Public financial reporting in true and fair terms — discussion on shortfalls in Germany and recommendations for the reform agenda

Abstract

International public financial management reform is mainly influenced by private sector accountancy concepts and characterized by a detailed discussion of technicalities. In the case of Germany, a critical assessment of the status quo shows that the public accounting and reporting system cannot meet its primary aims in an appropriate manner despite considerable reform steps. The article recalls the primary aims of financial accounting and categorizes prevailing shortfalls. It examines criteria for the consolidation basis and reporting requirements with regard to public sector specifics by considering risk structures and the strategic relevance of certain assets. In a wider context, it should also help to shift the reform debate back to its core objective: the effective, efficient and sustainable provision of public services.

Points for practitioners

In order to comprehend the significance of financial accounting, it may be helpful to recall its original, primary aims, thus enabling a steering and information system for government as well as public administration to be regained. Governments fulfil public services which should be provided effectively and efficiently. Public financial management plays a major role in meeting these requirements. Eliminating ‘escape from the budget’, preventing ‘quests for niches in the budget’ and enhancing the information value of the financial statement with regard to public sector specifics are the principal guidelines for any reforms. The article conveys the basic requirements of a financial accounting system and gives critical insight into developments and shortfalls of Germany together with concrete proposals. This provides an opportunity to draw conclusions and avoid similar shortfalls at earlier stages of the reform process.