Page 1 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Statement of Federal Financial Accounting Concepts 1:
Objectives of Federal Financial Reporting
Status
See pages 6-7 for the preamble to Statements of Federal Financial Accounting Concepts.
Summary
This document is a conceptual statement on the objectives of financial reporting by the federal
government. It focuses on the uses, user needs, and objectives of such reporting. The objectives
are designed to guide the Board in developing accounting standards to enhance the financial
information reported by the federal government to (1) demonstrate its accountability, (2) provide
useful information, and (3) help internal users of financial information improve the government’s
management. In addition to guiding the Board, the objectives may serve as useful guidance to
others involved in federal financial reporting. For example, the objectives may be useful in
developing accounting policy, designing reports, and writing narratives and notes to financial
reports.
The objectives reflect the federal environment. They also consider many of the needs expressed
by current and potential users of federal financial information. They provide a framework for
assessing the existing financial reporting systems of the federal government and for considering
how new accounting standards might help to enhance accountability and decision-making in a
cost-effective manner.
The four objectives of Federal Financial Reporting are:
Budgetary Integrity
—Federal financial reporting should assist in fulfilling the government’s
duty to be publicly accountable for monies raised through taxes and other means and for
their expenditure in accordance with the appropriations laws that establish the government’s
budget for a particular fiscal year and related laws and regulations. Federal financial
reporting should provide information that helps the reader to determine
• how budgetary resources have been obtained and used and whether their
acquisition and use were in accordance with the legal authorization,
• the status of budgetary resources, and
Issued September 2, 1993
Affects None.
Affected by SFFAC 3 affects paragraph 181 by providing guidance on MD&A.
SFFAC 9, amends paragraph 164 and inserts a chapter titled
Materiality between the current chapters 6 and 7.
Page 2 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
• how information on the use of budgetary resources relates to information on the
costs of program operations and whether information on the status of budgetary
resources is consistent with other accounting information on assets and liabilities.
Operating Performance
—Federal financial reporting should assist report users in evaluating
the service efforts, costs, and accomplishments of the reporting entity; the manner in which
these efforts and accomplishments have been financed; and the management of the entity’s
assets and liabilities. Federal financial reporting should provide information that helps the
reader to determine
• the costs of providing specific programs and activities and the composition of, and
changes in, these costs;
• the efforts and accomplishments associated with federal programs and the
changes over time and in relation to costs; and
• the efficiency and effectiveness of the government’s management of its assets
and liabilities.
Stewardship
—Federal financial reporting should assist report users in assessing the impact
on the country of the government’s operations and investments for the period and how, as a
result, the government’s and the nation’s financial condition has changed and may change
in the future. Federal financial reporting should provide information that helps the reader to
determine whether
• the government’s financial position improved or deteriorated over the period,
• future budgetary resources will likely be sufficient to sustain public services and to
meet obligations as they come due, and
• government operations have contributed to the nation’s current and future
well-being.
Systems and Control
—Federal financial reporting should assist report users in
understanding whether financial management systems and internal accounting and
administrative controls are adequate to ensure that
• transactions are executed in accordance with budgetary and financial laws and
other requirements, consistent with the purposes authorized, and are recorded in
accordance with federal accounting standards;
• assets are properly safeguarded to deter fraud, waste, and abuse; and
• performance measurement information is adequately supported.
Page 3 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Table of Contents
Page
Summary 1
Executive Summary
4
Federal Financial Reporting and the Role of the Federal Accounting Standards Advisory Board
9
The Federal Accounting and Financial Reporting Environment
14
Accountability and Users’ Information Needs—the Foundation of Governmental Financial
Reporting
19
Objectives of Federal Financial Reporting
25
Balancing Costs and Benefits in Recommending Standards
34
Qualitative Characteristics of Information in Financial Reports
35
Materiality 37
How Accounting Supports Federal Financial Reporting
39
How Financial Reporting Supports Reporting on Operating Performance
47
Appendix A: Basis for Conclusions
53
Appendix B: Users’ Information Needs Addressed by Federal Financial Reporting
60
Appendix C: Selected Federal Reports Prepared on a Recurring Basis
64
Page 4 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Executive Summary
Introduction
1. This document is a conceptual statement on the objectives of financial reporting by the
federal government. It focuses on the uses, user needs, and objectives of such reporting.
Statements on concepts, such as this document, differ from statements of recommended
accounting standards. Statements on concepts are more general than statements of
standards and do not contain specific recommendations that would, when issued by the
Board’s sponsors, become authoritative requirements for federal agencies and auditors.
2. Instead, statements on concepts, after approval by the Board’s sponsors, provide general
guidance to the Board itself as it deliberates on specific issues. They also help others to
understand federal accounting and financial reports.
3. The objectives are designed to guide the Board in developing accounting standards to
enhance the financial information reported by the federal government to (1) demonstrate
its accountability to internal and external users of federal financial reports, (2) provide
useful information to internal and external users of federal financial reports, and (3) help
internal users of financial information improve the government’s management.
4. The objectives reflect the federal environment. They also reflect many of the needs
expressed by current and potential users of federal financial information. They provide a
framework for assessing the existing financial reporting systems of the federal government
and for considering how new accounting standards might help to enhance accountability
and decision-making in a cost-effective manner.
5. The FASAB notes that many information sources other than financial statements help to
attain these objectives. The objectives relate to the management and financial reporting
systems in the federal government in their entirety.
6. Listing the objectives does not imply a judgment about the extent to which they are now
being attained. Indeed, it is presumed that the objectives are being met to some degree
now. However, the federal government does not have an integrated mechanism for
reporting within the context of these objectives. The FASAB will consider where new
accounting standards could make a useful and cost-effective contribution to improving the
extent to which these objectives are attained.
Page 5 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
7. The Department of the Treasury, the Office of Management and Budget, and the
Government Accountability Office expect that, to the extent possible, their reporting
requirements will be aligned with the Board’s objectives and standards.
Background and Rationale
8. The federal government derives its just powers from the consent of the governed. It
therefore has a special responsibility to report on its actions and the results of those
actions. These reports must accurately reflect the distinctive nature of the federal
government and must provide information useful to the citizens, their elected
representatives, federal executives, and program managers. Providing this information to
the public, the news media, and elected officials is an essential part of accountability in
government. Providing this information to program managers, executives, and members of
Congress is essential to planning and conducting government functions economically,
efficiently, and effectively for the benefit of society.
9. Financial reporting is not the only source of information to support decision-making and
accountability. Neither can financial reporting, by itself, ensure that the government
operates as it should. Financial reporting can, however, make a useful contribution toward
fulfilling those goals.
10. The objectives apply to both internal and external financial reports. They are intended to
improve the relevance, consistency, and quality of accounting and other data available for
a wide variety of applications.
11. The FASAB and its sponsors believe that any statement of objectives of federal financial
reporting must be based on the needs of those who use the reports. Those users include
citizens, Congress, federal executives, and federal program managers. Current and
potential users of federal financial information want information to help them assess how
well the government is doing by answering questions regarding such topics as:
• Budgetary integrity: What legal authority was provided for financing government
activities and for spending the monies? Were the financing and spending in
accordance with these authorities?
• Operating performance: How much do various programs cost, and how were they
financed? What outputs and outcomes were achieved? What and where are the
important assets, and how effectively are they managed? What liabilities arose from
operating the program, and how will they be liquidated or provided for?
• Stewardship: Did the government’s financial condition improve or deteriorate? What
provision was made for the future?
Page 6 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
• Systems and Control: Does the government have cost-effective systems and controls
to safeguard its assets? Is it able to detect likely problems? Is it correcting deficiencies
when detected?
12. Concerns like these define the following objectives of federal financial reporting.
Objectives of Federal Financial Reporting
Budgetary Integrity
13. Federal financial reporting should assist in fulfilling the government’s duty to be publicly
accountable for monies raised through taxes and other means and for their expenditure in
accordance with the appropriations laws that establish the government’s budget for a
particular fiscal year and related laws and regulations. Federal financial reporting should
provide information that helps the reader to determine
• how budgetary resources have been obtained and used and whether their acquisition
and use were in accordance with the legal authorization,
• the status of budgetary resources, and
• how information on the use of budgetary resources relates to information on the costs
of programs operations and whether information on the status of budgetary resources
is consistent with other accounting information on assets and liabilities.
Operating Performance
14. Federal financial reporting should assist report users in evaluating the service efforts,
costs, and accomplishments of the reporting entity;
1
the manner in which these efforts and
accomplishments have been financed; and the management of the entity’s assets and
liabilities. Federal financial reporting should provide information that helps the reader to
determine
• the costs of providing specific programs and activities and the composition of, and
changes in, these costs;
• the efforts and accomplishments associated with federal programs and the changes
over time and in relation to costs; and
1
The FASAB has not yet considered criteria for defining, and terminology for describing, federal financial reporting
components or units. In this document, therefore, the term “entity” is used in a generic way to refer, depending on the
context, to the U. S. government as a whole; to organizational component units of the government, such as an agency;
and to other kinds of potential reporting units, such as programs.
Page 7 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
• the efficiency and effectiveness of the government’s management of its assets and
liabilities.
Stewardship
15. Federal financial reporting should assist report users in assessing the impact on the
country of the government’s operations and investments for the period and how, as a
result, the government’s and the nation’s financial conditions have changed and may
change in the future.
16. Federal financial reporting should provide information that helps the reader to determine
whether
• the government’s financial position improved or deteriorated over the period,
• future budgetary resources will likely be sufficient to sustain public services and to
meet obligations as they come due, and
• government operations have contributed to the nation’s current and future well-being.
Systems and Controls
17. Federal financial reporting should assist report users in understanding whether financial
management systems and internal accounting and administrative controls are adequate to
ensure that
• transactions are executed in accordance with budgetary and financial laws and other
requirements, consistent with the purpose authorized, and are recorded in accordance
with federal accounting standards;
• assets are properly safeguarded to deter fraud, waste, and abuse; and
• performance measurement information is adequately supported.
Organization of the Statement
18. The first two chapters of this statement present background information on the Board and
the federal environment. Chapter 3 identifies the four groups of current and potential users
of federal financial reports and gives examples of some of their information needs. Chapter
4 states and explains the objectives of federal financial reporting in more detail than does
this executive summary.
19. Chapter 5 explains some limitations of the standard-setting process within the context of
user needs. Chapter 6 discusses the desirable qualitative characteristics of financial
Page 8 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
information. Chapter 7 identifies the users, scope, and factors to consider when applying
materiality in the federal environment. Chapter 8 explains how accounting supports federal
financial reporting. Chapter 8 explains how financial reporting supports reporting on
operating performance.
20. Appendix A sets forth the basis for the Board’s conclusions. Appendix B presents a
categorization of user needs according to types of information identified by the users
rather than according to objectives. Appendix C lists some major federal reports that are
regularly produced.
Page 9 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Chapter 1: Federal Financial Reporting And The Role Of The
Federal Accounting Standards Advisory Board
21. Financial reporting by the federal government provides information for formulating policy,
planning actions, evaluating performance, and other purposes. In addition, the processes
of preparing and auditing financial reports can enhance the government’s overall
accountability structure by providing greater assurance that transactions are recorded and
reported accurately, that consistent definitions are used to describe the transactions, etc.
Thus, federal financial reporting helps to fulfill the government’s duty to manage programs
economically, efficiently, and effectively and to be publicly accountable.
22. Financial reporting is supported and made possible by accounting and accounting
systems. “Financial reporting” may be defined as the process of recording, reporting, and
interpreting, in terms of money, an entity’s financial transactions and events with economic
consequences for the entity. Reporting in the federal government also deals with
nonfinancial information about service efforts and accomplishments of the government,
i.e., the inputs of resources used by the government, the outputs of goods and services
provided by the government, the outcomes and impacts of governmental programs, and
the relationships among these elements.
2
Role Of The FASAB In Federal Accounting And Financial Reporting
The mission of the FASAB is to recommend accounting standards [for the federal government]
after ... considering the financial and budgetary information needs of congressional oversight
groups, executive agencies, and the needs of other users of federal financial information.
3
23. The FASAB and its sponsors believe that any description of federal financial reporting
objectives should consider the needs of both internal and external report users and the
decisions they make. This implies a different role for the FASAB than for the Financial
Accounting Standards Board (FASB) and the Governmental Accounting Standards Board
(GASB). The FASB sets financial reporting standards for privately owned entities in the
United States. The GASB sets financial reporting standards for state and local
governments.
2
Except where the context indicates otherwise, the term “government” in this document refers both to the U.S.
government as a whole and to its component reporting entities, such as agencies and programs.
3
From the FASAB Mission Statement, approved by the Board and by the Secretary of the Treasury, the Director of
OMB, and the Comptroller General of the United States in 1991.
Page 10 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
24. Those Boards exist primarily to set standards for general purpose financial reporting to
external users of financial reports. This is because those users, by definition, have limited
ability to control the nature of the information made available to them. The FASB and the
GASB do not need to weigh heavily managers’ information needs because those
individuals, by definition, are assumed to have ready access to the information they need
about the financial transactions and events that affect the financial position, operations,
and financial condition of the entities they manage.
