IN the ever-evolving world of finance and accounting, the need for transparency, accountability, and uniformity is paramount. To achieve this in the public sector, the International Public Sector Accounting Standards Board (IPSASB) plays a pivotal role.
This article delves into what IPSASB is, the standards it sets, where they are in use, and the substantial benefits they offer. I will go further and look at our own plans in the country in line with the view of migration of all government and government related entities to accrual accounting.
What is IPSASB?
IPSASB, the International Public Sector Accounting Standards Board, is an independent body that develops accounting standards for use by governments and other public sector entities around the world.
Established in 1997, IPSASB operates under the auspices of the International Federation of Accountants (IFAC). Its mission is to enhance the quality and transparency of financial reporting in the public sector, which is essential for good governance, fiscal responsibility, and effective decision-making.
IFAC allows the IPSASB to operate independently as one of the Standards Setting Boards. Having standards set at a global level has the unique advantage of allowing for the use of a single yard stick but all, i.e., standardisation can be achieved – as the name of the board suggests.
The nature of IFAC and its independent standard settings boards, is inclusive as members of the boards come from all over the world. Even as a country, Zimbabwe has representation at these levels in various forms.
IPSAS: The Standards
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The primary output of IPSASB is the International Public Sector Accounting Standards (IPSAS). These standards are comprehensive and cover various aspects of financial reporting and accounting practices within the public sector.
Some key areas that IPSAS addresses include:
Presentation of financial statements: IPSAS provides guidelines on the structure and content of financial statements, ensuring that they are clear, transparent, and informative.
Revenue recognition: IPSAS establishes principles for recognising revenue in a manner that reflects the economic substance of transactions, facilitating better decision-making.
Financial instruments: These standards offer guidance on accounting for financial instruments, helping entities manage risk and disclose their financial positions accurately.
Public-Private Partnerships: IPSAS provides specific guidance on accounting for public-private partnerships, a crucial aspect of infrastructure development and service delivery in many countries.
Asset management: It sets standards for the recognition, measurement, and disclosure of assets, including property, plant, and equipment.
Budget reporting: IPSAS encourages the integration of budget and financial reporting to enhance transparency and accountability in the budget process.
IPSAS versus IFRS
The International Financial Reporting Standards (IFRS), which are most predominantly used in the private sector are the ones that most would be familiar with.
I would, therefore, like to make reference to these and use them as a base for further demystifying IPSAS. In brief, IPSAS borrows quite heavily from IFRS, with some adjustments for the public sector.
The fundamental similarity is that both make use of accrual accounting.
I wrote on the key differences between accrual accounting and cash accounting, which I will not get into save to say that cash accounting leaves a lot of information gaps which are detrimental to decision making.
Coming back to the differences between IFRS and IPSAS, I want to stress that for example, IFRS is meant for profit-oriented entities while IPSAS is designed for the public sector including government and its related entities.
IFRS aims to provide information on profitability to key stakeholders such as investors and creditors, while IPSAS aims to provide information for a wider range of stakeholders including the public.
I must highlight that the investor community can still derive a great amount of value from the IPSAS prepared financials. Furthermore, IPSAS places a strong emphasis on non-financial information such as service performance and compliance with the law.
From the above, one could argue that IPSAS standards are similar to taking the existing IFRS standards and adding on further requirements to ensure that the needs of a wider range of stakeholders are included.
After all, IPSAS standards apply to entities that have a public interest, so virtually anyone and everyone has a stake in the entities in question thus would need to be kept informed of the key performance metrics.
This is why I am particularly excited about Zimbabwe’s own journey to adoption of these standards. It should be exciting to pick up a set of financials for any parastatals, local authority, ministry, department or agency — or better still going through the national balance sheet (statement of financial position).
I wonder if each of us should add one 16 millionth of the net asset value of Zimbabwe (when it comes out) to our personal net worth statement.
Where are IPSAS in use?
The adoption of IPSAS has been a global endeavour, with many countries and public sector entities recognising the benefits of standardised financial reporting.
Some regions, such as Europe, have made significant progress in adopting IPSAS. Here are some notable examples:
Europe and Asia: The European Union adopted IPSAS for its consolidated financial statements, improving transparency and comparability of financial information across member states. In Asia, countries like Malaysia and Indonesia have made strides in implementing IPSAS to align their financial reporting practices with international standards.
Africa: Several African countries, including South Africa, Nigeria, and Kenya, have adopted or are in the process of adopting IPSAS to enhance financial management and accountability. As Zimbabwe we are not far off from the leading countries. Once we have completed our journey we should be among the trend setters.
Benefits of IPSAS
The adoption of IPSAS brings about several significant benefits:
Transparency: IPSAS enhances the transparency of financial reporting, making it easier for stakeholders, including citizens, investors, and donors, to understand the financial position and performance of public sector entities.
Accountability: By setting clear accounting standards, IPSAS promotes accountability among public sector entities, helping to prevent financial mismanagement and fraud.
Comparability: Standardised financial reporting allows for easier comparison of financial information between different entities, regions, and countries, enabling better-informed decision-making. We will be able to bench mark our public entities and make comparisons internally, regionally and globally. With IPSAS certain information will be available to even compare with private sector entities. I have always enjoyed the debates on which entity is the largest in Zimbabwe, with some arguing that Harare City Council is larger than even the biggest mines or the top listed entities, depending on which metric you are using.
Better decision-making: Accurate and timely financial information, as provided by IPSAS, supports better decision-making by governments and public sector organisations, leading to more efficient resource allocation.
Access to capital: Improved financial reporting can enhance the credibility of public sector entities, making it easier for them to access capital through loans or bonds.
International Best Practices: The adoption of IPSAS aligns public sector financial reporting practices with international best practices, improving the overall quality of financial management.
Conclusion
IPSASB and its International Public Sector Accounting Standards (IPSAS) play a vital role in promoting transparency, accountability, and uniformity in public sector financial reporting worldwide. The adoption of IPSAS is a global effort, with many countries and organisations recognising the substantial benefits it brings.
As financial reporting standards continue to evolve, IPSASB remains at the forefront, ensuring that public sector entities are well-equipped to meet the challenges of the modern financial world while maintaining the highest standards of transparency and accountability.
As a country we need to remain focused on the 2025 deadline, which is fast approaching to ensure that we achieve this huge milestone. The entire finance profession is actively supporting the government’s initiatives with all hands-on-deck.
As I always say whenever I talk about this issue, the future generations will thank everyone who is playing a part in this journey.
- Mavengere is the technical director at the Institute of Chartered Accountants of Zimbabwe, which is the largest and longest standing professional accountancy organisation in Zimbabwe. — [email protected] or Twitter: @OwenMavengere.
