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Enclosure A

ANALYSIS OF HHS ACCOUNTS UNDER THE CHIEF FINANCIAL OFFICER LEGISLATION

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ANALYSIS OF HHS ACCOUNTS UNDER THE CHIEF FINANCIAL OFFICER LEGISLATION

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ANALYSIS OF HHS ACCOUNTS UNDER THE CHIEF FINANCIAL OFFICER LEGISLATION

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USTING OF HHS ACCOUNTS WHICH ARE AFFECTED BY FY 1991 WAIVER REQUEST

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Question. In the past, you have said that a lack of government-wide accounting standards limits the auditing work that can be performed. Will the CFO Act change this?

Answer. One of the problems which we think will be found in the preparation of financial statements is the lack of coverage in the current accounting standards for dealing with certain financial arrangements that the Federal government makes. Generally, such financial arrangements are not acknowledged through transactions in the accounting records.

For example, the government has a reversionary interest in funds and assets provided to grantees on a conditional basis. When we know that a certain segment of the grantee population is not complying with these conditions, should we treat the applicable funds or assets as accounts receivables or perhaps as some kind of a contingent receivable? Generally accounting standards do not recognize contingent receivables.

These kinds of issues may be difficult for auditors to address because there may be problems in finding suitable guidance for handling them. These issues will not make it impossible to audit the statements, but may result in the need for numerous explanations of why the auditors could not reach a conclusion about whether the financial statements are fairly stated.

The passage of the CFO Act will not directly effect an improvement in Federal accounting standards. However, the creation of the Federal Accounting Standards Advisory Board (FASAB) may result in a longrange improvement in this situation. The FASAB was

created at about the same time the CFO Act was passed. It was created to bring about improvements in Federal accounting standards and to put in place a process for developing accounting standards on a broader authority than was previously the case. Previously, Federal accounting standards were promulgated by the General Accounting Office. The FASAB has a composition which is quite broad; it should thus result in standards which are more broadly accepted by the Federal financial management community. As the FASAB becomes productive, the issues which management and auditors find troublesome in the preparation and audit of financial statements should be considered and resolved.

Question. Are you in favor of the Department's request to waive the CFO Act's audit requirements for some parts of HHS?

Answer. As I stated in my testimony, I support

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