Basic Practice: Fiscal reports consolidate all central government entities according to international standards.

27. Basic practice requires that fiscal reports cover all the activities of the central government. This requires consolidation not only of central government ministries and other executive agencies that are on budget but also of social security funds organized and managed by the central government and other extrabudgetary activities/funds. Some countries have achieved this by eliminating extrabudgetary entities, minimizing them or integrating them into the budget (see Box 2.5 for examples of Turkey²⁵ and Brazil), or at least reporting them in consolidation.

Good Practice: Fiscal reports consolidate all general government entities and report on each subsector according-to-international-standards.

28. Good practice requires that fiscal reports present consolidated data for general government (namely, both central and subnational governments).²⁶ Subnational governments can raise, spend, and, in some cases, borrow significant resources. They provide basic goods and services, pay salaries, collect taxes, and build infrastructure. It is, therefore, important to capture their activities in the consolidated general government fiscal position to assess the overall impact of government on the economy and get a better sense of the overall fiscal situation of the country. The reporting of general government fiscal data is also important to compare countries with different degrees of fiscal decentralization, as shown in the European Union (EU) example in Box 2.6.

Advanced Practice: Fiscal reports consolidate all public sector entities and report on each subsector according to international standards.

29. Advanced practice requires that fiscal statistics and/or financial statements present consolidated data for general government entities and public corporations they own and control.²⁷ The challenge with such consolidation is that often, public corporations follow commercial accounting standards that make data difficult to combine without extensive adjustments. Compliance with International Financial Reporting Standards (IFRS)²⁸ facilitates the consolidation of financial data on public corporations with data on the general government sector in countries that follow IPSAS, GFSM 2014, or related standards. The Whole of Government Accounts System developed in the United Kingdom provides a good example of full consolidation (Box 2.7).

Basic Practice: Fiscal reports cover government cash and deposits and all debt.

32. Basic practice requires the reporting on the government’s cash holdings, its deposits, and debt to provide information on a country’s immediate financial liquidity position. Information on the amount of cash holdings and deposits in the government’s bank accounts and the government’s borrowing is the bare minimum that a government should know to manage its liquidity position. This information should be available relatively easily to ministries of finance or central banks and should be published:

• Bank statements are usually received either daily or weekly from the central bank and/or commercial banks and should be reconciled with the accounts maintained by the treasury department/ministry of finance. On this basis, treasury departments should be able to evaluate the government’s cash holdings and deposits. Such an evaluation will be easier for countries that operate with a Treasury Single Account (TSA)³⁰ or with a limited number of commercial bank accounts.

• Debt instruments that countries should report at a basic level of practice include (i) government-issued debt instruments (marketable or nonmarketable), such as treasury bills, notes, and bonds, and (ii) loans (including those arising from commercial contracts, like finance leases). These two instruments are de-scribed in Box 2.9.

33. Gathering data on all forms of government debt often requires considerable coordination across various agencies. Most governments maintain records of “primary” debt, such as loans received and bonds held and issued, and attempt to report on their debt as exhaustively as possible. However, where the capacity is limited, the total of domestic debt and debt denominated in foreign currency, as well as details of individual loan agreements, should at least be provided in the fiscal reports. Often, the data for loans and debt securities come from debt management offices, which normally focus on marketable instruments. Data for other liabilities may be supplied by an accounting unit at the ministry of finance or a statistical agency. The ministry of finance may compile data on debt owed to domestic residents, while the central bank may compile data on debt owed to foreign residents when preparing a country’s external debt statistics. Interagency coordination therefore plays an important role in the compilation of reliable and timely data.

Good Practice: Fiscal reports cover all financial assets and liabilities.

34. Good practice requires a financial balance sheet covering all financial assets and liabilities and hence net financial worth,³¹ an important measure of the government’s medium-term solvency (see Box 2.10 for the example of Austria). Preparing a financial balance sheet requires the identification and valuation of the following assets and liabilities:

• Financial assets. In addition to cash and deposits, governments should report on their outstanding loans (and possibly advances) as a lender, tax and trade receivables, as well as equity investments. The balance sheet should also report the value of other types of assets, such as SDRs and monetary gold, which are normally held by the central bank.

