Transition to International Public sector

Accounting Standards (IPSAS)

and their impact on Transparency , a case study of Nigeria

Paper presented by:

Ibrahim Hassan Dankwambo FCA,OON
Accountant-General of the Federation of Nigeria

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 Outline of Presentation
 Introduction
 IPSAS Requirements
 IPSAS Standards
 Conduct of IPSAS gap analysis
 Benefits of such transition
 Nigeria’s IPSAS gap analysis
 Identified Gaps
 Work programme to bridge the gaps.
 Preconditions for Migration to IPSAS based Standards
 Transition to IPSAS-issues and Challenges
 Impact on Transparency
 Principles of Fiscal transparency
 Conclusion

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 Introduction
 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.
 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 Accounting Standards (IPSAS). International
Public Sector Accounting Standards (IPSAS) issued by IPSAS Board
constitute international framework for Government accounting..

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 Introduction Cond.
 The gap analysis study that was undertaken by the Federal Government of
Nigeria is an attempt to benchmark Government Accounting in Nigeria
with Cash IPSAS to identify the gaps. It is intended to identify the
specific departure of Government Accounting system from cash basis
IPSAS and chart a transition path for adoption of Accrual based IPSAS.
 The study attempted to assess whether the country should adopt a limited
version of the standards, as the processes of developing the standards have
already considered any acceptable options that can be incorporated into the
text of the standards.
 With the conduct of this study by Nigeria and the necessary actions that
were taken to bridge these gaps, it showed clearly that our adoption of
IPSAS have supported developments in public sector financial reporting
which are directed at improving decision making, financial management,
and accountability.
 It is therefore an integral element of reforms directed at promoting social
and economic development.

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 International Public sector
Accounting Standard (IPSAS)
 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.
 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).
 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 cash accounting 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)

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 IPSAS adoption by countries
 IPSASs (cash or accrual) are gaining acceptance all over the world.
Adoption of a uniform global standard would ensure understand
ability of the financial statements on the part of international
investors.The countries which have either adopted IPSAS or have
undertaken the process 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 Sri Lanka .
 The adoption of IPSAS by Governments will improve the quality
and comparability of Financial information reported by Public
sector entities around the world. It will also strengthen domestic
and international confidence in Public sector Financial Management
.
 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

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 IPSAS Requirements
 Currently there are a total of 30 standards on the accrual basis of
Accounting and one Standard on the cash basis of Accounting,
issued by IPSAS. These are listed below:
 IPSAS 1-Presentation of Financial Statements
 IPSAS 2-Cash flow Statement
 IPSAS 3-Acconting Policies, Changes in Accounting estimate
and errors
 IPSAS 4-The effects of changes in Foreign exchange rates
 IPSAS 5- Borrowing costs
 IPSAS 6- Consolidated and Separate Financial Statements
 IPSAS 7- Investments in Associates
 IPSAS 8- Interest in Joint Ventures
 IPSAS 9- Revenue from Exchange transactions
 IPSAS 10-Financial Reporting in Hyperinflationary Economics
 IPSAS 11-Construction Contracts

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 IPSAS Standards
IPSAS 12-Inventories
IPSAS 13-Leases
IPSAS 14-Events after Reporting date
IPSAS 15-Financial instruments: Disclosure
and Presentation
IPSAS 16-Investment Property
IPSAS 17-Property,Plant and Equipment
IPSAS 18-Segment Reporting
IPSAS19-Provisions,Contingent Liabilities
and Contingent Assets
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 IPSAS Standards
 IPSAS 20-Related Party disclosures
 IPSAS 21-Impairment of Non-Cash Generating Assets
 IPSAS 22-Disclosures of information about the General Government sector
 IPSAS 23-Revenue from Non-Exchange Transactions-Taxes and Transfer
 IPSAS 24-Presentation of Budget information in Financial Statements
 IPSAS 25-Employee Benefits
 IPSAS 26-Impairment of Cash Generating Assets
 IPSAS 27-Agriculture
 IPSAS 28-Financial Instruments: Presentation
 IPSAS 29-Financial Instruments: Recognition and measurement
 IPSAS 30-Financial Instruments: Disclosures
 ED 40 Intangible assets
 ED 41 Entity combinations for exchange transactions.
 Cash basis IPSAS-Financial Reporting under the cash basis of Accounting

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 Nigeria's IPSAS Gap Analysis
In line with the Federal Government of Nigeria’s goal
to significantly strengthen Governance and
Accountability, reduce corruption and deliver services
more effectively and efficiently, the Government
received a credit from the international Development
Association under the Economic Reform and
Governance Project (ERGP) to conduct a Gap analysis
between the International Public sector Accounting
Standard (IPSAS) and relevant National Standard and
Reporting System with a view of improving the state
of Public Financial Management and Reporting.
The specific objective of the assessment is to develop a
report for the countries authorities which will among
other includes:

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 Conduct of IPSAS gap Analysis contd.
 Provide the Government and other stakeholders with a
common well based knowledge as to where the country
stands against the internationally developed norms of Public
sector Financial Reporting;
 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.

