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December 19, 2007

IFAC World Accountancy Forum:

Government, the Accountancy Profession and the Public Trust: Current Initiatives and Future Challenges

Posted by Richard Allen

Snap2 The International Federation of Accountants’ (IFAC) held its 30th Anniversary World Accountancy Forum on December 4, 2007, in New York. The forums theme covered the accountacny prfoessional and the public and private sectors as well as civil socity. Three forum sessions covered Imperatives for Strengthening Government Accountability; Convergence of Accounting and Audit Standards; and Finding the Right Balance between Corporate Governance, Oversight and Business Growth. The second and third topics were primarily focused on private sector accounting and oversight practices; the first, however, tackled issues of enormous importance for public finance.

In his thought-provoking keynote address on “Why Traditional Fiscal Accounting is Content-Free”, Larry Kotlikoff, Boston University, argued that the traditional focus on annual deficits failed to answer the question of whether economic and fiscal policy is sustainable. In the U.S., the federal deficit is a delusion, “a number in search of a concept.” Kotlikoff proposed an alternative approach, “generational accounting,” which has real economic content, and whose goals are to understand whether fiscal policy is sustainable and how changes in policy affect different generations. Kotlikoff also argued that “many relatively young and quite poor countries, like Mexico and Brazil, are in much better long-term fiscal shape than older countries like the U.S.”

Ian Ball, CEO of IFAC, noted that the ongoing work of International Public Sector Accounting Standards Board (IPSASB) on fiscal sustainability was moving in the direction advocated by Kotlikoff – for instance, in the treatment of unfunded social welfare obligations.

David Walker, U.S. Comptroller General, Government Accountability Office (GAO), argued that the U.S. was not bankrupt now -– as suggested by Kotlikoff -– but could become so if appropriate policies were not enacted by the Administration. The present fiscal reports of the U.S. Government were very misleading, e.g., the statement of net assets excluded hugely important assets classes such as land, heritage assets and bonds guaranteed by government. Walker supported the idea of moving to generational accounting.

Bill Niskanen (Chairman, Cato Institute) said that the current definition of the fiscal deficit seemed appropriate from a Keynesian perspective when introduced in the U.S. in the late 1960s. In practice, however, it had turned out not to be content-free, just misconceived.

In a discussion of holding governments to account for their performance in delivering public services, Niskanen argued that U.S. taxpayers were generally getting poor value for money. The Cato Institute’s analysis suggested that the optimal size of government in the U.S. was about 15 percent of GDP (including 6 percent for defense) compared with the current ratio of 32 percent.

David Walker argued that the federal government is “not a results–based organization” (OMB’s espousal of its performance-focused “PART” initiative notwithstanding). The government had little idea what impact its policies and regulations were having on actual results. According to indicators prepared by the GAO, the U.S. was a below average performer internationally for a range of public services including health and education.

Charles Tilley (CEO, Chartered Institute for Management Accountants) said that, according to a review of financial management recently launched by HM Treasury, the UK’s progress in improving the performance of departments in delivering public services was disappointing. It seemed that little lasting improvement had been made since the days of Rayner Reviews, the Financial Management Initiative, etc. of the 1970s. (For recent article by Mr. Tilley on this subject Download a_favourable_variance.pdf, from a recent issue of CIMA's Financial Management newsletter.)   

The Forum program is available at http://www.ifac.org/anniversary/. Presentations and video will be available end December at the same site.

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