1. Background to IPSAS Implementation in Nigeria

8/11/2019 1. Background to IPSAS Implementation in Nigeria

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Background to IPSASGlobal and Local Experience

Roadmap for adoption

Overview of the cash and accrual accounting basis

Module Three


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Introduction History of Convergence

Global Adoption

IPSAS in Nigeria

Political and Economic Benefits Cash and Accrual Accounting

Moving to Accrual Accounting


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At the end of this presentation, the participants would be able to

Understand the need for and history behind the global adoption of IPSAS

Recap the progress that has been made in adopting IPSAS in Nigeria

Appreciate the benefits of adopting IPSAS


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IPSAS - International Public Sector AccountingStandards

A set of accounting standards issued by theInternational Public Sector Accounting StandardsBoard (IPSASB) for use by public sector entities

around the world for the preparation of FinancialStatements

IPSASs are professionally developed, high quality,global accounting standards that require accountin

on cashor accrualbasis


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Increasing collaboration, trade and commerce amongst the countries of the world

necessitated increased uniformity in the standards guiding financial statements

For the statement to remain comprehensible and convey the same information to u

across the world

Hitherto, countries of the world have defined and set the standards of financial repo

in their individual territories.

The need for the development of unified accounting standards has been the primary driv

the International Public Sector Accounting Standards, for public sector financial reporting.

The commercial entities across the world are moving towards International Financial Repo

Standards (IFRS), governments are harmonizing with International Public Sector Accou

Standards (IPSAS).


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Nigeria, a leading African nation with a population of over 150million people a

foremost OPEC member, with a public sector dominated economy, has identifiedneed to consider the value proposition of the IPSAS and implement same in ord

remain relevant in the comity of nations.

An increasing number of governments and intergovernmental organizations pro

financial statements on the accrual-basis of accounting in accordance with IPSA

IPSAS-similar standards.

The current economic crisis and the severe fiscal constraints being experience

many governments has underscored the need for governments to transparently r

all their assets and liabilities.


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IPSAS facilitates the alignment with best accounting practices through the application of cred

independent accounting standards on a full accrual basis.

It improves consistency and comparability of financial statements as a result of the detailed requirement

guidance provided in each standard.

Accounting for all assets and liabilities improves internal control and provides more comprehe

information about costs that will better support results-based management

The information contained in accrual accounting IPSAS financial statements is considered us

both for accountability and for decision-making purposes.

Financial reports prepared in accordance with IPSAS

allow users to assess the accountability for all resources the entity controls and the deployment of

resources,

assess the financial position, financial performance, and cash flows of the entity and

make decisions about providing resources to, or doing business with, the entity.


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Efforts at the International convergence of accounting standards dates back

1950s in response to post World War II economic integration and related increa

cross-border capital flows.

The initial efforts focused on harmonizat ion- reducing differences amon

accounting principles used in major countries of the world.

By 1990s, the focus shifted from harmonizationto the concept of convergenc

greater interest on the development of a sin gle set of h igh-qual i ty, intern

account ing standards that would be used in cou ntr ies o f the wor ld.

The Internat ional Acc oun t ing Standards Comm ittee (IASC), formed in 1973 w

first international standards-setting body.

In 2001,the IASC was reorganized to become the Internat ional Ac count ing Stan

Board (IASB)- an independent international standard setter.


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By 2009, over 100 countries of the world had adopted the interna

accounting standards and either require or permit the use of standards issu

IASB or a local variant of such standards.

The FASB of the U.S. and the IASB have been working together since 20

improve and converge U.S. GAAP and IFRS.

It is hoped that by 2015, there will be a single set of reporting standards be

the FASB and IASB.

As of 2009, Japan and China were also working to converge their standard

the international accounting standards.

Countries that have adopted the IFRS for her private sector organisations

also been seen to adopt the IPSAS for her government agencies.


