Global crisis a wake-up call to fix accounting flaws

Dhaka (The Daily Star/ANN) - The global economic crisis can work as a wake-up call for public sector entities around the world for introducing better accounting, auditing and financial management, an expert said yesterday.

"Failure to implement public sector financial management could lead to a crisis, as seen during the recent economic crisis," said Brian Blood, chief executive of Confederation of Asian and Pacific Accountants (CAPA).

Blood spoke at a technical session of a daylong event styled "Strengthening Bangladesh Public Sector Accounting & Auditing-Global Reforms and the Way Forward", at Sonargaon Hotel in Dhaka, Bangladesh.

The Institute of Chartered Accountants of Bangladesh (ICAB) and CAPA jointly organised the daylong international conference.

Many governments around the world do not know what their capital is because of their archaic budgetary and accounting practices, which do not record and report assets and liabilities other than cash, Blood said.

"They do not know what their balance sheets look like. Is it acceptable for any government entity?" he asked. "Only accrual-based system can achieve more results and transparency needed for any decision making."

For Bangladesh, stakes in transition to the accrual system from the cash system seem to be very high, Blood said. "The journey will not be easy, but with the strong will from the government it can be done," he said.

Jennifer K Thomson, manager of financial management at the World Bank, said countries should consider moving to a more sophisticated accounting system to use donor funds effectively and efficiently.

"Global aid flows will be around US$500 billion in the next three years, which means a lot of money will be around. It is very important to make best of it," she said.

"So, there is a huge need for high quality accounting and auditing in the public sector, as most of donor money passes through government entities. We need a good balance-sheet that will help the decision making process," Thomson said.

The high quality financial reporting is a signal to the outside world about a country's economy and how a country is operating, she said. "It will also help attract foreign direct investment."

The World Bank official said it is absolutely critical for setting up the environment for transparency, which underpins the foundation for financial stability and growth.

Thomson urged the government, private sector and professional bodies to form partnership, share knowledge and move toward implementing best practices of accounting and auditing.

Ahmed Ataul Haqeem, comptroller and auditor general of Bangladesh, admitted that the accrual system is a superior system. "But we will have to introduce it on a pilot basis and we will retain the existing cash-based system. Our cash-based system, however, is in line with international standards."

"Once we get desired results from the experiment, we will be able to switch over to the accrual accounting and auditing system."

Geoff Applebee, chairman of public sector financial management of CAPA, said the government should have a clear vision before changing financial management in the public sector for the better.

COPYRIGHT: ASIA NEWS NETWORK

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