25. The FASAB, on the other hand, considers the information needs of both internal and
external users. In part, this is because the distinction between internal and external users
is in many ways less significant for the federal government than for other entities. Officials
who in theory should have ready access to information often find in practice that it is not
available. Factors that contribute to this problem include the size and complexity of the
government, the rapid turnover among senior political executives compared with the time
required to install information systems in large bureaucracies, and the division of authority
in the federal government.
26. The FASAB’s dual concern, with both internal and external reporting, is the result of such
factors and of the Board’s mandate. The FASAB was created to advise OMB and Treasury
(agents of the President) and the GAO (an agent of the Congress) on accounting
standards for federal agencies and programs in order to improve financial reporting
practices.
27. The Board’s sponsors have separate constitutional and statutory authorities for setting
accounting policy for the government. The division of powers in the U.S. government
means that different policymakers with independent authority find it useful to have a
mechanism to coordinate their accounting policy activities. The Board and its public
deliberative process also provide a new arena for the participants to deliberate and to
discover how federal accounting and financial reporting can be improved.
28. Just as the traditional distinction between internal and external report users is less useful
in the federal context, some of the traditional ways of classifying financial reports are less
relevant. Reports can be intended primarily for a designated special purpose or for general
purpose use. In the federal government, as in most entities, internal financial reporting is
designed for special purposes. Internal financial reporting helps managers to plan,
conduct, and coordinate their activities and to evaluate the economy, efficiency, and
effectiveness of their programs.
Page 11 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
29. Much external federal financial reporting also is for special purposes, but some is for
general purpose use; that is, it attempts to meet the common needs of many different
users who have limited power to demand information directly. These reports are known as
general purpose reports.
4
Limitations Of Financial Reporting
30. The FASB and the GASB focus primarily on general purpose financial reporting because
that is their mandate and reason for being. Even so, those Boards recognize that general
purpose financial reporting is not the only source of financial information about such
entities. In many cases, users of general purpose financial reports need to consult other
sources to satisfy their information needs. This is no less true for the federal government.
31. While certain information is provided by general purpose financial reports, other
information is better provided by, or can be provided only by, financial reporting outside
such reports. Still other information is provided by nonfinancial reports or by financial
reports about segments of the national society other than the federal government and its
component entities (e.g., economic reporting).
32. Often, to satisfy the information needs of various individuals, it is necessary to combine
and report financial and nonfinancial information. Often, combining information about the
government with information about aspects of the national society is necessary to assess
past or planned governmental actions. For example, information about the number of
people gainfully employed after participating in a vocational education program would be
important both in assessing past governmental expenditures for training and in evaluating
plans for similar new expenditures.
33. Some questions arise with special force regarding the nature of general purpose reports
because, by definition, no user or potential user is able unilaterally to define the
requirements for these reports. The FASAB is, by design, well constituted to consider the
issues involved with such reports.
34. Federal accounting also must support special purpose reporting to the Congress,
executives, and others that the FASAB represents. Indeed, most federal financial reporting
is special purpose reporting. Also, the Board notes that traditional “general purpose”
4
In state and local governmental accounting, the term “general-purpose financial statements (GPFS)” has a quite
specific meaning. Standards published by the GASB define in detail the form and content of such reports. The term
“general-purpose reports” is used in a more generic sense in this document to refer to a variety of federal financial
reports.
Page 12 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
financial reports may serve a larger and more useful purpose for a variety of audiences if
traditional designs for such reports are expanded to include a variety of reports addressing
budgetary integrity, operating performance, stewardship, and control of federal activities.
Evolutionary Approach
35. The FASAB recognizes that developing and implementing standards that will contribute to
achieving certain objectives may take considerable time. Time will be needed to establish
information-gathering systems and to gain experience by experimenting with alternative
approaches.
36. The FASAB expects that some of these objectives may best be accomplished through
means of reporting outside general purpose financial reports. Indeed, the FASAB
recognizes that information sources other than financial reporting, sources over which the
FASAB may have little or no influence, also are important to achieving the goals implied by
these objectives.
37. In developing specific standards, the FASAB will consider the needs of financial
information users, the usefulness of the information in relation to the cost of developing
and providing it, and the ability of accounting standards to address those needs compared
with other information sources.
Background Information On Federal Financial Reporting
38. Different people are likely to talk about very different things when asked to describe federal
financial reporting or federal accounting. A few examples will illustrate this point
39. An economist, when asked this question, is likely to refer to reports about the national
society as a whole. Among the most important of such financial reports are the national
income and product accounts (NIPA) that measure the nation’s aggregate expenditures on
currently produced output. Federal government expenditures, of course, constitute a
significant fraction of the total expenditures in the economy. The NIPAs, as a system,
emerged in the 1940s and were built on work done in the U.S. Department of Commerce
beginning in the 1930s and earlier by private organizations.
40. The NIPAs provide a picture of the economic transactions that occur in an accounting
period, such as a year. The approach is to provide such a picture through a set of accounts
that aggregate the accounts belonging to the individual transactors in the economy—
workers, businesses, and consumers, among others—whether or not formal accounting
statements exist explicitly for all of them.
Page 13 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
41. The NIPAs provide vital information to policymakers and others who are planning future
actions and to individuals who would like to assess the effects of past actions. The NIPAs
are recognized as an essential part of economic reporting by national governments. For
this reason, the United Nations has developed the System of National Accounts (SNA).
The SNA is a comprehensive, integrated, and internationally comparable statistical base
for analysis in key policy-making areas, such as economic growth, inflation, and
productivity.
42. This Statement does not deal directly with such accounts of the economic activity of the
national society. The focus of this Statement is on accounting systems and financial
reports that deal with the budgetary integrity, operating performance, and stewardship of
the government as such; that is, of the government as a legal and organizational entity
within the national society. However, to report on some aspects of the government’s
performance and stewardship, economic and other information about the national society
is essential. Thus, the FASAB may consider whether such economic information should be
included in certain financial reports, such as general purpose financial reports for the U.S.
government as a whole.
43. A financial analyst on Wall Street, when asked about federal financial reporting, is likely
to think of the “Daily Treasury Statement” and the “Monthly Treasury Statement of Receipts
and Outlays of the United States Government.” Some financial analysts study these
Treasury reports regularly to assess the effect of cash flows on bank reserves and the size
of the government’s borrowing requirements. The federal government’s borrowing is
viewed as free of default risk because of the government’s ability to tax and to create
money. The power to tax depends on the government’s willingness to tax and the strength
of the economy.
44. From a longer-term perspective, it is true, however, that borrowers’ expectations about
such factors as future inflation and the relative value of the dollar compared with other
currencies can influence the borrowing costs of the United States. Those expectations, in
turn, may be influenced by the deficit reported or projected by the government, the current
inflation rate, and other factors.
45. Someone concerned with formulating or executing the U.S. budget, when asked
about the “federal accounting model,” is likely to think of the budgetary accounting system.
This is the system used to keep track of spending authority at various stages of budget
execution from appropriation through apportionment and allotment to obligation and
eventual outlay. This system is used by Congress and the executive branch for such
purposes as “scoring” the budget and for assessing the economic implications of federal
financial activity at an aggregate level. It also is used for planning and controlling
government operations at more detailed, disaggregated levels. Of course, people involved
Page 14 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
with the budget also are informed by, and rely on, sources of information other than the
budgetary accounting system, e.g., program evaluation and performance measures.
46. Although the FASAB does not recommend standards for the budget or budget concepts,
part of its mission is to recommend accounting principles that will help provide relevant and
reliable financial information to support the budgetary process. Furthermore, information
about budget execution is essential to assessing budgetary integrity.
47. Accountants working for the federal government, individuals auditing government
programs, or students in a governmental accounting course are likely to think first of
what are known within the federal government as the “proprietary” accounts and the
reports prepared, in part, from information in them. These accounts are used to record
assets and liabilities that are not accounted for in the budgetary accounts. These reports
are said to present “financial position” and “results of operations” in accordance with some
set of accounting standards. The FASAB is most directly concerned with these accounts
and with the reports that are prepared, in large part, with information from them.
48. Attention to this and other aspects of federal accounting and financial reporting has been
greatly increased by the Chief Financial Officers Act of 1990 (CFO Act). This act mandates
improved financial management by requiring, among other things, (1) new financial
organizations, (2) enhanced systems, and (3) audited financial reporting. However, the
FASAB’s area of concern is not limited to the reports required by the CFO Act.
Chapter 2: The Federal Accounting And Financial Reporting
Environment
49. Financial reporting is an important, basic tool in the management and oversight of most
organizations. It is particularly important for the federal government because of the
government’s fundamental nature and responsibilities and because the federal
government operates with fewer external restraints than other entities. Federal accounting
and financial reporting are shaped by, and need to respond to, the unique characteristics
and environment of the federal government, as discussed below.
Page 15 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Sovereignty
50. The federal government is unique, when compared with any other entity in the country,
because it is the vehicle through which the citizens of the United States exercise their
sovereign power.
5
The federal government has the power through law, regulation, and
taxation to exercise ultimate control over many facets of the national economy and society.
All other entities within the nation, both public and private, operate within the context of
laws, oversight, and accountability established by the national government. The federal
government is accountable only to its citizens. It is politically accountable to the electorate,
but no higher agency has the power to demand an accounting from the government.
Separation Of Powers
51. Because of their concern about potential abuse of the national government’s power, the
founders designed a government characterized by the separation of powers. Each branch
of government—legislative, executive, and judicial—is checked and constrained by the
others. Paradoxically, this same separation of power can obscure responsibility and
reduce accountability. The interrelated responsibilities of the legislative and executive
branches, for example, can make it difficult to assign responsibility for the policies that are
adopted.
Federal System Of Government
52. The federal system of government— comprising federal, state, and local levels of
government—also makes it difficult to pinpoint accountability for many programs. The
federal government’s responsibility relative to that of the states has gradually expanded.
The federal government has undertaken responsibilities in areas such as income
redistribution, education, and health care. Often, however, the expansion has come
without direct federal control over related operations. Responsibilities and financial
resources of the three levels of government have become intermingled. Citizens are not
5
The word “sovereign,” much discussed by legal and political philosophers, is used here in its broad, popular sense to
imply (1) internally that the people are the ultimate (if indirect) overseer or authority in the decision-making process of
a democratic state and (2) externally that the state is autonomous or independent. As noted by one authority on the
subject, either type of sovereignty, internal or external, implies that there is no higher agency. In a more limited sense,
sovereignty is the power to make or change the law, a power exercised collectively by individuals and institutions
operating in a complex system of relationships. See “Sovereignty,” W. J. Stankiewicz, The New Encyclopedia
Britannica, 15th. ed. (1976), vol. 17, pp. 309-313.
Page 16 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
clear about who is in charge, where to press for performance, and whom they should
blame for bad results.
Responsibility For The Common Defense And General Welfare
53. The federal government is unique in that it has continuing responsibility for the nation’s
common defense and general welfare. As a result, the government’s financial condition is
necessarily a secondary consideration in many cases. For example, the nation would enter
into military conflict to protect its vital national interests despite the fact that doing so would
worsen an already large deficit. (Similarly, the government’s greatest resource is one that it
does not own but can tax: the national economy.)
54. Further, providing for the nation’s general welfare is a broad responsibility that involves
multiple goals. There is no single measure of success (like “return on investment” or
“earnings per share”). Goals often are not explicitly defined in quantifiable terms and
sometimes conflict with each other. Relevant measures of performance are usually
nonfinancial. For example, many federal loan programs are charged with two conflicting
goals: (1) to operate as a fiscally prudent lender and (2) to provide high-risk lenders with
credit.
Power To Tax, Borrow, And Create Money
55. As stated, the federal government has unique access to financial resources and financing.
It has the power to tax, to borrow, and to create money. These powers give the
government a call on the underlying wealth of the United States—a vast but finite pool of
resources.
56. There is no constitutional requirement to provide sufficient revenues to fund expenditures
of the federal government. There is a statutory limit on the amount of U.S. debt. This limit
is routinely increased by Congress and the President. The federal government’s ability to
finance its debt has not been constrained by capital market assessments of its
creditworthiness. It is true, however, that the cost of servicing the U.S. debt now constrains
the range of feasible fiscal and monetary policies more than was formerly the case.
57. The federal government—through the Federal Reserve—also has the power to create
money and to control its supply.
6
This ensures that creditors will be repaid, at least in
nominal terms. When the government’s debt is large, it also provides a temptation to
create money, as well as inflation.
6
The Federal Reserve Board functions as a largely independent entity but is, of course, a government agency created
by congressional action.
Page 17 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Influence Of Organized Interests
58. Because of the size and nature of government programs, it is difficult for individuals to
evaluate or to influence policies and actions of the federal government. Typically,
individuals must organize to exercise influence. Small groups whose members are
significantly affected by a common factor or concern can be organized relatively easily, but
they may find it difficult to wield much influence. Large groups may be influential, but
organizing them is difficult if the members have common but diffuse interests. Once
organized, interest groups tend to perpetuate themselves.
59. As a result, most elected and appointed federal officials, and the groups to which they are
responsive, have been interested primarily in information about individual government
programs, functions, or activities. They have been less interested in information about the
government as a whole and even less concerned about intermediate levels of reporting,
such as individual departments.
