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					SYSTEMS OF ACCOUNTING IN THE PUBLIC
              SECTOR




  Cash/Accrual/Public Sector
   Accounting Standards

  Ian Mackintosh
  2 March 2004



   1
             OVERVIEW

• Weaknesses in current reporting
• International accounting/statistical
  standards
• Harmonization and reconciliation of
  standards
• The reporting entity
• A suggested reporting framework
• The bottom line
• The National Standard Setter
 2
Weaknesses in the Current
System
• Resources reported-allocation of
  financial resources or use of economic
  resources?

• Reporting entity-what do we want the
  information for?

• Comparability- what comparability?
Movement to Accrual
Accounting
• Good cash system first

• Each step to be a useful step

• Part of overall reform-not an end in
  itself
INTERNATIONAL ACCOUNTING/STATISTICAL STANDARDS
        (Lies, damn lies and standards/statistics)




 • International financial reporting standards
   (IASB)

 • International public sector accounting standards
   (PSC)

 • Government Finance Statistics (IMF)

 • European system of accounts 1995 (Eurostat)
INTERNATIONAL FINANCIAL REPORTING STANDARDS
                     (IFRS)
                (Previously IAS)


• IASB is a full-time adequately resourced
  board

• An imperative to have an improved and
  increased set of standards by 2005

• These standards used as a basis for IPSASs

• Harmonization of IFRS and IPSASs is of
  prime importance


  4
                  IASB WORK PROGRAM
Projects under way or proposed include:
•   Financial instruments
•   Reporting performance
•   Consolidation and special purpose entities
•   Pension accounting
•   Foreign exchange
•   Small and medium sized entities
•   Revenue recognition
•   Lease accounting
•   Government grants
•   Measurement
•   Impairment of assets
•   Share based payments
•   Insurance contracts
    5
RELEVANCE OF IASB TO PUBLIC SECTOR

• Basic concepts are the same in
  private/public sectors
• Later topic of harmonization
  IFRS/IPSAS/GFS/ESA95
• The IASB is advancing conceptual thinking
  at a rapid rate
• The public sector needs to keep up
• The PSC and IASB are working
  constructively together

  6
      INTERNATIONAL PUBLIC SECTOR
     ACCOUNTING STANDARDS (IPSASs)


• Public Sector Committee (PSC) a
  committee of IFAC

• Funded by ADB, IFAC, IMF,
  UNDP, WB

• Standards program started
  1996/Standards based on IASs
  including notion of control
 7
      PSC OUTPUT TO DATE


• Study on governmental financial
  reporting
• 20 accrual accounting standards
• A standard on cash based accounting
• Guidance on transition to accrual
  based accounting
• Occasional papers on governments’
  financial reporting (including NZ,
  France, UK and Argentina)
• Governance in the public sector


  8
             PSC 2003+ AGENDA
Public sector specific issues
• Accounting for social policies of government
• Non-exchange revenue
• Budget reporting
• Accounting for development assistance
• Heritage assets
Broad issues
• GFS/ESA95/IPSAS harmonization
• Alliance with IMF
• Conceptual framework
Other matters
• Consultative group
• Workshops
• Translations (to date French, Spanish, Italian,
   Arabic, Russian, Bahasa, Portuguese, Mandarin,
   Mongolian, Japanese)
• Adopting new IASB standards
• Care and maintenance
  9
  ACCOUNTING FOR SOCIAL POLICIES OF
           GOVERNMENTS


• Developing an IPSAS on accounting
  for obligations like pensions, health
  care, education

• Members from NZ, Australia, Canada,
  China, FEE, IMF. Pakistan, Sweden,
  UK

• ITC January 2004


  10
      NON-EXCHANGE REVENUE


• Developing an IPSAS to account for
  revenues like taxes, grants,
  transfers

• Members from Canada, Australia,
  China, Czech Republic, FEE,
  France, New Zealand, Sweden,
  South Africa, UK, USA

• ITC January 2004

 11
              BUDGET REPORTING

• On the edge of accounting/economics
• Two stage approach
  1. Research report to identify:
      Current best practices
      Whether budget reporting falls under
  the PSC
          mandate
      Any precedent, or argument for, an
  accounting
          standard setter to deal with this topic
      The matters appropriately dealt with in
  any
          proposed standard
  2. A possible exposure draft
• Steering committee being appointed with
  very wide representation
• Preliminary report March 2004
 GFS/ESA95/IPSAS HARMONIZATION


1. Technical working group
    PSC Chair, IMF, Eurostat, Australia, UK
    Test extent of possible harmonization
    Provide a reconciliation

2. Task Force
    Chaired by IMF-broad membership
    Overviewing changes to IPSASs, GFS and
   SNA
   SNA to be revised in 2008
  13
ACCOUNTING FOR DEVELOPMENT ASSISTANCE


