International Federation of Accountants Government Financial Reporting World Bank January 2005
International Federation of Accountants <ul><li>Worldwide body for professional accountants </li></ul><ul><li>163 Member B...
International Public Sector Accounting Standards Board <ul><li>Established 1986 as Public Sector Committee, renamed 2004 <...
IPSAS Setting Program <ul><li>Established late 1996 to develop a comprehensive set of financial reporting standards for pu...
IPSASB’s Approach <ul><li>Develop standards that can be applied by any public sector entity, including the  whole of gover...
Purpose of Financial Reporting <ul><li>Provide information about the the financial position, performance and cash flows of...
Necessity for Financial Reporting <ul><li>If information is not collated for external reporting purposes it is unlikely to...
Cash Basis IPSAS <ul><li>Issued in January 2003 after extended development and consultation </li></ul><ul><li>Requires the...
Advantages of Cash Basis <ul><li>Comprehensive presentation of cash information </li></ul><ul><li>Relatively straightforwa...
Disadvantages of Cash Basis <ul><li>Does not report assets and liabilities </li></ul><ul><ul><li>If not reported, can user...
Accrual Basis IPSASs <ul><li>21 IPSASs currently on issue </li></ul><ul><li>Require presentation of: </li></ul><ul><ul><li...
Advantages of Accrual Basis <ul><li>In addition to the cash flow information, users have additional information about asse...
Disadvantages of Accrual Basis <ul><li>Relatively complex. </li></ul><ul><li>Can provide information overload, particularl...
Modified Bases of Accounting <ul><li>Modified cash – closer to cash than accrual, includes limited accrual information </l...
Who is on Accrual? <ul><li>New Zealand – National and Local </li></ul><ul><li>Australia – National, most states/territorie...
Questions for Discussion <ul><li>Is financial reporting an end in itself? </li></ul><ul><li>Would you invest your life sav...
Questions for Discussion <ul><li>What resources are available to assist governments in the financial reform process? </li>...
Summary <ul><li>Cash and Accrual IPSASs </li></ul><ul><li>Financial Reporting reform and financial management reform compl...
Visit IFAC Online <ul><li>www.ipsasb.org </li></ul><ul><li>www.ifac.org </li></ul><ul><li>All IPSASB and most IFAC publica...
International Federation of Accountants
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International Federation of Accountants

  1. 1. International Federation of Accountants Government Financial Reporting World Bank January 2005
  2. 2. International Federation of Accountants <ul><li>Worldwide body for professional accountants </li></ul><ul><li>163 Member Bodies in 119 countries </li></ul><ul><ul><li>International Public Sector Accounting Standards Board </li></ul></ul><ul><ul><li>International Auditing and Assurance Standards Board </li></ul></ul><ul><ul><li>Education Committee </li></ul></ul><ul><ul><li>Ethics Committee </li></ul></ul><ul><ul><li>Professional Accountants in Business </li></ul></ul><ul><ul><li>Small/Medium Practice Permanent Task Force </li></ul></ul><ul><ul><li>Compliance Advisory Panel </li></ul></ul>
  3. 3. International Public Sector Accounting Standards Board <ul><li>Established 1986 as Public Sector Committee, renamed 2004 </li></ul><ul><li>Members 2005: France (Chair), UK (Deputy Chair), Australia, Argentina, Canada, Germany, India, Israel, Japan, Malaysia, Mexico, New Zealand, Norway, South Africa, USA </li></ul><ul><li>Observers: ADB, EU, IASB, IMF, INTOSAI, OECD, World Bank, UN, UNDP </li></ul>
  4. 4. IPSAS Setting Program <ul><li>Established late 1996 to develop a comprehensive set of financial reporting standards for public sector </li></ul><ul><li>Funded by World Bank, IFAC, ADB, UNDP, IMF </li></ul><ul><li>IPSASs set appropriate minimum benchmarks </li></ul><ul><ul><li>For discharge of accountability, transparency, complete and relevant financial reporting </li></ul></ul><ul><li>IPSASs provide a framework against which audit is undertaken </li></ul><ul><li>IPSASs are a resource for national standard-setters </li></ul>
  5. 5. IPSASB’s Approach <ul><li>Develop standards that can be applied by any public sector entity, including the whole of government </li></ul><ul><li>Promote the adoption of the Accrual Basis </li></ul><ul><li>Acknowledge wide use of cash basis </li></ul><ul><ul><li>Cash Basis IPSAS </li></ul></ul><ul><li>Study 14 “Transition to the Accrual Basis of Accounting”. </li></ul>
  6. 6. Purpose of Financial Reporting <ul><li>Provide information about the the financial position, performance and cash flows of an entity useful to a wide range of users. </li></ul><ul><li>Accountability, transparency, compliance with budget, </li></ul><ul><li>Financial statements should be understandable, relevant, reliable, comparable </li></ul><ul><li>Contraints: timeliness, cost/benefit, </li></ul>
  7. 7. Necessity for Financial Reporting <ul><li>If information is not collated for external reporting purposes it is unlikely to be collated for management purposes. </li></ul><ul><li>Good information is necessary for good decision making </li></ul><ul><li>Financial reporting reform is part of a broader public sector financial management improvement process. </li></ul><ul><li>Managing public sector assets and liabilities is essential if public sector cash flows are to be managed </li></ul>
