Speaking at the event in Luxembourg were Ian Carruthers, chair of IPSASB, Thomas Müller-Marqués Berger, partner at EY, and Arman Vatyan, financial management sector leader for Central Asia governance at the World Bank.
Discussing the implementation of IPSAS, EPSAS in Europe, and financial management improvements respectively, all three speakers pointed out some common challenges.
As Müller-Marqués Berger noted, the issues he highlighted were not only relevant for Europe, but were challenges “wherever you look”.
Both he and Vatyan spoke of the different components needed to make reform effective. Setting standards or new financial management processes are “not done in isolation”, Müller-Marqués Berger explained, they also require connected changes to IT and legal systems or education and training programmes, for example.
The importance of the latter can often be underestimated, Vatyan added. Both highlighted a lack of capacity or experience as a key impediment to reform progress.
Even in Europe, where capacity is typically high, Müller-Marqués Berger said that countries lack experience in managing “huge, multidimensional reform projects” that need to work for countries at different levels of maturity and can harmonise all of the massively diverse systems and schemes within the European Union.
Trying to come up with one accounting treatment for the bloc’s heterogeneous tax and pension systems, for example, is a “real challenge”, he said, adding to the already complex task of accounting for public sector transactions.
Carruthers had also pointed to this as a challenge for IPSAS implementation, with a project on social benefit standards having to be put on hold while a conceptual framework is developed.
Vatyan and Müller-Marqués Berger said a disconnect between different types of accounting, such as financial, statistical and budget, can also hinder progress.
Not recognising the links between these often sends financial management reforms “in the wrong direction”, Vatyan stated.
A failure to properly pilot changes is frequently a lost opportunity to find out if a different approach is needed, he continued, while also highlighting unrealistic time frames, a lack of strategy and costing, and poor communication with beneficiaries as common pitfalls.
Both Vatyan and Carruthers also stressed the importance of regional and international networks, which act as knowledge-sharing forums and as advocates, pushing the reform agenda. These are “tremendously important”, Carruthers said.
The “pressure is on” for IPSASB in the next five years, he continued, not only because of the challenging projects on the table but because more and more nations are set to take up the standards.
Under current projections, the world is set to move from 31% adoption of IPSAS today to 71% in 2021.
Carruthers said it feels as though the IPSAS standards “are coming of age” as they are increasingly used, which means the board needs to “connect with constituents in a way it hasn’t before”.
While accounting standards are making progress, the adoption of integrated reporting is off to a slow start, Gillian Fawcett, CIPFA’s head of governments faculty, pointed out at a subsequent session.
She highlighted that the public sector is “big business” – its spending accounts for third of GDP in many countries, and in some cases half. This calls for a high quality reporting method that is more detailed and wide-ranging.
It’s “no longer good enough” to assume a balance sheet will give you the whole picture of an organisation’s performance, Fawcett said, stating the world had reached a “tipping point” in financial reporting.
Phillippe Peuch-Lestrade, deputy CEO of the International Integrated Reporting Council, agreed that organisations “cannot reply” to the world’s volatility, uncertainty and complexity with “retrospective facts and figures” alone.
He told the seminar that action from the public sector is “needed now”, but accepted that the journey to adopting and properly implementing integrated reporting is a long one that could take “a generation”.