• Liabilities. These would include debt instruments and other contractual liabilities, such as trade payables, lease contracts, financial liabilities related to public-private partnerships, and the equity holdings of public corporations.

35. Valuation methods for financial assets and liabilities may change over time. Financial assets and liabilities are usually valued at nominal value. However, more complex valuations may be required for some assets and liabilities, such as equity investments, derivatives, and pensions. For example, governments may choose to recognize their equity investments at book value until the preparation of audited financial statements by the respective public corporation allows them to be recognized at their market value.

Advanced Practice: Fiscal reports cover all financial and nonfinancial assets and liabilities and net worth.

36. Advanced practice requires that all assets and liabilities be included in the balance sheet, thus allowing governments to calculate their overall net worth, an important indicator of long-term fiscal sustainability. Preparation of a full balance sheet requires the recognition of the following:

• Nonfinancial assets, including all physical assets, intangible assets, and inventories. Physical assets can include natural resources, infrastructure assets (road networks, sewerage systems, land, and buildings), weapons systems, and heritage assets. These are likely to represent a large part of a government’s balance sheet. Intangible assets include the value of contracts, of leases and licenses, as well as of goodwill and other marketable assets. Inventories include goods held for sale, for use in production, or for some other later use.

• Contractual liabilities arising from insurance, pension, and standardized guarantee schemes, including pension entitlements of public-sector employees (where these pensions are paid under nonautonomous pension schemes), claims of pension funds on public-sector entities that retain the responsibility for funding any deficit (or claiming any excess funding) of the pension scheme, and the liabilities of standardized guarantee schemes (see Pillar III, Principle 3.2.3).³²

37. The valuation of governments’ nonfinancial assets can be challenging. The valuation methods for tangible assets will typically be an initial recognition at cost, and a subsequent recognition at amortized (or historical) cost, market value, or replacement cost. For assets that are valued at amortized (or historical) cost, a useful life needs to be determined appropriately in the accounting policies, based on information provided by the entities that supply or maintain these assets. Where initial recognition at cost or market value is not possible, because supporting information is not available (e.g., roads or other infrastructure assets constructed a long time ago), or there is no observable market price (e.g., heritage assets), accounting policies may authorize that simpler methods, such as statistical estimations, be used.³³

Basic Practice: Fiscal reports cover cash revenues, expenditures, and financing.

40. At the basic level of practice, governments should produce reliable and complete information on their cash transactions and cash holdings. These data should include a cash flow statement that presents all cash inflows, outflows, and changes in cash balance. Cash flows should be grouped under three broad categories: (i) cash flows from operating activities, (ii) cash flows from investing activities, and (iii) cash flows from financing activities. Cash flows from investing activities mainly comprise cash payments (receipts) to acquire (dispose) tangible, intangible, and financial assets. Cash flows from financing activities comprise the proceeds from issuing various forms of government debt (e.g., bonds and treasury bills), and repayments of previous loans. Cash receipts and payments that do not fall into these categories should be reported as operating activities.

Good Practice: Fiscal reports cover cash flows, accrued revenues, expenditures, and financing.

41. To conform with good practice, governments should prepare an accrual-based operating statement in addition to their cash flow statement to provide a more complete picture of their revenues and expenditures. In addition to the data reported under a cash basis of accounting, the operating statement should report the following information (see Box 2.12 for the Philippines example):

• Accrued revenue. Tax and nontax revenue should be recorded and reported when the events generating a legal right to receive such revenue have occurred.³⁶ As governments record their tax revenue before the actual receipt of tax payments, provision for tax amounts unlikely to be collected should also be made to prevent an overestimation of the government’s income.

• Accrued expenditures. Accrued expenditures should be recorded whenever an obligation is created—for example, when goods or services are delivered or a subsidy or transfer is granted to a third party. Re-cording expenditures on an accrual basis will require the government to develop clear accounting policies and procedures for recording accrued expenses/liabilities. Where accounting systems cannot immediately support the recognition of such liabilities, it may be necessary to use indirect measures or approximations such as an estimate of accrued expenses at the end of the year.

