IFAC's Points of View

Greater Transparency and Accountability in the Public Sector

The public sector is an essential part of every economy[1]. Governments spend large sums of public money on a range of services and infrastructure for their citizens. And in times of crisis, such as the 2008 global financial crisis, and more recently the COVID-19 global pandemic, governments increasingly use fiscal policy measures to support public social, infrastructure and health systems, and provide direct financial support to businesses and citizens through measures such as income support and unemployment benefits. Only governments are able to provide this kind of support at scale during these crises.

Globally, public sector entities face many challenges, which can include increased demand for high quality services, outdated infrastructure, tax competition[2], a low tax base, loss of trust[3], and the impact of changing demographics causing funding shortfalls for pension and social benefit schemes.[4]

As governments contend with competing priorities, they need to make important decisions with the aim that short-term measures are taken with appropriate regard to long-term financial sustainability and resilience. Decisions made by governments today will impact generations to come[5], and will have implications for future policy, tax, and spending decisions. The basic social contract between governments and citizens is continually changing, and therefore, there is heightened need for transparency and accountability to help citizens understand how public funds are being managed and spent[6], how decisions are made and why, and the evidence and information to support decisions.

To ensure governments and public sector entities around the world make informed decisions for people, the planet, and the economy, they need strong governance and public financial management (PFM). The accountancy profession—professional accountancy organizations (PAOs) and individuals—have an important role to play in supporting fit-for-purpose PFM and an effective public sector. Working together, the public sector and accountancy profession can help deliver a more sustainable, inclusive, and prosperous future.


1. Strong governance and public financial management

To manage public resources effectively and efficiently, governments need strong governance and a robust PFM system so that the use of resources is tracked, and that resources are appropriately allocated against public policy objectives. Governments must endeavor to achieve the most with the resources they have, maximizing efficiencies in public service delivery, while minimizing loss through waste, fraud, or corruption. Governments face numerous competing priorities and require reliable financial and non-financial information to make informed, data-driven decisions on priority areas of spending and investment. To enhance governments’ accountability for decision making high levels of transparency are required.

  • Good governance in the public sector is fundamental to ensure that public sector entities achieve their intended outcomes while acting in the public interest at all times[7].
  • Global variations need to be addressed as the strength of governance frameworks and PFM systems and processes varies widely, and improvements are needed in most jurisdictions[8]. Embedding a foundation of financial discipline and internal control across public sector entities remains a key priority for most jurisdictions. IFAC believes that achieving PFM reform is fundamentally dependent on:
    • Commitment from political leaders and senior management within public sector entities, supported by a change management plan.
    • People—with training and skills in government and public sector entities—from entry-level to senior leadership roles. The accountancy profession with its strong ethical core has a significant role to play in supporting professionalism in public finance and promoting ethical behavior in public sector entities. (See section: The accountancy profession in the public sector).
    • A comprehensive, robust, principles-based PFM framework[9] underpinned by an integrated financial management information system. An incremental approach[10] to PFM reform may be required to best consider the local context, set achievable targets, and make increasing improvements as capacity is strengthened.
  • High-quality, global public sector accounting standards are critical to strong PFM playing a significant role in supporting public sector transparency and comparability, accountability and decision making. IFAC strongly advocates for the adoption and implementation[11] of accrual accounting, in particular the accrual-basis International Public Sector Accounting Standards (IPSAS)[12].

  • Accrual accounting requires strong internal controls, processes and record keeping, and ensures public sector assets and liabilities are appropriately recognized and valued, and improves the capability for their management. For assets, this includes better maintenance, more appropriate replacement policies, identification and disposal of surplus assets, and better understanding of the impact of using fixed assets in the delivery of services. Reliable recording of all liabilities helps ensure appropriate repayment and extension management, such that governments are able to meet liabilities as they fall due and understand the extent to which they can afford new programs and services.
  • Implementing accrual accounting should be part of a broader PFM reform program rather than the end goal: as a means of supporting a range of other objectives, such as improving government transparency and performance, minimizing opportunities for fraud and corruption[13], and more effectively managing public sector assets and liabilities[14]. IFAC believes that to maximize the benefits of a move to accrual accounting, the same accrual-based information should be used for as many purposes as possible, including for macroeconomic management and budgetary control[15].
  • Public sector spending can be susceptible to waste, fraud, and corruption[16]. IFAC believes that minimizing this risk requires senior management to embed robust systems, a strong internal control environment, and high-quality reporting, all supported by Supreme Audit Institutions (SAIs)[17] with the capacity, resources, and independence to help strengthen public sector entities—by confirming that controls are operating effectively, identifying waste, and suggesting ways in which government can better operate. To be effective, SAIs must be appropriately funded and staffed, with the independence to effectively fulfill their mandates, delivering both financial audits (in accordance with International Standards on Auditing), and performance and compliance assurance engagements, which is essential to building trust in the information that public sector entities provide to stakeholders. The audit profession in the private sector can support SAIs in developing capacity, helping build up the skills, knowledge, and experience of public sector auditors[18].

