Transcript Government Accounting and Financial Reporting in Latin

Government Accounting and Financial
Reporting in Latin America:
The State of Public Finance
Victoria Renée Narváez Alonso, General Secretary, CGR, Chile
Svetlana Klimenko, Lead Financial Management Specialist, The World Bank Group
Paris, OECD, February 26-27, 2015
Evolution of Reforms in Latin America:
Fiscal Discipline and Management of Government Finances
Initial reforms focused on macro-fiscal
stabilization.
• Macroeconomic reforms of the mid-80s to
early 2000s
Fiscal
Sustainability
Fiscal Stability
Fiscal Position
Subsequent reforms shifted towards
management of public resources and
delivery of services.
•
Reduce inflation
•
Control budget deficits
•
Attract foreign direct investments
• Higher growth rates since 2003 (with
some interruptions) contributed to:
• Lower poverty rates
• Expanding middle class
• Greater demands for improvements in the
quality of public services
• Increased calls for transparency and
accountability
This evolution of reforms in Latin America reflects the interdisciplinary approach needed for a
well-functioning state and underscores the importance of government credibility.
The World Bank Group
• Tackled structural and macro-fiscal issues and
helped to:
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Evolution of Reforms in Latin America:
Fiscal Discipline and Management of Government Finances
Focus of PFM Reforms in Latin America
The budget:
• Is a strategic link between
POLICIES and
IMPLEMENTATION.
• Allocates resources among
competing priorities.
“The budget is the single most
important policy document of
governments, where policy
objectives are reconciled and
implemented in concrete
terms.”
Source: OECD Best Practices for Budget
Transparency.
• 6 countries have
MTBFs but
others have
practices that
are consistent
with MTBFs in
place.
• 10 countries use
PB at the central
govt. level; 4
countries use it
in line
ministries.
Performance
Budgeting (PB)
and
Management
Initiatives
Medium-Term
Budget
Frameworks
(MTBF)
Integrated
Financial
Management
Information
Systems (IFMIS)
Fiscal Rules and
Fiscal
Responsibility
Laws (FRLs)
• All countries have
made changes but
reform in this area
remains
incomplete.
The World Bank Group
Centrality of the Budget
• 9 countries
currently have
fiscal rules or
FRLs.
Historically, reforms focused on the budgeting process given its importance. However, the
2008 global financial crisis highlighted a missing (neglected) piece in PFM reforms.
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Evolution of Reforms in Latin America:
Missing (neglected) Piece: Accounting and Financial Reporting
“Information contained in
financial statements helps in
compliance with fiscal rules.”
Source: Cangiano et al. 2013.
Budget
Accounting
and
Financial
Reporting
Financial
Statistics
Accounting and financial reporting are
the foundations of proper budgeting
and fiscal projections.
• Adherence to fiscal rules is largely nugatory
without accurate information.
• Unsustainable increases in expenditure likely
in absence of proper understanding of
available revenue.
• Unbudgeted liabilities could lead to fiscal
crisis unless contingent liabilities are
accounted for properly.
The World Bank Group
Key Pieces of Fiscal Information
• Unrealistic economic projections arise with
incomplete information.
GFS Manual 2014 “recognizes the close relationship
between guidelines for reporting GFS and accruals
based public sector accounting standards.”
As was illustrated by the recent global financial crisis, often the importance of an item is
highlighted by the consequence of its omission.
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Global Trends: Harmonization of Standards AND Processes
Relevance to Latin American Reforms
Different Standards, Practices, and Staff
Budgeting
(OECD*)
Statistics
(GFS/SNA)
Accounting
(IPSAS)
TO….
Convergence attempts at international
and regional (EU) level
• Ongoing convergence of standards to
improve fiscal transparency and minimize
risks (e.g., GFS/IPSAS).
• In the EU, the focus is on harmonization
of standards (EPSAS) AND processes
(EU Directive 2011/85 EU – Budgetary
Framework, “Sixpack” regulation).
