dankwambo transition to ipsas and their impact on transparency, a case study of nigeria

8/8/2019 Dankwambo Transition to IPSAS and Their Impact on Transparency, A Case Study of Nigeria

1/36

Paper presented by:Ibrahim Hassan Dankwambo FCA,OON

Accountant-General of the Federation of Nigeria

1

Transition to International Public sector

Accounting Standards (IPSAS)and their impact on Transparency , a case study of Nigeria


2/36

Outline of Presentation

2

y Introductiony IPSAS Requirementsy IPSAS Standardsy Conduct of IPSAS gap analysisy Benefits of such transitiony Nigerias IPSAS gap analysisy Identified Gapsy Work programme to bridge the gaps.y Preconditions for Migration to IPSAS based Standardsy

Transition to IPSAS-issues and Challengesy Impact on Transparencyy Principles of Fiscal transparencyy Conclusion


3/36

Introduction

3

y The users of financial statements have continued to increase greatly.

Appropriately prepared financial statements present a barometer of the financial

health of a country. It has been the endeavor of the office of Accountant-General

of the Federation of Nigeria to develop a system for high quality financial

statements capable of satisfying the requirements of all stakeholders.

y As the world moves in a direction of a global village, we cannot remain isolated

with our own systems and practices. We need to keep abreast with the latest

developments in the international Community. Public sector accounting is

witnessing some profound changes. While the commercial entities across the

world are moving towards International Financial Reporting Standards (IFRS),

Governments are harmonizing with International Public Sector AccountingStandards (IPSAS). International Public Sector Accounting Standards (IPSAS)

issued by IPSAS Board constitute international framework for Government

accounting..


4/36

Introduction Cond.

4

y The gap analysis study that was undertaken by the Federal Government ofNigeria is an attempt to benchmark Government Accounting in Nigeria withCash IPSAS to identify the gaps. It is intended to identify the specific departureof Government Accounting system from cash basis IPSAS and chart a transitionpath for adoption of Accrual based IPSAS.

y The study attempted to assess whether the country should adopt a limitedversion of the standards, as the processes of developing the standards havealready considered any acceptable options that can be incorporated into the textof the standards.

y With the conduct of this study by Nigeria and the necessary actions that weretaken to bridge these gaps, it showed clearly that our adoption of IPSAS have

supported developments in public sector financial reporting which are directedat improving decision making, financial management, and accountability.

y It is therefore an integral element of reforms directed at promoting social andeconomic development.


5/36

International Public sector

Accounting Standard (IPSAS)

5

y International Public Sector Accounting Standard (IPSAS) are a set of professionally developed, high

quality, global Accounting Standards that require accounting on Cash or a full accruals basis (i.e.

all assets and liabilities are recorded).IPSAS generally encourages Governments to progress to the

accrual basis of Accounting and harmonize national Requirements with the IPSASs prepared for

application by entities adopting the accrual basis of Accounting.

y IPSAS are tailored for the public sector and its use is considered best practice for public sector

entities (Governments, Government business entities, non Governmental organizations and

international organizations).

y The international Public Sector Accounting Standards Board (IPSASB) is a standing

Board of International Federation of Accountants (IFAC).The IPSASB has also developed guidance

on the transition from cash- to accrual-based reporting. The traditional emphasis on cashaccounting has been found inadequate through failure to recognize true costs, and all assets and

liabilities. Cash accounting can too easily neglect asset management, accumulating arrears, future

liabilities (e.g., pensions), and contingent liabilities (e.g., guarantees)


6/36

IPSAS adoption by countries

6

y IPSASs (cash or accrual) are gaining acceptance all over the world.Adoption of a uniform global standard would ensure understand abilityof the financial statements on the part of international investors.Thecountries which have either adopted IPSAS or have undertaken theprocess to do so include: Afghanistan, Albania, Argentina, Bangladesh,China, Cyprus, East Timor, France, Gambia, Ghana, Hungary, India,

Indonesia, Israel, Jamaica, Macedonia, Maldives, Malaysia, Nepal and SriLanka .y The adoption of IPSAS by Governments will improve the quality and

comparability of Financial information reported by Public sector entitiesaround the world. It will also strengthen domestic and internationalconfidence in Public sector Financial Management .

