Statement of Federal Financial Accounting Standards 26 

November 1, 2004 

Presentation of Significant Assumptions for the Statement of 

Social Insurance: Amending SFFAS 25 

Federal Accounting Standards Advisory Board 
THE FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD 

The Secretary of the Treasury, the Director of the Office of Management and

Budget (OMB), and the Comptroller General, established the Federal Accounting

Standards Advisory Board (FASAB or “the Board) in October 1990. FASAB is

responsible for promulgating accounting standards for the United States

Government. These standards are recognized as generally accepted accounting

principles (GAAP) for the Federal Government. 

An accounting standard is typically formulated initially as a proposal after

considering the financial and budgetary information needs of citizens (including the

news media, state and local legislators, analysts from private firms, academe, and

elsewhere), Congress, Federal executives, Federal program managers, and other

users of Federal financial information. The proposed standards are published in an

Exposure Draft for public comment. In some cases, a discussion memorandum,

invitation for comment, or preliminary views document may be published before an

exposure draft is published on a specific topic. A public hearing is sometimes held

to receive oral comments in additional to written comments. The Board considers

comments and decides whether to adopt the proposed standard with or without

modification. After review by the three officials who sponsor FASAB, the Board

publishes adopted standards in a Statement of Federal Financial Accounting

Standards. The Board follows a similar process for Statement of Federal Financial

Accounting Concepts, which guide the Board in developing accounting standards

and formulating the framework for Federal accounting and reporting. 

Additional background information is available from the FASAB or its website: 

♦ “Memorandum of Understanding among the General Accounting Office, the

Department of the Treasury, and the Office of Management and Budget, on

Federal Government Accounting Standards and a Federal Accounting

Standards Advisory Board” 

♦ “Mission Statement: Federal Accounting Standards Advisory Board” 

Exposure drafts, Statements of Federal Financial Accounting Standards 

And Concepts, FASAB newsletters, and other items of interest are posted 

On FASAB’s website at: www.fasab.gov. 

Federal Accounting Standards Advisory Board 

441 G Street, NW, Suite 6814 

Mail stop 6K17V 

Washington, DC 20548 

Telephone 202-512-7350 

FAX – 202-512-7366 

www.fasab.gov
Table of Contents 

Summary......................................................................................................................... 1

Introduction ..................................................................................................................... 2

Standards........................................................................................................................ 3

Appendix A: Basis for Conclusions ................................................................................. 4

Appendix B: Abbreviations .............................................................................................. 7
Summary 

This standard amends Statement of Federal Financial Accounting Standards 25, 

Reclassification of Stewardship Responsibilities and Eliminating the Current Services 

Assessment, to require disclosure of significant assumptions underlying the Statement 

of Social Insurance (SOSI). “Disclosure” means “reporting information in notes or 

narrative regarded as an integral part of the basic financial statements.” Thus, this 

amendment reclassifies significant assumptions as basic information rather than as 

required supplementary information (RSI). 
Introduction 2

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_______________________________________________________ 

Federal Accounting Standards Advisory Board 

Presentation of Significant Assumptions for the Statement of Social Insurance 

Amending SFFAS 25 

November 1, 2004 

Introduction 

1. In July of 2003, the Board issued SFFAS 25, Reclassification of Stewardship 

Responsibilities and Eliminating the Current Services Assessment, and included 

changes addressing many of the issues identified in responses to the exposure 

draft (ED) preceding it. One change to the proposal in the exposure draft 

preceding SFFAS 25 shifted information other than the SOSI from disclosure to 

RSI status “Disclosure” means “reporting information in notes or narrative 

regarded as an integral part of the basic financial statements.” 1 RSI is not part of 

the basic financial statements and is customarily presented as a separate section 

accompanying the financial statements. Another change to the proposal in the 

exposure draft preceding SFFAS 25 delayed the effective date to permit the 

development of audit guidance. 

2. The task force of the American Institute of CPAs (AICPA) charged with 

developing that audit guidance takes exception to the fact that SFFAS 25 permits 

the preparer to present the significant assumptions underlying SOSI, a basic 

financial statement, as RSI.2

 The task force concluded that disclosure related to 

SOSI would be inadequate if management elects not to disclose significant 

assumptions in the notes to the financial statements. The task force believes that 

inadequate disclosure should result in a qualification of the audit opinion. The 

task force has proposed audit guidance that would require a qualification in the 

event significant assumptions are not disclosed. 

3. The Board believes that generally accepted accounting principles (GAAP) should 

be clear with respect to adequate disclosure. In this instance, the Board agrees 

that disclosure of the significant assumptions underlying the SOSI is necessary 

to an understanding of the SOSI and through this statement amends SFFAS 25. 

