Consolidation of government wide accounts. Presenter: Dr Onai Muvingi Graduate School of Management, University of Zimbabwe 28 February 2017

Transcription

1 Consolidation of government wide accounts Presenter: Dr Onai Muvingi Graduate School of Management, University of Zimbabwe 28 February 2017

2 Consolidation of Government Wide Accounts Presentation Format Introduction Is there value in consolidating government accounts? Who are the intended users of the consolidated government accounts and are they really useful? What is the significance of consolidated government accounts and do they enhance transparency and accountability? What are the challenges (practical and substantive, are there any public sector peculiarities) and how to overcome them? Understanding fiscal position implications

3 Consolidation of Government Wide Accounts Introduction Definition of Consolidated Government wide accounts the financial statements of an economic entity in which the assets, liabilities, net assets/equity, revenue, expenses and cash flows of the controlling entity and its controlled entities are presented as those of a single economic entity (IPSAS 35). The aim of preparing consolidated Government wide accounts..to provide an overview of the financial performance and financial position of the public sector (Comptroller and Auditor General(C&AG) United Kingdom).

4 Consolidation of Government Wide Accounts.Underpinning the practice of consolidation of public sector accounts is the adoption of a full accrual based accounting system. The principal drivers behind consolidation of government wide accounts include: Public Finance Management (PFM) reforms and the pursuit for cross-sector transfer of financial reporting practices from the private to the public sector; the development of International Public Sector Accounting Standards; and the citizens right to know

5 Is there value in consolidating government wide accounts Financial reporting by Public Sector entities not an end in itself. The objective is to provide information useful for accountability and decision-making purposes(conceptual Framework) Separate financial statements have a lower information value than the consolidated financial statement the whole of government financial reporting puts all resources and obligations together and provides an overall picture of the government (Wise, 2006; Newberry & Pont-Newby, 2009) A reporting system that that gives an overview of the public sector as a whole is a necessity.

6 Is there value in consolidating government wide accounts There is however considerable debate on value Adoption rate Limited use

7 Who are the intended users According to the Conceptual Framework the primary users are categorised as follows:- service recipients (and their representatives); resource providers (and their representatives); and citizens. In addition public finance management laws mentions:- Ministers; Senior officials; Parliament; and Supreme Audit Office.

8 Who are the intended users and do they use them The C & AG of the UK observes that WGA are being used by those within and outside of the Treasury For example Within Treasury, data collected for public corporations is shared with the Office of National Statistics to feed into the annual national statistics publication. Outside of government, the WGA has been utilised by a number of professional bodies. A recent study by ACCA (Chow et al 2015) concluded that financial markets, credit rating agencies and other analysts make little use of consolidated accounts.

9 Significance of consolidated financial statements Consolidated accounts are a reflection of the use of public resources. provide an overall image of the true and fair view of the financial position, performance, cashflows, economic obligations of public institutions and the cost of government activities. Afford users the opportunity to assess the full portfolios of assets and liabilities that the government holds. They enhance parliamentary scrutiny, accountability and performance evaluation.

10 The challenges with consolidation Insights from audit qualifications on UK consolidated government wide accounts the boundary of the WGA and its application; areas of inconsistency and disagreement over accounting treatments; the quality of the data that forms the accounts; delayed consolidation returns from significant components, such as government departments; the accuracy and completeness of intra government eliminations

11 The challenges with consolidation From literature review ( e.g. Gross 2008, 2009, Robb and Newberry, 2007) the other challenges relate to:- the selection of the consolidation methods; lack of expertise and know how (insufficient knowledge about consolidated reports); lack of staff; lack of appropriate software; and lack of political interest (especially the case when support for consolidated government accounts is not universal, but viewed mainly as an accounting-centric function for compliance reporting and auditing)

12 The challenges with consolidation Public Sector peculiarities Literature on consolidation of public sector financial statements notes the following: the need for political buy-in at the outset; parliamentary scrutiny, which theoretically could benefit from the implementation of consolidated government accounting, is conditional on greater financial literacy among politicians; The infrastructure for ensuring that parliamentary committee recommendations are followed up is underdeveloped; Poor automation and integration of government accounting systems.

13 How to overcome the challenges Harmonising accounting policies, practices, standards and reporting time frames for entities to be consolidated; Adapting accounting standards to local needs; Developing a Government Accounting Conceptual Framework to address public sector peculiarities; Modernise IT infrastructure and implement an integrated financial accounting system to improve reliability and integrity of data; Improving the basic financial literacy of parliamentarians and government officials; and Improving skills and capacity of preparers of consolidated accounts.

14 Understanding fiscal position implications Heald and Georgiou (2011) notes that the consolidated accounts of the UK have a macro-fiscal role because they:- facilitate fiscal transparency at the aggregate level, rather than at a more disaggregated level. The C&AG notes that: Source C& AG Report HM Treasury Whole of Government Accounts

15 Concluding remarks Though the consolidation of government wide accounts is considered as the best practice, a large number of Governments are yet to adopt full accrual accounting. The Governments that have adopted or adapted consolidation still face challenges and are working on solutions. Lessons can be learnt from those that have managed the full transition from cash to full accrual accounting.