Questions and Answers for Statement of Federal Financial Accounting Standards (SFFAS) No. 47 Working Group review

SFFAS 47 provides the following three principles:

[20] This Statement provides three principles for determining which organizations should be included12 in the government-wide GPFFR (see paragraph 21-35). This Statement also provides an additional principle requiring inclusion of organizations if excluding them would be misleading (see paragraph 36-37). The three principles are to be applied without considering whether the relationship is temporary or permanent. However, whether the relationship is temporary or permanent would influence the likelihood that the entity exhibits the characteristics of a consolidation entity or of a disclosure entity.

[21] An organization meeting any one of the three principles below is included in the government-wide GPFFR:

1. In the Budget
2. Majority Ownership Interest
3. Control with Risk of Loss or Expectation of Benefit

[Footnote12] ”Included” means the information is either consolidated or disclosed

Paragraphs 22-35 provide a detailed explanation of the three principles listed in paragraph 21. In particular, the following paragraphs should be considered regarding grant recipient organizations:

Situations Where Control Does Not Exist

[33] Because of the federal government’s broad powers and economic influence, control should not be inferred from either:

1. authority to exercise regulatory powers over an organization; or
2. economic dependency of the organization on the federal government.

[34] The federal government has the power to regulate many organizations by use of its sovereign and legislative powers. For example, the federal government has the power to regulate the behavior of organizations by imposing conditions or sanctions on their operations. However, the governing bodies of the regulated organizations make decisions within the regulatory framework. Regulatory powers do not constitute control for purposes of this Statement because the federal government’s interest in these organizations extends only to the regulatory aspects of the operations.

[35] Certain organizations may be economically dependent on the federal government but ultimately retain discretion as to whether to accept funding or do business with the federal government. For example, many not-for-profit organizations rely on federal government funding but that does not mean they are controlled by the federal government. Although the federal government may be able to influence organizations dependent on federal funding or business through purchasing power, the federal government typically does not govern their financial and operating policies.

SFFAS 47 is effective in periods beginning after September 30, 2017, with earlier implementation not permitted. Guidance is provided by Federal Accounting Standards Advisory Board (FASAB) in SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles. In addition, implementation guidance will be provided by the Office of Management and Budget (OMB) in Circular A-136.

FASAB guidance: The Board discussed implementation of SFFAS 47 at the October 2015 Board meeting. Conclusion: Prior periods should not be restated, in accordance with paragraph 13 of SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles (see text of paragraph 13 below).

OMB guidance: : Detailed instructions for reporting consolidation and disclosure organizations will be provided in OMB Circular A-136, Financial Reporting Requirements. In addition to the FY 2018 issuance of Circular A-136, OMB will likely provide advance guidance in Circular A-136 to assist agencies in planning for FY 2018 reporting in compliance with SFFAS 47 and paragraph 13 of SFFAS 21.

TFM guidance: A TFM bulletin will be published in July 2016 providing a summary of SFFAS No. 47 and listing all agency determinations of consolidated, disclosure, and related party as well as the component entity.

Text of SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles, paragraph 13:
[13] Unless otherwise specified in the transition instructions section of a new FASAB standard, for all changes in accounting principles that would have resulted in a change to prior period financial statements:
(a) The cumulative effect of the change on prior periods should be reported as a “change in accounting principle.” The adjustment should be made to the beginning balance of cumulative results of operations in the statement of changes in net position for the period that the change is made.
(b) Prior period financial statements presented for comparative purposes should be presented as previously reported; and
(c) The nature of the changes in accounting principle and its effect on relevant balances should be disclosed in the current period. Financial statements of subsequent periods need not repeat the disclosure.