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MANAGEMENT’S DISCUSSION AND ANALYSIS

2015 Summary

The mission of the Financial Accounting Foundation (FAF) and its standard-setting Boards, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), is to establish and improve standards of financial accounting and reporting for public and private companies, not-for-profit organizations, and state and local governments. Collectively, these standards are known as Generally Accepted Accounting Principles (GAAP). Financial accounting and reporting standards help foster and protect investor confidence, facilitate the efficient operation of capital markets, and enable citizens to assess the stewardship of public resources by their state and local governments. The FAF, the FASB, and the GASB are committed to the development of high-quality financial accounting and reporting standards through an independent and open process that results in useful financial information, considers all stakeholder views, and ensures public accountability.

The FAF is responsible for the oversight, administration, financing, and appointment of the FASB and the GASB, and their respective advisory councils, the Financial Accounting Standards Advisory Council (FASAC), and the Governmental Accounting Standards Advisory Council (GASAC). The FAF obtains its funding from three sources:

  • Accounting support fees that finance FASB operating and capital expenses pursuant to Section 109 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act);
  • Accounting support fees that finance GASB operating and capital expenses pursuant to Section 978 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act); and
  • Sales and licensing of copyrighted FASB and GASB materials.

The FAF’s net assets decreased by $4.7 million in 2015 as total program and support expenses exceeded total net operating revenues by $5.8 million. Program and support expenses are funded by accounting support fees and by a portion of Reserve Funds, as described more fully in the Statements of Financial Position Reserve Fund Investments section below. In 2015, the FAF was able to significantly reduce accounting support fees with $19.0 million of amounts made available from Reserve Fund balances. This funding from Reserve Funds (which are not operating revenues) resulted in the difference between net operating revenues and total program and support expenses. This difference was anticipated during preparation of the 2015 budget.

The FAF’s expenses include program expenses, which are those directly related to its sole program of standard setting, and support expenses, which are those related to the general administration and operation of standard-setting activities.

Program and support expenses increased by $1.2 million, or approximately 2%, from 2014 to 2015. Excluding the 2014 non-recurring contribution of $3.0 million to the International Financial Reporting Standards Foundation (IFRS Foundation), total expenses increased by $4.2 million, or 9%, in 2015. The 2014 contribution was made to support the efforts of the IFRS Foundation’s standard-setting body, the International Accounting Standards Board (IASB) to complete work on four joint accounting standards projects with the FASB. The 2015 program expenses related to the FAF’s primary mission of improving financial accounting and reporting standards. These efforts included fostering improvement and increased comparability of international accounting standards, working with the Private Company Council (PCC) to improve the standard-setting process for private companies, continuing the development of the GAAP Financial Reporting Taxonomy (Taxonomy) for eXtensible Business Reporting Language (XBRL), and the evaluation of the effectiveness of the standard-setting process for both the FASB and the GASB through the Post-Implementation Review (PIR) process.

In addition, the increase in costs reflects several initiatives consistent with the FAF/FASB/GASB Strategic Plan, which identified the following priorities:

  • Practicing and promoting continued excellence in standard setting
  • Demonstrating a commitment to leadership in standard setting
  • Building and maintaining trust with stakeholders
  • Promoting public discourse on current and future financial reporting issues.


Some of the initiatives relating to these priorities included:

  • Information Technology (IT) assessment and commencement of an IT enhancement project, which will include the development and implementation of an enterprise content management system and stakeholder relationship management system
  • Additional staffing arising from the technical needs of the Standards Boards, as they work toward their ongoing goals and initiatives
  • More meetings with national standard setters and other international regulators and stakeholders Enhanced professional, leadership development, and diversity initiatives.

Financial Results

The FAF’s financial statements are presented in accordance with GAAP and reflect the specific reporting requirements of not-for-profit organizations. The following is a discussion of the highlights of the activities and financial position of the FAF as presented in the accompanying audited financial statements.


MANAGEMENT’S DISCUSSION AND ANALYSIS

Statements of Activities

The following charts display the sources of revenues and program and support expenses for 2015 and 2014:

2015 Sources of Revenue  
 FASB Accounting Support Fees 54%
 GASB Accounting Support Fees 16%
 Net Subscriptions & Publications 30%
2014 Sources of Revenue  
 FASB Accounting Support Fees 55%
 GASB Accounting Support Fees 14%
 Net Subscriptions & Publications 31%
2015 Expenses  
 Program — Standard Setting 78%
 Support 22%
2014 Expenses  
 Program — Standard Setting 79%
 Support 21%

FASB Accounting Support Fees

FASB accounting support fees are assessed upon issuers, as defined by the Sarbanes-Oxley Act, to fund the expenses and other cash requirements of the FASB’s standard-setting activities, as reflected in the FAF’s annual operating and capital budget — the FASB recoverable expenses.

Equity issuers and investment company issuers are assessed a share of the accounting support fees based upon their relative average monthly market capitalization, subject to minimum capitalization thresholds. The FAF has retained the Public Company Accounting Oversight Board (PCAOB) as its agent for invoicing and collecting FASB accounting support fees. FASB accounting support fees were $23.9 million in 2015 and $24.0 million in 2014. The FAF paid the PCAOB approximately $209,000 per year for collection services in 2015 and 2014.

The Office of Management and Budget (OMB) has determined that the FASB accounting support fee is subject to sequestration pursuant to the Budget Control Act of 2011 (BCA). Sequestration amounts are based on the federal government’s fiscal year, which, for the 2015 sequestration, began on October 1, 2014, and ended on September 30, 2015. During 2015, the FAF sequestered approximately $1.83 million with respect to the FASB accounting support fee. In October 2015, the OMB notified the FAF that the 2015 sequestered funds were available for spending for the 2015 federal fiscal year, which began October 1, 2015. The FAF understands that the FASB accounting support fee for federal fiscal year 2016 will be subject to sequestration in a similar manner.