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The following are the major timelines in the evolution of the international

convergence of accounting standards:

Need for International

Accounting & Auditing

Standards is identified

1960

Accountants

International Study

Group is formed

1966

International

Accounting Standards

Committee (IASC) is

established

1973

IFAC is founded

1977

IASC embarks o

comparability a

improvements pr

1987

IASC undertakes a

Core Standard

Program: Identifying

what constitutes thecore standards

1995

IASC is reconstituted in

the International

Accounting Standard

Board (IASB)

2001

The European Union

adopted the

international standards

2002

The FASB and IASB

issues a Memorandum

of Understanding

2006

The Nigerian F

issues a directiv

the adoption of I

in Nigeria

2010


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Approximately 113 countries have adopted or are in the process of adopting IPSAS. Th

Seven countries that are fully accrual basis are, New Zealand, Australia, USA, UK, Canad

France and Columbia

Implementation of IPSAS or IFRS is already underway in other international organisation

and UN organisations. World Bank and IMF prepare their financial statements in accordanc

with IFRS, while UN adopted IPSAS in 2010.

the IPSAS maintain the accounting treatment and original text of the IFRS, unless there is a

significant public sector issue that warrants a departure.

The IPSAS are also developed for financial reporting issues that are either not addressed b

adapting an IFRS or for which no IFRS has been developed.

For the purposes of IPSAS, the public sector refers to national governments, regional

governments (e.g., state, provincial, and territorial), local governments (e.g., town and city),

and related governmental entities (e.g., agencies, boards, commissions, and enterprises).

The IPSAS are intended to be applied in the preparation of general-purpose financial repor

that are intended to meet the needs of users who cannot otherwise command reports to

meet their specific information needs


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Strategic plans and reports become more meaningful as increa

transparency provides a basis for member states to assess whether resou

are being used effectively and efficiently.

IPSAS supports efficient internal controls and results-based management.

Adoption of IPSAS will provide a unified approach to managing all fu

regular; specific; voluntary; trust and service funds, and will allow

benchmarking with similar institutions and forecasting future flow o

resources to the organization.


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To achieve FGNs of strengthening Governance and Accountability, reduce corruption andeliver services more effectively and efficiently, the Government received a credit from thInternational Development Association under the Economic Reform and Governance Proje

(ERGP) to conduct a Gap analysis between the International Public sector Accounting Standard (IPSA

relevant National Standard and Reporting System with a view of improving the state of PublicFinancial Management and Reporting.

The specific objective of the assessment is to develop a report for the countries authoritiewhich will among other includes:

Provide the Government and other stakeholders with a common well based knowledge as towhere the country stands against the internationally developed norms of Public sector Finan

Reporting; Assess the consequences of the prevailing variances;

Provide a basis for measuring interim compliance Chart paths for improved compliance withIPSAS cash basis .

Provide a road map for migration to accrual based IPSAS.

The adoption of a firmly based Accounting, reporting and auditing framework is no doubt avalue proposition as it provides for competent Financial Reporting and transparency.

Consequently a transition plan was announced in July 2010 by the Federal Executive Cou

adopt the provisions of the IFRS and IPSAS for the private and public sector respectively. Aroad map for implementation was launched in September 2010


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Benefits of the Transition With IPSAS gap analysis and the bridging of theidentified gaps in Nigeria,

the users of Financial information will be able to benefit from a common setPublic sector accounting and Auditing standards issued by InternationalFederation of Accountants and International Organization of supreme Auditinstitutions that are consistent, coherent and understandable.

Migration to IPSAS based Standards will enable the provision of moremeaningful information for decision makers and Improved consistency, qualand credibility of the Financial Reporting System

Strategic plans and reports prepared will be more meaningful as increasedtransparency provides a basis for development partners and legislature toaccess whether resources are being used effectively and efficiently. ThusEnhancing Accountability, transparency and harmonization

The implementation of IPSAS based Standards makes it possible for efficientinternal controls and results based management

Its adoption has provided the country with a unified approach to managing allfunds and it has also ensured benchmarking with similar institutions andforecasting future flows of all resources to the public organizations


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In July 2012, the Office of the Accountant General of the Federat

and the Financial reporting Council of Nigeria resolve to collaborin promoting the uses of Accounting Standards in the Public Sect

A FAAC sub committee on the adoption of IPSAS was constitutedThe committee had been working in creating awareness amongstakeholders as well as organising capacity building interventionfor various officials at level levels in the private sector among oth

strategic activities In January 2013, the decision to shift IPSAS transition date to

January 1st, 2014 for Cash Basis IPSAS and January 1st, 2016 toAccrual Basis IPSAS was announced

Towards this end, A national chart of accounts has been develop

and communicated to officials at all levels of government


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Sub Committee Deliverables

Unified National Chart of Accounts Users Manual of the National Chart of Accounts

Format for General Purpose Financial Statements (GPFS) IPSAS Cash Basis including statutoreports, statistical reports , performance reports and accounting policies

Format for General Purpose Financial Statements (GPFS) IPSAS Accrual Basis includingstatutory reports, statistical reports , performance reports and accounting policies

IPSAS Compliant Budget Templates

These templates have been approved by FAAC for use by the three tiers ofgovernment.

