The Role of the Global Accountancy Profession in Addressing 21st Century Public Sector Challenges
Thomas Müller-Marqués Berger | September 2, 2019
The public sector is facing a multitude of challenges globally, from budgetary pressures and revenue limitations to intense scrutiny of public finances, all at the same time as rapidly increasing demand for high-quality public services.
Around the world, common issues have emerged with many countries facing:
- Increasingly less citizens carrying the financial burden created by our societies. Pension schemes and social benefit schemes are reaching very unhealthy ratios of contributors to beneficiaries. Change in policy and restructuring of these schemes is needed, but this requires brutally honest transparency on the extent of current liabilities, in order to make the right decisions.
- Increased spending needs due to outdated infrastructure, increasing migration, and an increasing number of citizens being dependent on transfer payments as a consequence of insufficient salaries or even unemployment. In times of scarce resources priority decisions must be made, which is not possible to do in an economic meaningful way without having reliable information on the operational capacity and cost of services of the various programs.
And, as a result, citizens are discontent with quality of services.
The global accountancy profession, with its public interest mandate, has a critical role to play in helping to address these challenges by ensuring transparency and accountability in financial management. First and foremost, by providing much needed trust and reliability over information for accountable decision making.
In the public sector three crucial elements are needed:
- The development of robust accounting standards, requiring the generation of the right and complete information prepared on an accruals basis, with the appropriate presentation;
- Transparent and understandable financial reports prepared in compliance with these standards and assured by independent auditors; and
- An appropriate use of this accrual information by decision makers when making public policy decisions.
With increased financial interdependencies between countries, homogenous ways of accounting and reporting on governmental activities are needed in order to have coordinated policy decisions and budgeting procedures, as well as comparable accounting of budget execution.
Yet worryingly, uptake of accrual accounting in the public sector is relatively low, with only 25% of the 150 jurisdictions included in the International Public Sector Financial Accountability Index currently reporting on an accruals basis. Although that figure is projected to rise to 65% over the next 5 years.
Adoption of the accruals based International Public Sector Accounting Standards (IPSAS) allows the sharing of experiences and knowledge across borders and is key to enabling a future globally comparable generation. The global accountancy profession plays an instrumental role in supporting the worldwide implementation of the IPSAS as the globally accepted accounting standards for the public sector.
But, there is a strong requirement for capacity building measures and safeguarding measures to ensure the consistent application of IPSAS across countries, and other challenges the profession faces itself that must be addressed, including:
Citizens are directly affected by the financial management decisions of governments and government entities. In many jurisdictions, the lack of complete and audited information about governments´ finances continues to be a major cause of concern. This and the recent spate of corporate scandals in the private sector have caused serious damage to trust in the accountancy profession.
To regain citizens’ trust, there is a desire for technical experts, interest in knowledge and search for credibility of information. It is also vital that the profession steps up its efforts to ensure that ethics is a core part of the accountant profile, and underpins the required professional behavior and mindset of all professional accountants.
In the war for talent, accountancy is in strong competition with other fields, particularly as the relevance of traditional accounting roles is being challenged by digitalization and automation.
A priority for the profession is therefore to shift talent from process-led roles that can be achieved through technology to more value-added business partner roles that have a greater impact on an organization’s success, and in turn, contributes to wider society. Explaining this wider societal contribution is particularly important in attracting the younger generation, who are increasingly looking for a reason and higher sense in their work.
Accounting and auditing are already strongly influenced by electronic data processing, automation and data analytics used for dealing with mass data, as well as technologies such as blockchain, which are influencing the way transactions are recorded and monitored.
These developments require massive capacity building efforts, and significant investment in new technologies and tools. But technology also brings enormous opportunities to the profession, acting as an enabler to:
- Overcome capacity shortages through automation of manual tasks.
- Increase the attractiveness of the profession to the younger generation by reducing tedious and repetitive work around mass data transactions.
Successful implementation of accrual accounting requires technology to be an integral part of the implementation strategy.
For those jurisdictions who have already successfully implemented accrual accounting, the focus for accountants in the public sector is shifting beyond the traditional role of enhancing reliability of information to impacting government decision making and contributing to improved public services. This requires greater involvement in policy making, budgeting and fiscal planning, and moving from historical reporting to forward looking decision support.
The global accountancy profession must help equip future-ready accountants with the skills and competencies to deliver these value-added roles, to ensure they can continue to meet the needs of the 21st century public sector organization.