David Mosso, Chairman, Federal Accounting Standards Advisory Board
(May 8, 1998)

Testimony: Mr. Mosso addressed three topics: 1) the role of the Federal Accounting Standards Advisory Board (FASAB); 2) the status of Federal accounting development activities; and 3) implications of accounting developments for capital budgeting.

Mr. Mosso said FASAB develops accounting standards for external financial reporting and managerial cost accounting. He clarified that FASAB does not set standards for Federal budget presentations. He said the Federal accounting model simply tracks the budget and provides the actuals that back up budget estimates. He believes capital budgeting has two issues for FASAB: 1) providing useful information to help capital acquisition decision-making; and 2) dealing with accounting capabilities to support the budget presentation.

He said recent financial management legislation has created a Federal accounting revolution. He said the accounting model is in transition from a basic budgetary accounting model to a more sophisticated management information and external financial reporting model. He said the new model has three essential statements: 1) a conventional balance sheet; 2) a statement of net cost showing a breakdown of expenses by responsibility segment and major program; and 3) a statement of performance measures showing nonfinancial and financial revenue measures (yet to be addressed by FASAB).

He believes the new accounting model supports capital acquisition decision-making and adapts to almost any form of Federal budget presentation. Three categories of expenditures that may be considered capital expenditures are in supplemental schedules to the balance sheet. The three categories are research and development, human capital, and properties owned by State and local governments through Federal grants. He noted estimating amortization for intangible assets may be a severe problem if required for capital budgeting. He said the new accounting model for the Federal government capitalizes computer software, but plans to expense other intangible assets.

Questions from the Commissioners: Questions were on determining the useful life of intangible assets, reasons for expensing weapons systems, and how FASAB decides on standards.

Q.    Why is computer software capitalized if amortizing it is just as difficult as amortizing other intangible assets?
A.    Developing computer software requires significant funding, and software has benefits in the future as demonstrated through experience. Based on the experience, we estimate amortization for software probably as well as we do for depreciation on fixed assets.

Q.    Why are weapons systems expensed when an identical concept for computer software applies to weapons systems?
A.    This is a debated subject. FASAB determined the amortization information for weapons systems is not useful to management, but some commentators disagree, thinking that it could be useful. So the issue is not totally settled.

President's Commission to Study Capital Budgeting