y Considerable number of countries have adopted the Accrual based

International Public Sector Accounting Standards (IPSAS) this includes:United States of America, United Kingdom, Canada, New Zealand,Argentina, Bolivia, Brazil, Columbia, El-Salvador, Paraguay ,Peru, Chile,Ecuador, Honduras ,South Africa (with modifications) , Philippines,Romania, Russia etc


7/36

IPSAS Requirements

7

y Currently there are a total of 30 standards on the accrual basis ofAccounting and one Standard on the cash basis of Accounting, issued byIPSAS.These are listed below:

y IPSAS 1-Presentation of Financial Statementsy IPSAS 2-Cash flow Statementy

IPSAS 3-Acconting Policies, Changes in Accounting estimate and errorsy IPSAS 4-The effects of changes in Foreign exchange ratesy IPSAS 5- Borrowing costsy IPSAS 6- Consolidated and Separate Financial Statementsy IPSAS 7- Investments in Associatesy IPSAS 8- Interest in Joint Venturesy IPSAS 9- Revenue from Exchange transactionsy IPSAS 10-Financial Reporting in Hyperinflationary Economicsy IPSAS 11-Construction Contracts


8/36

IPSAS Standards

8

y IPSAS 12-Inventoriesy IPSAS 13-Leasesy IPSAS 14-Events after Reporting date

y IPSAS 15-Financial instruments: Disclosure andPresentation

y IPSAS 16-Investment Propertyy IPSAS 17-Property,Plant and Equipment

y IPSAS 18-Segment Reportingy IPSAS19-Provisions,Contingent Liabilities and

Contingent Assets


9/36

IPSAS Standards

9

y IPSAS 20-Related Party disclosures

y IPSAS 21-Impairment of Non-Cash Generating Assets

y IPSAS 22-Disclosures of information about the General Government sector

y IPSAS 23-Revenue from Non-Exchange Transactions-Taxes and Transfer

y IPSAS 24-Presentation of Budget information in Financial Statements

y IPSAS 25-Employee Benefits

y IPSAS 26-Impairment of Cash Generating Assets

y IPSAS 27-Agriculture

y IPSAS 28-Financial Instruments: Presentation

y IPSAS 29-Financial Instruments: Recognition and measurement

y IPSAS 30-Financial Instruments: Disclosuresy ED 40 Intangible assets

y ED 41 Entity combinations for exchange transactions.

y Cash basis IPSAS-Financial Reporting under the cash basis of Accounting


10/36

Nigeria's IPSAS Gap Analysis

10

y In line with the Federal Government of Nigerias goal tosignificantly strengthen Governance and Accountability,reduce corruption and deliver services more effectively andefficiently, the Government received a credit from theinternational Development Association under the Economic

Reform and Governance Project (ERGP) to conduct a Gapanalysis between the International Public sector AccountingStandard (IPSAS) and relevant National Standard andReporting System with a view of improving the state ofPublic Financial Management and Reporting.

y The specific objective of the assessment is to develop a reportfor the countries authorities which will among otherincludes:


11/36

Conduct of IPSAS gap Analysis contd.

11

Provide the Government and other stakeholders with a commonwell based knowledge as to where the country stands against theinternationally developed norms of Public sector FinancialReporting;

Assess the consequences of the prevailing variances;

Provide a basis for measuring interim compliance

Chart paths for improved compliance with IPSAS cash basis .

Provide a road map for migration to accrual based IPSAS.

y

The adoption of a firmly based Accounting,reportingand auditingframework is no doubt a solid value proposition as it provides forcompetent Financial Reporting and transparency.


12/36

Benefits of the Transition

12

y With IPSAS gap analysis and the bridging of the identified gaps in Nigeria, theusers of Financial information will be able to benefit from a common set ofPublic sector accounting and Auditing standards issued by InternationalFederation of Accountants and International Organization of supreme Auditinstitutions that are consistent, coherent and understandable.

y Migration to IPSAS based Standards will enable us to provide more meaningfulinformation for decision makers and Improved consistency, quality andcredibility of our Financial Reporting System

y Strategic plans and reports we prepared became more meaningful as increasedtransparency provides a basis for our development partners and legislature toaccess whether resources are being used effectively and efficiently. Thus

EnhancingAccountability, transparency and harmonizationy The implementation of IPSAS based Standards makes it possible for efficient

internal controls and results based management.

y Its adoption has provided us with a unified approach to managing all funds andit has also ensured benchmarking with similar institutions and forecastingfuture flows of all resources to the organization.