In order to ensure seamless and successful implementation of the variousactivities for the adoption of the provisions of IPSAS in the country,Implementation Committees were constituted at the Federal, State and LocGovernment Levels.


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Political Benefits Economic Benefits

Accountability: IPSAS requirement for

increased disclosure in accounting reportsincreases the level of accountability ingovernment

Transparency: where IPSAS is adopted, fulldisclosure become an imperative of publicsector accounting government

Improved Credibility/Integrity: governmentaccounting/reporting are not credible ifgovernment itself decides the rules

Political Leverage: Government may berequired to provide accounting information bya higher or legal authority e.g. UN, ICJ, etc

International Best Practice &Comparability: IPSAS seeks to ensure thatfinancial statements prepared in the basis of itare internationally comparable

Comparable information assists thestakeholders in assessing how well their

resources have been utilized.

Greater Disclosures: IPSAS encourages fulldisclosure, which beams the light oftransparency, integrity and accountability

Building confidence in Donor Agencies and

Lenders:Adoption of IPSAS increases thecountrys eligibility to access economic benefitsfrom donor agencies (USDP, USAID etc), privatesector financial institutions (Bonds and Bondsrating agencies), official institutions (IMF andWorld Bank) etc

Improved Service Delivery:As a result ofgreater accountability and transparency,adoption of IPSAS will improve Value for Money

(VfM) expenditure Aggregate Reporting:Adoption of IPSAS will

ensure a holistic reporting of governmentfinancial transactions and positions

Enhanced Public-Private Partnershiparrangements: collaborative efforts between thepublic and private sectors is enhanced with bothare running on similar set of accountingstandards- IPSAS and IFRS

Economic Leverage: Sovereign nations areinduced with the prospect of commensuratebenefits. Government susceptible to economicleverage are more likely to adopt IPSAS.


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Political Benefits Economic Benefits

Increased Control of Public Agencies: the increaseddisclosure, transparency and comparability IPSASengenders will permeate the public sector bringingabout greater accountability

Enhanced Implementation of the Freedom ofInformation (FOI) Act 2011: The accountability andtransparency requirements of IPSAS are consistentwith and supports the provisions of the Nigerian FOI

Act 2011 which seeks to promote access to

government information

An IPSAS compliant economy keeps abreast olatest market trend thereby become competitivglobal market place

Increased Cross-border Investment and ForeigInvestment: the adoption of IPSAS will put the cothe same accounting pedestal as several other cothe world, increasing the propensity to generate mcross-border and foreign direct investments througgreater transparency and a lower cost of capital fo

potential investors


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Political will and ownership

Technical capacity- training, re-training and personnel

development

Public Orientation and Enlightenment

Automated Information Systems

Financial Ability

Modular implementation


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The global adoption of IPSAS is based on facts and values hinged on

following:

1. Accountability: while the private sector will regard management as baccountable solely to business owners, public managers are accoun

to multiple stakeholders and more directly to elected officials

ultimately to the people

2. Transparency: IPSAS promotes openness and access to informatio

citizens and their understanding of decision-making mechanisms, the

bridging the divide between the government and the governed

3. International Benchmark: IPSAS has become the global accou

language of countries around the world, necessary for information sh

and comparability

4. Aggregated Reporting: IPSAS encourages an all-encompassing fina

reporting where consolidation is not the only level of aggregatioencourages columns for governmental and business activities reve

the true and actual position of governmentsfinances


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The difference between cash and accrual basis of

accounting stem from the basis of accountingadopted by the reporting entity.

Cash Basis of accounting is the recognition andrecording of income and expenses only when cash

actually received (income) and expenses actuallypaid (expenditure).

