There is a lot of news going on. Roger Federer reaches new heights
in the Wimbledon Men’s Singles, England roundly defeat Australia with a day to
spare to start the home Ashes series. The Chinese stock market crashes
(relatively). Then there is Greece and the Eurozone. This goes beyond all else for historically profound significance in peacetime. Yet the circumstances are commonplace in 'real' life. It is at last sinking in that countries are no different from households and businesses when it comes to financial health. The eurozone has to manage itself as if a global industrial conglomerate and Greece a subsidiary company.
This weekend the European authorities have to decide whether and how to rescue that country from bankruptcy when they don’t trust the competence and commitment of the Greek government with an unsustainable total debt and faced with popular but induced uncomprehending vote to “end austerity”. The very real and present disaster is with them already because the banks have run out of money and all trade and other transactions are at a standstill. Famine stalks the streets. The IMF has now in effect said we won't touch Greece with a bargepole. Once again it’s the poor wot suffers.
This weekend the European authorities have to decide whether and how to rescue that country from bankruptcy when they don’t trust the competence and commitment of the Greek government with an unsustainable total debt and faced with popular but induced uncomprehending vote to “end austerity”. The very real and present disaster is with them already because the banks have run out of money and all trade and other transactions are at a standstill. Famine stalks the streets. The IMF has now in effect said we won't touch Greece with a bargepole. Once again it’s the poor wot suffers.
Yet
no country has a ‘top of the range’ financial system and only 14 nations do
balance sheets according to the IMF. Europe has failed its audit for some 20
years. Only since 2009 has UK produced ‘proper
accounts’ which are heavily qualified by the auditors and these are said to
lead the field. What is so terrifyingly odd is that the ‘powers that be’ don’t
know what a financial system looks like and why such an out-of-date situation
is so avoidably dangerous. The penny hasn’t dropped yet with the high-flown
economists and political scientists.
The
chair of CIPFA international (Chartered
Institute of Public Finance and Accountancy) tells it like it is but even he seems to be trying not to offend and lacking full technical appreciation[1]
. Why “net worth” ? UK isn’t for sale is it ? Or perhaps Ian Ball has in mind
content and presentation of loan applications. Again, he uses that anaemic word
“transparency” as a purpose. That purpose should be, looking ahead, to continuously produce management
and operating data in standard conventional format in as nearly as possible
real time to be taken together with feedback to prompt re-direction and ‘touches
on the tiller’.
[1] CIPFA International chair Ian Ball has urged
governments across the world to use balance sheets and accrual accounting to
improve the transparency of their public finances. July 2015.
Speaking at
CIPFA’s International seminar today, Ball
said the challenge was to get all governments to use these methods as the basis
for financial management and budgetary decisions.
The publication of
public sector balance sheets was “going back into favour” as a measure and could be used as a measure of
government’s “net worth”, he told delegates.
“However I would
say they are not back in favour in that senior policymakers and politicians are
not using them for their decision-making. I think that is the next step.”
This would be
implemented by all governments, Ball added, as the public finances could not be
managed properly unless governments thought about how the decisions it makes
impact on its net worth.
“The net worth is
the much better measure of the government’s fiscal position – but people don’t
talk about it in these terms because
most governments don’t have that information.
“And if you want
to do an international comparison like the Org for Economic Co-Operation and Development
and the IMF would do, you can’t do that because it isn’t shown. The IMF said in
its latest report that 14 governments had provided it with a balance sheet, but
you need more than 50% compliance.
He did acknowledge,
however, that governments in some parts of the world – particularly Latin
America and Africa – were promoting good governance and accrual accounting,
such as Brazil and Tanzania.
The use of balance
sheets also allowed policy plans to be matched against outcomes, he said.
“For example when
we see the UK budget this week I would like to see a forecast set of financial statements.
“(This way) we can
look at the end-of-year WGA and say how do they compare with the budget we saw
at the beginning of the year.”
In addition Ball
highlighted the importance of having qualified Chief Finance officers to make
the system run smoothly both in departments of government and at the centre.
“There needs to be a very strong financial management function
in the treasury”., he concluded. “in a way the test is when that is integrated
in into the budgetary decision-making process. The people who look at the
budget have got to be a team with
accounting and economic skills”.
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