Budget Execution Course

Fiscal Reporting And Transparency

David ShandDavid ShandOPCFMOPCFM

17 January, 200317 January, 2003

1.1. Reporting on budget execution is an important aspect of Reporting on budget execution is an important aspect of accountability to the legislature and to the public, and in accountability to the legislature and to the public, and in some cases for use by financial markets. Impact of fiscal some cases for use by financial markets. Impact of fiscal rules/targetsrules/targets

2.2. In some countries budget results are published regularly In some countries budget results are published regularly throughout the year – quarterly or even monthly.throughout the year – quarterly or even monthly.

3.3. But fiscal reporting needs to go beyond reporting on But fiscal reporting needs to go beyond reporting on budget execution. Needs also to cover overall financial budget execution. Needs also to cover overall financial results and position. In addition to reporting on results and position. In addition to reporting on financial flows (both operating and financing financial flows (both operating and financing transactions) what information should be reported on transactions) what information should be reported on government assets and liabilities and thus some concept government assets and liabilities and thus some concept “net equity” of government.“net equity” of government.

4.4. Are subsets of this more appropriate ? – for Are subsets of this more appropriate ? – for example reporting only on “financial” assets and example reporting only on “financial” assets and liabilities.liabilities.

5.5. Good external transparency builds on internal Good external transparency builds on internal transparency or information flows – which is transparency or information flows – which is important for the government’s management of important for the government’s management of its finances.its finances.

6.6. Poor external reporting may not reflect a Poor external reporting may not reflect a government being secretive about its finances – it government being secretive about its finances – it may not know itself.may not know itself.

7.7. Reporting is need both at the responsibility Reporting is need both at the responsibility center (agency, ministry) level and the aggregate center (agency, ministry) level and the aggregate level – for both management and accountability level – for both management and accountability purposes.purposes.

8.8. External reporting is one potential form of social External reporting is one potential form of social control – but who may use these statements and with control – but who may use these statements and with what effect?what effect?

9.9. Two major fiscal documents are available Two major fiscal documents are available a)a) the budget documents – forward looking , but some past the budget documents – forward looking , but some past

information, in relation to fiscal targets. But how information, in relation to fiscal targets. But how comprehensive is the budget? The information is not audited. comprehensive is the budget? The information is not audited. Should these be regarded as general purpose financial Should these be regarded as general purpose financial statements – subject to standards and audit. Standard used – statements – subject to standards and audit. Standard used – usually some form of GFS (?).usually some form of GFS (?).

b)b) the aggregate financial statements or public accounts. the aggregate financial statements or public accounts. Historical information. Format and coverage may be Historical information. Format and coverage may be different from the budget. The information is audited. May different from the budget. The information is audited. May reflect legal “fund” concepts – e.g. consolidated fund, loan reflect legal “fund” concepts – e.g. consolidated fund, loan fund etc. in coverage of the budget.fund etc. in coverage of the budget.

10.10. In addition individual ministries/agencies may prepare In addition individual ministries/agencies may prepare their own financial statements, usually audited. These their own financial statements, usually audited. These reflect moves to have them exercise greater responsibility reflect moves to have them exercise greater responsibility for their own financial management. They usually cover for their own financial management. They usually cover more than just budget execution.more than just budget execution.

11.11. The scope of the budget is an important reporting issue. The scope of the budget is an important reporting issue. What is the extent and nature of off-budget public What is the extent and nature of off-budget public financial transactions, for example extra-budgetary funds financial transactions, for example extra-budgetary funds and public enterprises. How should budget reporting and public enterprises. How should budget reporting relate to reporting of the whole of government – i.e. what relate to reporting of the whole of government – i.e. what is the reporting entity. is the reporting entity.

12.12. In many countries the aggregate financial In many countries the aggregate financial statementsstatements

• may not be timely, reliable or not audited.may not be timely, reliable or not audited. • may be unintelligible due to their format and lengthmay be unintelligible due to their format and length • may reflect legal rather than management concepts may reflect legal rather than management concepts

(e.g. fund accounting)(e.g. fund accounting) • may be only loosely linked with the budget.may be only loosely linked with the budget.

13.13. What basis of reporting should be used – cash, What basis of reporting should be used – cash, obligations, modified accrual, full accrual. To obligations, modified accrual, full accrual. To what extent should this follow the budget basis?what extent should this follow the budget basis?

14.14. Need for international standards in fiscal Need for international standards in fiscal reporting – who should set them? economists, reporting – who should set them? economists, accountants, statisticians?accountants, statisticians?

15.15. GFS has been a commonly accepted standard, GFS has been a commonly accepted standard, used with variations by many governments for used with variations by many governments for reporting in budget documents – but not public reporting in budget documents – but not public accounts. Most recent GFS manual issued in accounts. Most recent GFS manual issued in 2001 and is accrual based. GFS reports in three 2001 and is accrual based. GFS reports in three parts – general government (central/state/local), parts – general government (central/state/local), non-public financial corporations and public non-public financial corporations and public financial corporations. This could be financial corporations. This could be consolidated.consolidated.

16.16. Accounting profession appears to regard GFS as Accounting profession appears to regard GFS as a statistical tool for macro-economic analysis, a statistical tool for macro-economic analysis, (e.g. psbr) rather than as a measure of fiscal (e.g. psbr) rather than as a measure of fiscal performanceperformance

17.17. International public sector accounting standards being International public sector accounting standards being developed by International Federation of Accountants developed by International Federation of Accountants (IFAC) Public Sector Committee. They do not cover (IFAC) Public Sector Committee. They do not cover budget reporting – specific project on this.budget reporting – specific project on this.

18.18. The 25 standards issued to date, are based largely on The 25 standards issued to date, are based largely on international accounting standards for the private sector international accounting standards for the private sector and assume accrual based reporting, but there is a and assume accrual based reporting, but there is a standard for cash accounting and guidance on transition standard for cash accounting and guidance on transition to accrual accounting. The cash accounting standard to accrual accounting. The cash accounting standard requires disclosure of all receipts and payments requires disclosure of all receipts and payments “controlled” by the government and encourages “controlled” by the government and encourages additional disclosure in notes of assets, liabilities etc.additional disclosure in notes of assets, liabilities etc.

19.19. The definition of the entity is wider than GFS general The definition of the entity is wider than GFS general government – concept of “control” would consolidate government – concept of “control” would consolidate all government enterprises. But can report at more all government enterprises. But can report at more than one level. than one level.

20.20. Both are based on similar concepts (accrual) and a Both are based on similar concepts (accrual) and a common data base.common data base.

21.21. New Zealand’s “Crown Financial Statements”New Zealand’s “Crown Financial Statements”• Prepared in accordance with generally accepted accounting Prepared in accordance with generally accepted accounting

practice in New Zealandpractice in New Zealand• Statement of Financial Performance (operating balance Statement of Financial Performance (operating balance

before revaluations)before revaluations)• Statement of Financial Position (Crown balance) Statement of Financial Position (Crown balance) • Statement of Movements in Crown EquityStatement of Movements in Crown Equity• Cash flow statement (operating and financing transactions) Cash flow statement (operating and financing transactions) • Statement of Contingent Liabilities Statement of Contingent Liabilities • Statement of Commitments etc etcStatement of Commitments etc etc

22. Given accrual basis of IPSAS and 22. Given accrual basis of IPSAS and accruals basis of GFS, at what rate can accruals basis of GFS, at what rate can countries move to the accruals basis.countries move to the accruals basis.

23. A pragmatic and gradual approach 23. A pragmatic and gradual approach needed. needed.