Accounting

March 25, 2013

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.

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January 16, 2013

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.

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November 26, 2012

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.

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September 28, 2012

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).

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September 20, 2012

Government Accounting Tricks Designed to Conceal Rather Than Reveal

Posted by Tim Irwin

Working paper logo
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.

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September 18, 2012

“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.

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June 14, 2012

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:

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June 08, 2012

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.

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June 04, 2012

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

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May 30, 2012

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.

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