In the recent past, there has been much focus on adoption of International Public Sector Accounting Standard (IPSAS) by governments.
IPSAS were prepared by the International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting body within the International Federation of Accountants (IFAC).
This initiative was part of the board’s strategy for the development of comprehensive high quality financial reporting standards for use by public sector entities around the world. It is anticipated that the application of the requirements of IPSASs will enhance the accountability and transparency of the financial reports prepared by governments and their agencies.
IFAC commissioned a study on the challenges and successes in adopting and implementing international standards. The study noted that there are numerous benefits of a global financial reporting framework for both the public and private sector, which include greater comparability of financial information for investors, greater willingness on the part of investors to invest across borders, lower cost of capital, more efficient allocation of resources and higher economic growth.
A financial reporting system supported by strong governance, high quality standards, and sound regulatory frameworks is key to economic development. A significant number of researches have been conducted to analyse the link between accounting standards and economic growth. Generally, a large number of these researches have concluded there is a link and hence the standard setting bodies have put considerable effort in developing a comprehensive set of standards for both the public and private sector.
This is because high quality reporting standards greatly increase the confidence of investors and the general public in financial and non financial information thereby contributing to a country’s economic growth and financial stability.
For public sector entities in Africa, adoption of accounting standards such as IPSASs would lead to high quality financial reporting which would enable better decision making. In particular, governments would be able to make better informed decisions on resource allocation thereby increasing transparency and accountability.
Apart from the government, there are several other users of financial statements prepared by public entities. These users include taxpayers, members of the legislature, creditors, suppliers, the media, and employees. Specifically, tax payers are the main shareholders of the country and it is only fair that the government accurately and transparently accounts for the funds contributed by tax payers and other resources entrusted to the government.
Most of these users are not in a position to demand high quality financial information that meets their requirements directly from these public entities.
A comprehensive accounting framework such as IPSASs enables the information requirements for all these users to be met and adoption of these standards guarantees high quality reliable information that can be used for decision making. Some of the key information that would be available from financial statements prepared using accounting standards such as IPSAS includes information on sources of funds for the government, allocation and use of financial resources, liabilities and commitments of the government, the overall financial condition of the government and the performance of the government in service delivery.
This is essential for planning as this financial information can be used to predict the future resources required by the government and determine the future direction of the government.
In summary IPSASs enables comprehensive financial reporting that provides relevant information for economic analysis, decision-taking and policy making. With all these benefits of adopting IPSASs, there should be a stampede towards adoption of these standards by public sector entities across Africa.
The author is a Senior Manager with PwC Rwanda Limited.