PACC Committee Report

 

 

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts established a Sub-committee on International Financial Reporting Guidelines and Standards for the Public Sector. The Standing Committee considered the report of the Sub-committee and agreed to present the following to the House:

I.          INTRODUCTION

1.            As the Standing Committee of the House of Commons whose mandate includes the “review of and report on the Public Accounts of Canada,[1]” the Public Accounts Committee (the Committee) has historically selected significant areas of the public accounts, such as the financial statements of the Government of Canada and Crown corporations, for study. As a consequence, members of the Committee have a special interest in the format and quality of the Government of Canada’s financial statements.

2.            The subject of international financial reporting standards was first raised during a Committee meeting held on 9 June 1998 to review the Public Accounts of Canada, 1996-97. The question was asked whether the financial situation of the federal government might appear more favourable were the government to employ financial reporting methods used by other OECD countries. Furthermore, witnesses were asked:

If there is any movement within the Department of Finance, within the government, in order to take a leadership role so we can really aggressively forge ahead with the setting of international [financial reporting] standard[s] … [and] to set up those standards of accounting so everybody would be talking about the same thing. (Mr. Harb) (9.6.98:1625)

3.            In response, the Auditor General of Canada, Mr. L. Denis Desautels, FCA, indicated that “there is a lot of effort made around the world to standardize accounting and reporting.” Mr. Desautels mentioned that the International Federation of Accountants (IFAC) was engaged in this effort. (9.6.98:1625)

4.            Shortly afterwards, some Committee members expressed an interest in exploring the attempt to create international standards for public sector financial reporting. Consequently, the Committee established a sub-committee (the Sub-committee on International Financial Reporting Guidelines and Standards and Guidelines for the Public Sector) hereafter, the Sub-committee) with the mandate to examine the need for the creation of international financial reporting guidelines and standards for the public sector.

5.            As the Sub-committee conducted its work, it sought to identify efforts to establish international guidelines and standards for public sector financial reporting. The Sub‑committee also endeavoured to learn best practices in terms of public sector financial reporting standards from Canada and from other countries. In the course of its work, the Sub-committee became aware of the impact of public sector corruption and bribery, especially in developing countries. As a result of this awareness, the Sub-committee endeavoured to determine whether good financial reporting could help limit the extent of this phenomenon.

6.            In the pursuit of its inquiries, the Sub-committee held 11 meetings and heard from 12 witnesses. In February 1999, the Chair of the Sub-committee, Mr. John Williams travelled with the Auditor General of Canada, Mr. Denis Desautels, to Australia and New Zealand, where he gathered information on public sector financial reporting. In May 2000, members of the Sub-committee visited Washington D.C. in order to learn more about financial reporting at the federal level in the United States. They also sought information from the International Monetary Fund (IMF), the World Bank, and the Inter-American Development Bank on the role of international financial institutions (IFIs) in promoting the creation and adoption of international financial reporting guidelines and standards for the public sector. A detailed list of meetings, held in Ottawa, and witnesses appears as an Appendix to this report.

7.            Before proceeding, the Sub-committee wishes to express its gratitude to all of the witnesses that appeared before it. They shared their knowledge of complex issues generously with the Sub-committee and it is thanks to their support that the Committee is able to report the following.

II.         THE CANADIAN EXPERIENCE

8.            Canadian public sector financial reporting standards and practices are among the most advanced in the world. This is due to the existence of sound financial reporting practices from this country’s inception and, more recently, a standards-setting body whose guidance is universally accepted by Canadian governments at all levels.

9.            Canada has one of the very few accounting standards setters in the world — the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants (CICA). PSAB has been able to persuade the federal and provincial governments to prepare annual whole-of-government (or summary) financial statements) on the modified accrual basis of accounting. The federal and provincial governments adhere voluntarily to these standards and some provincial governments have gone further by moving to a full accrual basis, a move soon to be adopted by the federal government.

