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United States Government Accountability Office:

Transformation of the Federal Government and the Accountability 
Profession:

The Honorable David M. Walker:
Comptroller General of the United States:

Northern Illinois University,
DeKalb, Illinois,

September 29, 2004:

The Case for Change:

* Government is on a "burning platform," and the status quo way of 
doing business is unacceptable for a variety of reasons, including:

* Past fiscal trends and significant long-range challenges;

* Rising public expectations for demonstrable results and enhanced 
responsiveness;

* Selected trends and challenges having no boundaries;

* Additional resource demands due to recent terrorism events in the 
United States;

* Government performance/accountability and high risk challenges, 
including the lack of effective human capital strategies.

Composition of Federal Spending:

[See PDF for image] - graphic text:

3 pie charts with 5 items each.

1964:
Defense: 46.0%.
Social Security: 14.0%.
Medicare & Medicaid: 0%.
Net interest: 7.0%.
All other spending: 33.0%.

1984:
Defense: 27.0%.
Social Security: 21.0%.
Medicare & Medicaid: 9.0%.
Net interest: 13.0%.
All other spending: 30.0%.

2004:* 
Defense: 20.0%.
Social Security: 21.0%.
Medicare & Medicaid: 20.0%.
Net interest: 7.0%.
All other spending: 33.0%.

* Current services estimate.

Note: Numbers may not add to 100 percent due to rounding.

Source: Budget of the United States Government, Fiscal Year 2005 
(February 2004) and Budget of the United States Government, Fiscal Year 
2005, Mid-session Review (July 2004), Office of Management and Budget.

[End of figure]

Federal Spending for Mandatory and Discretionary Programs:

[See PDF for image] - graphic text:

3 pie charts with 3 items each.

1964:
Discretionary: 67%;
Mandatory: 26%;
Net Interest: 7%.

1984:
Discretionary: 45%;
Mandatory: 42%;
Net Interest: 13%.

2004:* 
Discretionary: 54%;
Mandatory: 39%;
Net Interest: 7%.

* Current services estimate.

Note: Numbers may not add to 100 percent due to rounding.

Source: Budget of the United States Government, Fiscal Year 2005 
(February 2004) and Budget of the United States Government, Fiscal Year 
2005, Mid-session Review (July 2004), Office of Management and Budget.

[End of figure]

Selected Fiscal Exposures: Sources and Examples (End of 2003)[A]:

[See PDF for image] -graphic text:

Type: Explicit liabilities;
Example (dollars in billions): Publicly held debt: ($3,913).

Type: Explicit liabilities;
Example (dollars in billions): Military and civilian pension and post-
retirement health: ($2,857).

Type: Explicit liabilities;
Example (dollars in billions): Veterans benefits payable: ($955).

Type: Explicit liabilities;
Example (dollars in billions): Environmental and disposal liabilities: 
($250).

Type: Explicit liabilities;
Example (dollars in billions): Loan guarantees: ($35).

Type: Explicit financial commitments;
Example (dollars in billions): Undelivered orders: ($596).

Type: Explicit financial commitments;
Example (dollars in billions): Long-term leases: ($47).

Type: Explicit financial contingencies;
Example (dollars in billions): Unadjudicated claims: ($9).

Type: Explicit financial contingencies;
Example (dollars in billions): Pension Benefit Guaranty Corporation: 
($86).

Type: Explicit financial contingencies;
Example (dollars in billions): Other national insurance programs: ($7).

Type: Explicit financial contingencies;
Example (dollars in billions): Government corporations e.g., Ginnie 
Mae.

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Debt held by government accounts: 
($2,859)[B]

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Future Social Security benefit payments: 
($3,699) [C]

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Future Medicare Part A benefit payments: 
($8,236) [C]

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Future Medicare Part B benefit payments: 
($11,416) [C]

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Future Medicare Part D benefit payments: 
($8,119) [C]

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Life cycle cost including deferred and 
future maintenance and operating costs (amount unknown).

