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FASB's Exposure Draft 1 (May 22, 2007)

handle is hein.congrec/cbo0967 and id is 1 raw text is: FASAB's Exposure Draft Accounting for Federal Oil and Gas Resources: CBO's Alternative View May 22, 2007 Note: The Congressional Budget Office is a member of the Federal Accounting Standards Advisory Board, which sets financial accounting standards for federal agencies. I Those standards do not, however, govern budgetary accounting. Members may issue alternative views to the board's proposals. Alternative views discuss the points of disagreement with the majority position. The board issued for public comment Accounting for Federal Oil and Gas Resources on May 21, 2007.2 The following is the Congressional Budget Office's alternative view to that proposal. Fair Value Is the Appropriate Basis for Valuing Oil and Gas Reserves Financial accounting is moving toward greater use of fair value estimates for financial assets and liabilities for private sector reporting entities.3 Fair value is the price that would be received for an asset or paid to transfer a liability in a transaction between market participants at the measurement date. In general, fair value measures provide relevant, timely, and relatively accurate valuations. The desirable attributes of fair values are equally appropriate to valuations of physical resources; where possible, the federal balance sheet should report the fair value of the nation's natural resources, including oil and gas. Establishing appropriate values for oil and gas is particularly important because that methodology may set a precedent for how other federal natural resources, such as coal and timber, are valued on the federal balance sheet. A standard for recognizing federal oil and gas resources as an asset must distinguish two categories of federal holdings: proved reserves and all other. For proved reserves, the fair value to the federal government is the present value of expected contract royalties.4 For all other gas and oil holdings, including 1. The board has 10 members; a majority of which are nonfederal. The other federal members represent the Office of Management and Budget, the Department of Treasury, and the Government Accountability Office. More information about FASAB is available at www.fasab.gov. 2. Federal Accounting Standards Advisory Board. Accounting for Federal Oil and Gas Resources (exposure draft, May 21. 2007); available at www.fasab.gov/pdffiles/may07gas ed.pdf. 3. Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (February 2007); available at www.fasb.org/pdf/fas I 59.pdf. 4. For an analysis of how reserves should be measured, see Cambridge Energy Research Associates, In Search of Reasonable Certainty: Oil and Gas Reserves Disclosure (Cambridge, Mass., February 2005); statement of Bala G. Dharan, Professor of Accounting, Rice University, Improving the Relevance and Reliability of Oil and Gas Reserves Disclosures, before the House Committee on Financial Services, July 21. 2004: and Society of Petroleum Engineers. Why a Universal Language for Evaluating

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