The World Bank Group
FROM…
Lack of harmonization in preparing
government information
GFSM 2014 & Current Reforms in Latin America
Statistics & Accounting Standards  ACCRUAL BASIS
RISKS to Policy – and Decision Making
(e.g., debt, cost of capital, revenue)
* No international standards; OECD Best Practices.
Budgeting  CASH BASIS
Practices  Diverse and Inconsistent
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Current State of
Accounting and Financial Reporting Reforms
The World Bank Group
The Survey
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Part 1
Part 2
Implementation
Progress of Reforms
Current Reporting and
Accounting Practices
• Accountants General of 18 selected countries
(83% response rate).
• Argentina did not respond; Bolivia and Venezuela responded
only to Part 2.
• Self-assessment.
• Open and Close-ended questions.
• International Public Sector Accounting Standards (IPSAS) as
reference.
The World Bank Group
Method
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Survey Results Part 1
Implementation Progress of Reforms
Accounting and Reporting Reform
All have plans to modernize their government accounting and
financial reporting systems, including:
The World Bank Group
• Adoption of IPSAS
• FMIS Updates
Basis of Accounting
Mexico
Panama
Uruguay
Brazil
Chile
Costa Rica
Dom. Rep.
Honduras
Paraguay
Peru
Colombia
Ecuador
El Salvador
Nicaragua
Cash to modified accrual basis
Cash to accrual basis IPSAS
Modified accrual basis to IPSAS Different accrual bases to IPSAS
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Survey Results Part 1
Implementation Progress of Reforms
Perceived Benefits and Advantages of IPSAS Adoption
Improve transparency and
accountability of governments
12
10
Harmonize accounting standards
8
Effective and efficient use of
resource
6
4
Improve the quality of decisionmaking
2
0
Provide reliable basis for audits and
financial control
Facilitate comparison at the
international level
Reflect the economic reality of
public bodies more reliably and
consistently
The World Bank Group
Improve perceptions in the market
Strengthen fiscal sustainability
Provide complete information on
assets and liabilities
Standardize the information
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Survey Results Part 1
Implementation Progress of Reforms
Legal Framework and Adoption of IPSAS
Based on national law,
which complies with the
requirements of IPSAS
Need to modify legal framework, but relatively simple
Implications for:
• Harmonization of accounting standards
in the public sector
• Comparability of financial statements
• Delays
•
Approximately equal divide between phased and “Big Bang” implementation approach
The World Bank Group
Strong preference for “indirect adoption” of IPSAS
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Survey Results Part 1
Country
Progress
Expected Year of First IPSAS
Financial Statements
Costa Rica
54% - 59%
2016
Dominican Republic
Analysis Stage
2016
Peru
75%
2016
Honduras
35%
2017
Colombia
70%
2017
El Salvador
30%
2018
Uruguay
Moderate
2018
Chile
To begin in 2016
2019
Ecuador
10%
2019
Brazil
Fair
2020
Mexico
10%
2020
Panama
20%
2021
Paraguay
Analysis Stage
Not stated
The World Bank Group
Implementation Progress of Reforms: Are the Dates Realistic?
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Survey Results Part 1
Implementation Progress of Reforms
Perceived Obstacles and Disadvantages of IPSAS Adoption
Associated costs
The World Bank Group
Time and investment requirement
Shortage of local experts
Prevalence of budget information
Resistance to change
Ignorance of the importance of government accounting
Need for change in the regulations (laws)
12
Lack of trained personnel as agents of change
0
1
2
3
4
5
6
7
8
9
10
Survey Results
Part 1
Implementation Progress of Reforms
Priority Technical Areas for Implementation of IPSAS
The World Bank Group
Fixed and intangible assets
Fixed asset management
Transition to accrual accounting
Contingencies and provisions
Tax revenue recognition
Update or acquisition of computing platform
13
Employee benefits
0
1
2
3
4
5
6
7
8
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Survey Results
Part 1
Implementation Progress of Reforms
Modalities and Critical Areas of Support
Preferred Support Modalities
The World Bank Group
12
10
8
6
4
2
0
Peer review
Training
Opportunities to
interact with
peers or experts
Exchange of
expertise
Technical
Assistance
In addition to technical areas, support is needed in: budget and
accounting integration, organizational restructuring, IFMIS, electronic
consolidation tools…
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Main Messages
Part 1
Implementation Progress of Reforms
Countries are motivated by the benefits of adopting IPSAS
but aware of the obstacles to successful implementation.
