Hello and welcome to the podcast. All right. Well, today is one of those special days that we do a kind of a dual podcast for both AGA and a firm because we thought there was some subject matter here that would be pertinent to both those organizations and folks that work in those fields. So our topic today is some changes to the SFASTs that come out of face-ab, some of the guidance on MD&A reporting.
We'll get into all those acronyms in a second. But first let me introduce our guest. This is Robin Gilliam from Faceab. Welcome, Robin.
Thank you, Paul. It's very nice to be here. We have a great time and look forward to podcast. All right.
Awesome. So Robin, yeah, we definitely invite you here because we want to talk about this new. This basically SFAST 15 was one of the original standards that went along with MD&A reporting for the agency financial reports. But you guys are updating guidance and now it's SFAST 64.
So do you mind just kind of giving our audience a little high level summary, you know, what is this new standard about? What is changing from the prior standard? Sure. First I want to go through the Faceab disclaimer.
Information presented by myself is not authoritative. Therefore it does not reflect authoritative views of the board. Official positions of the Faceab are determined only after extensive due process and liberation. So yeah, let's talk about the new standard SFAST 64, which is called management discussion and analysis, presenting and replacing SFAST 15.
How I'd like to answer the first question is as a history of how we got here. So on June 8, 1999, Faceab published SFAST with a content statement, management discussion analysis and it held many standard-like content. You got to report an entity on what the board expected in MD&A. On August 12, 1999, Faceab published SFAST 15, management discussion analysis because they learned that in order for the MD&A to be required in the general purpose of federal financial support, they needed an actual statement.
So they published 15, which was basically an outline of standard-like content in SFAST 3. The board expected agencies to use both 3 and 15 to process their MD&A, but because SFAST 3 is not authoritative, concepts are non-authoritative, agencies leaned into SFAST 15 to prepare their MD&A. So with that, we can talk further about what they expected now from SFAST 64. Yeah, and laymen's terms, what would you say are some of those major updates or changes in the way of looking at the MD&A that folks are really aware of.
And obviously, you can go online and see it now. I went through it. The statements aren't too long, right? It's about seven or eight pages for the part of the statement.
But obviously, folks can follow along at home. But yeah, if you don't mind just giving us a little bit about some of the major differences. Biggest changes with SFAST 64 are the fact that we have merged and updated relevant contacts from SFAST 3 and SFAST 15. We did this based on the reporting objectives of budgetary integrity, operating performance stewardship, and systems and controls.
This is now principal base with a focus on reporting financial position and condition and key performance results. And it encourages flexibility. So instead of the sections in SFAST 15, it will allow management to be more efficient and effective with how they prepare MD&A content. How this has been done in SFAST 64, there's two focuses.
One is how we'd like to present the guidance on how to present an MD&A and then what information to be presented. The first I'm going to go into is the how. There are four characteristics of MD&A. And these are in paragraph 8 through 11 of SFAST 64.
And they are balanced, concise, integrated, and understandable. And this is called how to present information in MD&A. I'm going to go into each one of these. So a balanced MD&A includes positive effects and negative effects.
Current changes, possible future changes to your events, conditions, and trends. And this is to understand what kind of impact there has been on your financial position and condition and key performance results. The next one is a concise MD&A. Some of these terms and content will be familiar from SFAST 15 because don't forget we merged the information and we pulled also information from SFAST 3.
So you will recognize some of this. So concise MD&A emphasizes the vital key matters. It includes only relevant information for current reporting periods. This came out of the board and was very challenging to ask agencies not to use boilerplate but they didn't want to use the term boilerplate.
So we found in past MD&A that sometimes agents will repeat A136 for the standard putting information into the MD&A. So that's not really relevant. That's just a guide for what to do. This is what that means.
We prefer to do that anymore. It limits duplicative content. So again, we don't have sections. You don't have to repeat stuff over different sections.
References that link to relevant detailed information. So we want summaries of detailed information which makes it concise. You can link them to the details, maybe back in the notes of your financial statements or if there's enough support that has the details. That way it saves MD&A saves concise.
