Financial Accounting Advisory Services · Page 4 IPSAS conversion diagnostic services . Implementing accrual-based IPSAS Overview and background . International Public Sector Accounting

Financial Accounting Advisory Services IPSAS conversion diagnostic services

March 2015

Page 2 IPSAS conversion diagnostic services

IPSAS conversion diagnostic services 3 About EY 14 Contacts 16

Agenda


IPSAS conversion diagnostic services


Implementing accrual-based IPSAS Overview and background

International Public Sector Accounting Standards (IPSAS) are high-quality global financial reporting standards for application by public sector entities other than government business enterprises. Accrual-based IPSAS set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events in general purpose financial statements.

The IPSAS Board (IPSASB) is the responsible body formed to develop and issue IPSAS under its own authority. IPSASB is a board under the auspices of the International Federation of Accountants (IFAC). IPSASB develops standards that apply to an accrual-based and to the cash basis of accounting.

More and more governments and other public sector entities around the world are adopting the accrual-based IPSAS as a basis for their accounting and financial reporting. In total, more than 40 countries have adopted or are adopting IPSAS or comparable standards. The European Commission is currently considering using accrual-based IPSAS as a basis for the European Public Sector Accounting Standards (EPSAS).

What are IPSAS?

What is IPSASB?

Who is adopting IPSAS?

What are the benefits of implementing IPSAS?

IPSAS represent a global standard for best-practice accounting in the public sector. The main benefits of IPSAS are their worldwide acceptance and the increased transparency they provide over an entity’s finances. Furthermore, IPSAS require that more information is provided and disclosed in an organization’s financial statements, as compared to cash accounting, leading to better information availability and more transparency for decision-making.


The following diagram describes the eight major phases in an IPSAS conversion project:

Major steps of an IPSAS conversion

► EY professionals provide clients with a full range of IPSAS conversion services, from assisting in the development of diagnostic reviews and conversion implementation plans (road maps) to delivering comprehensive conversion projects.

► EY’s IPSAS conversion diagnostic services are an essential building block of the “gap analysis and feasibility” phase (see graph above).

1 2 3 4 5 7 8 6

Sensitivity 1 Legal foundation

3 IT and processes

5 Audit readiness

7

Consolidation 8 First-time adoption, opening

balance sheet 6 Capacity

building 4 Gap analysis

and feasibility 2


Challenges public entities are facing when converting to the IPSAS framework

Comprehensive IPSAS requirements

Comprehensive IPSAS requirements demand entities to conduct an inventory of all assets and liabilities, as well as apply new measurement provisions. Furthermore, IPSAS requires notes disclosures that make new processes necessary to capture the required information.

A conversion project is not limited to the finance function of a public sector entity. IPSAS reporting reflects the operations of the whole entity, meaning that many areas of the organization without accounting background are affected. Clear and understandable messages about the “why” and the “how” of the conversion are needed.

Many areas of organization affected

In many cases, a detailed time line for the conversion project is either not available or not specific enough. A lack of experience with such projects often means the sequencing of the necessary transition steps is not clear.

Detailed time line missing

The time and costs associated with an IPSAS conversion are always expected to be substantial, but they often remain unclear. This uncertainty is a major challenge for promoters of accounting reforms in political discussions.

Cost and time efforts needed

Required skills Finance staff members may not have experience in leading a conversion. Therefore, capacity building and personnel development programs should be high on the agenda of every conversion project.


Do you recognize these challenges in your organization?

Is your organization ready for IPSAS? Self-assessment

Question Self-assessment

Yes Partially No Have you identified the key areas that are likely to be significant or that will result in comprehensive adjustments when converting to IPSAS? � � �

Do you have accounting staff who are fully conversant with accruals accounting (under IPSAS, IFRS or national accrual GAAP)? � � �

Have the IPSAS disclosure requirements been considered, including whether the current accounting system is capable of capturing the information required? � � �

Have you identified the key success factors for your conversion, as well as the major project risks that could lead to the conversion failing or being delayed?

Do you have enough resources to perform the transition to accruals accounting or IPSAS? � � �

Have your internal control systems been reviewed to identify any modifications required by the transition to IPSAS? � � �

Have the impacts of an IPSAS conversion (amounts and disclosures) on budgeting been assessed and addressed with your government’s budget office? � � �

Has a concept been developed for communicating the conversion steps and the road map to relevant stakeholders? � � �

EY’s IPSAS conversion diagnostic services have been developed to support public sector entities in identifying these issues and designing their project road map.


