By Nick Mann | 27 March 2013

The involvement of citizens in Cyprus’s banking bailout shows the need for a ‘full transparent picture’ of the finances, achieveable only through accruals-based accounting, according to Ernst & Young’s global leader for international public sector accounting.

Thomas Mueller-Marqués Berger told PF International that giving citizens the ‘real picture’ of a government’s finances would encourage them to contribute to the bailout. The initial plan proposed earlier this month involved a one-off levy on all bank accounts in the country but this was rejected by the Cypriot Parliament in the face of widespread public anger.

Mueller-Marqués Berger said: ‘Talking about situations like Cyprus, if you want citizens to help with the bailout of governments then I think we need to show the real picture and the full transparent picture of the financial position of governments as a whole.

This involved looking not only at cash flows ‘but at assets and liabilities and the financial performance of governments’, he explained.

Speaking ahead of an event in Brussels yesterday to consider plans to apply International Public Sector Accounting Standards to all European Union member states, Mueller-Marqués Berger also stressed the important role accounting standards had to play in ‘providing incentives’ for decision-makers.

‘If we want politicians to make the right decisions which they are accountable for, then we need to provide them with the proper accounting rules,’ he said.

‘Looking at the existing accounting rules in European countries, such as Germany and the Netherlands, we see the accounting rules require recording cash flows on a short-term basis, so what decision-making basis is that providing for a politician and what incentive is that providing?’ he asked. ‘I think that shows we need more transparent rules and more information for better decision-making.’

The process of exploring the role Ipsas could play in any European Public Sector Accounting Standards had ‘created a momentum’, Mueller-Marqués Berger told the event held by CIPFA and Ernst & Young.

However, Ian Carruthers, policy and technical director at CIPFA, stressed that the divergence of views on introducing EPSAS and the role IPSAS should play in them showed there was ‘still a long way to go’ with the project.

He told PF International that political support was ‘key’ for any change. ‘If there isn’t support from the top then any change won’t actually take place,’ he said.

He added: ‘There’s a lot of subsidiary questions about the timeframe for the changes, how the balance between central prescription and local management should be managed, how to take things forward in terms of systems implementation and also the general change management within countries needed to embed public financial management.’