By Nick Mann | 19 June 2012

The accounting profession needs to put ‘concerted, co-ordinated’ pressure on politicians to bring about a step change in public financial management worldwide, the chief executive of CIPFA said yesterday.

Steve Freer said the ‘biggest challenges’ facing the profession now were the quality of government reporting, auditing and financial management.

Speaking at an event organised by CIPFA in conjunction with the Commonwealth Secretariat, he said: ‘This is a key issue in the current crisis and it is a massive issue in creating conditions for stability and the avoidance of future crises.’

Public sector finances affect jobs, growth and development, he said, and the events of the past few years had show that when they go ‘seriously wrong, lots of significant consequences follow’.

At the same time, cash-based accounting meant it was all but impossible to know what impact any new or larger bailout funds would have on the financial health of governments providing money for them.

‘Markets hate uncertainty. But what could be more uncertain than the financial position of a government entering into complex bailout transactions whilst maintaining its accounting on a cash abacus?’ he asked.

He added: ‘Cash accounting is simply not up to the challenge of reflecting the full financial position of a government. Solutions built on such fragile foundations are bound to fail. We need to own this problem and make sure that we replace fragile foundations with sturdy robust foundations.’

Governments had made poor choices when running up debts and deficits and accounting largely on a cash basis, but weak financial management foundations were ‘not inevitable’, Freer said.

Politicians were ‘susceptible to pressure and influence’ and ‘every professional institute...every accountant general, every auditor general, every finance ministry’ should make the ‘same compelling arguments’ for change.

‘If it is presented clearly and determinedly and persuasively, governments can be encouraged to listen to and act on good advice,’ he said.

‘If we really want to, we can create pressure for a step change in public financial management, reporting and auditing. And we can make it happen. It will not be easy, I know that, but it is possible.’

In particular, the profession should push for the adoption of International Public Sector Accounting Standards and well as the public sector audit standards developed by the International Organisation of Supreme Audit Institutions.