Advanced Practice: Fiscal reports cover cash flows, accrued revenues, expenditures and financing, and other economic flows.

42. The most comprehensive fiscal reports provide information not only on accrued revenues, expenditures and financing but also on other economic flows, including changes in the value and volume of assets and liabilities. These nontransactional “other economic flows” include, for example, the cost of writing of a government loan, some changes in the value of pension liabilities, or changes in the market prices of shares and other equities. Such information would be reported by countries that are implementing accrual accounting in full and are achieving advanced practice in terms of the coverage of stocks (see Principle 1.1.2 above). Providing such information enables full reconciliation of flows with changes in net worth shown in a comprehensive balance sheet.

Basic Practice: The estimated revenue loss from tax expenditures is published at least annually.

47. At the basic level of practice, the estimated total revenue loss from tax expenditures should be disclosed at least annually. Policies implemented through tax expenditures typically do not receive the same degree of scrutiny during the budget process as spending estimates/appropriations. Therefore, it is important that an estimate of the revenue loss from tax expenditures be included in the budget documentation so that it can be compared and analyzed vis-à-vis the government’s spending proposals.⁴⁰ Moreover, if tax expenditures are not properly identified and reported, governments may overestimate revenues in the budget. The methodology and assumptions used for estimating tax expenditures should be clearly set out in the tax expenditure report accompanied by a discussion of the risks associated with incorrect estimation.

Good Practice: The revenue loss from tax expenditures is estimated by sector or policy area and is published at least annually.

48. Good practice requires, in addition to the above, that tax expenditures be grouped by sector or policy area.⁴¹ This allows for analysis and comparison with the government’s spending programs. The key questions to con sider are (i) what is the tax expenditure’s intended objective or purpose; (ii) whether performance measures have been established to monitor success in achieving this objective; and (iii) whether the tax expenditure has succeeded in achieving its objective. Reporting of tax expenditures by sector or policy area enhances legislative scrutiny of government policy (see Box 2.14 for the examples of India and Peru). It could also help expose the ineffective, inefficient, or inequitable character, if any, of tax expenditures.⁴²

Advanced Practice: The revenue loss from tax expenditures is estimated by sector or policy area and is published at least annually. There is control on, or budgetary objective for, the size of tax expenditures.

49. Advanced practice requires, in addition, that once the costs of tax expenditures are well understood, governments consider establishing some control on their size. To meet the advanced level of practice, countries may implement one or more of the following policies: (i) put a numerical cap on the overall size of tax expenditures—in a similar way to a ceiling on aggregate spending—or a limit on the annual growth in the aggregate size of tax expenditures; (ii) impose a limit on the number of years between the introduction of a new tax expenditure and its expiry (a “sunset provision”); and/or (iii) ensure that estimates of spending proposals and tax expenditures are both presented in the budget documents and are reviewed together by the government so that the trade-offs between spending and tax expenditures are taken into account in making decisions on the allocation of budgetary resources.

50. This is necessary to take account of tax expenditures in assessing performance against a fiscal rule or an expenditure rule (e.g., an overall expenditure ceiling). Performance should be assessed against quantitative measures in an analogous manner to spending programs. Control mechanisms on the amount of tax expenditure should be built into the budget process. These mechanisms could include rules preventing tax expenditure to reduce the expected aggregate revenue set in the medium-term budget through mandatory compensatory revenue measure. They could also include a formal ceiling on the overall size of tax expenditure, such as an average percentage of GDP over a given period, or the inclusion of tax expenditures in ministerial or sectoral spending ceilings (see Box 2.15 for the Portugal example).⁴³ Periodic evaluation of all tax expenditures is also necessary to determine their distributional impact, scaling back those tax expenditures that are not generating benefits commensurate to their cost,⁴⁴ and to assess whether there continues to be a good justification for the tax expenditure compared to other policy goals and instruments.

Basic Practice: In-year fiscal reports are published on a quarterly basis, within a quarter.