• Stage one dealing with the disclosure
  of information on development
  assistance under the cash basis of
  accounting

• Stage two dealing with the disclosure
  under the accrual basis of accounting

• Project advisory panel established

• Report on survey March 2004

  14
GOVERNMENT FINANCE STATISTICS (GFS)


• Promulgated by the IMF-latest manual
  issued 2001
• Accrual based, using same concepts as
  IPSASs
• Within over-arching System of National
  Accounts, used to measure movements
  in a national economy
• Concentrates on General Government
  Sector but encourages consolidation of
  whole of government
• There are differences with IPSASs

  16
THE FOUR STATEMENTS OF GFSM
            2001

• Statement of government
  operations (like operating
  statement)
• Statement of other economic
  flows (deals with revaluations)
• Balance sheet
• Statement of sources and uses
  of cash

 17
       DIFFERENCES GFS/IPSASs

• The reporting entity (control vs.
  sector)
• Military platforms
• Require market value
• Debt provisions
• Gains and losses on disposal of
  assets
• Fundamental errors
• Foreign exchange
• Borrowing costs

  18
   POSSIBLE FUTURE CHANGES TO
            IPSASs/GFS

It is possible that future changes
   may
remove the differences on:

• Military platforms
• Disclosure of GGS information in
  IPSAS
• New performance statement in
  IPSAS
• Current values required
• Public/private sector
  arrangements
EUROPEAN SYSTEM OF ACCOUNTS 1995
             (ESA95)
• Promulgated by Eurostat, a part of the
  EU
• It is the requirement for members of
  the EU
• Both GFS and ESA95 are consistent
  with 1993 System of National
  Accounts as regards definitions,
  accounting rules and classifications
• ESA95 differs from GFS in the
  presentation of its publication, and its
  concepts are more specific and
  precise
• ESA95 is more rules based than 1993
  SNA
• The 2002 GFS yearbook maps the
         STANDARDS OVER-KILL?

                                 IPSASs



                                    Public Sector
                                    GAAP




      International Statistics            Private Sector GAAP
GFS                                                             IFRS



                                    European Statistics




                                 ESA 95
HARMONIZATION AND RECONCILIATION
         OF STANDARDS

• PSC, IMF, EU would like to simplify the
  present situation
• We will work to eliminate as many
  differences as possible
• It is inevitable that some differences
  will remain because the purposes of the
  various reports are different
• The best hope in the short term is for a
  simple reconciliation statement to be
  agreed
• Hopefully, in the longer term the
  standard setters will be able to
  promulgate standards jointly
  22
            THE REPORTING ENTITY
Statistical Reports
• GFS and ESA95 need to have the general government
   sector, the financial public corporation sector and the
   non-financial public corporation sector reported
   separately
• They encourage but do not require consolidations
• These statistical reports are designed to assist
   statistical economic analysis
Financial Reports
• IPSASs are standards for general purpose financial
   reports, which report on the financial performance
   and position of an economic entity
• The economic entity reports all assets, liabilities,
   revenues and expenses it controls
• Thus it requires full consolidation of all entities
   controlled
• Unless you have full consolidation, the true measure
   of financial position and performance is not shown
• THE TWO SETS OF REPORTS ARE REQUIRED FOR
   SEPARATE, QUITE LEGITIMATE, REASONS
   23
       A SUGGESTED FRAMEWORK

• Consolidated accounts under IPSASs
• Reconciliation to GFS or ESA95
• Segmentation to the three economic
  sectors
• If an accrual budget, prepared under the
  same standards as the ex-post accounts
• If a cash budget, reconciled to the
  relevant cash flow statement
• All statements to be auditable (except
  as to projections)
• The PSC budget project should give
  some answers as to which part of a
  budget is auditable
  24
        WHICH BOTTOM LINE?

The suggested solution potentially would
  give us a
number of bottom lines:
• Consolidated operating result-GAAP
• Consolidated operating result-
  GFS/ESA95
• GGS operating result
• Consolidated cash flow
• GGS cash flow
THE BOTTOM LINE YOU CHOOSE
  DEPENDS
ON WHAT YOU WANT TO KNOW
WHAT DO YOU WANT TO KNOW?

• If you want to know how the
  government is performing financially,
  you need the IPSAS based full
  consolidation
• 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
• If you are interested in the cash flows,
  you probably need both the consolidated
  and segmented cash flows

  26
THE NATIONAL STANDARD SETTER
      SUGGESTED ROLES

Adopt relevant international
 standards
Set timing and method for adoption
Set standards for unique national
 situations
Overview introduction of new
 international standards
Participate in international standard

				
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posted:9/23/2011
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