Political System Versus Private Markets
60. The federal government is not subject to the discipline of competitive markets for private
goods, services, and capital. Generally, transactions between citizens and the government
are not individual exchanges between willing buyers and willing sellers. Taxpayers provide
resources involuntarily, based on their consumption, wealth, or income rather than on their
desire for particular government services. Even when user fees are charged, they often
are not intended to represent market clearing prices—prices that would, in markets for
private goods, balance supply and demand.
61. Thus, citizens as individuals have little say in selecting the public services they pay for.
Decisions on what public services will be provided are collective decisions made through
the political process. Politically influential recipients of benefits can force less influential
non-recipients to bear the cost of the benefits.
62. Further, because most governmental revenues are not earned in individual, voluntary,
exchange transactions, no private market directly measures the value of output.
Consequently, the value added to society’s well-being by government programs cannot be
gauged by conventional measures of net income, nor is there much competitive market
constraint on the quantity or quality of services provided. Instead, decisions about the
quantity, quality, and value of public services are collective decisions made by the political
process.
Page 18 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Assets
63. The government makes significant investments in assets, including public domain assets
and large investments intended to produce growth (educational programs and research
and development, for example).
64. In government, as in the private sector, assets are expected to provide benefits that
outweigh costs. In the private sector, the notion of benefits is relatively straightforward:
benefits are measured in terms of cash inflows. Assets are not acquired unless the value
of expected cash flows exceeds acquisition costs.
65. In the government, this discipline does not usually exist. Expected benefits often are not
cash inflows but rather are the services provided by the asset. Sometimes those services
are provided to the government itself (e.g., government office buildings or motor pools).
More often, the services are provided to the public (e.g., education and research and
development).
Responsibility To The News Media
66. The federal government is subjected to, and should encourage, scrutiny by the news
media. Because of the lack of external restraints and because the government’s power
ultimately resides in the citizens, it has a special responsibility to citizens and taxpayers to
disclose its activities.
Importance Of The Budget
67. The budget is the most widely recognized and used financial report of the federal
government. It is a principal surrogate for the missing external restraints discussed above.
It is a vehicle for the political process to reach agreement on goals and to allocate
resources among competing priorities. It provides a system for controlling expenditures.
And it supplies information necessary for assessing the effect on the economy of the
government’s fiscal policies. The role of budgeting in financial reporting is discussed
further in Chapter 7 under “Relationship of Financial Reporting to Budgeting.”
Need For Special Control Mechanisms
68. The lack of external restraints noted above creates a need for special control mechanisms.
Some mechanisms exist today. The most important, of course, are the political constraints
Page 19 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
and accountability imposed by regular elections and the separation of powers and the
other constitutional constraints and accountabilities, such as the federal system and
freedom of speech.
69. Accounting and financial reporting also play a role. Budgetary obligation accounting is
used to control activities, primarily at the budget account level. Audited financial reports
can provide users with assurance that accounting systems are providing consistent and
reliable data.
70. However, the need for improvement in financial reporting is widely recognized, as is the
fact that financial information alone often is insufficient for decision-making. For example,
financial information on costs often must be combined with nonfinancial information on
performance to provide a basis for assessing the efficiency and effectiveness of
government programs.
Chapter 3: Accountability And Users’ Information Needs—the
Foundation Of Governmental Financial Reporting
71. It may be said that “accountability” and its corollary, “decision usefulness,” comprise the
two fundamental values of governmental accounting and financial reporting. They provide
the foundation for the objectives of federal financial reporting. Because a democratic
government should be accountable for its integrity, performance, and stewardship, it
follows that the government must provide information useful to assess that accountability.
Similarly, because a democratic government is accountable for operating economically,
efficiently, and effectively, for the purposes intended by citizens and their elected officials,
certain other conclusions logically follow. Specifically, those who formulate, select, and
implement government policies and programs need information useful for planning,
controlling, and conducting government functions.
72. The assertion of accountability therefore leads to identifying, first, those to whom
government is accountable and, second, the information needed to maintain and
demonstrate that accountability. Accordingly, this Chapter first discusses the concept of
accountability, then identifies the four groups of users of federal financial reports. It
concludes by providing some examples of the information needs that may be addressed to
some extent by federal financial reports.
Page 20 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Accountability
73. Several different kinds of accountability can be distinguished, and a given piece of
information may be relevant in different ways to judgments about accountability. For
example, one authority suggests that there are five levels or types of public accountability:
• Level 1 is policy accountability—selection of policies pursued and rejected (value).
• Level 2 is program accountability—establishment and achievement of goals
(outcomes).
• Level 3 is performance accountability—efficient operation (efficiency and economy).
• Level 4 is process accountability—using adequate processes, procedures, or
measures in performing the actions called for (planning, allocating, and managing).
• Level 5 is probity and legality accountability—spending the funds in accordance with
approved budget and/or approved items (compliance).
7
74. In a democracy, appointed officials are accountable to their superiors, and elected officials
are accountable to the citizens for each of these kinds of accountability. Accounting and
financial reporting can help elected and appointed officials to maintain and to demonstrate
their accountability. The last kind of accountability listed, for “probity and legality,” probably
is the kind most often associated by the public with accounting. However, the accounting
profession has long recognized that accounting can and should contribute to achieving
and demonstrating several kinds of accountability, such as
• accountability for financial resources;
• accountability for faithful compliance or adherence to legal requirements and
administrative policies;
• accountability for efficiency and economy in operations; and
• accountability for the results of government programs and activities, as reflected in
accomplishments, benefits, and effectiveness.
8
7
J. D. Stewart, “The Role of Information in Public Accountability,” eds. Tony Hopwood and Cyril R. Tompkins, Issues in
Public Sector Accounting (Oxford, Great Britain: Philip Allan, 1984), pp. 14-15, as cited by the GASB in its Preliminary
Views on Service Efforts and Accomplishments Reporting (Dec. 1992).
8
Report of the Committee on Concepts of Accounting Applicable to the Public Sector, American Accounting
Association (1970-71), pp. 80-81, as cited by the GASB in Preliminary Views on Service Efforts and Accomplishments
Reporting (Dec. 1992).
Page 21 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Users Of Federal Financial Reports
75. The Board believes that users of financial information about the federal government can
be classified in four major groups: citizens, Congress, executives, and program managers.
Citizens
76. This group includes individual citizens (without regard to whether they are taxpayers,
voters, or service recipients). Citizens include the general news media and more
specialized users, such as trade journals; public interest and other advocacy groups; state
and local legislators and executives; and analysts from corporations, academe, and
elsewhere.
77. Citizens are interested in many aspects of the federal government. They are concerned
about individual programs, candidates for office, the services the government provides,
and the fiscal responsibility of their elected and appointed representatives. Citizens
receive and pay for government services and therefore are concerned with the outputs and
outcomes of those services and the efficiency with which they are provided. Citizens are
concerned about their families and, in particular, with the financial burden their children
and grandchildren will inherit. As individuals, citizens typically have limited time and ability
to analyze reports about their government; they want and rely on assurances that the
government is functioning economically, efficiently, and effectively. As they are organized
and represented by analysts working for interest groups and the news media, citizens want
more information about the government’s activities.
78. Citizens express their interest in the government by discussing issues, by voting, and by
writing to their representatives about the quality and quantity of the services they receive.
In some cases, citizens may decide whether and when to use services and products
provided by the government. They may contribute to political campaigns, demonstrate
support or opposition for individuals responsible for past and proposed government
actions, and even run for office.
Congress
79. This group includes elected members of Congress and their staffs, including staff of the
Congressional Budget Office (CBO) and the GAO. Congress is concerned with broad
policies, priorities, and the programs that implement those priorities. It decides what taxes
to impose, what funds should be spent, and for what purpose. Thus, Congress is
concerned both with how to finance programs and with how they are executed.
Page 22 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
80. Congress participates—along with the administration—in the basic decisions that describe
the intent of government. Such decisions include passing laws in response to public
demand, allocating resources among competing programs, and establishing policy that
affects various aspects of the country’s economic and social life. These decisions often are
influenced by assessing costs and benefits and by considering the effect of the
government’s aggregate financial requirements on the economy.
81. Congress also participates in monitoring government programs. It assesses the
management performance of the executive branch and the efficiency and effectiveness of
programs.
Executives
82. This group includes the President and those acting as his agents, i.e., program agency
heads and their deputy, under, and assistant agency heads; heads of bureaus,
administrations, services, and agencies; and the central agency officials in OMB and the
Department of the Treasury.
83. Executives, like Congress, are concerned with the government’s goals, objectives, and
policies. Executives focus on the strategic plans and programs that are intended to
achieve presidential and congressional goals and to implement their policies. In particular,
they pay attention to budgets that, from the perspective of each agency, are the source of
the resources needed to achieve goals and to implement policies. Executives are, of
course, directly concerned about the management of programs, that is, with the actual
delivery of services and with the efficiency and effectiveness of the delivery process.
84. Executives develop legislative proposals, recommend the necessary level of program
funding, and formulate financing and revenue-raising strategies. They help select the
method for delivering services. They determine whether program managers have been
accountable for the resources entrusted to them and whether programs are operating
efficiently and effectively. Executives also provide information that will enable the President
and Congress to monitor programs.
Program Managers
85. This group includes individuals who manage government programs. Their concerns
include operating plans, program operations, and budget execution.
86. Program managers assist in the design of programs and organize the method selected for
delivering services. They recommend program budgets based on detailed plans that set
forth needs for money, staffing, facilities, and inventory.
Page 23 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
87. Program managers establish operating procedures for their programs and manage them
within the limits of the spending authority granted by Congress. They select, supervise,
and evaluate personnel. They also make sure that program inventory and facilities are
acquired economically, maintained adequately, and used efficiently. Program managers
need to provide information to enable executives and Congress to monitor the programs.
The Needs Of Users Of Federal Financial Reports
88. While the financial information needs of these groups is more diverse than their
membership, those needs can be categorized under four broad headings.
Budgetary Integrity
89. All user groups need information about the budget. For citizens, information about budget
execution provides assurance that their elected and appointed representatives have
fulfilled their most basic fiduciary responsibility: to raise and spend money in accordance
with the law.
90. For the President’s economic team and for congressional budget committees, information
is needed on budget aggregates (total budget authority, total receipts and collections, and
total outlays) to establish fiscal policy, including governmental financing needs. These
officials need to know that prior-year “actuals” have been accurately recorded in
accordance with the same budgetary principles used to prepare estimates.
91. To avoid violations of the Anti-Deficiency Act and the Impoundment Control Act, program
managers need information about obligations incurred on their programs. They need
periodic information about the status of budgetary resources, that is, the extent to which
the resources have been used or remain available. They also want to know whether
budgetary resources are available to be used for other purposes through reprogramming.
Operating Performance
92. Citizens want information about programs that affect them. Veterans, for example, want to
know about new hospitals, and defense workers want information about contract awards
(and cancellations). Retirees and people planning retirement—and their representatives in
Congress—want to know that the Social Security Administration provides reliable services
to the public.
Page 24 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
93. Congress and executives want information about the comparative costs of programs (such
as the per student cost of the Job Corps Program versus that of other job training
programs). For comparisons to be valid, costs must be defined and measured alike.
94. Of course, information on the effectiveness of programs is also needed to make valid
comparisons among programs. Information is needed about outputs (e.g., number of
students who graduated) and outcomes (e.g., number of students who got and held jobs
for which they were trained).
95. Executives and program managers need to know the cost of performing work reimbursed
by other government entities or by nonfederal customers. Costs, in this case, would
measure the resources (personnel, material, and equipment) used to accomplish the work.
96. Congress and executives often want cost information that would help to compare
alternative courses of action. How much more or less would it cost if the Census Bureau
used a new approach to taking the census? How much would be saved if an Army division
were based in the United States rather than in Europe?
97. Program managers need information on the assets and liabilities related to operations.
Managers of loan programs need information on the quality of their loan portfolios.
Managers of repair depots want information on inventories, such as their value, quantity,
location, age, and condition. Managers of government facilities need to know the facilities’
condition and an estimate of future outlays made necessary by deferring needed
maintenance.
98. Congress and executives need information about the market value of assets that could be
sold, such as precious metals or other commodities.
Stewardship
99. Citizens, Congress, executives, and program managers need information to assess the
effect of the government’s activities on its financial condition and that of the nation.
Information is needed about the financial outlook for both the short and the long term.
100. Information is needed on the government’s exposure and risks associated with deposit
insurance, pension insurance, and flood insurance. People need to know about likely
future expenditures for cleaning up nuclear weapons sites and military bases. They want
information that will help them assess the likelihood and amount of future claims that might
arise from government-sponsored enterprises.
101. All users need information on earmarked revenues recorded in trust funds. They want to
know, for example, whether the Social Security Trust funds are likely, in the foreseeable
Page 25 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
future, to need infusions of new taxes to pay benefits. Citizens need to know the
implications of investing trust fund revenues in government securities.
102. Users also need trend information on spending on investments in physical and human
capital versus spending on consumption.