56. Publishing quarterly fiscal reports before the end of the following quarter ensures that the government has enough lead time to adjust its policies in case of deviations from targets. It also ensures that information about the current fiscal year is available before beginning the preparation of next year’s budget and that governments have at least two quarters of data on in-year fiscal developments before they present their fiscal plans and budgets for the next financial year, which typically happens in the fourth quarter of the fiscal year. There may be some exceptions, for example where reports are not generated automatically by the FMIS, thus requiring significant manual efforts or where an in-year consolidation of public entities is undertaken. Regularity in publishing the reports is also important—it is expected that governments should systematically publish budget execution data on a quarterly basis.

Good Practice: In-year fiscal reports are published on a quarterly basis, within a month.

57. Publishing quarterly fiscal data within one month of the end of each quarter enables the government to take timely corrective action if fiscal performance is of track. When reporting fiscal data for each new quarter, the government should take the opportunity to revise data from previous quarters taking account of information received or errors discovered in the interim. This will help to avoid substantial revisions to annual estimates of key fiscal aggregates and support the credibility of the government’s fiscal policy statements.

Advanced Practice: In-year fiscal reports are published on a monthly basis, within a month.

58. Under advanced practice, governments publish monthly fiscal reports before the end of the following month, enabling them to track fiscal developments more closely and respond to problems as soon as they emerge. High-frequency and quality fiscal data are especially important for countries that use fiscal rules in setting their fiscal policy. Publishing fiscal data each month with a one-month lag gives governments between 8 and 10 observations before they submit their fiscal plans and budgets for the next fiscal year to the country’s legislature. Where fiscal reports are generated automatically via the FMIS, such a practice should be easily achievable. While monthly data are likely to be less detailed, more volatile, and subject to greater revision than quarterly statistical data, they can help to improve policymakers’ and the public’s understanding of in-year fiscal developments and patterns. Box 2.16 provides some country examples based on FTEs conducted.

Basic Practice: Audited or final annual financial statements are published within 12 months of the end of the financial year.

61. As basic practice, governments should publish their financial statements within 12 months of the end of the financial year. Financial information published with more than one-year lag is often only of historical importance and is of little relevance either in the fiscal decision-making process or in effectively establishing the executive’s accountability as some of the key personnel may have changed. Long delays in the publication of audited accounts make it difficult to remedy or sanction any financial irregularities or misconduct identified, as the focus of discussion, and the public attention, shifts to the next budget and policies. Publishing audited accounts within 12 months typically requires governments to prepare their financial statements and transmit them to the SAI within seven to nine months of the end of the year.

Good Practice: Audited or final annual financial statements are published within nine months of the end of the financial year.

62. Governments that comply with good practice publish audited or final financial statements within nine months of the end of the financial year (see Box 2.18 for Peru example). This helps legislators and the public to assess whether the findings and recommendations of the audit report are being addressed in the preparation of the accounts for the current year and the budget for the coming year. Governments that have comprehensive and integrated accounting systems, automated through FMIS, should be able to fulfill this requirement.

Advanced Practice: Audited or final annual financial statements are published within six months of the end of the financial year.

63. Under advanced practice, governments publish their audited or final financial statements within six months of year end, thus allowing the information to be effectively used for budget preparation (see Box 2.19 for Finland example). Publication of the annual financial statements within such a timeframe is likely to be achieved by countries that have been able to set up a comprehensive FMIS and communicate and cooperate regularly with the external auditor in the preparation of the accounts. Meeting the six-month deadline typically requires the annual accounts be prepared within three months of the end of the financial year, thus allowing a further three months for examination by the SAI and discussion of any omissions, errors, or irregularities. To avoid delays, the auditor may also perform a concurrent audit of financial transactions even before the closure of the annual accounts.

Basic Practice: Fiscal reports include administrative and economic classifications consistent with international standards, where applicable.

68. Classifying information in fiscal reports by administrative unit and economic category is a basic requirement for expenditure control and fiscal management.