 

1

 In accounting literature “disclosures” also may be referred to as “notes” or “footnotes.” This statement 

presents excerpts from other documents with these terms. There is no difference in meaning – rather 

different authors used different terms with the same meaning. 

2 SFFAS 25 affords management the option of disclosing the significant assumptions. Par. 6 of SFFAS 

25 provides that “Other information required by SFFAS 17 shall be presented as RSI, except to the 

extent that the preparer elects to include some or all of that information in notes that are 

presented as an integral part of the basic financial statements. “ (Emphasis added.) 
Standards 3

____________________________________________________________ 

_______________________________________________________ 

Federal Accounting Standards Advisory Board 

Presentation of Significant Assumptions for the Statement of Social Insurance 

Amending SFFAS 25 

November 1, 2004 

Standards 

Amendment of SFFAS 25 

4. Paragraph 6 of SFFAS 25 is rescinded. 

5. The information required by paragraphs 27(3) and 32(3) of SFFAS 17 shall be 

presented as a basic financial statement rather than as required supplementary 

stewardship information (RSSI). The underlying significant assumptions shall be 

included in notes that are presented as an integral part of the basic financial 

statement. Other information required by SFFAS 17– including the sensitivity 

analysis required in par. 27(4) and 32(4)-- shall be presented as required 

supplementary information, except to the extent that the preparer elects to 

include some or all of that information in notes that are presented as an integral 

part of the basic financial statements. 

Effective Date 

6. Consistent with the effective date of SFFAS 25, this standard is effective for 

periods beginning after September 30, 2004. 

The provisions of this Statement need not be applied to immaterial items. 
Appendix A: Basis for Conclusions 4

____________________________________________________________ 

_______________________________________________________ 

Federal Accounting Standards Advisory Board 

Presentation of Significant Assumptions for the Statement of Social Insurance 

Amending SFFAS 25 

November 1, 2004 

Appendix A: Basis for Conclusions 

This appendix discusses factors considered significant by Board members in reaching 

the conclusions in this standard. It includes the reasons for accepting certain 

approaches and rejecting others. Individual members gave greater weight to some 

factors than to others. The standards enunciated in this proposed statement---not the 

material in this appendix---would govern the accounting for specific transactions, events 

or conditions. 

7. The Board issued this standard to ensure that significant assumptions are 

presented as note disclosures to the Statement of Social Insurance so that well 

established expectations regarding adequate disclosure would be met. Concepts 

statements from many standard setters explain the requirement for adequate 

disclosure as follows: 

a. Financial reporting should include explanations and interpretations to help 

users understand financial information provided. ... Moreover, financial 

reporting often provides information that depends on, or is affected by, 

management's estimates and judgment. Investors, creditors, and others 

are aided in evaluating estimates and judgmental information by 

explanations of underlying assumptions or methods used, including 

disclosure of significant uncertainties about principal underlying 

assumptions or estimates. Financial reporting may, of course, provide 

information in addition to that specified by financial accounting standards, 

regulatory rules, or custom. (Financial Accounting Standards Board, CON 

1, Objectives of Financial Reporting by Business Enterprises, par. 54) 

b. Information disclosed in notes or parenthetically on the face of financial 

statements, such as significant accounting policies or alternative 

measures for assets or liabilities, amplifies or explains information 

recognized in the financial statements.4 That sort of information is 

essential to understanding the information recognized in financial 

statements and has long been viewed as an integral part of financial 

statements prepared in accordance with generally accepted accounting 

principles. [4

For example, notes provide essential descriptive information 

for long-term obligations, including what amounts are due, what interest 

they bear, and whether important restrictions are imposed by related 

covenants. For inventory, notes provide information on the measurement 

method used—FIFO cost, LIFO cost, current market value, etc. For an 

estimated litigation liability, an extended discussion of the circumstances, 

counsel’s opinions, and the basis for management’s judgments may all be 

provided in the notes. For sales, useful information about revenue 
Appendix A: Basis for Conclusions 5

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_______________________________________________________ 

Federal Accounting Standards Advisory Board 

Presentation of Significant Assumptions for the Statement of Social Insurance 

Amending SFFAS 25 

November 1, 2004 

recognition policies may appear only in the notes. (FASB Statement No. 

