Accountability Now! and
IPSASs
FCPA Anne Owuor
PAODC Member and former IPSASB
Member 2008-2013
September 25, 2014
ICPAK, Mombasa, Kenya
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Why we need change
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The problem we need to address
• Governments around the world contribute significantly to GDP
but transparency and accountability for the resources they
have stewardship of remains poor – many stop at cash
accounting
• Unlike IFRS, there is little to compel sovereign governments
to improve their accounting – even financial ruin hasn’t
motivated some
• Long list of countries committed to adopting IPSAS much
shorter list of those reporting against them
• Improving financial management is a complex and crowded
space and so convincing accountants that things needs to
change is not enough
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Why is this important to IFAC?
• Public interest issue and IFAC has invested in
developing a robust set of global standards
• Unlike other standards, the baseline in the public sector
is much more uneven and progress has been particularly
slow
• Closely related to the relevance and contribution of
accountants – even global organizations are less than
convinced about the role and importance of accounting as
a foundation to improving financial management
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Accountability Now!
• Citizens should be demanding greater accountability of their
governments Now!
• Global coalition being established to ensure support from a
broad stakeholder base
• Working closely with the Global Public Sector Leaders in Big
Six to draw on their expertise
• World Economic Forum engaged and convening meetings with
stakeholders – initial meeting in Geneva in August with Big Six
• A campaign, not a project or initiative, because a political
problem requires a political solution – we need our voice heard
and real action to follow
• Global campaign aimed at promoting awareness at regional
platforms
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Real action at a country level is needed
• Raising awareness is not enough – need to move
governments along the adoption and implementation
path – including IPSASs in legislation is a necessary but
not sufficient step
• Country-level actions include using our convening power
to bring together key decision-makers to develop
roadmaps for implementation – recognizing each
jurisdiction has specific issues and needs to address
• Close ties with our PAO capacity building efforts
• Implementation left to the market to compete for –
coopetition model of working
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Why accountability?
• Accountability, in a general sense, is a responsibility of
stewards or agents to provide relevant and reliable
information relating to resources under their control.
• For governments, accountability is the government’s
responsibility to justify to its citizenry the raising of public
revenues and to account for the use of those public
resources.
•
Accountability information can be used to support
decision making, but it also fulfils the citizenry’s “right to
know” how public resources have been spent.
(GASB 2005, page 5).
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ACCRUAL BASIS OF ACCOUNTING
• Financial statements prepared under the accrual basis of
accounting inform users of those statements of past
transactions involving the payment and receipt of cash
during the reporting period, obligations to pay cash or
sacrifice other resources of the entity in the future and
the resources of the entity at the reporting date.
• Therefore, they provide information about past
transactions and other events that is more useful to
users for accountability purposes and as input for
decision-making than is information provided by the cash
basis or other bases of accounting and financial
reporting.
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Transparency and Accountability
Accrual accounting in the public sector
• Public sector assets and liabilities need to be accounted
for – completely!
• Infrastructure - needs to provide service potential
• Public sector entities have no quick and easy solutions
such as bankruptcy, they need to finance their activities
• GFS Analytic Framework is on accrual basis
• Citizens and other resource providers want
accountability
• Decision makers need a reliable basis for their decisions
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Accrual vs. cash-based accounting
Relevance of accrual accounting
• Allows overview of all assets and liabilities of an entity
• Shows service potential embodied in public infrastructure
• Provides a complete financial overview of an entity
through consolidated financial statements
• Forms the basis for the GFS analytical framework
• Decision makers need a reliable basis for their decisions
• Research finding DFID-IFAC Global Accountancy
Developments:
– Higher levels of fiscal transparency are associated with lower
levels of debt and with better fiscal solvency (see IMF 2012)
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Accrual Accounting
What is the value added of using harmonized
accrual accounting standards/IPSAS?
