Is Europe Ready for EPSAS?

Posted by Franck Bessette[1]

The sovereign debt crisis has underlined the need for governments of the European Union (EU) to clearly demonstrate their financial stability and for more rigorous and more transparent reporting of fiscal data. The EU promotes a system of harmonized accruals-based accounting standards for all entities of the government sector. IPSAS is currently the only internationally recognized set of standards. It is founded on the international financial reporting standards (IFRS), widely applied by the private sector, and at present comprises 32 accrual-based accounting standards, plus one cash-based standard. A recent report by the European Commission assesses the suitability of IPSAS for the Member States.  

The report notes that 15 out of 27 EU Member States already make some link to IPSAS. Of these countries, nine have national standards based on or in line with IPSAS, five make some references to it, and one country uses IPSAS in accounting at the local government level. However, despite recognition of the high value of IPSAS, no Member State has implemented the standards in full. Fully harmonized accrual-based public-sector accounting would provide a firmer basis for evaluating the financial position and performance of government activities at all levels.

Are We Entering a New Era in PFM: “Rule of the Accountants”?

Posted by Renaud Duplay[1]

Accountants—especially at parties—may sometimes feel like no one is paying attention to what they have to say. A recent research paper by Jens Heiling, a Technical Manager with the International Public Sector Accounting Standards Board (IPSAS), and James Chan, Professor Emeritus of Accounting at the University of Illinois, should reassure them.

Based on individual experiences from different countries, the authors draw a pattern of the evolving relationship between accounting and budgeting in the public sector. Their findings describe a five-stage process of development during which accountants exert an increasingly strong influence on the budgeting process in addition to their traditional responsibilities for government accounting systems and financial reporting.

In stage 1, budgeting and accounting live in separate worlds. The authors assume that in this stage accounting information would generally be poor, inaccurate or take too long to produce. In stage 2, accounting supplements budgeting by providing up-to-date information on revenues and spending that allows internal budgetary control within the fiscal year. However, complete data on budget execution that can be matched to the original budget are often still lacking. This is provided at stage 3, where financial reporting appears but still follows the rules and standards, essentially cash-based, on which the budget is prepared. It is only at stage 4 that accounting starts to develop the own accrual-based standards that provide a broader picture of public finances, but the budget continues to be prepared and presented on a cash basis. At this point, accountants (and the external auditor) may start criticizing the methods used to prepare the budget, and press the government to provide a reconciliation of cash-based budget execution data and accrual-based financial reports. This process is extended in stage 5 where both the budget and financial reports are prepared on an accrual basis, and the budget includes comprehensive information on the government’s operating statement and cash flow, as well as its assets and liabilities.

Accounting Reforms on the Agenda in Azerbaijan

Posted by Mark Silins

The Treasury Community of Practice (TCOP) of PEMPAL[1] conducted a highly interactive three-day workshop entitled “Public Sector Accounting Policies and Practices” from November 6–8, 2012.  Treasury heads and specialists from 18 TCOP-member countries, as well as representatives of the Ministry of Finance of France, took part in the workshop held in Baku, Azerbaijan. The workshop was supported by experts from the World Bank, OECD, SECO and the Slovenian Centre of Excellence in Finance.

The general objective of the Baku event was to provide an opportunity for TCOP members to exchange experiences in implementing public sector accounting and reporting reforms. The event was designed to deepen participants’ understanding of the conceptual, institutional and operational challenges associated with the implementation of accounting reforms, particularly transition to the use of accruals and alignment with IPSAS. The event involved some very informative presentations by officials from participating countries on good practice and practical tips and traps associated with this area of reform, supplemented by input from a small number of international experts. This approach provided a useful basis for a range of dynamic group discussions by TCOP-member countries. As the host country, Azerbaijan also provided detailed information on its broader economic and PFM reforms to date, along with its plans for the future.

Public Prominence and “Muscle” — the Role of the French Court of Accounts

Posted by Maximilien Queyranne and Delphine Moretti

 

Supreme Audit Institutions (SAIs) are the national bodies, found in many countries around the globe, responsible for reviewing public expenditure and providing an independent opinion on government financial reporting. The Court of Accounts (Cour des Comptes) in France is one of these bodies but has a wider range of responsibilities, and a more prominent place in public life and political debates than in other countries.

The Court is part of the judicial system and consequently operates independently of the executive and legislative branches of government. Since a ruling by the Supreme Court (Conseil Constitutionnel) in 2001, the Court’s independence as well as its institutional relationship with the executive and legislative branches has been protected by the Constitution. A revision of the Constitution in July 2008 incorporated these important principles (article 47-2).

Government Accounting Tricks Designed to Conceal Rather Than Reveal

Posted by Tim Irwin

It’s well known that governments sometimes use accounting devices to make their reported deficits smaller than, in some sense, they really are. But how do these devices work? And how can they be revealed?  A new IMF working paper by FAD’s Tim Irwin—Some Algebra of Fiscal Transparency: How Accounting Devices Work and How to Reveal Them—discusses these issues.  

One way to answer the questions is to consider future deficits. Deficit devices, unlike genuine changes in fiscal policy, reduce this year’s deficit only at the expense of future ones. And their use can therefore be revealed if governments also produce good fiscal forecasts.

This paper takes a different approach. It starts by defining the deficit as the decline in the government’s net worth and then shows how deficit devices can be analyzed as transactions involving assets and liabilities that are not recognized on the government’s balance sheet. For example, many governments do not include nonfinancial assets such as land and buildings on their balance sheets, so they can reduce their reported deficit by selling these assets, even though this doesn’t really improve their finances. It would seem, then, that accounting devices can be prevented by ensuring that all assets and liabilities are recognized on the balance sheet.

