The Federal Accounting Standards Advisory Board is facing several interrelated controversial issues that may ultimately determine the financial viability of the U.S. government.

The primary issue could be summed up in one word: independence.

FASAB sets accounting standards for the federal government. The American Institute of CPAs recognizes FASAB standards as generally accepted accounting principles, which means that those standards can be used as the basis of audits of federal agencies. If the government doesn't meet FASAB standards, it can't receive an unqualified audit.

AICPA recognition, however, is posited on the independence of the board. If it isn't independent, then it cannot set GAAP. The independence issue is coming to a head as an institute review panel has begun to evaluate FASAB for continued recognition, with a recommendation due to be made to the AICPA Council by May 2010. If the board fails the test, its GAAP status could be revoked, throwing into turmoil not only governmental accounting, but also that portion of the CPA profession that audits the federal books.

The question of FASAB independence heightened during a 2006 project to write a standard on reporting the costs and unfunded liabilities of social insurance, including Social Security. Such a change would put the federal books so deeply into the red that a balanced budget would seem all but impossible.

The board at the time consisted of four members from the federal government and six members from the public. The four government members are appointed by the Office of Management and Budget, the Government Accountability Office, and the Treasury Department - the so-called sponsoring agencies or "principals" - and the Congressional Budget Office. The three principals have the power to veto any FASAB standard within 60 days of its approval by the board. This veto power prevents unelected individuals from setting rules for the federal government.

FASAB's government-side representatives did not want to see tens of trillions of social insurance liabilities added to an already overstrained federal balance sheet. On a decision to issue an exposure draft, the six public members voted yea and the four government members voted no.

In deliberations over the ED, Robert Reid, the representative from the U.S. Treasury, said that social insurance was more of a contractual obligation than a recordable liability. According to the minutes of the meeting of March 29, 2006, Reid "repeated that getting a solid majority behind this was essential. He said he did not think the board would survive having it go the way it was. He said he thought it would be very dangerous."

David Mosso, FASAB chair at the time and author of Early Warning and Quick Response: Accounting in the Twenty-first Century, took Reid's comment as a threat to the board's independence, which seemed to be reiterated at the subsequent meeting, when the minutes stated that then-U.S. Comptroller General David Walker "said the last thing he wanted was a veto, but feelings on this issue are very strong."


Mosso took this as a reminder that the GAO was reluctant but willing to use its power if it disagreed with a board decision.

The board eventually voted to include some part of social insurance liabilities, but it could not agree on which part or how.

But then the imbalance of power shifted.

During redeliberations, the term of one board member ended after 10 years of service. Another member reached the end of her five-year term. Though eligible for re-appointment, for the first time in FASAB history, a five-year member was not re-appointed.

On the issue of reporting social insurance liabilities, the two new members sided with the government. On the social insurance issue, the board was evenly split.

After the new members came onboard, FASAB was not able to complete redeliberations. The project was set aside in deference to work on what could be seen as a compromise project, one on reporting the fiscal sustainability of the federal government.

The board is now putting the final touches on a limited standard on social insurance. It does not cover the liabilities issue. The board expects to vote on a ballot draft of a final statement this month.


Mosso and James Patton, a former FASAB member and now emeritus professor at the Katz Graduate School of Business of the University of Pittsburgh, wrote an article for the Association of Government Accountants' AGA Journal, charging that the non-re-appointment and the subsequent two new appointments were made to influence the social insurance project. To them, the move ended the pretense of independence.

Mosso and Patton also cited other cases of limits to the independence of the board. They pointed out that the Department of Defense, for example, has effective veto power over any decisions on specialized defense situations, and it has opposed certain decisions regarding property, plant and equipment.

"Domination of the FASAB process by federal members is incompatible with board independence," the article stated.

FASAB member Hal Steinberg, who had retired from his position as acting controller/deputy controller of the Office of Federal Financial Management at the OMB before joining the board, disagrees. He pointed out that the principals have never vetoed a board decision or a member appointment. He said that a veto is unlikely to be necessary, since the deliberative process is fair enough for the board to come to unarguable decisions.

Steinberg pointed out that the government must be answerable to its people through elected representatives. "I don't think anybody wants our federal government to be in a position where it can be dictated to by a group not elected by the people," he said.

Current FASAB chair Tom Allen believes that the principals are unlikely to give up their veto power. But he also believes that they are unlikely to use it. He said that FASAB and the principals are at a standoff. FASAB knows that its standards, and even its existence, can be vetoed. At the same time, the principals know that if they ever exercise their veto power, FASAB will lose its GAAP-setting status.

"My overall assessment is that's been pretty objective," Allen said. "Could it be more so? Yes. Could it be worse? Yes. Is it worth preserving? Yes. Should we improve it? Yes."

For an unabridged version of this article, visit us online at

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access