Better standards.
Better-informed decisions.

Companies, not-for-profit organizations, and governments use accounting standards as a foundation for providing users of financial statements with relevant information. That information helps investors, lenders, citizens, and others make important decisions about whether to provide capital, lend or donate money, or whether or not to support a voter referendum.

It stands to reason, then, that better accounting standards help financial statement users make better-informed decisions.

The pursuit of better standards informs everything we do. The Financial Accounting Foundation (FAF) and its standard-setting Boards—the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB)—are committed to fostering standards that result in information that is relevant, representationally faithful, and reflective of the financial condition of an organization or government.

What follows in these pages is a snapshot of how we fulfilled this objective in 2016. For the FASB, it meant issuing standards that give investors better information about an institution’s expected credit losses and lease obligations. For the GASB, it meant educating stakeholders about standards that enhance transparency around retirement obligations and developing an improved financial reporting model. And for the FAF, it meant supporting the Boards in these efforts while ensuring they follow a robust, inclusive due process.

Investors and citizens trust financial statements that follow Generally Accepted Accounting Principles (GAAP). Through our work, we aim to continue to earn that trust through standards that help all our stakeholders make better-informed decisions.

Major Achievements in 2016

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Messages from the FAF, FASB, and GASB Leaders

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Better standards.
Better-informed decisions.

Companies, not-for-profit organizations, and governments use accounting standards as a foundation for providing users of financial statements with relevant information. That information helps investors, lenders, citizens, and others make important decisions about whether to provide capital, lend or donate money, or whether or not to support a voter referendum.

It stands to reason, then, that better accounting standards help financial statement users make better-informed decisions.

The pursuit of better standards informs everything we do. The Financial Accounting Foundation (FAF) and its standard-setting Boards—the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB)—are committed to fostering standards that result in information that is relevant, representationally faithful, and reflective of the financial condition of an organization or government.

What follows in these pages is a snapshot of how we fulfilled this objective in 2016. For the FASB, it meant issuing standards that give investors better information about an institution’s expected credit losses and lease obligations. For the GASB, it meant educating stakeholders about standards that enhance transparency around retirement obligations and developing an improved financial reporting model. And for the FAF, it meant supporting the Boards in these efforts while ensuring they follow a robust, inclusive due process.

Investors and citizens trust financial statements that follow Generally Accepted Accounting Principles (GAAP). Through our work, we aim to continue to earn that trust through standards that help all our stakeholders make better-informed decisions.

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FAF Board of Trustees

 

 

 

 

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Welcome

During the past year, the FAF Board of Trustees welcomed Susan J. Carter, Anthony J. Dowd, and T. Eloise Foster.

Joined January 1, 2017

Thank You

During the past year, Paul G. Camell, W. Daniel Ebersole, and Michelle R. Seitz concluded terms on the FAF Board of Trustees. On behalf of the entire organization, we thank them for their outstanding service.

Completed service on December 31, 2016

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Messages from the

Message from the FASB Chairman

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Members of the FASB

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2016 FASB Highlights

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Welcome

During the past year, the FASB welcomed Christine Ann Botosan and Harold L. Monk, Jr.

Thank You

Last year, Thomas J. Linsmeier and Daryl E. Buck concluded terms on the FASB. On behalf of the entire organization, we thank them for their outstanding service.

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Messages from the

Message from the GASB Chairman

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Members of the GASB

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2016 GASB Highlights

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Welcome

Last year, the GASB welcomed Jeffrey J. Previdi to the Board.

Thank You

Last year, William W. Fish concluded his term on the GASB. On behalf of the organization, we thank him for his outstanding service.

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Messages from the

Better Standards: Credit Losses

 

FASB Outreach on the credit losses standard

Better Standards: Leases

 

FASB Outreach on the leases standard

Better Standards: Postemployment Benefits

 

GASB Outreach on the postemployment benefits standards

Better Standards: Financial Reporting Model

 

GASB Outreach on the financial reporting model

Advisory Groups

Advisory and other groups provide critical input to the FASB and the GASB. Complete membership rosters for each group are available by clicking on the group's icon below.

 

FASB ADVISORY GROUPS

 

 

 

 

OTHER KEY FASB GROUPS

 

 

GASB ADVISORY GROUP

Financial Accounting Standards Advisory Council

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FASAC Chair

Andrew G. McMaster, Jr.

