G-20 and Europe Call for Better Public Sector Accounting

The Group of 20 finance ministers, along with the European Commission, are calling for improved accounting standards in the public sector.

The International Federation of Accountants praised the G-20 finance ministers and Central Bank Governors on Thursday for addressing government borrowing and public debt sustainability at a meeting last month. IFAC also applauded a European Commission report that was issued this week calling for “harmonized public sector accruals-based accounting standards” as a tool to build trust and financial stability.

The two actions “provided an important impetus for transparent, comprehensive, reliable, and comparable public sector financial reporting,” IFAC CEO Fayez Choudhury said in a statement.

The G-20 recap and communiqué state that “(i)n pursuit of our goal of strengthening the public sector balance sheet, work is needed to better assess risks to public debt sustainability. This includes, inter alia, taking into account country-specific circumstances, looking at transparency and comparability of public sector reporting, and monitoring the impact of financial sector vulnerabilities on public debt.” The G-20 called on the International Monetary Fund and World Bank to further explore the issue and provide updates.

Prior to the G-20 meeting, outgoing IFAC CEO Ian Ball called on Russia to use its G-20 presidency to strengthen global financial stability by supporting adoption and implementation of International Public Sector Accounting Standards.

The EC report stated, “The sovereign debt crisis has underlined the need for governments to clearly demonstrate their financial stability and for more rigorous and more transparent reporting of fiscal data.” The report underscored the need for international comparability, as well as governments’ public interest obligation to owners of government debt securities, potential investors, citizens, and other stakeholders, to provide timely, reliable, and comparable information on their financial performance and position, in the same way that listed companies have obligations to equity market participants.

In addition, the EC recognized IPSAS as the only internationally recognized set of public-sector accounting standards, and their foundation in International Financial Reporting Standards.

“While there has been some progress on reforming public sector financial management and adopting accrual accounting and IPSASs, we need to quicken the pace of change,” Choudhury said. “IFAC’s efforts are strengthened when global organizations like the G-20, EC, IMF and World Bank show leadership in this area.”

In its report, the European Commission found that International Public Sector Accounting Standards “represent an indisputable reference for potential EU harmonized public sector accounts.”

The report highlighted the concept that harmonized accruals-based government accounting improves transparency, accountability and comparability of financial reporting in the public sector. Furthermore, a staff working document that accompanied the EC report discussed the advantages of IPSAS, including that “transparency provided by high-quality accruals standards such as IPSASs also provides for better-informed capital markets, in which government financial activity plays a much greater role than is often acknowledged.”

Noting that the present financial crisis has demonstrated that the need to assure financial stability is common to all European Union countries, the report also stated that because “government assets and liabilities are substantial in all EU countries, it is therefore important that they are effectively managed and that governments are accountable for this management to their citizens, their representatives, investors and other stakeholders.”

International Public Sector Accounting Standards Board chairman Andreas Bergmann welcomed the report, which proposes that almost half of the existing IPSAS could be implemented as European Public Sector Accounting Standards with little or no adaptation.

Currently, 15 European Union member states incorporate IPSAS to some extent, with nine of these having national standards based on or in line with IPSAS.

“The adoption of accrual accounting by EU member states would represent a historic step in the direction of achieving governmental transparency and serving the public interest,” Bergmann said in a statement. “Developing high-quality accounting standards like the IPSAS will require a rigorous process to ensure the EPSAS are of the same caliber. The IPSASB offers the EU’s public sector accounting authorities its full cooperation and resources in producing, adopting, and implementing EPSAS.”

The European Commission’s report will be followed by a conference, “Towards Implementing European Public Sector Accounting Standards,” to be held May 29-30 in Brussels.

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