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July 15, 2014

Strengthening Financial Reporting in Central Asia, Kazakhstan and Transcaucasia

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Posted by Peter Murphy and John Zohrab1

A seminar on strengthening financial reporting for governments of Central Asia, the Caucuses and Kazakhstan took place in Astana, Kazakhstan in May 2014. The seminar was held as part of the International Economic Forum in Astana; received financial support from the government of Japan; and was jointly hosted by the Fiscal Affairs Department (FAD) of the IMF and the Ministry of Finance of the Republic of Kazakhstan.

Presentations were made by leading international experts from the IMF, followed by interactive discussion between the experts and participants. This allowed seminar participants to become familiar, not only with advanced international experience, but also with the practical results of reforming accounting and financial reporting systems in Azerbaijan, Armenia, Georgia, Turkmenistan, Tajikistan, the Kyrgyz Republic, Uzbekistan and Kazakhstan. Significant progress has been made in these countries, as well as commitments to continue the reform effort.

A summary of the material presented and discussed is outlined below. Links are also provided to the actual presentations.

Professor Ian Ball2 outlined a conceptual framework for fiscal reporting and performance management based on the New Zealand experience of the mid-1980s. He noted that at the time the government wanted to strengthen economic performance by improving the incentives to public sector managers to use economic resources more efficiently. Key to achieving this result was the move towards a more integrated and results-based public financial management (PFM) system where: i) greater clarity existed between the role of purchasers and providers, outcomes and outputs, stocks and flows and the performance of individual agencies; and ii) it was possible to distinguish, in performance terms, between the accountabilities of ministers and senior management. Professor Ball emphasized the crucial role played by a fiscal reporting system based on modern accrual accounting standards in promoting improved public sector financial and non-financial performance. Download Ian Ball Presentation; Download Ian Ball Presentation in Russian

Ian Carruthers3 outlined the framework of international public sector accounting standards (IPSAS) and the past, current and future work of the IPSAS Board in developing the standards and related materials. In particular, he noted the importance of recent work on the conceptual framework for IPSAS and on long-term fiscal sustainability reporting; the ongoing work on social benefits; and the progress in a number of countries in introducing accrual-based financial reports. Mr. Carruthers went on to detail the ongoing work to harmonize IPSAS and the Government Finance Statistics (GFS) framework, emphasizing the desirability of generating IPSAS and GFS reports from the same accounting data, and noting the broad similarities and specific differences between IPSAS and GFS. He concluded his presentation with an overview of the United Kingdom’s experience in preparing whole-of-government consolidated financial statements on an accrual basis. While not underplaying how difficult this exercise has been, he made a credible and forceful case for the importance of whole-of-government reporting. Download Ian Carruthers Presentation; Download Ian Carruther Presentation in Russian

Abdul Khan4 highlighted with country examples the key rationale for implementing international reporting standards. He emphasized that international standards support transparency and the oversight of public finance, avoid the necessity to issue and maintain national standards, and enable countries to reap the benefit of international experience. In order to implement international standards countries must first undertake an analysis comparing the existing status of their financial reporting with the standards, followed by a phased implementation of these standards. Under a phased approach, financial assets and liabilities, for example, may be reported initially, with non financial assets being brought into the balance sheet at a later stage. Similarly, separate financial statements can be prepared initially with consolidated information being presented after sufficient capacity has been developed. Download Abdul Khan Presentation; Download Abdul Khan Presentation in Russian

John Zohrab’s presentation discussed the importance of the development of a unified chart of accounts (COA), drawing on recent implementation experience in the region. Mr. Zohrab first defined two types of unified COA, both of which are used in the region, and went on to identify the benefits of both for the quality of accounting and reporting. He then presented a stylized account of how several countries in the region have managed the implementation of their unified COAs, noting two current “hot” topics in the region: i) reporting at the level of individual agencies of flows and stocks managed by agencies “on behalf of the state”, such as cash held in banks, taxes, debt, pensions and social allowances; and ii) how the economic segment of the budget classification is integrated with the unified COA. Mr. Zohrab also discussed various classification issues associated with the unified COA. He concluded his presentation by underlining the value of unified COAs for fiscal reporting, highlighting the impressive work that has been ongoing in several countries in the region. Download John Zohrab Presentation; Download John Zohrab Presentation in Russian

Peter Murphy5 presented the new IMF Fiscal Transparency Evaluation (FTE) instrument and the results of its early application in a number of pilot countries. He indicated that the FTE replaces the fiscal transparency ROSC as the Fund’s principal instrument for evaluating the transparency of countries’ fiscal reports, forecasts, and risk management. FTEs examine the extent to which a country’s published fiscal information provides a complete and accurate picture of its fiscal position, prospects, and risks. Building on the recommendations of the 2012 IMF Board Paper “Fiscal Transparency, Accountability, and Risk”, the FTE places emphasis on: i) the quality of reported information, rather than the clarity of reporting procedures; ii) undertaking a rigorous analysis of the sources and magnitude of any gaps in countries’ published fiscal information; and iii) offering countries that request it a methodology for developing a sequenced, medium-term action plan for addressing those gaps. The FTE will be formally launched in July 2014. Download Peter Murphy Presentation; Download Peter Murphy Presentation in Russian

Finally, Vladimir Krivenkov6 examined fiscal risks in the context of state-owned enterprises (SOEs), an important area of concern in the region. He noted that SOEs themselves are usually required to prepare financial statements in accordance with either international or national accounting standards. Such statements should contain a description of the specific factors giving rise to fiscal risks in the enterprises concerned, and a statement of how these risks are being managed. In addition, fiscal risks related to SOEs can be presented by the government in a statement which includes, for example, the risks related to subsidies, government guarantees and other contingent liabilities, quasi-fiscal activities and arrears. Mr. Krivenkov also noted the importance of establishing institutional arrangements for coordinating risk management across the public sector. Download Vladimir Krivenkov Presentation; Download Vladimir Krivenkov Presentation in Russian

1 FAD’s regional public financial management advisor for the Central Asian and Caucasus region, where he has been based since 2001. John previously worked in the New Zealand Treasury and later headed one of the first agencies to use accrual-based output budgeting and a formal performance monitoring framework.

2 Chairman of CIPFA International, former CEO of the International Federation of Accountants and, before that, one of the architects of the New Zealand government’s financial management reforms.

3 CIPFA policy and technical director and a member of the International Public Sectors Accounting Standards Board (IPSASB). Ian previously worked for the United Kingdom Treasury, where he played a key role in its transition from cash to accrual budgeting and reporting.

4 An FAD senior economist with extensive experience in the implementation of IPSAS for financial reporting.

5 An FAD senior economist with extensive experience in public financial management.

6 An FAD expert with substantial specialist knowledge of PFM issues related to the oversight of State Owned Enterprises (SOEs).

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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Financial (and statistical) reporting at the macro level is so valuable. However I posit that the foundation of the macro level numbers is the micro level reporting of revenues and expenditures. It is at the ministry (or department), sector, branch (or directorate) and divisional level that core numbers are generated, which aggregate to the macro level. Yet, there is little attention paid to providing core, standard, system generated, reporting to internal operational managers. I do believe that the development of a portfolio of core, standard reports, across government will lead to better resource utilization, increased transparency, greater understanding and fewer nasty surprises.

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