FASAC Executive Director

Alicia A. Posta

Members

Completed Service in 2016

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Other Advisory Groups

Investor Advisory Committee

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IAC Chair

Susan M. Cosper
Technical Director
Financial Accounting Standards Board

Members

Completed Service in 2016

Wallace Enman
Senior Accounting Analyst
Moody’s Investors Service

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Other Advisory Groups

Not-for-Profit Advisory Committee

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Committee Chair

Jeffrey D. Mechanick
Assistant Director—Nonpublic Entities
Financial Accounting Standards Board

Members

Participating Observers

Completed Service in 2016

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Other Advisory Groups

Small Business Advisory Committee

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SBAC Chair

Alicia A. Posta
Assistant Director
Financial Accounting Standards Board

Members

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Other Advisory Groups

Emerging Issues Task Force

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EITF Chair

Susan M. Cosper
Technical Director
Financial Accounting Standards Board

EITF Coordinator

Rob Moynihan
Practice Fellow
Financial Accounting Standards Board

Members

Participating Observers

*New members in 2017

Completed Service in 2016

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Other Advisory Groups

Private Company Council

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PCC Chair

Candace E. Wright
Director
Postlethwaite & Netterville

FASB Liaison

Harold L. Monk, Jr.
Member
Financial Accounting Standards Board

PCC Coordinator   

Michael K. Cheng
Supervising Project Manager
Financial Accounting Standards Board

Members

Completed Service in 2016

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Other Advisory Groups

Governmental Accounting Standards Advisory Council

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GASAC Chair

Robert W. Scott
Director, Finance
City of Brookfield, Wisconsin
(Nominated by the Government Finance Officers Association)

GASAC Vice Chair

Jacqueline L. Reck
James E. Rooks and C. Ellis Rooks Distinguished Professor of Accounting
School of Accountancy
University of South Florida
(Nominated by the American Accounting Association)

Members

Official Observer

Robert Dacey
Chief Accountant
Representing the Comptroller General of the United States
Government Accountability Office

Completed Service in 2016

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Other Advisory Groups

How We’re Funded

The work of the FAF, the FASB, and the GASB is funded by a combination of accounting support fees and publications and subscriptions income.

WHAT ARE ACCOUNTING SUPPORT FEES?

Accounting support fees are collected from certain groups of capital market participants:

• For the FASB, accounting support fees are collected from public market equity issuers and investment company issuers (as provided by the Sarbanes-Oxley Act of 2002).
• For the GASB, accounting support fees are collected from municipal bond broker dealers (as provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010).

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HOW DO WE DETERMINE THE ANNUAL SUPPORT FEE?

The laws that enacted the accounting support fees permit the FAF to recoup the Boards’ full annual budgeted recoverable expenses. Historically, the FAF has voluntarily funded a portion of the Boards’ recoverable expenses with available Reserve Funds.

First, the FAF creates its budget. The FAF then determines its voluntary calculated amount available from its Reserve Funds to offset a portion of its recoverable expenses, and only recoups accounting support fees on the balance of recoverable expenses.

Over the past four years, contributions from the Reserve Fund have offset a total of $73 million that otherwise would have been collected through accounting support fees.

 

 

For more information, visit our “How We’re Funded” page at www.accountingfoundation.org.

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HOW DO WE DETERMINE THE VOLUNTARY RESERVE FUND CONTRIBUTION?

The FAF’s policy is to maintain a Reserve Fund that is equal to one year of budgeted operating expenses. Reserve Funds are principally funded by revenue from the FAF sales and licensing of copyrighted FASB- and GASB-related materials and income earned from FAF investments.

 

 

Key Financial Metrics 2013–2016

Management's Discussion and Analysis

2016 Summary

The mission of the Financial Accounting Foundation (FAF) and its standard-setting Boards, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), is to establish and improve standards of financial accounting and reporting for public and private companies, not-for-profit organizations, and state and local governments. Collectively, these standards are known as Generally Accepted Accounting Principles (GAAP). Financial accounting and reporting standards help foster and protect investor confidence, facilitate the efficient operation of capital markets, and enable citizens to assess the stewardship of public resources by their state and local governments. The FAF, the FASB, and the GASB are committed to the development of high-quality financial accounting and reporting standards through an independent and open process that results in useful financial information, considers all stakeholder views, and ensures public accountability.

The FAF is responsible for the oversight, administration, financing, and appointment of the FASB and the GASB, and their respective advisory councils, the Financial Accounting Standards Advisory Council (FASAC), and the Governmental Accounting Standards Advisory Council (GASAC). The FAF obtains its funding from three sources:

• Accounting support fees that finance FASB operating and capital expenses pursuant to Section 109 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act);
• Accounting support fees that finance GASB operating and capital expenses pursuant to Section 978 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act); and
• Sales and licensing of copyrighted FASB and GASB materials.

The FAF’s net assets decreased by $4.9 million in 2016 as total program and support expenses exceeded total net operating revenues by $5.9 million. Program and support expenses are funded by accounting support fees and by a portion of Reserve Funds, as described more fully in the Statements of Financial Position Reserve Fund Investments section below. In 2016, the FAF was able to significantly reduce accounting support fees with amounts made available from Reserve Fund balances. Since a portion of the funding came from Reserve Funds (which are not operating revenues) it resulted in the difference between net operating revenues and total program and support expenses. This difference was anticipated during preparation of the 2016 budget.

