Editorial: Managing expectations reduces disappointment

Oftentimes, the public has very high expectations when it comes to reporting and auditing. Both financial and non-financial reports should include all relevant information and all interesting details; yet they should be brief, written in easy-to-understand language and include a user-friendly graphical presentation and all this, of course, needs to be done in a timely manner. Equally, audit should provide absolute assurance on these reports, again, if possible, before any irregularities actually happen. Of course, these expectations are exaggerated but, like any caricature, they are accurate to a certain extent.

This issue of Public Money & Management (PMM) presents some interesting findings on the effects of financial and sustainability reporting, as well as on auditing from around the world. On the whole, the effects are positive—but don’t expect any wonders!

Hesarzadeh and Behbahaninia (2024) find that financial reporting based on the International Public Sector Accounting Standards (IPSAS) had a generally positive effect in the 22 countries they analysed—reducing public economic policy uncertainty. They show that the positive economic impact of IPSAS implementation is even greater in countries that do not have robust mechanisms to support transparency and accountability. These findings are consistent with other studies. Reducing economic policy uncertainty is certainly welcome and good news for jurisdictions in the process of implementing the international standards. However, reducing economic policy uncertainty does not automatically lead to better macroeconomic performance. Not that the authors are claiming such a thing but, sometimes, expectations about IPSAS implementation imply such wide-ranging effects.

Xiao and Wang (2024) examined fiscal reporting practices in no less than 120 countries, i.e. a much wider group than the ones applying international reporting standards, during the Covid 19 government spending spree. They show that the emergency situation caused by the pandemic resulted in weakened fiscal transparency, especially in respect of the financing of these additional expenditures. While this is to some degree understandable given the priorities in such a situation, it is nevertheless unfortunate from a transparency and accountability perspective with accounts falling short of public expectations.

Public expectations can be even higher when it comes to the environmental, social and governance (ESG) reporting of publicly-owned enterprises. Andrades et al. (2024) show relatively low levels of disclosure in respect of ESG indicators by public water utilities in Andalusia (Spain). Hybrid public water utilities, i.e. companies that also have private investors, are doing a little better. In any case, engagement in ESG reporting seems rather limited, with room for improvement and better compliance with applicable Spanish regulation. However, it should not be forgotten that ESG or sustainability reporting is relatively new and good practices are still developing.

Good audit practices are definitely better anchored—Worthy (2024) shows in his debate article that, in England, local government audit dates back to 1844. One of the undisputed goals of auditing is to reduce information asymmetry. His analysis of a large body of literature confirms that audit can indeed reduce information asymmetry, but only ex post. The limitation on ex post reduction of asymmetry is hardly surprising, given that external audit reports are typically published after the end of the reporting period.

Bottom line, all these articles show some advances in public sector financial and non-financial reporting, as well as auditing. But they also evidence that no wonders should be expected. Therefore, disappointment is best avoided by properly managing expectations. This applies to both practitioners, implementing the reforms, as well as academics evaluating their effects.

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Andreas Bergmann

Andreas Bergmann is editor in chief of PMM; he is a Full Professor of Public Finance and has been Director Public Sector at the Zurich University of Applied Sciences since 2002. He was Chair of the IPSASB from 2010 until 2015, after serving the board as a public member since 2006. He has been Chair of the Academic Advisory Group of the IPSASB since 2019. He is also a member of various expert groups of the OECD, the European Commission and the Swiss government. He holds a diploma from Lancaster University, UK, and a master's degree and a PhD from the University of St.Gallen, Switzerland.