World Economics - Insight , Analysis and Data

World Economics - Insight , Analysis and Data

Government Accounting

Making Enron look good

Ian Ball and Gary Pflugrath - March 2012

As the current sovereign debt crisis engulfing Europe broadens and threatens to bring down more governments and lead the world into another, potentially very serious, economic slowdown, minimal commentary and public debate has focused on a fundamental problem, and the need to address it. That problem is the deficient – and sometimes fraudulent – accounting practices employed by many governments around the world.

Introduction

Unconsolidated can mean unseen. Greater visibility, on the other hand, holds out the hope that something might be done to address the underlying issues. The transparency drive in UK government accounting managed to avoid exacerbating sovereign debt jitters this month; maybe it can be a genuine asset in the longer term. (Financial Times 2011a)

 

On the day after the UK government finally issued its first ‘Whole of Government Accounts (WGA)’, at least one media commentator recognised the significance of the event. The transparency and accountability associated with preparing and publishing accounts, on an accrual basis, for the entire government did not ‘spook’ markets at a time of great uncertainty; rather it may have had a positive effect. Critically, there is recognition that transparent, robust, accrual-based financial reporting by governments may assist in addressing ‘underlying issues’. In its Global Financial Stability Report (April 2011), the International Monetary Fund (I...

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