Researchjournali’s Journal of Accounting

Vol. 4 | No. 3 July | 2016 1

Impact Of
International Public
Sector Accounting
Standards On Utile Bem Joseph
Department of Accounting, Federal University of
Agriculture, Makurdi

Financial Statements Gbaa Benjamin

Department of Accounting, Federal University of
Agriculture, Makurdi
In Nigeria P.I Zayol (Ph.D)
Department of Accounting, Federal University of
Agriculture, Makurdi

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ABSTRACT

The comparability of the performance of different economies in the world has been a problem since different
countries have their peculiar standards of preparing financial statements. The introduction of International
public sector accounting standards (IPSAS) is an attempt to solve the problem. The focus of this study is to
review the related literature on the impact of IPSAS on the preparation of financial statements in Nigeria. The
researcher used secondary data obtained from published works of other scholars to arrive at results. Findings
of this research reveal that the implementation of IPSAS would enhance uniformity in the preparation of
financial statements which will consequently give room for comparability of financial statements worldwide.
It was also discovered that the implementation of IPSAS would introduce credibility and transparency in the
preparation of financial statements in the Nigerian public sector. The researchers concluded that the
implementation of IPSAS in Nigeria would not only create uniformity in the preparation of financial statements
but would also impact positively on the accountability and reliability of financial statements in Nigeria. It is
therefore, recommended that government workers in Nigeria should be constantly trained to acquire the
knowledge and skills that would enhance effective and efficient implementation of IPSAS in Nigeria.

Key words: Financial statements, Public sector, Accountability and Credibility

1. INTRODUCTION

Different countries all over the world have set and defined their own standards for financial reporting.
Although, globalization has recently introduced increasing challenges ranging from intercontinental trade,
multinational transactions and foreign exchanges among the countries of the world; consequently, there is an
important need for homogeneity in the standards guiding financial statements so that such statement would
remain understandable and convene similar information to different users across the globe.

According to Premchand (1999) the need for the advancement of integrated accounting standards has been the
primary driver of International Public Sector Accounting Standards for public sector financial reporting. He
opined that while the commercial entities across the world are moving toward International Financial Reporting
Standards (IFRS), governments are harmonizing with International Public sector Accounting Standards.
However, in the opinion of Onuorah (2012) the reason for unified accounting standards is because there are a
number of similar transactions in both the private and public sectors that it is preferable to have single set of
generally accepted accounting standards for both sectors.

Ijeoma (2014) defines the Public Sector as that part of the economy where organizations are owned and
controlled by the public through selected persons known as Government.

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In the opinion of Adam (2010) public sector refers to all organizations which are not privately owned and
operated but which are established, run and financed by government on behalf of the public. This definition
conveys the idea that the public sector consists of organizations where control lies in the hands of the public
through a common government as opposed to private owners and whose objective involve the provision of
essential services of which profit is not the primary objective. The preparation of financial statements by public
organization is the only means of communicating about the entity to the diverse interested parties to such entity.
it is in view of the above that this paper seeks to review the impact of IPSAS on accountability and reliability
of financial information in Nigeria as its secondary objective. However, John (2011) stated that the way in
which an organisation whether private or public organizes information in its financial statements is of
paramount importance as financial statements remain a central feature of reporting financial information. It is
in view of this significance that the presentation of financial statement is now a global issue and its relevance
have attracted worldwide attention which has necessitated the establishment of IPSAS by the International
Public Sector Accounting Standards Board (IPSASB).

The International Public Sector Accounting Standards (IPSASs) are a set of accounting standards issued by the
IPSAS Board for use by public sector bodies around the world for the preparation of financial statements, they
are proposed for adoption by countries around the world in response to the current global revolution in
government accounting calling for greater government financial accountability and transparency (James 2005
and Heald 2003). In line with the above the researchers opine that it is very important that all the developing
and developed nations harmonize their financial standards with IPSAS because IPSAS is currently a scorecard
used by many nations to determine government performance through its financial statements.

