There is an emerging consensus that poor governmental reporting represents a threat to global financial stability and economic growth that must be addressed. A recent International Monetary Fund (IMF) paper is the latest to take this view.
Last month the International Monetary Fund released a highly significant paper entitled Fiscal Transparency, Accountability, and Risk. Its significance rests in the clear and strong position taken on the inadequacies in governments’ fiscal reporting and accountability and the need for action to address these inadequacies.
Given the critical role of the IMF in the international financial system, this is a powerful statement on the need for reform in governmental financial reporting and management.
The International Federation of Accountants (IFAC) applauds the IMF for taking this position. IFAC has long recognised that a fundamental way to protect the interests of both the public and investors is to develop, promote, and enforce a common set of high-quality international financial reporting standards for the public sector.
This is the reason we embarked over 15 years ago on the program to create an independent standard-setting board that would develop International Public Sector Accounting Standards (IPSAS). It is also why we have been calling for reform even before the sovereign debt crisis hit. In 2007, we expressed our concern ‘that the standards and regulations governing sovereign issuers are not of sufficient quality to protect investors and ensure the stability of capital markets’.
The IMF has been a long-time partner and advocate of reporting standards for governments. As the recent paper points out, ‘both GFSM (Government Finance Statistics Manual) 2001 and IPSAS call for government financial statements to include comprehensive balance sheets reporting the value of government financial and nonfinancial assets and liabilities’.
As the paper notes: ‘The last decade and a half has seen a concerted effort to develop a set of internationally accepted standards for fiscal transparency and to monitor and promote the implementation of those standards at the national level.’
But while the paper reports that ‘the number of countries reporting data on financial assets and liabilities to the IMF has increased from 21 in 2004 to 41 in 2011, the vast majority of countries continue to provide no comprehensive data on their financial assets and liabilities’. And the situation is worse in respect of the number of countries reporting both financial and non-financial assets and liabilities. This gives a sense of the considerable distance still to be traveled.
As I approach the end of my term as IFAC CEO, I am starting to be encouraged by the emerging consensus that governmental financial reporting and financial management represent threats to global financial stability and economic growth that must be addressed. The IMF paper is a case in point, but so too is the study by Eurostat on the suitability of IPSAS for use by European member states.
Globally, governments must implement institutional reforms to strengthen governmental financial management. This will reduce the risk of future crises, and hold governments more accountable to their citizens. A key element of such reforms must be the adoption and implementation of IPSASs.
IFAC is particularly pleased with the IMF’s support for IPSAS. As stated in the paper: ‘IPSAS call for government financial statements to include comprehensive balance sheets reporting the value of government financial and nonfinancial assets and liabilities.’
IFAC also supports other key positions highlighted in the IMF paper, which include:
- Updating fiscal transparency standards to address gaps in, and inconsistencies between, individual jurisdictions’ standards;
- Complying with international standards for public sector financial reporting, including reporting all assets and liabilities by, for example, using IPSAS;
- Including in fiscal forecasting, budgeting, and financial reporting all entities that have fiscal implications for governments (including central banks, public entities, and corporations outside of the general governments);
- Evaluating countries’ compliance with fiscal transparency standards using, for instance, auditing and assurance as a means for assessing compliance with standards;
- Strengthening incentives for improvements in fiscal transparency practices;
- Strengthening the institutional relationships among international standard-setters;
- Aligning the methodologies and standards for fiscal forecasting, budgeting, and financial reporting to reinforce the links between fiscal transparency and long-term sustainability;
- Building the capacity of professional accountancy organisations and promoting the role they play in improving government financial reporting practices; and
- Strengthening fiscal transparency and public sector financial management in all nations and, in particular, in developing and emerging nations.
Fiscal Transparency, Accountability, and Risk provides support for the work of the International Public Sector Accounting Standards Board and the policy positions taken by IFAC. We welcome it for that reason, but more importantly because it strengthens the mounting global pressure for government financial reform.
This blog post originally appeared at Public Finance International.
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