“IPSAS Explained” – Second Edition [1]

Posted by Delphine Moretti

The recent publication of the second edition of “IPSAS Explained” is good news for readers who do not have time to plough through the two volumes and daunting 1,500 pages of the International Public Sector Accounting Standards (IPSAS) Board’s Handbook. The book is written by Thomas Mueller-Marques Berger who is himself a member of the IPSAS Board.

The main asset of the book is its very clear and concise presentation of the standards, which, as the author notes in his foreword, are “sometimes complex and inapprehensible”, especially to non-accountants. As was the case with the first edition, the new book fully succeeds in providing the reader with essential information – compressed into 5-10 pages - about each of the 32 standards. For this we are indebted to the author’s comprehensive knowledge and understanding of the field. For each standard, a brief chapter describes factually the objective of the standard, the international financial reporting standard (IFRS) on which it is based, together with an assessment of its scope and content, definitions used, relevant accounting rules and principles, and application date. The coverage of existing and recently published standards and exposure drafts includes a section on the much awaited IPSAS 32 “Service concession arrangements: grantor” together with a discussion of the exposure draft on reporting the long-term sustainability of finances of public sector entities. A third edition of the volume is to be expected as the on-going process of aligning the IPSAS with their IFRS counterparts should bring further changes to the IPSAS framework very soon, and some major additions to the framework are scheduled in the years ahead.

The Adoption of the Cash-based IPSAS by Developing Countries: Detour or Good Foundation?

Posted by Guilhem Blondy and Kris Kauffmann

In advising countries on the appropriate government accounting reforms PFM specialists often have different views. Developing countries are often encouraged to adopt the cash-IPSAS standard as a first step to modernizing government accounting; others see this as a detour to improving accounting practices. Our colleagues Kris Kauffmann and Guilhem Blondy discuss this issue, first disagree and then reach tentative agreement…it seems. Comments welcome!

Guilhem. In my view, the adoption of the cash-IPSAS standard tends to distract developing countries from more important accounting reforms rather than to help them:

Accounting and the Budget Framework

Posted by Julie Cooper

For decades the debate has raged on about the applicability for government of what is often referred to as private sector accounting methodology.  Those who argue against its use in government offer up the differences in management focus between the private and public sectors to support their position. They argue that because the private sector is focused on profit generation the underlying concepts of accounting are not valid for government purposes. This argument is simplistic and fails to recognize the overarching purpose of all accounting systems.

Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s activities. Providing information about how an organization performs is an important aim of accounting. This is true for both private and public sectors. Another similarity between the two sectors is that they both focus on the efficient allocation of resources to realize their goals. The difference between these two sectors lay in how that information is reported and used not the accounting per se.

Transición a la contabilidad en base de devengo: Notas Técnicas y Manuales del FMI

Publicada por Abdul Khan

La contabilidad en base de devengo es un tema candente en la actualidad, y muchos países han manifestado interés en adoptar este tipo de régimen contable. En una Nota Técnica de septiembre de 2009 elaborada por Abdul Khan, del Departamento de Finanzas Públicas del FMI, y por Stephen Mayes, ex funcionario de la institución, se presentan recomendaciones sobre el diseño, la planificación y la implementación de un régimen de contabilidad en base de devengo. La Nota aborda una serie de cuestiones relacionadas con la implementación de la contabilidad en base de devengo, y tiene por objeto establecer las pautas generales sobre las condiciones previas necesarias para una transición exitosa a la contabilidad en base de devengo, la secuencia adecuada de las medidas de reforma y los hitos que podrían servir como indicadores de los avances.

Las directrices de la Nota están concebidas para su aplicación principalmente en departamentos y unidades del gobierno general dentro de jurisdicciones nacionales, provinciales/estatales y locales. Se supone que las empresas estatales que participan en actividades comerciales ya preparan los presupuestos, llevan su contabilidad y presentan informes en base de devengo completo.

Haga clic aquí para descargar el texto íntegro de la nota en inglés o español

What Accounting Standards for Governments of the Global South?

Posted by Andy Wynne, andywynne@lineone.net

Timely, clear and open annual financial statements play an essential role in the accountability of governments to parliament and their citizens. However, there are no widely adopted international standards that reflect existing good practice. Virtually all developing countries currently use the modified cash basis. But there is no internationally accepted guidance that details the standards and good practices which should be adopted for this approach.

The only available international standard is the Cash Basis International Public Sector Accounting Standard (IPSAS). This was first issued in January 2003, but although it has been widely promoted by the donor community, PEFA and IFAC, not a single government in the world has actually been able to adopt this standard. This is not from want of trying, many governments have looked at the standard, but recognised that it is not practical to implement its key requirements. It is estimated, for example, that at least 31 governments in Africa have tried to adopt this standard. One international consultant recently estimated that he had worked in around 30 countries trying to adopt the standard, but that its key requirements had not proved practical.

« Donner du temps au temps » : une proposition de stratégie pour la mise en œuvre de la comptabilité générale dans les Etats-membres de l’UEMOA

Posté par Guilhem Blondy et Xavier Rame

Les directives portant cadre harmonisé des finances publiques au sein de l’Union Economique et Monétaire Ouest-Africaine (UEMOA) de 2009 prévoient que « l’Etat tient une comptabilité budgétaire et une une comptabilité générale » et que la mise en oeuvre de cette dernière doit être effective au 1^er janvier 2019 au plus tard.[1]

Pour atteindre cet objectif, ce post propose une stratégie séquencée selon une logique d’enrichissement progressif sur 7 ans (2012–2018) de l’information financière produite par la comptabilité générale.

Pour comprendre la nécessité de privilégier une approche progressive, il est nécessaire de rappeler les trois innovations fondamentales associées à l’introduction de la comptabilité générale :

“Give time some time”: A Proposed Strategy for Implementing Financial Accounting in the WAEMU Member Countries

Posted by Guilhem Blondy and Xavier Rame

The directives establishing the harmonized fiscal framework in the West African Economic and Monetary Union (WAEMU) in 2009 state that “the government shall keep budgetary accounts and financial accounts” and that implementation of the latter must be completed by January 1, 2019 at the latest.[1]

To attain that objective, this post proposes a sequenced strategy aimed at gradually, over the course of seven years (2012-2018), improving the financial information generated by financial accounting.