The FAF’s expenses include program expenses, which are those directly related to its sole program of standard setting, and support expenses, which are those related to the general administration and operation of standard-setting activities.

The 2016 program expenses related to the FAF’s primary mission of improving financial accounting and reporting standards. These efforts included fostering improvement and increased comparability of international accounting standards, working with the Private Company Council (PCC) to improve the standard-setting process for private companies, and continuing the development of the GAAP Financial Reporting Taxonomy (Taxonomy) for eXtensible Business Reporting Language (XBRL). It also includes the evaluation of the effectiveness of the standard-setting process through the Post-Implementation Review (PIR) process.

Program and support expenses increased by $2.1 million, or approximately 4%, from 2015 to 2016. The increase in program and support expenses primarily relates to the ongoing IT Enhancement project. In 2015, the FAF completed a comprehensive assessment of our use of technology and identification of new processes and systems to meet the current and future technology needs of the FAF, the FASB, and the GASB. As a result of this process, a long-term IT enhancement plan and roadmap were developed. In 2016 and 2015, program and support costs included $2.1 million and $300,000, respectively, related to the IT Enhancement project, reflecting the following initiatives:

• The development and implementation of an enterprise content management system;
• Initial development of a customer relationship management system; and
• IT governance and IT infrastructure upgrades.

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Financial Results

The FAF’s financial statements are presented in accordance with GAAP and reflect the specific reporting requirements of not-for-profit organizations. The following is a discussion of the highlights of the activities and financial position of the FAF as presented in the accompanying audited financial statements.

Statements of Activities

The following charts display the sources of revenues and the program and support expenses for 2016 and 2015:

FASB Accounting Support Fees

FASB accounting support fees are assessed upon issuers, as defined by the Sarbanes-Oxley Act, to fund the expenses and other cash requirements of the FASB’s standard-setting activities, as reflected in the FAF’s annual operating and capital budget—the FASB recoverable expenses.

Equity issuers and investment company issuers are assessed a share of the accounting support fees based upon their relative average monthly market capitalization, subject to minimum capitalization thresholds. The FAF has retained the Public Company Accounting Oversight Board (PCAOB) as its agent for invoicing and collecting FASB accounting support fees. FASB accounting support fees were $24.8 million in 2016 and $23.9 million in 2015. The FAF paid the PCAOB approximately $209,000 per year for collection services in 2016 and 2015.

The Office of Management and Budget (OMB) has determined that the FASB accounting support fee is subject to sequestration pursuant to the Budget Control Act of 2011 (BCA). Sequestration amounts are based on the federal government’s fiscal year, which, for the 2016 sequestration, began on October 1, 2015, and ended on September 30, 2016. During 2016, the FAF sequestered approximately $1.77 million with respect to the FASB accounting support fee. The OMB notified the FAF that the 2016 sequestered funds were available for spending for the 2016 federal fiscal year, which began October 1, 2016. The FAF understands that the FASB accounting support fee for federal fiscal year 2017 will be subject to sequestration in a similar manner.

GASB Accounting Support Fees

Pursuant to the Dodd-Frank Act, in 2012, the SEC issued an order approving a proposed rule change to the by-laws of the Financial Industry Regulatory Authority (FINRA) to establish an accounting support fee to fund the annual budget of the GASB, including rules and procedures to provide for the equitable allocation, assessment, and collection of the GASB accounting support fee from FINRA members. FINRA collects the GASB accounting support fee quarterly from member firms that report trades to the Municipal Securities Rulemaking Board (MSRB). Each member firm’s assessment is based on the member firm’s portion of the total par value of municipal securities transactions reported by FINRA member firms to the MSRB during the previous quarter. GASB accounting support fees were $8.3 million in 2016 and $7.4 million in 2015. The increase in GASB accounting support fees reflects an increase in GASB budgeted recoverable expenses for 2016. The FAF paid FINRA $30,000 per year for collection services in 2016 and 2015.

Subscriptions and Publications

Subscriptions and publications revenue for FASB and GASB product offerings are presented in the statements of activities on a combined basis, net of direct costs of $3.7 million and $4.3 million in 2016 and 2015, respectively. Gross revenues for FASB and GASB product offerings are separately displayed in the charts below for 2016 and 2015.

FASB Subscriptions and Publications (dollars in thousands)

The FAF licenses the content of the FASB Accounting Standards Codification^® (FASB Codification) to commercial publishers and others for inclusion in their proprietary, comprehensive, online research systems. The FASB Codification also is directly accessible through an online platform and can be viewed either through a free Basic View or as an annual paid subscription to the Professional View that provides advanced functionality and navigation. The FAF also sells a bound edition of the FASB Codification and provides The FASB Subscription, an annual paid service that includes the distribution of printed copies of FASB Accounting Standards Updates (ASUs) when issued.

