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SYSTEMS OF ACCOUNTING IN THE PUBLIC SECTOR <ul><li>Cash/Accrual/Public Sector Accounting Standards </li></ul><ul><li>Ian M...
OVERVIEW <ul><li>Weaknesses in current reporting </li></ul><ul><li>International   accounting/statistical standards </li><...
Weaknesses in the Current System <ul><li>Resources reported-allocation of financial resources or use of economic resources...
Movement to Accrual Accounting <ul><li>Good cash system first </li></ul><ul><li>Each step to be a useful step </li></ul><u...
INTERNATIONAL ACCOUNTING/STATISTICAL STANDARDS (Lies, damn lies and standards/statistics) <ul><li>International financial ...
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (Previously   IAS) <ul><li>IASB is a full-time adequately resourced boa...
IASB WORK PROGRAM <ul><li>Projects under way or proposed include: </li></ul><ul><li>Financial instruments </li></ul><ul><l...
RELEVANCE OF IASB TO PUBLIC SECTOR <ul><li>Basic concepts are the same in private/public sectors </li></ul><ul><li>Later t...
INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSASs) <ul><li>Public Sector Committee (PSC) a committee of IFAC </li><...
PSC OUTPUT TO DATE <ul><li>Study on governmental financial reporting </li></ul><ul><li>20 accrual accounting standards </l...
PSC 2003+ AGENDA <ul><li>Public sector specific issues </li></ul><ul><li>Accounting for social policies of government </li...
ACCOUNTING FOR SOCIAL POLICIES OF GOVERNMENTS <ul><li>Developing an IPSAS on accounting for obligations like pensions, hea...
NON-EXCHANGE REVENUE <ul><li>Developing an IPSAS to account for revenues like taxes, grants, transfers </li></ul><ul><li>M...
BUDGET REPORTING <ul><li>On the edge of accounting/economics </li></ul><ul><li>Two stage approach </li></ul><ul><li>1.  Re...
GFS/ESA95/IPSAS HARMONIZATION <ul><li>Technical working group </li></ul><ul><li>   PSC Chair, IMF, Eurostat, Australia, U...
ACCOUNTING FOR DEVELOPMENT ASSISTANCE <ul><li>Stage one dealing with the disclosure of information on development assistan...
GOVERNMENT FINANCE STATISTICS (GFS) <ul><li>Promulgated by the IMF-latest manual issued 2001 </li></ul><ul><li>Accrual bas...
THE FOUR STATEMENTS OF GFSM 2001 <ul><li>Statement of government operations (like operating statement) </li></ul><ul><li>S...
DIFFERENCES GFS/IPSASs <ul><li>The reporting entity (control vs. sector) </li></ul><ul><li>Military platforms </li></ul><u...
POSSIBLE FUTURE CHANGES TO IPSASs/GFS <ul><li>It is possible that future changes may </li></ul><ul><li>remove the differen...
EUROPEAN SYSTEM OF ACCOUNTS 1995 (ESA95) <ul><li>Promulgated by Eurostat, a part of the EU </li></ul><ul><li>It is the req...
STANDARDS OVER-KILL? IPSASs Public Sector GAAP GFS International Statistics Private Sector GAAP European Statistics ESA 95...
HARMONIZATION AND RECONCILIATION OF STANDARDS <ul><li>PSC, IMF, EU would like to simplify the present situation </li></ul>...
THE REPORTING ENTITY <ul><li>Statistical Reports </li></ul><ul><li>GFS and ESA95 need to have the general government secto...
A SUGGESTED FRAMEWORK <ul><li>Consolidated accounts under IPSASs </li></ul><ul><li>Reconciliation to GFS or ESA95 </li></u...
WHICH BOTTOM LINE? <ul><li>The suggested solution potentially would give us a </li></ul><ul><li>number of bottom lines: </...
WHAT DO YOU WANT TO KNOW? <ul><li>If you want to know how the government is performing financially, you need the IPSAS bas...
THE NATIONAL STANDARD SETTER SUGGESTED ROLES <ul><li>Adopt relevant  international standards </li></ul><ul><li>Set timing ...