GASB Accounting Support Fees

Pursuant to the Dodd-Frank Act, in 2012, the SEC issued an order approving a proposed rule change to the by-laws of the Financial Industry Regulatory Authority (FINRA) to establish an accounting support fee to fund the annual budget of the GASB, including rules and procedures to provide for the equitable allocation, assessment, and collection of the GASB accounting support fee from FINRA members. FINRA collects the GASB accounting support fee quarterly from member firms that report trades to the Municipal Securities Rulemaking Board (MSRB). Each member firm’s assessment is based on the member firm’s portion of the total par value of municipal securities transactions reported by FINRA member firms to the MSRB during the previous quarter. GASB accounting support fees were $7.4 million in 2015 and $6.2 million in 2014. The increase in GASB accounting support fees reflects a decrease in the amount of Reserve Fund balances made available by the FAF to offset GASB expenses in 2015. The FAF paid FINRA $30,000 per year for collection services in 2015 and 2014.

Subscriptions and Publications

Subscriptions and publications revenues for FASB and GASB product offerings are presented in the statements of activities on a combined basis, net of direct costs of $4.3 million and $4.2 million in 2015 and 2014, respectively. Gross revenues for FASB and GASB product offerings are separately displayed in the charts for 2015 and 2014.

The FAF licenses the content of the FASB Accounting Standards Codification® (FASB Codification) to commercial publishers and others for inclusion in their proprietary, comprehensive, online research systems. The FASB Codification also is directly accessible through an online platform and can be viewed either through a free Basic View or as an annual paid subscription to the Professional View that provides advanced navigation and system functions. The FAF also sells a bound edition of the FASB Codification and provides The FASB Subscription, an annual paid service that includes the distribution of printed copies of FASB Accounting Standards Updates (ASUs) when issued. FASB subscription and publication revenues totaled $15.8 million in 2015, down 1% from 2014. License fees were consistent with 2014 and represented 84% of the total subscription and publication revenues in 2015. In 2015, the number of subscribers to The FASB Subscription and the Professional View of the Codification fell slightly, resulting in a $136,000 decline in subscription plan revenues. Sales of the FASB Codification annual bound edition in 2015 were consistent with 2014.

The FAF licenses GASB materials to commercial publishers and others for inclusion in their proprietary comprehensive online research systems. GASB materials are directly accessible online through the Governmental Accounting Research System (GARS). GARS Online can be viewed either through a free Basic View or as an annual paid subscription to the Professional View that provides advanced navigation and system functions. GASB materials also are available through various subscription plans sold directly by the FAF, including The GASB Subscription (consisting of final documents as issued) and the GASB Board Package. In addition, the FAF sells bound editions of the GASB Codification, GASB Original Pronouncements, and the GASB Comprehensive Implementation Guide, as well as hard copies of individual pronouncements, user guides, Research Reports, and other documents. GASB subscription and publication revenues totaled $1.7 million in 2015, an 8% decrease from the 2014 revenues of $1.8 million. License fees were consistent with 2014, and represented 66% of the total subscription and publication activity in 2015. Due principally to the availability of free materials on GARS Online, subscription plan revenue decreased by $45,000. Revenue from bound editions decreased by $97,000 due to the delayed release of the 2015 GASB Codification and GASB Original Pronouncements until early 2016 based on the need to extensively revise the Codification to conform to the simplified structure of the GAAP hierarchy as defined by GASB Statement 76.

FASB Subscriptions and Publications
(dollars in thousands)

2015    
 License Fees 84% $13,282
 Subscription Plans 14% $2,159
 Codification Bound Volumes 2% $367
 Other 0% $22
TOTAL 100% $15,830
2014    
 License Fees 83% $13,289
 Subscription Plans 14% $2,295
 Codification Bound Volumes 2% $363
 Other 1% $68
TOTAL 100% $16,015

GASB Subscriptions and Publications
(dollars in thousands)

2015    
 License Fees 66% $1,093
 Subscription Plans 30% $503
 Codification Bound Volumes 2% $42
 Other 2% $27
TOTAL 100% $1,665
2014    
 License Fees 61% $1,097
 Subscription Plans 30% $548
 Codification Bound Volumes 8% $139
 Other 1% $23
TOTAL 100% $1,807

Program Expenses

The FAF’s program expenses totaled $39.2 million in 2015, less than a 1% increase compared to $38.9 million in 2014. Salaries and benefits increased by $2.0 million due to annual salary rate increases and the filling of several positions that were vacant in 2014. Salaries and employee benefits comprise approximately 83% of the FAF’s program expenses.

Professional fees increased by $922,000 primarily related to the IT assessment and enhancement projects, which will directly support the standard-setting activities of the FASB and the GASB. Offsetting this increase was a decrease due to the non-recurring $3.0 million contribution to the IFRS Foundation made in 2014. Other program expenses include domestic and international travel for the FASB and the GASB members and staff, costs for holding advisory group and other meetings, library subscriptions and other reference materials, and other miscellaneous expenses.

Support Expenses

The FAF’s support expenses totaled $11.3 million in 2015, an increase of $932,000, or 9%, compared to $10.4 million in 2014. The overall increase was largely driven by oversight costs related to additional search and placement fees for new Trustees. Salaries and employee benefits costs increased by 6% largely due to higher periodic benefit costs for the Postretirement Plan and annual salary rate increases.

Pension-Related Changes Not Reflected in Operating Expenses

Pension-related changes are nonoperating adjustments to record the change in the funded status of the FAF’s defined benefit plans (the Employees’ Pension Plan and the Supplemental Executive Retirement Plan [SERP]) and the postretirement health coverage plan (Postretirement Plan). Pension-related changes are determined by comparing the fair value of plan assets against the actuarially determined amount of benefit obligations. The FAF recorded a nonoperating increase in net assets of $554,000 for 2015 (compared to a $5.4 million nonoperating decrease in 2014). The valuation of the benefit obligation is highly sensitive to changes in the discount rate. The increase in the discount rate in 2015, after a decrease in 2014, decreased the benefit obligation for all the plans. Other items impacted the valuations including a change in the mortality rate assumptions in 2015 and 2014, participant data changes, and changes made to FAF’s health plan to reduce future premium costs.


