FASAB Statement 56: Understanding New Government Financial Accounting Loopholes

By Michele Ferri and Jonathan Lurie

Table of Contents

I. Introduction
II. History of the Federal Accounting Standards Advisory Board (FASAB)
III. FASAB and Standard 56
A. What does Standard 56 Do?
B. Reporting Entities Within the Scope of Standard 56
C. Changes to Disclosure Standards Under Standard 56
D. Modifications to Avoid Disclosure of Classified Information
E. Reporting on Consolidation Entities
F. Interpretations Modifying Reporting Standards in the Future
IV. Administrative History of Statement 56
A. Commentary On Required Disclaimers
B. Federal Commentary on Standard 56 Generally
C. Concerns From Accounting Firms
V. The Results of Statement 56 For the Public
VI. About Us


In the absolute most simple terms, Standard 56 allows federal entities to shift amounts from line item to line item and sometimes even omit spending altogether when reporting their financials in order to avoid the potential of revealing classified information.1 However, as with all laws, nearly every word in that sentence is a complicated concept to unpack. Who counts as a federal reporting entity? When and how can these entities conceal or remove financial information from their reports? What information can be removed? When does something count as confidential, and who makes that determination? All of these questions have enormous bodies of writing in FASAB memorandums addressing, and sometimes failing to address, their answers.

The simplest place to start with understanding Standard 56 is its scope. It applies to federal entities that issue unclassified general purpose federal financial reports (GPFFR), including where one entity is consolidated with another. This means it only applies to otherwise unclassified financial reports where there is a risk of revealing classified information; classified financial reports are their own can of worms. (see generally FASAB Statement of Federal Financial Accounting Standards 56, available at http://files.fasab.gov/pdffiles/handbook_sffas_56.pdf) Standard 56 also doesn’t remove the actual requirement to report, it just allows these entities to change their reports in ways that don’t reflect their actual spending. (see id.) However, for the purposes of government transparency, determining who is responsible for classifying information, and/or removing that information from unclassified reports, is quite opaque for the average interested citizen.

Read Here: FASAB Statement 56: Understanding New Government Financial Accounting Loopholes

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