• Better national/international comparability and consistency
of financial information
• Transparency in government financial reporting which
influences government’s cost of refinancing
• Increased level of confidence in gov. financial reporting
• IPSAS allows for mobility of resources/know-how
• Basis for improved decision-making, e.g. through focus also
on assets/non-financial liabilities and performance
• Enhances cost efficiency
• Convergence with GFS => Improvement of the quality of
statistical data
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Return is easily higher than cost
• Direct returns to projects: Assets “found”, risks identified
– easily add up to about half of the project cost
• Returns from accrual reporting:
– Debt management policy can identify non-bond types of debt
more easily and limit/reduce that; debt «shifting» is effectively
prevented
– Assets are more actively managed, leading to disinvestment or
better usage
– Lower interest rates (e.g. State of Geneva -0.5%/Hiler 2012)
– Accrual accounting (A) assists debt breaks/fiscal rules (F) as it
keeps track and helps to prevent “workarounds”, especially
Financial Instruments
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Government Reporting
• IFAC has long recognized that a fundamental way to
protect the public interest is to develop, promote, and
enforce a common set of high-quality international
financial reporting standards for the public sector.
• IFAC believes that in order to change the paradigm for
government reporting, governments should adopt the
accrual-based International Public Sector Accounting
Standards (IPSASs), set by the International Public
Sector Accounting Standards Board (IPSASB).
•
Ian Ball Former CEO IFAC
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Public Sector Critical: Environment
• IMF-Fiscal Affairs Department is addressing issue of
transparency in a comprehensive paper
–
Fiscal transparency does matter
–
Harmonization of Accounting and Statistics needed
–
ROSC initiative should be followed up
• Eurostat Report
–
Endorsement mechanism as expected
–
Alignment with GFS(Government Finance Statistics) is an emphasis
–
Some caution the risk of dual standards (EPSAS) and of a backward step for
those on IFRS/IPSAS (e.g. UK, Spain, Austria, Baltic countries)
• G20 Finance Ministers press release February 2013
–
Strengthening government balance sheet  looking at financial reporting
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Accrual Accounting- Challenges
• There are many obstacles cited, including lack of resources,
financial reporting policy issues, lack of trained
professionals, development of accounting systems,
constitutional and legal restrictions.
• Lack of resources in developing nations is a legitimate issue
and a true obstacle. To address this issue, there are cashbased IPSASs for those jurisdictions that wish to be
transparent, but do not have the necessary resources yet to
move to an accrual basis
• Capacity in developing nations can be overcome if there is
the political will for high quality financial management
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IPSASs as a foundation for
PFM reform
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Objective of IPSASB
• To serve the public interest by developing high quality accounting
standards for use by public sector entities around the world in the
preparation of general purpose financial statements.
• This will enhance the quality and transparency of public sector financial
reporting and strengthen public confidence in public sector financial
management.
• In pursuit of this objective, the IPSASB supports the convergence of
international and national public sector accounting standards and the
convergence of accounting and statistical bases of financial reporting
where appropriate.
• IPSASB standards set out are based on recognition, measurement
presentation and disclosure requirements relating to transactions and
events to be synthesized in general purpose FS.
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Who is IPSAS Board?
• Independent Accounting Standards Setter under IFAC
• Setting standards for Public Sector Entities except
Government Business Enterprises (GBE)
• 18 members
• 10 international organizations with formal observers
status, including IMF, World Bank, EU
• 8 staff, mainly based in Toronto/Canada
• Funding by IFAC (approx 50 percent) and various
Voluntary Contributions from Governments and Observers
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IPSAS BOARD
Rigorous Process
• All meetings and agenda materials are public
• Consultative process 4-6 months response period
• Issue exposure drafts of proposed accounting treatment
for feedback from stakeholders
• All responses posted on website
• IPSASB must approve all public documents with 2/3 vote
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IPSASB has created a full suite of standards
• 32 Standards approved (accrual basis) covering all main areas of
government activity, 1 cash basis standard
• Substantial convergence at December 31, 2009 with IFRSs at
December 31, 2008
– All relevant IFRS converged
– 2009 IFRS improvements incorporated at 1 January 2011
• Standards include sector specific standards
– Disclosure of Information about the GGS (Financial Statistics)
– Revenues from Non-Exchange Transactions (Transfers and Taxes)
– Presentation of Budget Information
– Service Concession Arrangements: Grantor
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IPSASB has created a full suite of standards
• Adoption and implementation guidance
– Study 14
•
Non-authoritative
•
Pratically oriented («How to do it»)
•
Including hints for project management
– Current project: First time adoption
•
ED providing relief published – IPSAS expected December 2014
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Current Status
Relevant issues and work program of the IPSASB
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Adoption of IPSASs
• Direct vs. indirect adoption
– Same can be observed
for IFRS
IPSAS
Legislation refers
to IPSAS
Jurisdictional Standards
based on IPSAS
Legislation refers
to Jurisdictional
Standards
Accounting
Manual
Source:
Bergmann, A: Public Sector Financial Management.
