Some issues with rating of PI 25 – Quality and timeliness of annual financial statements

1. Some issues with rating of PI 25 – Quality and timeliness of annual financial statements Sanjay Vani Lead FMS OPCFM Fiducairy Forum March 2008

2. 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:

4. 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.

5. Proposal • The language could be tightened a bit to provide better consistency between score B and score C requirements as follows:

7. 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.

9. 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:

11. 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).

13. 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