Reporting on the Long-Term Sustainability of Public Finances

Project Status

Project brief, Long-Term Fiscal Sustainability Reporting, published for comment as part of a package of documents - ED 34, Social Benefits: Disclosure of Cash Transfers to Individuals and Households and Consultation Paper, Social Benefits: Issues in Recognition and Measurement. Task Force established. Consultation Paper Reporting on the Long-Term Sustainability of Public Finances, issued in November 2009.

Staff

John Stanford

Task Force

Task Force (comprising IPSASB members, observers and external parties) was established to oversee project - United Kingdom (Chair), Australia, Canada, France, New Zealand, Sweden, Switzerland, United States, Eurostat and IMF.

Objective(s) of project

To produce a framework for the reporting and disclosure of information related to the long-term fiscal sustainability of governmental programs.

Scope

The project applies to reporting and disclosures about the long-term fiscal sustainability of governmental programs, including both projected outflows and inflows - for all public sector entities other than Government Business Enterprises (GBEs) preparing and presenting financial statements under the accrual basis of accounting.

GBEs are required to apply International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board (IASB).

Background

During the development of its project on social benefits the IPSASB formed a view that, the financial statements cannot satisfy all the needs of users in assessing the future viability of programs providing social benefits. This is regardless of the approach that is taken to the point at which a present obligation for different sorts of social benefits occurs and the view as to the extent of those present obligations and the resultant liabilities. The information in the financial statements needs to be complemented by information on the long-term fiscal sustainability of those programs.

Issues

Issues the project intends to consider include (but is not necessarily limited to):

• Definitions;
• Mandatory/discretionary nature of proposals and requirements;
• Reporting entity for long-term fiscal sustainability reporting;
• Time horizons;
• Regularity of reporting;
• Assumptions and sensitivity of assumptions;
• Approach to discretionary programs; and
• Scope in terms of governmental programs.

Task Force progress / Board discussions to date

September 2011: The IPSASB considers a further draft of the ED. The IPSASB directs that in its guidance on whether to report the ED should emphasize the existence of service recipients as well as resource providers and that the definitions of gross debt and net debt should be drawn from a draft of the Public Sector Debt Statistics—Guide for Compilers and User.

The IPSASB approves ED 46 of an RPG, Reporting on the Sustainability of Public Sector Entity’s Finances.

August 2011: Task Force considers revised drafts of ED. 

June 2011: The IPSASB considers a first draft Exposure Draft of a Recommended Practice Guideline (RPG). The IPSASB confirms its tentative view that, while emphasizing the importance of reporting in this area, it should not develop an IPSAS at this time. Consistent with this view the IPSASBdetermines that the RPG should not include an effective date. The IPSASB agrees that the core of the RPG should be the dimensions of fiscal sustainability: fiscal capacity, service capacity and vulnerability.

November 2010: The IPSASB considers further key issues, including:

• A bottom-up principles based approach related to dimensions or components of fiscal sustainability;
• Linkage to the reporting entity and the objectives of financial reporting; and
• The nature of GPFRs, the frequency of reporting of information on the long-tem sustainability of the public finances and the relationship to other publicly available documents.

The IPSASB also agreed that, at a future date, it should ask the IFAC Board to amend its Terms of Reference to clarify that it has the authority to issue pronouncements, whether of an authoritative or non-authoritative nature on the more comprehensive scope aspects of general purpose financial reporting.

June 2010: Task Force meets to consider views of respondents. The IPSASB considers the 32 responses to Consultation Paper and Staff analysis and summary of the responses. The IPSASB agrees in principle to continue with the project and to develop a non-mandatory pronouncement, but highlights a number of key issues that need to be further explored prior to development of any pronouncement.

November 2009: Consultation Paper, Reporting on the Long-Term Sustainability of Public Finances is approved by IPSASB and published. Consultation period expires on April 30th, 2010.

September 2009: The IPSASB considers a further version of the Consultation Paper and provides a number of detailed directions, mostly of a structural and editorial, rather than substantive, nature. The IPSASB agrees that the Consultation Paper should be circulated for further views out-of-session with a view to approval prior to the December 2009 meeting. Because of the connotations of the word fiscal in some jurisdictions it is agreed to change the title of the draft Consultation Paper to Reporting on the Long-Term Sustainability of Public Finances.

May 2009: The IPSASB considered some key issues identified by the Task Force and carried out a preliminary review of a draft Consultation Paper.

The IPSASB reaffirmed its commitment to this project, which it considered of increased significance due to the global financial crisis and the scale of recent government interventions with long-term consequences. The focus of the Consultation Paper will be at the national government level, but the importance of fiscal sustainability reporting to all governmental levels will be acknowledged. The IPSASB agreed that information on long-term fiscal sustainability should be within General Purpose Financial Reports (GPFR) in order to meet users needs, while acknowledging the views of those with reservations. The IPSASB reiterated the view made during deliberations on the response to the Conceptual Framework project that a GPFR is not likely to be a single report encompassing all aspects of reporting.

The IPSASB agreed a working definition of fiscal sustainability, based on a modification of the version put forward by the Task Force, as: the ability of public sector entities to meet financial commitments both now and in the future.

The IPSASB accepted that the Consultation Paper should acknowledge that it was drawing on the work of other professions. The approach would emphasize disclosure and transparency of assumptions. The Consultation Paper will not examine assurance issues, but will discuss more broadly the steps that might be taken by preparers to enhance the reliability of projections.

A further version of the Consultation Paper will be considered at the September 2009 meeting.

March 2009: Second meeting of Task Force in Paris. Task Force considered a preliminary draft of the Consultation Paper and made further proposals on structure and format and also highlighted issues on which further directions are necessary from the IPSASB.

October 2008: The IPSASB noted the overall support for the project by those who had commented on the project brief and confirmed that the project should proceed.

The IPSASB directed that the aim should be to produce a high level framework rather than detailed prescription. The IPSASB further directed that the project's scope should not be restricted to the national government level.

September 2008: Task Force meets in London and agrees issues to be addressed in Consultation Paper and proposed outline structure for Consultation Paper for consideration by the IPSASB.

March 2008: Project brief published for comment as part of a package of documents - ED 34, Social Benefits: Disclosure of Cash Transfers to Individuals and Households and Consultation Paper, Social Benefits: Issues in Recognition and Measurement.

November 2007: The IPSASB approved a project brief - to be issued in March 2008 with ED 34, Social Benefits: Disclosure of Cash Transfers to Individuals and Households and Consultation Paper, Social Benefits: Issues in Recognition and Measurement