Thursday 3 August 2017
The primary objective of general purpose financial reporting by the government or its entities is to provide information about the entity that is useful to users for accountability purposes and decision-making. The users of these financial statements are primarily the citizens of the reporting entity, and their information needs determine the objectives financial reporting.
The users of financial statements have negligible decision-making ability relating to the use and application of the resources to service delivery objectives. They do, however, have a significant impact, by exercising their right to vote, on who they give the decision-making power to, and where, through their inputs to elected representatives, the focus of the resources should be.
The information that the citizenry needs is primarily related to service delivery and resource management. This includes both information about whether the entity has met its service delivery objectives during the reporting period, as well as the ability and capacity of the entity to continue to provide service delivery at the required pace and quantity in a long-term and sustainable manner.
To ensure that the information generated by the financial statements is useful to the users, the conceptual framework prescribes the following qualitative characteristics of the financial information. These characteristics are:
- Faithful representation
- Comparability and
These qualitative characteristics are not randomly selected words. Each is carefully considered in defining the qualitative definition of usefulness. Usefulness applies to the numbers as well as to the contexts, the level of detail and the explanations published with those numbers to explain them and make the numbers, and the whole picture, useful. To a large extent, in practice, this is where any further practical engagement with the qualitative characteristics of financial information prescribed by the conceptual framework stops.
To illustrate, consider that citizens require government (nationally and to the level to which national government delegates this) to provide water and sanitation services. The government owns and operates water and sanitation networks and systems to deliver these services. The government is required to report on these resources and applies the cost model accounting provisions of IPSAS 17 property, plant and equipment, and possibly IPSAS 21 impairment of non-cash generating assets, to report thereon.
When the policies and procedures and related internal controls and systems are put into place for the valuation of water and sanitation infrastructure, to what extent is the primary objective of useful information to the citizens a part of that process?
When, in pursuing the collection of data to facilitate IPSAS 17 requirement for an annual review of useful life of these assets, when technical services staff conduct their annual review, are they applying a generic set of assumptions about how long a pipe should last? Or are they estimating remaining future service delivery potential measured in time and taking into account the real strain on the infrastructure of exploding and migrating populations and decreasing availability of resources for future maintenance?
When impairment tests indicate that a formal estimation of a recoverable service amount for assets is required in applying the provisions of IPSAS 21, does this exercise result in a mere revision of numbers that get lost in calculations and generic financial statement disclosures? Or does the process cater for the reporting of actual conditions and the implication on the remaining years of service potential in a way that is relevant, understandable and faithfully represented to the users?
When technical staff gathers good information, to what extent does this valuable information remain in the silo of technical services information, with only the numbers being translated into financial reporting? Or is this information integrated into the strategic and performance planning (and therefore reporting) of the entity? Does this information reliably inform asset management plans, town planning, infrastructure planning and capital budgeting? Is the financial reporting qualitatively useful and not just fairly presented?
IPSAS - A Greater Good
IPSAS is a philosophy of reporting relevant, faithfully represented, and understandable financial information to citizens and their elected representatives. Does the conceptual framework inform all financial reporting processes and outputs? The qualitative characteristics of financial information as contained in the IPSAS conceptual framework enables an active citizenry and an accountable government.