Statements of Financial Position

Reserve Fund Investments

The FAF established the Reserve Fund to: (1) provide the FAF, the FASB, and the GASB with sufficient reserves to fund expenditures not funded by accounting support fees or subscription and publication revenues; (2) fund the operations of the FAF, the FASB, and the GASB during any temporary or permanent funding transition periods; and (3) fund unforeseen contingencies.

If the projected year-end Reserve Fund balance, which is net of short-term investments, exceeds the year-end target Reserve Fund, the FAF has historically voluntarily contributed this amount to fund the FASB and the GASB recoverable expenses that would otherwise be funded by accounting support fees. Prior to 2014, the FAF’s policy was to maintain a target Reserve Fund balance equal to one year of budgeted gross expenses for the entire organization plus a working capital reserve equal to one quarter of net operating expenses for the entire organization. In 2014, the Trustees approved a change to the FAF’s cash management policy to cap the targeted year-end Reserve Fund at one year of budgeted operating expenses (eliminating the working capital reserve of one quarter of net operating expenses). This change is being phased in over a three-year period beginning in 2014. The change in policy reflects, among other things, improved working capital cash flow resulting from the quarterly billing of GASB accounting support fees.

Accounting support fee assessments in 2015 and 2014 were offset by the amounts made available from Reserve Funds of $19.0 million and $18.7 million, respectively. These amounts have benefited from favorable variances in revenues and expenses between budget and actual that carry over from the prior year and other items that affect the balance of the Reserve Fund, including the effect of the change in the FAF’s cash management policy to reduce the required amount of the targeted Reserve Fund. In addition, the 2014 amount benefited by the $2.5 million received in 2013 pursuant to a class action settlement relating to the FAF’s 2007 investment losses.

Reserve Fund investments are unrestricted assets of the FAF and totaled $62.4 million and $67.6 million as of December 31, 2015 and 2014, respectively. The Reserve Fund’s assets were invested in approximately equal proportions in a money market mutual fund and a short-term, high-credit-quality, fixed income mutual fund.

Accounting Support Fees, Subscriptions and Publications, and Other Receivables

Receivables as of December 31, 2015 and 2014, primarily included $2.4 million and $1.7 million of GASB accounting support fees and $2.5 million and $3.5 million of license fees, respectively. The remaining balance primarily related to subscriptions and publications.

Accrued Postretirement Health Care Costs

The funded status of the Postretirement Plan amounted to a $1.5 million net liability in 2015, compared to a net liability of $1.6 million in 2014. This change was primarily driven by a decrease in the benefit obligation of $542,000 resulting from an increase in the discount rate and changes in the mortality assumptions and participant data, offset by a $476,000 decrease in plan assets due to investment loss.

Accrued Pension Costs and Assets Held in Trust

Accrued pension costs included the projected benefit obligations of the Employees’ Pension Plan of $2.8 million. The balance in 2014 included the SERP liability of $1.9 million and the Employees’ Pension Plan liability of $3.2 million. The assets held in trust as of December 31, 2014, included $2.1 million related to the SERP. The SERP was terminated effective December 31, 2013. In accordance with the provisions of the plan, final payouts to vested participants occurred in March 2015. The decrease of $480,000 in the net liability of the Employees’ Pension Plan was primarily due to the $1.0 million contribution offset by the net effect of changes in the plan assets and benefit obligation resulting from investment losses and changes to the discount rate, and mortality assumptions.

Outlook for 2016

In 2015, the FAF completed a comprehensive assessment of our use of technology and identification of new processes and systems to meet the current and future technology needs of the FAF, the FASB, and the GASB. As a result of this process, a long-term IT enhancement project and roadmap was developed. The project will be conducted in waves. The first wave of enhancements, estimated to cost approximately $2.7 million, began in late 2015 and is expected to continue through December 2016, and will include investments in IT governance, infrastructure upgrades, cyber security, business continuity, enterprise content management, and stakeholder relationship management.


STATEMENTS OF ACTIVITIES

Years Ended December 31 (dollars in thousands) 2015 2014
Net operating revenue:    
Accounting support fees (Note 2):    
FASB $23,908 $24,034
GASB 7,357 6,159
Total accounting support fees 31,265 30,193
Subscriptions and publications (Note 3) 17,495 17,822
Less-Direct costs of subscriptions and publications (Note 3) 4,326 4,168
Net subscriptions and publications 13,169 13,654
Contributions-FAF contributed services 240 192
Total net operating revenue 44,674 44,039
 
Program expenses:    
Salaries and wages 26,196 24,407
Employee benefits (Note 5) 6,223 6,005
Occupancy and equipment expenses (Note 7) 1,447 1,340
Depreciation and amortization) 465 515
Professional fees 2,375 1,453
Contribution to the IFRS Foundation 3,000
Other operating expenses 2,484 2,204
Total program expenses 39,190 38,924
 
Support expenses:    
Salaries and wages 4,117 4,038
Employee benefits (Note 5) 1,468 1,240
Occupancy and equipment expenses (Note 7) 841 828
Depreciation and amortization 236 231
Professional fees 3,070 2,902
Other operating expenses 1,592 1,153
Total support expenses 11,324 10,392
Total program and support expenses 50,514 49,316
Net operating revenue less than expenses (5,840) (5,277)
 
Short-term investment income (Note 4) 30 22
Supplemental Pension Plan investment income (Note 5) 91 229
Reserve Fund investment income (Note 4) 430 686
Pension-related changes not reflected in operating expenses (Note 5) 554 (5,365)
Decrease in net assets (4,735) (9,705)
Net assets at beginning of year 74,102 83,807
Net assets at end of year $69,367 $74,102


See accompanying notes to these financial statements.

