NACUBO Letter Asks GASB to Reconsider Financial Projections

March 22, 2012

NACUBO comments advise the Governmental Accounting Standards Board (GASB) against requiring financial projections in the audited financial statements. On March 16, 2012 NACUBO submitted a formal comment letter to the Preliminary Views (PV) "Economic Condition Reporting: Financial Projections" released by the Governmental Accounting Standards Board (GASB). NACUBO comments, developed with input from the Accounting Principles Council (APC), acknowledge the importance of forward-looking information for management but caution against including such information in the audited general purpose external financial statements.

The PV addresses economic condition reporting and would compel as required supplemental information (RSI) financial projections and percentage information for total and major individual cash inflows and cash outflows. NACUBO points out that Concepts Statement 1, "Objectives of Financial Reporting," does not provide a sufficient foundation for financial projections in the audited financial statements. Rather, Concepts Statement 1 acknowledges that users of financial statements may always need to go to other sources of information to fully analyze and understand a government's economic condition.

NACUBO comments also stress that per Concepts Statement 3, "Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements," RSI should not contain subjective information or predictions about the effects of future events. The purpose of RSI is to provide information essential for an understanding of the specific historical data presented in the financial statements or notes. Because the proposed forward-looking financial information is subjective, NACUBO also expressed concern that auditors will need additional time to understand and get comfortable with the information.

Finally, NACUBO advised the Board against the (at a minimum) five-year projection timeline in the proposal. The letter states:

Subsequent to the economic collapse, in the fall of 2008, the vast majority of public institutions had their state appropriations immediately or retroactively cut - many by double digit percentages. What value would financial projections have been in the FY08 financial statements after the bottom fell out of the economy during FY09? What value would five-year projections have been in FY08 as the economy continues to slowly recover in 2012? Would universities now be facing litigation from donors who made contributions in 2008 based on financial projections only to see the value of their contributions decline significantly?

Higher education representatives will testify on these issues at a public roundtable on April 17, 2012. The complete comment letter is available on NACUBO's website.