IFAC CEO discusses the need for transparency in government financial reporting

20 May 2011

At a recent conference, Ian Ball, Chief Executive Officer of the International Federation of Accountants (IFAC), discussed the importance of transparency in government financial reporting.

In speech given to the World Bank Government Borrowers Forum held in Santiago, Chile on 11 May 2011, Mr Ball noted that investors in government securities should be entitled to essentially the same high-quality financial information as they receive in relation to investments in corporate bonds or equities.

In responding to the need for greater transparency, Mr Ball notes that a number of countries are moving towards the adoption of International Public Sector Accounting Standards (IPSAS) or other accrual-based accounting systems. An extract from the speech follows:

What would a set of financial reporting standards look like for governments? Without seeking to give a comprehensive answer... some obvious points are:

Cash based accounting, though still commonplace even in developed countries, is simply inadequate. That is why GFS [Government Finance Statistics] is in principle on an accrual, not a cash, basis. It is why companies listed on every capital market are required to report on an accrual basis. The cash basis fails to provide sufficient information to enable a reasonable assessment of financial performance or position
The entity should include in its financial reporting all the activities or sub-entities that impinge on its position and performance, and the associated risks – including all governmental financial institutions and all commercial activities
Unless there is a good public sector specific rationale for a different treatment, an asset, liability, revenue or expense, should be accounted for in the same way as it is in the private sector.

Click for access to the full transcript and presentation slides (link to IFAC website).