• An administrative classification allows governments to allocate resources to different ministries, agencies, and levels of government. It also allows parliament and the public to hold them to account for the use of those resources. The administrative classification should be organized according to the different levels of responsibility and accountability in budget management. While there is no international standard for an administrative classification, changes to administrative boundaries or assignment of financial responsibilities between government agencies should be explained and reconciled.

• Classifying financial information by its economic nature allows governments to understand and manage the impact of government activities on the wider economy and compare their fiscal performance inter-nationally. An economic classification in line with the international standard (GFSM 2014) is analytically meaningful. It allows the production of statistical tables, which, as discussed under principles 1.1.2 and 1.1.3, provide statements of operations, other economic flows, and the balance sheet. The economic classification defines a set of codes to identify the revenue, expenditures, or financing items and uses these codes to identify types of transactions, other economic flows, or the stock position.⁵⁰ See Box 2.22 for the example of Kenya.

Good Practice: Fiscal reports include administrative, economic, and functional classifications consistent with international standards, where applicable.

69. In addition to the administrative and economic classification, good practice requires that countries classify expenditure by function, which facilitates both international and intertemporal comparisons of the level and composition of expenditure. As noted earlier, using a classification consistent with COFOG⁵¹ allows inter-temporal international comparisons as functions are not affected by changes in the organizational structures of governments or by administrative arrangements regarding the delivery of public services (see Box 2.23 for Tunisia example).

Advanced Practice: Fiscal reports include administrative, economic, functional, and program classifications consistent with international standards, where applicable.

70. Advanced practice is to classify expenditure also by program, thus enabling governments to allocate resources to different policy objectives and link those resources to specific nonfinancial performance indicators (see Box 2.24 for France example). A program classification is useful for countries trying to analyze the performance of public policies or improve the delivery of public services (Robinson and Last, 2009; Robinson 2013). It is an important instrument of fiscal transparency as it informs the public on the impact of intended policies. Implementing a program classification is a demanding task that requires careful design and coordination between multiple stakeholders, in particular between the ministry of finance and line ministries/program-implementing agencies. To be meaningful, such a classification should directly link programs to outputs and outcomes.⁵² It should also ensure that programs provide a full cost of the policy, including civil service employment costs or capital expenditure. Moreover, the FMIS must be designed to ensure that transactions are recorded against a given program, as well as conforming to internationally compliant economic and administrative classifications.

Basic Practice: Fiscal reports include one of the following reconciliations: (i) fiscal balance and financing, (ii) debt issued and debt holdings, and (iii) financing and the change in the stock of debt.

Good Practice: Fiscal reports include two of the following reconciliations: (i) fiscal balance and financing, (ii) debt issued and debt holdings, and (iii) financing and the change in the stock of debt.

Advanced Practice: Fiscal reports include all three of the following reconciliations: (i) fiscal balance and financing, (ii) debt issued and debt holdings, and (iii) financing and the change in the stock of debt.

75. The practices under this principle are defined against the three criteria above relating to the reconciliation of fiscal data. Basic practice requires one of these criteria to be met, good practice two criteria, and advanced practice all three criteria.

76. To meet the basic practice requirements, most countries are likely to apply the fiscal balance to net financing reconciliation criterion, which is the most common of the three tests. This reconciliation is usually included in the government’s main fiscal tables. It explains the difference between “above-the-line” transactions (comprising all revenue, expense, and net investment in nonfinancial assets) and “below-the-line” transactions (comprising the net acquisition of financial assets and the net incurrence of liabilities). While the above-the-line deficit relies solely on government reporting, the amount of net financing can be verified externally, using the monetary survey prepared by the central bank. Reconciliations should explain any difference between these two measures and acquisitions of financial assets that occur below the line that may increase net financing requirements but will not have any impact on the fiscal balance. Under accrual accounting, there is usually a reconciliation (provided in the notes) of the cash flow statement with the operating statement and the balance sheet.