13/36

Strategies adopted

13

y Collection of background information relating to the various laws anddocuments relevant for the work of the committee.

Collection of information relating to assessment of cash basis diagnostictool 1 and 2 which led to the designed questionnaire 1 and 2.

There was a review of the questionnaire and interviews with the major

stakeholders. The filled questionnaires and diagnostic tools were analyzed and brain

storming sessions were held to discuss the findings.

The committee tested the application of cash IPSAS to the FederalGovernment Financial Statement.

Based on this, the committee then put up an interim draft reportpending the out-country analytical work and international study tour tosome countries that are fully compliant to cash basis IPSAS and havesuccessfully migrated to Accrual based IPSAS.

Already the 2009 Consolidated Financial statements have been presentedand consolidated based on the requirements of IPSAS cash basis.


14/36

Strategies adopted Contd.

14

A sensitization workshop was held with the major stakeholderslike the Nigerian Accounting Standards Board, Accountants-General and Auditors-General of the states in Nigeria, members ofthe Finance and Public Accounts Committees of the two chambersof the National Assembly, office of the Auditor-General for the

Federation, Budget office of the Federation, Fiscal ResponsibilityCommission, the Directors Finance and Accounts ,Heads ofAccount departments and relevant designated officials in theMinistries, Departments and Agencies. The recommendationsmade at the end of the workshop helped to ensure a hitch freeprogramme to bridge the identified gaps.

Some of the identified gaps in the IPSAS Gap analysis that wasconducted is briefly summarized below.


15/36

Identified Gap-Legal framework for Cash

basis Accounting

15

y Legal basis for cash basis Accounting : The prevailing laws inNigeria that guides the operations of Public Sector accounting did notspecifically state the Accounting basis to be adopted. There is no specificmention in the authoritative documents relating to cash basis of

budgeting and accounting. cash basis is presumed for budgeting and

accounting. Federation Accounts Allocation Committee(FAAC) onstandardization of Federal, States and local Government accounts merelymade a pronouncement that accounting for government may continueon cash basis.

y This is merely a pronouncement on harmonized format of reporting

which is however not legally enforceable .Not withstanding the absenceof specific mention relating to cash basis, the financial statements ofFederation are prepared on cash basis. There are no non-cash items inthe statement of receipts and payments (Cash flow statement).


16/36

Identified Gap-Accounting for External

Assistance

16

Accounting for External Assistance(IPSAS 1.10.8 to 1.10.11).These sections require entity to disclose on the face of the FinancialStatement of Cash Receipts and Payments External Assistance

received

during the reporting period. The requirements can be summarizedas:y Disclosure of all External Assistance to the reporting

Entity;y Disclosure of External Assistance paid by Third Parties to

settle obligations or purchase goods and services of thereporting Entity;

y

Details of the providers of the External Assistance to bedisclosed; andy External assistance in form of Loans and Grants to be

reported.


17/36

Accounting for External Assistance.

Contd.

17

y Loans and borrowings are disclosed in financial statements if the

loans pass through treasury. If the loans do not pass through

treasury, they are not disclosed. Some external assistance (grants)

are directly given to implementing agencies and are not reflected

in financial statements of Federal Government. There are alsoloans received by implementing agencies directly. Such loans are

not reflected in financial statements of federal government.

However, they are to be eventually paid by Federal government.

Committee for Accounting for Aid and Grants (2007)

recommended that assistance received in kind should be valued

and reflected in the financial statements.


