Date posted: 7/11/2018

Government transformation shaping economic and social change

Global leaders say accountants have a significant role to play in transforming economies and societies.

In Brief

  • Global leaders say accountants have a significant role to play in transforming economies and societies
  • Accounting was vital to reforming the Indonesian economy
  • New Zealand has evolved its balance sheet into a management tool

Sir Bill English, former Prime Minister, New Zealand
Joaquim Levy, Managing Director and Chief Financial Officer, World Bank Group
Sri Mulyani Indrawati, Minister of Finance, Indonesia

Global leaders say accountants have a significant role to play in helping governments of developed and developing countries transform economies and drive social change.

Sir Bill English
Sir Bill English KNZM, Former Prime Minister - New Zealand.

Joaquim Levy, Managing Director and Chief Financial Officer of the World Bank Group, says The World Bank Group has the objective of obtaining the UN's sustainable development goals (SDG) by 2030.

Levy says there are four ways accountants can play a role in developmental policies.

  1. Building transparency. Strong accounting will build trust, which is vital for people to entrust their savings to companies and mobilise investment. "We, as the World Bank, support the IFRS Foundation to help countries with weak financial reporting to implement the standards and disseminate their use," he says.
  2. Attracting more private capital to fund mitigation against climate change and natural disasters. "That requires integrating new dimensions of value creation into corporate reports," he says. "The integrated reporting approach encourages the practice of finance and business activities focused on the strategic fundamentals that help reward long-term benefits from sustainability rather than short-term gains." Levy says the bank is working towards adopting integrated reporting in the near future and supporting private companies around the world to do so.
  3. Measuring the role of human capital. "Human capital will increasingly shape the future of the world." Levy says the bank recently published a Human Capital Index that measures performance in this area.
  4. Ensuring transparency in the public sector, which is crucial to democratic systems.
Joaquim Levy
Joaquim Levy, Managing Director and Chief Financial Officer of the World Bank Group

Sri Mulyani Indrawati, Minister of Finance for Indonesia, says accounting has played a vital role in reforming the Indonesian economy.

At the time of the financial crisis 12 years ago, the country didn't have a balance sheet and financial statement, which it has since introduced. Indonesia moved from "cash basis to accrual" and established an accounting standard for the government.

Sri Mulyani Indrawati

Sri Mulyani Indrawati, Minister of Finance for Indonesia.

Indrawati says Indonesia was recently upgraded to investment grade status. "We took lessons from that and we changed into a well-governed, well-managed country," she says.

Sir Bill English, a former Prime Minister of New Zealand, says New Zealand adopted accrual accounting to give the government an awareness of its balance sheet. But it took the concept further, taking the balance sheet seriously as a management tool to encapsulate long-term assets and liabilities.

This is a real accounting journey.
Sri Mulyani Indrawati, Minister of Finance for Indonesia.

New Zealand evolved a 'social investment' framework that considers human capital. "Most government spending is on people, but most of the time governments are flying blind," he says.

English says the cash-driven focus of budget processes was preventing people make much better long-term decisions. He says there four components of New Zealand's social investment approach:

  • Integrated data
  • Actuarial tools to gain a longitudinal picture of human capital down to the level of the individual
  • Social return on investment calculations
  • A performance framework that can be applied in education, welfare and justice. In New Zealand, for example, there was a person responsible for reducing the long-term welfare liability, which helped drop the 30-year liability by 10 to 12% over 3-4 years.

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