FT Prentice Hall, 2009.
Implementation
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Momentum in Adoption
• Increase in adoption and implementation
– Over 40 Countries apply Accrual IPSAS; including South Africa,
New Zealand, Switzerland, Russia, Israel, Slovakia, Brazil,
Indonesia
• Some apply it directly (e.g. Switzerland, Austria, Estonia,
Lithuania, Chile)
• Some others indirectly through National Standards (e.g. South
Africa, Brazil, Indonesia, Malaysia, Spain, New Zealand)
– Some apply it for lower levels of government, e.g. Prefecture of
Tokyo, State of Geneva
– Entire UN System, OECD, NATO, Interpol and EC
– Eurostat: IPSAS indisputable reference for a EU framework
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Implementation is challenging
Implementation
of IPSASs
requires
• Normative change: Legislative basis,
endorsement of standards, development
of operational guidance («manual»)
• Configuration of IT/ERP-Systems
• Collection and verification of data,
especially in areas not accounted for
previously (e.g. asset register)
• Verification/audit
• Cross cutting: Training
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Implementation cost can be substantial
•
•
•
•
Cost of
Implementation
Normative change: 5%
IT/ERP-Systems: 75%
Collection and verification of data: 10%
Verification/audit: pro memo
• Cross cutting: Training 10%
• The need to implement a new IT/ERP
(or not!) largely determines the total
cost and explains the substantial
variance observed
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Conclusion on IPSAS
• IPSASs are a full suite of standards, designed for the
public sector set by an independent, international
standard setter
• They can implemented directly or indirectly through
standards set at jurisdictional level
• Time and cost required for implementation are
substantial – but returns are easily higher
– Identification of assets; more actively managed
– Better accountability and decision making
– Lower debt levels and lower interest rates (e.g. State of Geneva 0.5%/Hiler 2012)
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PSASB - Kenya
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PSASB -K
Kenyan Case
• Public Finance Management Act 2012 section 192, 193(1) 193(5)
established PSASB
• National Treasury through Gazette Notice No.1199 published the
names of the nine Board Members
• Members are nominated from National Treasury, Controller of
Budget, Intergovernmental Budget & Economic Council, Auditor
General, Institute of Certified Public Accountants of Kenya,
Institute of Certified Public Secretaries of Kenya, Association of
Professional Societies of East Africa, Capital Markets Authority &
Institute of Internal Auditors of Kenya
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PSASB
• The Board works through 4 committees, namely:
–
(i) Government Owned Enterprises Committee
– (ii) National and County Government Committee
– (iii) Internal Audit Committee &
– (iv) Governance and Strategy Committee to assist in fast tracking the
implementation of the new reporting framework.
• The National Treasury appointed 5 officers to form the
Secretariat to support the work of the committees and the
Board. These officers are drawn from various National
Treasury departments.
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PSASB-K
Functions
• Set generally accepted accounting and financial standards
and Internal Audit Standards.
• Prescribe minimum standards of maintenance of proper
books of accounts for all levels of government.
