GASB proposes to mandate financial projections.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle - Governmental Accounting Standards Board

In late November, the Governmental Accounting Standards Board (GASB) issued its Preliminary Views (PV) on Economic Condition Reporting: Financial Projections. In that document, the GASB proposes to mandate that governments of all types and sizes present financial projections as required supplementary information (RSI).

BACKGROUND

The title of the PV refers to economic condition reporting. One important aspect of economic condition is fiscal sustainability, which the GASB defines 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 proposals in the PV focus on this fiscal sustainability aspect of economic condition reporting.

SPECIFIC PROPOSALS

The PV proposes to require that governments present information on the following for each of the next five years:

* Cash inflows and cash outflows;

* Financial obligations; and

* Debt service payments.

The GASB is proposing to mandate projections rather than predictions. Thus, all of the amounts presented would need to be:

* Based on current policy (including policies approved as of the end of the reporting period, even if not yet in effect);

* Informed by historical information (past trends); and

* Adjusted for known events and conditions.

Cash Inflows and Cash Outflows. The PV proposes that projections of future cash inflows and outflows be presented separately by activity (i.e., governmental activities versus business-type activities), accompanied by a subtotal (cash inflows less cash outflows) for each activity and a net total for the primary government. The PV also proposes to require that data from the general fund be presented separately from data for other governmental activities within governmental activities. In addition, the PV would require that major cash inflows and outflows be reported separately. A given cash inflow or outflow would be considered major if:

* It represented 10 percent or more of total cash inflows/outflows for activities of that type for any one of the years projected;

* It was capital related (e.g., receipt of construction bond proceeds, capital outlay); or

* It was "particularly important to users when making an assessment of the government's fiscal sustainability."

Finally, the PV proposes that cash inflows and outflows be presented both...