2. REVIEW OF RELATED LITERATURE

This section aims at reviewing the literary contributions of other scholars or researchers on the topic the impact
of International Public Sector Accounting Standards (IPSAS) on the Preparation of Financial Statements in
Nigeria.

2.1 THEORETICAL CLARIFICATION

According to the Harvard School of Business and Economics Theories, a number of theories are used to explain
the need for harmonization of globally accepted accounting standards it enlightened that standards would work
more efficient if they are adopted by a number of countries this is because there is no organization or economy
that is completely self-reliance, all organizations need the support of another at one point or the other. This is
because the whole world is now a global village as such there is interdependence of economies within the globe
and business strives better if there is a common understanding amongst the operators of such businesses.

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2.2 THE ECONOMIC NETWORK THEORY

The Economic Network Theory envisage that there are benefits derivable from products with network
connections because synchronization is made easy (Katz and Shapiro, 1985; liebowitz and Margolis, 1994) in
the case of adopting IFRS, the theory opine that the benefits are in net economic and political values the
standards would have over the local standards. This means that since the IFRS (the standards where most IPSAS
are derived) is a network of standards amongst many countries now they are comparatively better than the local
standards set by independent countries.

According to the theory, countries with high level of foreign economic investments would prefer to adopt IFRS
however this benefits will in turn reduce the quality of local Generally Accepted Accounting Principles. The
theory further explained that the net political value of IFRS is the benefits arising from the potential political
nature of international accounting standards.

According to the theory, a country’s decision to adopt IFRS depends largely on its international politics. The
theory reveals evidence of regional trends in adoption of IFRS this implies that a country is more likely to adopt
IFRS if countries within the same region have done same. The theory further clarifies that countries are likely
to adopt IFRS if its trade associates have implemented IFRS. It added that economically giant countries are
more reluctant to join IFRS because they would not want to relinquish their standard setting authorities to IASB.
On the other hand, the theory explained that countries with cultural similarities also tend to adopt IFRS where
colonialism and religion are strong factors that are considered in the adaptation of IFRS.

2.3 THE ACADEMIC THEORIES

Barth (2008) opined that the academic theories give way for diverse guesses on whether the adoption of IPSAS
would be advantageous to a country. Some scholars have argued that international harmonization in accounting
standards can advance capital-market efficiency and a general set of international accounting standards can
decrease the information dispensation and auditing costs to market participants. Some academics opine that
accounting standards evolve in the context of domestic, cultural, legal, and other institutional features.

Based on the academic theory, a study by Hope et al. (2006) provides some preliminary evidence on country-
level IFRS adoptions through 2005 in a sample of 38 countries (including 14 EU countries). Their evidence
suggests that countries with weaker investor protection and more easily accessible financial markets are more
likely to adopt IFRS. Other factors that have been found to affect IFRS in these academic theories include
political power, opportunity and switching costs, and network effects. The researchers have agreed with the
academic theory since the opinion of the theory seems to be in line with the popular opinion of many scholars.

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2.4 THE ORGANIZATION THEORY OF THE FIRM

The theoretical groundwork of corporate financial reporting is the theory of the firm that emphasizes that
managers are agent of the owners of the firm. Management accounting requires a broader theory of government
accountability which can be derived from Herbert Simon’s organization theory Simon (1945), the theory states
that a number of stakeholders have a vested interest in financially viable administration. Their incentive to use
a government’s financial statements as a source of their common knowledge about the government (Sunder,
1997) – comes from their desire to know the amount, timing and degrees of uncertainty of the benefits they
expect to receive from government. General purpose financial reporting reduces the information asymmetry
between the stakeholders and government officials in control of government financial accounting system.

2.5 EMPIRICAL REVIEW

According to Mugenda and Mugenda (1999) empirical review simply means an analysis of works done in the
area or field under consideration. A good empirical review should be able to identify the topic, what was studied
in that topic, the period studied, the procedure used to arrive at results and the findings of the research. Thus a
number of studies have investigated the relationship between International public Sector Accounting Standards
(IPSAS) and the preparation of financial statements but results tend to be mixed. Some studies showed positive
relationship while others showed negative relationship. Others found that there is a weak or strong association
between IPSAS and the preparation of financial reports. Some of the studies conducted from different parts of
the world including Nigeria are reviewed below.