77. To meet the good practice requirements, the second most common reconciliation test is the comparison of government debt liabilities to private-sector debt assets. This test should provide the reconciliation of the data between the debtor (debt issued) and the creditor (debt holdings).⁵⁷ These data can also be compared with the monetary survey and balance of payment statistics prepared by the central bank and the national statistics agency. If necessary, they can be further cross-checked against the balance sheets of creditor entities. Such cross-checks should verify that the government’s reported debt levels are accurate, but differences may still arise for several reasons. For example, the coverage of reported general government debt may be broader than the definition used by a country’s debt management office (e.g., if the debt of state-owned enterprises/public corporations is included within the general government boundary) or valuation methods may differ (e.g., because the government reports debt on face value, but the counterparties report at market value).

78. At the level of advanced practice, the government should also provide a reconciliation of stock-flow adjustments (see Box 2.25 for Finland example). This information is usually provided in the operating statement as “other economic flows.” These flows comprise two categories: (i) holding gains and losses such as the valuation changes due to variations in exchange rates on external debt, and interest rate variations that can change the market value of debt, and (ii) changes of volume such as a reclassification of previously private or public sector debt within the general government (which often is not recorded above the line), or a write-off of public debt.

Box 2.25.

Finland: Reconciliations of Fiscal Data

Fiscal statistics in Finland include all the three reconciliations required under the advanced practice of this principle of the Fiscal Transparency Code.

The reconciliation between the fiscal balance and financing is compiled from the quarterly financial and nonfinancial accounts and is published by Statistics Finland on the National Summary Data Page of Finland in line with the Special Data Dissemination Standards (SDDS) of the IMF.

The reconciliation between the financing and the change in the stock of debt (Maastricht definition) is published in line with the EU’s Excessive Deficit Procedure (EDP) notifications. The change is calculated on the following formula: Change in the Stock of Debt = Net Borrowing/Lending (opposite sign) + Net Acquisition of Financial Assets + Adjustments + Statistical Discrepancy. The adjustments include, among others, the other liabilities (derivatives and accounts payable), revaluations related to changes in the exchange rate, and the difference between interest accrued and interest paid.

The stock-flow reconciliation of the financial balance sheet as defined in the GFSM is also published. The stocks reconciliation is calculated on the formula: Opening balance sheet value + transactions+ other economic flows = Closing balance sheet value (see Figure 2.25.1).

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Stock Flow Reconciliation of the Financial Balance Sheet, 2015

(Percent of GDP)

Sources: IMF GFS database. For charts: https://www.stat.f/index_en.html.

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The debt issued and debt holdings of the central government are published monthly by the State Treasury. The data are published for long-term debt and short-term debt.

Basic Practice: Major revisions to historical fiscal statistics are reported.

80. Basic practice requires that a note to the data should alert users that earlier reported fiscal statistics have been revised and that the revisions were significant. Revisions to fiscal data should follow an established set of policies and practices and should be regularly published, either annually or semiannually. Published data should clearly indicate whether the numbers are provisional, revised, updated, or final. Where fiscal data are reported as provisional, this practice should be clearly indicated and advance notice should be given on the expected planned changes to the data under the revision policy.

Good Practice: Major revisions to historical fiscal statistics are reported with an explanation for each major revision.

81. Good practice requires, in addition, that an explanation of any major revisions to historical fiscal data be provided for users. Information should be provided to users on the reasons for these revisions. Information should be provided if there have been changes in methodology—for example, changes in the base year, major expansions of sample size, introduction of alternative data sources, and/or a reclassification of transactions or institutional units. A note should also be included disclosing the impact of such changes on the treatment of transactions or stock positions and their estimated fiscal consequences.

Advanced Practice: Major revisions to historical fiscal statistics are reported with an explanation for each major revision and a bridging table between the old and new time series.

82. The advanced practice requires, in addition, that a bridge table be provided to reconcile the originally reported fiscal data and the revised data. This analysis should quantify the impact of specific revisions/ changes in fiscal statistics. Some countries present explanatory notes to tables or time series of fiscal data indicating whether the information is preliminary or final, and often indicate in footnotes when users should expect the preliminary data to be revised and made final (see Box 2.26 for Portugal example).⁵⁹

Box 2.26.