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Systems of Accounting in the Public Sector, World Bank 2004

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Transcript of "Systems of Accounting in the Public Sector, World Bank 2004"

  1. 1. SYSTEMS OF ACCOUNTING IN THE PUBLIC SECTOR <ul><li>Cash/Accrual/Public Sector Accounting Standards </li></ul><ul><li>Ian Mackintosh </li></ul><ul><li>2 March 2004 </li></ul><ul><li>1 </li></ul>
  2. 2. OVERVIEW <ul><li>Weaknesses in current reporting </li></ul><ul><li>International accounting/statistical standards </li></ul><ul><li>Harmonization and reconciliation of standards </li></ul><ul><li>The reporting entity </li></ul><ul><li>A suggested reporting framework </li></ul><ul><li>The bottom line </li></ul><ul><li>The National Standard Setter </li></ul><ul><li>2 </li></ul>
  3. 3. Weaknesses in the Current System <ul><li>Resources reported-allocation of financial resources or use of economic resources? </li></ul><ul><li>Reporting entity-what do we want the information for? </li></ul><ul><li>Comparability- what comparability? </li></ul>
  4. 4. Movement to Accrual Accounting <ul><li>Good cash system first </li></ul><ul><li>Each step to be a useful step </li></ul><ul><li>Part of overall reform-not an end in itself </li></ul>
  5. 5. INTERNATIONAL ACCOUNTING/STATISTICAL STANDARDS (Lies, damn lies and standards/statistics) <ul><li>International financial reporting standards (IASB) </li></ul><ul><li>International public sector accounting standards (PSC) </li></ul><ul><li>Government Finance Statistics (IMF) </li></ul><ul><li>European system of accounts 1995 (Eurostat) </li></ul><ul><li>3 </li></ul>
  6. 6. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (Previously IAS) <ul><li>IASB is a full-time adequately resourced board </li></ul><ul><li>An imperative to have an improved and increased set of standards by 2005 </li></ul><ul><li>These standards used as a basis for IPSASs </li></ul><ul><li>Harmonization of IFRS and IPSASs is of prime importance </li></ul><ul><li>4 </li></ul>
  7. 7. IASB WORK PROGRAM <ul><li>Projects under way or proposed include: </li></ul><ul><li>Financial instruments </li></ul><ul><li>Reporting performance </li></ul><ul><li>Consolidation and special purpose entities </li></ul><ul><li>Pension accounting </li></ul><ul><li>Foreign exchange </li></ul><ul><li>Small and medium sized entities </li></ul><ul><li>Revenue recognition </li></ul><ul><li>Lease accounting </li></ul><ul><li>Government grants </li></ul><ul><li>Measurement </li></ul><ul><li>Impairment of assets </li></ul><ul><li>Share based payments </li></ul><ul><li>Insurance contracts </li></ul><ul><li>5 </li></ul>
  8. 8. RELEVANCE OF IASB TO PUBLIC SECTOR <ul><li>Basic concepts are the same in private/public sectors </li></ul><ul><li>Later topic of harmonization IFRS/IPSAS/GFS/ESA95 </li></ul><ul><li>The IASB is advancing conceptual thinking at a rapid rate </li></ul><ul><li>The public sector needs to keep up </li></ul><ul><li>The PSC and IASB are working constructively together </li></ul><ul><li>6 </li></ul>
  9. 9. INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSASs) <ul><li>Public Sector Committee (PSC) a committee of IFAC </li></ul><ul><li>Funded by ADB, IFAC, IMF, UNDP, WB </li></ul><ul><li>Standards program started 1996/Standards based on IASs including notion of control </li></ul><ul><li>7 </li></ul>
  10. 10. PSC OUTPUT TO DATE <ul><li>Study on governmental financial reporting </li></ul><ul><li>20 accrual accounting standards </li></ul><ul><li>A standard on cash based accounting </li></ul><ul><li>Guidance on transition to accrual based accounting </li></ul><ul><li>Occasional papers on governments’ financial reporting (including NZ, France, UK and Argentina) </li></ul><ul><li>Governance in the public sector </li></ul><ul><li>8 </li></ul>
  11. 11. PSC 2003+ AGENDA <ul><li>Public sector specific issues </li></ul><ul><li>Accounting for social policies of government </li></ul><ul><li>Non-exchange revenue </li></ul><ul><li>Budget reporting </li></ul><ul><li>Accounting for development assistance </li></ul><ul><li>Heritage assets </li></ul><ul><li>Broad issues </li></ul><ul><li>GFS/ESA95/IPSAS harmonization </li></ul><ul><li>Alliance with IMF </li></ul><ul><li>Conceptual framework </li></ul><ul><li>Other matters </li></ul><ul><li>Consultative group </li></ul><ul><li>Workshops </li></ul><ul><li>Translations (to date French, Spanish, Italian, Arabic, Russian, Bahasa, Portuguese, Mandarin, Mongolian, Japanese) </li></ul><ul><li>Adopting new IASB standards </li></ul><ul><li>Care and maintenance </li></ul><ul><li>9 </li></ul>