To understand the necessity of choosing a gradual approach, it will be helpful to recall the three basic innovations associated with the introduction of financial accounting:

Accrual Accounting Essential for Government Transparency and Accountability!

Posted by Ian Ball [1]

In this post Ian Ball, CEO, International Federation of Accountants, argues that it is time for governments to take their accounting responsibilities seriously and to modernise their financial management practices. The eurozone debt crisis has highlighted widespread financial reporting failures and must lead to extensive reform, including adoption of accrual accounting and budgeting practices. Politicians and Ministries of Finance must be pressured to implement these reforms before the next crisis hits.  

The sovereign debt crisis has emphasised the seriousness of the results of poor financial management and financial reporting. Obviously, government actions to limit the impact of the global crisis have exacerbated their financial positions, as many governments acquired significant assets and liabilities, gave guarantees of various kinds, and engaged in massive fiscal stimulus programmes. But the situation now would not be as dire if so many governments had not already made commitments that they did not account for properly, and may not be able to meet.

Governments in general are clearly accounting very poorly for their financial performance and position. This could, and should, lead to significant reform. We saw how financial reporting failure in the private sector a decade or so earlier led to dramatic action, including the passage of the Sarbanes-Oxley Act 2002 in the United States, and the creation of regulatory bodies for private sector audits in most major countries.

Enhancing the Role of the Accountant General’s Department in the Caribbean - A Challenge from the Sidelines!

Posted by Mark Silins

In the Caribbean, and in many English-speaking countries for that matter, the State Treasury is called the Accountant General’s Department (AGD). In this post I will explore what the main tasks and functions of the AGD should be, and what minimum functionality should be expected from them.

The AGD is, one could say, the engine room that supports effective public financial management, or at least it should be. Ensuring the completeness of all financial information in the accounting system each day ensures that key financial reports are available to support timely decision making. The AGD is also the processing centre for expenditures and receipts.  Its systems should support the proper classification of all financial stocks and flows of government and provide reports on these for all different stakeholders, including parliamanent.   

Whole of Government Accounts – What’s the Big Deal, Robin!

Posted by Andy Wynne

In a recent blog post (Whole of Government Accounts, Batman!), Richard Hughes declares that the  publication of what are called Whole of Government Accounts “represents a major milestone in UK fiscal reporting and public sector accounting practice in general”. The article suggests that this is the Olympics of accounting and the UK has just set new world records in the consolidation and accrual events. The UK seems to have “leapfrogged from the bottom to the top of the government accounting class”.

There is, however, no reason for the UK to be self-congratulatory. In my view government accountants should provide useful information on government finances to facilitate the budget process and provide accountability for the use of public resources; this information needs to be produced as efficiently as possible and presented in line with the budget presentation. On both counts the Whole of Government Accounts exercise scores rather badly. What useful additional information is really provided by this consolidation exercise and from the accrual accounting approach itself? Importantly, what are the costs involved of this “whole of government” operation.

Lao PDR: Better Accounting to Help Growth

Posted by Suhas Joshi

 
The desire to sustain its recently achieved strong growth performance[1] by developing confidence in investors and making Lao a more attractive investment destination has motivated the government’s intention to move towards an international accounting standard that is recognized and accepted worldwide.

Recently, at the government’s request, I, working along with the World Bank, conducted a workshop in Vientiane on "Accounting Reform: International Experience and Implications for Laos”. The workshop, aimed at fostering the acceptance of IPSAS-based accounting standards[2] as a basis for developing Laos accounting standards. The move towards modern accounting standards had been initiated sometime back in Lao PDR and received a new impetus with the conduct of this workshop which was attended by nearly 50 decision-makers in the government, public, and private sectors. The workshop was inaugurated by Dr. Viengthong Siphandone, Vice Minister for Finance, and was closed by the Director General of the Accounting Department. At the close of the workshop the Director General announced that the government has decided to move towards IPSAS cash basis of accounting, as a first step.

The workshop comprised four sessions, the first was on the implications of adopting international accounting standards in the public sector and the second on the ongoing accounting and auditing reforms in Laos. These were followed by a session on cash basis IPSAS and drew upon international experiences in this area. Lastly the workshop discussed the Laos road map to accounting reform.

Whole of Government Accounts, Batman!

By Richard Hughes

 
After 10 years of preparation, pilots and dry-run processes, last week the UK Treasury finally published the first set of Whole of Government Accounts (WGA) for financial year 2009-10. While a long-time in the making, the publication of Britain’s first ever consolidated government income statement and balance sheet represents a major milestone in UK fiscal reporting and public sector accounting practice in general.

From the Bottom to the Top of the Accounting Class

While the UK Office of National Statistics (ONS) has published consolidated fiscal statistics for the whole public sector for decades, the UK has lagged behind most countries in the world in the preparation of consolidated end-of-year accounts. Indeed, up until last week, the UK did not even produce consolidated, audited accounts for central government. The only audited government financial statements that existed were for individual government departments, local governments, and other public entities.

Discussions of PEM PAL Treasury Community of Practice on Public Sector Accounting and Reporting Reforms

Posted by Anila Çili (Director, Central Harmonization Department on Financial Management & Control
Ministry of Finance, Albania) and Deanna Aubrey (Budget, Treasury and Internal Audit Community Facilitator, PEM PAL CEF Secretariat, Center of Excellence in Finance, Slovenia)

 
From 18-22 April 2011, 41 participants from Ministries of Finance and Treasuries from 15 European and Central Asian countries[1] met in Ljubljana, Slovenia to discuss public sector accounting and reporting reforms as part of the ongoing network activities under the Public Expenditure Management Peer Assisted Learning Program (PEM PAL) program.[2]  This program has 21 member countries from across the Europe and Central Asia (ECA) region who regularly meet in ‘communities of practice' to discuss reform issues in the areas of budget, treasury and internal audit (www.pempal.org). The event was also linked to a conference on international trends in public sector accounting reforms organized by the Center of Excellence in Finance, Ljubljana Slovenia held on 20-22 April.[3] The conference involved discussions on the increased role of accounting in the public sector, especially in the post financial crisis era, its evolution in the recent years and the lessons learned.

