Congressman Jim Renacci (R-OH) introduced the The Federal Financial Statement Transparency Act of 2014 today. This legislation would make major changes to the composition and structure of the Federal Accounting Standards Advisory Board (FASAB), which recommends the standards used in the federal government's financial statements. The bill would increase the independence of the board by limiting Treasury’s role in writing the standards they are tasked with applying, and by providing the board with a dedicated funding source.
The Treasury Department’s annual Financial Report of the United States uses accrual accounting methods to show the federal government’s assets and liabilities. The accounting standards and assumptions used to determine assets and liabilities can have a significant effect on the numbers projected. For example, the FY 2013 Financial Report of the U.S. Government estimated the federal government’s net position is -$16.9 trillion. However, it also estimated net 75 year social insurance liabilities of -$39.7 trillion. When we added those together we found total liabilities to be -$56.7 trillion. Under different assumptions used by Robert Kaplan and David Walker, the number would be closer to $70 trillion. Thus, the standards and methods set by the FASAB play a major role in ensuring the public has accurate information about the nation’s financial outlook.
FASAB is currently comprised of nine members: three federal members from each of the board’s sponsoring agencies (GAO, OMB and Treasury) and six public or non-federal members, including representatives of major accounting organizations. Members of the board propose and debate accounting and financial reporting standards for the federal government’s financial statements, with a two-thirds majority vote required to approve new standards. The Treasury Department is responsible for both creating the standards as a voting member of the FASAB and applying them as the agency responsible for preparing the government's consolidated financial statements.
This legislation would improve the objectivity of the financial report and the independence of FASAB by making the Treasury Department, which is responsible for writing the financial statements and applying the recommended standards, a nonvoting member of the board, while adding a seventh nonfederal member. It would further ensure the independence of the board with a dedicated funding source in the form of a fee on the sale of U.S. Treasury securities.
The bill would also require the Treasury Department to publically explain in writing any deviation from FASAB-determined accounting standards. In the past, GAO’s audits of the Financial Report have indicated that sufficient information was not available to determine whether the reported financial statements were presented in accordance with the proper accounting standards and practices.
We support efforts to provide policymakers and the public with the best possible information on the country’s long-term financial outlook, and giving FASAB greater independence and accountability will help achieve this goal. This bill would help ensure that the accounting standards used to take stock of the nation’s assets and liabilities are as accurate and objective as possible, giving Americans a clearer understanding of the overall financial condition of the federal government.