And that one's integrated. It would be nice to integrate the information. And what that includes is quantitative and qualitative information. So you have numbers that you want to talk about.
Things have changed your balances and assets or liabilities and how that has impacted your financial position or condition. And then how to explain it. You know, your qualitative narrative of summary. Again, keeping it concise.
And then financial and non-financial information. You might have both that need to be discussed. And then present the comprehensive and unified discussion and analysis. Now one way to integrate that I personally think would be a good way to help unburn and also the agencies using your statement of net cost.
Agencies already have determined major breakouts either by projects or responsibility segments. You have cost related to them. You could easily talk about all of the information from the what which I'm going to talk about shortly underneath those breakouts from the statement at cost. It was high really nicely into that.
And you don't have to make up something else. It's already there. The last one is understandable. And understandable and MD&A presents content in plain language.
Plain language there is actually a government website that explains that. And I don't have a link with me but you can look that up and use that guide there. We recommend using header sub-header or bullet points to organize content. This is different than your header for your section from SF15.
And understandable MD&A uses visual aids such as charts, tables or graphs. I know that people learn differently. I might need a chart to understand something in addition to the writing. So that would be helpful to add that.
And it organizes information by related content. Again, that's like for me a cue. Let's look at the statement net cost. That's related.
You already have that information working out. So maybe we put all of this information as you've already structured your statement net cost. I want to move into what? That was the how?
That was integrated concise, understandable. What types of information do we want to include? Now somebody is most unfamiliar. Organization of Mission.
So in SF15 it was organization of mission structure. We think that word structure encourages agencies to put their organization structure in there. A lot of information about all your leadership. Maybe some pictures.
All that does not need to be in there. Really just a summary of your organization of mission. And you can link to all that information on your website. Significant.
This is a new piece or a new focus. Significant changes in trends and financial position. Significant changes in trends and financial condition. We're going to take a look at those balances.
And we also took out the financial statement section. So you're actually going to take a look at what kind of balance changes you have to do. Significant changes in assets or liabilities that impact financial position or condition. And let's talk about those.
You can put the numbers in there. You can talk about what cause those changes. Maybe if you're doing it according to your statement net cost is within those different mission areas or response belief segments. We're going to talk about key performance results.
This is the biggie. And this week. This takes the place that the give us statistical information. The statistical information you were supposed to build.
10 bridges. You built nine bridges. We want to know what the financial impact behind those bridges are. So we're going to have to teach you how to talk about your key performance results.
That's going to be something we will work on in our training. Instead of a forward looking section, we now have significant risk and significant opportunities which is going to impact your risk officers under your CFO and how they will get involved in the financial reporting on your MD&A. And that's a great segue because we did mention that this was a podcast we're putting out to the ERM community as well. And this was one of the reasons there are some things for the chief risk officers and those folks to think about.
So do you mind going into more detail about some of the risk management and risk reporting? Sure. So S-64 paragraphs 12E and F. They're requiring MD&A to discuss and analyze significant opportunities identified management that enhance key performance results.
This comes under your risk officer. And then what are your plans to leverage? So when the MD&A prepare to go out and ask the risk officer, you're going to want to know what plans do you have to leverage up to opportunities and the potential effect on financial and budgetary results of carrying out those plans. And significant risk that you've identified by management that have a potential negative effect on key performance results and plans to mitigate such risks and the potential effect on financial and budgetary results of carrying out those plans.
And I think your question also talked about climate reporting. So I just want to mention here that we have a climate related financial reporting project. It wasn't an active project. It has since moved to the research project.
But it wraps up phase two of two phases. The first phase we put out a staff paper which is not authoritative, but it goes over all the standards that can be used in reporting climate related financial reporting information. But what the board did and a extensive analysis of the commercial, the FD and the IFRS-2 which might not make any sense to anybody, but those were the intense commercial disclosures and they decided that MD&A actually can be the framework for reporting and discussing climate related information. Because basically this is a very high level from F2 and it's matched right up to MD&A.
