Applying global accounting standards in the public sector

Following my article last week on enhancing public sector financial management transparency and accountability, this week, I will share some thoughts on implementing international accounting standards in Rwanda’s public-sector.
George Muhia
George Muhia

Following my article last week on enhancing public sector financial management transparency and accountability, this week, I will share some thoughts on implementing international accounting standards in Rwanda’s public-sector.

All levels of government face unprecedented demands to improve the management of public finances. In response, many of these organisations are undertaking a range of reforms. One essential reform in the management of public finance is the implementation of accrual accounting. Accrual accounting is an accounting method which records revenues and expenses when they are incurred, regardless of when cash is exchanged.

This form of accounting is compliant with International Public Sector Accounting Standards (IPSAS). The objective of accrual accounting is to increase accountability and transparency and also improve operational performance and the Value for Money that the general public and individual consumers receive from public-sector services and activities.

Rwanda is not alone in this effort. IPSAS are being adopted by a large number of organisations around the world. The International Federation of Accountants recently issued a letter to the G20 leaders recommending that governments should practice what they preach and follow rules like those set down for public companies.

Supranational public-sector entities have been at the forefront of the move towards IPSAS. Organisations like the European Commission, the OECD, NATO and the United Nations have already implemented IPSAS, or are currently in the process of doing so.

Meanwhile, a diverse range of national and sub-national government entities also have projects and processes in place aimed at the adoption of IPSAS, IFRS or special accounting rules closely aligned with these international standards.

With the United Nations and other international organisations adopting IPSAS as their accounting framework, the number of public-sector organisations announcing their intention to implement IPSAS has also increased significantly.

IPSAS are developed by the International Public Sector Accounting Standards Board (IPSASB), which focuses on the accounting and financial-reporting needs of governments and the constituencies they serve.

They set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events in the general-purpose financial statements of all public sector entities. The strategy of the IPSASB is, as appropriate, to align the IPSAS with the International Financial Reporting Standards (IFRS) issued by the IASB.

This ensures that organisations in the public sector that adopt IPSAS have financial reports that are consistent with and comparable to private-sector best practice, while also benefiting from guidance and interpretation for specific public-sector issues such as heritage assets, public grants and revenue from non-exchange transactions.

The superiority of accrual accounting over cash accounting is now acknowledged by the vast majority of finance and accounting professionals.

Cash accounting, and even accrual accounts based on locally defined financial reporting standards, are no longer sufficient to enable public-sector organisations to respond to the legitimate needs and demands of the citizens they serve.

Independent standards are essential for high-quality financial reporting, which in turn is fundamental for developing the levels of accountability and quality decision-making that lead to good governance, transparency and trust.

By introducing accrual accounting, public entities demonstrate a commitment to improve the use and management of resources, a desire to promote enhanced financial reporting and transparency, plus greater accountability and a pledge to fight fraud and corruption. It is important to acknowledge that implementing IPSAS is not an end in itself, but a catalyst to providing high-quality financial statements and, even more importantly, improving operational performance in areas like fixed assets and inventory management, payroll and the wider field of employee benefits.

George Muhia is a Manager with PwC Rwanda Limited.
Email: george.m.muhia@rw.pwc.com

 

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