How can the G-20 nations improve their governments' financial management and reporting practices?
Many governments still do not prepare accrual-based financial statements that show total assets, liabilities, cash flow, and important disclosures, including future governmental commitments. This is essential for sound financial decisions and long-term sustainability. Ironically, there is often a double standard. Governments demand transparency from private-sector companies in publishing audited, accrual-based financial statements when raising funds in capital markets, while avoiding accrual accounting themselves, despite having bonds traded on the capital markets. G-20 nations have a leadership responsibility to make accrual-based reporting in accordance with globally accepted standards, such as the International Public Sector Accounting Standards (IPSASs), a key priority.
The accountancy profession — individually and collectively — should also speak out in the public interest. The International Federation of Accountants (IFAC) recently launched the
Accountability Now! initiative calling on governments around the world to prepare accrual-based financial information in accordance with IPSASs. Implementation will take time, but it is urgent that governments commit to act now.
If you are an inspector general (IG) in the public sector, how can you push for financial transparency?
Capitalizing on their independence, competence, and authority, IGs should build alliances with key stakeholders — who in turn can influence governments — to improve financial transparency. In the private sector, shareholders engage in governance of an organization. In the public sector, however, engagement in oversight and governance has remained largely with politicians. IGs can play a pivotal role by encouraging citizens and other stakeholders to better understand the quality and transparency of financial information used for decisions. Advocating the use of accounting standards like IPSASs, developed through a robust, independent standard-setting process, would serve as a sound foundation for IGs to create demand for greater financial transparency.
Private-sector audit committees have heightened expectations and changing demands for the internal audit function. Are their public-sector counterparts raising expectations as well?
Sound governance and accountability is fundamental to both private- and public-sector entities. Weak governance and lack of transparency in the public sector impacts all taxpayers and citizens. Public-sector entities should assure that internal audit functions have the authority to audit anything that impacts the effectiveness of governance, risk management, and internal control, and approve internal audit plans where priorities align with the overall risk assessment. In addition to enhancing internal audit functions, they should examine ways to improve oversight and governance arrangements. For example, the recently published IFAC/Chartered Institute of Public Finance and Accountancy International Framework: Good Governance in the Public Sector encourages more effective public-sector governance. The framework clearly sets out the appropriate governance arrangements to support effective internal auditing, including the establishment of an audit committee and its role and operations.
Olivia Kirtley is a nonexecutitive director and audit committee chair for three public companies: US Bancorp (USB- NYSE), Papa Johns International (PZZA - NASDAQ), and ResCare, Inc. (RSCR - public debt only).
video of Olivia Kirtley discussing collaboration between internal audit and the audit committee.