22.2 Federal Financial Reporting: AFR, PAR, Basic Financial Statements & the U.S. Consolidated Report
Key Takeaways
- The six basic federal financial statements are: Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, Statement of Budgetary Resources (SBR - derived exclusively from budgetary accounts), Statement of Custodial Activity, and Statement of Social Insurance (SOSI).
- FASAB SFFAS 47 establishes the federal reporting entity framework, classifying entities into consolidation entities (core agencies consolidated line-by-line), disclosure entities (entities with federal ties disclosed in notes), and related parties.
- Under OMB Circular A-136, federal agencies choose between an all-inclusive Performance and Accountability Report (PAR) or an Agency Financial Report (AFR) paired with an Annual Performance Report (APR).
11.3 Federal Financial Reporting: AFR, PAR, Basic Financial Statements & the U.S. Consolidated Report
The Federal Financial Reporting Structure (OMB Circular A-136)
The overarching architecture for financial reporting by federal executive branch agencies is established by the Office of Management and Budget through OMB Circular No. A-136, Financial Reporting Requirements. Issued annually, Circular A-136 establishes authoritative guidance governing statement formatting, note disclosures, Required Supplementary Information (RSI), and publication deadlines.
Choosing Between the AFR and the PAR
Under OMB Circular A-136, executive agencies subject to the Chief Financial Officers (CFO) Act of 1990 have the flexibility to publish their annual accountability data under one of two permissible reporting formats:
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| OMB CIRCULAR A-136 REPORTING ALTERNATIVES |
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| OPTION 1: THE CONSOLIDATED PAR |
| • Performance and Accountability Report (PAR) |
| • A single, comprehensive document integrating the audited financial statements |
| with detailed annual performance results required under the Government |
| Performance and Results Act (GPRA) Modernization Act of 2010. |
| • Mandated Publication Deadline: November 15 (45 days post fiscal year-end). |
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| OPTION 2: THE COMPONENT REPORTING PACKAGE (AFR + APR) |
| • Agency Financial Report (AFR): |
| Focuses exclusively on financial accountability, containing the MD&A, audited |
| basic financial statements, notes, auditor's report, and internal control. |
| Mandated Publication Deadline: November 15. |
| • Annual Performance Report (APR): |
| Focuses exclusively on strategic performance goals and operational indicators. |
| Published concurrently with the President's Budget Submission in February. |
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Most major cabinet departments choose Option 2 (the AFR/APR package), which allows agency financial leadership to concentrate resources on achieving clean audit opinions by November 15, while programmatic divisions finalize multi-year performance evaluations for the February budget release.
Identifying the Reporting Entity (FASAB SFFAS 47)
Before financial statements can be assembled, an agency must define its organizational boundaries. Under SFFAS No. 47, Reporting Entity, an entity is evaluated against three core conceptual principles: (1) whether it is listed in the federal budget, (2) whether the federal government exercises governance control, and (3) whether an ongoing financial benefit or burden relationship exists.
