May 7, 2012Doug Hadden
Doug Hadden, VP Products
Nothing can generate a more heated discussion among government accountants than accrual accounting. Some argue that accrual accounting is necessary to determine the true value of government and eliminate short-term thinking in decision-making. Others argue that the complexity of accrual accounting isn’t worth the effort – and, there really isn’t an objective true value of a government.
Full accrual accounting can expose liabilities that are off the balance sheet: contingent liabilities like natural disasters, entitlements like government pension plans, public-private partnership risks etc. It appears that accrual accounting in government exposes more red ink. Not the best thing to expose if you are a politician in government.
Government as Investment
Andy Wynne, the editor of the International Journal on Governmental Financial Management suggested that education should be capitalized. Increasing education ought to increase government and private sector management. It should increase innovation.
This got me thinking. What if we saw government as an investment? We invest on the stock market giving some companies a premium – the value of the company stock is often much higher than the equity. What factors could accrue as government assets?
A recent article by Joe Friesen in the Globe and Mail suggests that Canada requires more immigration to fuel growth. Immigration represents confidence in the . Despite all the anti-immigration rhetoric in many countries, immigration is a sign of economic desirability and “good will”.
Many companies are valued higher because of proven managerial stewardship. Higher governance quality means that governments are more effective and better able to leverage opportunities and overcome problems. For example, the Government of Honduras may want the Government of Canada to help adminstrate a free enterprise zone, according to Joshua Keating in Foreign Policy. There are numerous governance indices that could be used to calculate governance value. The World Bank World Governance Indicators that take many factors in account could be an ideal source.
3. Foreign Direct Investment
FDI also shows confidence in country management. This generates economic activity. This investment may spur growth.
Feel free to add your ideas.