EY’s IPSAS conversion methodology Diagnose phase is crucial for subsequent phases

► Validate IPSAS requirements

► Identify specific IPSAS conversion issues

► Jointly perform engagement- specific planning

Identify

► Conduct assessment of existing GAAP, IT and capacity

► Evaluate impact of accrual-based IPSAS on current state

► Generate and prioritize observations and next steps

► Analyze capacities

Diagnose

► Set up a road map

► Draft accrual- based IPSAS accounting policies

► Design IPSAS-compliant processes

► Develop a capacity-building strategy

Design

► Capture and measure all assets and liabilities

► Perform training and briefings

► Assist entity with IPSAS-compliant financial statements

Deliver Close

► Close out conversion project

► Review the success and learning points from the project

► Support continuous improvement

► React and adapt to any new IPSAS requirements

Sustain

Del

iver

► Kick off IPSAS conversion project

► Execute project plan

► Monitor conversion progress

► Complete execution of the project plan


The main objective of EY’s IPSAS conversion diagnostic services is to provide an IPSAS impact assessment. This assists in identifying the gaps between an entity’s current accounting system and the accrual-based IPSAS reporting framework. The results of the gap analysis build the basis for:

► The design of the conversion road map

► An assessment of the efforts needed

EY’s IPSAS conversion methodology Diagnose phase is crucial for subsequent phases

Diagnose

Deliver

Sustain

Identify

Human resources and organizational

structure

Design

Diagnostic report

Current accounting

system

IPSAS requirements Gaps


► Our toolkit, which supports the diagnostic services, consists of two modules: ► The first module compares your current accounting framework with the IPSAS

framework. ► The second module assesses the IPSAS readiness of your organization with

regards to: ► Systems, applications and methods ► Processes and controls ► Resources and organizational structure

Because organizations are at different stages in their conversion to the accrual-based IPSAS, both modules are designed to be flexible, and they can be tailored to suit your organization. Taken together they form the basis of the conversion road map, as well as the assessment of required resources and efforts.

Main features of EY’s IPSAS conversion diagnostic services


Screenshots of toolkit


What benefits and outcomes can you expect?

The analysis of the organizational structure and the gaps identified outline what measures need to be taken to prepare the organization and your processes for the conversion. The results form a useful basis for your communication with external and internal stakeholders regarding the necessary steps and the design of the conversion project.

Organizational structure

On the basis of the results of the IPSAS impact assessment (module one) and the process- and system-readiness analysis (module two), our service supports you in producing a road map outlining the way forward and provides an assessment of the dependencies and relationships between the respective steps for the conversion.

Clear road map

The analysis provides an estimate of the resources needed. Based on this information, a discussion around the necessity and the cost-benefit relation of a conversion can be facilitated. Furthermore, decision-makers are able to assess which areas may benefit from external support.

Comprehensive resource analysis

A complete overview and assessment of the gaps between your current accounting framework and the IPSAS accounting framework allows you to focus your resources on the high-priority areas with the greatest need for action. The results of the gap analysis form the basis for the design of the conversion road map and provide an assessment of the efforts needed.

Comprehensive gap analysis

Our IPSAS Conversion Diagnostic Services Team are supported by our Real Estate and IT Advisory Teams. They enhance our services through their deep knowledge and experience in property and infrastructure assets, as well as in ERP systems, IT applications and methods.

Cross-service line experience

Overall Performing an IPSAS diagnostic at the beginning of a conversion project will give you clarity about how to make the transition to IPSAS and the resources needed. The resulting entity-specific road map forms the basis for the next steps of your conversion and provides clarity to the stakeholders involved.


Why EY?

EY publications

Guidance on applying IPSAS: IPSAS Explained: A Summary of IPSASs (Second edition) A global study on the state of public sector accounting: Toward transparency Illustrative IPSAS financial statements: Model Public Sector Group

1

Varied experience

EY has experience working on conversion projects with ministries of finance, treasuries, accountant general offices and auditor general offices around the world.

2

IPSAS Network

EY has a highly integrated global IPSAS network of more than 200 professionals in the field of public sector accounting.

3

Multidisciplinary teams

EY’s multidisciplinary teams match your needs in your IPSAS conversion, including IT Advisory and Real Estate Teams.

4

Strong connection to IPSASB

EY’s team works closely with IPSASB.

5


About EY


Your regional EY network

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Belgium and Netherlands

Germany, Switzerland and Austria

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Financial Services Organizations Belgium, Channel Islands, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Switzerland, the UK

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Mediterranean Italy, Portugal, Spain

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Financial Accounting Advisory Services Contacts

Thomas Müller-Marqués Berger Global Leader International Public Sector Accounting [email protected] +49 711 9881 15844

EY | Assurance | Tax | Transactions | Advisory

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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Financial Accounting Advisory Services · Page 4 IPSAS conversion diagnostic services . Implementing accrual-based IPSAS Overview and background . International Public Sector Accounting