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The case for International Public Sector Accounting Standards (IPSAS)

In the aftermath of the recent 2008 - 2012 financial crisis, governments have literally taken over financial institutions and have been continually pumping money into the real economy. This process has been officially named Quantitative Easing (QE): the process of taking taxpayers’ money and using it to restructure the overleveraged banking system and sustain the hope that the economy will soon start to heat up. 

Assuming that the government is accountable to its people on all things, including (or especially) finances, should an independent auditor audit the government’s performance and its financial position? If the answer is ‘yes’ then the Government will have to produce a set of financial statements. From this, a question arises: Under what standard should the financial statements be prepared so that they are truly transparent?

More questions may arise:

 

 

 

Over the years, governments have been preparing financial information based on budget overruns or by using IMF Government Finance Statistics (GFS). Some countries in Europe have been using the Eurostat ESA95 European system of national and regional accounts. None of the above frameworks generate audited financial statements. Rather, these sets of rules generate financial statements with the main objective to produce statistical information. This is where IPSAS comes in.

IFAC (International Federation of Accountants) formed a separate committee, the Public Sector Committee, which then became the IPSASB (International Public Sector Accounting Standards Board), to deal with the growing demand for public accountability. From there on, IPSAS was last updated in January 2014 and it deals with both cash and accruals accounting. To facilitate the transition from the previous cash-based accounting methodologies and to accruals accounting, IPSAS 33 allows the usage of a modified accrual or cash basis of accounting for a period of up to 3 years.

Some key IPSAS provisions that are worth noting:

 

 

 

IPSAS are an internationally recognised framework of financial reporting that gives governmental bodies the tools to increase transparency through:

  • The enhancement of financial management,
  • Facilitating the communication with finance providers and
  • Simplifying communication with the public.

It remains to be seen if IPSAS will have the same success as IFRS has had so far.

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