Emerging themes in public sector financial reporting
Posted by Abdul Khan
Let us face it. Government accounts are usually pretty boring documents, mainly focused on compliance with budgetary spending limits, and presented in a form designed to discourage all but the most determined readers. Some countries have gone a step further and adopted what are referred to as generally accepted accounting principles and are generating accounts that provide a more complete view of the government finances by providing information about not just cash flows, but also about revenues earned and expenses incurred, and assets and liabilities. Despite these improvements, government accounts have mainly been backward-looking documents – they focus on the past year’s transactions and their impact on the balance sheet. They also mainly provide financial information without relating it to services delivered or objectives achieved.
All this may change. The International Public Sector Accounting Standards Board is considering a major redefinition of the scope of government accounts. The Board is working on a conceptual framework for public sector financial reporting.
Two key ideas being considered:
- Government financial reports may include prospective information intended to give information about future income and expenses of the government. The Board recognizes that the conventional financial statements cannot provide all the information that users of such statements, including citizens and their elected representatives, need to assess the future viability of government programs such as social benefits. So the Board is considering ways in which such information about the future could be included as part of financial reports. Such long-term fiscal sustainability reports could also facilitate consideration of issues of inter-generational equity, which evaluates the extent to which future generations of taxpayers will pay for or benefit from the fiscal consequences of current government policies.
- Government financial reports may also include nonfinancial information about services delivered and objectives achieved, i.e. go beyond merely describing the manner in which (salary, goods or services etc.) money has been spent. The expectation is that such information would help users of financial reports to assess the effectives and efficiency of government operations.
Once the Board finishes its work and issues any standard or other pronouncements, and governments start implementing the changes, government financial reports could become a little more transparent and a little more interesting than they are now – admittedly not a steep hurdle.