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Government Sponsored Enterprises e.g., 
Fannie Mae and Freddie Mac.

[A] All figures are for end of fiscal year 2003, except Social Security 
and Medicare estimates, which are end of calendar year 2003.

[B] This amount includes $774 billion held by military and civilian 
pension funds that would offset the explicit liabilities reported by 
those funds.

[C] Figures for Social Security and Medicare are net of debt held by 
the trust funds: ($1,531 billion for Social Security, $256 billion for 
Medicare Part A, and $24 billion for Medicare Part B) and represent net 
present value estimates over a 75-year period. Over an infinite 
horizon, the estimate for Social Security would be $10.4 trillion, 
$21.8 trillion for Medicare Part A, $23.2 trillion for Medicare Part B, 
and $16.5 trillion for Medicare Part D.

Source: GAO analysis of data from the Department of the Treasury, the 
Office of the Chief Actuary, Social Security Administration, and the 
Office of the Actuary, Centers for Medicare and Medicaid Services.

Updated 3/30/04.

[End of table]

Another Way to Think About These Numbers:

As of the End of FY 03:

* Debt held by the public--$3.9T;

* Trust fund debt--$2.9T;

* Gross debt--$6.8T;

* Gross debt per person--about $24,000;

* If we add everything on the previous slide that is not included in 
gross debt, the burden per person rises to over $140,000. 
Alternatively, it amounts to a total unfunded burden of more than $40 
trillion in current dollars, which is about 18 times the current annual 
federal budget or more than 3 ½ times the current annual GDP.

Note: The calculations only consider a 75-year horizon for Social 
Security and Medicare.

Composition of Spending as a Share of GDP Under Baseline Extended:

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003;
All other spending; Percent of GDP: 10.3%;
Medicare & Medicaid; Percent of GDP: 3.8%;
Social Security; Percent of GDP: 4.4%;
Net interest; Percent of GDP: 1.4%;
Revenue; Percent of GDP: 16.4%.

2015;
All other spending; Percent of GDP: 8.5%;
Medicare & Medicaid; Percent of GDP: 5.4%;
Social Security; Percent of GDP: 4.8%;
Net interest; Percent of GDP: 1.8%;
Revenue; Percent of GDP: 19.8%.

2030;
All other spending; Percent of GDP: 8.5%;
Medicare & Medicaid; Percent of GDP: 8.1%;
Social Security; Percent of GDP: 6.7%;
Net interest; Percent of GDP: 3.3%;
Revenue; Percent of GDP: 19.8%.

2040;
All other spending; Percent of GDP: 8.5%;
Medicare & Medicaid; Percent of GDP: 9.9%;
Social Security; Percent of GDP: 7.4%;
Net interest; Percent of GDP: 6.8%;
Revenue; Percent of GDP: 19.8%.

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2014 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2014, revenue as a share of GDP 
is held constant. Budgetary effects due to passage of the 
Working Families Tax Relief Act of 2004 are not reflected in this 
simulation.

Source: GAO's September 2004 analysis.

[End of figure]

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP After 2004 and All Expiring Tax Provisions Are 
Extended:

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003;
All other spending; Percent of GDP: 10.3%;
Medicare & Medicaid; Percent of GDP: 3.8%;
Social Security; Percent of GDP: 4.4%;
Net interest; Percent of GDP: 1.4%;
Revenue; Percent of GDP: 16.4%.

2015;
All other spending; Percent of GDP: 9.8%;
Medicare & Medicaid; Percent of GDP: 5.4%;
Social Security; Percent of GDP: 4.9%;
Net interest; Percent of GDP: 3%;
Revenue; Percent of GDP: 17.4%.

2030;
All other spending; Percent of GDP: 9.8%;
Medicare & Medicaid; Percent of GDP: 8.1%;
Social Security; Percent of GDP: 7.1%;
Net interest; Percent of GDP: 8.5%;
Revenue; Percent of GDP: 17.4%.

