The International Federation of Accountants has written a letter encouraging the G-20 deputies and finance ministers to take action at their April 2012 meeting in Mexico to encourage governments to seriously address the quality of public sector financial management systems and institutions.
The letter, which follows up on previous submissions to the G-20 back in 2009, 2010, and 2011, focuses solely on public sector financial management, transparency, and accountability.
Last month, IFAC convened a seminar entitled, “The Sovereign Debt Crisis, a Matter of Urgency—from Lessons to Reform,” which included presentations, debates and discussion involving decision makers, politicians and public sector finance management leaders.
They called for the adoption of accrual accounting and budgeting to better measure and manage fiscal positions, noting that the current crisis emphasized the deficiencies associated with cash-based arrangements. A common theme that emerged was that, in many countries, the risks associated with the poor fiscal measurement and management exposed by the sovereign debt crisis are amplified by the fiscal risks associated with the aging population.
The four key recommendations in the letter are in line with IFAC’s mission to contribute to the development, adoption, and implementation of high-quality international standards; and by doing so, contribute to the development of strong international economies.
IFAC recommends that the G-20 facilitate urgent and fundamental work, to be conducted or commissioned by the Financial Stability Board, to consider the nature of institutional changes that are needed in public sector financial management to protect the public and investors in government bonds.
IFAC encourages the G-20 to make explicit that the FSB’s role encompasses public sector arrangements, as part of its aim "to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies". In acknowledging the importance of the public sector as part of the FSB’s role, IFAC encourages the establishment of a working group within the FSB architecture, which is specifically tasked with examining enhanced public sector financial reporting, transparency and accountability.
IFAC recommends that the G-20 actively encourage and facilitate the adoption of accrual-based accounting by governments and public sector institutions, which promotes greater transparency and accountability in public sector finances, and allows for monitoring of government debt and liabilities for their true economic implications.
IFAC recommends that the G-20 encourage FSB to include International Public Sector Accounting Standards as a set of standards key for sound financial systems and deserving of timely implementation.
“For the last 10 years IFAC has consistently promoted the need for better financial reporting and financial management in the public sector,” said IFAC CEO Ian Ball in a statement. “The sovereign debt crisis has given rise to a very significant number of policy developments at an international level, but this issue has yet to be adequately addressed. The use of IPSASs by governments worldwide will improve the quality of financial information reported by public entities, which is critical for investors, taxpayers, and the general public.”