A Whole System Approach to Strengthening PFM (CIPFA Conference)

 

Posted by Alan Edwards, International Director, CIPFA

Imagine a UK without CIPFA (or a USA without CPA or Nigeria without ICAN or…) and the Permanent Secretary at the Treasury (or…) inviting an overseas institute of public finance to help create a new qualification for public sector finance staff. That is the analogy we have been using when examining the issues to address when asked to provide PFM and professionalization support in other countries. I find that helps illustrate the scale of challenge involved and the need to think through the whole system impacts of change.

CIPFA’s Whole System Approach to PFM is a more formal and comprehensive analysis of all the key players and processes. CIPFA with the support of DFID has produced this paper to assist with the design of holistic PFM improvement programmes.

Brasil: Desafios Na Implantaçäo Do Sistema De Custos No Governo Federal

Por Victor Holanda e Mário Pessoa

 
Como parte da reforma da gestão pública no Brasil, o governo federal implantou de forma inovadora um sistema de informação de custo (SIC) na área pública. Um dos principais objetivos é melhorar a decisão alocativa dos recursos orçamentários, mas isso ainda não foi alcançado. A ênfase é na mudança do papel do setor público como agente de uma gestão pública mais eficiente. O governo federal, espelhado na experiência bem sucedida do sistema integrado de administração financeira (SIAFI), decidiu criar um grande sistema de informação que permite que todos os gestores públicos tenham as informações financeiras necessárias a produção de informações de custo nas dimensões institucional (unidades Administrativas) e programática (por programa de governo), porém com a flexibilidade para definir centros de custos e atividades em um nível mais detalhado de acordo com as especificidades e necessidades de cada entidade.

Brazil: Challenges in Implementing a Costing System for the Public Sector

By Victor Holanda and Mario Pessoa

 
As part of the public management reforms in Brazil, the federal government implemented in 2010 an innovative cost information system (SIC) in the public sector. A major goal is to improve budget allocation decisions but it is early days to see any tangible results. The emphasis of the system is on improving the efficiency of the public sector by changing the behavior of the public sector managers. The federal government, following the successful implementation of the integrated financial management information system (SIAFI) providing budgetary data, has created a large information system that allows all public sector managers to produce cost information according to two dimensions: institutional (administrative units); and programmatic (government programs), but with the flexibility to define cost centers and activities at a more detailed level according to the peculiarities and needs of each public entity.

A Wealth of Information

Posted by Tim Irwin

 
The US federal government has recently issued its financial report for the year ending September 2010. As in earlier years, the report fails to get a clean bill of health from its auditor, the GAO (and on a superficial note isn’t typeset and formatted with the care that might be thought appropriate for the report of the world’s largest reporting entity). But it is also extremely impressive for the kind of information it contains, including—among much else—an accrual-based measure of the fiscal deficit to supplement the mainly cash-based budget measures, a balance sheet, and a statement of social insurance, showing an estimate of the net present cost of projected cash flows for Social Security and Medicare. For the first time, the report also includes comprehensive 75-year fiscal projections, which take account of not just social insurance but all government spending and revenue.

As for the numbers, the accrual deficit is $2.1 trillion, compared to $1.4 trillion for the cash-based budget deficit. Net worth is a negative $13.5 trillion, compared with negative $11.5 trillion the year before. The estimated net present cost of social insurance (on which GAO this year declined to express an opinion) is $30.8 trillion, a reduction of $15.0 trillion compared to the previous year—“much of this decrease” being “attributable to the estimated effects of the Affordable Care Act (ACA) on the Medicare program.” There is much to analyze and discuss in this report in the coming months.

Korea Hosts International Workshop on Fiscal Policy Issues

Posted by Ian Lienert

 
Against the backdrop of a severe fiscal crisis in some European countries, the Korean Institute of Public Finance (KIPF) hosted an International Fiscal Experts Forum in early December 2010. A major aim was to promote an exchange of views on fiscal policy issues, countries’ responses to the crisis, and relevant issues for Korea. The workshop brought together a number of prominent speakers, scholars, and practitioners from various countries. The topics covered included: fiscal policies after the crisis, budget performance management, accrual accounting, the impact of the crisis on subnational governments, and recent issues in legal frameworks for budget systems.

The “Accounting First” Approach to PFM Reform Sequencing: The Case of the Democratic Republic of Congo

Posted by Franck Bessette

 
In a recent and much commented on PFM blog post, Sanjay Vani introduced what could be called the “Accounting First” approach to PFM reform sequencing. The naming is a reference to the widely-known “Basics First” approach to PFM sequencing originated by Allen Schick. The “Accounting First” hypothesis is this: NO significant PFM reforms are likely to succeed unless a robust and functioning accounting and reporting system is in place. This approach is bound to be controversial as there is a strong body of opinion among PFM experts that the budget formulation process is the core of any well-functioning PFM system, as it necessitates high value inputs, strategic thinking and coordination between various actors, and constitutes the channel through which policies have a chance to be implemented. In comparison, public accounting is often considered a low-value activity, passive by nature and void of any strategic function. It is even sometimes considered that some good software could take care of it all. In 1995, A. Premchand could write “although government accounting has existed for more than two millennia, it has not received its due. In fact, accounting has been looked down upon and viewed by nonusers as a set of archaic rules that have long since ceased to be relevant or effective.” This viewpoint is probably still prevalent today.

