Editorial: Quality of financial information presented by public sector entities

Our November 2021 issue of Public Money & Management (Volume 41, Number 8) once again looks at financial information presented by public sector entities—this time through a quality lens. The traditional response to potential and actual quality issues of financial information is audit. The debate article by Grace and Thorogood (2021) and the research article by Francesca Manes Rossi, Isabel Brusca & Vicente Condor (2020) look at audit: both from a local government perspective. Obviously, this is still a highly political issue in the UK, six years after dissolving the Audit Commission in 2015. However, as Rossi et al.’s international research article shows, the issue is far from UK specific. The number of countries with private audit systems, like the one in the UK now, and public or mixed audit systems are roughly in balance—and all three are facing significant challenges, although not necessarily the same ones.

Gibb et al. (2020) and Bo et al. (2021) remain at the local government level but have a closer look at two highly relevant aspects—human resources in Scotland and debt in China, respectively. Both articles evidence some improvement, and hence confirm the ability of local governments to reform, although in particular the challenges in respect of local government debt in China remain significant.

Debt is likely to become a very major issue everywhere due to the Covid-19 pandemic. Patrícia Gomes (2021) analyses the financial and non-financial responses to the pandemic in Portugal and shows that not having amortized the debt incurred during the Global Financial Crisis in 2008–2010 was an aggravating factor in the country. However, Portugal is a good example of a country which has improved its accrual basis financial information and therefore is now much better positioned to effectively control fiscal risks. And, as Jung et al. (2020) show, it is not a coincidence that accrual accounting information favourably affects fiscal risks; they analysed 24 OECD member states, one of them being Portugal.

The finding that accrual-based government financial information is positively affecting fiscal risks speaks for the quest for high-quality financial information, which brings us back to the audit of financial statements. If financial statements actually do matter economically, their quality should also matter and there needs to be an audit system in place which assures this quality. All the articles in this issue show that, while in most cases there is room for improvement, improvements should always strive to improve quality.

Disclosure statement

No potential conflict of interest was reported by the author(s).