Ladies and gentlemen, thank you for inviting me to address you today. As the title of my presentation suggests, I am going to talk about public sector financial reporting and why we need to raise our expectations of governments. However, I want to frame my comments in the context of our expectations of financial reporting in the private sector. Over recent years our expectations of the quality of financial reporting and auditing in the private sector have increased dramatically, and the efforts that have been devoted to achieving those changed expectations have been enormous. I wish to contrast this with what has happened, or more accurately, what has not happened, in the public sector.

To be clear, I am not suggesting that nothing has happened in the public sector. Indeed I have been personally involved in some of that change, as, I am sure, have many of you. However, I do observe a large gulf between the inclination of governments internationally to act to enhance private sector financial reporting and the relative lack of urgency devoted to improving their own financial reporting and financial management. Let me begin with some comments on corporate failures and the response of regulators and the accountancy profession to those failures.

Taxes are the major source of revenue for most governments, but internationally agreed requirements for accounting for them in general purpose financial statements have not yet been developed. To deal with this major gap in international accounting requirements for governments, the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC) has issued a proposed standard on the financial reporting of revenue from non-exchange transactions, including taxes and transfers.

The exposure draft (ED) of the proposed International Public Sector Accounting Standard (IPSAS), Revenue from Non-Exchange Transactions (Including Taxes and Transfers), deals with a range of matters critical to government financial reporting of taxes, including the basis on which a wide range of taxes should be recognized and how they should be measured. The ED also addresses accounting for other major sources of non-exchange revenue for public sector entities, including transfers from other governments and international organizations, and gifts and donations. The ED also provides guidance on how conditions and restrictions on the use of transferred resources are to be reflected in the financial statements.

"The ED is the result of three years of intense work with the contribution of public finance specialists. It reflects present priorities of the IPSASB with respect to public sector specific issues. The ED proposes the establishment of an international benchmark for the financial reporting of taxes and other major non-exchange revenues of governments. Compliance with the requirements proposed in the ED will enhance the quality, comparability and transparency of financial reporting by public sector entities around the world," says IPSASB Chair Philippe Adhémar.

Given the importance of the subject of this ED to public sector reporting entities, a five-month comment period has been provided to ensure that all constituents have sufficient time to consider and respond to the proposed requirements.

How to Comment

Comments on the ED are requested by June 30, 2006. The ED may be viewed by going to https://www.ifac.org/EDs. Comments may be submitted by email to publicsectorpubs@ifac.org. They can also be faxed to the attention of the IPSASB Technical Director at +1 (212) 286-9570 or mailed to IFAC, 545 Fifth Avenue, 14th Floor, New York, NY 10017, USA. All comments will be considered a matter of public record and will ultimately be posted on IFAC's website.

About IFAC

IFAC is the worldwide organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. Its current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international public sector financial reporting standards through the IPSASB, IFAC sets international standards of ethics, auditing and assurance, and education. It also issues guidance to encourage high-quality performance by professional accountants in business.

This research report details the differences between financial reporting in accordance with IPSASs and statistical reporting in accordance with the International Monetary Fund's "Government Finance Statistics Manual 2001," Eurostat's "European System of Accounts 1993" and "ESA95 Manual on Government Deficit and Debt," and the UN's "System of National Accounts 1993."

The primary objective of this Research Report is to determine if an IPSAS should be issued on budget reporting. In its initial strategy papers prepared in 2000 and 2001, the IFAC Public Sector Committee (PSC) identified budget reporting as a key public sector specific issue to be addressed in the second phase of its standards setting program.

This Occasional Paper describes the major reform program for the public sector accounting system implemented by the French Government. The paper highlights some of the key arguments influencing the decision to adopt a new dual system and outlines the steps taken by the French government to move from the current system to an accrual basis for financial reporting.

This paper considers the experiences of the United Kingdom, which decided to move to an accrual basis for both budgeting and financial reporting in 1995. It highlights some of the key arguments influencing the decision to adopt an accrual system, not just for financial reporting, but also for budgeting.

This occasional paper describes the specific framework designed in France to manage the relationship between a government entity and a private sector entity contracted to deliver a certain service, and to ensure an adequate level of information and accountability.

This Study focuses on governance arrangements in the public sector; specifically on the responsibilities of a governing body of a public sector controlled entity. The IPSASB (formerly the Public Sector Committee) believes that the publication of this Study will contribute to good governance and accountability in the public sector throughout the world.

This new study assists government financial aid officers and other government accountants in their efforts to develop and implement cost accounting.