SFFAS 47 establishes a tripartite entity taxonomy:
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| SFFAS 47 REPORTING ENTITY TAXONOMY |
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| 1. CONSOLIDATION ENTITIES (Line-by-Line Full Consolidation) |
| • Core executive departments, independent agencies, military branches, |
| wholly owned government corporations (e.g., TVA, FDIC), and bureaus. |
| • Characterized by public policy missions, taxpayer funding, and federal |
| leadership. Financial data is consolidated line-by-line using full accrual. |
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| 2. DISCLOSURE ENTITIES (Disclosed in Notes; Not Consolidated) |
| • Organizations with significant federal ties where full consolidation would |
| be misleading or obscure financial realities. |
| • Examples: The Federal Reserve System, Government-Sponsored Enterprises |
| (GSEs) under conservatorship (Fannie Mae and Freddie Mac), and public |
| partnerships. Disclosed in comprehensive footnotes. |
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| 3. RELATED PARTIES (Disclosed in Notes) |
| • Entities where one party has the ability to exercise significant influence |
| over operating or financial decisions (e.g., international development |
| banks, UN agencies). Disclosed when transactions are material. |
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The Six Basic Federal Financial Statements
Under FASAB standards and OMB Circular A-136, a complete federal financial report contains six basic financial statements, accompanied by integral notes and Required Supplementary Information (RSI):
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| THE SIX BASIC FEDERAL FINANCIAL STATEMENTS |
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| 1. BALANCE SHEET |
| • Proprietary financial position: Assets = Liabilities + Net Position |
| • Distinguishes between Intragovernmental and Public balances. |
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| 2. STATEMENT OF NET COST (SNC) |
| • Operational operating statement: Gross Costs - Earned Revenues = Net Cost |
| • Reflects full economic cost of programs under FASAB SFFAS 4. |
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| 3. STATEMENT OF CHANGES IN NET POSITION (SCNP) |
| • Equity roll-forward: Unexpended Appropriations & Cumulative Results. |
| • Integrates appropriations used, financing sources, and net operational cost.|
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| 4. STATEMENT OF BUDGETARY RESOURCES (SBR) |
| • Derived EXCLUSIVELY from budgetary accounts (USSGL 4000 series). |
| • Budgetary Resources = Status of Budgetary Resources. |
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| 5. STATEMENT OF CUSTODIAL ACTIVITY |
| • Required for agencies collecting taxes, customs duties, and royalties for |
| the General Fund (e.g., IRS, CBP, Interior). |
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| 6. STATEMENT OF SOCIAL INSURANCE (SOSI) |
| • 75-year actuarial present value projections for Social Security, Medicare, |
| and Railroad Retirement under SFFAS 17 and 26. |
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1. The Balance Sheet
The federal Balance Sheet reports the economic resources owned or managed by the agency (Assets), claims against those resources (Liabilities), and the residual equity (Net Position) as of fiscal year-end.
- Intragovernmental vs. Public Presentation: Every asset and liability line item must be disaggregated into Intragovernmental (claims against or debts owed to other federal agencies) and With the Public (claims against or debts owed to citizens, commercial banks, and foreign governments). This distinction is vital for government-wide consolidation.
- Asset Classes: Fund Balance with Treasury (purely intragovernmental), Investments in Treasury Securities, Accounts Receivable, Loans Receivable Net of Subsidy (SFFAS 2), and General PP&E Net of Accumulated Depreciation (SFFAS 6).
- Liability Classes: Accounts Payable, Federal Debt and Interest Payable, Environmental and Disposal Liabilities (SFFAS 5/6), Loan Guarantee Liabilities, and Federal Employee and Veteran Benefits (actuarial pension, health, and disability liabilities).
- Net Position Components: Segregated into two distinct categories:
- Unexpended Appropriations: Total unspent budget authority from congressional appropriations that remains available for future obligation or disbursement.
- Cumulative Results of Operations (CRO): The net cumulative excess of financing sources realized over operating expenses incurred since the inception of the entity.
2. The Statement of Net Cost (SNC - SFFAS 4)
The Statement of Net Cost is the federal equivalent of an operating statement. Governed by SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal Government, the SNC conveys the net operational cost of government programs to the taxpayers:
- Program-Level Alignment: Costs and revenues are presented by major program or strategic goal matching the agency's GPRA strategic plan.
- Gross Costs: Includes all full accrual expenses incurred to deliver services: personnel compensation, depreciation of General PP&E, imputed financing costs, bad debt expenses, and changes in actuarial liabilities.
- Earned Revenues: Exchange revenues generated when the program provides goods or services to the public or other agencies for a fee (e.g., patent application fees, postal rates, sale of electric power by power administrations). Non-exchange revenues (taxes) are never reported on the SNC; they are reported on the SCNP or Statement of Custodial Activity.
Under FASAB Statement of Federal Financial Accounting Standards No. 47 (SFFAS 47), how must a core federal cabinet department funded by tax appropriations and governed by presidentially appointed officials be classified and reported in the consolidated financial statements?