Note 2. Accounting Changes

FY 2007 Financial Report
Bureau of Resource Management
November 2007

Standards Implemented

In 2007 and 2006, the Department implemented revised financial statement reporting requirements and new Statements of Federal Financial Accounting Standards (SFFAS). The changes did not have a material effect on the Department's financial position or results of operations. The new reporting requirements and SFFASs primarily affect the manner in which the Department reports on its programs.

On June 29, 2007, OMB issued A-136 Revised, Financial Reporting Requirements, which provides guidance for preparing agency financial statements. It supersedes OMB Circular A-136, dated July 24, 2006. The requirements contained in A-136 are effective for the preparation of financial statements for fiscal years beginning with FY 2007.

As prescribed by OMB Circular A-136, the Department implements financial statement reporting requirements and new SFFASs when they become effective and if they apply to the Department's operations. The following SFFASs were implemented for FY 2006:

  • SFFAS 27, Identifying and Reporting Earmarked Funds, dated December 28, 2004, requires separate reporting of earmarked funds on the Balance sheet and Statement of Changes in Net Position along with other disclosure requirements.
  • SFFAS29, Heritage Assets and Stewardship Land, dated July 7, 2005, reclassifies heritage assets and stewardship land information phasing in their requirements starting in FY 2006 through FY 2009.

There were no new SFFASs required to be implemented in FY 2007 that apply to the Department. The following reporting requirements were implemented for FYs 2007 and 2006:

New FY 2007 OMB Reporting Requirements
Balance Sheet

A-136 clarifies reporting of Fund Balance with Treasury to include "Other Fund Types."

Statement of Financing

A-136 reclassifies the Statement of Financing from a principal statement to a display in the footnotes.

Notes to the Financial Statements

A-136 adds a new disclosure requirement to Note 1 for Parent/child reporting (allocation transfers).

Notes to the Financial Statements
New disclosure requirement on earmarked funds for which more than one component entity is responsible for a program financed with earmarked revenues.
Notes to the Financial Statements
A-136 adds a new note to replace the Statement of Financing titled "Reconciliation of Net Cost of Operations to Budget."
Notes to the Financial Statements
A-136 expands the information to be included in Restatement Note.


New FY 2006 OMB Reporting Requirements and SFFASs
Statement of Net Cost
A-136 requires separate disclosure of Intragovernmental and public costs and revenues which is moved from the face of the Consolidated Statement of Net Cost to the footnote.
Statement of Changes in Net Position
A-136 changes the statement format, adding columns for earmarked funds and eliminations between earmarked funds and other reporting entity funds with disclosure in the Earmarked Funds footnote. Lines added to the statement for changes in accounting principles and corrections of errors per SFFAS 21.
Statement of Custodial Activity
Exchange revenue requirements added per SFFAS 7. Requirements for accrual adjustments for nonexchange revenue clarified.
Notes to the Financial Statements

Disclosure required for changes in GAAP that affect the financial statements, to include explanation of concepts that are unique to Federal financial statements. Modified the provisions for restatement to comply with paragraphs 20 and 26 of SFFAS 21. Modified the Fund Balance with Treasury footnote to include non-budgetary FBWT in section B, Status of Fund Balance with Treasury (FY 2005).

Added earmarked funds to note on investments and added note for earmarked funds per SFFAS 27, replacing the note on Dedicated Collections.

Removed intragovernmental amounts and segment information sections. Risk assumed information removed from RSSI and included in RSI per SFFAS 5. Stewardship PP&E condition information may be moved from the RSI and reported with deferred maintenance. Deferred maintenance additional guidance added from SFFAS 6.
Removed all sections on heritage assets and stewardship land to be reclassified as basic information in the RSI, except for condition information.
Earmarked Funds

Balance Sheet: Separate lines added for Cumulative Results of Operations and Unexpended Appropriations for earmarked funds. As directed by SFFAS 27, the Department did not restate prior periods of the principal financial statements and related disclosures.

Statement of Changes in Net Position: Separate display and lines added for earmarked funds.

Footnotes: Information on earmarked funds added to Investments footnote (sample footnote provided in SFFAS 27). Disclosure required of all earmarked funds for which the reporting entity has program management responsibility.

Heritage Assets and Stewardship Land

Balance Sheet: Line added for Stewardship PP&E without an asset dollar amount and with footnote disclosure.

Footnotes: New footnote added with requirements phased in starting with FY 2006. Disclosure explains how these assets relate to the entity's mission and a description of the entity's stewardship policies. In FY 2008, footnote will include a description of the major categories of heritage assets and physical unit information. In FY 2009, disclosure will include physical units added and withdrawn during the year and a description of methods of acquisition and withdrawal.

Cost of Stewardship PP&E: The cost of acquiring, constructing, improving, reconstructing, or renovating heritage assets (other than multi-use heritage assets), and the cost of acquiring stewardship land and any costs to prepare stewardship land for its intended use, recognized as a cost in the Statement of Net Cost in the period in which it is incurred, reported separately on the face of the statement or in the footnotes.


Change in Accounting Estimate

The Department's Bureau of International Narcotics and Law Enforcement (INL) operates aircraft used to carry out INL's mission worldwide (see Note 1 Property and Equipment - Personal Property). As part of these activities, in 2005, the Department determined that major aircraft components - high dollar value items (replacement cost in excess of $50,000) that are repairable (e.g., engines) and in serviceable condition (ready for use) - should be treated as general property and equipment and as such capitalized and depreciated over the life of the asset once installed on an aircraft. In 2006, the Department conducted additional analysis to determine the actual useful life of the major components once installed on the aircraft. The analysis determined that the actual useful life is less than two years, and as such does not meet the definition of general property and equipment as provided for in SFFAS No. 6, Accounting for Property, Plant and Equipment, paragraph 17. Nor do these major components meet the definition of inventory as provided for in SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 17. Consequently, for 2006, the Department changed the treatment of the major components to the purchase method. The estimated historical cost for the major components was $13.2 million at September 30, 2005, which was recorded to expense during 2006.

Change in Reporting of Program Costs on the Consolidated Statement of Net Cost

The Departments strategic goals were changed effective FY 2007 to align them in conformance with the five objectives of foreign assistance reform.  The seven strategic goals, as provided in the DOS/USAID Joint Strategic Plan covering Fiscal Years 2007 thru 2012, constitute the strategic planning framework for the Department.  This framework, and the Foreign Assistance Strategic Framework with which it is consistent, serves as the basis for the Department's annual performance plans.  Accordingly, amounts reported in the Consolidated Statement of Net cost for FY 2007 reflects the implementation of the new strategic goals.  Amounts for FY 2006 have been reclassified to align with the new strategic goals.


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