Proposal would withdraw inter-entity cost guidance

The Accounting and Auditing Policy Committee of the Federal Accounting Standards Advisory Board (FASAB) is proposing to withdraw one of its technical releases on accounting for inter-entity costs for federal government reporting entities.

Technical Release 8, Clarification of Standards Relating to Inter-Entity Costs, is no longer consistent with Statement of Federal Financial Accounting Standards (SFFAS) 4, Managerial Cost Accounting Standards and Concepts, as amended by SFFAS 55, Amending Inter-entity Cost Provisions.

SFFAS 55 significantly revised the requirement to recognize inter-entity costs, amending SFFAS 4 to provide for the continued recognition of significant inter-entity costs by business-type activities. Recognition of inter-entity costs by activities that are not business-type activities no longer is required with the exception of inter-entity costs for personnel benefits and the Treasury Judgment Fund settlements, unless otherwise directed by the Office of Management and Budget.

Non-business-type activities may be accounted for under an election to recognize imputed cost and corresponding imputed financing for other types of inter-entity costs.

The proposal issued Tuesday would rescind Technical Release 8 because it no longer is consistent with SFFAS 4, as amended.

“It is important to ensure our technical guidance is current, relevant, and updated to reflect new pronouncements because users rely on it to complement higher-level generally accepted accounting principles,” FASAB Executive Director Wendy Payne said in a news release.

Comments are requested by Oct. 5 and can be emailed to fasab@fasab.gov.

FASAB clarifies lease accounting requirements. FASAB issued a clarification Wednesday explaining that federal government entities should not convert their lease accounting practices to follow FASB’s new lease accounting standard.

FASAB, which creates accounting standards for federal entities, in April issued its own new lease accounting standard, Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases: An Amendment of SFFAS 5, Accounting for Liabilities of the Federal Government, and SFFAS 6, Accounting for Property, Plant, and Equipment.

The new FASAB standard for federal entities takes effect in fiscal year 2021, and early adoption is not permitted. The clarification FASAB issued Wednesday explains that until the new FASAB standard takes effect, federal entities should continue to follow the current FASAB guidance on accounting for lease transactions.

FASAB’s current lease accounting guidance is contained in paragraphs 43–46 of SFFAS 5 and paragraphs 20 and 29 of SFFAS 6. These paragraphs will be superseded when SFFAS 54 takes effect.

If current standards are silent on an issue, FASAB’s clarification explains that the federal reporting entity should review the guidance in SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board, to identify practices consistent with SFFAS 5 and SFFAS 6.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.