FASB subscriptions and publications revenues totaled $15.4 million in 2016, down 3% from 2015. License fees were down 2% from 2015 and represented 85% of the total subscription and publication revenues in 2016.

GASB Subscriptions and Publications (dollars in thousands)

The FAF licenses GASB materials to commercial publishers and others for inclusion in their proprietary, comprehensive, online research systems. GASB materials are also directly accessible online through the Governmental Accounting Research System (GARS). GARS Online can be viewed either through a free Basic View or as an annual paid subscription to the Professional View that provides advanced functionality and navigation. GASB materials also are available through various subscription plans sold directly by the FAF, including The GASB Subscription (consisting of final documents as issued) and the GASB Board Packages. In addition, the FAF sells bound editions of the GASB Codification, GASB Original Pronouncements, and the GASB Comprehensive Implementation Guide, as well as hard copies of individual Pronouncements, User Guides, Research Reports, and other documents. GASB subscription and publication revenues totaled $1.68 million in 2016, a 1% increase from the 2015 revenues of $1.67 million. License fees increased by 4% from 2015 and represented 67% of the total subscription and publication activity in 2016.

Program Expenses

The FAF’s program expenses, which comprise the standard-setting activities of the FASB and the GASB, totaled $41.1 million in 2016, a 5% increase compared to $39.2 million in 2015. Salaries and benefits increased by $866,000, or 3%, primarily due to annual salary rate increases. Salaries and employee benefits comprise approximately 81% of the FAF’s program expenses. Professional fees increased by $1.3 million primarily related to the IT Enhancement project, which directly supports the standard-setting activities of the FASB and the GASB. Other program expenses include domestic and international travel for the FASB and the GASB Board members and staff, costs for holding advisory group and other meetings, library subscriptions and other reference materials, and other miscellaneous expenses.

Support Expenses

The FAF’s support expenses totaled $11.5 million in 2016, compared to $11.3 million in 2015. The increase was largely due to a 5% increase in salaries and employee benefits costs primarily due to annual salary rate increases.

Pension-Related Changes Not Reflected in Operating Expenses

Pension-related changes are nonoperating adjustments to record the change in the funded status of the Employees’ Pension Plan and the postretirement health coverage plan (Postretirement Plan). Pension-related changes are determined by comparing the fair value of plan assets against the actuarially determined amount of benefit obligations. The FAF recorded a nonoperating increase in net assets of $81,000 and $554,000 for 2016 and 2015, respectively. The valuation of the benefit obligation is highly sensitive to changes in the discount rate. The decrease in the discount rate in 2016, after an increase in 2015, increased the benefit obligation for all the plans. However, other items positively impacted the valuations in 2016, including a change in the mortality rate assumptions and increase in the fair value of the plan assets.

Statements of Financial Position

Reserve Fund Investments

The FAF established the Reserve Fund to: (1) provide the FAF, the FASB, and the GASB with sufficient reserves to fund expenditures not funded by accounting support fees or subscriptions and publications revenues; (2) fund the operations of the FAF, the FASB, and the GASB during any temporary or permanent funding transition periods; and (3) fund unforeseen contingencies.

If the projected year-end Reserve Fund balance, which is net of short-term investments, exceeds the year-end target Reserve Fund, the FAF has historically voluntarily contributed this amount to fund the FASB and the GASB recoverable expenses that would otherwise be funded by accounting support fees. Prior to 2014, the FAF’s policy was to maintain a target Reserve Fund balance equal to one year of budgeted gross expenses for the entire organization plus a working capital reserve equal to one quarter of net operating expenses for the entire organization. In 2014, the Trustees approved a change to the FAF’s cash management policy to cap the targeted year-end Reserve Fund at one year of budgeted operating expenses (eliminating the working capital reserve of one quarter of net operating expenses). This change was phased in over a three-year period beginning in 2014. The change in policy reflects, among other things, improved working capital cash flow resulting from the quarterly billing of GASB accounting support fees.

Accounting support fee assessments in 2016 and 2015 were offset by the amounts made available from Reserve Funds of $18.6 million and $19.0 million, respectively. These amounts have benefited from favorable variances in revenues and expenses between budget and actual that carry over from the prior year and other items that affect the balance of the Reserve Fund, including the effect of the change in the FAF’s cash management policy to reduce the required amount of the targeted Reserve Fund.

Reserve Fund investments are unrestricted assets of the FAF and totaled $58.9 million and $62.4 million as of December 31, 2016 and 2015, respectively. The Reserve Fund’s assets were invested in approximately equal proportions in a money market mutual fund and a short-term, high-credit quality, fixed income mutual fund.

