Public-sector record-keeping review too important to delay further

Published on Wednesday 27 January 2010 18:06

FOR many not directly involved in public-sector financial reporting, the move to International Financial Reporting Standards (IFRS) for all public-sector entities must feel like finance colleagues creating another self-generating cottage industry.

Shadow accounts, restated balance sheets and further audit reviews leading to the holy grail of WGA (Whole of Government Accounts) seem curious distractions at a time when the public sector is facing huge funding challenges.

It is perhaps an apposite time, therefore, to reiterate why such significant changes in financial reporting are taking place.

The reasons for the adoption of IFRS and those for preparing WGA are different, but have the same broad principles of consistency and comparability. IFRS have been accepted across most of the developed world as a set of appropriate standards for financial reporting. In the commercial sector, this has become important with the globalisation of capital markets. It is also important that public-sector entities report under these accepted standards to promote comparability between organisations and across sectors.

The consistency and comparability arguments also hold true for WGA. The original stimulus for WGA came in a Treasury scoping study in 1998 and the reasons still hold true. Consolidation of public-sector organisations into one set of accounts provides an overview of the financial state of the UK government and makes comparisons with other data possible. Given the greater interaction between public bodies, for example, and shared service initiatives, such a view has grown in importance.

Making informed comments on changes in the net worth of the UK government should also be possible once a history of WGA accounts is available. This will mean, for example, the full underfunding of public employee pensions can be tracked, as will the government's pledge to make sustainable investment into physical and social infrastructure. The adoption of IFRS across the public sector will also bring consistency in the treatment of PFI and other PPP contracts, with many schemes brought finally on the public-sector balance sheet.

The WGA process has also brought an improved level of discipline. In the past, some departments have been notorious for the length of time taken to finalise accounts. Fiscal decision-making has been made far more difficult given previous year figures have not been finalised. The disciplines of WGA have brought a significant improvement in the timeliness of public-sector financial reporting.

The full realisation of the benefits coming from WGA remains theoretical. The 1998 study envisaged the first full set of WGA being published in 2005-6. This target came and went. The most recent timetable is for 2009-10 accounts to be published towards the end of 2010. Given that local government will move to IFRS in 2010-11 – a year later than central government and the NHS – it is quite possible that this will be given as a reason for further delay. Issues such as ensuring consistency between local and central government in the valuation of the road network remain outstanding and may hold back publication.

That this whole process will have taken more than ten years to complete is testament to its complexity. However, many commentators believe that at least some of the delay has been caused by political stalling due to concern that the picture painted of government finances would be portrayed as poor in the media.

The WGA initiative has the potential to deliver real benefits. Whoever is in government next will be faced with a long and difficult agenda of issues. Notwithstanding these challenges, it is imperative that a real commitment is given to the earliest publication of WGA. The alternative is that this initiative loses all credibility.

&#149 Nick Bennett, former chair of CIPFA/LASAAC and senior public sector partner at Scott-Moncrieff.