The contingent nature of SGs makes their valuation and accounting challenging. The public accounting standards in place in a given country drive the way SGs will be accounted for. Where public accounting standards are not well developed, the financial impact of SGs tends to be recorded in the Government accounts only when the contingent obligation materialises (i.e. the SG is called). The principle of "cash accounting" may encourage Governments to ignore the cost of SGs as they generate no immediate expenditure. "Accrual accounting" standards require the immediate recognition of at least some obligations to make payments later. Current international accounting standards require that a contingent obligation be recognised as a liability when the probability that a payment will be made is considered to exceed 50% and when a reasonably reliable estimate of the payment can be made. The most advanced standards require the recognition and the disclosure of the obligations created by SGs.
Guidance: The accounting for SGs should recognise the cost of the risks covered by SGs. This implies in particular an assessment of the probability of the SGs being called at some stage. Governments should have a framework for evaluating such probabilities and specialised advice may be needed for this. Best practice transparency principles suggest full disclosure of SG obligations in public sector accounts.