As the world recovers from the far reaching effects of the global economic crisis, governmental accountability and transparency in its reporting of assets and liabilities continues to take centre stage. In light of this, government bodies and parastatals are continually looking to improve on archaic and often murky processes to meet targets and compliance challenges.
The International Public Sector Accounting Standards (IPSAS) are a set of accounting rules and guidelines issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements. It focuses on improving the quality of general purpose financial reporting, leading to more informed and fiscally efficient decision-making by governments, while simultaneously increasing transparency and accountability.
The adoption of IPSAS Accrual and IPSAS Cash and Modified Cash reporting framework will improve the quality of financial data and enables alignment across governments and non-governmental organisations (NGOs). According to a report on its implementation of IPSAS, the Word Health Organisation states that, “The main benefits of IPSAS are increased transparency which provides a better understanding of WHO’s financial performance, greater accountability to make informed decisions about resource utilization, and improved financial information to support governance, management of assets, and decision-making.”
The full range of benefits of implementing IPSAS Accrual and IPSAS Cash and Modified Cash can be captured as part of a wider finance reform, serving as a facilitator to provide high-quality financial information, which in turn, improves operational and service performance and contributes to the long-term sustainability of public finances.
Let’s take a closer look at some of the benefits of IPSAS
It’s useful for government stakeholders
Government financial information is used by a variety of stakeholders. Public entities are accountable for the utilisation of public funds and must ensure the highest levels of transparency exists across financial processes. It should also provide a reliable basis for evaluating the current financial position and past performance for decision-making purposes. Stakeholders need to have an understanding of government finances before making commitments for new programmes and services – IPSAS Accrual and IPSAS Cash and Modified Cash can help them do that.
It leads to transparency, inventory and performance assessment
Transparency and accountability: these are arguably the greatest motivators for adopting IPSAS Accrual or IPSAS Cash and Modified Cash. Transparent accrual-based financial statements help governments to demonstrate, and users to evaluate, accountability in the use of public funds. According to Brian Quinn, director at the World Bank, “Research has shown that more transparent countries have better credit ratings, better fiscal discipline, and lower borrowing costs.”
Inventory of assets and liabilities
A comprehensive inventory gives stakeholders a clear view of government resources and future obligations. This will allow for more effective administrative processes and controlling costs to be put into place. Bringing liabilities onto the government balance sheet provides a view of the long-term implications in terms of spending commitments and borrowing needs.
Performance assessment: Accrual accounting helps to improve the measurement of a public entity’s financial performance and financial position and provides more transparent information on government sustainability.
Fixed assets: Recording fixed assets in government financial statements has a major measurable impact on government financial statements. Policies, processes and systems that are needed to meet data requirements and track asset-related information on an ongoing basis are also heavily impacted.
Application of accruals:According to a survey by PWC, “57% of countries view the application of accruals as one of the three most significant impacts of adopting accrual-based IPSAS or similar standards.”
Considerations around IPSAS
Before you adopt IPSAS Accrual or IPSAS Cash and Modified Cash, you should know that the conversion process will take a significant amount of time. The change to IPSAS is a transformation of the government finance function and has far reaching impacts, requiring comprehensive planning and preparation. Organisational buy-in and support are central to effective and beneficial implementations of IPSAS Accrual or IPSAS Cash and Modified Cash standards, along with ongoing training of key staff to ensure constant adherence to changing standards. However, there are resources and software available to make IPSAS Accrual and IPSAS Cash and Modified Cash easier for you and to ensure the success of its implementation.
Deloitte says implementations are on the rise, “An increasing number of governments and intergovernmental organizations produce financial statements on the accrual-basis of accounting in accordance with IPSAS or IPSAS-similar standards.” IPSAS’ standing as a global standard is set to affirm itself as adoptions increase globally and public entities seek produce financial statements that reflect good governance and management of public finances.
Is your firm compliant with IPSAS? Feel free to contact us if you need assistance with the latest disclosure changes on IPSAS Accrual and IPSAS Cash and Modified Cash.