Systems and Control
103. Users at all levels need information on internal controls and the adequacy of financial
management systems. Citizens want assurances that systems and controls are in place to
protect the resources they supply to the government. They want to know that operating
procedures and processes provide reasonable assurance that those resources are used
economically and efficiently for the purposes intended. Congress, executives, and
program managers need to demonstrate to those to whom they are accountable that they
have, in fact, protected those resources and used them well. Users want to know, for
example, that agency heads have determined that internal controls are adequate, that
basic financial statements are auditable, and that high-risk areas have been identified and
addressed.
104. The implications of these four broad categories of information needs for the objectives of
federal financial reporting are discussed in more detail in the next Chapter.
Chapter 4: Objectives Of Federal Financial Reporting
105. The federal government derives its just powers from the consent of the governed. It
therefore has a special responsibility to report on its actions and the results of those
actions. These reports must accurately reflect the distinctive nature of the federal
government and must provide information useful to the people, their elected
representatives, and federal executives. Providing this information to the public, the news
media, and elected officials is an essential part of accountability in government. Providing
this information to program managers, executives, and members of Congress is essential
to planning and conducting the government’s functions economically, efficiently, and
effectively for the benefit of society.
106. Financial reporting is not the only source of information to support decision-making and
accountability. Neither can financial reporting, by itself, ensure that the government
operates as it should. Financial reporting can, however, make a useful contribution toward
those objectives.
Page 26 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
107. The objectives discussed below apply both to internal and to external financial reports. To
some degree, they also apply both to special purpose and to general purpose reports.
Users of general purpose financial reports may have difficulty obtaining relevant
information to hold the federal government accountable if the government operates without
appropriate reporting objectives and accounting standards. The Board also intends that
these objectives and the ensuing standards will prove widely useful for other purposes,
though they may not apply to every special report or every item in the accounting system.
The objectives are intended to improve the relevance, consistency, and quality of
accounting and other data available for a wide variety of applications.
108. The Board expects that its recommendations will be applied to improve information for
program management and executive and legislative branch decision-making. The
Department of the Treasury, OMB, and the GAO expect that, to the extent possible, their
reporting requirements will be aligned with the Board’s objectives and standards.
109. Four major objectives are proposed, around which accounting standards should be
organized. These objectives are designed to help ensure the accountability of the federal
government and to better inform decisions influenced by financial information about the
government. Each objective reflects the federal environment and meets many of the needs
expressed by current and potential users of federal financial information. Together, they
provide a framework for assessing the existing accountability and financial reporting
systems of the federal government and for considering how new accounting standards
might be able to enhance those systems in a cost-effective manner.
110. Current and potential users of federal financial information want information to help them
assess how well the government is doing by answering questions regarding topics like
those below:
• Budgetary Integrity: What legal authority was provided for financing government
activities and for spending the monies? Were the financing and spending in
accordance with these authorities? How much was left?
• Operating Performance: How much do various programs cost, and how were they
financed? What outputs and outcomes were achieved? What and where are the
important assets, and how effectively are they managed? What liabilities arose from
operating the program, and how will they be provided for or liquidated?
• Stewardship: Did the government’s financial condition improve or deteriorate? What
provision was made for the future?
• Systems and Control: Does the government have cost-effective systems and controls
to safeguard its assets? Is it able to detect likely problems? Is it correcting deficiencies
when detected?
Page 27 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
111. Concerns like these define the objectives of federal financial reporting. In the following
text, objectives and subobjectives are stated in bold italic type. Each of the objectives and
subobjectives is followed by a commentary that explains some of the implications of the
objective.
Budgetary Integrity
Objective 1
112. Federal financial reporting should assist in fulfilling the government’s duty to be
publicly accountable for monies raised through taxes and other means and for their
expenditure in accordance with the appropriations laws that establish the
government’s budget for a particular fiscal year and related laws and regulations.
113. This objective arises generally from the responsibility of representative governments to be
accountable for the monies that are raised and spent and for compliance with law. More
specifically it arises from the requirement in Article I, Section 9 of the Constitution of the
United States that “No Money shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law; and a regular Statement and Account of the Receipts and
Expenditures of all public Money shall be published from time to time.” Its focus is the
Budget of the United States Government
, the President’s annual budget submission to the
Congress, which is the government’s principal financial report, and the laws enacting
budget authority for a given fiscal year. The Budget of the United States Government
is the
initial frame of reference within which Congress and the President enact the laws that
require the payment of taxes and provide the authority to obligate and spend money.
114. The focus of this objective is retrospective. That is, the focus is on recording actual data
from budget execution against appropriations made by Congress using existing budgetary
standards. Thus, it would validate the “actual” column shown in the Budget of the United
States Government. It would also provide data that could be shown in other reports as a
statement of budget execution or a statement of the status of budgetary resources. The
data also could be displayed in analytical tables showing, for example, the historical
pattern of receipts and outlays.
115. Certain subobjectives arise from the basic objective of budgetary integrity, as discussed
below.
Federal financial reporting should provide information that helps the reader to
determine:
Page 28 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
116. 1A. How budgetary resources have been obtained and used and whether their
acquisition and use were in accordance with the legal authorization.
117. Considering this objective in conjunction with the specific information needs identified by
the Board suggests some examples of information that might help meet this objective:
• government receipts and offsetting collections reported in total and by composition;
• obligations according to the nature of services or items procured;
• information about the extent of compliance with the budget and laws, and whether
money was expended as intended by the federal government and its grantees; and
• valid data on budget authority, obligations, and outlays by program and for all
appropriation and fund accounts (summarized appropriately to fit the intended
audience).
118. 1B.The status of budgetary resources.
Examples of information that could help meet this objective include
• information about the sufficiency of budget authority for covering commitments and the
status of obligated and unobligated balances of budgetary resources and
• assurances that funds authorized for a given purpose were actually spent for that
purpose.
119. 1C.How information on the use of budgetary resources relates to information on the
costs of program operations and whether information on the status of budgetary
resources is consistent with other accounting information on assets and liabilities.
120. This subobjective arises from the fact that accrual-basis measures of the cost of
government programs, functions, and activities may differ from the amounts used in the
budget for a variety of valid reasons.
121. Reports primarily intended to address objective 1 and its first two subobjectives would use
budgetary measurement. Subobjective 1C would use both budgetary and accrual
measures because reconciliation of the two is implied. The basic accounting
unit for this
objective would be the budget account, although accounts are often aggregated for some
reporting
purposes.
Page 29 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Operating Performance
Objective 2
122. Federal financial reporting should assist report users in evaluating the service
efforts, costs, and accomplishments of the reporting entity; the manner in which
these efforts and accomplishments have been financed; and the management of the
entity’s assets and liabilities.
123. This objective arises from a democratic government’s duty to be accountable to its citizens
for managing resources and providing services economically and efficiently and for
effectiveness in attaining planned goals. Also, the government should be accountable for
raising resources efficiently.
124. Because government services are not usually provided in exchange for voluntary
payments or fees, expenses cannot be matched against revenue to measure “earnings” or
“net income” as would be done in business accounting. Moreover, directly measuring the
value added to society’s welfare by government actions is difficult. Nonetheless, expenses
can be matched against the provision of services year by year. The resulting cost can then
be analyzed in relationship to a variety of measures of the achievement of results.
125. Certain subobjectives arise from the basic objective of reporting on operating
performance, as discussed below.
Federal financial reporting should provide information that helps the reader to
determine:
126. 2A.The costs of providing specific programs and activities and the composition of,
and changes in, these costs.
127. Examples of financial information that can help to address this objective include
• information on the costs of programs and activities;
• cost comparisons with estimates, with similar functions, with targets,
9
and over time;
and
9
“Performance targets” specify the level of performance that is set as a goal by policy and program officials. Targets
may be set in terms of outputs, outcomes, impacts, cost per unit of output, etc.
Page 30 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
• relevant analyses of the composition and behavior of costs, such as full and
incremental costs, fixed and variable costs, direct and indirect costs, and reimbursable
and other costs, where appropriate.
128. 2B. The efforts and accomplishments associated with federal programs and the
changes over time and in relation to costs.
129. Examples of information that can help to address this objective include
• financial and nonfinancial indicators of service inputs, outputs, and outcomes, including
comparisons with goals;
• indicators of program efficiency and effectiveness;
• work load measures and unit costs; and
• total and marginal costs and benefits, the relationship of these to budget requests, and
when the benefits will be realized.
130. 2C.The efficiency and effectiveness of the government’s management of its assets
and liabilities.
131. This subobjective implies concern with the management of all federal assets and liabilities
used by or under the control of agencies. Users of financial reports focus on the use of
these resources in program operations, not solely on their financial value. Reports
intended to address this objective would provide information to help users assess the
efficiency and effectiveness with which
• cash is used;
• loan, loan guarantee, and other receivables programs are conducted;
• inventories of supplies, materials, and similar items are maintained; and
• forfeited and other tangible assets are handled.
132. Other examples of information relevant to this objective might include
• the service life and replacement cost of major systems and equipment;
• backlogs (and budgetary impact) of delayed maintenance, rehabilitation cost or
replacement value of assets;
• the market value of forfeited and other assets, particularly those held for sale;
• the extent of unpaid expenses; and
• estimates (and ranges of estimates) of other known liabilities (such as leases or
deposit and other insurance liabilities) and other exposures to loss.
133. Further discussion of performance measurement and how financial reporting can
contribute to reporting on performance is provided in Chapter 9.
Page 31 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Stewardship
Objective 3
134. Federal financial reporting should assist report users in assessing the impact on
the country of the government’s operations and investments for the period and how,
as a result, the government’s and the nation’s financial condition has changed and
may change in the future.
10
135. This objective is based on the federal government’s responsibility for the general welfare
of the nation in perpetuity. It focuses not on the provision of specific services but on the
requirement that the government report the broad outcomes of its actions. Certain
subobjectives arise from the basic objective of stewardship, as discussed below.
Federal financial reporting should provide information that helps the reader to
determine:
136. 3A.Whether the government’s financial position improved or deteriorated over the
period.
Examples of information relevant to this objective include
• the amount of assets, liabilities, and net assets (or net position);
• an analysis of government debt, its growth, and debt service requirements;
• changes in the amount and service potential of capital assets; and
• the amount of contingent liabilities and unrecognized obligations (such as the probable
cost of deposit insurance).
137. Assessing whether the government’s financial position improved or deteriorated over the
period is important not only because it has financial implications but also because it has
social and political implications. This is because analysis of why financial position
improved or deteriorated helps to explain whether financial burdens were passed on by
current-year taxpayers to future-year taxpayers without related benefits. The latter notion
is sometimes referred to as “interperiod equity.”
11
10
The concepts of “financial position” and “financial condition” are discussed in Chapter 8.
11
In paragraph 61 of its first conceptual statement, Objectives of Financial Reporting, the GASB noted: “The Board
believes that interperiod equity is a significant part of accountability and is fundamental to public administration. It
therefore needs to be considered when establishing financial reporting objectives [for state and local governmental
entities]. In short, financial reporting should help users assess whether current-year revenues are sufficient to pay for
the services provided that year and whether future taxpayers will be required to assume burdens for services
previously provided.” GASB’s Statement 11, Measurement Focus and Basis of Accounting--Governmental Fund
Operating Statements, adds “Conversely, [a measure of interperiod equity] would show whether current-year revenues
not only were sufficient to pay for current-year services, but also increased accumulated net resources.”
Page 32 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
138. Viewed in this broader context, providing information to meet objective 3 and its
subobjectives will help to satisfy the needs expressed by financial report users. It will also
help to explain the issuance of new debt in relation to expenditures for activities with
current benefits versus expenditures for investment-type activities that yield future
benefits.
139. 3B. Whether future budgetary resources will likely be sufficient to sustain public
services and to meet obligations as they come due.
140. Information about the results of past government operations is useful in assessing the
stewardship exercised by the government. Users of financial reports also want help in
assessing the likelihood that the government will continue to provide the current level of
benefits and services to constituent groups, such as farmers, retirees, and the poor.
141. Information relevant to this objective may include disclosures of financial risks that are
likely or reasonably possible from sources such as government-sponsored enterprises,
deposit insurance, and disaster relief programs. It could also include information such as
• the long-term financial implications of the budgetary process,
• the status of trust funds, and
• backlogs of deferred maintenance.
142. Providing information of this kind may require the use of reporting mechanisms other than
traditional financial statements. For example, special reports may have to be developed to
demonstrate whether the level of a particular year’s maintenance and rehabilitation
expenditures resulted in an improvement or a deterioration of capital assets and
infrastructure.
143. 3C.Whether government operations have contributed to the nation’s current and
future well-being.
144. Objective 3, in general, and subobjective 3C, in particular, imply a concern with “financial
condition,” as well as “financial position.” Financial condition is a broader and more
forward-looking concept than that of financial position. Reporting on financial condition
requires financial and nonfinancial information about the national economy and society, as
well as about the government itself. For example, reports intended to help meet this
objective might address users’ needs for information about
• investments in (or expenditures for) research and development, military readiness, and
education;
• changes in the service potential of infrastructure assets;
• spending for consumption relative to investments;
• opportunities for growth-stimulating activities; and
• the likelihood of future inflation.
