It figures that it would be Tom Allen who took on the single biggest accounting issue in the country, if not the world.It was Allen who, as chairman of the Governmental Accounting Standards Board, ushered in Statement 34, which moved state and local governments to accrual accounting - arguably one of the biggest changes ever to impact governmental accounting.

Now, as chairman of the Federal Accounting Standards Advisory Board, Allen has taken on an even bigger challenge: to develop a means of reporting on the fiscal sustainability of federal policies.

The sustainability project aims to answer a $50 trillion question: How do we determine the financial condition - the sustainability - of the U.S. government over the next 75 years?

Fifty trillion dollars is roughly the total of the long-term liabilities of the federal government, including two of the big ones: Social Security and Medicare. FASAB is trying to devise a means of reporting liabilities relating to such social insurance programs, a total commitment large enough to boggle the mind, and long-term enough to outlive anyone in Congress.

Split on the issue of how to account for social insurance, FASAB issued a preliminary views document last October that offers two conflicting opinions on when a liability for social insurance benefits and related expenses should be recognized. Comments were requested by April 16, 2007, but Allen intimated that he'll be glad to receive comments anytime before redeliberations begin in May.

One of the factions in FASAB believes that social insurance programs are an expense, and that some portion of the benefits accumulated by participants to date should be recognized as a liability. Another believes that a liability arises only when participants have met all eligibility requirements and the benefit amount is "due and payable."

One argument held by the latter group is that since no one believes that the total obligation - much of the $50 trillion - can ever be paid off, it should not be recognized as a liability.

Another argument, Allen said, holds that, "The number dwarfs everything else in the operating statement of the federal government, in essence making every other number meaningless, and therefore the liability should not be recognized."

One suggested solution is to not recognize the entire liability, but to issue a separate financial statement on the sustainability of not only social insurance programs, but also of other long-term obligations, such as defense, justice and infrastructure.

"We're in due-process discussions about balance-sheet liability recognition," Allen explained. "But in the meantime, the four board members not supporting [it] have said, 'This is how we will have it in the financial statement, not on the balance sheet but in a statement of sustainability.'"


Despite the divergence on recognition, the board members agreed that a nontraditional financial statement on fiscal sustainability might be a good idea, and toward that end they have formed a task force of nine individuals who have been asked to develop recommendations on the advisability of such a standard.

Allen said that he knows of no other state or national government that produces the kind of fiscal sustainability report that the task force is exploring.

"The project will likely result in standards and a nontraditional financial statement that try to take all of the U.S. government's major long-term commitments and put them in a format that will provide the liability through the standards on the preparation and independent attestation of the amount actually reported," said Allen. "What it will actually look like is anybody's guess. We're open to suggestions."

One task force member, Cato Institute senior fellow Jagadeesh Gokhale, said that while he is still pondering the matter, he is leaning toward a suggestion that all kinds of government obligations, liabilities and other financial implications of current law, from Treasury bonds to Social Security benefits, be included in a single financial statement.

"Everything should be summarized on one page so that it's easy to comprehend and gives a full flavor of exactly what the government's financial condition is," Gokhale said.

After meeting in April and perhaps again later, the task force will present a paper to a group of statement users. FASAB staff will use the paper and any comments to draft tentative recommendations, which will be considered at the board's September meeting. If the board agrees that new standards on sustainability reporting are advisable, it may issue an exposure draft for public comment by the end of 2007.

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