Accounting Support Fees, Subscriptions and Publications, and Other Receivables

Receivables as of December 31, 2016 and 2015 included $2.9 million and $2.4 million of GASB accounting support fees and $2.9 million and $2.5 million of license fees, respectively. The remaining balance primarily related to subscriptions and publications.

Accrued Postretirement Health Care Costs

The funded status of the Postretirement Plan amounted to a $2.9 million net liability in 2016, compared to a net liability of $1.5 million in 2015. This increase was primarily driven by an increase in the benefit obligation of $1.8 million resulting from a decrease in the discount rate and benefit accruals offset by a $423,000 increase in plan assets due to investment gains.

Accrued Pension Costs

The funded status of the Employees’ Pension Plan amount to a $1.4 million net liability in 2016, compared to a net liability of $2.8 million in 2015. The decrease in the net liability of the Employees’ Pension Plan was primarily due to an increase in plan assets reflecting $1.0 million in employer contributions and investment gains.

Outlook For 2017

The FAF will continue to manage our resources prudently, while appropriately investing in technology and other initiatives in fulfilling the important mission of the FASB and the GASB. The IT Enhancement project that started in late 2015, will continue with an implementation of a constituent relationship management system, enterprise content management system enhancements, and other infrastructure upgrades. Overall, we expect headcount to decrease slightly in 2017, primarily related to a decrease in the number of temporary fellow positions, reflecting the staffing needed to support the future agendas of the Boards, particularly after the completion of several major projects. There have been proposals from Congress about potential changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which includes provisions related to the accounting support fees that are assessed in accordance with provisions of that law and that support the standard-setting activities of the GASB. The FAF will continue to monitor closely any potential changes to such provisions and the impact that they may have on the accounting support fees for the GASB.

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Statements of Activities

Statements of Financial Position

Statements of Cash Flows

Notes to the Financial Statements

1. Nature of activities and summary of significant accounting policies

Activities

The Financial Accounting Foundation (FAF), incorporated in 1972, is the independent, private-sector not-for-profit, non-stock corporation with responsibility for establishing and improving financial accounting and reporting standards, through an independent and open process, and educating stakeholders about those standards. The FAF is responsible for the oversight, administration, finances, and appointment of the members of:

• The Financial Accounting Standards Board (FASB), which establishes standards of financial accounting and reporting for nongovernmental entities, and the Financial Accounting Standards Advisory Council (FASAC)
• The Governmental Accounting Standards Board (GASB), which establishes standards of financial accounting and reporting for state and local governmental entities, and the Governmental Accounting Standards Advisory Council (GASAC).

The FAF was incorporated under Delaware General Corporation Law to operate exclusively for charitable, educational, scientific, and literary purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, as amended (Code). The FAF obtains its funding from accounting support fees pursuant to Section 109 of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), in support of the FASB; accounting support fees pursuant to Section 978 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) in support of the GASB; and subscriptions and publications revenues.

Summary of Significant Accounting Policies

Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

The statements of activities are based on the concept that standard setting is the sole program of the FAF. These statements set forth separately, where appropriate, revenues, costs of sales, and certain program expenses of the FASB and the GASB (Standards Boards), in recognition of their distinct responsibilities as described in the FAF’s Certificate of Incorporation and By-Laws. Program expenses include salaries, benefits, and other direct operating expenses for the members and research staffs of the respective Standards Boards and Councils, as well as costs for the ongoing development of the U.S. GAAP Financial Reporting Taxonomy and the process for conducting Post-Implementation Reviews of FASB and GASB standards. Program expenses also include costs for external relations, government affairs and communications activities, and for the information research and technology related to the standard-setting activities of the FASB and the GASB. Additional services for accounting and finance, human resources, facilities management, technology and information systems, legal, and general administrative operating assistance have been reflected as support expenses in the accompanying statements of activities.

All of the net assets of the FAF are classified as unrestricted because none are subject to donor-imposed restrictions.

Use of Estimates

The preparation of financial statements requires management to formulate estimates and assumptions that may affect the reported amounts of assets and liabilities at the dates of those statements and revenues and expenses for the reporting periods. Significant estimates made by management include actuarially determined employee benefit liabilities. Actual results could differ from those estimates.

Accounting Support Fees

Accounting support fees are recognized as revenue in the year for which those accounting support fees have been assessed as prescribed by the Sarbanes-Oxley Act and Dodd-Frank Act. See Note 2 for further information regarding accounting support fees.