18/36

Identified gap: Consolidation of the Accounts of

Controlled entities

18

y IPSAS envisages recognition of all cash receipts, cash payments and cash balances controlled by the entity. This control may imply thatGovernment will have to add the cash flows of the entities that itcontrols i.e., for example, para-statals like Government Companies,Corporations, Autonomous bodies etc. The cash flows does not mean

merely the investments and dividends, but all cash flows through sales,purchases, receipts and payments of controlled entities, the net of whichhas to be consolidated with the entity.

y The Consolidated Financial Statement of the Federal Governmentfinancial statements does not include all cash receipts, cash payments and

cash balances of entities controlled by the Federal Government. Thereare many agencies which are primarily of the nature of FederalGovernment, but are operated as separate entities. The cash flows ofthese entities are not brought into the financial statements of Federation.


19/36

Identified gap-Cash out of Control

19

IPSAS requires that an entity should disclose in the

notes to the financial statements together with a

commentary, the nature and amount of:

y Significant cash balances that are not available for use by the entity;

y cash balances that are subject to external restrictions; and

y Significant Undrawn borrowing facilities that may be available for

future operating activities and to settle capital commitments,

indicating any restrictions on the use of these facilities.

The Government Accounting practices in Nigeria does not requiresuch disclosures. Federal government did not encounter such

situations till now since external borrowings themselves are not

recorded in accounts of federal government. Generally all cash

balance of Federal government is treated as available unrestrictedfor use.


20/36

Identifiedgaps-Correction of errors

20

y IPSAS provides that when an error arises in relation to a cashbalance reported in the financial statements, the amount of theerror that relates to prior periods should be reported by adjustingthe cash at the beginning of the period. Comparative informationshould be restated, unless it is impracticable to do so.

yAn entity should disclose in the notes to the financial statementsthe following:

y The nature of the error;y The amount of the correction; andy The fact that comparative information has been restated or that it

is impracticable to do so.y

y .

y


21/36

Correction of errors. Contd.

21

y The Government Accounting practices do not require the presentation

of the restated information in case of prior period errors. The Treasury

clearance account which is the transitory account for prior period

errors depicts the amount of correction distinctly.y However, nature of error and comparatives are not mentioned in the

financial statements. This information is available in the working sheets

of the Office of the Accountant-General of the Federation (OAGF) and

can be summarized in the financial statements as well.

y It is however necessary that the additional information relating tocorrection of prior period errors is disclosed in the financial statements

to be consistent with cash IPSAS


22/36

Identified Gap-Reporting date- Timeliness

of report

22

Timeliness of report submission.An entity should be in a position toissue its financial statements within six months of the reporting date, althougha timeframe of no more than three months is strongly encouraged by IPSAS.

y This is to ensure that such Financial Statements are useful to the users.Secondly the date the Financial Statement are authorized to be issued should be

disclosed.y The authorization date is given as the date which the Financial Statement have

received approval from the individual or body with the authority to Finalize theStatements. If there is a rare circumstances in which a body or authority havethe power to amend the Financial Statement after issuance, this should bedisclosed.

y Section 49 (2) of the Fiscal Responsibility Act 2007 provides that the FederalGovernment shall not later than 7 months following the end of each FinancialYear consolidate and publish in the mass media its audited Accounts for theprevious year. The Accountant-General of the Federation in the Finance(Control & Management) Act is given 6 months to submit his consolidatedAccounts to the Auditor-General, who have a total of 90 days to look into theAccount before submitting to the National Assembly


23/36

Timeliness of report. Contd.

23

y As per the requirements of the laws indicated above, the Treasury hasbeen able to issue the Consolidated Financial Statements with in thetime required by the Fiscal Responsibility Act and the Finance (Controland Management) Act.

y However, this falls short of the requirement of IPSAS.The accountsare not placed at the National Assembly within six months ofthe reporting period. This timeliness of submission of report as perthe requirement of IPSAS is being pursued with vigor for realization forGovernment Accounting in Nigeria. This would substantially improve

the timeliness and availability of accounting information to all thestakeholders.


24/36

Work programme to bridge gaps

24

Itemized action plan

y The office of the Accountant-General of the Federation of Nigeria (OAGF) has

worked out an itemized action plan on various items discussed above as the

identified gaps. The most significant issues are entity consolidation and timeliness of

Account submission.

y The Federal Government would need to consolidate the cash flows of all entitiesthat it controls (including GBEs) with its financial statements. For practical

convenience the consolidation of GBEs will be taken up in the long run while

consolidation of all other entities is being immediately embarked upon.

y For improving the timeliness, the time taken in Ministries, Departments and

Agencies of Government including at the office of the Accountant-General of theFederation of Nigeria for finalization of Financial statements has been be crashed

significantly. This is being facilitated through the use of Information Technology, the

Government Integrated Financial Management Information System (GIFMIS) .