Sustainability Reporting: Can the Triple Bottom Line Thrive in the Public Sector?

Posted by Dimitar Vlahov

It’s common knowledge that today’s global economy is facing multiple challenges and imbalances. From the recent financial crisis, to concerns about distribution of wealth, to the ever-more-dangerous clashes between economy and environment, there are many reasons to pause and examine the whole system. Some experts have suggested that a large chunk of this ill condition can be attributed to the same cause – the problem of bad performance measurement. Businesses and governments alike, the argument goes, have been employing short-sighted measures of success that do not account for all medium- and long-term consequences of their organizations’ activities. Therefore, they need to expand their reporting to include social and environmental indicators of performance, and not just financial ones. With a better warning system, many of the present-day issues could be mitigated or avoided altogether. This post serves as a basic introduction to this approach and its main applications to date.

Interactive Financial Data and XBRL: the Way Forward?

Posted by Dimitar Vlahov

 

Today’s means of exchanging financial data have entered a process of global synchronization and standardization. Intuitively, this makes sense given the interconnected and interdependent nature of economic and business entities around the world, coupled with advances in computing power. In practice, the trend is evidenced by the rapid spread of XBRL, a novel set of programming rules for recording and reporting financial data electronically. Over the last several years this new freely-available open standard has been employed by more than 550 major companies, organizations and governments, including many central banks, finance ministries, the International Accounting Standards Board (IASB), the U.S. Securities and Exchange Commission (SEC), and the Tokyo Stock Exchange. A Forbes report estimates that XBRL encoding is used by companies representing more than 75% of the world's market capitalization. So popular has XBRL become that one can now even buy “XBRL for Dummies” on Amazon. This note provides a quick account of what XBRL is and why it is relevant for public financial management.

IFAC Recommends Adoption of Accrual-based Accounting for the Public Sector

Posted by Sanjay Vani

The International Federation of Accountants (IFAC) has recently issued a  letter to G-20 participants, who are meeting on June 26‐27, 2010 in Toronto, Canada. This letter is a follow-up to their previous submissions to the G‐20 in 2009 addressing the global financial crisis. In this letter, IFAC is recommending adoption of accrual-based accounting for governments and public sector entities. The full text of the recommendation is as follows:

"The G-20 should strongly encourage all governments to provide greater transparency and accountability in public sector finances.

New Issue of International Journal of Governmental Financial Management (IJGFM) Now Online

Posted by Andy Wynne, Editor of the IJGFM

The first issue, for 2010, of the International Journal of Governmental Financial Management is now available for download from: www.icgfm.org/digest.htm

As usual the Journal covers a wide range of issue relating to public financial management especially in developing countries.

The first paper provides an insightful critique of the draft conceptual framework recently issued by the International Public Sector Accounting Standard Board. Petri Vehmanen of the University of Tampere, Finland observes that whilst the prime aim of private sector financial statements is to provide information for investors to make decisions about the entity, the prime purpose of public sector financial statements is to enhance accountability. This should be recognised and would result in the definitions of such prime elements as assets and liabilities being revised. His paper also recasts the qualitative characteristics of public sector financial statements. Petri concludes by saying that his proposals “are by no means radical”, but they do suggest that the specific characteristics of public sector financial reporting needs greater consideration.

India: Public Financial Management Performance Assessment Report

Posted by Pratap Ranjan Jena (jena@nipfp.org.in), National Institute of Public Finance and Policy, New Delhi

The PFM Performance Assessment Report for India (Download INDIA_PEFA2010[1]) at the central Government level (carried out during the period March 2009 to June 2009) provides a comprehensive assessment of the current status of the PFM system following the Public Expenditure and Financial Accountability (PEFA) framework. The performance of PFM systems, procedures, and practices are assessed based on six critical dimensions of the PEFA framework; credibility of the budget, comprehensiveness and transparency, policy-based budgeting, predictability and control in budget execution, accounting, recording and reporting, and external scrutiny and audit. Some of the major assessment results are summarized here. The assessment indicates both the strengths and weaknesses of the existing PFM system and serves as a baseline against which progress on PFM performance can be measured over time.

While the role of PFM systems in contributing to fiscal discipline, strategic resource allocation through better programme management, and improving service delivery has gained attention in India in recent years, the focus and implementation of reform initiatives in this regard leaves much to be desired. The initiatives to improve the PFM systems and processes in recent years include the introduction of outcome budget in 2005-06 to move to clearly defined outcomes of all government programmes, adoption of rule based fiscal management by enacting the Fiscal Responsibility and Budget Management (FRBM) Act, appointing a Task Force to suggest reform measures to strengthen internal audit, initiating the process to move to an accrual based accounting system, revising the responsibilities and duties of the Financial Advisors placed in spending departments in a system of delegated financial powers, and tightening cash management through monthly expenditure limits. However, the intents did not match the outcomes due to discontinuities and indifferent implementation. The achievement of economy, efficiency, and effectiveness in PFM systems has remained elusive.

Prioritizing PFM Reforms: A Robust and Functioning Accounting and Reporting System is a Prerequisite

Posted by Sanjay Vani, Lead Financial Management Specialist, World Bank

Much has been written about prioritizing and sequencing PFM Reforms, including Allen Schick’s often-quoted 1998 article, Why Most Developing Countries Should Not Try New Zealand's Reforms.  While working on the OECD-DAC Report on the Use of Country Systems in PFM a year or two ago, I was struck by how much more we know about what does not work than about what does work. For example, almost all PFM professionals would agree that introducing a medium-term budget formulation or performance budgeting in an environment of poor budget execution is not likely to be effective; and attempting performance audit without agreed performance benchmarks and proper systems to record and track performance is equally unlikely to be effective.

Here I would like to develop a hypothesis that, I am convinced, deserves serious attention from the community of PFM professionals. The hypothesis is this:  NO significant PFM reforms are likely to succeed unless a robust and functioning accounting and reporting system is in place.  In other words, a robust and functioning accounting and reporting system is a prerequisite to other PFM reforms.