Further integration of fiscal statistics, budgeting
information, and financial accounting is important.
The World Bank Group
There are incentives and strong pressure to adopt accrual
accounting standards.
Accrual accounting standards minimize tendencies to work in
silos to reduce time and costs.
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Survey Results
Part 2
Current Reporting and Accounting Practices
Scope of Financial Statements
The World Bank Group
Compares the scope of currently prepared financial reports with the requirements
included in IPSAS 1 “Presentation of Financial Statements”
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Survey Results
Part 2
Current Reporting and Accounting Practices
Coverage of the Financial Statements
Statement of Financial Performance
Statement of Financial Position
8
7
6
1
(i) Whole of
Government
(ii) General (iii) Central
Government Government
(central,
state and
local)
1
(iv) limited
entities
within the
Central
Government
6
1
(i) Whole of
Government
The World Bank Group
Government entities included in the prepared financial statements
(Classification aligned with the GFSM 2001)
(ii) General
(iii) Central
Government Government
(central, state
and local)
1
(iv) limited
entities
within the
Central
Government
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Survey Results
Part 2
Current Reporting and Accounting Practices
Coverage of the Financial Statements (continued)
Government entities included in the prepared financial statements
(Classification aligned with the GFSM 2001)
6
4
1
(i) Whole of
Government
(ii) General
Government
(central, state and
local)
1
(iii) Central
Government
The World Bank Group
Statement of Cash Flow
(iv) limited entities
within the Central
Government
• Costa Rica reports at the level of general government; Mexico reports at
the level of limited entities.
• No consistency of what should comprise government-controlled entities.
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Survey Results
Part 2
Current Reporting and Accounting Practices
Comprehensiveness and Classification of Information
Presented on the Face of Financial Statements
i)
Fixed and intangible assets, deferred and other assets and liabilities, financial
instruments, pensions, and other post-employment liabilities (Statement of
Financial Position). “Other” categories are used as a “parking space.”
ii) Transfers, own revenues, non-budgetary transactions, and grants paid
(Statement of Financial Performance).
The World Bank Group
Respondents overall follow the recommendations of IPSAS 1.
Areas requiring attention:
iii) Payments made by third parties on behalf of the government and
classification of cash flows by operating, investing, and financing activities
(Cash Flow Statement).
iv) Segregation of amounts related to property revaluation, foreign exchange
differences, and investment revaluations (Statement of Changes in Net
Assets).
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Survey Results
Part 2
Current Reporting and Accounting Practices
Notes to the Financial Statements
16
15
16
11
11
12
13
12
12
11
9
6
3
The World Bank Group
Notes to Financial Statements
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Survey Results
Part 2
Current Reporting and Accounting Practices
Accountability and Transparency
Existing disclosure practices with respect to financial information and external audits
The World Bank Group
15
12
9
6
13
10
6
3
0
Published Financial
Statements
SAI Issued Opinion
FS Include SAI
Opionion
Of nine issued opinions, two are unqualified; five are qualified; one is
a disclaimer; and one is a negative opinion.
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Survey Results
Part 2
Current Reporting and Accounting Practices
16
9
8
8
7
6
The World Bank Group
Recognition and Measurement of PPE
4
Cost at Acq. Fair Value at
Acq.
Both Meas.
At Acq
Cost at Post- Fair Value at
Acq
Post-Acq
Both Meas.
At Post-Acq
Neither at
Post-Acq
• Simultaneous use of the fair value and cost as measurement method poses a
question about the underlying policy.
• Only 9 countries systemically recognize depreciation.
