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In order to address the sovereign debt crisis, IFAC recommends that the G20 commissions the FSB to consider the institutional changes that are needed in public sector financial management to protect investors in government bonds, as well as the public. Further, the G20 should actively encourage the adoption of accrual-based accounting and budgeting by governments and public sector institutions, which will promote greater transparency and accountability in public sector finances and allow for monitoring of government debt and liabilities for their true economic implications. IFAC also encourages the adoption and implementation of IPSASs.
“It is increasingly apparent to the general public that this is an urgent issue. The sovereign debt crisis engulfing the European Union and the government debt issues affecting the United States and potentially other countries around the world are cause for major concern”, said IFAC Chief Executive Officer, Ian Ball. “The crisis highlights that fiscal management is clearly deficient in many countries, with inadequate constraints or incentives for governments to protect the public interest and investors. This failure of fiscal management is widespread and has economic consequences that will far exceed the impact of corporate reporting failures, such as Enron, WorldCom, Parmalat, and Lehman Brothers.”
IFAC recommends that the G20 strengthens its resolve for adoption and implementation of common global standards for financial reporting, auditing, and auditor independence, including IFRS, ISAs, and the auditor independence requirements set out in the 'Code of Ethics for Professional Accountants'. These standards will enable the consistent interpretation of financial information around the world, which in turn will facilitate cross-border activity, promote economic and financial stability, and strengthen transparency and accountability in the capital markets. IFAC also urges the implementation of the recommendations contained in the recently submitted 'Private Sector Taskforce of Regulated Professions and Industries Report'. In addition, IFAC encourages internationally-consistent, robust regulation of credit ratings agencies.
IFAC calls on the G20 to signal formally its support for the work of the International Integrated Reporting Committee (IIRC), a collaboration of leaders from the corporate, investment, accounting, securities, regulatory, academic, and standard-setting sectors, as well as civil society. Integrated reporting links the strategy, governance, and financial performance of an organisation with the social, environmental, and economic contexts in which it operates. As a result, the framework will help entities make more sustainable decisions and enable investors and other stakeholders to understand better an organisation’s true performance. Integrated reporting will help governments and private sector entities better understand the longer-term impacts of financial and operating decisions on all areas of society.
“The global financial crisis showed us clearly that a focus on short-term risks and rewards can encourage behaviour that leads to disastrous outcomes”, said IFAC President, Göran Tidström. “The accountancy profession’s involvement in the IIRC and the future of integrated reporting represents our efforts to mitigate the current financial crisis, avoid future crises, and contribute to a more sustainable, global economy.”
In conclusion, Mr Tidström stated: “Problems that began as isolated issues have led to the global financial crisis—proving just how interconnected our world has become. We all have a stake in the solutions, and those solutions require a coordinated international approach. Global leaders should resist unilateral policy reform initiatives which potentially undermine the cause of convergence. Instead, we have an opportunity to enhance coordination and consultation with all stakeholders and work collectively to support global economic stability.”