2040;
All other spending; Percent of GDP: 9.8%;
Medicare & Medicaid; Percent of GDP: 9.9%;
Social Security; Percent of GDP: 8.6%;
Net interest; Percent of GDP: 17.8%;
Revenue; Percent of GDP: 17.4%.

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2014 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2014, revenue as a share 
of GDP is held constant.

Source: GAO's September 2004 analysis.

[End of figure]

Current Fiscal Policy Is Unsustainable:

* The "Status Quo" is Not an Option:

* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs.

* GAO's simulations show that balancing the budget in 2040 could 
require actions as large as:

* Cutting total federal spending by about 60 percent or:

* Raising taxes to about 2.5 times today's level:

* Faster Economic Growth Can Help, but It Cannot Solve the Problem:

* Closing the current long-term fiscal gap based on responsible 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years.

* During the 1990s, the economy grew at an average 3.2 percent per 
year.

* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required.

* The Sooner We Get Started, the Better:

* Less change would be needed, and there would be more time to make 
adjustments.

* The miracle of compounding would work with us rather than against us.

* Our demographic changes will serve to make reform more difficult over 
time.

We Need a Multifaceted Approach to Close the Long-Term Fiscal Gap:

Policy:

* Restructure existing entitlement programs;

* Reexamine the base of discretionary and other spending;

* Review and revise our tax policy and enforcement programs;

Operations:

* Reassess and revise how the government does business (e.g., 
management, planning and operational issues);

* Consider who should provide government services (e.g., sourcing 
strategy).

Long-term Fiscal Challenges Demand New Metrics, Mechanisms, and 
Processes:

* Accounting and reporting policies for trust funds, Social Security, 
Medicare, Veterans benefits, among other things, need to be reviewed 
and revised;

* The current budget time horizon [2-year, 5-year, 10-year] does not 
capture many long-term costs--e.g. Social Security, Medicare, pension 
insurance--and other major tax and spending provisions;

* Cash and obligations-based budgeting is misleading for insurance and 
some benefit programs;

* Budget controls have expired--and we need to go beyond "holding the 
line" to "changing the base" in spending and tax policies.

Improved Metrics, Measures and Processes: Some Ideas:

* Provide information on long-term costs of major spending and tax 
proposals before they are voted on, including showing long-term costs 
even for proposals that sunset;

* Establish an OMB annual report on fiscal exposures, including 
appropriate measures and how to address them;

* Consider fiscal targets, triggers, sunset provisions and points of 
order with focus on limiting growth of long-term commitments;

* Move to accrual budgeting for employee pension, retiree health; 
disclose "risk assumed" [missing premium] for insurance;

* Reinstitute budget controls (caps & PAYGO).

Selected GAO-Related Activities:

* Speeches and Outreach Efforts;

* Financial Literacy Efforts;

* CG Forums;

* High Risk Update Report;

* 21st Century Challenges Report;

* Various Congressional Consultation and Assistance Efforts;

* Public Education Assistance;

* Constructive engagement efforts (e.g., best practices guides, self 
assessment tools, benchmarking statistics);

* Leading by example.

Transformation:

Webster's definition: An act, process, or instance of change in 
Structure, appearance, or character.

A conversion, revolution, makeover, alteration, or renovation.

Transformation is about CREATING the future rather than PERFECTING the 
past. Effective HUMAN CAPITAL strategy is key to any SUCCESSFUL 
transformation effort.

Transformation Has Different Dimensions:

DOD;
DHS;
U.S. Postal Service;
IRS;
DOE;
NASA.

Human Capital Strategy;
Financial Management;
Information Technology;
Sourcing Strategy;
Disability Programs;
Real Property Management;

Note: All of the above are on GAO's High Risk List to one extent or the 
other.