Contributions

The FAF reports all contributions as increases in unrestricted net assets. Many individuals contribute significant amounts of time to the activities of the FAF, the Standards Boards, and their Advisory Councils without compensation. These individuals include certain members of the FAF’s Board of Trustees and participants of the following groups: the FASAC and the GASAC, the Private Company Council, the FASB’s Emerging Issues Task Force, and various other FASB and GASB councils, committees, task forces, and working groups on technical projects. Many others participate in the Standards Boards’ processes by submitting comment letters, participating in public hearings and roundtable meetings, and taking part in field visits and field tests. Members of the Board of Trustees are eligible for compensation for their services, with each having the right to waive such compensation. The accompanying financial statements reflect the value of waived Trustee compensation, which meets the criteria for recognition as contributed services. The other services described above are not included as contributions in the accompanying financial statements because they do not meet the recognition criteria.

Subscription Plans and Electronic License Agreements

Revenues from publication sources are recognized over the life of the applicable subscription service or license period, typically one year. Costs for the production of updates and for fulfilment are charged to expense as incurred.

Cash and Cash Equivalents

For financial statement purposes, the FAF considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of these investments approximates fair value due to the nature of the investments and the maturity period.

Investments

The FAF’s investments are recorded at fair value, all of which are measured using Level 1 inputs, which are defined as quoted market prices in active markets for identical investments. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Net appreciation or depreciation includes gains and losses on investments bought and sold as well as held during the year.

Concentration of Credit Risk

Financial instruments that potentially are subject to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and Reserve Fund investments. Short-term investments and Reserve Fund investments are held in various money market and fixed income mutual funds with a single high-credit-quality financial institution. The FAF has not experienced, nor does it anticipate, any credit-risk-related losses in such accounts.

Accounting Support Fees, Subscriptions and Publications, and Other Receivables

Receivables are carried at the amount billed or accrued, net of an allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on management’s review of historical experience and current economic conditions.

Employee Benefit Plans

The FAF sponsors a postretirement health care plan and two defined benefit pension plans. Information with respect to the funded positions of each of the FAF’s pension and other postretirement plans at December 31, 2016 and 2015 is set forth in Note 5.

Furniture, Equipment, and Leasehold Improvements

Furniture, equipment, and leasehold improvements are reported in the statements of financial position at cost, less accumulated depreciation and amortization determined using the straight-line method. Furniture and equipment are depreciated over their estimated useful lives, ranging from 3 to 10 years. Leasehold improvements are amortized over periods not extending beyond the termination dates of the leases for office space.

Income Taxes

The FAF is a tax-exempt organization under Section 501(c)(3) of the Code. Management has reviewed tax positions for open tax years and determined that a provision for uncertain tax positions is not required.

Subsequent Events

The FAF has evaluated subsequent events through March 22, 2017, the date through which the financial statements are available to be issued, and determined that no events subsequent to year-end have occurred that require adjustment to, or disclosure in, the financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued new authoritative guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The FAF is still in the process of completing its analysis on the impact this guidance will have on the financial statements and related disclosures. This accounting standard will be applicable to the FAF for years beginning after December 15, 2018.

In February 2016, the FASB issued new authoritative guidance on leasing transactions. The guidance will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This accounting standard will be applicable to the FAF for years beginning after December 15, 2019. The FAF anticipates recording a related right-to-use asset and an offsetting liability related primarily to office space leases.

In August 2016, the FASB issued new authoritative guidance related to the not-for-profit financial reporting model. The new guidance marks the completion of the first phase of a larger project aimed at improving not-for-profit financial reporting. Under the new guidance, among other changes, net asset reporting will be streamlined and clarified. The accounting standard is effective for fiscal years beginning after December 15, 2017. The FAF does not anticipate there will be a material impact on the statement of activities or statement of financial position, but there will be additional enhanced disclosures related to expenses, liquidity, and financial flexibility.

 

2. Accounting support fees

The Sarbanes-Oxley Act provides for funding of FASB’s recoverable expenses through accounting support fees assessed against and collected from issuers of securities, as those issuers are defined in the Sarbanes-Oxley Act. The FASB accounting support fees are reviewed by the U.S. Securities and Exchange Commission (SEC) each year. The Dodd-Frank Act provides for funding of GASB’s recoverable expenses through an SEC order instructing the Financial Industry Regulatory Authority (FINRA) to establish, assess, and collect accounting support fees from its members.

The accounting support fees provide funding for recoverable expenses associated with the FASB and the GASB’s standard-setting activities as identified in the FAF’s operating and capital budget for each calendar year and reflect adjustments for noncash expenses and certain cash requirements not reflected in the statements of activities. Recoverable expenses do not include Trustee and oversight expenses. The FAF’s budgeted recoverable expenses for each Standards Board are statutorily eligible for funding by accounting support fees. However, on a voluntary basis, the FAF has applied any Reserve Funds in excess of a formula-based target amount to reduce what the FAF would otherwise be entitled to collect in accounting support fees.

