Have you read the Fiscal Year 2015 Consolidated Financial Report of the US Government? Perhaps you don’t have time to read all 267 pages? In that case, let’s cut to the chase and focus on the Statement of Long-Term Fiscal Projections, Footnote 24, and the unaudited Required Supplementary Information on the sustainability of current fiscal policy. The information illustrates that – absent policy changes – the federal government continues to face an unsustainable long-term fiscal path with a projected debt-to-GDP ratio reaching 223% in 2090. That’s potentially crippling. High debt-to-GDP ratios negatively affect governments’ abilities to invest in infrastructure, fund key programmes, and address challenges that inevitably arise, such as those resulting from recessions and natural disasters. Policy reforms will be needed to close the fiscal gap and prevent the country from reaching such predicaments. Delayed policy reforms will only harm future generations by increasing the magnitude and duration of surpluses necessary to close the fiscal gap in the future. You may have heard this analysis before but didn’t know where it came from – now you do.

So what role do federal financial reports play in addressing the fiscal challenges faced today and beyond? Well, it all depends on their usefulness. The US Federal Accounting Standards Advisory Board (FASAB) establishes generally accepted accounting principles for federal entities and supports the US government’s efforts to improve financial reporting. The usefulness of federal financial reports for decision making is of utmost importance, and I, along with my fellow Board members, have been focused on improving their usefulness and, in particular, their relevance. Think of relevant information as that which can enhance and inform the decision-making capacity of the policymakers, programme managers and citizens in a representationally faithful and neutral manner.

With usefulness and relevance in mind, the Board is currently working on a concepts statement about financial reporting. Concepts statements provide guiding principles for future standards-setting activities and Board deliberations. Upon issuance, the concepts statement will lay the groundwork for identifying financial reporting objectives not yet addressed through financial statements and suggest approaches for meeting those objectives. Two primary topics that FASAB may address in this area through future standards setting are electronic reporting and performance reporting. The project will also consider financial reporting issues that have developed since FASAB issued its initial set of concepts many years ago.

Switching to current standards-setting efforts, consider the specific topic of tax expenditures. Tax expenditures are revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability. (2 U.S.C. § 622(3)) These exceptions are often viewed as alternatives to other policy instruments, such as spending or regulatory programmes. Tax expenditures are not addressed in the current financial statements of the US federal government or those of any other central government, yet they are becoming a popular topic of discussion as their estimated impact on government revenues continues to grow. Thus, in my view – despite not being a new topic per se – tax expenditures are a great example of the type of emerging financial reporting issue that FASAB can address in the principles laid out in our new concepts statement.

Although tax expenditures represented an estimated $1.23 trillion in forgone revenue in 2015, the underlying estimates and the very concept of “tax expenditures” were not even mentioned in the 2015 consolidated financial report. Moreover, only expiring tax provisions are subject to review within congressional budget processes. Because tax expenditures are not explicitly reported as appropriations or displayed in the statements of net cost or changes in net position (despite their considerable impact on both), we need to shine a light on them. This will enable financial report users to gain at least some understanding of the concept of tax expenditures, their general purposes, and how they affect the bottom line results and costs of programmes. Again, think “relevance” and “usefulness.”

To that end, the Board recently released an exposure draft for public comment entitled Tax Expenditures: Management’s Discussion and Analysis and Disclosure Requirements. The Board welcomes public participation in the standards-setting process. Consider reviewing the proposed standard on tax expenditures and providing comments by September 15 2016. Also, be on the lookout for an exposure draft concepts statement on financial reporting to be released for public comment later this calendar year. This is your opportunity to influence the future of federal financial reporting.