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ACCOUNTABILITY IN AN OPEN WORLD:

Financial Information Leading to Better Governance

Stephen Emasu - Bcom; MSc, FCCA


a) b) c) Short-Term PFM Expert with the IMF-FAD; PFM Practitioner on assignments with WB & DFID etc Free-lance consultant

AN OPEN WORLD has many stakeholders


Led to emergence of General Purpose Financial Statements GPFSs a) b) Presumed internal stakeholders; and External stakeholders have common interests Governance

In practice internal users managers already know how their reporting entity is performing and hence less interested unless there is a beneficial interest bonus and performance rewards Internal users use the information for planning and monitoring hence Budget Execution Reports are more critical

External Stakeholders are varied


1. External users are varied and more interested than internal users - good for governance 2. The GPFSs contribute significantly to strengthening governance 3. In Africa politicians value the GPFSs holding the executive to account - how resources have been used - transparency, economics, lawfully 4. However, the politicians need capacity to understand GPFS better 5. The ordinary public most do not understand the financial statements it is for accountants!

GPFSs still a long way to travel!


Due to:1) GPFS based on private sector approach
2) Integrated financial reporting is yet to embraced by reporting entities in Africa 3) Complexity of the financial statements often crafted in technical terms

4) Historical information comes at least 6 months after the year end- shop has been closed-

lack of timeliness

COVERAGE OF THE GPFS Increase the coverageintegrated reporting more next steps needed

1. The GPFSs have had a narrow focus on financial figures - the impeccable figures - how about the glamorous non-financial information? 2. The inclusion of non-financial information - good steps - but there is still room for improvements difficult though! 3. Governance issues relies increasingly on:
a) b) c) d) Was the appropriation respected? budget execution Was there value for money? economy, efficiency, effectiveness Was the regulatory environment respected? - oversight is PFM functioning as it should? automation of systems

COMPLEXITY OF GPFSs Understandability?


1. The GPFSs are by no means easy to understand

2. Better governance is associated with the level of understanding and the ability to interpret the financial statements 3. The GPFSs are increasingly couched in complex language even for professional accountants
4. There should be a way to make them understandable and factual for effective oversight

A ONE-FIT SOLUTION MAY NOT BE THE SOLUTION


1. GPFSs is a one-fit solution but governments vary private sector has standards for SMEs how about those islands in the Caribbean's, failed states? Central government, departments, agencies, sub-national governments, subsidiary agencies, projects often off-budget Consolidation a huge issue as against Whole of Government approach control very difficult to understand in the public sector Revenue recognition on appropriation or on receipt or when due?

2. 3.

4.

5.
6.

Compromising national security accounting standard for classified expenditures


LACK OF GLOBAL UNIFORMITY IPSAS EPSAS- IFRS - National Standards

SPECIFIC NEEDS OF THE PUBLIC SECTOR


Issues in the public sector are diverse:

a) Implementing the budget as appropriated


b) Use of funds transparently & Value for money c) Compliance with all applicable laws

d) Public debt, contingent liabilities


e) Non-financial information f) Cash v Accruals

Do GPFSs Promote Transparency/Governance Still a long way to go..


GPFSs Brief Comments

1- Statement of Financial Performance 2- Statement of Financial Position 3- Statement of Changes in 4- Equity/Net Assets 5- Cash Flow Statement 6- Accounting Policies/Disclosure Notes Critical areas for Transparency/Governance Budget Execution Reports/Statement of Appropriation Statement of Public Debt Statement of Contingent Liabilities Reporting based on programs - PBB

Very important Not well appreciated/understood Not well appreciated/understood Very important Important

Reporting budget information IPSAS.. Is inadequate Simply a disclosure note inadequate Also a disclosure note - inadequate None at all PBB linked to MTEF

Concluding remarks There is still work


More work more opportunities .

Consider:-

a) Harmonization and uniformity

b) Simplify
c) Be more Public Sector Specific
Hopefully will contribute to greater transparency and effective governance in the Public Sector

Thank you for listening