 

STATEMENTS OF FINANCIAL POSITION

Years Ended December 31 (dollars in thousands) 2015 2014
Current Assets:    
Cash and cash equivalents $6,738 $5,497
Short-term investments (Note 4) 9,081 9,233
Accounting support fee, subscription and publication, and
other receivables (net of allowance for doubtful accounts of
$82 and $87)
5,051 5,326
Prepaid expenses and all other current assets 329 383
Total current assets 21,199 20,439
 
Noncurrent Assets:    
Reserve Fund investments (Note 4) 62,431 67,588
Assets held in trust (Note 5) 1,060 2,853
Furniture, equipment, and leasehold improvements, net
(Note 6)
1,922 2,311
Total noncurrent assets 65,413 72,752
Total assets $86,612 $93,191
 
Current Liabilities:    
Accounts payable and accrued expenses $2,043 $1,484
Accrued payroll and related benefits 1,259 1,131
Unearned publication and other deferred revenues 6,594 6,578
Total current liabilities 9,896 9,193
 
Noncurrent Liabilities:    
Accrued pension costs (Note 5) 2,761 5,161
Accrued postretirement health care costs (Note 5) 1,523 1,589
Accrued rent expense (Note 7) 1,976 2,352
Other liabilities (Note 5) 1,089 794
Total noncurrent liabilities 7,349 9,896
Total liabilities 17,245 19,089
Net Assets — Unrestricted 69,367 74,102
Total liabilities and net assets $86,612 $93,191


See accompanying notes to these financial statements.

STATEMENTS OF CASH FLOW

Years Ended December 31 (dollars in thousands) 2015 2014
Cash flows from operating activities:    
Cash received from subscriptions and publication sales $18,567 $17,461
Cash received from accounting support fees 30,485 30,651
Interest and dividend income received 766 925
Cash paid to IFRS Foundation (3,000)
Cash paid to vendors, employees and benefit plans (55,152) (49,178)
Net cash used in operating activities (5,334) (3,141)
 
Cash flows from investing activities:    
Proceeds from sales of Reserve Fund investments $13,841 $6,238
Purchases of Reserve Fund investments (8,978) (1,809)
Proceeds from sales of short-term investments 8,000 8,000
Purchases of short-term investments (7,848) (8,239)
Proceeds from sales of assets held in trust 2,175 3
Purchases of assets held in trust (304) (330)
Purchases of furniture, equipment and leasehold improvements, net (311) (339)
Net cash provided by investing activities 6,575 3,524
Net increase in cash and cash equivalents 1,241 383
Cash and cash equivalents at beginning of period 5,497 5,114
Cash and cash equivalents at end of period $6,738 $5,497
 
Reconciliation of decrease in net assets to net cash used in operating activities:
Decrease in net assets for the period $(4,735) $(9,705)
 
Adjustments to reconcile decrease in net assets to net cash used in operating activities:
Depreciation and amortization 700 746
Net realized and unrealized losses on Reserve Fund investments 294 123
Net realized and unrealized gains on assets held in trust (78) (135)
(Credit) provision for losses on accounts receivable (5) 1
Decrease in accounting support fee, publication andsubscription, and other receivables 280 10
Decrease in all prepaid costs 54 2,004
(Decrease) increase in accounts payable, accrued expenses, pension and other benefit accruals (1,779) 3,870
Increase in other liabilities 295 235
Increase in unearned publication and other deferred revenues 16 86
Decrease in accrued rent expense (376) (376)
Total adjustments (599) 6,564
Net cash used in operating activities $(5,334) $(3,141)
 
Supplemental Information    
Noncash items included in the Statement of Activities:    
Pension-related changes not reflected in operating expenses $554 $(5,365)


See accompanying notes to these financial statements.


NOTES TO FINANCIAL STATEMENTS

1 Nature of Activities and Summary of Significant Accounting Policies

Activities

The Financial Accounting Foundation (FAF), incorporated in 1972, is the independent, private-sector, not-for-profit, non-stock corporation with responsibility for establishing and improving financial accounting and reporting standards, through an independent and open process, and educating stakeholders about those standards. The FAF is responsible for the oversight, administration, finances, and appointment of the members of:

  • The Financial Accounting Standards Board (FASB), which establishes standards of financial accounting and reporting for nongovernmental entities, and the Financial Accounting Standards Advisory Council (FASAC).
  • The Governmental Accounting Standards Board (GASB), which establishes standards of financial accounting and reporting for state and local governmental entities, and the Governmental Accounting Standards Advisory Council (GASAC).

The FAF was incorporated under Delaware General Corporation Law to operate exclusively for charitable, educational, scientific, and literary purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, as amended (Code). The FAF obtains its funding from accounting support fees pursuant to Section 109 of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), in support of the FASB; accounting support fees pursuant to Section 978 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) in support of the GASB; and subscriptions and publications revenues.

Summary of Significant Accounting Policies

Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The statements of activities are based on the concept that standard setting is the sole program of the FAF. These statements set forth separately, where appropriate, revenues, costs of sales, and certain program expenses of the FASB and the GASB (Standards Boards), in recognition of their distinct responsibilities as described in the FAF’s Certificate of Incorporation and By-Laws. Program expenses include salaries, benefits, and other direct operating expenses for the members and research staffs of the respective Standards Boards and Councils, as well as costs for the ongoing development of the U.S. GAAP Financial Reporting Taxonomy and the process for conducting Post-Implementation Reviews of FASB and GASB standards. Program expenses also include costs for external relations, government affairs and communications activities, and for the information research and technology related to the standard-setting activities of the FASB and the GASB. In addition, program expenses in 2014 include a non-recurring contribution to the International Financial Reporting Standards Foundation (IFRS Foundation) to support the efforts of the IFRS Foundation’s standard-setting body, the International Accounting Standards Board (IASB), to complete work on joint projects under way with the FASB. Additional services for accounting and finance, human resources, facilities management, technology and information systems, legal, and general administrative operating assistance have been reflected as support expenses in the accompanying statements of activities.

All of the net assets of the FAF are classified as unrestricted because none are subject to any donor-imposed restrictions.

Use of Estimates

The preparation of financial statements requires management to formulate estimates and assumptions that may affect the reported amounts of assets and liabilities at the dates of those statements and revenues and expenses for the reporting periods. Significant estimates made by management include actuarially determined employee benefit liabilities and the fair value of investments. Actual results could differ from those estimates.

Accounting Support Fees

Accounting support fees are recognized as revenue in the year for which those accounting support fees have been assessed as prescribed by the Sarbanes-Oxley Act and Dodd-Frank Act. See Note 2 for further information regarding accounting support fees.

