In a new report published today, Sustainable public finances through Covid-19, the three organisations are calling for governments to use public sector balance sheets to properly manage their finances through the pandemic, paying attention to their public sector net worth. For some, this means a change in accounting methods from cash to accrual accounting.

By implementing a balance sheet approach, governments will benefit from:

•  Increased clarity on the true position of the public finances, with an understanding of the fiscal room available for further government action
• Improved value for money and financially sustainable decision-making
• Enhanced public sector resilience and better adoption of key financial metrics to drive performance management

The report asserts that governments need to avoid poor-value privatisations, which provide immediate cash but reduce public sector net worth. Governments also can minimise reliance on tax increases or austerity by taking a balance sheet approach to foster sustainable public finances.

Alex Metcalfe, author of the report and head of public sector policy at ACCA, said: “This global pandemic crisis could be a catalyst for more governments to adopt this approach, which can improve decision-making, act as the benchmark for new fiscal targets, and support governments to rebuild economies for a more inclusive and greener future.”

Ed Olowo-Okere, director in the World Bank Group’s governance global practice, added: “The pandemic requires that governments strike a balance between the standard fiscal discipline and control on the one hand, and speed and flexibility in public financial management on the other. To build back better, Ministries of Finance need a variety of tools for better management of public money to sustain the wellbeing of citizens.”

Alta Prinsloo, IFAC executive director, said: “This is about global best practice. No one government can go it alone – the global nature of the pandemic makes this apparent. Part of this drive toward global best practice is to ensure that, as a profession, we discuss with colleagues and policymakers the future of financial reporting in the public sector. Professional accountants need to be giving non-finance expert decision makers a clear and trusted view of the sector’s unfolding financial position.”

The three organisations have also highlighted the need for government to either reference or use full-accrual International Public Sector Accounting Standards (IPSAS), the only globally accepted accounting standards for the public sector, in the production of their general purpose financial reports.

They have also said governments should direct independent fiscal policy institutions to begin fiscal sustainability reporting or to increase its frequency. Central finance departments should also be required to respond publicly to these reports in a timely manner.

The three have also said government should provide Supreme Audit Institutions with the independence and necessary resources to conduct performance audits, which may identify cases where public money was not used effectively, efficiently or economically in combatting the COVID-19 crisis.

For finance professionals, ACCA, the World Bank and IFAC has recommended that they consider how any redirection of resource to combat COVID-19 impacts broader metrics of societal wellbeing and sustainability. They have also said they should conduct frequent fiscal stress testing, which forecasts the impact of negative scenarios on public sector balance sheets. This could include the impacts of a second wave of a coronavirus or an extended economic downturn.

Finally, the three have called for finance professionals to produce accessible summary material, and appropriate narrative and notes within the financial statements. The accompanying narrative in financial statements helps users make sense of the figures and should not be too biased or avoid critical issues.

• Read all of our articles relating to COVID-19 here.