From the President’s Desk
By Terri Polley, FAF President and Chief Executive Officer
Spring 2016

Serving Financial Statement Users… Including Our Own

In the coming weeks, we will issue our major communication with our financial statement users—namely, our 2015 FAF Annual Report. Consistent with our mission, the financial section of the report will provide what we believe is relevant, high-quality financial reporting about our organization.

Our financial statement users include:
  • Publicly traded companies and municipal bond buyers and sellers whose accounting support fees (ASF) help fund us
  • Customers who purchase our publications
  • Regulators and other public officials, and
  • Other stakeholders such as private companies, not-for-profit organizations, state and local governments, and practitioners with an interest in our mission to set GAAP.
We thought it would be timely to answer some recurring questions about how we are funded, and the important role ASF and reserve funds play in our finances.

How Are the FAF, FASB, and GASB Funded?


Sources of Revenues

The largest share of financial support for the standard-setting Boards comes from ASF that are paid by publicly traded companies (for the FASB) and municipal bond brokers and dealers (for the GASB).

FASB ASF are collected under Section 109 of the Sarbanes-Oxley Act of 2002 to fund the annual recoverable expenses of the FASB. These fees are assessed annually on issuers of publicly traded securities and are allocated based on the average market capitalization of each issuer.

GASB ASF are collected under Section 978 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to fund the GASB’s annual recoverable expenses. These fees were instituted in 2012 and are assessed and allocated quarterly, based on municipal securities transactions by Financial Industry Regulatory Authority (FINRA) members each quarter.
Though the Sarbanes-Oxley and Dodd-Frank Acts enable us to collect ASF to fund 100% of our recoverable expenses, we voluntarily decide not to seek the full amount of fees.

Subscriptions and Publications revenue includes sales and licensing of copyrighted FASB- and GASB-related materials, such as the FASB and GASB Codifications, through paid subscription plans and hard-copy printed versions.

Though the Sarbanes-Oxley and Dodd-Frank Acts enable us to collect ASF to fund 100% of our recoverable expenses, we voluntarily decide not to seek the full amount of fees.

Instead, we historically have funded a portion of FASB and GASB expenses with our reserve funds that exceed a targeted balance (that target is one year of expenses for the organization).

The FAF Board of Trustees established the reserve fund very early on in the FAF’s history. The purpose was and continues to be to provide sufficient funds to operate the FAF, FASB, and GASB during any temporary or permanent funding transition, or to provide for any unforeseen circumstances.

What Is the Relationship Between Expenses, ASF, and Reserve Funds?


The charts below show the trend of FASB and GASB expenses, ASF, and amounts made available from reserve funds over the past several years.

FASB

 
GASB


As the charts demonstrate, the level of ASF required to fund FASB and GASB operations is directly—and inversely—related to the amount of reserve funds made available each year, even during periods when our expenses remain relatively flat.

For example, other things being equal, in years when increased reserve funds are available to fund FASB and GASB operations, the level of ASF decreases. In years when reserve funds decrease, ASF rise. This seems counterintuitive, as our stakeholders generally would expect ASF to increase or decrease based on whether our expenses increase or decrease. Our voluntary use of reserve funds, while beneficial to our stakeholders, nevertheless adds to the volatility in fees from year to year.

We remain committed to protecting the independence and integrity of the standard-setting process, and to ensuring our accountability for and stewardship of our resources.
To start with, the amount of reserve funds made available generally depends on the amount of net revenue that we receive from subscriptions and publications. Most years, that amounts to around $12–13 million.

The amount available also depends on whether the FAF has experienced any unexpected expenses or unanticipated revenue during the course of the year. For example, two years ago we received $2.5 million in a class action settlement related to prior investment losses, which increased the amount of reserve funds available.

Other items factor into the amount available—such as our actual operating expenses in some years being lower than budgeted.

Many more details about our funding sources, our budget, and how the target reserve fund is calculated can be found here. In addition, we hope you will read our 2015 Annual Report when it is published.

We are privileged to be entrusted, through the FASB and GASB, with the responsibility to set financial accounting and reporting standards. We remain committed to protecting the independence and integrity of the standard-setting process, and to ensuring our accountability for and stewardship of our resources.

I am grateful to all of our stakeholders for your continuing support, and given that it is financial reporting season, a special thanks to those who provide our accounting support fees.

As always, I invite you to share with me your comments and suggestions on this or other issues related to the FAF and its standard-setting Boards at presidentsdesk@f-a-f.org.


FAF President and Chief Executive Officer