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Business and Policy Areas
Business and Policy Areas

GASB Views on Financial Projections Warrant Comments

February 27, 2012

A Preliminary Views (PV) document issued by the Governmental Accounting Standards Board (GASB) states that forward-looking information is necessary to help decision makers assess a government’s economic condition. Such information would incorporate financial projections into the audited external general purpose financial statements. Comments are due to GASB March 16, 2012.

GASB believes that there are three essential components to a government’s economic condition: financial position, fiscal capacity, and service capacity. Further, a forward-looking view must be taken to fully assess economic condition. The forward-looking dimension of information related to economic condition is characterized as fiscal sustainability. Fiscal sustainability is defined as a government’s ability and willingness to generate inflows of resources necessary to honor current service commitments and to meet financial obligations as they come due, without transferring financial obligations to future periods that do not result in commensurate benefits.

The Board’s preliminary view is that five components of information are necessary to assist users in assessing a governmental entity’s fiscal sustainability:

  1. Projections of the total cash inflows and major individual cash inflows, in dollars and as a percentage of total cash inflows, with explanations of the known causes of fluctuations in cash inflows
  2. Projections of the total cash outflows and major individual cash outflows, in dollars and as a percentage of total cash outflows, with explanations of the known causes of fluctuations in cash outflows
  3. Projections of the total financial obligations and major individual financial obligations, including bonds, pensions, other postemployment benefits, and long-term contracts, with explanations of the known causes of fluctuations in financial obligations
  4. Projections of annual debt service payments (principal and interest)
  5. Narrative discussion of the major intergovernmental service interdependencies that exist and the nature of those service interdependencies.

According to GASB, the Economic Condition project is rooted in Concepts Statement No. 1, “Objectives of Financial Reporting.” Specifically, paragraph 35 describes the information needs of users, including forward-looking information:

Investors and creditors need information about available and likely future financial resources, actual and contingent liabilities, and the overall debt position of a government to evaluate the government’s ability to continue to provide resources for long-term debt service.

Paragraph 79 also includes reference to a future orientation for financial reporting information:

Financial reporting should assist users in assessing the level of services that can be provided by the governmental entity and its ability to meet its obligations as they become due.

NACUBO believes that full accrual accounting and financial reporting addresses the aforementioned paragraphs in Concept Statement No. 1. Since the release of GASB Statements 34 and 35, the Board’s successful effort to bring previously unidentified elements on to the balance sheets of governments satisfies the objectives of financial reporting in Concept Statement No. 1. Further, certain asset and liability measurement and disclosures are already based upon forward-looking information (for example, estimated service lives of assets, asset impairment, risk disclosures, derivative information, debt service, pollution remediation, certain endowment investments, proposed pension liabilities, etc.). The PV document essentially offers a prescription for a comprehensive, user-friendly summary of current financial statement elements and disclosures; such a summary would also spell out financial projections that are (1) based on current policy, (2) informed by historical information, and (3) adjusted for known events and conditions that affect the projection periods.

NACUBO urges public higher education institutions to read the PV and submit comments by March 16. Alternatively, public institutions can submit thoughts to NACUBO to inform the industry comment letter. A PV is a step toward an Exposure Draft (ED) and is generally issued when the Board anticipates that respondents are likely sharply divided on the issues, or when the board is sharply divided on the issues. Responding to a PV is an important step in influencing the final ED.


Sue Menditto
Director, Accounting Policy