  12. 12. ACCOUNTING FOR SOCIAL POLICIES OF GOVERNMENTS <ul><li>Developing an IPSAS on accounting for obligations like pensions, health care, education </li></ul><ul><li>Members from NZ, Australia, Canada, China, FEE, IMF. Pakistan, Sweden, UK </li></ul><ul><li>ITC January 2004 </li></ul><ul><li>10 </li></ul>
  13. 13. NON-EXCHANGE REVENUE <ul><li>Developing an IPSAS to account for revenues like taxes, grants, transfers </li></ul><ul><li>Members from Canada, Australia, China, Czech Republic, FEE, France, New Zealand, Sweden, South Africa, UK, USA </li></ul><ul><li>ITC January 2004 </li></ul><ul><li>11 </li></ul>
  14. 14. BUDGET REPORTING <ul><li>On the edge of accounting/economics </li></ul><ul><li>Two stage approach </li></ul><ul><li>1. Research report to identify: </li></ul><ul><li>  Current best practices </li></ul><ul><li>  Whether budget reporting falls under the PSC </li></ul><ul><li>mandate </li></ul><ul><li>  Any precedent, or argument for, an accounting </li></ul><ul><li>standard setter to deal with this topic </li></ul><ul><li>  The matters appropriately dealt with in any </li></ul><ul><li>proposed standard </li></ul><ul><li>2. A possible exposure draft </li></ul><ul><li>Steering committee being appointed with very wide representation </li></ul><ul><li>Preliminary report March 2004 </li></ul><ul><li>12 </li></ul>
  15. 15. GFS/ESA95/IPSAS HARMONIZATION <ul><li>Technical working group </li></ul><ul><li> PSC Chair, IMF, Eurostat, Australia, UK </li></ul><ul><li> Test extent of possible harmonization </li></ul><ul><li> Provide a reconciliation </li></ul><ul><li>Task Force </li></ul><ul><li> Chaired by IMF-broad membership </li></ul><ul><li> Overviewing changes to IPSASs, GFS and SNA </li></ul><ul><li> SNA to be revised in 2008 </li></ul><ul><li>13 </li></ul>
  16. 16. ACCOUNTING FOR DEVELOPMENT ASSISTANCE <ul><li>Stage one dealing with the disclosure of information on development assistance under the cash basis of accounting </li></ul><ul><li>Stage two dealing with the disclosure under the accrual basis of accounting </li></ul><ul><li>Project advisory panel established </li></ul><ul><li>Report on survey March 2004 </li></ul><ul><li>14 </li></ul>
  17. 17. GOVERNMENT FINANCE STATISTICS (GFS) <ul><li>Promulgated by the IMF-latest manual issued 2001 </li></ul><ul><li>Accrual based, using same concepts as IPSASs </li></ul><ul><li>Within over-arching System of National Accounts, used to measure movements in a national economy </li></ul><ul><li>Concentrates on General Government Sector but encourages consolidation of whole of government </li></ul><ul><li>There are differences with IPSASs </li></ul><ul><li>16 </li></ul>
  18. 18. THE FOUR STATEMENTS OF GFSM 2001 <ul><li>Statement of government operations (like operating statement) </li></ul><ul><li>Statement of other economic flows (deals with revaluations) </li></ul><ul><li>Balance sheet </li></ul><ul><li>Statement of sources and uses of cash </li></ul><ul><li>17 </li></ul>
  19. 19. DIFFERENCES GFS/IPSASs <ul><li>The reporting entity (control vs. sector) </li></ul><ul><li>Military platforms </li></ul><ul><li>Require market value </li></ul><ul><li>Debt provisions </li></ul><ul><li>Gains and losses on disposal of assets </li></ul><ul><li>Fundamental errors </li></ul><ul><li>Foreign exchange </li></ul><ul><li>Borrowing costs </li></ul><ul><li>18 </li></ul>
  20. 20. POSSIBLE FUTURE CHANGES TO IPSASs/GFS <ul><li>It is possible that future changes may </li></ul><ul><li>remove the differences on: </li></ul><ul><li>Military platforms </li></ul><ul><li>Disclosure of GGS information in IPSAS </li></ul><ul><li>New performance statement in IPSAS </li></ul><ul><li>Current values required </li></ul><ul><li>Public/private sector arrangements </li></ul><ul><li>19 </li></ul>
