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Andreas Bergmann

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International Federation of AccountantsInternational Public Sector Accounting Standards Board(IPSASB)Improving Public Sector FinancialManagement through the use of IPSASAndreas Bergmann, Prof DrChair IPSAS Board19 May 2011


Financial crises are caused by a lack oftransparencyEssence of aFinancial Crisis• Unexpected• Default (or near/partial)• of Debt• (likely to spill overin a connected world)Transparency of financial position and financial performancereduces likelihood of unexpected surprises- and perhaps alsodefault risk2


Financial crises are caused by a lack oftransparencyA closer look …• The subprime-debt crisis: Securitization obscured qualityof underlying debt• The government interventions: Financial guarantees areoften not disclosed, nationalized entities often notconsolidated, toxic assets are not tracked in cash basisof accounting• The sovereign debt crisis: Accounts/statistics werefalsified, at least in the case of Greece, maturity of debtwas unknown due to inadequate statistical requirements3


IPSASB/IMF Government Reporting InitiativeObjectives – to learn and be informed:─How are governments accounting for and reportingassets, obligations, and commitments acquired as aresult of their interventions?─How well do existing accounting standards report thevariety of government actions?─Compare the reporting and valuation approaches


IPSASB/IMF Government Reporting Initiative• Results– IPSAS provide adequate guidance for all types ofinterventions– Most interventions should be recognized or disclosed,but unfortunately this is not the case in all countries– Consolidation issues need further thoughts– And so does treatment of financial guarantees(provision/contingent liability or financial instrument)– Sound accounting and reporting does support bothtransparency and decision making5


Interim conclusionThe accounting profession has the methods andconcepts to improve transparency - even if they aretoo often not applied ….6


Transparency and accountability in the area ofpublic finances is a fundamental principle ofdemocracyA look back …• 1789 French Revolutionintroduces the separationof powers• 1791 The new constitution included the governmentbudget in the list of decisions explicitly subject to theseparation of powers• Implementing this democratic principal requirestransparency and accountability – solving the principleagent problem7


Transparency and accountability in the area ofpublic finances is a fundamental principle ofdemocracy… and fast forward to 2011• Government finances arean issue both in Tunisia andEgypt• Demonstrators are askingtransparency and acccountability• What‘s different from 1789? Nothing in substance,perhaps technology makes it even easier to achievetoday …8


Interim conclusionThe accounting profession has the methods andconcepts to enable democracy9


Comparability is an essential ingredient forcontinuous improvementA look back - again• Same time in Russia:Tsar Peter the Great introducesaccrual accounting for thegovernment• Not to promote democracy … butto achieve progress and economicdevelopment• Inspired by private sector accounting he experiencedduring his visit to the Netherlands10


Comparability is an essential ingredient forcontinuous improvement… and fast forward to 2011• Austerity programs are becoming effetive around theglobe – based on which financial information?• Comparable information is essential for sanity in thedesign of austerity measures• From personal experience: If you cut across the board,profligacy is once again rewarded and efficiency punished• e.g. per capita cost of a high school student varied byfactor 2.5 before the 1990‘s austerity programs inin Switzerland kicked in – they could easily beimplemented without cuts for the efficient ones11


Government Finances are importantGovernment-issued Financial Instruments are a veryimportant part of the Financial Market2009 NYSE•All equity trades•Mortgage backed securities•Mutual funds•US Government securities$210 trillion$94 trillion$2 trillion$905 trillionGeneral Government accounts typically for morethan 1/3 of GDP


Interim conclusionThe accounting profession has the methods andconcepts to create comparability and enable efficient,continuous improvements through sound PublicSector Financial Management13


IPSASB has created a full suite of standards –which are applied world wide and help …• 31 Standards approved (accrual basis) covering all mainareas of government activity, 1 cash basis standard• Substantial convergence at December 31, 2009 withIFRSs at December 31, 2008– All relevant IFRS converged– 2009 IFRS improvements will be incorporated at 1 January 2011• Standards include sector specific standards– Disclosure of Information about the GGS (Financial Statistics)– Revenues from Non-Exchange Transactions (Transfers andTaxes)– Presentation of Budget Information14


IPSASB has created a full suite of standards –which are applied world wide and help …• Independent Accounting Standard Setter under IFAC• Setting standards for Public Sector Entities exceptGovernment Business Enterprises (GBE)• 18 members, including currently 3 from SAI• 10 international organizations with formal observersstatus, including INTOSAI• 7.5 staff, mainly based in Toronto/Canada• Funding by IFAC (approx 50 percent) and variousVoluntary Contributions from Governments and Observers15


IPSASB has created a full suite of standards –which are applied world wide and help …IPSASB Strategic Themes 2010-201216


IPSASB has created a full suite of standards –which are applied world wide and help …• Momentum in adoption– About 30 countries are adopting accrual basis IPSAS; includingFrance, South Africa, Switzerland, Russia, Israel, Slovakia,Brazil• Some adopt IPSAS directly (e.g. Switzerland, Slovakia,Austria)• Some adopt IPSAS through national standards (e.g. SouthAfrica, Brazil, Indonesia, Spain)– Also sub-national governments are adopting IPSAS when thedecentralized structure allows them to move independently –e.g. Prefecture of Tokyo, State of Hesse, State of Zurich– Entire UN system, OECD, NATO, Interpol and EC17


IPSASB has created a full suite of standards –which are applied world wide and help …• Momentum in adoption– A group of about 10 countries are using IPSAS as a reference• Some with a long tradition in standard setting: Australia, NewZealand, Canada, United States (both FASAB and GASB),UK• Some of them are virtually compliant with IPSAS (namelyAustralia, New Zealand)– IASB and FASB are considering IPSASB work– Close co-operation with NSS and national standard setters18


IPSASB has created a full suite of standards –which are applied world wide and help …Adoption and implementation of Accrual Basis IPSASadds value• Direct value added of fair presentation under IPSAS:– Transparency and Accountability: Governments areaccountable to citizens, but increasingly also to otherstakeholders, like the economy– Decision making: Is dramatically improved especiallyin areas with capital expenditure, e.g. governmentinterventions (loans, asset purchase, nationalization.• Both are key areas for rapidly developing countries19


IPSASB has created a full suite of standards –which are applied world wide and help …Adoption and implementation of Accrual Basis IPSASadds value• There is significant positive correlation betweenAccountingand PFM performance in general (VANY, 2010)• Key impacts of good Accounting are according to Vany:– Sound Medium Term Expenditure Frameworks– Solid Cash & Debt Management, as well asCommitment Control– Reliable basis for Audit• Accounting is key for sound financial management20


IPSASB’s EnvironmentAdded value in fiscal policy: Accruals supportfocus on debt reductionDebtGross Financial Liabilities inpercent of GDP nominal(Source: OECD Outlook No.87)120.0100.080.060.040.020.00.0199219941996199820002002200420062008Australia Canada New Zealand Switzerland21


IPSASB has created a full suite of standards –which are applied world wide and help …Adoption and implementation of IPSAS adds value• Value added through consequential effects – obviouslynot exclusively attributable to IPSAS:– Reputation: Rating agencies takeaccounting/reporting into consideration as one of thekey elements. Capital markets are increasingly onalert about financial reporting issues of governmentsfollowing the GFC.– Motivation of employees involved.• Reputation effects are likely to gain importance in theaftermath of the GFC22


Questions and Discussion• Visit our webpage http://www.ifac.org/PublicSector/• Or contact us by e-mailChair IPSASB andreasbergmann@ifac.orgTechnical Director stepheniefox@ifac.org

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