The “Sarkozy Commission” Critiques GDP as a Measure of Well-being

Posted by Dimitar Vlahov

It has become increasingly common over the last decade or so to come across reports of various studies comparing standards of living or satisfaction with life across countries, as in this article or this one. Such rankings come in multiple flavors, depending on the concept to be measured and the methodology employed. Some – such as the Human Development Index, the Quality of Life Index, and the Genuine Progress Indicator – rely solely on the crunching of already existing national statistics and data from academic publications. Others tend to utilize direct surveys or a combination of direct surveys and observed data.  Examples of the latter type include the Happy Planet Index, the Legatum Prosperity Index, or Bhutan’s Gross National Happiness idea (a fascinating story which I encourage you to google further).

Despite the multitude of such initiatives and approaches, however, the academic community, governments and other policy makers continue to use and cite GDP as the main indicator of economic prosperity. Needless to say, we’re all constantly exposed to news reports on the latest GDP figures, coupled with all-important projections for the next quarter or year.

But is GDP good enough as a measure of overall societal well-being? If not, what’s wrong? The president of France, Mr. Sarkozy, has displayed a lot of interest in researching and answering these questions. In February 2008 he asked renowned economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to assemble “The Commission on the Measurement of Economic Performance and Social Progress” (CMEPSP) with a few goals in mind: to point out the limitations of GDP as an indicator of economic performance and social progress; to suggest additional information that could be used to construct better measures of social progress; and to address the feasibility and potential usage of alternative measurement tools. The Commission responded in the fall of 2009 with a publicly-available 291-page report (attached below).

IPSAS: A True Global Standard for Government Accounting?

Posted by Sailendra Pattanayak

The cornerstone of any government financial reporting system is accurate, consistent, and timely reporting of government expenditures and revenues, and assets and liabilities. Only then can financial reporting serve its purpose of accountability to parliament and the public at large for the appropriate use of public money. Most countries have laws, rules, and regulations defining their government accounting and reporting systems, but these usually reflect each country’s legal/regulatory/administrative tradition as well as its specific needs.

As part of the discussions the IMF has with country authorities on modernizing government accounting systems, a number of questions regularly emerge. Are accounting systems capable of producing financial statements/reports that can provide a valid assessment of the government’s financial performance and financial position? In an era of increasing globalization in which the governments are rated on their creditworthiness, can governments produce financial statements that are understandable and comparable across countries? Can we standardize the preparation of government financial statements across all countries? This is an ongoing discussion with and within countries. The development of the International Public Sector Accounting Standards (IPSAS) is an attempt to address some of these questions.

Debate! In the coming weeks the PFM Blog will present a number of posts on government accounting reforms: the introduction, sequencing and content of accrual-based government accounting standards and how these reforms interact and benefit (or not) the management of public finances. Readers are invited to present their views in the comments section below, or send in posts of their own, or on behalf of their institution. The kick-off to this series is by our colleague Ian Lienert who presents arguments made by two accounting professors: he cites liberally from their article, which raises some fundamental questions about the accruals revolution.  

Are Business Accounting Techniques Applicable to Governments?

Posted by Ian Lienert

Can governments be run like businesses? If yes, then government accounting standards and techniques would follow those of the private sector. In the 1980s, Australia and New Zealand pioneered the application of business-style accounting practices to all government activities. These two countries believed that it was appropriate to treat government as a business. Since then, business-style accounting practices are advocated for governments around the world, either via the International Financial Reporting Standards (IFRS) or the similar International Public Sector Accounting Standards (IPSAS).

In a somewhat under-reported paper, Alan Robb and Susan Newberry argue that the purpose of government accounting is quite different from than that of private businesses. Government financial activity is not geared to making profits or examining equity positions in balance sheets. Business-style accounting was never devised for governments, nor is it suitable for providing the essential constitutional safeguards or fulfilling governments’ public accountability obligations. The authors urge government accountants to consider carefully the constitutional and political implications of adopting business accounting techniques.

Colombia: A Success Story in Implementing Accrual Accounting in the Public Sector

Posted by Mario Pessoa and Maria Eugenia Benavides

While many countries are still struggling to adopt accrual accounting standards, Colombia has had considerable success with this reform. The main motivation to adopt the international accrual accounting standards was the desire to meet the information needs arising from economic globalization. The Colombian public sector accounting standards (PSAS) are now broadly in line with the International accrual-basis Public Sector Accounting Standards (IPSAS - International Public Sector Accounting Standards). It is the most advanced practice in Latin America. In the case of Colombia, this process did not involve a traumatic change throughout the public sector because the PSAS was already significantly aligned with accrual-based standards particularly in the state-owned enterprise sector. The changes consisted mainly of conceptual redefinitions, accuracy, capacity building, dissemination, and development of detailed written instructions.

The greatest challenge for the Colombian National Accounting Office (Contaduría General de la Nación or CGN[1]) was implementing the accounting standards. In 1995, the first General Chart of Accounts for the Public Sector (GCoAPS) entered into force. It was developed with the participation of a large number of accountants of different government entities in order to encompass all of the operations of the public sector. One of the most difficult tasks was to determine the value of assets and liabilities, especially for some local authorities that did not have all the supporting documentation. Initially this situation impacted the quality of the information and consequently the reliability of the consolidated financial statements. Hence, CGN proposed legislation under the name "Accounting Improvement Law" (Ley de Saneamiento Contable) which required public entities to standardize, reconcile, streamline, and improve accounting procedures.