Contributions

The FAF reports all contributions as increases in unrestricted net assets. Many individuals contribute significant amounts of time to the activities of the FAF, the Standards Boards, and their Advisory Councils without compensation. These individuals include certain members of the FAF’s Board of Trustees and participants of the following groups: the FASAC and the GASAC, the Private Company Council, the FASB’s Emerging Issues Task Force, and various other FASB and GASB councils, committees, task forces, and working groups on technical projects. Many others participate in the Standards Boards’ processes by submitting comment letters, participating in public hearings and roundtable meetings, and taking part in field visits and field tests. Members of the Board of Trustees are eligible for compensation for their services, with each having the right to waive such compensation. The accompanying financial statements reflect the value of waived Trustee compensation, which meets the criteria for recognition as contributed services. The other services described above are not included as contributions in the accompanying financial statements because they do not meet the recognition criteria.

Subscription Plans and Electronic License Agreements

Revenues from publication sources are recognized over the life of the applicable subscription service or license period, typically one year. Costs for the production of updates and for fulfillment are charged to expense as incurred.

Cash and Cash Equivalents

For financial statement purposes, the FAF considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of these investments approximates fair value due to the nature of the investments and the maturity period.

Investments

The FAF’s investments are recorded at fair value, all of which are measured using Level 1 inputs, which are defined as quoted market prices in active markets for identical investments. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes gains (losses) on investments bought and sold as well as held during the year.



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Concentration of Credit Risk

Financial instruments that potentially are subject to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and Reserve Fund investments. Short-term investments and Reserve Fund investments are held in various money market and fixed income mutual funds with a single high-credit-quality financial institution. The FAF has not experienced, nor does it anticipate, any credit-risk-related losses in such accounts.

Accounting Support Fees, Subscriptions and Publications, and Other Receivables

Receivables are carried at the amount billed or accrued, net of an allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on management’s review of historical experience and current economic conditions.

Employee Benefit Plans

The FAF sponsors a postretirement health care plan and two defined benefit pension plans. Information with respect to the funded positions of each of the FAF’s pension and other postretirement plans at December 31, 2015 and 2014, is set forth in Note 5.

Furniture, Equipment, and Leasehold Improvements

Furniture, equipment, and leasehold improvements are reported in the statements of financial position at cost, less accumulated depreciation and amortization determined using the straight-line method. Furniture and equipment are depreciated over their estimated useful lives, ranging from 3 to 10 years. Leasehold improvements are amortized over periods not extending beyond the termination dates of the leases for office space.

Income Taxes

The FAF is a tax-exempt organization under Section 501(c)(3) of the Code. Management has reviewed tax positions for open tax years and determined that a provision for uncertain tax positions is not required.

Subsequent Events

The FAF has evaluated subsequent events through May 3, 2016, the date through which the financial statements are available to be issued, and determined that no subsequent events have occurred that require adjustment to, or disclosure in, the financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued new authoritative guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration an organization expects to receive in exchange for those goods or services. The FAF is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures. This accounting standard will be applicable to the FAF for years beginning after December 15, 2018.

In February 2016, the FASB issued new authoritative guidance on leasing transactions. The guidance will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The FAF is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures. This accounting standard will be applicable to the FAF for years beginning after December 15, 2020, although early application is permitted.

2 Accounting Support Fees

The Sarbanes-Oxley Act provides for funding of FASB’s recoverable expenses through accounting support fees assessed against and collected from issuers of securities, as those issuers are defined in the Sarbanes-Oxley Act. The FASB accounting support fees are reviewed by the U.S. Securities and Exchange Commission (SEC) each year. The Dodd-Frank Act provides for funding of GASB’s recoverable expenses through an SEC order instructing the Financial Industry Regulatory Authority (FINRA) to establish, assess, and collect accounting support fees from its members.

The accounting support fees provide funding for recoverable expenses associated with FASB and GASB’s standard-setting activities as identified in the FAF’s operating and capital budget for each calendar year and reflect adjustments for noncash expenses and certain cash requirements not reflected in the statements of activities. Recoverable expenses do not include Trustee and oversight expenses. The FAF’s budgeted recoverable expenses for each Standards Board are statutorily eligible for funding by accounting support fees. However, on a voluntary basis, the FAF has applied any Reserve Funds in excess of a formula-based target amount to reduce what the FAF would otherwise be entitled to collect in accounting support fees.

The Office of Management and Budget (OMB) has determined that the FASB is subject to sequestration pursuant to the Budget Control Act of 2011 (BCA). Sequestration amounts are determined on the federal government’s fiscal year, which, for the 2015 sequestration, began on October 1, 2014, and ended on September 30, 2015. During 2015, the FAF sequestered $1,825,000 with respect to the FASB accounting support fee. In October 2015, the OMB notified the FAF that the 2015 sequestered funds were available for spending for the 2016 federal fiscal year, which began October 1, 2015. The FAF understands that the FASB accounting support fee for federal fiscal year 2016 will be subject to sequestration in a similar manner.

The FASB accounting support fees recognized and related expenses included in the statements of activities for the past two years are as follows (dollars in thousands):

Years Ended December 31 (dollars in thousands) 2015 2014
FASB accounting support fees $ 23,908 $ 24,034
 
FASB program expenses:    
Salaries and wages 20,804 19,831
Employee benefits 4,890 4,888
Occupancy and equipment expenses 1,134 1,051
Depreciation and amortization 380 436
Professional fees 1,923 1,199
Contribution to the IFRS Foundation 3,000
Other operating expenses 1,880 1,751
Total FASB program expenses 31,011 32,156
 
FASB support expenses:    
Salaries and wages 3,358 3,302
Employee benefits 1,188 1,011
Occupancy and equipment expenses 670 660
Depreciation and amortization 188 185
Professional fees 1,042 1,345
Other operating expenses 1,068 703
Total FASB support expenses 7,514 7,206
Total FASB program and support expenses 38,525 39,362
FASB accounting support fees less than
FASB program and support expenses
$ (14,617) $ (15,328)

 

The accounting support fees recognized and related GASB expenses included in the statements of activities for the past two years are as follows (dollars in thousands):

Years Ended December 31 (dollars in thousands) 2015 2014
GASB accounting support fees $ 7,357 $ 6,159
 
GASB program expenses:    
Salaries and wages 5,392 4,576
Employee benefits 1,333 1,117
Occupancy and equipment expenses 313 289
Depreciation and amortization 85 79
Professional fees 452 254
Other operating expenses 604 453
Total GASB program expenses 8,179 6,768
 
GASB support expenses:    
Salaries and wages 759 736
Employee benefits 280 229
Occupancy and equipment expenses 171 168
Depreciation and amortization 48 46
Professional fees 263 347
Other operating expenses 272 214
Total GASB support expenses 1,793 1,740
Total GASB program and support expenses 9,972 8,508
GASB accounting support fees less than
GASB program and support expenses
$ (2,615) $ (2,349)

 

The FASB and the GASB expenses include their allocable share of FAF program and support expenses. The FAF expenses are incurred for the common benefits of the FASB and the GASB.