1. This document will use the IPSASB definition of public sector: Public sector entities include national, regional (for example, state, provincial, territorial) and local governments (for example, city, town) and their component entities (for example, departments, agencies, boards and commissions). It is not meant to refer to State-owned Enterprises (SoEs) or similar commercial entities.

2. Referring to countries using preferential tax rates as a competitive advantage, both “acceptable” tax competition and “harmful” tax competition

3. Edelman Trust Barometer 2021: Government was the most trusted institution in May 2020, then lost its lead 6 months later and is now less trusted than business and NGOs.

4. The Role of the Global Accountancy Profession in Addressing 21st Century Public Sector Challenges

5. ICAEW/PwC: Intergenerational fairness “Today’s intergenerational policy challenge ranges from employment to social affairs and healthcare, from education and infrastructure to pensions. It encompasses financial as well as non-financial liabilities, e.g., in form of ‘environmental debt’ that we leave behind for future generations.”

6. An example approach - the Open Government Partnership (OGP) promotes and supports the importance of government transparency for citizens by ensuring that civil society organizations or direct citizen engagement has a role in shaping and overseeing governments.

7. IFAC/CIPFA International Framework: Good Governance in the Public Sector

8. PEFA: 2020 Global Report on Public Financial Management

9. Examples include CIPFA’s Whole Systems Approach, PEFA’s PFM Framework, and CAPA’s Eight Key Elements of PFM Success.

10. Public Finance Focus: Challenges to successful PFM reform

11. Successful implementation of these standards is a complex, resource-intense, multi-stakeholder endeavor requiring expertise and adequate infrastructure. To support best practices in Africa, PAFA has issued guidance on practical approaches: International Public Sector Accounting Standards (IPSAS) Implementation Road Map for Africa

12. Although there has been positive momentum behind the global transition to accrual accounting, full implementation of IPSAS is still a longer-term endeavor for many governments. For those, we encourage the use of the COVID-19 Intervention Assessment Tool, as an immediate way of evaluating the financial impacts of current and planned policy initiatives. This tool can be used independently of where a jurisdiction is on the path to full accrual.

13. The B20 Integrity & Compliance Taskforce, for example, recently recognized this in its 2020 recommendations to the G20: The B20 also recognizes that there is a link between public procurement, public sector accounting and corruption, and that implementation of high-quality accrual accounting standards in the public sector leads to lower incidences of corruption. The B20, therefore, further calls on the G20 Members to lead the way in the global application of accrual accounting in the public sector and, in particular, the International Public Sector Accounting Standards.

14. Pensioners without Pensions. Schools without Students. Wells without Water. | IFAC/ACCA

15. IFAC/ACCA: Is Cash Still King? Subject matter experts interviewed for this research argued that there were advantages for governments in consistently applying an accrual basis through the entire PFM system. They strongly supported this approach for producing rich, decision-useful information for governments.

16. The consequences of corruption are significant and widespread, from direct costs to individuals and society, to encouraging criminal behavior and undermining trust in institutions. Grounded in a strong ethical code, professional accountants across the globe play a critical role in the fight against corruption: Fighting Corruption and Money Laundering | IFAC. See also IFAC/ICAEW series: Anti-Money Laundering: The Basics

17. The International Organization of Supreme Audit Institutions (INTOSAI) has developed a comprehensive set of professional pronouncements for SAIs along with a number of guides, tools and models that support the development of SAIs.

18. In developing the institutional capacity of SAIs (and, as a result, the capacity of individuals), a staff exchange program between SAIs, as well as between SAIs and private sector audit firms involved in public sector auditing, can be helpful as a means of building up skills of the SAI’s staff in respect of auditing accrual-based financial statements, and to provide a knowledge exchange between different auditors. Alternatively, subcontracting all or part of public sector audits to private sector audit firms can help to bring specialist skills to audits where those skills are not present in the public sector audit body. It can also ensure that public sector audit bodies maintain their audit methodologies in line with best practice in the private sector.

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