GAO's High Risk List:

High Risk Areas:

Addressing Challenges in Broad-based Transformations:

Protecting Information Systems Supporting the Federal Government and 
The Nation's Critical Infrastructures;
Designated High Risk: 1997;

Strategic Human Capital Management;* 
Designated High Risk: 2001;

U.S. Postal Service Transformation Efforts and Long-Term Outlook;* 
Designated High Risk: 2001;

Implementing and Transforming the New Department of Homeland Security;
Designated High Risk: 2003;

Modernizing Federal Disability Programs;* 
Designated High Risk: 2003;

Federal Real Property;* 
Designated High Risk: 2003;

Ensuring Major Technology Investments Improve Services: 

FAA Air Traffic Control Modernization;
Designated High Risk: 1995;

IRS Business Systems Modernization;
Designated High Risk: 1995;

DOD Systems Modernization;
Designated High Risk: 1995;

Providing Basic Financial Accountability DOD Financial Management;
Designated High Risk: 1995;

IRS Financial Management;
Designated High Risk: 1995;

Forest Service Financial Management;
Designated High Risk: 1999;

FAA Financial Management;
Designated High Risk: 1999;

Reducing Inordinate Program Management Risks Medicare Program;* 
Designated High Risk: 1990;

Collection of Unpaid Taxes;
Designated High Risk: 1990;

DOD Inventory Management;
Designated High Risk: 1990;

Student Financial Aid Programs;
Designated High Risk: 1990;

HUD Single-Family Mortgage Insurance and Rental Assistance Programs;
Designated High Risk: 1994;

Earned Income Credit Noncompliance;
Designated High Risk: 1995;

DOD Support Infrastructure Management;
Designated High Risk: 1997;

Medicaid Program;* 
Designated High Risk: 2003;

Pension Benefit Guaranty Corporation Single-Employer Insurance 
Program;* 
Designated High Risk: 2003;

Managing Large Procurement Operations More Efficiently DOD Weapon 
Systems Acquisition;
Designated High Risk: 1990;

Department of Energy Contract Management;
Designated High Risk: 1990;

NASA Contract Management;
Designated High Risk: 1990;

DOD Contract Management;
Designated High Risk: 1992.

* Additional authorizing legislation is likely to be required as one 
element of addressing this high risk area.

[End of table]

Key Transformation Elements:

* People:

* Process:

* Partnerships:

* Technology:

* Environment:

The most important of the five is PEOPLE --an agency's human capital.

GAO's Strategic Plan:

[See PDF for image] - graphic text:

Serving the Congress and the Nation: GAO's Strategic Plan Framework:

Mission:

GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people.

Themes:

* Long-term Fiscal Imbalance;
* National Security;
* Global interdependence;
* Changing Economy;
* Demographics;
* Science and Technology;
* Quality of Life;
* Governance;

Goals and Objectives:

Provide Timely, Quality Service to the Congress and the Federal:
Government to Address Current and Emerging Challenges to the Well-
Being and Financial Security of the American People related to: 

* Health care needs and financing;
* Education and protection of children;
* Work opportunities and worker protection;
* Retirement income security;
* Effective system of justice;
* Viable communities;
* Natural resources use and environmental protection;
* Physical infrastructure;

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving:

* Emerging threats;
* Military capabilities and readiness;
* Advancement of U.S. interests;
* Global market forces;

Help Transform the Federal Government's Role and How It Does Business 
to Meet 21st Century Challenges by assessing:

* Roles in achieving federal objectives;
* Government transformation;
* Key management challenges and program risks;
* Fiscal position and financing of the government;

Maximize the Value of GAO by Being a Model Federal Agency and a World-
Class Professional Services Organization in the areas of:

* Client and customer service;
* Strategic leadership;
* Institutional knowledge and experience;
* Process improvement;
* Employer of choice;

Core Values:

* Accountability;
* Integrity;
* Reliability;

Source: GAO.

March 2004.

GAO Strategic Plan 2004-2009.

[End of strategic plan framework]

Selected Success Measures:

* Results;
* Clients/customers;
* People;
* Partnerships.

Annual Performance Measures (1998 and 2003):

Performance measure: Financial benefits (billions);
Actual: FY 1998: $19.7;
Actual: FY 2003: $35.4.