• Prescribe formats for financial statements and reporting by all
state organs and public entities
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Functions continued
• Publish and publicize the accounting and financial
standards and any directives and guidelines prescribed by
the Board.
• In consultation with the Cabinet Secretary agree on
effective date of implementation and gazetting.
•
Perform any other function related to advancing financial
and accounting systems management and reporting in the
public sector
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PSASB-K
Achievements
• Approved the adoption of the
–
International Financial Reporting Standards (IFRS),
– the International Public Sector Accounting Standards (IPSAS) and
–
International Professional Practice Framework (IPPF) for Internal
Auditing Standards by all State organs and Public Sector Entities.
• The effective date was 1st July, 2014 and this was
communicated to the entities through a Treasury circular and
gazetted
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PSASAB
Use of Accounting Standards
• Application as follows:
–
National and County government shall apply IPSAS Cash based
Standard
– Regulatory and other non- commercial entities to apply IPSAS
accrual based Standards
– State and County Corporations to apply IFRS
• Board developed guidelines and financial reporting tools to
be applied in the preparation of the financial statements.
• Road map on implementation and capacity building being
undertaken by assistance of auditing firms.
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PSASB
Capacity Building
• Training on the preparation of financial statements for state
organs and public entities based on the standards adopted
by the PSASB have been carried out.
• Entities trained include: County Governments, National
Government – Ministries, Departments and Agencies,
State Corporations & Semi Autonomous Government
Agencies (SAGAs) & External Auditors (KENAO)
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PSASB
Capacity Building through Technical Assistance
• Consultancy services were contracted to;
-
provide hands on technical support and guidance to accounting
personnel
– conduct training and capacity building activities
– prepare training manuals.
• Two Auditing firms were contracted to carry out these
exercises,
–
Ernst & Young to support National government Ministries, Departments and
Agencies whilst
–
Deloitte & Touche was to support the state corporations and Semi –
Autonomous Government Agencies
• World Bank funded consultancy being procured for County
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PSASB
Internal Audit and Risk Guidelines
• The Board has responsibility of developing guidelines for
performing Internal Auditing in the public sector in line with
section 73 of the PFM Act 2013 and the International
Professional Practice Framework (IPPF)
• The Board in consultation with the Internal Auditor General
Department is working together towards accomplishing
these tasks in a few months to come.
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PSASB
FUTURE STRATEGY
• Continuous capacity building,
• Benchmarking visits, attending seminars, workshops and
regular training programmes in region and other parts of
the world
• Participation in the Financial Reporting Excellence Award
for Public Sector entities from next year once the initial
financial statements have been audited.
• Long term- consolidated government accounts
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PSASB
CHALLENGES
• Budgetary allocation –. To be seen to be independent the
Board should have its own budget.
• Lean team through the Secretariat – The Secretariat staff
are seconded from the National Treasury, and support
from external consultants.
•
Training and Capacity Building of the Stakeholders.
•
Change management – Resistance by entities who want
status quo to remain.
•
Deadlines for financial reporting for financial year
2013/2014 too short and requires total dedication.
•
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conclusion
Champions of Change
• To quote Bill Clinton, “The price of doing the same old
thing is far higher than the price of change.”
• I suspect all of us here today can agree that the same old
thing, does not work; the current state of affairs proves
that. So there must be change.
• Financial management reform, and the convergence to
one set of high quality international public sector
accounting standards are critical steps for prosperity and
long-term fiscal sustainability
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Champions of Change
• I believe the accountancy profession does have a pivotal
and influential role to make the difference.
• We have all attended events like this one, and have
presented at numerous venues in our professional
lifetimes.
•
We have all experienced the enthusiasm, commitment
and motivation that come from working together, and
sharing ideas.
THEN WHAT???
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Champions of Change
• We go back to our busy and chaotic lives, and the
enthusiasm wanes. We cannot let that happen this time.
• LET US BE THE: Champions of Change!‖―a
representative in the rally for accountability,
transparency and stability..
• THANK YOU FOR LISTENING TO ME !!!!!!
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