Thursday, December 08, 2011

GASB to possibly require Cash Flow Projections

The Governmental Accounting Standards Board (GASB)has proposed that state and local governments should include five-year projections of their cash inflows and outflows, and financial obligations, to supplement their financial statements.

The desire is to help interested parties (taxpayers, bond holders and other interested parties) better determine a government financial health.

The procedures would effect state and local government bodies. It would reequire the institutions to provide projections of their cash inflows and cash outflows, and explain the known causes of fluctuations. They would also be required to include projections of their financial obligations, including bonds, pensions, other post-employment benefits, and long-term contracts, in addition to explanations of the known causes of fluctuations. GASB also recommended that they include projections of their annual debt service payments.

Projections would be based on current policy, informed by historical information, and adjusted for known events and conditions that would affect the government’s finances during the projection periods. Governments would be required to present projections for at least the next five fiscal years. The projections would be reported as required supplementary information following the notes to the financial statements.

The proposals are outlined in the document, “Preliminary Views, Economic Condition Reporting: Financial Projections.”