How accountancy profession can improve trust in public finances : The Standard

ICAEW’s Michael Armstrong give insight on the role of the accountancy profession in improving trust in public finances. 1. How has IFRS improved public sector accounting? The most noticeable benefits of the adoption of the International Financial Reporting Standards (IFRS) in the public sector include the increase of the level of quality in terms of financial reporting. This is greatly enhanced by the increase in the level of comparability between the financial statements of firms across both the public and private sectors. Finance professionals working both locally and internationally are able to place the same amount of scrutiny on public sector finances as they do on private sector finances since they are essentially using the same data sets and tools, which in turn boosts the credibility of the public sector. This, although not all the time, may eventually snowball into an increase in the government’s trustworthiness and positive investor sentiment.

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2. Why are sound public ?nances an important enabler of economic growth and prosperity? Sound public finances are a key indicator of considered government policies which lay emphasis on proper handling of such funds. This comprehensive picture of public finances allows policymakers to take better informed spending decisions. The provision of high-quality and transparent financial information can help enhance decision-making, ensuring that governments deliver value for money in the pursuit of public policy objectives. This in turn reinforces citizens’ trust in public finances and helps them to be confident in the state’s ability to meet existing commitments and plan for the future.

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In addition, sound public finances also play a major role in attracting not only investment to a country, but they also make it easier for countries to gain access to external lines of credit, such as how Kenya recently leveraged on a Eurobond to fund its recent infrastructure investments. 3. What is the role of the accountancy profession in building trust and reliability in numbers published about public ?nance? The role of chartered accountants (CAs) and certified public accountants (CPAs) is fundamentally about creating trust. Trust that numbers are correctly stated and that a true and fair account has been produced, showing how much money has been raised and how it has been used. The accountancy profession has an important part to play, first and foremost by helping to promote greater transparency of financial information for a more informed public debate. The public is more likely to trust information that has been analyzed, deconstructed and interpreted by finance professionals. The profession also encourages robust financial leadership in the public sector by improving the interaction between financial markets and government institutions, which serves to enhance the financial health of the economy. 4. How to increase transparency about the ?nancial position of a state and encourage investment? With government activities accounting for nearly half of a country’s economy, effective public financial management is a crucial, yet all too often overlooked, condition for building a successful economy that can deliver sustainable growth and resources to meet the needs of individuals, communities and businesses within a country. For the government this bond of trust is especially important. The public needs to trust that when the government asks them for taxes, the monies paid over and other public resources will be used for the public good. Transparency is, however, not just about providing information. It is also about making it easily understandable for those concerned by the information. Thus, governments have the challenge of simplifying and interpreting complex financial data to make it easier for the general public to consume and understand. This level of transparency and willingness to share such information will result in greater investor confidence, spurring growth in the economy. 5. Insights that Kenya could borrow from other countries to avoid di?culties as far as the dissemination of information about public finance? New Zealand is largely regarded as one of the most advanced countries when it comes to public sector financial management and reporting. Next to the financial statements, the Treasury prepares a snapshot of the annual financial statements of the government, which is a high-level presentation of key facts and figures for the financial year, intended to make the financial statements more user-friendly and accessible. Citizens are more likely to read this snapshot than the full financial statements. Kenya can borrow this insight and help to build a more informed citizenry, as well as build trust.

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Michael ArmstrongICAEWIFRSAccountingJobsMoneyPublic Finance