure. The new statement, however, does not change the liability and expense recognition and measurement required by SFFAS no. 17, Accounting for Social Insurance.


The objective of the reporting required by SFFAS no. 37, Social Insurance: Additional Requirements for Management’s Discussion and Analysis and Basic Financial Statements, is to present information that will significantly improve readers’ understanding of the status and results of operations of the government’s social insurance programs. The requirements go into effect in fiscal year 2011.


For federal financial reporting, social insurance comprises five programs—Social Security, Medicare, Railroad Retirement, Black Lung, and Unemployment Insurance. Two of those programs—Social Security and Medicare—are of special significance because of the high rate of participation among citizens, the fiscal challenges related to the programs, and the challenges associated with incorporating estimates of future cash flows of this magnitude in financial statements, according to FASAB’s summary of the new standard.


FASAB’s summary said a key difference of opinion among board members is in regard to the timing of the recognition of expense and liability for social insurance programs. Some members believe that an expense is incurred and a liability arises for social insurance programs during the working lives of participants, and that some portion of the benefits accumulated at the balance sheet date should be recognized as a liability. Other members agree with SFFAS no. 17 that an expense is incurred and a liability arises for social insurance programs when the participants have met all eligibility requirements and the amount is “due and payable.”


The new standard is a compromise. It provides enhanced reporting but does not resolve the two strongly held views regarding when the obligating event occurs for social insurance programs and, thus, when the liability and expense definitions are met within those programs. Therefore, the liability and expense recognition and measurement required in SFFAS no. 17 is unchanged.


SFFAS no. 17 requires certain information about social insurance programs, and SFFAS no. 37 requires the following:

  1. Critical information about costs, assets and liabilities, social insurance commitments, budget flows, and the long-term fiscal projections together in one section in management’s discussion and analysis (MD&A).
  2. A table or other singular presentation of key measures in MD&A.
  3. A new summary section for the statement of social insurance.
  4. A new basic financial statement to present the reasons for changes during the reporting period in the open group measure reported on the statement of social insurance.

Although FASAB’s summary said opinions continue to differ regarding when the obligating event occurs for social insurance programs, and thus the question of when the liability and expense occur within those programs continues to be discussed, the new statement fulfills the desire of all members to present other information that will significantly improve readers’ understanding of the status and results of the government’s social insurance programs.


SFFAS no. 37 is available at


  The Accounting and Auditing Policy Committee (AAPC) of FASAB issued an exposure draft of a new Federal Financial Accounting Technical Release, Accrual Estimates for Grant Programs.


The guidance was developed by a task force consisting of representatives from federal agencies and independent accounting and consulting firms. The proposed technical release “provides guidance supporting cost-effective development of reasonable estimates of accrued liabilities for grant programs,” AAPC Chair Wendy Payne said in a press release.


The proposed technical release addresses:


  • Appropriate reliance on the best available data;
  • Situations where no historical data is available, such as new or modified grant programs;
  • Assessment about materiality and whether it is appropriate to focus on the statement of net cost when making such assessments;
  • Appropriate display of estimates on the face of the financial statements;
  • Internal controls for developing grant accrual estimates;
  • Training of grantees on completing required financial reports; and
  • Cost-effective means of validating previous estimates.


The comment period ended April 22. The ED is available at


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