Page 33 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
145. Indicators of financial position, measured on an accrual basis, are the starting point for
reporting on financial condition
but must be supplemented in a variety of ways. For
example, subobjective 3B might imply reporting, among other things, a current law budget
projection under a range of alternative assumptions. Reports intended to achieve
subobjective 3C might disclose, among other things, the contribution that the government
is making to national wealth by financing assets that are not federally owned, such as
research and development, education and training, and state-owned infrastructure.
Information on trends in total national wealth and income is also important.
Systems And Control
Objective 4
146. Federal financial reporting should assist report users in understanding whether
financial management systems and internal accounting and administrative controls
are adequate to ensure that
• transactions are executed in accordance with budgetary and financial laws and
other requirements, consistent with the purposes authorized, and are recorded
in accordance with federal accounting standards;
• assets are properly safeguarded to deter fraud, waste, and abuse; and
• performance measurement information is adequately supported.
147. This objective arises from the three preceding objectives, in conjunction with the fact that
accounting supports both effective management and control of organizations and the
process of reporting useful information. Indeed, accounting processes are an integral part
of the management control system.
148. The ability to prepare financial reports that report all transactions, classified in appropriate
ways that faithfully represent the underlying events, is itself an indication that certain
essential controls are in place and operating effectively. The preparation of reliable
financial reports also helps to ensure that reporting entities have early warning systems to
indicate potential problems and take actions to correct material weaknesses or problems.
149. Sound controls over internal processes are essential both to safeguard assets and to
ensure economy, efficiency, and effectiveness in many governmental programs.
150. Information relevant to this objective helps financial report users to determine whether the
entity has established reasonable, cost-effective programs to safeguard assets, prevent
and detect waste and abuse, and reduce error rates. An example of information that would
Page 34 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
address this objective is management’s assertion about the effectiveness of the internal
accounting and operational control system.
Chapter 5: Balancing Costs And Benefits In Recommending
Standards
151. Users’ information needs define financial reporting. Even so, the process of articulating
financial reporting objectives and then recommending accounting standards is not a
simple progression from canvassing users of federal financial information to
recommending standards. This is partly because such users, when asked about their
information needs, may give answers that are limited by their past needs and experiences.
More fundamentally, it is because articulating objectives and recommending accounting
standards necessarily involve judgments about the costs and benefits of producing more
information or of reporting it differently.
152. The standard-setting process is further complicated by the fact that any given accounting
standard can have many different kinds of effects that must be considered. For example,
accounting standards can influence the activities of agency accountants and the auditors
who review reports prepared by those accountants, as well as the decisions of those who
read the financial statements. Thus, a standard may influence which physical assets are
under accounting control and the extent of work the auditor does to provide assurance
about those assets. The accountants’ and auditors’ reports, in turn, may influence various
decisionmakers in different ways as they select policies regarding the assets and the
systems used to control them, decide how to implement the policies, and evaluate the
results.
153. The standard setter must, to some extent, be aware of these potential effects when
considering the costs and benefits of any given accounting alternative. As an added
complication, the same piece of information may be used in different ways for different
decisions. In other words, there are different kinds of “use.” In some cases, the information
may be consciously used in well-defined ways; in other cases, it may subtly influence the
way people see the world, understand their options, and assess their priorities.
154. For example, the size of the deficit may have a very specific meaning with quite explicit
implications (e.g., sequestration) under certain rules for scoring the budget. The deficit
may also influence the economy because it affects aggregate demand and the
government’s financing requirements in a variety of ways that economists can only partially
explain and quantify. Finally, the deficit may influence people’s perceptions of their own
well-being or of the nation’s financial condition in more subjective or symbolic ways that
can affect both private and collective behavior (e.g., willingness to undertake various new
commitments, to pay more in taxes, or to accept reductions in program benefits).
Page 35 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
155. Finally, as noted earlier, accounting and financial reporting cannot satisfy every need for
information and accountability. For many purposes, other information sources and other
techniques to maintain and demonstrate accountability are either essential or more cost-
effective. This constraint pervades any discussion of the objectives of federal financial
reporting.
Chapter 6: Qualitative Characteristics Of Information In
Financial Reports
156. Financial reporting is the means of communicating with those who use financial
information. For this communication to be effective, information in financial reports must
have these basic characteristics: understandability, reliability, relevance, timeliness,
consistency, and comparability.
12
Understandability
157. Special purpose reports are prepared to meet the needs of specified users.
Understandability is rarely a problem in such cases because mutual understanding of what
information is needed can generally be assumed between report preparer and report user.
Information in general purpose financial reports, however, should be expressed as simply
as possible. Users of general purpose financial reports, including internal users, tend to
have different levels of knowledge and sophistication about government operations,
accounting, and finance.
158. To be publicly accountable, the federal government and its component entities should
issue general purpose financial reports that can be understood by those who may not have
a detailed knowledge of accounting principles. Those reports should include explanations
and interpretations to help report users understand the information in the proper context.
However, general purpose financial reports should not exclude essential information
merely because it is difficult to understand or because some report users choose not to
use it.
159. For reports to be understandable to different audiences, different reports may be
necessary to provide information relevant to the needs of the expected report users, with
suitable amounts of detail, explanation, and related narrative. To be fully intelligible,
financial information in general purpose reports may need to be presented in relation to the
goals, service efforts, and accomplishments of the reporting entity.
12
For the most part, these characteristics are similar to those described by the FASB and the GASB.
Page 36 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Reliability
160. Financial reporting should be reliable; that is, the information presented should be
verifiable and free from bias and should faithfully represent what it purports to represent.
To be reliable, financial reporting needs to be comprehensive. Nothing material should be
omitted from the information necessary to represent faithfully the underlying events and
conditions, nor should anything be included that would likely cause the information to be
misleading to the intended report user. Reliability does not imply precision or certainty, but
reliability is affected by the degree of estimation in the measurement process and by
uncertainties inherent in what is being measured. Financial reporting may need to include
narrative explanations about the underlying assumptions and uncertainties inherent in this
process. Under certain circumstances, a properly explained estimate provides more
meaningful information than no estimate at all.
Relevance
161. Relevance encompasses many of the other characteristics. For example, if the information
provided in a financial report is not timely or reliable, it is not relevant. Information can,
however, meet all other characteristics and still not be relevant. To be relevant, a logical
relationship must exist between the information provided and the purpose for which it is
needed. Information is relevant if it is capable of making a difference in a user’s
assessment of a problem, condition, or event. Relevance depends on the types of financial
information needed by the various users to make decisions and to assess accountability.
Timeliness
162. In some circumstances, the mere knowledge that a report eventually will be made public
can influence behavior in desirable ways, just as the knowledge that one’s tax return might
eventually be audited can influence the behavior of people when they report their income.
In other circumstances, however, if financial reports are to be useful, they must be issued
soon enough to affect decisions. Timeliness alone does not make information useful, but
the passage of time usually diminishes the usefulness that the information otherwise would
have had. In some instances, timeliness may be so essential that it requires sacrificing a
certain amount of precision or detail; a timely estimate may then be more useful than
precise information that takes longer to produce.
Page 37 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Consistency
163. Financial reports should be consistent over time; that is, once an accounting principle or
reporting method is adopted, it should be used for all similar transactions and events
unless there is good cause to change. The concept of consistency in financial reporting
extends to many areas, such as valuation methods, basis of accounting, and
determination of the financial reporting entity. If accounting principles have changed or if
the financial reporting entity has changed, the nature and reason for the change, as well as
the effect of the change, should be disclosed.
Comparability
164. Financial reporting should help report users make relevant comparisons among similar
federal reporting units, such as comparisons of the costs of specific functions or activities.
Comparability implies that differences among financial reports should be caused by
substantive differences in the underlying transactions or organizations rather than by the
mere selection of different alternatives in accounting procedures or practices.
Chapter 7: Materiality
164a. A reporting entity considers materiality in the application of accounting and reporting
requirements. The Federal Accounting Standards Advisory Board (FASAB or "the Board")
intends that information presented in accordance with generally accepted accounting
principles (GAAP)
12.1
will not contain misstatements, including omissions of information,
considered material. Such omissions include information that is necessary for a
reasonable financial report user (reasonable user)
12.2
to understand the effect of particular
material transactions, events, and conditions on the entity's financial statements, notes to
the financial statements, and required supplementary information.
[footnote] 12.1 Such information would include financial statements, notes to the
financial statements, and required supplementary information.
[footnote] 12.2. A reasonable financial report user has appropriate knowledge of the
federal government's activities and reviews and analyzes the information diligently.
164b. A misstatement, including omission of information, is material if, in light of surrounding
facts and circumstances, it could reasonably be expected that the judgment of a
Page 38 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
reasonable user relying on the information would change or be influenced by the
correction or inclusion of the information.
164c. Materiality should be evaluated in the context of the specific reporting entity. Determining
materiality requires appropriate and reasonable judgment in considering the specific facts,
circumstances, size, and nature of the misstatement. Consequently, after quantitative and
qualitative factors are considered, materiality may vary by financial statement, line item, or
group of line items within an entity.
164d. Misstatements should be considered individually and in the aggregate. Materiality
determinations regarding such misstatements should include consideration of both
qualitative and quantitative factors. Information that is not considered quantitatively
material may be considered qualitatively material if it can reasonably be expected to
change or influence the judgment of a reasonable user. Qualitative considerations include
the public accountability
12.3
of the reporting entity; applicable legal and regulatory
requirements; the visibility and sensitivity of government programs, activities, and
functions; as well as other factors that may affect a reasonable user's judgment about the
information.
[footnote] 12.3. SFFAC 1, par. 73 and 74 identify different kinds of accountability. These
may be relevant qualitative considerations in determining materiality.
164e. Materiality concepts and related factors should be considered when making materiality
judgments. While specific qualitative and quantitative thresholds for materiality are not
provided in this Statement, illustrative factors are discussed in paragraphs 164c and 164d.
164f. In applying materiality concepts, the specific needs of a reasonable user should be
considered. In the federal government environment, such needs generally differ from
those of the commercial entity financial report user. For example, due to the visibility and
sensitivity of government programs, the needs of federal government financial report users
extend to having the ability to assess the allocation and use of resources in the federal
government. Compliance with laws, regulations, contracts, and grant agreements is also a
significant consideration of the user.
12.4
[footnote] 12.4 Information requiring protection from unauthorized disclosure is referred
to as "classified national security information." The application of federal financial
accounting standards needs to support the legal requirements to protect classified
national security information.
164g. To emphasize that materiality should be considered in applying the accounting standards,
the Board will place the following notice at the end of each Statement of Federal Financial
Accounting Standards (SFFAS):
Page 39 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
The provisions of this Statement need not be applied to information if the effect of
applying the provision(s) is immaterial. [footnote]
[footnote]: Refer to Statement of Federal Financial Accounting Concepts 1, Objectives
of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of
the materiality concepts.
Chapter 8: How Accounting Supports Federal Financial
Reporting
165. This Chapter explains the focus of the FASAB’s concern by showing how accounting
supports financial reporting and thus how accounting standards recommended by the
FASAB can influence federal financial reporting. This Chapter shows how the FASAB’s
recommendations can influence a wide variety of financial reports. Additionally, it lays a
foundation for the discussion (in Chapter 9) of how financial reporting in general, and cost
information in particular, contribute to performance reporting. In effect, Chapter 8 outlines
parts of a conceptual framework for federal accounting but is limited to those ideas, such
as “financial position” and “financial condition,” that will help readers understand the
Board’s proposed statement of objectives for federal financial reporting.
Financial Core Data
166. The accounting process begins with recording information about transactions between the
government (or one of its component entities) and other entities, that is, inflows and
outflows of resources or promises to provide them. These may involve flows of economic
goods, cash, or promises. These comprise the “core” data of the accounting discipline.
This initial step in the accounting process is depicted at the bottom of figure 1, in the box
numbered 1. To enhance the usefulness of this core set of data about transactions with
other entities, accountants make various accruals, classifications, interpretations, etc.
Page 40 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
167. Many accounting entries recorded in the accountant’s general ledger data base are such
rearrangements of data about previously recorded transactions with other entities rather
than new transactions involving flows of resources or promises between entities.
13
168. In the branch of accounting called financial accounting, the most noteworthy
interpretations or classifications are those about which data pertain to the past and which
pertain to the future. In other words, financial accounting is largely concerned with
assigning the value of past transactions to appropriate time periods.
169. Transaction data assigned to a period that has elapsed are said to be “recognized” in the
statement of operations (or income statement), e.g., as an expense or a revenue of that
period. Transaction data pertaining to the future are recognized in the statement of
financial position (or balance sheet) as assets and liabilities.
13
See William J. Schrader, Robert E. Malcom, and John J. Willingham, “A Partitioned Events View of Financial
Reporting,” Accounting Horizons (Dec. 1988), p 10-20. For a more academic exploration of the ideas involved, see Yuji
Ijiri, “Theory of Accounting Measurement,” Studies in Accounting Research #10, American Accounting Association
(1975).