10.       The existence of PSAB and the willingness of governments to adopt its standards has put Canada in the forefront of public sector financial reporting. As the Provincial Auditor of the Province of Ontario, Mr. Eric Peters, told the Sub-committee, Canada is “already a world leader in setting accounting standards for governments, in the quality of its financial accounting and its accountability by governments.” (5.5.99:1610) He went on to indicate that he would “easily” give Canada an eight and a half to nine out of ten rating in its application of standards (5.5.99:1615), and testified that Canada enjoys many benefits as a result:

The quality of Canadian governmental financial reporting, based on sound accounting principles and standards, helps us as a country to maintain our credit ratings, the value of the Canadian dollar, and saves annually hundreds of millions of dollars in interest expenses on our substantial federal and provincial government debt. (5.5.99:1615)

11.       Even prior to the existence of a standards-setting body, the financial recording and reporting practices of the federal government have been characterized by relative consistency, stability, and a steady move towards improvement. As Mr. Colin Potts, former Deputy Comptroller General of Canada, told the Sub-committee,

Financial reporting for the Government of Canada is well advanced compared to most other countries [and] has evolved and … continues to evolve to satisfy the requirements of Parliament and to reach new levels of improved reporting. (26.5.99:1540)

12.       It is worth stressing, as Mr. Potts did, that many of the most important recent changes were the direct result of the new public sector standards developed by the Public Sector Accounting Board. Mr. Potts’ testimony underlined the importance of having such a standards-setting board, operating independently of government. It also demonstrated that it is possible for governments to adopt common financial reporting practices without being legally obliged to do so.

13.       In his April 1998 Report to the House of Commons, however, the Auditor General of Canada expressed his concerns that, in his opinion, the Government of Canada had “begun departing from both objective accounting standards and its own stated accounting policies for certain transactions.”[2] As a consequence of this perceived departure, the Auditor General issued qualified opinions on the Government of Canada’s financial statements for fiscal years 1996-97 and 1997-98. and 1998-99.

14.       These events illustrate the importance of careful adherence to objective accounting standards. Regardless of how one interprets the events themselves, the Committee believes that it would be constructive to recommend The Sub-Committee recognizes that the Government of Canada follows PSAB standards and recommends:

RECOMMENDATION 1:

That the Government of Canada ensurecontinue to follow the standards that its accounting policies and practices conform with the recommendations issued by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants as they evolve.

15.       While current financial reporting practices are well-suited to their purpose, the Sub-committee learned that, from time to time, there is need for improvement. As Mr. Peters testified, “much remains to be done.”

16.       The federal government has over the years progressively moved away from a purely cash base of accounting towards full accrual-based financial reporting system which measures the financial effects of transactions and other economic events in the fiscal period in which they occur.

17.       This evolution in accounting practices and policies is consistent with modern government’s emphasis on reporting outputs and outcomes, which requires the matching of costs and benefits of government programs and activities. The Sub‑committee heard testimony that the federal government now stands poised to make a major change to its financial reporting practices that will sustain this goal.

18.       Studies have called for improvements in financial information to support government decision making at the federal level.[3] These demands stem from a belief that current governmental accounting policies, systems and practices do not adequately support departmental decision-making processes. A move to full accrual has been universally proposed as the solution. This change would provide more consistent financial information, encourage greater cost consciousness, support better decision making and better evaluation of performance, all leading to better accountability and transparency.

19.       In response to these needs, the Treasury Board Secretariat initiated the Financial Information Strategy, or FIS, in 1989. In his budget of February 1995, the Minister of Finance announced that the Government of Canada will move to full accrual accounting by 1 April 2001 as part of the FIS.

20.       The Committee and the Auditor General of Canada have a strong interest in the FIS. The Auditor General has issued a series of reports on this subject.[4] These reports were reviewed by the Public Accounts Committee, which, in reports of its own, has supported the FIS and recommended its timely and full implementation.[5]

21.       In May 1999, the then-Deputy Comptroller General, Mr. Potts, told the Sub-committee that the FIS initiative would be implemented on 1 April 2001. The Sub-cCommittee firmly believes that the full implementation of the FIS represents a needed improvement to the way in which the federal government records and reports its financial transactions. Accordingly, in order to align its financial reporting with contemporary needs, the  Sub- Committee recommends:

RECOMMENDATION 2:

That the Government of Canada fully implement the Financial Information Strategy according to its scheduled 1 April 2001 deadline.

22.       The Sub-committee harbours, however, some concerns about the scope of accrual accounting under the FIS. As currently planned, full accrual accounting will be adopted for the preparation of the annual budget and for reporting back to Parliament on financial results in the Public Accounts of Canada. Thus, four important accountability documents — the Budget, the Public Accounts, reports on plans and priorities, and ddepartmental performance reports — will all contain financial information expressed on a full accrual basis. However, no firm plans have been finalized to base key accountability documents — the Main Estimates, Supplementary Estimates, and associated appropriations — toon a full accrual basis.