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Survey Results
Part 2
Current Reporting and Accounting Practices
Definition of a taxable event for three key taxes:
• Income Tax: 14 countries - “earning of assessable income during the taxation
period by the taxpayer”
• Value Added Tax: 15 countries - “the undertaking of taxable activity during the
taxation period by the taxpayer”
• Property Tax: 12 countries - “passing of the date on which the tax is levied, or
the period for which the tax is levied”
However, at the moment, tax revenue is measured and recognized in:
• 8 countries at the time of actual cash collection (Dominican Republic, Ecuador,
El Salvador, Guatemala, Honduras, Mexico, Paraguay, and Venezuela).
• 4 countries in the tax returns presented by the taxpayers (Chile, Colombia,
Nicaragua, and Peru).
• 8 countries disclose their policies for the recognition and measurement of tax
revenue in the Notes, and 6 countries recognize the advance payment of taxes
as an asset with the respective liability.
The World Bank Group
Recognition and Measurement of Tax Revenue
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Survey Results
Part 2
Current Reporting and Accounting Practices
16
16
7
4
Wages, Salaries,
Annual and
Sick Leave
Social Security
Defined
Contribution
Plan
Defined Benefit
Plan
6
Post-employm.
Ins. & Med.
Care
5
The World Bank Group
Types of Employee Benefits Included in Financial Statements and
Approach Used to Measure the Value of the Defined Benefit Pension Plans
Termination
Benefits
• 4 countries use both Defined Contribution and Defined Benefit Plan.
• 3 countries (Colombia, Costa Rica, and Peru) determine the present value of
Defined Benefit obligations and fair value of assets, using actuarial
assumptions.
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Conclusions
Analysis of the survey results shows:
• Universal need to better-understand, document,
and optimize links connecting financial reporting,
budgeting, and fiscal reporting processes.
Solutions will require engagements at both the country and regional levels:
• Country level: To harmonize laws, regulations, policies, and procedures to
enable implementation across different levels of government.
• Regional level: To facilitate knowledge sharing and dissemination, and deepen
collaborations to identify common, cost-effective solutions.
The World Bank Group
• Similarities in the challenges faced, from application
and compliance with technical standards to adapting
and integrating systems and processes.
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In tandem with the reforms taking place in countries, a few areas merit
further attention:
• How does the introduction of accrual accounting impact the budgeting
process and the preparation of GFS?
• What role can government internal and external auditors play in the reform
process?
• While anecdotal evidence points to linkages between greater transparency
and accountability and improved service delivery, how can this correlation
be better understood and documented?
A starting point would be systematic documentation and dissemination of:
• Individual country approaches to adoption and implementation of accrual
accounting or IPSAS
• Analysis and use of applicable international experiences and practices
• Coordination of the on-going and planned accounting and financial reporting
reforms at the regional level.
The World Bank Group
Conclusions
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División de Análisis Contable
Área o Unidad
IPSAS ADOPTION IN CHILE
Local context today
 The General Comptroller Office (Contraloría General de la
República or “CGR”) is in charge of setting the national
accounting standards.
 Public sector entities register their accounting information
according to a national standard, but they do not present
financial statements.
 CGR adds the information in a report where it is presented in
four separate sectors: Central Government; Municipal Sector,
State Higher Education Institutions; and Government
Business Enterprises.
Benefits
 There will be more complete information about assets
and liabilities of public entities.
 The adoption of IPSAS will increases the transparency
and the accountability of the financial administration.
 IPSAS delivers new and more accurate information
for the decision making process.
Strategic decisions for IPSAS adoption
9. Use of a transitional period for the first-time adoption of IPSAS in
accordance with IPSAS 33
8. Partnership with the Ministry of Finance
7. Modify the existing information systems
6. Dissemination and training programs lead by CGR, universities and
audit firms
5. Collaboration from universities and audit firms as revision groups
4. Codesign of the new standard with public sector entities between
the years 2011 an 2014
3. Indirect adoption of IPSAS through the issue of a new national
standard
2. Adopt all IPSAS simultaneously
1. Gradual implementation by sectors
Implementation chronogram in the Central Government
CGR issued
resolution with
the national
standard for
the indirect
adoption of
IPSAS
Begins the
application of
the new
standard
Presentation
of non
comparative
transitional
financial
statements.
Presentation
of
comparative
transitional
financial
statements
Presentation
of the first
IPSAS financial
statements