Any differences (deficit or excess) between the accounting support fees recognized as revenues and the amount of recoverable expenses recognized for an applicable calendar year (to the extent that the deficit was not financed from Reserve Fund balances) would be applied to the calculation of accounting support fees in subsequent years.



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3 Subscriptions and Publications Revenues and Costs

Subscriptions and publications operating revenues and costs consist of the following (dollars in thousands):

Years Ended December 31 (dollars in thousands) 2015 2014
Subscriptions and publications revenues:    
FASB publications $ 15,830 $ 16,015
GASB publications 1,665 1,807
  $ 17,495 $ 17,822
Direct costs:    
FASB publications $ 1,648 $ 1,823
GASB publications 112 81
FAF administrative support 2,566 2,264
  $ 4,326 $ 4,168
Net subscriptions and publications revenues:    
FASB publications $ 14,182 $ 14,192
GASB publications 1,553 1,726
FAF administrative support (2,566) (2,264)
  $ 13,169 $ 13,654

 

4 Investments and Investment Income and Losses

Investments

The following table presents investments measured at fair value, all of which are measured using Level 1 inputs (dollars in thousands):

At December 31 2015 2014
Short-term:    
Money market mutual fund $   9,081 $   9,233
Reserve Fund:    
Fixed income mutual fund $ 31,216 $ 33,736
Money market mutual fund 31,215 33,852
  $ 62,431 $ 67,588

 

Investment Income and Losses (dollars in thousands):

Years Ended December 31 2015 2014
Short-term:    
Interest and dividends $   30 $   22
Reserve Fund:    
Interest and dividends $ 724 $ 809
Net realized and unrealized losses (294) (123)
Total Reserve Fund investment income $ 430 $ 686

 

Changes in the Reserve Fund balance for the past two years are as follows (dollars in thousands):

Years Ended December 31 2015 2014
Fund balance, beginning of year $ 67,588 $ 72,140
Transfers (to) from operations, net (5,587) (5,238)
Investment income 430 686
Fund balance, end of year $ 62,431 $ 67,588

 

Reserve Fund assets are unrestricted and are maintained within the investment policies and guidelines for the Fund established by the Finance and Compensation Committee of the Board of Trustees.

5 Employee Benefits

Employee benefits expense consists principally of employer payroll taxes, health care benefits for active and retired employees, and pension costs.

Pension Plans

The FAF sponsors a contributory defined contribution plan (the Employees’ Tax Sheltered Annuity Plan) and a defined benefit pension plan (the Employees’ Pension Plan). Employees do not contribute to the Employees’ Pension Plan. Effective January 1, 2008, the Employees’ Pension Plan was closed to all new hires, and benefit accruals for participating employees ended as of December 31, 2013.

The FAF also sponsored another defined benefit plan, the Supplemental Executive Retirement Plan (SERP), which was terminated effective December 31, 2013. In accordance with the provisions of the plan, final payouts to vested participants totaling $1,921,500 occurred in March 2015, after a mandatory deferral period. The FAF maintained a Grantor Trust pursuant to Section 457(f) of the Code for the benefit of its SERP. Grantor Trust assets of $2,083,900 as of December 31, 2014, were included as part of assets held in trust on the accompanying statements of financial position, and accordingly, are not included in the change in plan assets due to the nature of the assets. The SERP Grantor Trust assets experienced investment income of $91,000 and $229,000 in 2015 and 2014, respectively. The investments include mutual funds with asset allocations of 100 percent in fixed income investments. All of the investments were measured using Level 1 inputs, as defined by U.S. GAAP.

The FAF maintains a 457(b) deferred compensation plan to provide the ability to make tax-deferred contributions to employees whose annual base compensation exceeds the maximum compensation limit for qualified plan contributions under Code §401(a)(17). Contributions are made into a rabbi trust maintained by the FAF for each participating employee and remain assets of the FAF until distributed to the participant upon termination of their employment. The plan assets and related liabilities of $1,059,900 and $768,700 as of December 31, 2015 and 2014, respectively, are included as assets held in trusts and other liabilities in the statements of financial position.

Employee benefits expense arising from the defined contribution plan was $2,974,600 and $2,769,800 for 2015 and 2014, respectively. Employer contributions to the plan are based on the employee’s earnings level, with incremental increases based on the employee’s age, and vest after 1.5 years of service.

Postretirement Health Coverage Plan

The FAF sponsors a postretirement health coverage plan (Postretirement Plan) for all eligible retirees of the FAF with benefits varying based on retirement age and years of service. Effective January 1, 2014, the Postretirement Plan was amended to limit the level of benefits that will be paid to current employees and new hires. Retiree benefits are limited for new hires after December 31, 2013, to the lesser of (1) the year-end 2013 calculated benefit amounts or (2) the calculated benefits offered during the year of retirement. Employees hired before January 1, 2014, are eligible for retiree benefits limited to the lesser of (1) health plan costs at 2013 calculated benefit amounts subject to a cap on potential annual increases not to exceed five percent (5%) per year or (2) calculated benefits offered during the year of retirement. Benefits for participants who were retired as of December 31, 2013, will not be affected by these amendments. The FAF funds retiree health care benefits through a Grantor Trust.