25/36

Preconditions for successful migration to IPSAS

based Standards

25

From Nigerias experience in the implementation of IPSAS basedAccounting standards, we strongly believe that the following arepreconditions for successful migration.

An acceptable cash accounting based system - A sound accountingsystem that can generate reliable cash based data is an essential basis from whichto start the move to an accrual framework.

y Political ownership - It is critical that the planned introduction of IPSASbased Standard ofAccounting is supported at the highest levels of the executive.

y Technical capacity - International experience suggests that a lack ofadequate technical resources can be a major impediment to successfulimplementation of IPSAS based accounting Standard. It is essential that agovernment considering such migration has either a core of officials withrequired technical (accounting, IT, etc.) skills, or the capacity to recruit suchpeople for its key positions.

y Automated Information Systems -- Although, in theory, cash or accrualaccounting can be implemented with either a manual or an electronic system, in

practice, it would be inadvisable for a government to attempt to implement fullaccrual accounting without the aid of a modern government financialmanagement information system (GIFMIS) with proven functionality in areassuch as general ledger, accounts payable, purchases, assets management, etc.


26/36

Preconditions Contd.

26

y To ensure seamless transition to IPSAS based standards there is the needto first take up pilot studies in select departments and offices to migrateIPSAS accounting requirements (Cash or Accrual) . The pilot studiesmay be based on IPSAS accrual. Accrual accounting does not necessarilymean a full accrual. Many nations across the world, targets a unique

model of accrual accounting or modified accrual. The extent of accrualaccounting appropriate for any country can be decided through pilotstudies.

y However this will entail some challenges that must be overcome.


27/36

Transition to IPSAS basis-issues and

challenges

27

y Standardization of Accounts of the three tiers of Government like in thecase of Nigeria that operates three tiers of Government,Federal,States andlocal Governments.

y Seamless consolidation of the Accts of the three tiers of Govt. withuniform reporting format of having the same Chart of Accounts.

y Need for the right staffing skills and levels

y Relevant enabling legislations need to be changed in line with reality ofthe requirements of IPSAS.

y IT Hardware and Software development to automate the process.

y Relevant Accounting manuals be reviewed and rewritten.

y Training and retraining of Accounting personnel.y Central guidance is critical

y Automation of the Business Process is very critical.

y Change Management


28/36

Transition to IPSAS -issues and

challenges (Contd.)

28

y Accounting curricula need to systematically convey IPSAS tostudents of Accountancy.

y Continuing Professional Education on Ethics and ProfessionalResponsibility

y

The profession needs to make commitment to producingIPSAS specialist. Such experts will be available as resource persons incases where IPSAS is in use. IPSAS specialist should be knowledgeableabout available resources that can help answer professional responsibilityquestion. An IPSAS specialist should work to maintain an environmentthat stresses the importance of IPSAS adoption and implementation


29/36

Impact on transparency

29

y Fiscal transparency can be defined as public opennessabout the structure and functions of Government, Fiscalpolicy intentions, Public sector Accounts and Fiscalprojections. Such openness is essential if discipline is to

be imposed on Governments by making policy makersaccountable for the design and implementation of fiscalpolicy.

y Adherence to the requirements of IPSAS have made this

possible for the Governments to comply to this.y The expected benefits from Fiscal transparency is shown

below:


30/36

Impact on transparency Contd.

30

y Following the worldwide global Financial crisis, it is now widely

recognized that the availability of timely and complete information

is crucial in order to avoid these kinds of Economic crisis.

y It is no surprise, therefore, that M. Camdessus, the Managing

Director of the IMF, thinks of transparency as the "golden rule" ofthe new international financial system.

y Transparency has been proposed for the agenda of multilateral

negotiations such as those in the OECD, and pursued as a powerful

objective of influential non-governmental organizations such asTransparency International.


31/36

Transparency Contd.

