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
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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)
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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
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IASB WORK PROGRAM
Projects under way or proposed include:
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
ESA95 results to GFS
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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
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THE REPORTING ENTITY
Statistical Reports
• GFS and ESA95 need to have the general government
sector, the financial public corporation sector and the nonfinancial 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
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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
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WHICH BOTTOM LINE?
The suggested solution potentially would give
us a
number of bottom lines:
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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
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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
setting process
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