Page 41 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Figure 1: How Accounting Contributes to Information Used by Citizens, Congress, Federal Exceutives, and
Program Managers
Information used to assess accountability and performance, to make planning and policy decisions, to allocate resources, to decide how to vote,
and for other decisions.
various special-
purpose financial
reports from
committees of
Congress, agencies,
GAO, news media,
etc.
e.g., agency budget
requests, the
Budget of the
United States
Government
Financial Information
Special-purpose reports General-purpose reports
Nonfinancial Information
Special-purpose
budget
execution
reports
e.g., financial
information
required by the
CFO Act
e.g.,
nonfinancial
information
required by the
CFO Act
special-purpose
nonfinancial
information from
agencies, news
media, etc., e.g.,
Federal Managers'
Financial Integrity
Act reports
3. Reporting Useful Information
2. Environmental Data
(e.g., changes in market value or service potential, contingent gains & losses, program results)
1. Entity Transaction Data
(e.g., revenues and expenses, inputs and outputs)
Entity Status
Data (assets &
liabilities)
Other Entities
Page 42 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
170. Together with the statement of cash flows, the income statement (or statement of
operations or activities) and the balance sheet comprise the three “basic” general purpose
financial statements for privately owned entities. Other statements, such as a comparison
of actual results with the budget, may be regarded as part of the basic statements for
governmental entities.
171. At the initial stage of the accounting process, the information about assets and liabilities is
merely the result of assigning all or part of the value of certain transactions to the future.
“Assets” and “liabilities” at this stage are not statements about future benefits or sacrifices
that can be proven or disproven. They are allocations of the cost of past transactions
based on assumptions about future benefit and sacrifice.
172. This has been a common source of confusion when accountants communicate with
nonaccountants, for whom the word “asset” typically implies something of value that can
be sold or used. Much of the evolution of accounting under the FASB and the GASB has
been to reduce this confusion, to improve communication, and to make financial reports
more faithfully represent economic reality in terms meaningful to report users. This
evolution has involved adding increasing amounts of information to the core set of
transaction data. That process is discussed later.
173. In other words, the amount of “equity” or “net assets” based on the core data in a
bookkeeper’s trial balance is not a direct measure of either the market value or the service
potential of the entity. In some circumstances, however, net assets can be a meaningful
indicator of that value or potential. (The word “indicator” is used deliberately to avoid the
implication of precision that may be associated with the word “measure.”)
14
174. Accounting data may be further assigned, allocated, or associated with units of activity or
production, segments of organizations, etc., within the same time period. These kinds of
intraperiod allocations are developed most extensively in the branch of accounting called
cost or managerial accounting. Neither the FASB nor the GASB has devoted much
attention to this branch of accounting, but the FASAB, because of its unique mission, will
need to do so. One reason for performing cost accounting is to assist in performance
measurement.
14
The term “measure” is commonly used in accounting literature regarding cost and in other literature (including the
GASB’s) regarding performance. This document follows that practice. In a conceptual discussion, however, it is
important to note that “cost,” “performance,” and “financial condition” are all multidimensional concepts. It may be more
precise to think in terms of multiple indicators that provide information about these concepts instead of a single-valued
“measure” of any of them.
Page 43 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Nonfinancial Core Data
175. Traditionally, financial accountants record and describe transactions in terms of money. At
the most detailed level, however, their records usually include information about the
associated physical inputs and outputs of goods, labor, etc. This nonfinancial information is
an important part of the data available for reporting and evaluating the economy and
efficiency of the organization’s performance.
Budgetary Core Data
176. In government the data on transactions with other entities include information on the
budget authority, obligations, outlays, receipts, and offsetting collections for the
transactions. This information is maintained in what are called budgetary accounts to
distinguish them from the “proprietary” accounts that record other information on
transactions. The budgetary and proprietary accounts at this level are said to be
“integrated.” In effect, they maintain information about different stages of a transaction.
Financial Environmental Data And The Concept Of Financial Position
177. The core set of accounting data is expanded with a variety of what may be called
“environmental” data to distinguish them from the data that arise from transactions (flows
of resources or promises) with other entities. Box 2 in figure 1 depicts this step of the
accounting and reporting process. Many events within the environment of a reporting entity
may have economic consequences for the entity. Examples of environmental data that
may be relevant to financial reporting for some purposes include current market prices, net
realizable values, changes in discount (interest) rates, and impairment of assets (either in
terms of market value or in terms of service potential). Judgments about what
environmental data should be added are made by considering the specific information
needed for specific purposes.
178. At this level of the accounting and financial reporting process, the information reported in
the balance sheet transcends bookkeeping. It can now represent more of what is known
about future economic benefits and sacrifices. To the extent that this is accomplished, the
balance sheet may be said to represent the “financial position” of the reporting entity. The
concept of financial position is that of a point-in-time snapshot of an entity’s economic
resources and the claims on those resources.
Page 44 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Nonfinancial Environmental Information
179. Nonfinancial information about program efforts, accomplishments, and outcomes may be
collected and associated with the financial environmental data. This information is
particularly important for governments because there is no direct analogue to “net income”
or “earnings” to gauge the economy, efficiency, and effectiveness or net value of
governmental activity.
The Concept Of Financial Condition
180. As more environmental data are added to the core data, a concept that is broader and
more forward-looking than “financial position” emerges. That concept is “financial
condition.” For the U.S. government, the additional data could include financial and
nonfinancial information about current conditions and reasonable expectations regarding
the national and even the global society. For example, the expected implications of
environmental degradation; the relative competitiveness and productivity of the U.S.
economy; or expected changes in the population’s composition in terms of age, gender,
longevity, education, health, and income all might affect judgments about the government’s
financial condition.
181. Information about financial condition can be conveyed in a variety of schedules, notes,
projections, and narrative disclosures. Among the most important of these is
management’s “discussion and analysis” of known trends, demands, commitments,
events, and uncertainties. For federal reporting entities, management’s discussion and
analysis might address such topics as
• budgetary compliance;
• internal control systems;
• capital resources and investments;
• service efforts, accomplishments, and results of operations; and
Page 45 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
• the reasonably possible future impact of known trends, risks, demands, commitments,
events, or uncertainties that may affect future operations.
15
182. Increasingly, managers and investors in the private sector are attending to other factors
that may sometimes be useful indicators of an entity’s financial condition, including such
intangible factors as the quality of the entity’s
• information and analysis capabilities,
• strategic planning,
• human resource development and management, and
• constituent satisfaction.
Similar factors may be relevant for many federal reporting entities.
Kinds Of Financial Information Needed And Provided
183. The information produced by these accounting processes supports the overall reporting
process. Traditionally, the items of information included in financial statements are
classified in various “elements” of financial reporting, such as “assets,” “liabilities,”
“revenues,” or “expenses.” In future projects, the FASAB may consider the definition of
elements of federal financial reporting. For the purposes of this Statement of Concepts,
however, it is not necessary to do so. It is sufficient to note that needed financial
information identified by some current and potential users of federal financial reports can
be classified under six broad headings:
• information on the sources and uses of budgetary resources,
• information about operations and the related resources,
• information about the government’s assets,
• information about the government’s liabilities and financial responsibilities,
• information that addresses concerns with the future, and
• Information that discloses the levels of financial controls.
184. Examples and further discussion of such information needs are provided in appendix B.
15
Such a discussion and analysis is required in federal financial reports prepared pursuant to the CFO Act of 1990. In
these reports, the discussion and analysis is referred to as the “overview” section. OMB Bulletin 92-03 provides
guidance on preparing the overview section.
Page 46 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
How This Information Flows Into Financial Reports
185. The core and environmental financial information, often supplemented with information
from other sources, is the basis for a variety of general purpose and special purpose
reports. For this reason, figure 1 culminates with the preparation of useful reports. A direct
relationship exists between the accounting and reporting processes both for general
purpose financial reports and for budget execution reports. The dotted line in figure 1
leading to other kinds of reports emphasizes that other kinds of information are often more
heavily involved in producing them. Accounting contributes to these reports but has less
influence over the nature, scope, and content of them. (Appendix C lists selected federal
reports that are regularly prepared.)
Relationship Of Financial Reporting To Budgeting
186. “The budget” is a broad term that may include, among other things, a projection of
spending authorities and means of financing them for a future period and a report of the
actual spending and associated financing for a past period. The FASAB’s
recommendations may influence the reporting of actual budgetary data.
187. The Budget of the United States Government
is the most widely recognized and used
financial report of the federal government. The budget process is the government’s
principal mechanism for reaching agreement on goals, for allocating resources among
competing uses, and for assessing the government’s fiscal effects on economic stability
and growth. Most attention is paid to these future-oriented roles of the budget.
188. Budget execution is designed to control and track tax receipts and the use of resources
according to the purposes for which budget authority was approved. Actual receipts,
obligations, and outlays are recorded by account, as is the status of budgetary resources
at the end of each fiscal year.
189. Budgetary measurement is designed to assist in the control and allocation of resources by
showing the cash outlays implied by each decision when the decision is made. In some
cases, the budget now also includes accruals for costs in advance of the required cash
outlay. Budgetary concepts are under continual review. They may be changed by law or,
after consultation with the Congress, in the annual revision of OMB Circular A-11,
“Preparation and Submission of Budget Estimates.”
190. The Board’s authority does not extend to recommending budgetary standards or
budgetary concepts, but the Board is committed to providing reliable accounting
Page 47 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
information that supports budget planning and formulation. The Board also supports efforts
to ensure the accuracy and reliability of reporting on the budget.
191. The Board’s own focus is on developing generally accepted accounting standards for
reporting on the financial operations, financial position, and financial condition of the
federal government and its component entities and other useful financial information. This
implies a variety of measures of costs and other information that complements the
information available in the budget. Together with budgetary reports, these reports will
provide a more comprehensive and insightful understanding of the government’s financial
position, results of operations, and financial condition than either set of reports alone.
Chapter 9: How Financial Reporting Supports Reporting On
Operating Performance
192. The second objective and its subobjectives concern reporting on performance. References
to measuring cost pervade this objective and its supporting narrative. The topics of cost
and performance measurement are related because it is by associating cost with activities
or “cost objectives” that accounting can make much of its contribution to reporting on
performance.
193. Setting performance targets
is a function of management, not of accountants. That is,
elected and appointed officials, including both program and policy officials, decide what the
government will do, how much the government will do, and how it will be done. These
officials consider the relevant constraints and other factors when establishing the
performance targets. Measuring performance against those goals is an essential part of
management. On the other hand, measuring cost is an important part of measuring
performance, and measuring cost and reporting the results is a function of accounting and
the financial reporting system. Financial reporting standards deal with what information is
reported and how it is reported, not with the target levels of performance.
194. This Chapter first discusses cost measurement in general terms, then outlines a
framework for reporting on performance to show how cost information can assist in that
endeavor. Both cost measurement and performance measurement are complex subjects.
Difficult problems arise during attempts to implement the ideas involved. For example,
meaningful interpretation may require disaggregation of information, or adjustment of
targets for differences in client characteristics, for local conditions, and for other factors
beyond the government’s control. Such problems are beyond the scope of this conceptual
document. This Statement does not purport to present a comprehensive discussion of how
to measure cost or performance. Neither does this Statement address the problems of
Page 48 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
implementation; it merely shows the relationship between financial reporting and
performance reporting in conceptual terms.
Cost Measurement
195. As used in this Statement of Concepts, “cost” is the monetary value of the resources used.
Thus far, the FASAB has considered the recognition and measurement of certain assets
and liabilities that could influence the amount of cost recognized in a given period by a
federal reporting entity. For example, the Board’s Statement on Accounting for Direct
Loans and Loan Guarantees implements accrual accounting for these programs, similar to
the accrual budgeting mandated for them by the Credit Reform Act of 1990.
196. A “cost objective” is a program, a function, an activity, an organizational subdivision, a
contract, or another work unit for which cost data are desired and for which provision is
made to accumulate and measure the cost of processes, products, jobs, capital projects,
etc. The basic premise of cost accounting has been described by saying that the
measurement, assignment, and allocation of costs to cost objectives should be based on
the beneficial or causal relationship between those costs and the cost objectives. In
defining the proper measurement, assignment, and allocation of cost for a given purpose,
selecting the appropriate accounting method and whether to use full costing should be
carefully considered.
Method of Accounting
197. The accrual basis of accounting generally provides a better matching of costs to the
production of goods and services, but its use and application for any given purpose must
be carefully evaluated.
Full Costing
198. Full assignment of all costs of a period, including general and administrative expenses and
all other indirect costs, is an important basis for measuring cost of service. However, full
cost is not necessarily the relevant cost for making all decisions. For example, incremental
cost is more appropriate for many kinds of decisions, while opportunity cost is more
appropriate for others. Similarly, cost that is controllable at a given management level is
more appropriate for most evaluations of the performance of those managers. Accordingly,
accounting systems should permit the calculation of the relevant costs needed for a range
of decisions, as determined by the specific situation, and financial reports should reflect
costs suitable to the purpose intended.
Page 49 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Performance Measurement
199. Performance reporting is broader than financial reporting, but good financial reporting is
essential to support performance reporting. The GASB has identified three broad
categories of measures for reporting on performance of state and local governmental
entities: those that measure service efforts, those that measure service accomplishments,
and those that relate efforts to accomplishments. Although some performance measures
may not be clearly assignable to one of these categories, the categories are helpful for
understanding how and where financial reporting can contribute to performance reporting
by providing relevant financial information.