23.       The Auditor General of Canada and the Standing Committee on Public Accounts have both stressed the need to express the financial information contained in all key accountability documents for Parliament on a full accrual basis. Mr. Potts informed the Sub-committee that Treasury Board Secretariat was beginning consultations with parliamentarians and others in order to determine the appropriate model for accrual-based appropriations and how best to move toward it. (26.5.99:1600)

24.       The Government has responded positively to recommendations made by the Committee that it complete consultations on accrual-based appropriations and that it report the results to Parliament.[6] While this response is generally welcome, the Sub‑committee believes that the time has now come to move from consultation to commitment. The Sub-Committee accordingly recommends:

RECOMMENDATION 3:

That the Government of Canada ensure that all accountability documents containing financial information for Parliament are expressed on a full accrual basis, as soon as possible;

RECOMMENDATION 4:

That the Treasury Board Secretariat complete its consultations with parliamentarians aimed at determining the best possible options to convert the appropriations (supply) process towards full accrual basis and report the results to the House of Commons by 31 March 20020; and

RECOMMENDATION 5:

That the Government of Canada move to an accrual-based system of appropriations (supply) by 1 April 2003.

25.       As a result of fiscal pressures, governments have needed to demonstrate that the programs they deliver produce intended results. At the federal level, this imperative has resulted in annual reports, by departments, which attempt to demonstrate what has been achieved in major program areas.

26.       Annual departmental performance reports along with yearly departmental reports on plans and priorities, are now key elements in the estimates cycle. Although they represent a major advance, these documents need to evolve further before they can fully meet Parliament’s needs. In particular, departmental performance reports need to better link program results with program costs. This can only be achieved through a closer juxtaposition of financial and performance information. Since, as a result of the FIS, departments will soon be in a position to prepare their own financial statements,[7] they should be able to report this data in tandem with performance information. The Sub-Committee recommends, therefore:

RECOMMENDATION 6:

That, in conjunction with the implementation of the Financial Information Strategy, all departments and agencies undertake to prepare and make public financial statements in auditable form on at least an annual basis; and

RECOMMENDATION 7:

That the Treasury Board Secretariat explore the inclusion, in the annual departmental performance reports, of departmental financial statements in a manner that will facilitate the comparison of program outcomes and outputs with program costs.

III.        OTHER COUNTRIES

27.       The international experience with public sector financial reporting stands in marked contrast to Canada’s. Governments around the world use diverse accounting practices. In many countries, including members of the Organisation for Economic Co-operation and Development (OECD), accounting and financial reporting standards do not exist, are in a very early stage of development, or only apply to specific types of entities in the public sector. According to Mr. Peters none of the OECD countries (with the exception of Canada, the United States, and Australia) have accounting standards in place for government. (5.5.99:1610) Furthermore, of the OECD countries, only Canada, Australia, Finland, New Zealand, Sweden and Iceland prepare whole-of-government financial statements. Germany does not prepare financial statements for the whole of government, nor does the United Kingdom, although it is moving in that direction. (26.5.99:1610)

28.       New Zealand, Australia, and Iceland use a full accrual basis of accounting, while Germany still follows a cash basis of accounting. The United States uses full accrual except for tax revenues, but is moving towards full accrual. For its part, the United Kingdom is on a modified accrual basis, but like Canada and the United States, is also moving towards full accrual.

29.       In the United States, there are two boards that set accounting standards. The Financial Accounting Standards Advisory Board (FASAB) sets standards for the federal government. The Governmental Accounting Standards Board (GASB) sets standards for the state and local governments. In contrast to Canada’s PSAB, the American FASAB is not independent of government. As Ronald Salole (Assistant Director, Accounting Standards, Canadian Institute of Chartered Accountants) testified, this lack of independence “has connotations in respect of whether or not they establish standards that will be accepted by the auditors.” (5.5.99:1555)

30.       Mr. Peters testified that efforts to prepare whole-of-government financial statements for the federal government in the United States had produced unsatisfactory results. He cited the comments of the Comptroller General of the United States who had the following to say about the statements issued for the 1997 financial statements:

These consolidated financial statements and notes do not provide a reliable source of information for decision making by the government or the public. These deficiencies also diminish the reliability of any information in the accompanying management's discussion and analysis and any other financial information, including budget information and information for government's day-to-day use, which is taken from the same data sources as the consolidated financial statements. (5.5.99:1610)

31.       Speaking about the United States, Mr. Peters commented that “there are not just billions; in one case there are almost one trillion transactions missing from these accounts.” (5.5.99:1610) When he spoke to Sub-committee members on 9 May 2000, Mr. David Walker, Comptroller General of the United States, indicated that the Government of the United States was still unable to produce a whole-of-government financial statement that can be given an unqualified audit opinion.

