Abu Dhabi leads the way in adopting sustainable accounting standards

Thanks to policymakers, Abu Dhabi’s economy has evolved beyond recognition in the past half-century and is well-positioned for continued growth.

At the core of the Emirate’s success is its sustainable development plan: Economic Vision 2030, a long-term road map for economic progress and high quality public services. A critical component underpinning the emirate’s long-term success is the modernisation of its public sector financial management.

Enhancing public financial management, including improved accounting and reporting arrangements, is essential to supporting more effective and efficient public services, increasing economic growth and minimising the incidence of fraud and corruption. Earlier this year, Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, issued a directive to the Abu Dhabi Accountability Authority to create an anti-corruption unit to “maintain a financial and administrative system based on transparency and integrity”, among other responsibilities.

This positive step reflects the emirate’s commitment to public governance, transparency, accountability and sustainable high-quality public services for its citizens. Optimising government operations is a priority for Abu Dhabi, and by actively encouraging strong public financial management, the government is supporting its long-term sustainable development efforts and attracting increased investment.

In many parts of the world today, including in the Middle East and North Africa, the state of public-sector accounting hinders effective public service delivery and economic growth because available financial information does not provide the full picture necessary for public officials to make informed decisions. And without comprehensive financial information, no one really knows where the money is going. Cash accounting simply records cash inflows and outflows without taking, for example, future obligations into account.

This lack of information causes a short-sighted view of public finances, obscures the actual financial position and can lead to crippling debt that fundamentally affects the lives of future generations. A crucial step forwards, and common practice in the private sector, is adoption of accrual accounting, which takes future obligations into consideration when looking at a country’s financial standing, providing a much more comprehensive picture.

Full disclosure under comparable and consistent accounting principles builds awareness of the longer-term fiscal consequences of policy decisions. In addition, improved public-sector reporting provides investors with better, more complete information and a clear picture of a government’s ability to achieve its objectives and meet its obligations.

Most countries require private-sector organisations to prepare accrual-based financial statements and have them audited in accordance with rigorous international standards. Remarkably, many of those countries do not abide themselves to similar standards in the public sector – but they should.

Governments throughout the world, including some in the Mena region, are already working towards improving their financial management to align with 21st century needs by adopting accrual accounting to provide better-quality financial information and increased financial transparency to make better policy decisions and attract more private investment. Abu Dhabi is adopting International Public Sector Accounting Standards (Ipsas) and has already developed a new chart of accounts.

More than 80 jurisdictions throughout the world have adopted transparent accounting practices, and according to the international accounting firm PwC, seven in 10 governments intend to use accrual accounting-based Ipsas within five years.

This is welcome news. To encourage full implementation of accrual-based Ipsas, IFAC has established a global coalition under the Accountability. Now banner, to highlight the importance of strong public-sector management for better, more sustainable public services and citizen accountability.

Abu Dhabi’s commitment to modern, disciplined public financial management and sustainable public services for its citizens is a model for others throughout the region. I encourage all governments to improve their financial management, including adopting better accounting standards that enable transparency and accountability. The sooner governments do this, the sooner they will be able to make better, more informed decisions that benefit their constituents, improve resource allocation and stimulate economic growth.

Fayez Choudhury is chief executive of the International Federation of Accountants.

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