47, Disclosure of Long-term Obligations; ARB No. 43, Chapter 4 - 

Inventory Pricing, Statement 8; FASB Statement No. 5, Accounting for 

Contingencies, par. 10; and APB Statement 4, par.199)] (CON 5, 

Recognition and Measurement in Financial Statements of Business 

Enterprises, par. 7a) 

c. Financial information is also conveyed with accompanying footnotes, 

which are an integral part of the financial statements. Footnotes typically 

provide additional disclosures that are necessary to make the financial 

statements more informative and not misleading. (FASAB, SFFAC 2, 

Entity and Display, par. 68) 

d. Financial reporting should be reliable; that is, the information presented 

should be verifiable and free from bias and should faithfully represent what 

it purports to represent. To be reliable, financial reporting needs to be 

comprehensive. Nothing material should be omitted from the information 

necessary to faithfully represent the underlying events and conditions, nor 

should anything be included that would cause the information to be 

misleading. Reliability does not imply precision or certainty. Reliability is 

affected by the degree of estimation in the measurement process and by 

uncertainties inherent in what is being measured; financial reporting may 

need to include narrative explanations about the underlying assumptions 

and uncertainties inherent in this process. Under certain circumstances 

some financial information is based on reasonable estimates. A properly 

explained estimate provides more meaningful information than no 

estimate at all. (Governmental Accounting Standards Board, Concept 

Statement 1, par. 64) 

8. The Board believes that the underlying significant assumptions are essential to 

fair presentation. The Board believes that generally accepted accounting 

principles should result in disclosure of the significant assumptions upon which 

SOSI is based. Disclosures are an integral part of the basic financial statements 

while RSI is not an integral part of the basic financial statements. RSI 

accompanies the basic financial statements. Placing the significant assumptions 

in the disclosures associated with the SOSI serves two purposes. First, the 

significant assumptions inform the reader about the basis for the projections 

presented in the SOSI. Second, the reader has ready access to the significant 

assumptions through association with a principal financial statement. 

9. The Board received 8 responses to its March 12, 2004 exposure draft on this 

subject. Of the responses, 5 were from federal respondents and 3 were from 

non-federal respondents. Seven of the eight respondents supported the 

proposal. However, two supported the proposal contingent on suggested 

changes. 
Appendix A: Basis for Conclusions 6

____________________________________________________________ 

_______________________________________________________ 

Federal Accounting Standards Advisory Board 

Presentation of Significant Assumptions for the Statement of Social Insurance 

Amending SFFAS 25 

November 1, 2004 

10. One recommended that the Board also include in the note disclosure an 

explanation of the uncertainty inherent in the process. The recommendation is 

not without merit but cannot be adopted absent an exposure draft proposing the 

change. The Board is not actively pursuing this additional amendment to 

SFFAS 25. The Board believes the nature of the information is adequately 

explained by the: 

a. required summary of significant accounting policies, 

b. disclosure of the significant assumptions, 

c. language in the auditor’s report on SOSI explaining that there will be 

differences between the forecasts and actual results, and 

d. presentation of the sensitivity analysis as required supplementary 

information. 

11. Another respondent requested that the Board defer the effective date of this 

amendment and SFFAS 25. Occasionally, the Board has deviated from the 

proposed effective date when finalizing standards proposed in an exposure 

draft and this is not considered a deviation significant enough to warrant reexposure of the proposal. However, to alter the effective date of a previously 

issued standard – in this case SFFAS 25 – due process requires that the Board 

seek input on that change through an exposure draft proposing such a change. 

One example of this is the deferral of SFFAS 4, Managerial Cost Accounting 

Standards for the Federal Government. 

12. Since the Board is unable to alter the effective date of SFFAS 25 through this 

amendment, the Board is proceeding with the earlier effective date for this 

amendment to ensure consistency with SFFAS 25. The Board is considering 

the request for deferral of SFFAS 25. An exposure draft was issued on July 20, 

2004 proposing a one-year deferral of both SFFAS 25 and this standard. The 

Board will consider comments on the exposure draft and may issue a statement 

amending the effective dates. 

Board Approval 

13. This statement was approved for issuance by all members of the Board. 
Appendix B: Abbreviations 7

____________________________________________________________ 

_______________________________________________________ 

Federal Accounting Standards Advisory Board 

Presentation of Significant Assumptions for the Statement of Social Insurance 

Amending SFFAS 25 

November 1, 2004 

Appendix B: Abbreviations 

AICPA American Institute of Certified Public Accountants 

FASAB Federal Accounting Standards Advisory Board 

GAAP Generally Accepted Accounting Principles 

RSI Required Supplementary Information 

RSSI Required Supplementary Stewardship Information 

SFFAC Statement of Federal Financial Accounting Concepts 

SFFAS Statement of Federal Financial Accounting Standards 
FASAB Board Members 

David Mosso, Chair 

Joseph V. Anania, Sr. 

Philip T. Calder 

Claire Gorham Cohen 

John A. Farrell 

James M. Patton 

Robert N. Reid 

Elizabeth Robinson 

Alan H. Schumacher 

David Zavada 

FASAB Staff 

Wendy M. Comes, Executive Director 

Federal Accounting Standards Advisory Board 

441 G Street NW, Suite 6814 

Mail Stop 6K17V 

Washington, DC 20548 

Telephone 202-512-7359 

FAX 202-512-7366 

www.fasab.gov