Performance measure: Other benefits;
Actual: FY 1998: 537;
Actual: FY 2003: 1043.

Performance measure: Past recommendations implemented;
Actual: FY 1998: 69%;
Actual: FY 2003: 82%.

Performance measure: Return on investment (ROI);
Actual: FY 1998: 58:1;
Actual: FY 2003: 78:1.

Performance measure: Financial benefits per employee (millions);
Actual: FY 1998: $6.1;
Actual: FY 2003: $10.8.

Performance measure: Timeliness;
Actual: FY 1998: 93%;
Actual: FY 2003: 97%.

[End of table]

GAO: Leading by Example (Change, Performance, and Human Capital 
Management):

* Mission and vision clarification;
* Core values: accountability, integrity, reliability;
* Strategic planning;
* Organizational realignment;
* Definitions of success;
* Multi-tasking and matrix management;
* Procurement, contracting, and acquisition;
* Human capital;
* Information technology;
* Knowledge management;
* Financial management;
* Client service/external agency relations and protocols;
* Enhanced products and services;
* Constructive engagement with agencies;
* Partnering with other accountability and "good government" 
organizations:

How GAO Has Addressed Its Human Capital Challenges:

Administrative:
* HQ realignment & field office restructuring;
* Self-assessment checklist;
* Human capital profile;
* Workforce & succession planning;
* Employee feedback survey & suggestion program;
* Employee Advisory Council;
* Enhanced employee communications & participation;
* Skills & knowledge inventory;
* Employee preference survey;
* Frequent flyer miles;
* Student loan repayment;
* Recruitment & college relations;
* Phased retirement initiative;
* Training/development;
* Recognition & rewards;
* Business casual dress & business cards;
* Enabling technologies;
* Opportunity/inclusiveness;
* Mentor/buddy programs;
* Commuting subsidy;
* Competency-based employee appraisal system;
* Human Capital Officer;
* Office of Opportunity & Inclusiveness;
* Flexitime and telework;
* Total compensation communications;
* Classification and compensation review;
* Human Capital Strategic Plan.

Legislation Addressing GAO's Human Capital Challenges:

Past:

* Broad-banding system for mission staff;
* Expedited hiring authority (e.g., internship program);
* Special pay rates;
* Senior level for technical staff;
* Targeted early out and buyout authority (3 years);
* Revised RIF rules.

Recent:

* Targeted early out and buyout authority (permanent);
* Annual pay adjustment rates;
* Pay retention provisions;
* Relocation benefits;
* Increased annual leave for upper level employees;
* Executive exchange program;
* Re-designation of "General Accounting Office" to "Government 
Accountability Office."

GAO will continue to LEAD by example and pursue benchmark opportunities 
with entities in both the Public and Private Sectors.

High Profile Accountability Failures Around the World:

* Enron;
* WorldCom;
* Tyco;
* Global Crossing;
* Quest;
* Adelphia;
* CitiGroup;
* Tenet;
* Parmalat;
* National Irish Bank;
* Delorean;
* Royal Ahold, NV;
* Lernout and Hauspie;
* Superior Federal Savings Bank;
* Micro Strategy;
* Arthur Andersen, LLP;
* ImClone;
* Waste Management;
* Xerox;
* Health South;
* CreditSuisse First Boston;
* Fiat;
* Yukos;
* Dexia;
* Elan;
* Adecco SA;
* Seibel Systems;
* Lucent Technologies.

Accountability Breakdowns:

* The major accountability failures over the last several years were 
not isolated instances. Many were the result of significant structural 
weaknesses in institutional corporate governance and accountability 
models combined with a lack of personal ethics and integrity.

* These failures have shaken investor confidence in U.S. and global 
capital markets and in financial reporting and auditing matters. They 
have resulted in:

* loss of investor confidence;
* loss of tens of billions of dollars in investor capital;
* loss of livelihood/retirement for tens of thousands of employees;
* significant impact on national economies;
* significant impact on public trust in a variety of institutions and 
parties.