 The adoption of a firmly based Accounting,reportingand

auditing framework is no doubt a solid value proposition as
it provides for competent Financial Reporting and
transparency.

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 Benefits of the Transition
 With IPSAS gap analysis and the bridging of the identified gaps in Nigeria,
the users of Financial information will be able to benefit from a common set
of Public sector accounting and Auditing standards issued by International
Federation of Accountants and International Organization of supreme Audit
institutions that are consistent, coherent and understandable.
 Migration to IPSAS based Standards will enable us to provide more
meaningful information for decision makers and Improved consistency,
quality and credibility of our Financial Reporting System
 Strategic plans and reports we prepared became more meaningful as
increased transparency provides a basis for our development partners and
legislature to access whether resources are being used effectively and
efficiently. Thus Enhancing Accountability, transparency and
harmonization
 The implementation of IPSAS based Standards makes it possible for
efficient internal controls and results based management.
 Its adoption has provided us with a unified approach to managing all funds
and it has also ensured benchmarking with similar institutions and
forecasting future flows of all resources to the organization.
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 Strategies adopted
 Collection of background information relating to the various laws and
documents relevant for the work of the committee.
 Collection of information relating to assessment of cash basis diagnostic
tool 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 Federal
Government Financial Statement.
 Based on this, the committee then put up an interim draft report pending
the out-country analytical work and international study tour to some
countries that are fully compliant to cash basis IPSAS and have
successfully migrated to Accrual based IPSAS.
 Already the 2009 Consolidated Financial statements have been presented
and consolidated based on the requirements of IPSAS cash basis.

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 Strategies adopted Contd.
A sensitization workshop was held with the major
stakeholders like the Nigerian Accounting Standards Board,
Accountants-General and Auditors-General of the states in
Nigeria, members of the Finance and Public Accounts
Committees of the two chambers of the National Assembly,
office of the Auditor-General for the Federation, Budget
office of the Federation, Fiscal Responsibility Commission,
the Directors Finance and Accounts ,Heads of Account
departments and relevant designated officials in the
Ministries, Departments and Agencies. The recommendations
made at the end of the workshop helped to ensure a hitch
free programme to bridge the identified gaps.

Some of the identified gaps in the IPSAS Gap analysis that

was conducted is briefly summarized below.

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 Identified Gap-Legal framework for Cash
basis Accounting
 Legal basis for cash basis Accounting : The prevailing laws in
Nigeria that guides the operations of Public Sector accounting did
not specifically state the Accounting basis to be adopted. There is
no specific mention 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) on standardization of Federal, States and local
Government accounts merely made a pronouncement that
accounting for government may continue on ‘cash’ basis.
 This is merely a pronouncement on harmonized format of reporting
which is however not legally enforceable .Not withstanding the
absence of specific mention relating to cash basis, the financial
statements of Federation are prepared on cash basis. There are no
non-cash items in the statement of receipts and payments (Cash
flow statement).

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 Identified Gap-Accounting for External
Assistance
Accounting for External Assistance
(IPSAS 1.10.8 to 1.10.11).
These sections require entity to disclose on the face of the
Financial
Statement of Cash Receipts and Payments External
Assistance received
during the reporting period. The requirements can be
summarized as:
 Disclosure of all External Assistance to the
reporting Entity;
 Disclosure of External Assistance paid by Third
Parties to settle obligations or purchase goods and
services of the reporting Entity;
 Details of the providers of the External Assistance
to be disclosed; and
 External assistance in form of Loans and Grants to
be reported.

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 Accounting for External Assistance.
Contd.
 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 also loans 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.

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 Identified gap: Consolidation of the Accounts of
Controlled entities
 IPSAS envisages recognition of all cash receipts, cash payments
and cash balances controlled by the entity. This control may imply
that Government will have to add the cash flows of the entities that
it controls 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 which has to be consolidated with the entity.
 The Consolidated Financial Statement of the Federal Government
financial statements does not include all cash receipts, cash
payments and cash balances of entities controlled by the Federal
Government. There are many agencies which are primarily of the
nature of Federal Government, but are operated as separate entities.
The cash flows of these entities are not brought into the financial
statements of Federation.

