It’s called ‘Fundamental Data’ for a reason
US municipal bonds are often rated with reference to demographic factors associated with the community raising the debt. Dr Marc Joffe and his colleagues report that there is a much more accurate way to make these kinds of credit decisions. Better ratings and better bankruptcy predictions are possible with ratio analysis of the financial statements prepared by local government. That requires high quality digital disclosures.
As we reported in March, Florida is working on the creation of an XBRL taxonomy and reporting tools for their municipalities to report with. Other US states are looking into this idea closely. Better bond pricing creates the right incentives for government decision makers to manage their finances effectively.
While the US has the world’s largest and most liquid local government bond markets (hint: they are tax free) they are by no means alone, with a host of government and semi-government entities around the world raising debt through the issue of bonds and other tradeable instruments. Producing high quality modern government financial statements in a digital form facilitates the analysis necessary to help breathe competition and efficiency into these types of debt issues. Perhaps the time has come for the IPSASs to have their own taxonomy? Read Dr Joffe’s piece here on the Bond Buyer site.