Assumptions

The principal actuarial assumptions used to determine periodic benefit costs and year-end benefit obligations for the Defined Benefit Plans and Postretirement Plan are as follows:

  Employees’ Pension Plan SERP Postretirement Plan
  2015 2014 2015 2014 2015 2014
Net periodic expense assumptions:
Discount rate 3.75% 4.60% N/A 0.50% 3.85% 4.75%
Rate of compensation increase N/A N/A N/A N/A N/A N/A
Expected return on plan assets 4.80% 5.40% N/A N/A 6.50% 6.60%
Benefit obligation assumptions:
Discount rate 4.05% 3.75% N/A 0.45% 4.20% 3.85%
Rate of compensation increase N/A N/A N/A N/A N/A N/A

 

According to the provisions in the Postretirement Plan, benefit amounts for active participants as of December 31, 2013, have been assumed to increase 5.0% per year after 2013. No increases are assumed for active participants hired after 2013.

The expected long-term rates of return on plan assets assumptions were based upon a review of historical returns, and expectations and capabilities of future market performance.

The rate of compensation increase assumption no longer applies to the Defined Benefit Plans due to the freezing of accruals in both plans as of December 31, 2013.

In addition to assumptions in the above table, assumed mortality is also a key assumption in determining benefit obligations. At December 31, 2014, the assumed mortality rates were updated to reflect the Society of Actuaries (SOA) published RP-2014 mortality table and MP-2014 projection scale. At December 31, 2015, the assumed mortality rates were updated to reflect the updated MP-2015 projection scale released by the SOA.



The following table sets forth the amounts recognized in the statements of financial position, the change in benefit obligations, the change in plan assets, funded status, and other information for the Defined Benefit Plans and Postretirement Plan (dollars in thousands):

  Defined Benefit Plans Postretirement Plans
  2015 2014 2015 2014
Change in benefit obligations:        
Benefit obligation, beginning of year $ 30,460 $ 25,050 $ 15,716 $ 11,713
Service cost 686 530
Interest cost 1,036 1,056 599 550
Actuarial losses (gains) (1,257) 5,301 (1,558) 3,231
Benefits paid (1,515) (947) (353) (417)
Settlements (1,922)
Retiree contributions 72 93
Medicare Part D reimbursement 12 16
Benefit obligation, end of year $ 26,802 $ 30,460 $ 15,174 $ 15,716
Change in plan assets:        
Fair value of plan assets, beginning of year $ 25,299 $ 21,345 $ 14,127 $ 13,706
Employer contributions, net of Medicare Part D
  reimbursements of $12 and $16 in 2015 and 2014
1,000 1,000
Retiree contributions 72 93
Actual investment income (losses) on plan assets (743) 3,898 (195) 745
Benefits paid (1,515) (944) (353) (417)
Fair value of plan assets, end of year 24,041 25,299 13,651 14,127
Funded status at end of year $ (2,761) $ (5,161) $ (1,523) $ (1,589)
Amounts recognized in financial statements:        
Noncurrent liabilities $ (2,761) $ (5,161) $ (1,523) $ (1,589)
  $ (2,761) $ (5,161) $ (1,523) $ (1,589)
Amounts recognized as pension–related changes not reflected as operating expenses:        
Net actuarial losses (gains) $ 694 $ 2,527 $ (454) $ 3,381
Amortization of net actuarial losses (386) (454) (637) (349)
Amortization of net prior service costs (credits) 135 166 94 94
  $ 443 $ 2,239 $ (997) $ 3,126
Amounts not yet recognized as components of net periodic benefit costs:        
Net actuarial losses $ 10,198 $ 10,536 $ 5,555 $ 6,647
Net prior service credits (315) (460) (790) (884)
  $ 9,883 $ 10,076 $ 4,765 $ 5,763
Amounts expected to be recognized during the year ended December 31, 2016 and 2015:        
Amortization of net actuarial losses $ 420 $ 399 $ 519 $ 637
Amortization of net prior service credits (135) (145) (95) (95)
  $ 285 $ 254 $ 424 $ 542



Plan Assets

Investment objectives and policies for the plan assets are established by the Finance and Compensation Committee (Committee) of the FAF Board of Trustees. The overall long-term investment strategy for the Employees’ Pension Plan and Postretirement Plan is to generate returns sufficient to meet obligations of plan participants and their beneficiaries at acceptable levels of risk by maintaining a high standard of portfolio quality and achieving proper diversification. The Committee has retained a professional investment manager for the assets of the employee benefit plans that maintains discretion over investment decisions, within asset allocation ranges recommended by the Committee.

The asset allocation for the Employees’ Pension Plan, which is consistent with the target allocation established by the Committee, was 100 percent in fixed income investments as of December 31, 2015, and is based upon the funded status of the plan, valuation of the liability, and the returns and risks relative to the liability. The asset allocation policy for the Postretirement Plan reflects the target allocation of 50 percent in equity investments (which includes 50 percent of the equity holdings for international stocks) and 50 percent in fixed income investments.

The plan assets of the Employees’ Pension Plan and Postretirement Plan were invested in mutual funds at December 31, 2015 and 2014, the majority of which were indexed. The following table presents the fair value of major categories of plan assets, all of which are measured using Level 1 inputs, as defined (dollars in thousands):

  Employees’ Pension Plan Postretirement Plan
Fair Value of Plan Assets at December 31 2015 2014 2015 2014
Mutual funds (all Level 1):        
U.S. equity funds (a) $        — $        — $   3,675 $   3,735
International equity index fund (b) 3,138 3,257
Fixed income funds (c) 23,957 25,221 6,838 7,135
Cash held by investment manager 84 78
Total $ 24,041 $ 25,299 $ 13,651 $ 14,127

Descriptions of Funds

(a) These funds invest in small-, mid-, and large-cap companies from diversified industries using a blend of growth and value strategies and index sampling.
(b) This fund is passively managed and seeks to track the performance of international composite indexes. It has broad exposure across developed and emerging non-U.S. equity markets. Approximately 50% is invested in European companies.
(c) These funds are passively managed using index sampling and consist of short-term, intermediate-term, long-term, and extended duration mutual funds.