Séminaire régional sur la comptabilité de l’État

Par MM Jean Gustave Sanon et Abdoulahi Mfombouot, Conseillers en gestion des dépenses publiques à AFRITAC Centre

Les normes internationales et les bonnes pratiques en matière de comptabilité de l’Etat ont fait l’objet d’un séminaire, organisé du 26 au 29 Octobre 2009 à Douala, au Cameroun par le Centre Régional d’Assistance Technique du FMI pour l’Afrique Centrale (AFRITAC Centre). Animé par les deux Conseillers en gestion des dépenses publiques d’AFRITAC Centre (basé à Libreville au Gabon) appuyés par quatre consultants en provenance de France, du Maroc, du Bénin et du Cameroun, le séminaire a connu la participation de délégations de Cameroun, Gabon, Guinée Equatoriale, République Centrafricaine, République Démocratique du Congo, République du Congo et Tchad.

Le choix du thème par AFRITAC Centre résulte du constat que dans les pays qu’il couvre, les administrations chargées de la comptabilité de l’Etat éprouvent d’énormes difficultés à produire, dans les délais impartis, une information comptable exhaustive et fiable et à rendre compte de la situation d’exécution budgétaire et de la gestion des deniers publics.

Accountants to the Rescue! A Whole System Approach to PFM Architecture

Posted by Suzanne Flynn

The UK based Chartered Institute of Public Finance and Accountancy (CIPFA) has issued an ambitious, but also a somewhat theoretic, draft consultation paper, with support from the UK’s Department for International Development (DFID) on what constitutes a PFM system. The paper aims to clarify the scope and characteristics of PFM systems, but also what PFM “architectures” exist to guide measures and aid program development, with the ultimate aim of improving public service delivery. The draft is available at http://www.cipfa.org.uk/international/consultation.cfm. Comments on the draft are welcomed by the Institute by the end of November of this year. If this document is to be useful—and clearly a lot of work and thought has gone into it—comments from a broad range of PFM practitioners would add tremendously to its value. In my view, particularly the views of non-accountants would enrich the present draft.

Performance-Based Budgeting in France: An Evaluation by Parliament

Posted by Franck Bessette.

 
  
  
In France, the parliament was the initiator and driver of performance-based budgeting, introduced by the organic by-law of  August 1, 2001 (the so-called Loi Organique sur les Finances Publiques -- LOLF) [for more details, see in particular this previous blogpost by Bill Dorotinsky  and its embedded PowerPoint presentation by Phillipe Debrose] and fully applied from January 1, 2006. This was a managerial “big bang” which reorganized completely the budget structure and public accounting (accrual based accounting was introduced), defined new players (program managers), new chains of decision, and for every program a series of objectives and indicators.

After three years of complete implementation, the Economic and Finance Committee of the National Assembly (Assemblée Nationale) has evaluated this performance-driven budgetary reform and made recommendations to further improve implementation. A general report followed by annexes for individual programs was recently published [click here for a copy of the report ]

Budget Classifications, GFS and Footnote 6

Posted by David Gentry.

Joseph Heller’s satirical novel, Catch-22, was published in 1961.  The novel is set during World War II and describes the efforts of military servicemen to survive war and the organizations established to wage it.  The title comes from a scheme by the novel’s characters to be discharged early from military duty.  According to a fictional military manual, a person could be discharged if he certifies that he is crazy, but a clause in the procedure, Catch-22, states that if he knows he is crazy then he isn’t crazy and thus is ineligible for discharge.  Catch-22 is a colorful reminder of how significant the fine print of a manual can be.

Incorporating Budget Programs in the Government Accounting System - The case of Namibia

Posted by Dimitar Radev [1].

Many countries do not fully benefit from all the possibilities of program budgeting in terms of budget credibility, expenditure control and public resource allocations. One common reason is that while they prepare the budget based on programs, they do not organize their accounting and expenditure control systems on a program basis. There is little value for these countries in further developing program budgeting if spending cannot be accounted for, reported, and controlled according to programs.

Namibia presents a good example of how such an issue can be successfully addressed.

A New IMF Fiscal Affairs Department's Publication: the Technical Notes and Manuals

Posted by Michel Lazare and Richard Allen.

The IMF has just launched a new series called: Technical Notes and Manuals.The first three issues have been authored by the IMF's Fiscal Affairs Department.

They deal with:

1. A Basic Model of Performance-Based Budgeting by Marc Robinson and Duncan Last  Download FAD Technical Manual 1
2. Transition to Accrual Accounting by by Abdul Khan and Stephen Mayes                     Download FAD Technical Manual 2
3. Modernizing Cash Management by Ian Lienert                                                              Download FAD Technical Manual 3

Earlier versions of these Technical Notes and Manuals were previously issued as part of a series of technical notes on our PFM blog.

Future issues will include topics in revenue administration, tax and expenditure
policy, and public financial management. Other IMF departments may also contribute notes to these series.

These notes and manuals aim at raising awareness among practitioners,
officials and academics of contemporary fiscal topics; and improving the dissemination of
FAD's TA advice. In particular, they will allow us to disseminate to a broader audience the advice now included in our TA reports, or provided through other advisory services.

IMF Hosts IPSASB Meeting - May 2009

Posted by Stephenie R. Fox and Abdul Khan.

The International Public Sector Accounting Standards Board  (IPSASB ) held its 2nd meeting of the year in Washington, DC from May 18-21, 2009 . The meeting was held at the Headquarters of the IMF, reflecting the growing relationship between the two organizations. The International Public Sector Accounting Standards Board (IPSASB) is an independent standard-setting body under the auspices of IFAC that develops high quality accounting standards for use by public sector entities around the world.  The IMF is an official observer to the IPSASB and their participation at meetings has provided a solid understanding of the issues the IMF sees as important.

Certification of the Financial Statements of Central Government: The French Case

Posted by Franck Bessette.

