The Relevance of the Consolidated Financial Statement in the Measurement of Local Government Liabilities

With the growth of municipal capitalism, both local governments (LGs)
and their related entities are involved in debates about public sector financial
debts. This chapter seeks a deeper understanding of the relevance of
measuring liabilities through the consolidated financial statements (CFS).
With regard to a sample of Italian LGs, the analysis show that debts calculated
with reference to the CFSs is statistically different from that derived
from the analysis of the separate financial statements (SFS). The authors
also conclude that the differences are largely due to the impact of noncontrolled
entities, which are proportionately consolidated. The analysis
of this study is limited to considering the impact of debt and does not take
into account other financial or non-financial variables. The usefulness of
CFSs must also be evaluated with reference to these elements.