Responding to COVID-19: insight, support and guidance
By Steven Cain, Technical Manager – Financial Reporting and Auditing Standards, CIPFA
Five years after the global economic crisis – and three years into the UK Government’s austerity agenda –we have seen a profound effect on both the standard-setting environment, and the public service context, within which accounting and auditing standards are implemented by CIPFA members.
While standards may previously have been considered a dull technical backwater, they are now seen as vital to sound financial management, and the world of standard-setting has become increasingly challenging as governments and regulators look to resolve the fallout from the financial crisis.
The prudence of International Financial Reporting Standards (IFRS) has been strongly challenged in the House of Lords committee and more widely. While the International Accounting Standards Board has downplayed any suggestion that faulty financial reporting played a significant role in the crisis, it has been keen to show that the board is sensitive to the concerns of regulators and investors. A key response to these concerns has been the development of reporting, which better explains the risks and uncertainties of financial instruments and which might avoid delaying recognition of bank losses in a crisis.
The scepticism shown by audit firms in the run up to the crisis has also been questioned. Against a backdrop of calls for significant reform in the audit market, the International Auditing and Assurance Standards Board has sought to reduce the need for stronger regulation by developing new reports giving more insight into the results of audits.
While private sector standard-setters may have been put on the defensive, the crisis may have helped the International Public Sector Accounting Standards Board to promote its standards. As sovereign debt problems draw attention to the inadequacies of governmental financial reporting in many countries, the case for adopting high quality public sector standards has become more and more convincing. International Public Sector Accounting Standards (IPSAS) are being adopted in an increasing number of countries, and may soon become a template for government reporting in Europe.
Meanwhile, in the United Kingdom the future of UK GAAP is at long last clear. Charities, education and housing providers will soon report under a new FRS 102 and new Statements of Recommended Practice (SORPs). The Financial Reporting Council was restructured in 2012 and now takes a more direct role in developing UK standards, although in practice it is advised by panels very similar to the old standard-setting boards.
IFRS in the public sector may now be old news, but the publication of the Whole of Government Accounts has set out a more comprehensive view of the UK Government’s financial position, resulting in greater scrutiny of the public sector finances. Local authority audit in England is also in the final stages of transition as new statutory arrangements are being developed and the Audit Commission is finally wound down.
Against this background, CIPFA’s revised publication Accounting and Auditing Standards – A Public Services Perspective 2013 (Fully Revised Fifth Edition) provides a useful update for practitioners, accountancy students and all those interested in financial reporting and audit in the public services.