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 Identified gap-Cash out of Control
IPSAS requires that an entity should disclose in the notes to the
financial statements together with a commentary, the nature
and amount of:
 Significant cash balances that are not available for use by the entity;
 cash balances that are subject to external restrictions; and
 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 require
such 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 unrestricted for use.

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 Identified gaps-Correction of errors
IPSAS provides that when an error arises in relation to a
cash balance reported in the financial statements, the
amount of the error that relates to prior periods should be
reported by adjusting the cash at the beginning of the
period. Comparative information should be restated, unless
it is impracticable to do so.
An entity should disclose in the notes to the financial
statements the following:
The nature of the error;
The amount of the correction; and
The fact that comparative information has been restated or
that it is impracticable to do so.
  
 .
  

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 Correction of errors. Contd.
 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.
 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.
 It is however necessary that the additional information relating to
correction of prior period errors is disclosed in the financial
statements to be consistent with cash IPSAS
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 Identified Gap-Reporting date- Timeliness of
report
 Timeliness of report submission. An entity should be in a position to
issue its financial statements within six months of the reporting date,
although a timeframe of no more than three months is strongly
encouraged by IPSAS.
 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.
 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 the Statements. If there is a rare circumstances in
which a body or authority have the power to amend the Financial
Statement after issuance, this should be disclosed.
 Section 49 (2) of the Fiscal Responsibility Act 2007 provides that the
Federal Government shall not later than 7 months following the end of
each Financial Year consolidate and publish in the mass media its
audited Accounts for the previous year. The Accountant-General of the
Federation in the Finance (Control & Management) Act is given 6
months to submit his consolidated Accounts to the Auditor-General,
who have a total of 90 days to look into the Account before submitting
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to the National Assembly
 Timeliness of report. Contd.
 As per the requirements of the laws indicated above, the
Treasury has been able to issue the Consolidated Financial
Statements with in the time required by the Fiscal Responsibility
Act and the Finance (Control and Management) Act.

 However, this falls short of the requirement of IPSAS.The

accounts are not placed at the National Assembly within six
months of the reporting period. This timeliness of submission
of report as per the requirement of IPSAS is being pursued with
vigor for realization for Government Accounting in Nigeria. This
would substantially improve the timeliness and availability of
accounting information to all the stakeholders.

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 Work programme to bridge gaps
Itemized action plan
 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.
 The Federal Government would need to consolidate the cash flows of all entities
that 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.
 For improving the timeliness, the time taken in Ministries, Departments and
Agencies of Government including at the office of the Accountant-General of
the Federation 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) .

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 Preconditions for successful migration to IPSAS
based Standards
From Nigeria’s experience in the implementation of IPSAS based
Accounting standards, we strongly believe that the following are
preconditions for successful migration.
• An acceptable cash accounting based system - A sound accounting
system that can generate reliable cash based data is an essential basis
from which to start the move to an accrual framework.
 Political ownership - It is critical that the planned introduction of
IPSAS based Standard of Accounting is supported at the highest levels
of the executive.
 Technical capacity - International experience suggests that a lack of
adequate technical resources can be a major impediment to successful
implementation of IPSAS based accounting Standard. It is essential
that a government considering such migration has either a core of
officials with required technical (accounting, IT, etc.) skills, or the
capacity to recruit such people for its key positions.
 Automated Information Systems -- Although, in theory, cash or
accrual accounting can be implemented with either a manual or an
electronic system, in practice, it would be inadvisable for a government
to attempt to implement full accrual accounting without the aid of a
modern government financial management information system
(GIFMIS) with proven functionality in areas such as general ledger,
accounts payable, purchases, assets management, etc.

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 Preconditions Contd.
 To ensure seamless transition to IPSAS based standards there is
the need to first take up pilot studies in select departments and
offices to migrate IPSAS accounting requirements (Cash or
Accrual) . The pilot studies may be based on IPSAS accrual.
Accrual accounting does not necessarily mean a ‘full accrual’.
Many nations across the world, targets a unique model of accrual
accounting or modified accrual. The extent of accrual accounting
appropriate for any country can be decided through pilot studies.
 However this will entail some challenges that must be
overcome.

