By Nick Mann | 29 November 2012

A call by the International Monetary Fund for increased transparency in government finances shows how important it is for countries to strengthen their financial management, the International Federation of Accountants said yesterday.

In a paper published earlier this month, the IMF said that there had been a concerted effort over the past 15 years to develop international accepted standards for fiscal transparency. Despite this, understanding of governments’ underlying fiscal positions and the risks to them remained inadequate.

The IMF called for a ‘revitalised’ effort to address the shortcomings in standards and accounting practices that had been revealed by the economic crisis. In particular, fiscal reporting standards should be improved and implemented faster, while international monitoring of countries’ compliance with standards should be enhanced.

IFAC chief executive Ian Ball welcomed the report’s call for strengthened public sector financial reporting and financial management.

‘The current sovereign debt crises have starkly revealed the deficiencies in many governments’ reporting practices and consequently their understanding of their actual fiscal positions,’ he said.

‘IFAC believes that governments around the world must implement necessary institutional reforms to strengthen governmental financial management, and thereby protect the public, as well as investors in government bonds. This will better allow governments to anticipate and manage fiscal shocks, and also help reduce the risk of future debt crises.’

IFAC endorsed the paper’s call for more countries to comply with international standards, such as accrual-based International Public Sector Accounting Standards. It also supported the recommendation that countries include all entities with fiscal implications for their governments, such as central banks, in their forecasting, budgeting and reporting.

The IMF also said that efforts to build the capacity of professional accountancy organisations should be stepped up along with their role in improving government financial reporting practices.