INTERNATIONAL FEDERATION OF ACCOUNTANTS

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International Federation of Accountants
Government Financial Reporting World Bank January
2005
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International Federation of Accountants

• Worldwide body for professional accountants
• 163 Member Bodies in 119 countries
• International Public Sector Accounting Standards
  Board
• International Auditing and Assurance Standards
  Board
• Education Committee
• Ethics Committee
• Professional Accountants in Business
• Small/Medium Practice Permanent Task Force
• Compliance Advisory Panel

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International Public Sector Accounting Standards
Board

• Established 1986 as Public Sector Committee,
  renamed 2004
• Members 2005 France (Chair), UK (Deputy Chair),
  Australia, Argentina, Canada, Germany, India,
  Israel, Japan, Malaysia, Mexico, New Zealand,
  Norway, South Africa, USA
• Observers ADB, EU, IASB, IMF, INTOSAI, OECD,
  World Bank, UN, UNDP

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IPSAS Setting Program

• Established late 1996 to develop a comprehensive
  set of financial reporting standards for public
  sector
• Funded by World Bank, IFAC, ADB, UNDP, IMF
• IPSASs set appropriate minimum benchmarks
• For discharge of accountability, transparency,
  complete and relevant financial reporting
• IPSASs provide a framework against which audit is
  undertaken
• IPSASs are a resource for national
  standard-setters

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IPSASBs Approach

• Develop standards that can be applied by any
  public sector entity, including the whole of
  government
• Promote the adoption of the Accrual Basis
• Acknowledge wide use of cash basis
• Cash Basis IPSAS
• Study 14 Transition to the Accrual Basis of
  Accounting.

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Purpose of Financial Reporting

• Provide information about the the financial
  position, performance and cash flows of an entity
  useful to a wide range of users.
• Accountability, transparency, compliance with
  budget,
• Financial statements should be understandable,
  relevant, reliable, comparable
• Contraints timeliness, cost/benefit,

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Necessity for Financial Reporting

• If information is not collated for external
  reporting purposes it is unlikely to be collated
  for management purposes.
• Good information is necessary for good decision
  making
• Financial reporting reform is part of a broader
  public sector financial management improvement
  process.
• Managing public sector assets and liabilities is
  essential if public sector cash flows are to be
  managed

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Cash Basis IPSAS

• Issued in January 2003 after extended development
  and consultation
• Requires the presentation of Statement of Cash
  Receipts and Payments
• Includes cash payments made by 3rd parties on
  behalf of entity
• Includes disclosure of accounting policies
• Encourages additional disclosure of
  assets/liabilities

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Advantages of Cash Basis

• Comprehensive presentation of cash information
• Relatively straightforward
• Usually easily reconciled with Budget Information
• Provided budget covers whole of government
• Verifiable
• Less prone to subjective decisions on accounting
  policy

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Disadvantages of Cash Basis

• Does not report assets and liabilities
• If not reported, can users have confidence that
  theyre being appropriately managed?
• End of year gaming quite common
• Most governments report at least the outstanding
  government debt moving to some accrual concepts

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Accrual Basis IPSASs

• 21 IPSASs currently on issue
• Require presentation of
• Statement of Financial Position (net assets)
• Statement of Financial Performance (net
  surplus/deficit)
• Statement of Cash Flows (increase/decrease in
  cash held)
• Statement of Changes in Net Assets/Equity
• Notes to the above statements

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Advantages of Accrual Basis

• In addition to the cash flow information, users
  have additional information about assets and
  liabilities.
• If assets and liabilities are reported, there is
  a greater probability that they will be
  appropriately managed.
• Comparable to the financial reporting governments
  require of corporate entities.
• More information available to capital markets
  should lead to better pricing of government debt
  securities.

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Disadvantages of Accrual Basis

• Relatively complex.
• Can provide information overload, particularly
  for small entities.
• Few governments report on this basis not easy
  to compare one government to another (cash flows
  can be compared)

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Modified Bases of Accounting

• Modified cash closer to cash than accrual,
  includes limited accrual information
• Modified accrual closer to accrual than cash,
  includes more extensive accrual information,
  excludes some assets and liabilities
• Most governments report on some modified basis
• IPSASBs constituents recommended against
  developing IPSASs for modified bases

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Who is on Accrual?

• New Zealand National and Local
• Australia National, most states/territories,
  local
• USA Federal, State, Local
• UK National and Local
• Switzerland local, Cantons and Federal moving
• Canada moving toward accrual
• Netherlands moving to accrual
• IFAC, NATO, OECD and Cayman Is use IPSASs

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Questions for Discussion

• Is financial reporting an end in itself?
• Would you invest your life savings in a company
  that only produced a cash flow statement? What if
  that cash flow statement was unaudited or
  received a qualified audit opinion?
• Is there evidence that improved financial
  reporting leads to improved financial management?

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Questions for Discussion

• What resources are available to assist
  governments in the financial reform process?
• Can non-accountants understand financial reports?
• Can non-accountants prepare financial reports?
• What about countries with low education levels?
• How can IFAC and IPSASB assist the World Bank in
  its mission?

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Summary

• Cash and Accrual IPSASs
• Financial Reporting reform and financial
  management reform complement each other
• An independent audit opinion provides assurance
  that financial statements are reliable
• An entity that does not report appropriately is
  not accountable or transparent
• Theyre your tax dollars theyre playing with

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Visit IFAC Online

• www.ipsasb.org
• www.ifac.org
• All IPSASB and most IFAC publications can be
  downloaded free of charge.
• Printed copies of IPSASB Handbooks, standards and
  Study 14 are available free of charge, shipping
  costs are recovered.

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International Federation of Accountants