32.       While the Sub-cCommittee learned that many countries, including several advanced industrialized nations, lag behind Canada in terms of public sector financial reporting, it also learned that practices in place in two countries in particular commend themselves for serious consideration by in this country.

New Zealand and Australia

33.       Both New Zealand and Australia have made significant changes in terms of public sector financial reporting over the past decade. These changes are of particular interest given that these countries, like Canada, have parliamentary systems based on the Westminster model.

34.       In 1984, the Government of New Zealand began a series of economic and public sector reforms. In support of these reforms, the government based its financial reporting systems on full accrual accounting. Under New Zealand’s full accrual appropriations system, departments and agencies receive the full appropriations (including depreciation), that are held in Crown or departmental bank accounts. The new appropriations systems gives Parliament more accurate and detailed information for scrutinizing the Estimates and for holding ministers and agencies accountable in their use of public resources.

35.       With performance reporting and new financial reporting systems, public service and accountability reports are more clearly focused, and reporting to Parliament has improved. Some concerns remain however. For example, not all of the consequences and ramifications of full accrual accounting are fully understood.

36.       Australia has also made striking reforms in the area of public sector management that have been reflected in financial reporting practices. For example, Australia’s National Competition Policy requires public sector managers to specify results and costs of government programs and activities. Thus public sector financial reporting systems had to change in order to support more businesslike accounting policies and practices.

37.       Since 1995, full accrual-based accounting and financial reporting has been progressively implemented throughout the Australian Commonwealth and its States. Regarding accrual-based budgeting, most States have implemented or are in the process of implementing the accrual presentation of government finances. The national government has yet to consider the adoption of full accrual framework, as recommended by the Joint Committee of Public Accounts (Report No. 341) and the National Commission of Audit, 1996.[8]

38.       The changes that have been made to public sector financial reporting in New Zealand and Australia are clearly reflective of the significant structural changes that have been made to public administration in those countries. As New Zealand has gained experience with these changes, benefits and drawbacks have emerged that will require further adjustment.

39.       While it would not be advisable to adopt either the New Zealand or Australian models in their entirety, it would be instructive to learn from those countries’ experience when contemplating changes in Canada. The Sub-Committee therefore recommends:

RECOMMENDATION 8:

That as it makes changes to financial reporting, the Government of Canada monitor Australia and New Zealand’s efforts closely, with a view to learning best practices and finding solutions to common problems.

40.       More specifically, with regard to accrual-based appropriations, the Sub-Committee recommends:

RECOMMENDATION 9:

That as the Government of Canada determines how best to move towards accrual-based appropriations, it review New Zealand’s experience, and consult officials in that country with regard to best practices.

IV.       INTERNATIONAL PUBLIC SECTOR FINANCIAL REPORTING GUIDELINES AND STANDARDS

41.      There are currently no international public sector financial reporting guidelines and standards. In his appearance before the Sub-committee, Mr. Salole cited a report by the Canadian Institute of Chartered Accountants that was issued prior to there being accounting standards for the public sector. The report said that:

The financial statements of Canadian governments are so complex and varied in presentation and terminology that even those persons familiar with government accounting have difficulty in appreciating the information conveyed. (5.5.99:1610)

42.       Mr. Salole testified that if he were to add the word “internationally” at the beginning of the sentence and to remove the word “Canadian,” the Sub-committee would obtain an accurate description of current status of international financial reporting. (5.5.99:1550) However, this situation is presently being addressed.

43.       A project to establish a set of international standards for public sector financial reporting is currently underway. This project is being conducted by the Public Sector Committee (PSC) of the International Federation of Accountants (IFAC) and includes Canadian participation.

