Fi Fiscal Transparency and the l T d th impact of International - - PowerPoint PPT Presentation

Fi l T d th Fiscal Transparency and the 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

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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

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The issue of non-integrated systems g y

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Urgent need for an integrated system g g y

Governmental Governmental Budgeting Budgeting Accounting Accounting Audit Audit Financial Statistics Financial Statistics

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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 Ali t ith GFS i h i – Alignment with GFS is an emphasis – 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

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reporting

Transparency is relevant for the Economy p y y

• Less debt and lower interest rates

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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

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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)

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Research Result: Reporting Entity p g y

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Recommendations Recommendations

1: Consolidated Financial Statements are State-of-the-Art for Government Financial Reporting. 2 Th ti tit h ld b d fi d b d th t l 2: The reporting entity should be defined based on the control criterion and is therefore fairly comprehensive. 3: Full (line by line) consolidation increases the information content and is therefore the favored method. Equity method h ld b f th i ti t d f titi ith i d t d i should be further investigated for entities with industry driven large balance sheets (e.g. commercial banks). 4: Accoutability is the main purpose of consolidated financial statements.

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Urgent need for an integrated system g g y SOEs

Financial R ti Financial R ti Governmental Governmental

SOEs

Budgeting Budgeting Reporting Reporting Audit Audit Governmental Financial Statistics Governmental Financial Statistics

Subnational

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The role of IPSAS IPSASs are a full suite of standards designed for the The role of IPSAS

• 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

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Is it worth the cost?

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But implementation cost is substantial But implementation cost is substantial

• Normative change: Legislative basis,

endorsement of standards development endorsement of standards, development

• f operational guidance («manual»)
• Configuration of IT/ERP-Systems
• Collection and verification of data

Implementation f S S

• Collection and verification of data,

especially in areas not accounted for previously (e.g. asset register)

• Verification/audit
• f IPSASs

requires

• Verification/audit
• Cross cutting: Training

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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
• Cross cutting: Training 10%

Cost of

• Cross cutting: Training 10%

Cost of Implementation

• The need to implement a new IT/ERP

(or not!) largely determines the total cost and explains the substantial variance observed

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But return is easily higher than cost Direct returns to projects: Assets found risks identified But return is easily higher than cost

• 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

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But return is easily higher than cost But return is easily higher than cost

Switzerland: Gross dept of general government (“Maastricht”), 1990-2012, 2016E

50 % 60 % 250 300 in CHF bn in % of GDP

F A

40 % 200 20 % 30 % 100 150 10 % 50 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 Debt ratio

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y

Conclusion Transparency requires integrated systems Conclusion

• Transparency requires integrated systems
• Accounting plays a key role in system integration

Th i id f iti i ff t f

• There is evidence for positive macro-economic effects of

transparency – which make the return far greater than the cost the cost

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Questions Discussion & Further Information Q

• Visit our webpage http://www.ipsasb.org/

O t t b il

• Or contact us by e-mail :

Chair IPSASB: andreasbergmann@ifac.org Technical Director: stepheniefox@ifac.org Technical Director: stepheniefox@ifac.org

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References

Bergmann A et al (2013) Consolidation in the public sector: methods

References

Bergmann, A., 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).

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