FASAB Statement 56: Understanding New Government Financial Accounting Loopholes

FASAB Statement 56: Understanding New Government Financial Accounting Loopholes by Constitution / Catherine Austin-Fitts

Hat tip London Paul – The Sirius Report

 

Table of Contents

I. Introduction
II. History of the Federal Accounting Standards Advisory Board (FASAB)
III. FASAB and Standard 56
A. What Does Standard 56 Do?
B. Reporting Entities Within the Scope of Standard 56
C. Changes to Disclosure Standards Under Standard 56
D. Modifications to Avoid Disclosure of Classified Information
E. Reporting on Consolidation Entities
F. Interpretations Modifying Reporting Standards in the Future
IV. Administrative History of Statement 56
A. Commentary on Required Disclaimers
B. Federal Commentary on Standard 56 Generally
C. Concerns From Accounting Firms
V. The Results of Statement 56 for the Public
VI. About Us

December 29, 2018

I. Introduction

Financial accountability for the government is a cornerstone of a functioning representative democracy. The ability for the people to know where taxpayer money goes to is crucial to having an informed opinion regarding the actions of your representatives and to react accordingly. Unfortunately, as we’ve discussed in previous articles, the current state of government accounting is far from ideal–often bordering on useless to the public. This is largely due to lax enforcement of existing laws such as the Chief Financial Officers (CFO) Act, but also stems from the very real tension between completely transparent government financial disclosure and national security interests (see The U.S. Statutes Creating Modern Constitutional Financial Management and Reporting Requirements and the Government’s Failure to Follow Them, available at https://constitution.solari.com/the-u-s-statutes-creating-modern-constitutional-financial-management-and-reporting-requirements-and-the-governments-failure-to-follow-them/). As of the last few months, this tension has taken the future of government financial disclosure to the public to new levels of opacity. The Federal Accounting Standards Advisory Board (FASAB) has released Statement of Federal Financial Accounting Standards 56 (Standard 56), taking government accounting practices from laxly enforced reporting standards to a new benchmark entirely–expressly approved obfuscation of reporting and, in some cases, outright concealing financials.

This sounds fairly alarmist at first blush but, simply put, Standard 56 creates a set of situations where government entities may move numbers around to conceal where money is actually spent or even not report spending outright. Many of the concepts in Standard 56 are not new and have been discussed in FASAB reports for nearly a decade. However, these new changes make a substantial portion of government financial reporting so unreliable as to not be a useful tool to the public (see FASAB Statement of Federal Financial Accounting Standards 56, available at http://files.fasab.gov/pdffiles/handbook_sffas_56.pdf).

In order to fully understand Standard 56, we will be taking a fairly deep dive on the new accounting standards it creates—from the history leading up to the new rules, to summarizing the exact changes of Standard 56. We’ve said that Standard 56 isn’t new, and this is true; it has hundreds and hundreds of pages of memorandums and the like which came before it, outlining the exact parameters of these new reporting rules. For that reason, a complete summary of what a government entity must report will not be possible–or likely even useful–in an article of this length. That being said, we will explore the role of FASAB itself, the functional changes of Standard 56, and how it will impact the ability of the U.S. taxpayer to see how their money is spent.

II. History of the Federal Accounting Standards Advisory Board (FASAB)

FASAB came about as a response to the requirements of the CFO Act. We previously wrote about the CFO Act in The U.S. Statutes Creating Modern Constitutional Financial Management and Reporting Requirements and the Government’s Failure to Follow Them (available at https://constitution.solari.com/the-u-s-statutes-creating-modern-constitutional-financial-management-and-reporting-requirements-and-the-governments-failure-to-follow-them/). Under the Act, the individual CFOs of covered federal agencies are responsible for preparing financial statements for regular audit in order to ensure accuracy in accounting. The CFOs also were tasked by the Act with integrating accounting and budget information into a form consistent with those used to make budgets, put together a uniform financial management system for their agency, and–perhaps most importantly–make sure that the system they put together allowed for actual useful measurement of the financial performance of the CFO’s agency.

However, the CFO Act was light on the details, and after the Act passed in 1990, there was a need to determine the actual details of the accounting standards required. Therefore, the Treasury, OMB, and Comptroller General signed a Memorandum jointly establishing the FASAB to “consider and recommend the appropriate accounting standards for the federal government” (see History of FASAB, available at http://www.fasab.gov/the-history-of-fasab/). Until 1999, FASAB simply gave recommendations to those three sponsoring entities. Then, in 1999, FASAB was approved to set final generally acceptable accounting practices (GAAP) for the federal government, with only a 90 day review period by the sponsoring entities. In 2002, the Treasury was removed as a sponsoring entity, leaving the OMB and GAO as the only entities able to object to FASAB set standards (see id.).

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