  21. 21. EUROPEAN SYSTEM OF ACCOUNTS 1995 (ESA95) <ul><li>Promulgated by Eurostat, a part of the EU </li></ul><ul><li>It is the requirement for members of the EU </li></ul><ul><li>Both GFS and ESA95 are consistent with 1993 System of National Accounts as regards definitions, accounting rules and classifications </li></ul><ul><li>ESA95 differs from GFS in the presentation of its publication, and its concepts are more specific and precise </li></ul><ul><li>ESA95 is more rules based than 1993 SNA </li></ul><ul><li>The 2002 GFS yearbook maps the ESA95 results to GFS </li></ul><ul><li>20 </li></ul>
  22. 22. STANDARDS OVER-KILL? IPSASs Public Sector GAAP GFS International Statistics Private Sector GAAP European Statistics ESA 95 IFRS
  23. 23. HARMONIZATION AND RECONCILIATION OF STANDARDS <ul><li>PSC, IMF, EU would like to simplify the present situation </li></ul><ul><li>We will work to eliminate as many differences as possible </li></ul><ul><li>It is inevitable that some differences will remain because the purposes of the various reports are different </li></ul><ul><li>The best hope in the short term is for a simple reconciliation statement to be agreed </li></ul><ul><li>Hopefully, in the longer term the standard setters will be able to promulgate standards jointly </li></ul><ul><li>22 </li></ul>
  24. 24. THE REPORTING ENTITY <ul><li>Statistical Reports </li></ul><ul><li>GFS and ESA95 need to have the general government sector, the financial public corporation sector and the non-financial public corporation sector reported separately </li></ul><ul><li>They encourage but do not require consolidations </li></ul><ul><li>These statistical reports are designed to assist statistical economic analysis </li></ul><ul><li>Financial Reports </li></ul><ul><li>IPSASs are standards for general purpose financial reports, which report on the financial performance and position of an economic entity </li></ul><ul><li>The economic entity reports all assets, liabilities, revenues and expenses it controls </li></ul><ul><li>Thus it requires full consolidation of all entities controlled </li></ul><ul><li>Unless you have full consolidation, the true measure of financial position and performance is not shown </li></ul><ul><li>THE TWO SETS OF REPORTS ARE REQUIRED FOR SEPARATE, QUITE LEGITIMATE, REASONS </li></ul><ul><li>23 </li></ul>
  25. 25. A SUGGESTED FRAMEWORK <ul><li>Consolidated accounts under IPSASs </li></ul><ul><li>Reconciliation to GFS or ESA95 </li></ul><ul><li>Segmentation to the three economic sectors </li></ul><ul><li>If an accrual budget, prepared under the same standards as the ex-post accounts </li></ul><ul><li>If a cash budget, reconciled to the relevant cash flow statement </li></ul><ul><li>All statements to be auditable (except as to projections) </li></ul><ul><li>The PSC budget project should give some answers as to which part of a budget is auditable </li></ul><ul><li>24 </li></ul>
  26. 26. WHICH BOTTOM LINE? <ul><li>The suggested solution potentially would give us a </li></ul><ul><li>number of bottom lines: </li></ul><ul><li>Consolidated operating result-GAAP </li></ul><ul><li>Consolidated operating result-GFS/ESA95 </li></ul><ul><li>GGS operating result </li></ul><ul><li>Consolidated cash flow </li></ul><ul><li>GGS cash flow </li></ul><ul><li>THE BOTTOM LINE YOU CHOOSE DEPENDS </li></ul><ul><li>ON WHAT YOU WANT TO KNOW </li></ul><ul><li>25 </li></ul>
  27. 27. WHAT DO YOU WANT TO KNOW? <ul><li>If you want to know how the government is performing financially, you need the IPSAS based full consolidation </li></ul><ul><li>If you want to know the fiscal effects of the financial transactions of the general government sector on the national economy, you need the GFS/ESA95 general government operating result </li></ul><ul><li>If you are interested in the cash flows, you probably need both the consolidated and segmented cash flows </li></ul><ul><li>26 </li></ul>
  28. 28. THE NATIONAL STANDARD SETTER SUGGESTED ROLES <ul><li>Adopt relevant international standards </li></ul><ul><li>Set timing and method for adoption </li></ul><ul><li>Set standards for unique national situations </li></ul><ul><li>Overview introduction of new international standards </li></ul><ul><li>Participate in international standard setting process </li></ul><ul><li>27 </li></ul>
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