By Nick Mann | 20 March 2012

Governments across the world must make the move to ‘high quality and uniform’ accrual-based financial reporting standards, the International Federation of Accountants said yesterday.

The sovereign debt crisis has highlighted a lack of transparency and accountability of governments, poor public finance management and reporting and deficiencies in institutions responsible for fiscal management, it explained.

In a policy paper, Public sector financial management transparency and accountability, IFAC said governments should address these issues by providing ‘clear and comprehensive information regarding the financial consequences of economic, political and social decisions’.

This information is needed to protect both the public and investors in government bonds, it added.

‘Such information can only be provided through a high-quality, robust and effective accrual-based financial reporting system, which allows for government assets and liabilities (including debt) to be appropriately recorded, reported, and disclosed – and hence effectively monitored,’ the paper said.

The most ‘global accepted’ way to do this is through International Public Sector Accounting Standards, it added.

Using Ipsas is ‘critical’ for investors, taxpayers and the general public to understand the full impact of decisions made by governments relating to financial performance, their financial position and cash flows.

Adopting the standards globally will allow information to be compared on a ‘global basis’, it said, as well as assisting in planning, budgeting and monitoring decisions domestically.

Further institutional changes needed to support transparency and accountability include publication of independently audited financial statements within six months of the end of the budget period and ‘established, well-defined and publicly available’ principles for fiscal management, it added.

Speaking from an IFAC Sovereign Debt seminar in Vienna, Austria, IFAC chief executive Ian Ball said: ‘Governments around the world must collectively embrace high-quality and uniform accrual-based standards for financial reporting in order to protect the interests of both investors and citizens.

‘While the problems highlighted by the sovereign debt crisis cannot be solved by better reporting alone, they cannot be solved in the long term without it.’