So in October 24th that's what they decided when they moved it over to research. We're still going to do research, but they would like that in there. Some of the climate related terms, we use this so that the risk officers know that we use something called climate related activity. These are just our descriptions which include extreme weather events that have occurred.
So if you've had extreme weather events that have occurred such as a hurricane, Helene, let's say for instance, tornadoes, drought, wildfires and floods. And that they may result from or they may result in prevailing conditions such as rising sea levels of extreme change in temperature. We also have climate related financial risk which refers to the potential material effect on future federal financial statements as a result of a current or future climate related activity. This is information that the prepareds of MD&A should be utilizing from the risk officers.
Now the risk officer is going to look forward at risk as far as like climate related activity. I want to talk a minute about Hurricane Helene that did some of the damage to North Carolina and the mountains out there. We had NOAA had a building up there where they house all of the climate information and the billion dollar data for all the climate activity and it was basically destroyed and they couldn't, they needed to find all their employees to make sure everybody was safe. So that is a perfect example of something that could be in NOAA's financial in their MD&A as far as how that impacted their financial condition and position.
And were there any financial risks that came out of that that they're now going to have to mitigate, they're going to have to build a new building, right? So is there a budget impact? How are they going to mitigate that? Are there any opportunities to have come out of that?
And all of that to be discussed according to those who are characteristic in the MD&A. So we're going to rely highly on the risk officers to provide that kind of information. Yes, that's really good info. So just my opinion, I used to help with a lot of agency financial reports and I love how this is going from rules based to principles based.
I mean, that's true with the rules based. Sometimes there's a lot of duplication. You're writing the same stuff in multiple parts of the report because it's rule based, right? You have to have this here or you have to have that there.
But now with the principles, I think there can be more concise, there can be less duplicative, there can be more focused on, like you said, major issues that are happening or risk to the agency and mission focus. So that's just my opinion. I think this is a pretty cool change. Thank you.
We're excited. We're very excited. Yeah, and it'll be also interesting to see how, you know, AGA gets very involved in reviewing agency reports, right? We have the SEER training, the student has to go to training, but there's a SEER program where we review agency reports and now we'll have to kind of look at the MD&A a little differently and that'll be interesting.
And that kind of goes to my next question. You know, when is this actually going to be effective? You know, when do agencies need to start following this guidance? That's a good question.
So this is effective for recording through the beginning after September 30, 2025. So fiscal year 26, it will be required, but early implementation is permitted. So you can do this MD&A according to FS64 for fiscal year 25, which we're now in. And personally, I recommend it because it's better, you get started, you learn it, and also your burden will be reduced that much quicker.
Yeah, I agree with that. Again, like I said, you know, some of that duplicative stuff is going to go away. So let's just start doing it now, is what I say. So I wanted to move into kind of the next really big important piece of why we're talking today.
So we are putting out some training for the agencies on the new standards. So please tell us about the training, what is it cover, you know, how's that going to work? Really, really excited about the training. This is an implementation training.
We're not just going to say here are the standards. We're actually going to provide a two hour training. The first hour represents a recommended method for transitioning. We're going to go really into detail and depth from what I told you, but really like what's changing from 15, like what shouldn't be done and what is recommended now for you to the guy in the second hour.
This is offered for agency. So we'd like to eat individual agencies, not individual people, but by agency. And including your, any other agencies that come into your financial statements. And then the second hour staff reviews agency current MD&A with suggestions for smooth transitions.
So it's actually going to be very hands on and specific to that agency. Training starts in February of this year and runs through May of 2025. We are offering it Tuesday afternoon from 2 to 4 p.m. Or Thursday morning from 9 30 a.m.
to 11 30 a.m. This is of course they won't happen on board meetings or if there's an ADA training day, you will not be offering those on those days. You can send me an email. Paul can you put that in the notes to the podcast?
You can include my email. Send me a message please that you want in your subject matter. You'll say MD&A training, that, and then your agency name. So I can track the agencies.
