Budget Execution Course Fiscal Reporting And Transparency

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Budget Execution CourseFiscal Reporting And
Transparency

• David Shand
• OPCFM
• 9 April, 2003

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1. Reporting on budget execution is an important
   aspect of accountability to the legislature and
   to the public, and in some cases for use by
   financial markets. Impact of fiscal rules/target
2. Both CFAA and IMF Fiscal ROSC emphasize this
3. In some countries (unaudited) budget results are
   published regularly throughout the year
   quarterly or even monthly.
4. But fiscal reporting needs to go beyond reporting
   on budget execution - also to cover overall
   financial results and position. In addition to
   reporting on financial flows (both operating and
   financing transactions) what information should
   be reported on government assets and liabilities
   and thus some concept net equity of government.

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1. Are subsets of this more appropriate ? for
   example reporting only on financial assets and
   liabilities.
2. Good external transparency builds on internal
   transparency or information flows which is
   important for the governments management of its
   finances.
3. Poor external reporting may not reflect a
   government being secretive about its finances
   it may not know itself.
4. Reporting is need both at the responsibility
   center (agency, ministry) level and the aggregate
   level for both management and accountability
   purposes.

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• External reporting is one potential form of
  social control but who may use these statements
  and with what effect?
• Two major fiscal documents are available
• the BUDGET DOCUMENTS forward looking , but some
  past information, in relation to fiscal targets.
  But how comprehensive is the budget? The
  information is not audited. Should these be
  regarded as general purpose financial statements
  subject to standards and audit. Standard used
  usually some form of GFS (?) Often voluminous and
  incomprehensible.

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1. the aggregate financial statements or PUBLIC
   ACCOUNTS. Historical information. Format and
   coverage may be different from the budget. The
   information is audited. May reflect legal fund
   concepts e.g. consolidated fund, loan fund etc.
   in coverage of the budget
2. In any case should reconcile information between
   the budget documents and public accounts
3. Fiscal transparency legislation may govern some
   of this reporting medium term fiscal frameworks
   and targets, economic assumption, fiscal risks,
   requirement for regular and pre-election updating

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1. In addition individual ministries/agencies may
   prepare their own financial statements, usually
   audited. These reflect moves to greater
   responsibility for their own financial
   management. Usually cover more than just budget
   execution perhaps a statement of assets and
   liabilities.
2. Scope of the budget is important. What is the
   extent and nature of off-budget public financial
   transactions, for example extra-budgetary funds
   and public enterprises. How should budget
   reporting relate to reporting of the whole of
   government i.e. what is the reporting entity,
   or what layers of reporting are appropriate,
   c.f. IPSAS reporting entity issue.

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• In many countries the aggregate financial
  statements
• may not be timely, reliable or not audited.
• may be unintelligible due to their format and
  length
• may reflect legal rather than management concepts
  (e.g. fund accounting)
• may be only loosely linked with the budget.
• What basis of reporting should be used cash,
  obligations, modified accrual, full accrual. To
  what extent should this follow the budget basis?
• Need for international standards in fiscal
  reporting who should set them? economists,
  accountants, statisticians? GFS, IPSAS, ESA95
  International moves to harmonize these approaches

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1. GFS has been a commonly accepted standard, used
   with variations by many governments for reporting
   in budget documents but not public accounts.
   Most recent GFS manual issued in 2001 is accrual
   based. GFS reports in three parts general
   government (central/state/local), non-public
   financial corporations and public financial
   corporations. This could be consolidated. Some
   discretion in GFS application.
2. Accounting profession appears to regard GFS as a
   statistical tool for macro-economic analysis,
   (e.g. psbr) rather than as a measure of fiscal
   performance

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1. International public sector accounting standards
   being developed by International Federation of
   Accountants (IFAC) Public Sector Committee. They
   do not cover budget reporting specific project
   being developed.
2. The 25 standards issued to date, are based
   largely on international accounting standards for
   the private sector and assume accrual based
   reporting, but there is a standard for cash
   accounting and guidance on transition to accrual
   accounting. The cash accounting standard requires
   disclosure of all receipts and payments
   controlled by the government and encourages
   additional disclosure in notes of assets,
   liabilities etc.

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• The definition of the entity is wider than GFS
  general government concept of control would
  consolidate all government enterprises. But can
  report at more than one level.
• Both are based on similar concepts (accrual) and
  a common data base. Other differences
• include military assets
• - debt provision
• - market values

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• European System of Accounts 1995 (ESA95)
• Promulgated by Eurostat, a part of the EU
• It is the requirement for members of the EU
• Both GFS and ESA95 are consistent with 1993
  System of National Accounts as regards
  definitions, accounting rules and classifications
  
• ESA95 differs in the presentation of its
  publication, and its concepts are more specific
  and precise
• ESA95 is more rules based than 1993 SNA
• GFS is harmonized with 1993 SNA but presentations
  and classifications are different
• The 202 GFS yearbook maps the ESA95 results to GFS

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• Given accrual basis of IPSAS and accruals basis
  of GFS, at what rate can countries move to the
  accruals basis.
• A pragmatic and gradual approach needed.
• - political and management commitment
• (why are we doing this ?)
• - technical capacity
• - resources (human and financial)
• Modified accrual first ? Pilots ? Budgets
  later ?

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• New Zealands Crown Financial Statements(see
  www.treasury.govt.nz)
• Prepared in accordance with generally accepted
  accounting practice in New Zealand
• Statement of Financial Performance (operating
  balance before revaluations)
• Statement of Financial Position (Crown balance)
• Statement of Movements in Crown Equity
• Cash flow statement (operating and financing
  transactions)
• Statement of Contingent Liabilities
• Statement of Commitments etc etc