Download Some issues with rating of PI 25 – Quality and

Some issues with rating of PI
25 – Quality and timeliness of
annual financial statements
Sanjay Vani
Lead FMS
OPCFM
Fiducairy Forum March 2008
Dimension 1 – Completeness of
the Financial Statements
Description of the Issue
In many countries consolidated financial
statements, in true accounting sense, are
not produced.
In view of this, it is suggested that
minimum requirement for score B and
score C be amended as follows:
B
C
Financial statements are produced annually for all
central government ministries, departments and
agencies. They include, with few exceptions, full
information on receipts, payments and financial
assets/liabilities.
Financial statements are produced annually for all
central government ministries, departments and
agencies. Information on receipts, payments and
bank account balances may not always be
complete, but the omissions are not significant.
Analysis
Preparation of consolidated financial statements is
generally accepted as an “international good practice”
and consistent with the principle of comparing high level
indicators with international good practices, it is
appropriate to set the preparation of consolidated
financial statements as a benchmark to measure the
actual performance in a country.
The question then is whether we should change the
scoring requirement for B and or C in such a way as to
totally negate the key benchmark requirement for
consolidated financial statement by not referring to it at
all.
Proposal
The language could be tightened a bit to
provide better consistency between score
B and score C requirements as follows:
B
A consolidated government statement is
prepared annually. They include, with few
exceptions, full information on revenue,
expenditure and financial assets/liabilities
C
A consolidated government statement is
prepared annually. Information on revenue,
expenditure, and financial assets/liabilities and
bank account balances may not always be
complete, but the omissions are not significant.
Dimension 2 – Timeliness of submission
of the Financial Statements
Description of the Issue
There are two issues being raised here –
one is to delete the reference to
consolidated financial statement and
replace it with individual line ministry
financial statement. And the second
suggestion is to reduce the timeframe for
submission of financial statements to the
auditors.
A
B
C
The financial statements for 90% of ministries,
departments and agencies are submitted for
external audit within 4 months of the end of
the financial year
The financial statements for 90% of ministries,
departments and agencies are submitted for
external audit within 6 months of the end of
the financial year
The financial statements for 80% of ministries,
departments and agencies are submitted for
external audit within 10 months of the end of
the financial year
Analysis
It is important to maintain consistency with the principle
of comparing high level indicators with international good
practices. It is therefore appropriate to retain reference to
consolidated financial statements.
Consistent with the IPSAS (Cash Basis – Para 1.4.4),
which recommends a timeframe of no more than 3
months for issuing financial statements, the requirement
for score A could be revised to 3 months (from 6
months), for score B could be revised to 6 months (from
10 months), for score C is revised to 10 months (from 15
months), and for score D could also be revised based on
the non-compliance with score C timeframe. The revised
language is:
Minimum requirements (Scoring methodology: M1)
A
(ii) The consolidated financial statement is submitted for external audit
within 3 6 months of the end of the fiscal year.
B
(ii) The consolidated financial government statement is submitted for
external audit within 6 10 months of the end of the fiscal year.
C
(ii) The consolidated financial statements are is submitted for external
audit within 10 15 months of the end of the fiscal year.
D
(ii) If consolidated financial annual statements are is prepared, it is they
are generally not submitted for external audit within 10 15 months of the
end of the fiscal year
Dimension 3 – Accounting
Standards Used
Description of the issue
Since only a handful of countries have
actually adopted Cash Basis IPSAS,
Dimension 3 should not expect a country
to adopt Cash Basis IPSAS. Recommends
that score B be amended as follows (while
no change is recommended for other
scores).
B
Requirements for the scope, basis, content and
format of the annual financial statements are
included in reasonable detail in the appropriate
law, financial regulations or authoritative
accounting standards
Analysis
While in many countries, accounting standards
are embodied in laws, regulations, decrees
rather than as a separate body of accounting
standards, the dimension compares national
standards with IPSAS, which are generally
accepted accounting standards in the public
sector and evaluates actual application of the
national standards. In view of the guidance
provided in the IPSAS, the timeframe for the
issue of consolidated financial statements could
be revised including tightening of the language
Minimum requirements (Scoring methodology: M1)
A
(iii) National Standards corresponds fully with IPSAS. IPSAS or corresponding
national standards are applied for all financial statements.
B
(iii) National Standards corresponds with IPSAS with few exceptions, which are not
significant. IPSAS or corresponding national standards are applied for all financial
statements with few exceptions.
C
(iii) National Standards corresponds with IPSAS with some exceptions. IPSAS or
corresponding national standards are applied for all financial statements with some
exceptions. Statements are presented in consistent format over time with some
disclosure of accounting standards.
D
(iii) National Standards do not correspond with IPSAS. IPSAS or corresponding
national standards are not applied consistently for all financial statements. Statements
are not presented in a consistent format over time or accounting standards are not
disclosed.