Hyndman and Connolly, (2005) researched on the topic the costs and benefits of adopting accrual accounting
in Northern Ireland findings from their research concluded that serious insufficiency in the accounting skills
available contributed to a rushed, confusing and uneven implementation process. However it is possible that
time and continuous improvement would overtake the findings of this result.

Hyndman and Connolly′s study also found that there was modest proof that accrual accounting information was
widely used in decision making within the Northern Inland public sector. Lots of consultations acknowledged
the troubles of pointless complexity and mysteriousness of their information deflating its potential use. He
further found out that no department had arranged a financial plan in line with the accrual accounting.

Ijema N and Oghoghmeh T. (2014) examined the adoption of international accounting standards in Nigeria, its
expectations, benefits and challenges using all accounting departments of various ministries in Awka the capital
of Anambra state, Nigeria. 40 samples were drawn using the Taro Yamane sample size at 95% confidence
interval using the chi square measure as a test of hypotheses; the researchers found that the adoption of IPSAS
will increase the level of accountability and transparency in the Nigerian public sector.

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Ijeoma further stated in his findings that the implementation of IPSAS will enhance comparability and
international best practices. He stressed that the acceptance of IPSAS based standards will allow the provision
of more significant information for decision making and improve the class of financial reporting in Nigeria.
The researchers agree with the major findings of Ijeoma and Oghoghmeh (2014) even though the study was
carried out using a small sample.

Acho Yunusa (2014) in his study titled the challenges of adopting IPSAS by Nigeria using the Nigerian public
sector sampled 3 government establishments in Idah, Kogi State in Nigeria. He used a five pointer linker scale
and a percentage of the population sampled to arrive at major findings which reviewed that the adoption of
IPSAS would lead to transparency and reduce corruption in the public sector. In addition, the implementation
will help Nigerians to have easy access to government records and to express their opinions on such records.
The study also found that the major challenges facing adaptation of IPSAS in Nigeria is absence of patriotism,
lack of qualified staff and quality of ICT.

This study has its population drawn from only one state and only a few government ministries (3) were used as
its study sample the result may not reflect the true position of the adaptation of IPSAS in Nigeria because of
the quantum of the sample size, however, the result is in line with the result of Ijeoma and Oghoghmeh (2014).

Hamisi k.s. (2010) examined the factors affecting the implementation of international public sector accounting
standards in Kenya using 38 ministries and a sample of 38 the study used questionnaire and interviews in
addition to the secondary information to arrive at results.

The study found that there are factors affecting implementation of IPSAS in Kenya as there are basic issues that
repressed the efficiency and effectiveness of the implementation of IPSAS as a result of poor performance of
vital financial functions, poor direction, insufficient financial information and decision support, poor staff
incentive and behaviour to accounting and accountability.

The study also found that staffs were not trained to understand IPSAS and prepare accounts that are IPSAS
compliant. The study revealed that professionalism and high academic standards would help enhance the
standard of financial reporting upon adoption of IPSAS

Findings from Hamisi K.S also revealed that the current legislative acts in Kenya need to be reviewed to
accommodate IPSAS. The study further suggested that the Accountant General and the Auditors general would
have to monitor compliance to enable staff adhere to IPSAS and other financial reforms, the study also observed
that there was poor communication about the implementation of IPSAS in Kenya and stakeholders were not
involved in the implementation process.

Ijeoma (2014) investigated the impact of IPSAS on reliability, credibility and integrity of financial reporting in
state government administration in Nigeria using a population size of 45 and 40 samples drawn from ministries

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and academic institutions in Awka, Nigeria. He used the chi square test and descriptive analysis to arrive at
result.