Portugal: Historical Revisions to Fiscal Data

Portugal discloses revisions to fiscal statistics in later vintages of published data. The country is required to report fiscal data to Eurostat twice a year (in April and October), in compliance with the EU protocol on the Excessive Deficit Procedure (EDP). Revisions to the data for general government deficit and debt have often exceeded the EU average by large margins. When fiscal statistics for each successive quarter within a given year are compiled, the figures for previous quarters are revised; otherwise, quarterly figures are revised at the time of the EDP notification (to ensure consistency with annual figures). Changes are explained in press releases whenever significant. The revision policy for nonfinancial accounts is presented and explained in Direção-Geral do Orçamento’s website.

Portugal’s general government deficit and debt figures have been revised up significantly over recent years mainly because of reclassifications of SOEs and PPPs within the general government perimeter (see Figures 2.26.1 and 2.26.2). Other significant changes that affect historical fiscal data are published and explained. When a new base year for the national accounts is introduced every five years, it is explained in detail to the public. Changes in the composition of the general government and its subsectors—for example, the reclassification of public corporations—are communicated and explained to the public in press releases.

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Revisions to Government Deficit

(Percentage of GDP)

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Revisions to Gross Government Debt

(Percentage of GDP)

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Source: Portugal FTE, based on Eurostat data in 2012. (IMF, 2014c; http://www.imf.org/external/np/fad/trans/).

Basic Practice: Fiscal statistics are disseminated in accordance with international standards.

86. Basic practice requires the adherence to international data dissemination standards in the disclosure of fiscal statistics. As part of its mandate to conduct global financial surveillance, the IMF has established standards for the dissemination of data: the Special Data Dissemination Standard (SDDS) was adopted in 1996 and the General Data Dissemination System (GDDS) in 1997; subsequently the SDDS Plus was established in 2013.⁶¹ These standards guide the provision of data to the public, and the adherence to them is expected to enhance the availability of timely and comprehensive statistics and therefore contribute to the pursuit of sound macro-economic policies. The SDDS is also expected to contribute to the improved functioning of financial markets. Specifically, in relation to fiscal data, the standards require the disclosure of

• a statement of operations providing the main components of revenue, expenditure, and financing, consistent with the GFSM framework, as discussed in Principle 1.1.3;

• a breakdown of government gross debt, by maturity, residency of counterparty, instrument, and currency; and

• extensive metadata on the above data, following the template defined in the IMF’s Data Quality Assessment Framework (DQAF).⁶²

Good Practice: Fiscal statistics are compiled by a specific government agency and disseminated in accordance with international standards.

87. Good practice, in addition, requires that a specific government agency is assigned the responsibility to compile and disseminate fiscal statistics (see Box 2.28 for Romania example). This practice provides some operational independence for the compiler of fiscal statistics and encourages the introduction of policies conducive to statistical integrity and professional independence. It also provides for a more transparent delineation among the producers of source data, the statistical data compilers, and the potential users of such data. Benefits of this delineation include a more independent analysis of the quality of upstream data and procedures and mitigation of the risk of political interference in the production of statistics.

Advanced Practice: Fiscal statistics are compiled by a professionally independent body and disseminated in accordance with international standards.

88. Advanced practice, in addition, requires the professional independence of the agency in charge of compiling and disseminating fiscal statistics (see Box 2.29 for Canada example). The criteria to ensure such independence are discussed in Box 2.27.

Basic Practice: An independent supreme audit institution publishes an audit report on the reliability of the government’s annual financial statements.

93. As a basic practice, the SAI should be independent and publish an annual audit report indicating whether the government’s financial statements comply with the related laws and regulations. This audit report should state whether the resources appropriated by the government were used in the manner approved by the legislature in the annual budget, any supplementary budgets, and related fiscal legislation. This so-called compliance audit focuses on determining whether the budget was executed as approved by the legislature. It provides an assessment of the accurate representation and compliance of government financial operations in accordance with the regulatory and financial reporting framework. The scope of this audit could include, in addition to the audit of financial statements, various specific financial reports, such as reports on budget execution, the implementation of programs, or specific categories of revenue or expenditure.