The Office of Management and Budget (OMB) has determined that the FASB is subject to sequestration pursuant to the Budget Control Act of 2011 (BCA). Sequestration amounts are determined on the federal government’s fiscal year, which, for the 2016 sequestration, began on October 1, 2015, and ended on September 30, 2016. During 2016, the FAF sequestered $1,770,000 with respect to the FASB accounting support fee. The OMB notified the FAF that the 2016 sequestered funds were available for spending for the 2017 federal fiscal year, which began October 1, 2016. The FAF understands that the FASB accounting support fee for federal fiscal year 2017 will be subject to sequestration in a similar manner.

The FASB accounting support fees recognized and related expenses included in the statements of activities for the past two years are as follows (dollars in thousands):

 

The accounting support fees recognized and related GASB expenses included in the statements of activities for the past two years are as follows (dollars in thousands):

The FASB and the GASB expenses include their allocable share of FAF program and support expenses. The FAF expenses are incurred for the common benefits of the FASB and the GASB.

Any differences (deficit or excess) between the accounting support fees recognized as revenues and the amount of program and support expenses (adjusted for noncash expenses and certain cash requirements), recognized for an applicable calendar year (to the extent that the deficit was not financed from Reserve Fund balances), would be applied to the calculation of accounting support fees in subsequent years.

 

3. Subscriptions and publications revenues and costs

Subscriptions and publications revenues and costs consist of the following (dollars in thousands):

 

4. Investments and investment income and losses

Investments

The following table presents investments measured at fair value, all of which are measured using Level 1 inputs (dollars in thousands):

Investment Income and Losses

(dollars in thousands):

 

Changes in the Reserve Fund balance for the past two years are as follows (dollars in thousands):

Reserve Fund assets are unrestricted and are maintained within the investment policies and guidelines for the Fund established by the Audit and Finance Committee of the Board of Trustees.

 

5. Employee Benefits

Employee benefits expense consists principally of employer payroll taxes, health care benefits for active and retired employees, and pension costs.

Pension Plans

The FAF sponsors a contributory defined contribution plan (the Employees’ Tax Sheltered Annuity Plan) and a defined benefit pension plan (the Employees’ Pension Plan). Effective January 1, 2008, the Employees’ Pension Plan was closed to all new hires, and benefit accruals for participating employees ended as of December 31, 2013.

The FAF also sponsored the Supplemental Executive Retirement Plan (SERP), a defined benefit plan, which was terminated effective December 31, 2013. The FAF maintained a Grantor Trust pursuant to Section 457(f) of the Code for the benefit of its SERP. Grantor Trust assets of the SERP are not included in the change in plan assets due to the nature of the assets. In accordance with the provisions of the plan, final payouts to vested participants totalling $1,921,500 occurred in March 2015, after a mandatory deferral period. The SERP Grantor Trust assets experienced investment income of $91,000 in 2015.

The FAF maintains a 457(b) deferred compensation plan to provide the ability to make tax-deferred contributions to employees whose annual base compensation exceeds the maximum compensation limit for qualified plan contributions under Code §401(a)(17). Contributions are made into a rabbi trust maintained by the FAF for each participating employee and remain assets of the FAF until distributed to the participant upon termination of their employment. The plan assets and related liabilities of $1,403,900 and $1,059,900 as of December 31, 2016 and 2015, respectively, are included as assets held in trusts and other liabilities in the statements of financial position.

Employee benefits expense arising from the defined contribution plan was $3,051,900 and $2,974,600 for 2016 and 2015, respectively. Employer contributions to the plan are based on the employee’s earnings level, with incremental increases based on the employee’s age, and vest after 1.5 years of service.

Postretirement Health Coverage Plan

The FAF sponsors a postretirement health coverage plan (Postretirement Plan) for all eligible retirees of the FAF with benefits varying based on retirement age and years of service. Effective January 1, 2014, the Postretirement Plan was amended to limit the level of benefits that will be paid to current employees and new hires. Retiree benefits are limited for new hires after December 31, 2013, to the lesser of (1) the year-end 2013 calculated benefit amounts or (2) the calculated benefits offered during the year of retirement. Employees hired before January 1, 2014, are eligible for retiree benefits limited to the lesser of (1) health plan costs at 2013 calculated benefit amounts subject to a cap on potential annual increases not to exceed five percent (5%) per year or (2) calculated benefits offered during the year of retirement. Benefits for participants who were retired as of December 31, 2013, will not be affected by these amendments. The FAF funds retiree health care benefits through a Grantor Trust.

Assumptions

The principal actuarial assumptions used to determine periodic benefit costs and year-end benefit obligations for the Employees’ Pension Plan and Postretirement Plan are as follows:

According to the provisions in the Postretirement Plan, benefit amounts for active participants as of December 31, 2013, have been assumed to increase 5.0% per year after 2013. No increases are assumed for active participants hired after 2013.

The expected long-term rates of return on plan assets assumptions were based upon a review of historical returns, and expectations and capabilities of future market performance.