* Forces that led to the corporate scandals and audit failures include;

* ineffective governance systems;
* ineffective regulation and oversight of the accounting profession;
* inadequate accounting and auditing standards;
* inadequate attest and assurance procedures;
* financial managers, along with their legal and financial advisors, 
working to achieve certain reporting results;
* inappropriate and unreasonable executive compensation arrangements;
* confusion over who the auditors work for;
* auditors' services to clients that impaired independence;
* auditors and financial professionals doing what was minimally 
required and fighting tighter standards;
* individual and institutional greed.

Ongoing Reforms in the U.S.:

* The Sarbanes-Oxley Act of 2002 included reforms in corporate 
governance and the accounting profession that were intended to:

* improve corporate financial reporting and internal control;

* provide management certifications of financial reports and internal 
control assessments;

* strengthen audit committees;

* change the relationship between the auditor and client;

* improve auditor independence;

* provide additional auditor assurance over internal control;

* provide oversight and regulation for auditors of publicly traded 
companies through creation of the Public Company Accounting Oversight 
Board (PCAOB);

July 2004 marked the two-year anniversary of the passage of the 
Sarbanes-Oxley Act.

Benefits are being seen in the following areas:

* enhanced public trust and confidence in the capital markets;
* transformation of many aspects of corporate governance;
* needed changes in auditor relationships with clients;
* more active and effective audit committees;
* increased CEO and CFO attention to financial reporting;
* internal control requirements providing beneficial results and adding 
value for many companies;

* PCAOB inspections of audit firms identifying areas where significant 
future improvements can be made in audit quality;

* entities not covered by the Act considering implementing similar 
practices.

Companies are encountering the following challenges:

* many companies are finding the internal control requirements to be 
more difficult and costly to implement than expected;

* implementation timeframes have presented difficulties for some 
companies;

* roles and workloads for members of boards and audit committees are 
greatly expanded;

Moving forward:

* although progress is being made, it will take some time before we 
realize the full benefits of the Act;

* a comprehensive review of the effectiveness of the Act will be needed 
after at least one full implementation cycle;

* other issues of modernizing financial reporting and auditing will 
need to be addressed by standards setters.

Corporate Governance Challenges:

* Corporate and other governing boards must take steps designed to:

* maximize value to shareholders over time;

* manage risks for stakeholders;

* hold management accountable for results both currently and over time;

* Investors outside the company should have the information they need 
to clearly judge corporate performance and to compare one company's 
performance and practices against others.

* Corporate leadership must establish a climate of integrity and 
transparency at the top that reaches to every level of the 
organization.

* CEOs must remember that they are stewards, not owners, of the 
organization and are ultimately responsible for;

* hiring the right type of people with the right skills and values;

* creating/demanding accountability throughout the organization;

* ensuring that ethics and values are an integral part of the 
workplace, i.e., "tone at the top;”

* Everyone at every level should understand the role and function of 
the organization, how decisions are made, how decisions should be 
executed, and where to go if they believe that illegal or inappropriate 
acts have occurred.

GAO's Work to Modernize the Accountability Profession:

GAO is actively working to modernize and transform the accountability 
profession in government and the private sector--and to lead by example 
in this area.

* independence standards issued in 2002;

* assistance to the Congress in evaluating accountability profession 
issues and needed reforms prior to the Sarbanes-Oxley Act;

* monitoring implementation of the Sarbanes-Oxley Act;

* 2003 revision of Government Auditing Standards;

* continually modernizing Yellow Book standards;

* enhancing federal financial management, reporting, and 
accountability;

* expanding the definition of success in financial management: clean 
opinion, no major weaknesses in controls or compliance, and financial 
systems that produce timely, accurate, and useful information for 
management;

* coordination with accountability organizations around the world 
(e.g., INTOSAI, IFAC, IAASB);

* promoting modernization of accounting/reporting and attest/assurance 
practices both domestically and globally;

* creation of the U.S. Auditing Standards Coordinating Forum.