Good Practice: An independent supreme audit institution publishes an audit report stating whether the government’s annual financial statements present a true and fair view of its financial position and without a disclaimer or adverse audit opinion.

94. Good practice, in addition, requires that the SAI’s opinion be prepared in accordance with national auditing standards and that the government’s financial statements are free from significant misstatements. In this case, the SAI needs to conduct a financial audit to ascertain the reliability of the annual financial statements and express an opinion, which, if prepared in accordance with the national auditing standards, is a strong indication of the quality of the audit (see Table 2.7). The auditor must have performed the investigations and collected the evidence required by the national auditing standards to prepare its opinion and must not have detected significant issues that would alter the quality of the information provided by the government to the legislature and the public (see Box 2.30 for Uganda example). The audit report should also identify any material gaps between the reporting standards and the statements prepared by the government.

Advanced Practice: An independent supreme audit institution publishes an audit report consistent with international standards, which states whether the government’s annual financial statements present a true and fair view of its financial position and without major qualifications.

95. Advanced practice requires that the SAI’s opinion be prepared in accordance with international auditing standards⁶⁴ and the government’s financial statements are free from major qualifications⁶⁵ (see Box 2.31 for New Zealand example). As discussed in Table 2.7, the auditor expresses a qualified opinion when there are significant misstatements and/or doubts about the quality of data in government’s financial statements. This requires collecting sufficient evidence to underpin the opinion. In addition, the auditor should have concluded that the framework used by the government to produce the financial information prevents the occurrence of significant errors or has the capacity to quickly detect and resolve them. The effectiveness of internal control, internal audit, and the quality of the FMIS is, therefore, key factor considered by the auditor in preparing his/ her opinion.

Basic Practice: At least one fiscal report is prepared on the same basis as the fiscal forecast/budget.

100. Basic practice requires that at least one of the fiscal reports should be directly comparable to the budget or fiscal forecast prepared by the government before the beginning of the fiscal year. The three reports are the budget execution report, fiscal statistics, or the final accounts. This comparison should cover at a minimum the high-level fiscal aggregates but should preferably be provided at detailed levels as well. The comparison is more meaningful if the ex post fiscal reports also provide explanations for large variations between the budget/forecast and the outturns. However, many low-income countries and emerging market economies prepare fiscal reports that are either not comparable to the budget or can be compared with the budget only for the main administrative headings (see Box 2.33).

Box 2.33.

Comparison of Fiscal Reports with the Budget

Out of a set of 91 countries for which PEFA assessments are available, only 10 countries prepare budget execution reports that can be directly compared with the budget, and 9 countries prepare reports that allow comparison with the budget but only with some aggregation. Forty-one countries publish reports that can be compared with the budget only for the main administrative headings, and 10 countries publish reports that cannot be compared with the budget even for the main administrative headings.

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Comparability of Reports with Budget Estimates

(Percentage of Total)

Source: PEFA Scores Data Set (2005–16).

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Good Practice: Fiscal forecast/budget and outturn are comparable, and the outturn is reconciled with either the fiscal statistics or the final accounts.

101. Good practice, in addition, calls for a reconciliation between the budget outturn report and either the financial accounts or fiscal statistics. This requires that the budget outturn reports—which are prepared by the ministry of finance and are already directly comparable to the original budget—are reconciled with either the financial accounts/statements prepared for publication and audit or the fiscal statistics prepared by the statistician. These reconciliations should at a minimum be provided for the main revenue and expenditure aggregates, as well as the fiscal balance.

Advanced Practice: Fiscal forecasts/budget and outturn are comparable, and the outturn is reconciled with both fiscal statistics and final accounts.

102. Advanced practice requires that the budget outturn report is reconciled with all the other fiscal reports. A desire to promote greater transparency and accountability has prompted some countries to fully align the reporting standards across budgets, accounts, and statistics. To provide a consistent fiscal picture at all stages of the budget process, these countries have moved to harmonize or align the reporting basis across different fiscal documents (see Box 2.34 for the examples of Australia and New Zealand).