Rep. Jim Renacci, R-Ohio, a CPA, has introduced a bipartisan bill to bring more accountability and transparency to the federal government’s financial statements by making the Federal Accounting Standards Advisory Board more independent.
The bill, known as the Federal Financial Statement Transparency Act, won the support of the American Institute of CPAs on Tuesday. The bill aims to encourage the federal government to clean up its balance sheet and lead to a more honest depiction of the nation’s finances, by reinforcing FASAB’s status as an independent entity for setting accounting standards for the federal government.
“While many in Congress agree that we must reduce our debt and eliminate our deficits, there is less agreement on how we best accomplish it,” Renacci said in a statement. “I believe this is due in large part to the fact that the actual size of our assets, liabilities and true net accumulated deficit remain a mystery. If a business ran its books the way the federal government does, then it would most certainly be forced to close its doors.”
Each year, he noted, the federal government produces financial statements and the Government Accountability Office audits them. However, the GAO has never been able to issue an unqualified, or “clean,” audit of the federal government’s consolidated financial statements.
In addition, the Treasury Department continues to leave some of the largest liabilities, such as the social insurance funds which include Social Security and Medicare, off the balance sheet. In fiscal year 2012, the balance sheet compiled by the Treasury showed a net accumulated deficit of $16.1 trillion and in fiscal year 2013 a net accumulated deficit of $16.9 trillion. If the social insurance obligations were reflected on the balance sheet, the net accumulated deficit could top $60 trillion. While the federal government requires public companies to have “clean” audited statements to operate and sell securities, it cannot meet that same standard.
“As a CPA and former business owner for nearly 30 years, I know how critical it is to have the financial information necessary before making a decision about how to best move an organization forward,” said Renacci. “In Washington, we know that our current path is unsustainable, but do we really know where we stand fiscally? The answer is that we don’t, and neither do the American people thanks to the federal government’s incomplete financial statements.”
The accounting standards used by the Treasury and other federal agencies when compiling their consolidated financial statements are set by FASAB, just as the Financial Accounting Standards Board (FASB) sets standards for companies in the private sector, and the Governmental Accounting Standards Board (GASB) sets standards for state and local government entities.
“Establishing FASAB was a step in the right direction, but it lacks independence—opening the door to political influence,” said Renacci. “At a time when we are facing a $17.5 trillion debt, hardworking American taxpayers deserve an accurate picture of our government’s finances. That is why I have introduced the Federal Financial Statement Transparency Act, bipartisan legislation that would lead to more transparency and accountability within U.S. financial statements. We know that we must tackle our spending-driven debt crisis, and identifying exactly where we stand financially is a critical first step to addressing it.”
Currently, FASAB has nine members, including three federal members from each of FASAB’s sponsoring agencies (the GAO, the OMB, and the Treasury) and six public or non-federal members. The Federal Financial Statement Transparency Act aims to make FASAB more independent by removing the Treasury’s voting rights on the board and independently funding its operations. Renacci believes the Treasury should not be allowed to vote on the standards it will then use in compiling financial statements. Under the bill, if the Treasury fails to implement a standard set by FASAB, it would be required to submit a public report explaining their deviation.
Renacci is receiving support on the Democratic side of the aisle from Rep. John Carney, D-Del., who is the lead co-sponsor of the bill. “There’s not a lot this Congress can agree on, but one thing we should all be able to support is getting our balance sheet in order,” said Carney. “I’m proud to work with my friend Mr. Renacci on cleaning up our country’s finances and making sure that Congress—and the American people—have an accurate picture of how their money is being spent. This bill is a straightforward solution to a problem Congress has ignored for far too long.”
The AICPA is backing the legislation. “The AICPA strongly supports the Federal Financial Statement Transparency Act of 2014, and specifically its goal of reinforcing the Federal Accounting Standards Advisory Board’s status as an independent entity,” said AICPA president and CEO Barry C. Melancon in a statement. “The measure is a meaningful step toward ensuring FASAB has adequate resources to carry out its mission and address important accounting principles for the federal government. Since our 1999 designation of FASAB as the accounting standard-setting body for federal entities under Rule 203 of the AICPA’s Code of Professional Conduct, there have been many improvements made by FASAB to ensure its independence. Importantly, H.R. 4678’s establishment of a sustainable funding mechanism for FASAB enhances the criterion of human and financial resources that is considered integral to its independence. As a CPA, Representative Jim Renacci, R-Ohio, recognizes the importance of enhancing FASAB’s funding and governance. He, Representative John Carney, D-Del., and the bill’s other co-sponsors are to be commended for their leadership on this issue. We welcome the introduction of this legislation and hope that in tandem with our What’s at Stake?’ initiative—which provides a clear analysis of the federal government’s financial statements—it will elevate the dialogue about the nation’s fiscal health.”