  8. 8. Cash Basis IPSAS <ul><li>Issued in January 2003 after extended development and consultation </li></ul><ul><li>Requires the presentation of Statement of Cash Receipts and Payments </li></ul><ul><ul><li>Includes cash payments made by 3 rd parties on behalf of entity </li></ul></ul><ul><ul><li>Includes disclosure of accounting policies </li></ul></ul><ul><li>Encourages additional disclosure of assets/liabilities </li></ul>
  9. 9. Advantages of Cash Basis <ul><li>Comprehensive presentation of cash information </li></ul><ul><li>Relatively straightforward </li></ul><ul><li>Usually easily reconciled with Budget Information </li></ul><ul><ul><li>Provided budget covers whole of government </li></ul></ul><ul><li>Verifiable </li></ul><ul><li>Less prone to subjective decisions on accounting policy </li></ul>
  10. 10. Disadvantages of Cash Basis <ul><li>Does not report assets and liabilities </li></ul><ul><ul><li>If not reported, can users have confidence that they’re being appropriately managed? </li></ul></ul><ul><li>End of year “gaming” quite common </li></ul><ul><li>Most governments report at least the outstanding government debt – moving to some accrual concepts </li></ul>
  11. 11. Accrual Basis IPSASs <ul><li>21 IPSASs currently on issue </li></ul><ul><li>Require presentation of: </li></ul><ul><ul><li>Statement of Financial Position (net assets) </li></ul></ul><ul><ul><li>Statement of Financial Performance (net surplus/deficit) </li></ul></ul><ul><ul><li>Statement of Cash Flows (increase/decrease in cash held) </li></ul></ul><ul><ul><li>Statement of Changes in Net Assets/Equity </li></ul></ul><ul><ul><li>Notes to the above statements </li></ul></ul>
  12. 12. Advantages of Accrual Basis <ul><li>In addition to the cash flow information, users have additional information about assets and liabilities. </li></ul><ul><li>If assets and liabilities are reported, there is a greater probability that they will be appropriately managed. </li></ul><ul><li>Comparable to the financial reporting governments require of corporate entities. </li></ul><ul><li>More information available to capital markets should lead to better pricing of government debt securities. </li></ul>
  13. 13. Disadvantages of Accrual Basis <ul><li>Relatively complex. </li></ul><ul><li>Can provide information overload, particularly for small entities. </li></ul><ul><li>Few governments report on this basis – not easy to compare one government to another (cash flows can be compared) </li></ul>
  14. 14. Modified Bases of Accounting <ul><li>Modified cash – closer to cash than accrual, includes limited accrual information </li></ul><ul><li>Modified accrual – closer to accrual than cash, includes more extensive accrual information, excludes some assets and liabilities </li></ul><ul><li>Most governments report on some modified basis </li></ul><ul><li>IPSASB’s constituents recommended against developing IPSASs for modified bases </li></ul>
  15. 15. Who is on Accrual? <ul><li>New Zealand – National and Local </li></ul><ul><li>Australia – National, most states/territories, local </li></ul><ul><li>USA – Federal, State, Local </li></ul><ul><li>UK – National and Local </li></ul><ul><li>Switzerland – local, Cantons and Federal moving </li></ul><ul><li>Canada – moving toward accrual </li></ul><ul><li>Netherlands – moving to accrual </li></ul><ul><li>IFAC, NATO, OECD and Cayman Is use IPSASs </li></ul>
  16. 16. Questions for Discussion <ul><li>Is financial reporting an end in itself? </li></ul><ul><li>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? </li></ul><ul><li>Is there evidence that improved financial reporting leads to improved financial management? </li></ul>
  17. 17. Questions for Discussion <ul><li>What resources are available to assist governments in the financial reform process? </li></ul><ul><li>Can non-accountants understand financial reports? </li></ul><ul><li>Can non-accountants prepare financial reports? </li></ul><ul><li>What about countries with low education levels? </li></ul><ul><li>How can IFAC and IPSASB assist the World Bank in its mission? </li></ul>
  18. 18. Summary <ul><li>Cash and Accrual IPSASs </li></ul><ul><li>Financial Reporting reform and financial management reform complement each other </li></ul><ul><li>An independent audit opinion provides assurance that financial statements are reliable </li></ul><ul><li>An entity that does not report appropriately is not accountable or transparent </li></ul><ul><li>They’re your tax dollars they’re playing with </li></ul>
  19. 19. Visit IFAC Online <ul><li>www.ipsasb.org </li></ul><ul><li>www.ifac.org </li></ul><ul><li>All IPSASB and most IFAC publications can be downloaded free of charge. </li></ul><ul><li>Printed copies of IPSASB Handbooks, standards and Study 14 are available free of charge, shipping costs are recovered. </li></ul>
  20. 20. International Federation of Accountants
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