I already have at least 10 agencies that have signed up a lot. Once you send me that email, I will send you a link and some more instructions about the training. And you'll go in that email at that link which is a scheduler. So then you can go pick your date.
If for some reason none of those dates were. I'm hoping you can find a date that we can talk offline and see what works for you. One other thing is requesting an agency's host on their own platform. That would be easier for us if you want to record it.
Also sometimes Arzoon doesn't work before you know it works. That way you can coordinate the invite to make sure you have who you want on there and in order to invite myself and the other staff account that's assisting me. And then we'll work with you as we get closer. We also will need a copy of your financial statement, your PDF, so that we can prepare and review that priority training.
Yes, awesome. I love how it's going to be very hands-on. So the first hour is kind of the information from the standard. The second half is really hands-on with actual reports of the agencies, right?
Right. So the first one is not just going to be reading at the standard. The first hour is actually the transition part. It's looking at going from 15 to 64.
And it's not specifically how the standard is written. It's really more of a conversation about how we're moving from 15 to 64. The ones when I went into depth on the balance and the concise, that came from the slide. So that's kind of what you will see.
There's actually more that we pro tip on and understanding more examples. And it'll be a dynamic training, but that we get better with the agencies we can add things or change things. And one other thing that we're offering is a white paper, like an implementation white paper with more specific examples that you can't really put in slides that will have, and that will have the statement or the standard. And then underneath it will have an example of how, from an agency, because some of them are doing something similar to this, it will pull something from agency and say, oh, this is how something agency wrote this up.
You might want to do this as a model. And we're going to do that as a white paper. And then I'm also in February, I think it's February 26 in the morning, Wednesday. I will be at the board table, and my request will be to actually develop a technical release through our, now called our Accounting Standards Implementation Committee.
I think it's the ACC. I got that wrong. I'm sorry, AFIC. We just changed the name.
And so I'm going to request the board allow me to go there to develop a technical release. We have authoritative guidance on actually for implementation. So we're working with many, many angles. For those who do not choose to go early, we might repeat some of the training next year.
It will depend on schedules and other priorities that come up. But we will make sure that we have in our working closely with the agencies to transition into this. Okay. And like we said, we're going to include a link to the standard, but also a link to the provider to face that newsletter has instructions on how to sign up for the training, has your email, has all that stuff in there.
We're going to put that on the website. So, yeah, so people can sign up if they haven't already talked to you already. Right. So this is very, yeah, this has been really educational.
I appreciate it. And I think I'll already listen to two. I mean, vast majority of them probably, you know, in some way touch on the report or at least contribute to the content. So I guess just any final words or final thoughts before we wrap up today?
Yeah. Another link I'd like you to put in two links. So if you, if agencies have any questions, you're not sure how to report something, you're auditors, you're maybe not agreeing with your auditor to get something we have something called a technical inquiry. It's right on our webpage.
It's an extensive list of questions, but the more you answer the better we can do your research. And sometimes it leads to maybe a change in a statement or a standard. So by all means, if you have a different climate, if you have any questions about climate, it's not specifically in our standards, then please, if you're finding something like a band and app or if you don't have to, maybe you're finding something that you don't have an answer for, please go technical inquiry. And I always put a plug in for signing up for our faith app listserv.
We don't just send out stuff, just send out stuff. We only send out newsletters. You should see an agenda coming in the next month or the February meeting. We have a new board member that's coming on.
So if you're on the list, you would have seen information about that. So we definitely recommend you sign up for the listerv just to keep up to date on what is going on. And our meeting are open. You can, if they're in person, you can come in person or live, they're all, they're hybrid now.
You can always just virtually come in and watch the meeting. So that's another plug for staying up to date on what is going on with faith app. And we'd like to partner with our stakeholders, which includes our agencies. Okay.
Awesome. Well, Robin, thanks again for joining us today on the podcast. I appreciate it. Well, thank you for having me.
I really appreciate the opportunity. Thank you.