21 March 2012

IFAC Sovereign Debt Seminar: Key findings

The IFAC seminar, 'The Sovereign Debt Crisis, a Matter of Urgency ― From Lessons to Reform', convened key decision-makers, public finance management leaders and others over two days in Vienna. The seminar exposed urgent need for transformation in public financial management.

The presentations, debates and discussions sought a comprehensive understanding of the causes contributing to the international sovereign debt crisis, and conveyed a clear and consistent message that the fiscal stress and instability associated with the crisis need to be addressed urgently, through a radical reform of public financial management systems and institutions in many countries.

“We heard over these two days that the problems with financial management and reporting are not confined to a small handful of European countries, but are widespread. There is a real danger of the current sovereign debt crisis, coupled with the fiscal challenges of aging populations, deepening into a global fiscal crisis—and it is therefore more urgent than ever that we act to bring about a radical transformation in public financial management”, said Ian Ball, CEO of IFAC. “Our goal is enhanced transparency and accountability on the part of public sector entities around the world. This would achieve long-term fiscal sustainability, more effective and efficient governments, and reduced risk of new fiscal crises.”

Key findings of the seminar included:

• The sovereign debt crisis has identified a compelling and urgent need for governments to address seriously the quality of their public financial management systems and institutions.
• The fiscal risks associated with the ageing population in many countries amplify the risks associated with poor fiscal measurement and management that have been exposed by the sovereign debt crisis.
• The current crisis has emphasised the deficiencies associated with cash-based accounting and budgeting.
• Governments need to adopt accrual accounting and budgeting to measure and manage fiscal position better.
• The adoption of IPSASs is necessary to provide global consistency and comparability in public sector financial reporting.
• Accrual accounting and IPSASs are being successfully implemented in many countries, including Australia, Austria, New Zealand, Spain, Switzerland and Sweden; these countries now have the tools for better resource allocation and fiscal decision-making.
• The accountancy profession has a key role to play in this transformation, and should be leaders and catalysts for change.
• Politicians, governments, and ministers of finance need to recognise the political advantages of high-quality financial management systems in absorbing and managing economic shocks.
• Conversely, politicians, governments, and ministers of finance need to recognise that the cost of failure in financial management can be a loss of sovereignty.
• Many stakeholders have a role to play: International organisations (like the Financial Stability Board) should consider the institutional changes necessary; citizens, investors, credit rating agencies and auditors general need to be educated, communicated with, and engaged.
• The International Public Sector Accounting Standards Board must have strong governance and legitimacy, as well as financial and operational stability.

Press release

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