Net Periodic Benefit Expense

The components of net periodic benefit expense for the past two years are as follows (dollars in thousands):

  Defined Benefit Plans Postretirement Plan
  2015 2014 2015 2014
Service cost $    — $    — $ 686 $ 530
Interest cost 1,036 1,056 599 550
Expected return on plan assets (1,209) (1,124) (908) (895)
Amortization of prior period actuarial losses 399 454 637 349
Amortization of prior service costs (credits) (145) (166) (95) (94)
Net periodic benefit expense $    81 $ 220 $ 919 $ 440

 

The following benefit payments, which reflect expected future service, are projected to be paid under the FAF’s benefit plans, including the amounts of Medicare Part D subsidies for the Postretirement Plan (dollars in thousands):

    Postretirement Plan
Year Ended December 31 Defined Benefits Plans Gross Medicare Part D Net
2016 $ 2,628 $ 397 $ 7 $ 390
2017 1,876 446 7 439
2018 1,768 490 8 482
2019 1,771 536 9 527
2020 1,489 583 10 573
2021-2025 9,071 3,869 77 3,792


The FAF expects to contribute $500,000 to the Employees' Pension Plan during 2016.

6 Furniture, Equipment, and Leasehold Improvements

Years Ended December 31 (dollars in thousands) 2015 2014
Furniture and equipment $ 8,248 $ 7,958
Leasehold improvements $ 5,174 $ 5,153
  $13,422 $13,111
Accumulated depreciation and amortization (11,500) (10,800)
  $ 1,922 $ 2,311


7
Lease Commitments

The FAF has an operating lease on the Norwalk office space until September 30, 2022. Total rental expense for office space and equipment amounted to $2,089,000 and $1,976,400 in 2015 and 2014, respectively. Accrued rent expense is attributable to escalating minimum lease payments, initial rent abatement, and leasehold improvement allowances. The rent expense liability is being amortized over the remaining term of the applicable operating lease.

Future minimum payments under the operating lease for office space, including the FAF’s current share of real estate taxes and other operating costs, are as follows (dollars in thousands):

Year Ended December 31  
2016 $ 2,237
2017 1,681
2018 1,780
2019 2,369
2020 2,373
Thereafter 4,174
Total minimum lease payments $14,614

MANAGEMENT’S REPORT

ON FINANCIAL RESPONSIBILITY AND INTERNAL CONTROLS

Management of the Financial Accounting Foundation (FAF) is responsible for the preparation of the accompanying financial statements, and for the fairness and accuracy of the financial information included in this annual report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Management is also responsible for establishing and maintaining an adequate internal control structure and adequate procedures for financial reporting. The FAF maintains a system of internal controls designed to ensure the integrity, objectivity, and overall effectiveness of the accounting and financial reporting process.

The Board of Trustees of the FAF, through its Audit and Compliance Committee, oversees: (1) the organization’s financial and accounting policies and reports; (2) the organization’s internal control over financial reporting; (3) the system of accounting and related internal controls and the competence of persons performing key functions within that system; and (4) the scope and results of independent audits, including any comments received from auditors on the adequacy of internal controls and quality of financial reporting. The FAF’s auditors render an objective, independent opinion annually on the organization’s financial statements, and they have free and direct access to discuss matters with the Audit and Compliance Committee, with and without the presence or knowledge of management. The auditors are engaged by the Board of Trustees and report directly to the Audit and Compliance Committee.

The FAF’s Audit and Compliance Committee has chosen to follow certain requirements issued for public companies as promulgated by the New York Stock Exchange, the U.S. Securities and Exchange Commission, and other securities regulators, by developing and maintaining a charter governing its operations. Although the FAF is not a public company, the Audit and Compliance Committee has concluded that the organization should voluntarily comply with public company recommendations and regulations where appropriate. The Audit and Compliance Committee charter identifies the key objectives, functions, operating practices, membership requirements, and duties and responsibilities of the Committee. The responsibilities include regularly reviewing the charter to identify areas in need of enhancement, expansion, and/or clarification. The voluntary compliance effort has continued with respect to the audit committee and internal control provisions of the Sarbanes-Oxley Act of 2002, and the related U.S. Securities and Exchange Commission and Public Company Accounting Oversight Board guidance. The FAF has completed its compliance plan with respect to internal control over financial reporting (as addressed for public companies by Section 404 of the Sarbanes-Oxley Act). The Audit and Compliance Committee’s charter is available through the office of the FAF’s President and Chief Executive Officer.

Management of the FAF is responsible for establishing and maintaining adequate internal control over financial reporting. The FAF’s internal controls are designed to provide reasonable assurance as to the reliability of the entity’s financial statements for external purposes. Internal control over financial reporting does have inherent limitations and may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable, and not absolute, assurance with respect to financial statement preparation and presentation. Also, due to changing conditions, the effectiveness of internal control over financial reporting may vary over time, and certain controls may prove to be inadequate.

Under the supervision and with the participation of other members of management, we have evaluated the effectiveness of the FAF’s internal control over financial reporting as of December 31, 2015. In making this assessment, we have utilized the internal control framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control–Integrated Framework (2013). We have concluded that, based upon our evaluation, the FAF’s internal control over financial reporting was effective as of December 31, 2015.

The Trustees also have adopted, and regularly monitor, personnel policies designed to ensure that employees of the FAF are free of conflicts of interest. Finally, to facilitate open communication, the Trustees, through the Audit and Compliance Committee, have adopted, and regularly monitor, an ombuds policy designed to provide an independent resource for reporting integrity or compliance concerns.

Charles H. Noski

Chairman

Financial Accounting Foundation Board of Trustees


Teresa S. Polley

President & Chief Executive Officer

Financial Accounting Foundation


INDEPENDENT AUDITOR’S REPORT

TO THE BOARD OF TRUSTEES FINANCIAL ACCOUNTING FOUNDATION NORWALK, CONNECTICUT

 

Report on the Financial Statements

We have audited the accompanying financial statements of the Financial Accounting Foundation, which comprise the statements of financial position as of December 31, 2015 and 2014, and the related statements of activities and cash flows for the years then ended and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Financial Accounting Foundation as of December 31, 2015 and 2014, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

RSM US LLP
New Haven, Connecticut
May 3, 2016