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Public Sector Should Make Financial Statements More Understandable

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August 5, 2013

The International Public Sector Accounting Standards Board issued guidelines late last month on providing a financial statement discussion and analysis section in reports from public sector entities.

Recommended Practice Guideline 2 (RPG 2), Financial Statement Discussion and Analysis, would help the public and users of government financial statements to understand the financial position, financial performance and cash flows presented in a public sector entity’s general purpose financial statements. Such a discussion and analysis also enable users to get further insights into the operations of an entity in the public sector, from the perspective of the entity itself. RPG 2 provides guidance for presenting such information in an understandable format.

The IPSASB, which operates under the auspices of the International Federation of Accountants, noted that while the form and content of the information would depend on the nature of the entity and its regulatory environment, the financial statement discussion and analysis would generally include an overview of the entity’s operations and environment; information about the entity’s objectives and strategies; an analysis of the entity’s financial statements; and the risks and uncertainties related to the financial statements.

Andreas Bergmann

“Financial statement discussion and analysis presented in accordance with RPG 2 represents good practice,” said IPSASB chair Andreas Bergmann in a statement. “It sets out the status, scope and reporting boundary for the information. RPG 2 is intended to encourage more public sector entities to provide users with financial statement discussion and analysis. It will promote comparability across entities that present financial statement discussion and analysis. At the same time, its flexible application will benefit entities in jurisdictions that have local requirements or regulations. The issuance of RPG 2 is an important step for the IPSASB, because it further extends our pronouncements on presentation of information beyond that presented in general purpose financial statements.”

To access the recommended practice guideline document, visit the IPSASB’s Web site. The IPSASB is encouraging all IFAC members, associates and regional accountancy bodies to promote the availability of the documents to their members and employees. The American Institute of CPAs is a member body of IFAC.

The recommended practice guidelines seem to fit in well with one of the goals of the Governmental Accounting Standards Board’s new chairman, David Vaudt, who wants to make public sector financial statements more understandable to various constituencies, particularly the public. Last year, under Vaudt’s predecessor, former GASB chairman Robert Attmore, GASB published a user guide to help taxpayers understand the financial statements of local school districts so they could better see how their money is being spent on public education. GASB has also published a revised and updated edition of a guide called “What You Should Know about Your Local Government’s Finances,” and a second edition of a more sophisticated guide aimed at the financial analyst community, “An Analyst’s Guide to Government Financial Statements.”

Vaudt told Accounting Today that GASB plans to publish similar guides in the future to help the public (see the video New GASB Chair David Vaudt on the Standard-Setter’s Agenda or the article New GASB Chairman Foresees New Pension Standards Influencing Government Budgeting Decisions).

The guides that have been published so far are available in GASB’s online store.

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