Major findings of the study revealed that, the introduction of IPSAS in the public sector would bring about
credibility, reliability and integrity of financial reporting in state administrations in Awka and Nigeria at large.
Also it was observed that the implementation would improve internal control system and provide result based
financial management in the public sector. He added that the implementation of IPSAS would increase the
federal government chances of providing quality leadership to the citizenry

2.6 BASIC ASSUMPTIONS OF THE IMPLEMENTATION OF IPSAS

According to Chan (2008), one of the major assumptions that necessitated the formation of the International
Public Sector Accounting Standards (IPSASs) by IPSASB is that there are a lot of general dealings in the private
and public sectors that it is likely, and certainly preferable to have common sets of generally accepted
accounting principles for both the public and private sectors. He added that many of the IPSAS are promulgated
by making reforms from the already existing International Accounting Standard (IAS) he stressed that IPSASB
would set up standards for dealings with events exclusive to the public sector

Appah E and Appiah (2010) opined that given that nongovernmental organisations get ready with their
consolidated financial reports under the accrual basis, it is anticipated that governments should do the same.
He added that consolidated financial statements wrap the main organization and its ancillary in which the main
organization has a majority ownership interest. He explained that the accrual basis used by business firms
regards sale (not production) of products and services as the decisive factor for judging financial performance.

On the other hand Delotte (2013) opined that accounting standards are more reliable and of high transparency
if they are made by an autonomous group. It is also believed that credibility will be employed in setting such
standards devoid of bias. It is on these premis that many researchers believe in the objectives of a workable
IPSAS.

It is also assumed that due process would be used in producing the Accounting standard. To Achua (2013) Due
process means that proper steps would be taken to reflect on the matter at hand before decisions are taken also,
enough chances are given for concerned persons to make available input before standards are fixed.

2.7 BENEFITS OF ADOPTING THE INTERNATIONAL PUBLIC SECTOR ACCOUNTING

STANDARDS
With the advent of IPSAS globally, member countries who have adopted the standards stand to enjoy a number
of advantages. In line with (Anorue, 2014 and Deloitte 2013) IPSAS member countries would catch the
attention of foreign investments. The preparation of financial statements that are IPSAS compliance will
provide the opportunity for accountability of resources

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Countries who are interested in doing business with other countries within the IPSAS member nations shall find
it easy to access the financial position and the statement of financial performance of such countries, this will
aid them to take an informed investment decisions.

IPSAS is a selection of standards that would introduce accounting best practices which will enable government
to report financial information in a more transparent manner on a full accrual basis; this will improve
consistency and provide a base for comparability of financial statements.

2.8 A BRIEF HISTORY OF THE ADOPTION OF IPSAS IN NIGERIA

Nigeria like developed countries and other developing countries has adopted the International Public Sector
Accounting Standards (IPSAS) adopting the standards is good for the country as the standard would help in
guiding the preparation and presentation of financial reports in Nigeria making it comparable with global
standards, Onwubuariri (2012). The Federal executive council in July 2010 gave full approval for the adoption
of IPSAS for the public sector and the Federal Government made the pronouncement for the adoption of IPSAS
on 3rd September, 2011 which was expected to take place in 2013 but was postponed .According to Ngama
(2012) the postponement was because the country wanted to develop charts of accounts and general financial
statement that will meet the international best practices required by IPSAS. The Institute of Charted
Accountants of Nigeria and the Association of National Accountants of Nigeria also endorse the Adoption of
IPSAS by Nigeria public Sector as a basis for financial reporting because of the transparency and accountability
element it will introduce in the reporting system.

Nigeria adopted the cash basis of IPSAS in 2014 and the accrual bases were adopted in January, 2016. In other
to enhance effective acceptance and accomplishment of IPSAS in Nigeria the Federal Government has
developed the following for all government establishments in Nigeria.
 Uniform National Charts of Accounts and User manuals for the chats
 Uniform accounting policies
 Uniform budget templates that align with IPSAS cash basis

