Moving to international accounting standards will be central to improving public sector finances, according to public sector finance leaders.

The annual CIPFA central government finance conference in London warned that preparations for the changeover should be stepped up.

Currently, the public sector works to the UK Generally Accepted Accounting Practice (UKGAAP). However, the next financial year accounts – particularly for the central government departments – will be prepared using International Financial Reporting Standards (IFRS).

The move towards a single model of financial reporting was sparked by the US Enron scandal where executives inflated results to boost share prices. Private sector firms, particularly those reporting to the City, have adopted the new system.

The key change is in the treatment of leases and private-finance initiative (PFI) schemes which will come on to the balance sheet for the first time. It is likely to mean that the full extent of borrowing liabilities will become apparent and will make accounts look particularly bleak when the tough departmental settlements from the Comprehensive Spending Review (CSR) begin to bite.

Martin Sinclair, assistant auditor general at the National Audit Office, told the conference that the close deadline meant work would have to be stepped up.
Treasury officials, and the Audit Commission, have warned that, because of the number of public sector organisations, assessing the impact has been impossible.

Although the change was set out as a priority in the March 2007 Budget, eyes have been on the CSR settlement. The National Heath Service has also been focused on trying to head off a massive deficit and professionalise its accounting procedures to prevent a repeat.

A CIPFA spokesman predicted: ‘There are quite radical implications for the way public services are run and commissioned. This is the foundations of something bigger.'