This document discusses efforts to monitor and report on fiscal sustainability at the national and subnational levels. It provides an overview of the IPSASB's Recommended Practice Guideline on reporting the long-term sustainability of finances. It also discusses the GASB's initial and current efforts to incorporate fiscal sustainability reporting into its standards. In addition, it describes the UK government's experience with long-term fiscal projections published by the Office for Budget Responsibility. The goal of the session is to discuss defining and reporting on fiscal sustainability.

1. 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.
1
OECD Accruals Symposium

2. 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
2
Australia Netherlands
China South Africa
India Sweden
Italy United Kingdom

3. 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
3

4. IPSASB RPG
Ian Carruthers
IPSASB Member
Executive Director, Policy and Technical, CIPFA

5. 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
5

6. 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
6

7. LTFS: Linkages to financial accounts
Future cash flowsPast cash flows
Liabilities incurred and
settled to date
Assets obtained and
realized to date
InflowsOutflows
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
7

8. 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
8

9. Determining whether to report on LTFS
9

10. 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
9

11. 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
11
0

12. 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
12
1

13. UK Government Experience
Long-term projections in fiscal policy
Ian Carruthers
Executive Director, Policy and Technical, CIPFA
IPSASB Member

14. 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

15.  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

16. UK Public Sector Finances:
The longer term challenges

17. What Is Being Done Around the World?
 How are governments currently monitoring potential local
government fiscal stress?
 How are government currently reporting instances of fiscal
stress?
17