200. To clarify this relationship, the FASAB may wish to change or expand parts of the following
discussion in future projects. At this time, however, the FASAB believes this basic
framework is appropriate for the limited purpose of explaining how financial reporting can
contribute to performance reporting.
16
Measures of Efforts
201. Efforts are the amount of financial and nonfinancial resources (in terms of money, material,
and so forth) that are put into a program or a process. Measures of service efforts also
include ratios that compare financial resources with other measures that may indicate
potential demand for services, such as the number of potential service recipients.
202. Financial information includes financial measures of resources used. They include the
cost of salaries, employee benefits, materials and supplies, contract services, equipment,
etc., used in providing a service. The FASAB’s exposure draft (ED) on Accounting for
Inventory and Related Property is an example of how the FASAB’s recommendations
could affect information reported on resources used.
203. Nonfinancial information includes the following:
• Number of personnel: Because personnel are a major resource for many federal
agencies and programs, indicators that measure the number of full-time equivalent
employees or employee-hours used in providing a service often provide a significant
measure of resources used.
• Other measures: These may include the amount of equipment (such as number of
vehicles) or other capital assets used in providing a service. Because some federal
16
The following discussion is based largely on the GASB’s Preliminary Views on Service Efforts and Accomplishments
Reporting, December, 1992.
Page 50 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
programs use large amounts of capital assets, measures of the use of such assets can
be important indicators of resources used.
Measures of Accomplishments
204. Measures of accomplishments report what was provided and achieved with the resources
used. There are two types of measures of accomplishments—outputs
and outcomes.
Outputs measure the quantity of services provided. Outcomes measure the results of
providing those outputs. For some kinds of programs, financial information can provide
measures of accomplishments. For example, for some government business-type
activities, just as for profit-seeking businesses, the revenue earned can be used as an
indicator of accomplishments. In most government programs, however, the important
indicators of accomplishments are based on nonfinancial information, as discussed below.
205. Outputs, which can be measured in these ways:
• Quantity of service provided: These indicators measure the physical quantity of a
service provided.
• Quantity of a service provided that meets a certain quality requirement: These
indicators measure the physical quantity of a service provided that meets a specified
criterion or a set of criteria. (Quality requirements can also be defined and measured
regarding inputs.)
206. Outcomes, for which indicators measure accomplishments or results that occur (at least
partially) because of the service efforts. Some authorities use terms like “impact,” “effect,”
or “results” to distinguish the change in outcomes specifically caused by the governmental
activity from the total change in outcomes that can be caused by many factors. Though it is
not always feasible, in theory performance evaluation should focus on results or effects in
the sense of impacts, i.e., on the differences between program outcomes and the
outcomes that would have occurred in the absence of the program. Results also include
measures of public perceptions of outcomes.
207. Outcome measures are particularly useful when presented as comparisons with previous
years, established targets, goals and objectives, generally accepted norms and standards
(in the sense of “targets”), other parts of the entity, or other comparable entities.
208. Sometimes, the secondary and/or unintended effects of a service on the service
recipients, community, or nation can be identified and may warrant reporting.
Page 51 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Measures That Relate Efforts to Accomplishments
209. For profit-seeking entities and for some business-type government programs, the amount
of net income can be thought of as a single indicator that relates organizational efforts to
accomplishments. For most government activities, however, relating efforts with
accomplishments in a meaningful manner is more complex. Two types of such indicators
are discussed below.
• Efficiency measures that relate efforts to outputs of services: These indicators measure
the financial resources used or the cost (in dollars, employee-hours, or equipment) per
unit of output. They provide information about the production of an output at a given
level of resource use and demonstrate an entity’s relative efficiency when compared
with previous results, established goals and objectives, generally accepted norms or
targets, or results achieved by similar entities.
• Effectiveness or cost-outcome measures that relate efforts to the outcomes or results
of services: These measures report the cost per unit of outcome or result. They relate
costs and results to help managers, executives, Congress, and citizens assess the
value of the services provided by an entity.
210. As is evident, financial or cost information is an important component of both types of
measures that attempt to relate efforts to accomplishments.
Limitations of Performance Measurement
211. Performance measurement is an essential part of good management, and performance
reporting is an essential part of government accountability. Important limitations and
difficulties associated with performance measurement and reporting should be noted,
although they cannot be fully explored in a brief outline of the subject such as this. For
example, performance usually cannot be fully described by a single measure, indicators of
service efforts and accomplishments do not, by themselves, indicate why performance is
at the level reported, and reporting quantifiable indicators can sometimes have
unintended consequences.
212. For these and other reasons, the three categories of performance measures generally
need to be accompanied by suitable explanatory information. Indeed, narrative information
is an essential part of reporting on performance. Explanatory information includes both
quantitative and narrative information to help report users understand reported measures,
assess the reporting entity’s performance, and evaluate the significance of underlying
factors that may have affected the reported performance. (As noted, the reporting entity
may be the federal government as a whole or any of its component reporting entities.)
Explanatory information can include, for example, information about factors substantially
Page 52 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
outside the entity’s control, as well as information about factors over which the entity has
significant control.
Page 53 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Appendix A: Basis For Conclusions
This Statement may be affected by later Statements. The FASAB Handbook is updated annually
and includes a status section directing the reader to any subsequent Statements that amend this
Statement. Within the text of the Statements, the authoritative sections are updated for changes.
However, this appendix will not be updated to reflect future changes. The reader can review the
basis for conclusions of the amending Statement for the rationale for each amendment.
Introduction
213. This appendix summarizes some of the considerations that were deemed significant by
members of the Board in reaching the conclusions in this Statement. It includes reasons
for accepting certain approaches and for rejecting others. Individual Board members gave
greater weight to some factors than to others.
214. The Board used several methods to arrive at the knowledge base and conclusions that
shape this Statement. Its staff conducted focus group discussions, interviewed users and
preparers of financial information, and performed other research.
215. Based on this work, the Board published an exposure draft on January 8, 1993, as called
for by the Board’s rules of procedure. Forty-six letters were received in response. The
Board also held a public hearing on the exposure draft on April 21-22, 1993, at which it
received valuable comments.
216. The Board wishes to thank everyone who participated in the process.
Relationship Between Financial Reporting And The Budget
217. The Board considered whether it should modify the exposure draft’s discussion of the
relationship between financial reporting and the budget. Several respondents commented
on this subject, but often in different ways. Some alluded to budgetary and proprietary (or
“accrual” or “financial”) accounting in a context that implied each should be on a different
basis but reported in an integrated fashion. Others suggested that using the same basis
for
reporting and for budgeting was essential to achieve the objectives stated for federal
financial reporting.
218. Many recommendations have been made over the years that information on expenditures
be arranged to permit better perception of the relationship between the expenditures and
Page 54 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
national policy objectives. Some of those recommendations have related to the budget.
Some have called for an “accrual-basis” budget. Those who would like to change the
organization and/or the basis of the budget, e.g., to more of a “program” organization or to
more of an “accrual” basis, might regard financial reporting from a program perspective
and/or on an accrual basis as a valuable first step before considering restructuring the
budget.
219. Others may have fundamentally different views. For example, some believe there is merit
in maintaining a distinction between accrual accounting and budgeting, except to the
extent that those involved in preparing and approving the budget elect to use an accrual
convention, as in the Credit Reform Act of l990. These persons believe that the budgetary
basis of measurement should, in principle, sometimes be different from the accrual basis.
They infer this from the different purposes of budgeting and financial reporting.
220. The Board concluded that there was no reason to change the discussion of this topic in
this Statement, because the Board has no jurisdiction regarding the budget.
State And Local Governments And Other Nonfederal Entities
221. Some respondents expressed concern about the potential impact of federal accounting
standards on state and local governmental accounting. These respondents would like to
minimize the cost of compliance with federal requirements. To the extent possible, they
would like to avoid the need to report on a basis different from that specified by the GASB.
Presumably their comments dealt with general purpose reporting because grantees must
now prepare various special purpose reports pursuant to the requirements of granting
agencies, OMB, the Single Audit Act, etc.
222. The FASAB has no intent to recommend standards for general purpose external financial
reporting by nonfederal entities. The FASAB’s mission is to consider and recommend
accounting principles for the federal government. The FASAB’s work, therefore, will have
no direct effect on nonfederal entities. It is true, however, that the FASAB’s
recommendations could eventually result in increased demand for information from
recipients of federal funds. This could happen when such information was necessary for
federal reporting entities to achieve the stated objectives of federal financial reporting.
Such requirements would be “special purpose” reporting requirements, from the
perspective of grant and contract recipients.
223. These requirements most likely would be imposed by program officials in contracts and
grant agreements with the recipients of the federal funds. The Board acknowledges that
the federal government has a responsibility to consider the cost imposed on nonfederal
Page 55 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
entities when making decisions to impose such requirements. At the same time, benefits to
all entities and to all citizens involved also must be considered.
Reporting On Performance And Using Nonfinancial Information
224. Most respondents who addressed reporting on performance supported the exposure draft,
but some thought the language was too encompassing. The Board concluded that their
concern was stimulated in part by the wording of the first three objectives in the exposure
draft. Each began with the phrase “federal financial reporting should assist...” However,
each of these objectives subsequently included a phrase “Federal financial reporting
should enable the reader to determine...” that perhaps implied more than the Board
intended.
225. Accordingly, the Board substituted the phrase “provide information that helps the reader...”
for “enable...” The Board also made certain other changes recommended by some
respondents. In particular, the Statement now uses the phrase “performance target” to
refer to desired levels of performance defined by elected and appointed officials. This term
is used instead of “performance standard” to avoid possible confusion with “financial
reporting standards,” which deal with what information is to be reported in designated
reports and with how it is reported.
226. The Statement also makes it clear that performance targets should be set by program and
policy officials working together. Financial officials have a role to play in this process,
especially where financial data are involved. That role is based on their expertise in cost
measurement and their responsibility to ensure the integrity of the data.
227. One authority on public administration has explained the relationship in this way:
Government accountants are responsible in part for capturing, reporting, and analyzing
actual financial information important for both policy making and management. Policy
analysts and budget professionals deal primarily with what should occur
and
accountants deal primarily with capturing and recording what did occur
. In addition,
government accountants have auditors reviewing their work professionally to further
ensure the integrity of the accounting process.
17
228. The Board believes that accounting supports financial reporting and that, in the
government, financial reporting goes hand in hand with accountability and performance
17
Thomas D. Lynch, “President’s Column,” ASPA Times, vol. 16, No. 6 (June 1, 1993), p. 5.
Page 56 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
evaluation. Financial accounting and financial reporting have a special role in assuring
compliance with finance-related requirements for transactions. This is most directly
relevant to objectives 1 and 4.
229. Financial reporting, however, also provides useful information about costs, assets, and
liabilities. This information is especially relevant to objectives 2 and 3. Routine reporting of
outputs, outcomes, and their costs is an important part of a performance monitoring
system. Assessments of impacts (also referred to as effects, or results) specifically caused
by governmental action are more likely to be performed in less-frequent program
evaluations and special studies. Those studies draw upon the output, outcome, and cost
information that is (or should be) more frequently published.
230. Federal accounting and financial reporting exist within the context of various laws intended
to foster accountability and performance evaluation. Neither the FASAB nor federal
financial reporting can independently accomplish the objectives of evaluating performance
or assuring accountability, but they can contribute to achieving them. Furthermore, to
make their essential contribution to these ends, accountants, auditors, and financial
managers must understand the overall framework for achieving these objectives.
231. For nongovernmental entities, competitive markets for goods, services, and capital provide
an independent assessment of the economy, efficiency, and effectiveness with which
those entities use resources to meet their customers’ needs. There is no similar proof of
value for federal output independent of the political process. To report on the results of
operations of a governmental entity, nonfinancial information is essential, in conjunction
with financial information.
232. In concept, this fact could imply that a complete financial report of a federal reporting entity
should include indicators of economy, efficiency, and cost effectiveness if the report is to
fairly present the entity’s financial position and results of operations. Paragraph 164 notes
that financial or cost information is an important component of both types of measures that
attempt to relate efforts to accomplishments. In practice, the extent to which it is feasible
and cost effective to present such information can be decided only after careful study of
the specific circumstances.
233. While specific decisions will require further study, the Board notes its belief that any
attempt to demonstrate accountability beyond probity (level 5) and process (level 4)
requires performance measures.
18
The Board’s user needs study, its public hearings, and
similar sources of information suggest a widespread belief that the federal government
needs to make a more systematic attempt to measure and report outputs, outcomes
18
Levels of accountability are discussed in Chapter 3.
Page 57 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
(including impacts), and the costs of producing them. To do this, the Board believes,
accounting and financial reporting play an essential part throughout the cycle of planning,
budgeting, financial management, and evaluation of federal activities.
Stewardship
234. A few respondents said that the stewardship objective described in the exposure draft was
too broad. They felt that information on the effects on the nation of policy decisions was
outside the scope of federal financial reporting. The Board concluded that this concern—
like the preceding one regarding reporting on performance--stemmed in part from the
wording and structure of the first three objectives in the exposure draft.