The Standards Project

44.       The Public Sector Committee has embarked on a project (the Standards Project) to improve the quality of financial information typically used by governments. This is a medium-term project designed to produce a guideline and a set of standards on financial reporting by government.

45.       The Standards Project (the Project) was established in 1996, with external funding provided by the World Bank, the Asian Development Bank, the United Nations Development Programme, and the International Monetary Fund.

46.       The Project has two major parts, the first of which focuses on financial reporting. The objective of the first part is to develop comprehensive guidelines on the operation of the bases of accounting used by governments. The standard descriptions for each basis of accounting contained in the guidelines represent best practice in government accounting, and are based on observed actual practice by governments.

47.       The PSC issued a Guideline for Governmental Financial Reporting as an Exposure Draft in March 1998, with a four-month comment period. During this period, the PSC actively sought comments on the guideline from interested parties. A final version of the guideline was released in May 2000 under the title Governmental Financial Reporting. The change of title reflects a decision to establish accounting standards for the cash and accrual bases of accounting only.

48.       The second part of the Project is aimed at producing a coherent set of international public sector accounting standards (IPSASs), based primarily on international accounting standards (IASs) promulgated by the International Accounting Standards Committee (IASC).

49.       IFAC’s project to establish an international guideline and set of standards for public-sector financial reporting has strong backing from several organizations. As indicated, the World Bank and the International Monetary Fund have provided financial assistance to the project. During its visit to Washington D.C., the Sub‑committee learned first-hand the importance of this project in the eyes of these international financial institutions. The Sub-committee also learned of the strong endorsement given the Project by the International Organization Of Supreme Audit Institutions (INTOSAI), which represents national auditors general (or their equivalents) at the international level.

50.       The Sub-committee believes that it is vital for parliamentarians to add their support to the Project. In his testimony, Mr. Eric Peters of IFAC — who is Canada’s current delegate to the PSC — indicated that:

any support that the legislature, or the Standing Committee on Public Accounts, or anybody can give us in this effort to move countries along those lines [of providing adequate public sector financial reporting], to move up their financial information… would be helpful. (5.5.99:1620)

51.       The Sub-committee also believes that Canada has a role to play in supporting the Project and ensuring that its results are adopted. Mr. Peters testified that Canada could probably, “through its embassies, or whatever mechanisms that are available to us, encourage our trading partners to become transparent and to use better accounting and better fiscal accountability.” (5.5.99:1620)

52.       The Sub-committee wishes to endorse, in the strongest manner possible, both the efforts of IFAC’s Public Sector Committee, and the standards that have been produced to date. In his testimony, Mr. Potts told the Sub-committee that the Government of Canada has played an active role in supporting and providing input into the development of new accounting standards for the public sector. (26.5.99:1540) The Sub-committee welcomes this involvement and believes that the Government of Canada needs to lend its continuing support to this effort in order to enhance the likelihood of its success. The Sub-Committee therefore recommends:

RECOMMENDATION 10:

That the Government of Canada continue to lend its full support to the efforts of the International Federation of Accountants to develop international guidelines and standards for financial reporting.

53.       The central challenge facing the international use of common financial reporting standards is “buy-in,” or having sovereign governments adopt those standards in the absence of any requirement to do so. In part, this challenge is being addressed by the international financial institutions supporting the Project who will use compliance with the standards as a factor when making loans.

54.       In order to enhance the prospects of voluntary compliance, IFAC has been circulating exposure drafts of its proposed standards to various parties, including governments, for their input. However, the exposure drafts have been released in a form which will, at the very least, not assist in “buy in,” and potentially may even harm it. During its visit to the Inter-American Development Bank, the Sub-committee learned that the exposure drafts were being issued exclusively in English. The Sub-committee believes that this is one area in which Canada could, and should, provide assistance. The Sub-Committee therefore recommends:

RECOMMENDATION 11:

That the Government of Canada give serious consideration to being a contributing partner to the provision of funding to the Public Sector Committee of the International Federation of Accountants to be directed towards the translation of all key documents issued by the Standards Project.

In making this recommendation, the Sub-Committee sincerely hopes that other countries will join Canada in this effort.

55.       Furthermore, the Sub-committee believes that the likelihood of compliance with the standards would be greatly enhanced were Canada to signal its own intentions to adhere to the standards and to exert its influence to persuade other governments to do the same. The Sub-Committee accordingly recommends:

RECOMMENDATION 12:

That once finalized, the Government of Canada publicly endorse the concept of international public sector financial reporting guidelines and standards to be issued by the Public Sector Committee of the International Federation of Accountants., and use its influence to promote their adoption and use.

