The Covid pandemic, the geopolitical situation in Europe, and rising inflation and interest rates have seen the role of government become increasingly important – and particularly the management of public finances to respond to crisis events.
So said Sudhir Soni, BSR & Co head of audit, at the 21st World Congress of Accountants in Mumbai, India. With ‘at least 25 countries with government debt at 300% of GDP’ compared to zero in the 1990s, public finance management around the world has been ‘severely challenged’ by the pandemic, volatile markets, climate change and sustainable development, Soni added.
‘Are we sitting on a global time-bomb, with major scams and irregularities still to be unearthed?'
Accrual accounting migration
One of the problems highlighted by the pandemic, said Srinivas Gurazada, global lead for public financial management at the World Bank, is that many countries’ governments have not yet migrated from a cash basis of accounting to an accruals basis – meaning public finance information is incomplete.
During Covid, he said, many countries lowered their controls to deliver financial aid with speed.
‘Are we sitting on a global time-bomb, with major scams and irregularities still to be unearthed?’ Gurazada asked. ‘Audit trails were lost, and systems were created outside the normal public financial management systems – how do you ensure control and accountability to that when a new crisis hits? These areas are going to be extremely important.’
‘I think as an accounting community, we need to scale up and work with governments to get countries moving to accrual accounting,’ Gurazada added.
Joseph Owolabi, incoming ACCA president, said the challenges with migrating from cash accounting to accrual-based accounting are ‘quite huge’. Many governments around the world, he said, are used to cash-based accounting mechanisms. Soni noted only 30% of countries use accrual accounting, while ‘another 40% of them are moving towards accrual accounting’. Frequent political leadership changes, such as those in the UK and Australia in recent years, can also create uncertainty for reporting, Owolabi added.
The ACCA has played ‘a very pivotal role’ in public sector finances for the last 12 years, Owolabi said, especially in countries that do not have the capacity or political will to improve public finance management.
‘From countries such as Malawi, Ecuador and Nigeria, the ACCA has helped governments in capacity building, to ensure that their finance professionals have the skills and competence to deliver regarding accrual accounting.’
The ACCA’s most recent work in the area has been the release of A global guide for professionalisation in public sector finance. Produced jointly with IFAC, and launched at World Congress, ‘it spells out what is needed to move or transition to accrual accounting,’ Owolabi said, adding that accountants and ACCA members globally had ‘called for more upskilling and professionalisation in the public sector space’.
‘The three key areas we focused on in the report are: outlining what “professionalism” means; articulating the benefits of public sector finance professionalism to the economy, governments and individuals; and providing a roadmap for implementation.’
‘There’s an information asymmetry between accounting and government public financial management systems'
But public financial management ‘is too important to be left fully to governments,’ argued Kesavan Srinivasan, chairman of the Government Accounting Standards Advisory Board in Delhi.
‘There’s a kind of information asymmetry between professional accounting organisations and government public financial management systems. We need partners – we need professional accounting organisations to be fully fledged partners in this endeavour.’
Ian Carruthers, chair of the International Public Sector Accounting Standards Board, agreed: ‘Having worked in PwC and the UK Treasury, the answer is that no one has a monopoly on all the knowledge – you need to bring the public sector and private sector to work together.
‘It involves working together in many different capacities over a period, and not just for accrual accounting implementation – you need that skills transfer to happen afterwards, and continuously.’
'Government can’t solve problems alone. The private sector has skills that can be leveraged'
Governments need professional skills from private sector organisations, Carruthers added, because often ‘there’s a capacity issue, a lot of challenges in terms of data or the sort of systems required in terms of data collection, with designing the new processes and so on; you need that skills transfer’ – and that is where accountants and accountancy organisations can help.
Owolabi said there are ‘two core areas for collaboration between private sector and public sector’. One potential area, he said, is between regulators or government departments, and industry-focused groups (such as telecoms, financial services, manufacturing and mining) that are predominantly private sector-driven, ‘because the challenge is there and the opportunities are similar’.
The second, Olowabi added, will be around critical or major themes such as sustainability, climate crises and cybersecurity: ‘These issues have common themes where you need both private sector and public sector insights – you can’t solve those problems as government alone. The private sector has skills that can be leveraged and implemented.'