The rate of compensation increase assumption no longer applies to the Employees’ Pension Plan due to the freezing of accruals as of December 31, 2013.

In addition to assumptions in the above table, assumed mortality is also a key assumption in determining benefit obligations. The assumed mortality rates reflect the Society of Actuaries (SOA) published mortality table. At December 31, 2016 and 2015, the assumed mortality rates were updated to reflect the updated MP-2016 and MP-2015 projection scales released by the SOA.

The following table sets forth the amounts recognized in the statements of financial position, the change in benefit obligations, the change in plan assets, funded status, and other information for the Defined Benefit Plans and Postretirement Plan (dollars in thousands):

Plan Assets

Investment objectives and policies for the plan assets are established by the Audit and Finance Committee (Committee) of the FAF Board of Trustees. The overall long-term investment strategy for the Employees’ Pension Plan and Postretirement Plan is to generate returns sufficient to meet obligations of plan participants and their beneficiaries at acceptable levels of risk by maintaining a high standard of portfolio quality and achieving proper diversification. The Committee has retained a professional investment manager for the assets of the employee benefit plans that maintains discretion over investment decisions, within asset allocation ranges recommended by the Committee.

The asset allocation for the Employees’ Pension Plan, which is consistent with the target allocation established by the Committee, was 100 percent in fixed income investments as of December 31, 2016, and is based upon the funded status of the plan, valuation of the liability, and the returns and risks relative to the liability. The asset allocation policy for the Postretirement Plan reflects the target allocation of 50 percent in equity investments (which includes 50 percent of the equity holdings for international stocks) and 50 percent in fixed income investments.

The plan assets of the Employees’ Pension Plan and Postretirement Plan were invested in mutual funds at December 31, 2016 and 2015, the majority of which were indexed. The following table presents the fair value of major categories of plan assets, all of which are measured using Level 1 inputs, as defined (dollars in thousands):

Net Periodic Benefit Expense

The components of net periodic benefit expense for the past two years are as follows (dollars in thousands):

 

The following benefit payments, which reflect expected future service, are projected to be paid under the FAF’s benefit plans, including the amounts of Medicare Part D subsidies for the Postretirement Plan (dollars in thousands):

The FAF expects to contribute $250,000 to the Employees’ Pension Plan and $750,000 to the Postretirement Plan during 2017.

 

6. Furniture, equipment, and leasehold improvements

(dollars in thousands)

 

7. Lease commitments

The FAF has an operating lease on the Norwalk office space until September 30, 2022. Total rental expense for office space and equipment amounted to $2,154,000 and $2,089,000 in 2016 and 2015, respectively. Accrued rent expense is attributable to escalating minimum lease payments, initial rent abatement, and leasehold improvement allowances. The rent expense liability is being amortized over the remaining term of the applicable operating lease.

Future minimum payments under the operating lease for office space, including the FAF’s current share of real estate taxes and other operating costs, are as follows (dollars in thousands):

Management’s Report on Financial Responsibility and Internal Controls

Management of the Financial Accounting Foundation (FAF) is responsible for the preparation of the accompanying financial statements, and for the fairness and accuracy of the financial information included in this annual report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Management is also responsible for establishing and maintaining an adequate internal control structure and adequate procedures for financial reporting. The FAF maintains a system of internal controls designed to ensure the integrity, objectivity, and overall effectiveness of the accounting and financial reporting process, and to provide reasonable assurance as to the reliability of the entity’s financial statements for external purposes.

Internal control over financial reporting does have inherent limitations and may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable, and not absolute, assurance with respect to financial statement preparation and presentation. Also, due to changing conditions, the effectiveness of internal control over financial reporting may vary over time, and certain controls may prove to be inadequate.

Management of the FAF has assessed the effectiveness of the FAF’s internal control over financial reporting as of December 31, 2016. In conducting that assessment, which included limited procedures performed at management’s request by a third-party firm, consideration was given to criteria deemed appropriate in light of the size of the organization and scope of its activities, including relevant criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this assessment, we have concluded that internal control over financial reporting was effective as of December 31, 2016.

Teresa S. Polley
President and Chief Executive Officer
Financial Accounting Foundation

Mary P. Crotty
Chief Operating Officer
Financial Accounting Foundation

Peter C. Spencer
Director of Finance and Accounting
Financial Accounting Foundation

Independent Auditor’s Report

TO THE BOARD OF TRUSTEES FINANCIAL ACCOUNTING FOUNDATION NORWALK, CONNECTICUT

Report on the Financial Statements

We have audited the accompanying financial statements of the Financial Accounting Foundation, which comprise the statements of financial position as of December 31, 2016 and 2015, the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Financial Accounting Foundation as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

RSM US LLP
New Haven, Connecticut
March 22, 2017