Whilst accrual basis of accounting recognisestransactions and events when they occur ( and not

only when cash or its equivalent is received or paid


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Cameralistic/cash-based accounting has been the mainstream

accounting and financial information system in the sector for mayears, with some governments using and preferring this method

Although cash accounting has its merits, it gives no informationconcerning liabilities and the future benefits for assets,accountability and decision-making.

Accrual accounting was introduced as an alternative to cash

accounting to improve the financial management of public sectoentities

Between the opposite poles of cash and accrual accounting, two other bases of accounting were identified by the International

Federation of Accountants (IFAC): modified cash accounting and

modified accrual accounting.


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Cameralistic/Cash based Accounting

Transactions and other events are recognized only when cash is received or paid.

Modified Cash Accounting Transactions and other events are recognized on a cash basis during the year. Additionally,

unpaid accounts and/ or receivables are also taken into account by keeping the book open a month after the years end.

Modified Accrual Accounting Transactions and other events are recognized on an accrual basis,but certain classes of ass

or liabilities are not recognized. A typical example is the expensing of all non-financial assat the time of purchase.

Accrual Accounting Transactions and other events are recognized when they occur, meaning they are recorded

the accounting records and recognized in the financial statements of the periods to which t

relate.


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Accrual accounting is an accounting methodology under which Transactions are recognized as the underlying economic events occur ,regardless of the timing of the rel

cash receipts and payments. Following this methodology, revenues are recognized when income is earneand expenses are recognized when liabilities are incurred or resources consumed.

This contrasts with the cash-accounting basis under which revenues and expenditures are recognized whcash is received and paid respectively.

Accrual accounting in the context of the public sector would generally imply the recording of transactions on an accrual basis,

and the preparation of accrual-based financial statements for the government as a whole.

systematically determining the full costs of a government's activities. Full cost information (including noncash costs such as depreciation) is essential for assessing the efficiency of government services a

thus is a key element of any public sector performance management framework.

requires the preparation of government balance sheets, and this involves the identification measurement, and periodic reporting of government assets and

liabilities,

it requires governments to adopt a more systematic approach for identifying,keeping track of, and valuing all assets and liabilities.

encourage the development of systems (such as asset registers) and procedures

planning and management of assets and liabilities.


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The introduction of accrual accounting, particularly when accompanied by related reforminitiatives to improve public sector performance, can promote a general improvement in the

management of assets, as well as a heightened awareness of the cost of holding and deploying assets.

In a similar fashion, the requirement to identify, measure, and report government liabilities, and the resulting enhanced transparency, can foster bettefinancial planning to ensure that the government is able to meet its liabilities as they fall due.

Accrual accounting helps to generate behavioral changes on the part of budget decision makeand managers. For example, the accrual based additional information they receive may prompt legislators to ask ministers and bureaucrats questions that they otherwi

would not have asked.

Such questions may concern, for example, the status and role of fiscal policy, or the use of public resources, including capital assets.

In this way, an accrual accounting system may facilitate changes in the attitudes and behavior of ministers and civil servants, and hence to changes ingovernment policy, that benefit the citizens.

The progress toward accrual accounting is good news for financial reformers, who have long held the view that the accrual approach is better suited for financial management, accountability, risk management and decision-making

his is due to the fact that it provides better insight on the financial position of governmental bodies, liabilities and the future benefits of assets.

However, research have shown that the adoption of a single accrual method is some way off asmost entities consider the IPSAS as more of an aspiration than a feasible destination.

The global financial crisis and in particular, the crucial role that sovereign debt recognition haplayed would seem to be a teachable moment for focusing the attention of leadership on thadvantages of accrual accounting..


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An acceptable cash accounting based system

Improving existing systems and processes Political Ownership

Executive championing and Legislative backup and utilisation

Technical Capacity

Core accounting and IT Skills, Consider Outsourcing

Integrated Systems Proven functionality in General Ledger, Purchases, accounts payable, assets management

Sequencing of reform steps Supportive in a broader public sector reform agenda budgeting, etc

Implementation timeframe and sequencing

Spaced reforms of budget classification, cash accounting, and fiscal reporting

Implementation staging by business areas

- From simple to complex transactions..financial before non financial assets and liabilit

Implementation staging by sector or size and pilot studies

State owned enterprises before full government reporting


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Thank You

Documents

1. Background to IPSAS Implementation in Nigeria