Fi Fiscal Transparency and the l T d th impact of International Public Sector Accounting Standards Sector Accounting Standards Prof Dr Andreas Bergmann Prof. Dr. Andreas Bergmann Chair IPSASB February 2014 The Treasury Wellington, New Zealand Page 1
Relevant for all of us! • Just a few headlines Just a few headlines – Greece: “Strong evidence for manipulation of the deficit and debt data presented” – Germany: “55 billion accounting mistake reduces debt levels” – UK: “Banks not consolidated due to temporary control” – Almost everywhere: “Pension Liabilities not included Almost everywhere: Pension Liabilities not included … ” • Who’s next to follow? • But it is clear: Uncertainty damages the economic development Page 2
Page 3 The issue of non-integrated systems y g
Urgent need for an integrated system g g y Governmental Governmental Budgeting Budgeting Accounting Accounting Audit Audit Financial Financial Statistics Statistics Page 4
Clear message from the Environment Clear message from the Environment • IMF-FAD addressing issue of transparency in a comprehensive paper – Fiscal transparency does matter Fiscal transparency does matter – Harmonization of Accounting and Statistics needed – ROSC initiative should be followed up • Eurostat Report – Endorsement mechanism as expected – Alignment with GFS is an emphasis Ali t ith GFS i h i – Some caution the risk of dual standards (EPSAS) and of a backward step for those on IFRS/IPSAS (e.g. UK, Spain, Austria, Baltic countries) • G20 Finance Ministers press release February 2013 – Strengthening government balance sheet looking at financial reporting reporting Page 5
Page 6 Transparency is relevant for the Economy y • Less debt and lower interest rates y p
Transparency is relevant for the Economy Transparency is relevant for the Economy • Significant correlation between PEFA indicator (PI25) and overall PEFA performance (Vany, ( ) p ( y, 2010) • Main advantages: – Financial planning – Financial control, debt, investment and liquidity management – Reliable base for audit Page 7
Own research: Reporting Entity in OECD Countries Reporting Entity in OECD Countries OECD Member Countries (34 ) Complementary Analysis (10) Germany, Norway, Czech Republic, Portugal, Netherlands, Belgium, Luxembourg, Hungary, Slovakia, Denmark Detailed Analysis (13) Australia, New Zealand, UK, USA; Estonia, Canada, Sweden, France Austria Chile Spain Israel Switzerland France, Austria, Chile, Spain, Israel, Switzerland Figure 1: Assessment Framework Bergmann et al (2013) Page 8
Page 9 Research Result: Reporting Entity y g p
Recommendations Recommendations 1: Consolidated Financial Statements are State-of-the-Art for Government Financial Reporting. 2: The reporting entity should be defined based on the control 2 Th ti tit h ld b d fi d b d th t l criterion and is therefore fairly comprehensive. 3: Full (line by line) consolidation increases the information content and is therefore the favored method. Equity method should be further investigated for entities with industry driven h ld b f th i ti t d f titi ith i d t d i large balance sheets (e.g. commercial banks). 4: Accoutability is the main purpose of consolidated financial statements. Page 10
Urgent need for an integrated system g g y SOEs SOEs Financial Financial Governmental Governmental Governmental Governmental Reporting R R Reporting ti ti Budgeting Budgeting Audit Audit Financial Financial Statistics Statistics Subnational Page 11
The role of IPSAS The role of IPSAS • IPSASs are a full suite of standards, designed for the IPSASs are a full suite of standards designed for the public sector • They are set by an independent international standard • They are set by an independent, international standard setter • The integrated system is part of the road map («rules of The integrated system is part of the road map («rules of the road») – With SOE: Through IFRS convergence g g – With GFS: Through GFS alignment Page 12
Page 13 Is it worth the cost?
But implementation cost is substantial But implementation cost is substantial • Normative change: Legislative basis, endorsement of standards development endorsement of standards, development of operational guidance («manual») • Configuration of IT/ERP-Systems Implementation • Collection and verification of data • Collection and verification of data, of IPSASs f S S especially in areas not accounted for requires previously (e.g. asset register) • Verification/audit • Verification/audit • Cross cutting: Training Page 14
But implementation cost is substantial But implementation cost is substantial • Normative change: 5% • IT/ERP-Systems: 75% • Collection and verification of data: 10% Collection and verification of data: 10% • Verification/audit: pro memo Cost of Cost of • Cross cutting: Training 10% • Cross cutting: Training 10% Implementation • The need to implement a new IT/ERP (or not!) largely determines the total cost and explains the substantial variance observed Page 15
But return is easily higher than cost But return is easily higher than cost • Direct returns to projects: Assets «found», risks identified Direct returns to projects: Assets found risks identified – easily add up to about half of the project cost • Returns from accrual reporting: • Returns from accrual reporting: – Debt management policy can identify non-bond types of debt more easily and limit/reduce that; debt «shifting» is effectively prevented – Assets are more actively managed, leading to disinvestment or better usage better usage – Lower interest rates (e.g. State of Geneva -0.5%/Hiler 2012) – Accrual accounting (A) assists debt breaks/fiscal rules (F) as it keeps track and helps to prevent «workarounds», especially Financial Instruments Page 16
But return is easily higher than cost But return is easily higher than cost Switzerland: Gross dept of general government (“Maastricht”), 1990-2012, 2016E in CHF bn in % of GDP 300 60 % F A 250 50 % 200 40 % 150 30 % 100 20 % 50 10 % 0 0 % 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Confederation Cantons Cummunes Social security funds y Debt ratio Page 17
Conclusion Conclusion • Transparency requires integrated systems Transparency requires integrated systems • Accounting plays a key role in system integration • There is evidence for positive macro-economic effects of Th i id f iti i ff t f transparency – which make the return far greater than the cost the cost Page 18
Questions Discussion & Further Information Q • Visit our webpage http://www.ipsasb.org/ • Or contact us by e-mail : O t t b il Chair IPSASB: andreasbergmann@ifac.org Technical Director: stepheniefox@ifac.org Technical Director: stepheniefox@ifac.org Page 19
References References Bergmann A Bergmann, A., et. al. (2013) Consolidation in the public sector: methods et al (2013) Consolidation in the public sector: methods and approaches in OECD countries. EGPA Conference Paper, Edinburgh 2013. Hiler, D. (2012) Experiences d’implementation des normes IPSAS de la République et Canton de Genève Presentation at the University of République et Canton de Genève. Presentation at the University of Geneva, 29 November 2012. IMF (2012) Fiscal Transparency, Accountability, and Risk. Vany S (2010) Prioritizing PFM reforms World Bank blog (26 May) Vany, S. (2010) Prioritizing PFM reforms. World Bank blog (26 May). Page 20
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