1. Budget Execution Course Fiscal Reporting And Transparency David Shand OPCFM 9 April, 2003

2. 1. 1.Reporting on budget execution is an important aspect of accountability to the legislature and to the public, and in some cases for use by financial markets. Impact of fiscal rules/target 2. 2.Both CFAA and IMF Fiscal ROSC emphasize this 3. 3.In some countries (unaudited) budget results are published regularly throughout the year – quarterly or even monthly. 4. 4.But fiscal reporting needs to go beyond reporting on budget execution - also to cover overall financial results and position. In addition to reporting on financial flows (both operating and financing transactions) what information should be reported on government assets and liabilities and thus some concept “net equity” of government.

3. 5. 5.Are subsets of this more appropriate ? – for example reporting only on “financial” assets and liabilities. 6. 6.Good external transparency builds on internal transparency or information flows – which is important for the government’s management of its finances. 7. 7.Poor external reporting may not reflect a government being secretive about its finances – it may not know itself. 8. 8.Reporting is need both at the responsibility center (agency, ministry) level and the aggregate level – for both management and accountability purposes.

4. 9. 9.External reporting is one potential form of social control – but who may use these statements and with what effect? 10. 10.Two major fiscal documents are available the BUDGET DOCUMENTS – forward looking, but some past information, in relation to fiscal targets. But how comprehensive is the budget? The information is not audited. Should these be regarded as general purpose financial statements – subject to standards and audit. Standard used – usually some form of GFS (?) Often voluminous and incomprehensible.

5. 11. 11.the aggregate financial statements or PUBLIC ACCOUNTS. Historical information. Format and coverage may be different from the budget. The information is audited. May reflect legal “fund” concepts – e.g. consolidated fund, loan fund etc. in coverage of the budget 12. 12.In any case should reconcile information between the budget documents and public accounts 13. 13.Fiscal transparency legislation may govern some of this reporting – medium term fiscal frameworks and targets, economic assumption, fiscal risks, requirement for regular and pre- election updating

6. 14. 14.In addition individual ministries/agencies may prepare their own financial statements, usually audited. These reflect moves to greater responsibility for their own financial management. Usually cover more than just budget execution – perhaps a statement of assets and liabilities. 15. 15.Scope of the budget is important. What is the extent and nature of off-budget public financial transactions, for example extra-budgetary funds and public enterprises. How should budget reporting relate to reporting of the whole of government – i.e. what is the reporting entity, or what “layers” of reporting are appropriate, c.f. IPSAS reporting entity issue.

7. 16. 16.In many countries the aggregate financial statements - -may not be timely, reliable or not audited. - -may be unintelligible due to their format and length - -may reflect legal rather than management concepts (e.g. fund accounting) - -may be only loosely linked with the budget. 17. 17.What basis of reporting should be used – cash, obligations, modified accrual, full accrual. To what extent should this follow the budget basis? 18. 18.Need for international standards in fiscal reporting – who should set them? economists, accountants, statisticians? GFS, IPSAS, ESA95 International moves to harmonize these approaches

8. 19. 19.GFS has been a commonly accepted standard, used with variations by many governments for reporting in budget documents – but not public accounts. Most recent GFS manual issued in 2001 is accrual based. GFS reports in three parts – general government (central/state/local), non- public financial corporations and public financial corporations. This could be consolidated. Some discretion in GFS application. 20. 20.Accounting profession appears to regard GFS as a statistical tool for macro-economic analysis, (e.g. psbr) rather than as a measure of fiscal performance

9. 21. 21.International public sector accounting standards being developed by International Federation of Accountants (IFAC) Public Sector Committee. They do not cover budget reporting – specific project being developed. 22. 22.The 25 standards issued to date, are based largely on international accounting standards for the private sector and assume accrual based reporting, but there is a standard for cash accounting and guidance on transition to accrual accounting. The cash accounting standard requires disclosure of all receipts and payments “controlled” by the government and encourages additional disclosure in notes of assets, liabilities etc.

10. 23. 23.The definition of the entity is wider than GFS general government – concept of “control” would consolidate all government enterprises. But can report at more than one level. 24. 24.Both are based on similar concepts (accrual) and a common data base. Other differences include – military “assets” - debt provision - market values

11. 25.European System of Accounts 1995 (ESA95) Promulgated by Eurostat, a part of the EU It is the requirement for members of the EU Both GFS and ESA95 are consistent with 1993 System of National Accounts as regards definitions, accounting rules and classifications ESA95 differs in the presentation of its publication, and its concepts are more specific and precise ESA95 is more rules based than 1993 SNA GFS is harmonized with 1993 SNA but presentations and classifications are different The 202 GFS yearbook maps the ESA95 results to GFS

12. 26. 26.Given accrual basis of IPSAS and accruals basis of GFS, at what rate can countries move to the accruals basis. 27. 27.A pragmatic and gradual approach needed. - political and management commitment (why are we doing this ?) - technical capacity - resources (human and financial) Modified accrual first ? Pilots ? Budgets later ?

13. 28.New Zealand’s “Crown Financial Statements”(see www.treasury.govt.nz) Prepared in accordance with generally accepted accounting practice in New Zealand Statement of Financial Performance (operating balance before revaluations) Statement of Financial Position (Crown balance) Statement of Movements in Crown Equity Cash flow statement (operating and financing transactions) Statement of Contingent Liabilities Statement of Commitments etc etc