56.       Mr. Peters told the Sub-committee that there are “certainly governments in the G8 that are not transparent to their own people and they’re not transparent internationally and globally,” in terms of the financial information they make available. (5.5.99:1705) The Sub-committee believes that it is vital that these governments take steps to improve their financial reporting, not only as a service to their own citizens and taxpayers, but to set an example for other countries. The Sub-Committee believes that the Government of Canada could make an important contribution to this effort, and accordingly recommends:

RECOMMENDATION 13:

That Canada use its influence as a member of the G8, and other appropriate international forums to which it belongs, to encourage fellow members to adopt transparent financial reporting practices.

57.       While many countries may wish to implement better financial reporting systems, they lack the capacity to do so. Systems and technologies are expensive to establish and maintain. Trained personnel needed to operate these systems are often lacking. The Committee believes that this is an area in which Canada could also be of help and recommends:

RECOMMENDATION 14:

That the Government of Canada provide financial and technological assistance in building financial reporting capacity to developing nations as part of its foreign aid programs.

V.        BRIBERY, CORRUPTION, AND PUBLIC SECTOR FINANCIAL REPORTING

 

 

58.       During the course of its hearings, the Sub-committee became aware of the devastating effect of bribery and corruption, especially in the developing countries, and most particularly on the poorest citizens of those countries.

1.       1.      

59.       Public sector bribery and corruption should be a leading concern for all parliamentarians. Bribery and corruption undermine parliamentary control over the public purse as monies intended to serve public purposes are diverted for private gain. The diversion of public monies through corruption robs public policies of their ability to achieve the objectives established by Parliaments. An overall — and deeply disturbing — consequence is the loss experienced by democratically elected legislatures and governments of their legitimacy in the eyes of the public. As the head of the OECD’s Anti-Corruption Unit recently indicated:

Corruption respects no borders, knows no economic distinctions and infects all forms of government. In the long run, no country can afford the social, political or economic costs that corruption entails. It erodes public confidence in political institutions and leads to contempt for the rule of law; it distorts the allocation of resources and undermines competition in the marketplace; it has a devastating effect on investment, growth and development. Furthermore, corruption exacts an inordinately high price on the poor by denying them access to vital basic services.[9]

60.       Public sector bribery and corruption thrive when accountability and transparency are absent. The Sub-committee believes that when governments report information on their financial condition that is reliable, complete, timely, and subject to independent verification, the opportunities for bribery and corruption in the public sector are significantly reduced. This was underscored by the Auditor General of Canada when he told the Sub-committee that “there is indeed a link between good [financial] reporting, good standards, and a reduction in the misrepresentation that can occur to hide a particular fraudulent operation or something improper.” (5.4.00:1550)

61.       There is a growing concern among international financial institutions and organizations such as the Organisation for Economic Co-operation and Development (OECD) and the Organization of American States (OAS) of the burdens imposed by corruption, especially on developing nations and the poor. They have also become aware of the need for good governance — which subsumes accountability, transparency, and probity — as the best antidote to corruption. This awareness, as the Sub-committee learned in Washington, has led to a shift in emphasis away from financial assistance for infrastructure to assistance aimed at developing good governance. Support for the IFAC Standards Project can be seen as a part of this effort.

62.       As stated above, however, compliance with internationally accepted financial reporting guidelines and standards will largely be voluntary in nature. While international organizations such as the United Nations, and international financial institutions such as the World Bank and the IMF can do a great deal to promote adoption of such standards, pressure must be exerted internally as well. This is a task that ought naturally to fall to parliamentarians as potential users of public sector financial information as part of their efforts in holding governments to account.

1.       1.      

63.       There is a increasing desire among parliamentarians in other countries to take the initiative in controlling bribery and corruption in their countries. This is a difficult challenge, particularly for those parliamentarians who lack the institutional support, knowledge, and experience to achieve the conditions necessary to hold their governments to account. We also cannot remain indifferent to the special difficulties faced by those parliamentarians labouring within the context of corrupt, and often ruthless, regimes. They need help.