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 Transition to IPSAS basis-issues and
challenges
 Standardization of Accounts of the three tiers of Government like in
the case of Nigeria that operates three tiers of
Government,Federal,States and local Governments.
 Seamless consolidation of the Accts of the three tiers of Govt. with
uniform reporting format of having the same Chart of Accounts.
 Need for the right staffing skills and levels
 Relevant enabling legislations need to be changed in line with reality
of the requirements of IPSAS.
 IT Hardware and Software development to automate the process.
 Relevant Accounting manuals be reviewed and rewritten.
 Training and retraining of Accounting personnel.
 Central guidance is critical
 Automation of the Business Process is very critical.
 Change Management

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 Transition to IPSAS -issues and
challenges (Contd.)
 Accounting curricula need to systematically convey IPSAS to
students of Accountancy.
 Continuing Professional Education on Ethics and Professional
Responsibility
 The profession needs to make commitment to producing
IPSAS specialist. Such experts will be available as resource
persons in cases where IPSAS is in use. IPSAS specialist should
be knowledgeable about available resources that can help answer
professional responsibility question. An IPSAS specialist should
work to maintain an environment that stresses the importance of
IPSAS adoption and implementation

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 Impact on transparency
Fiscal transparency can be defined as public
openness about the structure 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.
Adherence to the requirements of IPSAS have made
this possible for the Governments to comply to this.
The expected benefits from Fiscal transparency is
shown below:

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 Impact on transparency Contd.
 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.
 It is no surprise, therefore, that M. Camdessus, the Managing
Director of the IMF, thinks of transparency as the "golden
rule" of the new international financial system.
 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 as Transparency
International.

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 Transparency Contd.
 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.
 Fiscal transparency can be defined as public openness about the
structure 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.
 Adherence to the requirements of IPSAS based Standards have
made this possible for the Governments to comply to easily to the
requirements of IPSAS.

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 Fiscal transparency -benefits
 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.
 In strengthening credibility and public understanding of
macroeconomic policies and choices, fiscal transparency fosters
more favourable access to domestic and international capital
markets.
 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.
 It provides benefits in terms of fiscal discipline and transparency

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 Principles for Fiscal Transparency
 For Fiscal transparency to be achieved the following principles should be
adopted:
 Clarity of roles and responsibilities. There should be a clear distinction
between government and commercial activities, and there should be a clear
legal and institutional framework governing fiscal administration and relations
with the private sector. Policy and management roles within the public sector
should be clear and publicly disclosed.
 Open budget processes. Budget information should be presented in a way that
facilitates policy analysis and promotes accountability. Budget documentation
should specify fiscal policy objectives, the macroeconomic assumptions used in
formulating the budget, and major fiscal risks. Procedures for collecting
revenue and for monitoring approved expenditures should be clearly specified.
 Public availability of information. The public should be provided with
complete information on the past, current, and projected fiscal activity of
government and on major fiscal risks. This should be readily accessible.
Countries should commit to the timely publication of fiscal information.
 Assurances of integrity. Fiscal data and practices should meet accepted
quality standards and should be subjected to independent scrutiny.
 .

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 CONCLUSION
 The purpose of International Public Sector Accounting Standards (IPSAS) –
cash or accrual – is to prescribe the manner in which general purpose
financial statements should be presented. IPSAS apply to all public sector
entities, from supra- national organisations, such as the UN, through
sovereign or national governments to the smallest public sector entities, and
only excluding Government Business Enterprises (which should report
according to International Financial Reporting Standards – IFRS).

 The paper examines the path towards transition to International Public sector
Accounting Standards (IPSAS) and their impact on transparency using
Nigeria as a case study with the conduct of the IPSAS gap analysis. It revealed
a number of very useful findings. Financial reporting by sovereign or national
governments is an increasingly important issue, and will become more so as
the impact of the financial crisis on governments across the world becomes
apparent. Government financial statements should provide critical
information on the health of government finances which is useful and
understandable by all citizens. Transiting to IPSAS(Cash or accrual ) basis
enhances transparency, accountability and comparability.
 Thank you.

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 The End
QUESTIONS & ANSWERS

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 References
 Abdul Khan & Stephen September,2009.Transition to Accrual Accounting Mayes. IMF
Public Management Technical guidance note and manual.
 Wynne Accrual Accounting for the Public sector
 Dr Jesse Hughes, Transition from cash Accounting to accrual Accounting By
 Governments
 2008 IFAC Handbook International Public sector Accounting Pronouncements. Volume
1
 2008 Handbook of International Public sector Accounting Pronouncements. Volume 1
 2008 Handbook of International Public sector Accounting Pronouncements. Volume 11
 Hassan A.G Ouda, A Prescriptive model of transition to Accrual Accounting in Central
Government..
 NIGERIA, Public sector Accounting, A Comparison to International Standards –Report
of the Gap analysis Committee
 Practical Challenges in the Implementation of IPSAS in Nigeria-Paper delivered by the
Accountant-General of the Federation of Nigeria.

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