The GASB's preliminary views on economic condition reporting: financial projections: securities law concerns with bond disclosure documents.

• Author: Hirata, William L.

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The Preliminary Views issued by the Governmental Accounting Standards Board (GASB) in November 2011 on reporting financial projections and helping users assess a governmental entity's economic condition generated a number of comments--171, as of May 1, 2012. Most of these comments discussed the feasibility or usefulness of implementing the accounting and financial reporting standards described in the Preliminary Views (PV). Rather than focusing on the practicality of these standards, the comments submitted by the National Association of Bond Lawyers (NABL) discussed the possible ramifications, under federal securities law, if governmental entities include projections in their primary and secondary market disclosure documents.

CHANGES TO CURRENT REPORTING

Debt issued by state and local governments is generally exempt from the registration and reporting provisions of the state and federal securities laws. This exemption does not mean, however, that the securities laws do not affect offerings of municipal securities. These offerings, and other statements made in connection with purchasing and selling the securities (such as continuing disclosure filings made with the Municipal Securities Rulemaking Board, or MSRB), are governed by the antifraud provisions of the securities laws, which prohibit issuers and other municipal market participants from making material misrepresentations and omitting material facts in any statement regarding the offer, purchase, or sale of securities. (1)

The PV (Project No. 13-3) reflects the GASB's belief that the bond investors, taxpayers, and other constituent groups that use financial statements need information that will allow them to assess a government's fiscal sustainability (defined in the PV 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 PV provides an initial proposal that would require governmental entities to provide the following information to help users assess the fiscal sustainability of issuers:

* Projections of total cash inflows and major individual cash inflows, with explanations of the known causes of fluctuations.

* Projections of total cash outflows and major individual cash outflows, with explanations of the known causes of...