235. Accordingly, the Board substituted the phrase “provide information that helps . . .” for
“enable . . .” As noted earlier, federal financial reporting cannot by itself accomplish the
objectives of evaluating or assuring stewardship; it can only contribute to those goals.
236. The Board notes that the federal government has two levels of stewardship. One is for its
own assets and liabilities and its ongoing ability to operate. The other is its constitutional
responsibility for the nation’s wealth and well-being. It is unique in this respect. If the
nation’s wealth and well-being are deteriorating, the government’s financial condition is, or
soon will be, deteriorating also—and vice versa. The financial condition of a sovereign
national government and that of the nation itself are inextricably intertwined. Some
information about the overall context must be provided, therefore, when reporting on the
government as a whole, and perhaps when reporting on selected programs. As explained
in Chapter 1, the FASAB does not recommend standards for economic reporting, but it
may consider whether such information should be included in certain financial reports.
Systems And Control
237. Most respondents who addressed the fourth objective, originally titled “Deterring Fraud
Waste and Abuse,” supported the exposure draft, though some suggested that it could be
phrased in a more positive fashion. Several emphasized the need for this objective and for
standards to achieve it, but a few thought that internal control should not be regarded as
an element of financial reporting. Others suggested that a separate objective on this topic
was not necessary because it could be inferred from the other objectives.
238. The Board agreed that the objective should be stated in more positive terms. Accordingly,
it replaced “Deterring Fraud, Waste, and Abuse” with the new heading “Systems and
Control” and made other changes in wording the objective. With regard to the fundamental
Page 58 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
point, however, the Board continues to believe that systems and control are topics of
sufficient importance and relevance to warrant addressing in their own right.
239. The Board’s user needs study, public hearings, and other sources of information make
abundantly clear that users want assurance that reported information is credible and
reliable. They also want to know that reasonable controls are in place to deter fraud,
waste, and abuse. Independent audit can help provide this assurance, but whether
information is audited or not, effective systems and controls are essential to providing such
assurance in a cost-effective way. Furthermore, effective systems and controls are
essential to achieving the other objectives.
240. Perhaps the unique contribution of accounting-based reports for objectives 1 and 4 is the
“core” accounting data base on transactions, especially on controlled transactions subject
to finance-related restrictions. Systems of accounting control are integral parts of this
special role for financial reporting. Similarly, regarding objective 2 and, to some extent,
objective 3, systems and controls are important because direct observation of outcomes
and impacts is often infeasible or expensive. In these cases, reliance on accounting and
administrative controls to ensure compliance with good practices and processes is often a
cost-effective surrogate for trying to measure the value added by governmental activities.
241. Finally, the fundamental notion of accountability pervades the entire set of objectives.
Effective systems and controls are essential prerequisites to accountable government.
Thus, the Board regards systems and controls as an integral part of accounting,
accountability, and financial reporting.
Dual Focus On Internal And External Users
242. Several respondents mentioned users, but no consensus about a change to the exposure
draft was evident. For example, some respondents urged greater emphasis on the
information needs of external users or on objectives of general purpose, external financial
reporting. Others urged greater emphasis on information needs of lower-level program
managers and employees. These comments are not necessarily contradictory, nor are the
competing perspectives necessarily mutually exclusive. The Board continues to believe
that it must consider both external and internal users. The Board itself is the agent of
officials who, in turn, are agents of the public. This organizational fact contributes to the
dual focus.
243. Also, as noted in Chapter 1, the distinction between internal and external users is not clear
for the federal government. Except in degree of detail, virtually all federal financial
information is of interest to at least some segments of the public.
Page 59 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
244. The Board acknowledges that this dual focus will often create the need to balance various
considerations to arrive at an optimal result. For example, as one respondent properly
noted, there could be a danger of emphasizing what he termed “comparable consistency”
for uniform reporting to users who want comparable information across agencies. He was
concerned that this might interfere with “relevant customization” of information systems to
meet the unique needs of agencies in response to their specific environments. It is
understood that “comparable consistency” of information is needed for some purposes and
“relevant customization” for others.
245. The Board is primarily concerned with the former class of uses and reports, i.e., with
ensuring the provision of comparable data where it is relevant and cost-effective to do so.
Individual preparers often are not in a good position to judge the cost-benefit ratio of such
information governmentwide. They are aware of the costs they incur to produce
information, but they often are not aware of the potential benefit of producing that
information. Neither are they in a position to establish standards that would produce such
information.
246. On the other hand, there should be less need for outsiders like the Board or its sponsors to
mandate relevant customization within agencies. Presumably each preparer can and will
take care of that, provided that resources are available to do so and that there are no
bureaucratic impediments.
247. In concept, therefore, there need be no conflict between “comparable consistency” and
“relevant customization.” Furthermore, in theory, properly designed accounting systems
should facilitate both internal and external reporting. In practice, however, because
administrative resources for information processing systems are limited and because new
systems take time to install, externally-imposed requirements for comparable consistency
could compete with addressing internally perceived needs for relevant customization. The
Board acknowledges this trade-off. This is just one of many cost-benefit factors that the
Board will need to consider as it addresses each specific issue in subsequent projects.
Objectives For Governmentwide And Component Entity Reports
248. Some respondents suggested there should be separate sets of objectives for
governmentwide and component entity reports. Similarly, it might also be possible to
distinguish objectives for reporting by organizational unit
components from those for
functional
or program components. Alternatively, one might imagine separate sets of
objectives for reports to different audiences. The Board concluded that different reports are
likely to emphasize different objectives but that there is no need to prepare separate
statements of objectives. The Board will give due consideration to variations in emphasis
among the objectives for different types of reports in subsequent statements and projects.
Page 60 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Appendix B: Users’ Information Needs Addressed By Federal
Financial Reporting
249. This appendix is consistent with Chapter 3’s discussion of users’ needs for financial
information. It represents an intermediate step in the Board’s consideration of the financial
reporting objectives implied by those needs. The appendix is included to aid the reader in
understanding the reporting objectives by providing another perspective on the issues.
250. The financial information needs of the four user groups can be classified into six
categories:
1. Information on the sources and uses of budgetary resources
2. Information about operations and the related resources
3. Information about the government’s assets
4. Information about the government’s liabilities and financial responsibilities
5. Information that addresses concerns with the future
6. Information that discloses the levels of financial controls
251. In some cases, the specific nature of the information would be basically the same for all
four groups of users; only the level of detail would vary. For example, the amount of
unobligated budgetary authority available to be obligated would be of interest to program
managers wanting to avoid violations of the Anti-Deficiency Act and to executives wanting
to know the availability of budgetary resources that can be reprogrammed for other
purposes.
19
252. In other cases, the specific nature of the information would vary, depending on the
reporting entity, the report user and the use to which the information was put. For example,
“error rates” could refer to errors in determining the monthly payment an individual was
entitled to receive from the government or errors in calculating fees that a company was
required to pay the government.
19
“Obligations” has a meaning in federal accounting similar to that of “encumbrances” in state and local governmental
accounting; that is, it reflects a reservation of appropriated spending authority that will be used to pay for a specific
contract, a purchase order, or another item.
Page 61 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Information On The Sources And Uses Of Budgetary Resources
253. The budget is the starting point for the government’s finances. All users want to know the
makeup of the budget, i.e., the budget authority, the obligations, the outlays, the receipts
and offsetting collections, etc. They want to know how the budget was executed and
particularly whether it was executed in accordance with the appropriation statutes and
other laws affecting the entity’s finances. They want to know the status of the budgetary
resources, including the extent of obligated and unobligated budget authority. Finally, they
want to know the sufficiency of the budget authority for covering future commitments.
Information About Operations And The Related Resources
254. Accompanying the need for information about budgetary resources is a need for
information about the operations of the government’s programs. This includes information
about the costs of the programs, classified in ways that provide further understanding,
such as by program or activity, direct or indirect, fixed and variable, in comparison to
estimates, or by object (e.g., personnel). Information that discloses unit, total, and marginal
costs and changes in costs is also useful.
255. Cost information reflects the inputs for government services. Equally useful is information
about the outputs, outcomes, efficiency, and effectiveness of government services, by
themselves or in relation to a budget or goals, and any changes. This would include an
identification of the periods in which the accomplishments would be realized. Such
information helps form a basis for voting, funding, and management decisions.
Information About The Government’s Assets
256. Financial statement users want considerable information about the government’s assets.
They want to know whether the balances in the trust and revolving funds will be sufficient
for fulfilling the fund’s purposes. They want to know the nature and amounts of receivables
owed the government and whether the receivables will be paid. They are interested in the
size and condition of the inventories and whether they can be used as intended or, if not,
how much would be received for their disposition. There is much the users want to know
about the government’s physical assets: their value, their expected service life, the
replacement costs, and the impact of the maintenance that has been deferred.
257. The government also holds assets as a custodian or only until the assets can be sold.
Examples are seized or forfeited assets. Information about these assets helps to establish
Page 62 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
accountability for them and to make decisions about the best time and method for their
disposal.
Information About The Government’s Liabilities And Financial
Responsibilities
258. Users want to know what the government owes and whether the amounts are short term
and precisely definable, long term and only an estimate, or just a contingency related to an
enterprise or activity that is not a direct and current government responsibility, e.g.,
government-sponsored enterprises. This information helps the reader assess the
government’s ability to continue to operate at its current levels over a period of time and/or
whether a tax increase is likely.
259. The changes in the amounts owed from year to year are also important. The user often is
willing to settle for (or may actually prefer) ranges rather than point estimates and/or net
present values rather than nominal (undiscounted) amounts.
Information That Addresses Concerns With The Future
260. The federal government is responsible for the country’s well-being. Its financial actions
affect that well-being, both currently and in the future. Thus, users look not just for
information to evaluate the condition of the trust funds upon which they rely for future
security. They also want information to assess the likelihood of tax increases, service
reductions, and changes in the inflation rate.
261. They therefore want information about possible sources of additional financial resources.
They want to see the amounts of resources expended on consumption activities in
comparison to investment activities, such as research and development. They want
information on other growth-stimulating activities. On the other hand, they still want to be
able to assess where spending can be reduced significantly.
262. Finally, they want to know the magnitude of the probable future deficits, the cost burden
this will place on taxpayers, and the potential effect that this burden might have on the
quality of life.
Page 63 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Information That Discloses The Levels Of Financial Controls
263. Because the government spends such large amounts of monies, taxpayers and other
citizens are naturally concerned that the resources they supply are being protected from
fraud, waste, and abuse and that the errors are minimal. They want to know that controls
are in place and operating effectively and that problems are being quickly identified and
corrected. They are particularly concerned that identified high risks are addressed and that
adequate funds are devoted to eliminating the risk.
264. This concern is not just with the monies expended directly by the government. It also
extends to the monies expended by the individuals and organizations that receive
government contracts or grants.
Page 64 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
Appendix C: Selected Federal Reports Prepared On A
Recurring Basis
265. This appendix classifies some well-known reports according to the categories set forth in
figure 1 in Chapter 8. Reports are classified according to whether they are primarily
financial or nonfinancial and whether they have primarily a special or a general purpose.
The classification is somewhat subjective. It is based on the general nature or emphasis of
the reports. Many reports combine information and functions from different categories.
266. All these reports contribute to meeting the Board’s reporting objectives for some users.
However, many of the specific reports listed—economic reports dealing with the nation as
a whole, for example—will be influenced only indirectly, if at all, by the Board’s standards.
Indeed, because they deal with transactors other than the government (such as private
citizens and corporations, states and local governments, and not-for-profit entities),
economic reports fit within the context of figure 1 only to the extent that they may provide
information to assess the government’s operating performance and stewardship.
Financial Information—Special Purpose
• Budget of the U.S. Government
• Analysis of the President’s Budget Proposals (CBO)
• Economic and Budget Outlook Report (CBO)
• Economic and Budget Outlook Report Update (CBO)
• Midsession Review of the Budget
• Budget Enforcement Act Reports: Preview, Update, and Final Sequestration
• Request for Apportionment (SF 132)
• Report on Budget Execution (SF 133)
• Economic Report of the President
• Federal Reserve Bulletin
• OPM Forms 1351 A-D: Work years and personnel costs reports
• Prompt Payment Report
Financial Information—General Purpose
• Annual financial statement (principal financial statements, including footnotes and
combining financial statements if applicable) required by the CFO Act on revolving funds,
trust funds, substantial commercial functions, and pilot federal agencies
• Annual financial reporting by agencies required by Treasury (SF 220 series)
Page 65 - Concepts 1 FASAB Handbook, Version 22 (12/23)
Concepts 1
• Prototype Consolidated Financial Statements of the U.S.
• The U.S. Government Annual Report and Appendix (Treasury)
• Monthly Treasury Statement of Receipts and Outlays of the U.S.
• Monthly Statement of Public Debt
• Daily Treasury Statement (on cash and debt)
Nonfinancial Information—General Purpose
• Annual departmental reports to the President and Congress
• Nonfinancial information required by the CFO Act in the overview, supplemental information,
and other portions of the reports
Nonfinancial Information—Special Purpose
• Reports required by the Federal Managers’ Financial Integrity Act of 1982
