fiscal sustainability - david vaudt, david bean, gasb & ian carruthers, cipfa
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Fiscal Sustainability The views expressed in this presentation are those of Messrs Vaudt, Bean, and Carruthers. Official positions of the GASB and IPSASB on accounting matters are determined only after extensive due process and deliberation.
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OECD Accruals Symposium
Background
Much has been written about fiscal sustainability around the world. Just to name a few:
Confusion remains - Integrated reporting—fiscal sustainability is just one element
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Australia Netherlands
China South Africa
India Sweden
Italy United Kingdom
Goals of this Session
Discuss fiscal sustainability—what is it and how it should be reported - IPSASB RPG - GASB efforts, including assessment of state government
monitoring - UK Government experience - Open discussion
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Public Sector Conceptual Framework
• Primary service delivery objective
• Importance of accountability
• General Purpose Financial Reports (GPFRs) – broader than General Purpose Financial Statements
• IPSASB developing Recommended Practice Guidelines (RPGs) for GPFRs
• Good practice - not required to assert IPSAS compliance
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Reporting on the Long-Term Sustainability of an Entity’s Finances Objective •Provide indication of projected sustainability of entity’s finances over specified time horizon in accordance with stated assumptions.
Status and Scope •Recommended Practice Guideline (RPG1)
•Doesn’t directly address environmental sustainability
•Includes entity’s future financial flows across all areas
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LTFS: Linkages to financial accounts
Future cash flows Past cash flows
Liabilities incurred and settled to date
Assets obtained and realized to date In
flow
s O
utflo
ws
Present economic sacrifices settled in future (Liabilities)
Present economic benefits realized in the future (Assets)
Expected resources to be realized in the future
Expected obligations to be settled in the future
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Reporting LTFS information
• Long-Term Fiscal Sustainability (LTFS) definition: Ability of an entity to meet service delivery and financial
commitments both now and in the future • Form and content of reporting dependent on entity • May be part of GPFRs or separate report • Draw on wide range of information sources • Current policy, demographic and economic assumptions • Projection time horizons reflect entity characteristics
– Longevity of key programmes – Dependence on other entities for funding
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GASB—Initial Efforts
Preliminary Views - Proposed requirement, not suggestion Required supplementary information
- Proposal focused on five-year projections, not forecast Cash inflows Cash outflows Financial obligations Annual debt service payments
Significant stakeholder feedback
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GASB Current Efforts
Considering adding a research effort that would reexamine current “going concern” literature - Problem—general purpose governments in the States
normally do not go out business - What should be done to inform financial statement readers
about severe fiscal stress? Research will initially focus on how State governments are
monitoring fiscal stress of local governments - States in which local governments are facing severe fiscal
stress—Michigan, California - States with strong monitoring processes—North Carolina,
Florida
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Just the Beginning
Michigan - 30 indicators - Focus is on technical violations and requests for review
Florida - Five criteria that define an “emergency designation” - Fourteen ratios that offer some level of early warning
GASB research will explore the viability of establishing assessment criteria that could possibly result in disclosures by a government
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UK Government Experience Long-term projections in fiscal policy
Ian Carruthers Executive Director, Policy and Technical, CIPFA IPSASB Member
Office for Budget Responsibility (OBR) Annual Long-Term Sustainability Projections
Published annually
Same model as used in RPG1
WGA balance sheet as start point
Long-term (50 years) projections for spending and revenues
Current government policies
Summary indicators of sustainability
Expressed in terms of primary balance and public sector net debt
Views of advisory board and input from across government
UK public finances under pressure in longer term –ageing population
Age-related items spend increases (pensions and health care)
Government revenues roughly stable; but
Certain taxes decline over longer term
Sensitivity analyses to quantify key uncertainties:
— demographic trends
— medium-term fiscal position; and
— sector-specific trends in health spending
OBR 2014 Long-Term Report: Conclusions
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