31

y Transparency in economic policy-making now also figures as an

important condition for lending by international financial institutions. In

sum, "transparency" has become the "buzz-word" of modern politics

and economics.

y

Fiscal transparency can be defined as public openness about thestructure and functions of Government, Fiscal policy intentions, Public

sector Accounts and Fiscal projections. Such openness is essential if

discipline is to be imposed on Governments by making policy makers

accountable for the design and implementation of fiscal policy.

y Adherence to the requirements of IPSAS based Standards have made thispossible for the Governments to comply to easily to the requirements of

IPSAS.


32/36

Fiscal transparency -benefits

32

y Fiscal transparency allows for better-informed debate by both

policymakers and the public about the design and results of fiscal policy,

and establishes accountability for its implementation.

y In strengthening credibility and public understanding of macroeconomic

policies and choices, fiscal transparency fosters more favourable accessto domestic and international capital markets.

y It also helps to highlight potential risks to the fiscal outlook, resulting in

an earlier and smoother fiscal policy response to changing economic

conditions and thereby reducing the incidence and severity of crises.

y It provides benefits in terms of fiscal discipline and transparency


33/36

Principles for Fiscal Transparency

33

y For Fiscal transparency to be achieved the following principles should be adopted:

y Clarity of roles and responsibilities. There should be a clear distinction betweengovernment and commercial activities, and there should be a clear legal andinstitutional framework governing fiscal administration and relations with the privatesector. Policy and management roles within the public sector should be clear and

publicly disclosed.y Open budget processes. Budget information should be presented in a way that

facilitates policy analysis and promotes accountability. Budget documentation shouldspecify fiscal policy objectives, the macroeconomic assumptions used in formulating thebudget, and major fiscal risks. Procedures for collecting revenue and for monitoringapproved expenditures should be clearly specified.

y Public availability of information. The public should be provided with complete

information on the past, current, and projected fiscal activity of government and onmajor fiscal risks. This should be readily accessible. Countries should commit to thetimely publication of fiscal information.

y Assurances of integrity. Fiscal data and practices should meet accepted qualitystandards and should be subjected to independent scrutiny.

y .


34/36

CONCLUSION

34

y The purpose of International Public Sector Accounting Standards (IPSAS) cash or accrual is to prescribe the manner in which general purposefinancial statements should be presented. IPSAS apply to all public sectorentities, from supra- national organisations, such as the UN, through sovereignor national governments to the smallest public sector entities, and onlyexcluding Government Business Enterprises (which should report accordingto International Financial Reporting Standards IFRS).

y The paper examines the path towards transition to International Public sectorAccounting Standards (IPSAS) and their impact on transparency using Nigeriaas a case study with the conduct of the IPSAS gap analysis. It revealed anumber of very useful findings. Financial reporting by sovereign or nationalgovernments is an increasingly important issue, and will become more so asthe impact of the financial crisis on governments across the world becomesapparent. Government financial statements should provide criticalinformation on the health of government finances which is useful andunderstandable by all citizens. Transiting to IPSAS(Cash or accrual ) basisenhances transparency, accountability and comparability.

y Thank you.


35/36

The End

QUESTIONS & ANSWERS

35


36/36

References

36

y Abdul Khan & Stephen September,2009.Transition to Accrual Accounting Mayes. IMF PublicManagement Technical guidance note and manual.

y Wynne Accrual Accounting for the Public sector

y Dr Jesse Hughes, Transition from cash Accounting to accrual Accounting By

y Governments

y 2008 IFAC Handbook International Public sector Accounting Pronouncements. Volume 1

y2008 Handbook of International Public sector Accounting Pronouncements. Volume 1

y 2008 Handbook of International Public sector Accounting Pronouncements. Volume 11

y Hassan A.G Ouda, A Prescriptive model of transition to Accrual Accounting in CentralGovernment..

y NIGERIA, Public sector Accounting, A Comparison to International Standards Report of the Gapanalysis Committee

y Practical Challenges in the Implementation of IPSAS in Nigeria-Paper delivered by the Accountant-

General of the Federation of Nigeria.

dankwambo transition to ipsas and their impact on transparency, a case study of nigeria

Documents