The Future Financial Reporting Model:

In modernizing financial reporting, we need to:

* review and revise the existing accounting and financial reporting 
model to reflect several dimensions:

- meaningful financial reporting that is useful, timely, and relevant;
- generic provisions;
- industry information;
- entity-specific information (i.e., value and risk);

* recognize the difference between certain types of financial and other 
information:

- historical cost;
- readily marketable assets;
- non-readily marketable assets;
- projection information;
- performance information:

The Future Audit Model:

In modernizing audit reporting we need to:

* determine whether "generally accepted" is the appropriate framework 
versus "authoritative accounting principles" that could be used when 
the "generally accepted" framework may not provide a full and fair 
representation in the view of the auditor;

* review and revise the existing audit reporting model to accomplish at 
least two objectives:

* recognize that the opinion should address whether the financial 
statements are fairly presented in all material respects and prepared 
in accordance with authoritative accounting principles promulgated by 
FASB, FASAB, IFAC, and others, applied on a consistent basis;

* update the audit reporting model to link it with the new financial 
reporting model, and provide appropriate degrees of assurance for each 
type of information;

* ultimately go global in connection with all major accounting and 
audit matters;

* coordinate U.S. and domestic efforts in the interim.

U.S. Auditing Standards Coordinating Forum:

* Composed of PCAOB, GAO, ASB (AICPA);

Seeks to:

* maximize complementary standards-setting agendas;
* minimize duplicative or competing efforts;
* identify any significant gaps not being addressed by the standards 
setters;
* assure consistency, where appropriate, in core auditing standards in 
the U.S.
* develop strategies for overcoming challenges and avoid unintended 
barriers to movement between the sectors;
* modernize the accounting profession in the U.S.
* explore opportunities for international harmonization.

How Do We Move Forward?

* Good governance and accountability are critical:

* in the private sector to promote efficiency and effectiveness in the 
capital and credit markets, and overall economic growth, both 
domestically and internationally;

* in the public sector for the effective and credible functioning of a 
health democracy, and in fulfilling the government's responsibility to 
citizens and taxpayers;

* in both sectors to support a healthy economy that provides economic 
opportunities and benefits to citizens;

* Sorting out the needs and effective and appropriate governance and 
accountability mechanisms for different sectors and types of 
organizations and on an international scale will be critical.

Rebuilding Public Trust:

For any system to work, it must address three fundamental issues.

* First, provide incentives for people to do the right thing.

* Second, provide transparency to help assure that people do the right 
thing.

* Finally, have effective accountability mechanisms if people don't do 
the right thing.

Restoring public trust will require that every participant in the 
corporate reporting supply chain embrace and live by the following core 
concepts:* 

* A spirit of transparency--stop playing games with financial and 
performance data. Use full disclosure.

* A culture of accountability--management, staff, boards, auditors, and 
stakeholders. High quality, unbiased information to support decision-
making.

* People of integrity--commitment to individual integrity.

* Excerpts from Building Public Trust: The Future of Corporate 
Reporting, Samuel DiPiazza, Jr. and Robert G. Eccles, 2002.

Key Concepts in the Accountability Profession:

* Public trust vs. personal interests;

* Recognizing the difference between the floor (e.g., rules, 
regulations, laws, accounting standards) and the ceiling (e.g., 
principles, values);

* Doing what is right vs. what is acceptable;

* Economic substance vs. legal form;

* Being concerned with both fact and appearance (e.g., independence);

* Using judgment vs. completing checklists;

* Recognizing that continuing improvement in today's rapidly changing 
world is essential;

* Remember that trust is hard to earn, but easy to lose.

In today's world, individuals, organizations and professions that do 
not change may find themselves headed for extinction. At the same, each 
should have a set of core values that can stand the test of time.

Three Key Ingredients Needed for These Challenging and Changing Times:

* Leadership;

* Integrity;

* Innovation.

[End of slide presentation]