Why African countries lag behind in adoption of IPSAS

Few African countries have adopted the International Public Sector Accounting Standards (IPSAS) as their accounting base for the public sector despite the significant benefits (discussed in the last two weeks).

Few African countries have adopted the International Public Sector Accounting Standards (IPSAS) as their accounting base for the public sector despite the significant benefits (discussed in the last two weeks).

According to a recent list released by IFAC, only 14 countries in African have adopted IPSAS. These countries have mainly adopted cash basis IPSAS but are in varying stages of transitioning to accrual based IPSAS.

The application of the requirements of IPSAS enhances the accountability and transparency of the financial reports prepared by governments and their agencies, resulting in high quality financial reports that provide relevant information for economic analysis, decision-taking and policy making.

There are notable challenges in adopting IPSAS, which explains why many African countries have not adopted them. Key among these includes the lack of political will to amend the relevant legislation to accommodate IPSAS.

This is mainly due to the fact that IPSAS adoption comes along with added disclosures and transparency that most governments may be less than willing to disclose. Such include public disclosure of borrowings and other liabilities, and assets which some governments view as classified information.

IPSAS adoption also comes with costs which include securing financing for purchasing hardware and software for an Integrated Financial Management System (IFMIS) to support implementation of IPSAS.

The financial management system must also be accompanied by a comprehensive set of financial management procedures, which should be updated with IPSAS requirements.

Another important area is building the capacity of personnel in order to enhance capacity to implement IPSAS. This must be done through a sustainable and comprehensive capacity building programme which incorporates a good mix of training techniques.

This can include training sessions targeting accounting and budget officers on IPSAS requirements and the updated legislation and financial management procedures. On the job training sessions, which provide staff with practical sessions on the application of IPSAS requirements in the preparation of financial reports should be applied.

In addition, legal costs must be incurred in hiring experts to assist in amending the legal framework to incorporate the requirements of IPSAS. Depending on whether the country is adopting cash basis or accrual basis IPSAS, there are other requirements that must be considered such as the costs and difficulties in valuing heritage assets like game parks, forests and natural resources.

There are also complexities in valuing infrastructure assets which include roads, bridges, buildings, ports, power plants and other assets owned by the country. 

These complexities explain why the few African countries that have adopted IPSAS have adopted cash basis IPSAS, where financial statements are presented under the cash basis of accounting which is simpler and easier to implement. Nonetheless, this is a good starting point as the country plans to transition to accruals basis in the longer term.
 
The process of adoption and implementation can take from three to five years depending on the readiness of the country. Transitioning to full accrual basis takes many more years. Given the costs of adopting IPSAS and the length of time involved, a country must be committed to the process in full anticipation of the benefits that are likely to accrue from adopting IPSAS.

The author is a Senior Manager with PwC Rwanda
Email:
florence.w.gatome@rw.pwc.com

 

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