64.       The Sub-committee is therefore encouraged by recent efforts to establish regional organizations dedicated to supporting the efforts of parliamentarians who wish to combat public sector bribery and corruption in their countries. African parliamentarians, for example, have established a network against corruption. Similar efforts are underway in the Indian Sub-continent, in Australasia, and in Latin America.

65.       TThese nascent organizations have the greatest potential to promote, among their members, the awareness of the need for governments to comply with a commonly accepted, international set of financial reporting standards for the public sector. This would equip their members to bring this message into the Parliaments and legislatures of their countries, and help carry forward the effort to achieve the widest compliance possible.

1.       1.       The Sub-Committee notes that a group of Canadian parliamentarians are involved in the effort to encourage the development of such regional organizations. Furthermore, these parliamentarians are taking the process one step further by organizing a conference, to be held in Ottawa in fall 2001, that is intended to lay the foundation for an international organization for parliamentarians dedicated to combating public-sector bribery and corruption. It is noteworthy that at the annual Conference of the Canadian Council of Public Accounts Committees, held in Halifax, Nova Scotia, in September 2000, delegates from all of Canada’s Public Accounts Committees unanimously endorsed the creation of such an organization.

66.       The Sub-committee also endorses these efforts wholeheartedly and believes that the Government of Canada should act in a similar fashion.

The Committee therefore recommends:

 

RECOMMENDATION 15:

 

VI.       CONCLUSION

67.       The evolution of Canadian public sector financial reporting policies and practices has accelerated in recent years. Canada has participated in to a number of organizations, national and international, providing the impetus and regulatory framework to public sector reform. According to Mr. Peters, “Canada is the world leader in setting accounting standards for governments, in the quality of its financial accounting and its accountability by governments.” He stressed that this “was not achieved lightly and much remains to be done.”(5.5.99:1615)

68.       Prior to the 1980s, the financial statements of Canadian governments were so complex and varied in presentation and terminology that even those persons familiar with government accounting had difficulty in appreciating the information conveyed. There was clearly a need to bring order to the process and standardize accounting policies and practices used in the Canadian public sector.

69.       In the early 1980s, the Canadian Institute of Chartered Accountants (CICA) set up the Public Sector Accounting and Auditing Board (PSAAB) [now the Public Sector Accounting Board, or PSAB] which was mandated to develop accounting standards for everything within the public sector, including government departments and agencies, and organizations that are partly owned by government. As a result of PSAB’s efforts, Canadian governments now adhere to common financial reporting standards and the information thus presented is timely, and comparable. The same can occur, with time and effort, at the international level.

70.       Canada has been a significant participant in the development of international public sector financial reporting guidelines and standards. Canada contributed significantly to the formation of the Public Sector Committee (PSC) of the International Federation of Accountants to address the requirements of public sector financial management, reporting, accounting and auditing.

71.       Canada must continue to maintain its status as one of the world’s most advanced public sector financial reporting regimes. The full implementation of the Financial Information Strategy promises to do this. The Government of Canada should also make use of the opportunities offered by the FIS to realize annual financial statements at the departmental and agency level and to couple the reporting of the information so generated with performance reporting. The Government of Canada must also realize the full potential of the FIS by transforming all of its major accountability documents to a full accrual basis.

72.       On the international stage, Canada must continue to demonstrate its leadership in this area. Additional support should be given to the PSC’s Standards Project by assisting in the translation of documents and promoting the adoption, internationally, of the financial reporting guidelines and standards that are produced. Canadian knowledge and experience would prove invaluable to countries with transitional economies that are attempting to implement modern public sector financial reporting systems. To paraphrase Mr. Peters, there is much to be done.

73.       By fostering the adoption of modern public sector financial reporting, the Government of Canada would take a meaningful step towards the curtailment of bribery and corruption. These phenomenon weigh heaviest on the world’s poorest and deprive foreign aid programs of much of the good they might otherwise achieve. Concurrently, the Government of Canada would help ensure that countries around the world adopt commonly accepted public sector financial reporting standards by lending its support to the creation of forums for parliamentarians engaged in the fight against bribery and corruption. These parliamentarians are the ones who will immediately understand how the existence of standards will bring about the accountability and transparency they so desperately need — and who will push the hardest for their adoption.

74.              Canada has both much to share and much to learn. The Sub-Committee believes that through continued efforts, and through the adoption of recommendations contained in this report, Canada will help achieve good governance at home and in the world.