The 25th of May, 2009 the French Cour des comptes (Court of Auditors) certified that, with regard to the applicable accounting rules and principles, the Central Government’s general account as of December 31, 2008 is regular, truthful and gives a fair view of the financial position and assets of the Central Government, subject to 12 qualifications, the first nine being of substantial nature (http://www.ccomptes.fr/fr/CC/Accueil.html). This certification is transmitted to the Parliament “accompanied by the report on the audits conducted” in accordance with the Constitutional Bylaw on Budget Acts (referred to as its French acronym “LOLF”) which took full effect on January 1st, 2006. This is therefore the third such certification ever conducted in France.

Government Actions in Response to the Financial Crisis: An Emphasis on Transparency and Accountability

Posted by Abdul Khan

“Politicians will not be forgiven by future generations if liabilities and obligations incurred today are hidden from them today, but paid for tomorrow,” cautioned Mike Hathorn, the Chair of the International Public Sector Accounting Standards Board (IPSASB). Speaking at a seminar organized by the Fiscal Affairs Department of the IMF on May 22, 2009, he indicated that the IPSASB believes that transparency and accountability are crucial to explain to citizens the range of actions governments are taking in response to the financial crisis. In a frank assessment of the current state of affairs in public sector financial reporting, he said that, in his opinion, “most governments do not have the financial reports necessary to communicate to citizens in a transparent way….”

Recent Developments in Public Sector Accounting – World Bank Seminar

Posted by Ian Lienert.

The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board within the International Federation of Accountants (IFAC), sets international public sector accounting standards (IPSASs) and encourages implementation of them in all countries. Given the evolving worldwide financial crisis and its impact on public sector balance sheets, it is important to know whether government accounting standards are adequate and if so, whether they are being applied. This was one question asked at a World Bank seminar, held on May 15, 2009.

The speakers, Professor Andreas Bergmann (member, IPSASB) and Mr. John Stanford (Deputy Director, IPSASB) addressed four evolving issues: (1) the conceptual framework for general purpose financial reporting by the public sector; (2) specific public sector projects; (3) convergence of public sector and private sector accounting standards; and (4) promotion and communication activities of IPSASB.

IFAC’S International Public Sector Accounting Standards Board Launches Review of Cash Basis Reporting in Developing Countries

Posted by Michel Lazare

The International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC) is undertaking a review of the International Public Sector Accounting Standard, “Financial Reporting Under The Cash Basis of Accounting” (the Cash Basis IPSAS). The Cash Basis IPSAS was first issued in January 2003 and subsequently updated in 2006 and 2007.

As the invitation letter of Erna Swart, IPSASB Deputy Chair and Chair of the Task Force for the Review of the Cash Basis IPSAS puts it: "The primary objective of the review is to identify the major technical issues that public sector entities in developing economies have encountered, or are anticipated to encounter, in implementing the Standard. The IPSASB will then consider whether the Standard should be modified in light of these difficulties and/or if further guidance on its application should be provided by the IPSASB. The review will also identify whether additional reporting requirements should be added to the Standard.

The IPSASB is particularly interested in drawing on the experience of those who have been involved in, or have advised on, the adoption of the Cash Basis IPSAS in developing economies or have otherwise had exposure to the Cash Basis IPSAS and can provide input to this review."

The deadline for responses to the questionnaire (below) is July 15, 2009.

Accrual Accounting for the Public Sector - a fad that has had its day?

By Andy Wynne, andywynne@lineone.net

The latest issue of the International Journal of Governmental Financial Management (www.icgfm.org/digest.htm) contains a useful review of the experience of implementing accrual accounting by central governments.  Its findings should increase the number of governments which have considered this approach, but have decided that other reforms are more important and are more likely to deliver significant benefits.

Comptabilité budgétaire

Par Benoît Chevauchez.

La « comptabilité budgétaire » est une forme courante de comptabilité publique et, pourtant, le manuel GFS- « bible » des comptables et statisticiens des budgets publics- n’en parle pas…

Budgetary Accounting

By Benoît Chevauchez.

“Budgetary accounting” is a common form of public accounting and yet the Government Finance Statistics Manual, which accountants and statisticians regard as their “bible,” has nothing to say on the subject.

Accrual Budgeting and Fiscal Policy—The Swiss Model

Posted by Abdul Khan

The Federal Government adopted the accrual basis for budgeting and financial reporting with effect from the 2007 budget.  Known as the New Accounting Model, this framework emphasizes two main objectives, also referred to as the dual perspectives of NAM: fiscal policy management at the macro level and a focus on performance of government departments and offices. Enhancing transparency of the public finances through the adoption of internationally recognized accounting concepts and standards is also stated to be an objective of the NAM.

The fiscal policy objective is focused on controlling aggregate cash expenditure. It is expressed through the debt brake rule that requires revenue and expenditure to be balanced over the business cycle. This is essentially a cash concept and the financing and cash flow statement of the budgetary central government, derived from the income statement and balance sheet in accordance with internationally accepted accounting practice, is the reporting tool used to monitor compliance with the debt brake rule.

Accrual Budgeting: What Does it Mean for Fiscal Discipline?

Posted by Mr. Marc Robinson

 

Is accrual budgeting a good idea? This is an highly controversial question in budgeting circles today. Many budgeting experts agree that accrual accounting for fiscal reporting is a good idea, at least for those countries which can afford the costs of running a more sophisticated accounting system. But on the question of whether the budget itself should be moved onto an accrual basis, there is absolutely no consensus. On one side of the boxing ring, there are those who think that the real benefits of accruals can only be realized by putting the budget on an accrual basis. They believe for example, that unless the full costs of programs and inputs are charged to ministry budgets, decisions about program priorities, the input mix and investment vs. maintenance will always be seriously distorted because under cash budgeting they are always based on the wrong “price signals”. Opponents of accrual budgeting, on the other hand, argue that it is unduly complex, confusing, potentially risky to fiscal discipline. They also argue that the efficiency benefits of accrual budgeting have been greatly exaggerated, and point – for example – to the abandonment by countries like Australia and the UK of the “capital charging” regimes as a recent example of the failure of the much-heralded benefits of accrual budgeting systems to become reality.