2.9 THE DIVERGENCE OF IPSAS FROM IFRS

The main business of the government is to provide maximum welfare for her citizens while the private sector
has its motive as profit maximization or maximization of the shareholders wealth. IPSAS and IFRS are
standards that are derived from the International Accounting Standards (IAS) whereas IPSASs are for the public
sector; IFRS are for the private sector. The businesses of these two groups are not the same but the public sector
most times perform some of the activities of the private sector at the same time with her main transactions;
however, there are specific transactions that exist in the public sector that are not common in the private sector
this calls for international public sector accounting standards that are specific to the public sector these standards
are:

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IPSAS No 22. This standard is on the general government sector this standard provides disclosure requirements
as a guide to government if the government chooses to disclose information on the general government sector
in their consolidated financial reports this disclosure is meant to provide information on relationship between
the commercial and non-commercial activities of the government

IPSAS No 23 is on revenue from non-exchange transactions. An exchange transaction is a transaction in which

an organization or body receives assets, liabilities or services from another organization and immediately gives
out another asset of equivalent value to the asset received on the other hand a non-exchange transaction is that
transaction that one party gives out assets to another without receiving an immediate equivalent value from the
other party however, the giving party may enjoy an indirect asset or service from at a later date example of
these transactions include the payment of taxes and transfers. These transactions are predominantly found in
the public sector necessitating the provision of IPSAS 23.

3.0 SUMMARY, CONCLUSION AND RECOMMENDATIONS

3.1 SUMMARY/CONCLUSION
Based on the fact that it is mandatory for all Government Ministries Departments agencies and parastatars to
prepare and even make public their financial reports here necessary and the need to compare this financial
statements produced by one economy to the other, there is an increasing demand for the similarities in the
standards guiding the preparation of these statements. The result of findings from the research showed that the
implementation of IPSAS will enhance uniformity in the preparation of financial statements which will
consequently pave way for the comparability of financial statements worldwide.

Since IPSAS are laid down by professional independent bodies and due process is followed before they are
finally accepted, it is supposed that the implementation of IPSAS would also improve the accountability,
reliability, credibility and transparency of financial statements in Nigeria.

3.2 RECOMMENDATIONS
 Staff of public institutions, government and relevant agencies and parastatals should be constantly trained
to acquire the knowledge and skills that would enhance effective implementation of IPSAS in Nigeria.
 The Federal Government should ensure the development of sufficient and proper accounting manuals that
would provide adequate information about IPSAS.
 Nigerians should endeavor to learning more from other countries that have adopted the Standards.

4. REFERENCES
Acho, Y. (2014). Journal of Social Sciences and Public Policy, Volume 6, Number 2, the Challenges of Adopting International Public
Sector Accounting Standard by Nigeria.

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Achua, J. K. (2009). Reinventing Governmental Accounting for Accountability Issuance in Nigeria. Nigeria Research Journal of
Accountancy, 1(1): 1-16.
Adams R.A, (2010) Public Sector Accounting and Finance; Lagos: Corporate Publishers Ventures.
Appah, E & Appiah, K. Z. A. (2010). Fraud and Devel-opment of Sound Financial Institutions in Nigeria. Nigerian Journal for
Development Research, 1(1): 49-56.
Chan L.J. (2008). International public Sector Accounting Standards: Conceptual and Institutional Issues, Illinois - Chicago.
Deloitte (2013) International Public Sector Accounting Standards (IPSAS) in your Pocket, 2013 edition, march 2013.
Federal Republic of Nigeria (2015) Accrual Accounting Manual for all Public Sector entities in Nigeria (Federal, States and local
Governments).
Hamisi k.s (2010). The factors affecting the implementation of international public sector accounting standards in kenya. A research
project submitted in partial fulfillment of the requirements of the degree of master of business administration, university of Nairobi
Hayfron, A. (2012), International Public Sector Accounting Standards and Its Objectives. IPSAS Hardwork Published March, 2011.
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Ijioma n and Oghoghomeh (2014) Journal of Investment and Management 3(1) 21-29.adoptation of International public Sector
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Procedures: A Critique. Retrieved from www.iiste.org. ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online). Eur. J. Bus. Manage., 5(6).
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Olusegun, A. (2011). IPSAS Adoption a Formidable Compliment to Effect Public Sector Instrument in Nigeria. A Seminar Paper.
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