Insights: Talking With GASB's Robert Attmore
By Sue Menditto
What is currently pressing for GASB?
We need to further refine the new reporting model and get at some significant unrecorded assets and liabilities. In addition, we think it’s time to devote greater resources toward completing the GASB conceptual framework—including items such as definitions of basic elements of financial statements and criteria for recognition and measurement of the various elements.
What is a specific issue with which GASB is grappling?
Derivatives and hedge accounting is one such issue. Our concern is that many smaller entities may not fully understand the risks inherent in this area of the market in which many governments and governmental organizations are now active. While larger entities may have the resources and expertise to understand and manage the complexity of derivatives, many of these complex financial instruments can pose new challenges and risks that many in government haven’t dealt with before.
How should colleges and universities view derivatives as they quantify risk or value?
We’re still early in our board deliberations process, but GASB has tentatively decided that derivatives are financial instruments—assets or liabilities—that should be reflected on balance sheets at fair value. Having said this, we don’t want to introduce inappropriate volatility to financial statements. With an area as complex as derivatives, the board is engaged in its own learning process to understand the issues for the wide range of derivative products available. Because derivatives are commonly used to hedge risks, we are considering hedge accounting treatment for fair value gains and losses on qualifying hedges. NACUBO members who follow the Financial Accounting Standards Board (FASB) standards for derivatives and hedge accounting already know about the complexity and challenges involved with hedge accounting.
How can business officers prepare for the new standards?
We encourage everyone to pay particular attention throughout our due process. GASB routinely exposes documents long before they are finalized. Keep an eye on us. Provide feedback. It’s critical to what we do that we have feedback from constituents who are grounded in what really makes sense for those implementing the standards. And we need to hear concerns early on so that we can factor that input into our deliberations.
The Governmental Accounting Standards Advisory Council (GASAC) must help in that regard.
Most definitely. Part of GASB’s strategic plan includes doing a better job of leveraging our communication with constituents and improving our outreach and education. GASAC is very important to us in achieving these goals. The council’s 29 members represent a widely diverse group, ranging from those who participate in the municipal finance market, including rating agencies, underwriters, bond lawyers, and financial analysts; to representatives from national organizations such as NACUBO; to state and local government organizations; to auditors and other user groups. For that reason, GASAC serves as a communication conduit, allowing the board to hear from as many constituents as possible.
In turn, the council members are expected to help keep their respective groups informed about the current and emerging issues with which GASB is dealing. Recently the board presented the council with descriptions of the 20 or so projects under GASB consideration and asked council members to help us prioritize what they see as high, medium, and low priorities. We take the council’s input very seriously as we set our agenda.
Speaking of constituent input, why did GASB release the proposed reporting standards related to pollution remediation as a preliminary views document?
The document is not only about pollution but also is about a different approach to measurement and recognition of contingent liabilities. The primary factor about the pollution remediation obligations document that led to the use of a preliminary views document is its introduction of a measurement technique—expected cash flows—which is an approach the governmental sector has not dealt with in the past. FASB introduced this measurement technique in recent standards, but this would be a first for GASB. It potentially could be used in measuring other liabilities in the future.
What’s different about this technique?
It represents a movement away from the kind of on/off switch currently applied in trying to determine whether something is probable and, thus, whether it gets recorded. Instead, an expected cash flow measurement presents a weighted-average probability approach where liability, or potential liability, is weighted based on the likelihood of occurrence.
For instance, if you determine that under one scenario there is a 40 percent likelihood of occurrence of a $1 million liability, for a second scenario, a 30 percent likelihood of a $2 million liability, and for a third, a 30 percent likelihood of a $3 million liability, then you can take those three scenarios and calculate an estimated liability of $1.9 million ($400,000 + $600,000 + $900,000). The number you come up with won’t likely be correct by itself, but it should be closer to what the eventual liability would be based on the chances of various scenarios occurring. In theory, this type of measurement generally produces recognition of a liability earlier and produces a more accurate estimate than the FASB Statement 5 probable approach.
With increased focus on accountability within the corporate world, is GASB concerned about a governmental Enron?
Not specifically about an Enron-type situation. Obviously, we want to see better transparency and reporting of what is actually occurring in government. But the economic realities and the drivers and motivations for financial reporting are quite different in government than in the private sector.
For-profit organizations have drivers—for example, earnings—that influence accounting and reporting. One of my goals as chairman is to better communicate the unique and distinguishing characteristics of the government environment that result in different accounting and financial reporting to meet the information needs of users in that environment.
What has been the most challenging aspect of your first year as chairman?
Dealing with so many diverse constituencies has been challenging but rewarding. I’ve been in this accountability business for three decades and thought I had a fairly good understanding of most accounting issues, but I’m learning how little I know about the nuances of accounting from all the various perspectives, including higher education.
What prepared you for the top spot?
Right out of college, I joined Deloitte Haskins and Sells in New York City as an auditor. Government wasn’t on my radar at that time, and it’s simply happenstance that I began auditing government clients. After eight years, my firm was considering opening an office in Albany, New York, where I had some clients, and I was asked to begin that effort. At about the same time, I was approached by some friends who were working for New York State and who encouraged me to spend a few years building an internal audit function in a major state agency. I agreed to do that, and my plan at that time was to return to public accounting after three years. Almost 24 years later, I retired from the state. I guess I got hooked on public service and never looked back.
What specific focus do you hope to introduce to GASB’s agenda?
One topic of personal interest that I’ve helped move onto the research agenda is electronic financial reporting. This is something I see as absolutely essential as people increasingly become accustomed to getting all sorts of information electronically. The public is already receiving some financial information about colleges and universities from their Web sites, but right now most of those sites contain static information, usually in a PDF format. I believe it’s important that as we set financial reporting standards we recognize that this vehicle for communication will continue to become much more important and more interactive. It likely will allow new ways to provide decision-useful information in a more timely manner and at a level of detail desired by the respective users.
And the implications?
One implication is that GASB standards must then be appropriate and usable in a dynamic electronic communication environment as well as in a paper-based report. We currently have staff developing a demonstration model of electronic financial statements to show some potential ways to make financial statements interactive and more accessible to users.
Why is this important to you?
A whole generation is coming along and moving through the workforce that is used to getting information electronically, and I believe we need to meet their needs and expectations. I also believe that accountability is essential and that financial reporting plays an important role in our representative democracy form of government. Interested citizens should have the ability to make informed decisions based on the transparency and quality of information that their governments provide. Financial reporting can help propel that civic power.
Author Bio Sue Menditto is director of accounting policy at NACUBO.
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