Accountability in an open world: Financial Information Leading to Better Governance
1. ACCOUNTABILITY IN AN OPEN WORLD:
Financial Information Leading to Better Governance
Stephen Emasu - Bcom; MSc, FCCA
a) Short-Term PFM Expert with the IMF-FAD;
b) PFM Practitioner on assignments with WB & DFID etc
c) Free-lance consultant
2. AN OPEN WORLD – has many stakeholders
Led to emergence of General Purpose Financial Statements -
GPFSs
a) Presumed internal stakeholders; and
b) External stakeholders have common interests -
Governance
In practice internal users – managers already know how their
reporting entity is performing and hence less interested unless
there is a beneficial interest – bonus and performance rewards
Internal users use the information for planning and monitoring
– hence Budget Execution Reports are more critical
3. External Stakeholders are varied
1. External users are varied and more interested
than internal users - good for governance
2. The GPFSs contribute significantly to
strengthening governance
3. In Africa politicians value the GPFSs – holding the
executive to account - how resources have been
used - transparency, economics, lawfully
4. However, the politicians need capacity to
understand GPFS better
5. The ordinary public – most do not understand the
financial statements – it is for accountants!
4. GPFSs – still a long way to travel!
Due to:-
1) GPFS based on private sector approach
2) Integrated financial reporting is yet to
embraced by reporting entities in Africa
3) Complexity of the financial statements – often
crafted in technical terms
4) Historical information – comes at least 6 months
after the year end- “shop has been closed”-
lack of timeliness
5. COVERAGE OF THE GPFS – Increase the coverage…integrated
reporting …more next steps needed
1. The GPFSs have had a narrow focus on financial
figures - “the impeccable” figures - how about
the ‘glamorous’ non-financial information?
2. The inclusion of non-financial information - good
steps - but there is still room for improvements -
difficult though!
3. Governance issues relies increasingly on:
a) Was the appropriation respected? – budget execution
b) Was there value for money? – economy, efficiency,
effectiveness
c) Was the regulatory environment respected? - oversight
d) is PFM functioning as it should? – automation of systems
6. COMPLEXITY OF GPFSs – Understandability?
1. The GPFSs are by no means easy to understand
2. Better governance is associated with the level
of understanding and the ability to interpret the
financial statements
3. The GPFSs are increasingly couched in complex
language – even for professional accountants
4. There should be a way to make them
understandable and factual for effective
oversight
7. ‘A ONE-FIT SOLUTION’ MAY NOT BE THE SOLUTION
1. GPFSs is ‘a one-fit solution’ but governments vary – private
sector has standards for SMEs – how about those islands in
the Caribbean's, failed states?
2. Central government, departments, agencies, sub-national
governments, subsidiary agencies, projects often off-budget
3. Consolidation a huge issue as against ‘Whole of Government’
approach – ‘control’ very difficult to understand in the public
sector
4. Revenue recognition – on appropriation or on receipt or when
due?
5. Compromising ‘national security’ – accounting standard for
classified expenditures
6. LACK OF GLOBAL UNIFORMITY – IPSAS – EPSAS- IFRS - National
Standards
8. SPECIFIC NEEDS OF THE PUBLIC SECTOR
Issues in the public sector are diverse: –
a) Implementing the budget as
appropriated
b) Use of funds transparently & Value for
money
c) Compliance with all applicable laws
d) Public debt, contingent liabilities
e) Non-financial information
f) Cash v Accruals
9. Do GPFSs Promote Transparency/Governance – Still a
long way to go……..
GPFSs Brief Comments
1- Statement of Financial Performance Very important
2- Statement of Financial Position Not well appreciated/understood
3- Statement of Changes in 4- Equity/Net
Assets
Not well appreciated/understood
5- Cash Flow Statement Very important
6- Accounting Policies/Disclosure Notes Important
Critical areas for Transparency/Governance
Budget Execution Reports/Statement of
Appropriation
Reporting budget information –
IPSAS.. Is inadequate
Statement of Public Debt Simply a disclosure note -
inadequate
Statement of Contingent Liabilities Also a disclosure note - inadequate
Reporting based on programs - PBB None at all – PBB linked to MTEF
10. Concluding remarks… There is still work
More work …more opportunities ….
Consider:-
a) Harmonization and uniformity
b) Simplify
c) Be more Public Sector Specific
Hopefully will contribute to greater transparency and effective
governance in the Public Sector
Thank you for listening