African nations are enthusiastically trying to strengthen public financial reporting, but challenges remain to implementing international accounting standards
At the dawn of the millennium a bouquet of public financial management reforms were prescribed to improve governance, strengthen institutions and engender transparency and accountability in countries in transition.
These included budgeting, budget execution, accounting and reporting and oversight. With the assistance of the international donor community led by the World Bank and International Monetary Fund, International Public Sector Accounting Standards became the recommended default choice for public sector financial reporting in many countries.
The perception and acceptance of IPSAS has varied from country to country – ranging from indifference in the US to uncontrolled excitement in Africa.
There are contradictory statistics about which countries have adopted or complied with IPSAS. But when can a country be said to have adopted IPSAS? Answering this question untangles a web of misrepresentation and involves making a distinction between adoption, implementation and compliance.
Adoption means that a country or public sector entity accepts IPSAS as its financial reporting framework, through the pronouncement of a competent authority or by an act of parliament or both. It is a legal or binding commitment.
Implementation starts from the moment a country or economic entity takes concrete steps to apply IPSAS methodology in recording and reporting financial data.
This usually takes a considerable amount of time and resources. According to a survey of 21 African countries published by KPMG, Nigeria, South Africa, Kenya, Rwanda, Tanzania, Uganda and Kenya are at the implementation stage.
Compliance means that the financial statements of an entity meet the requirements of IPSAS in all material respects.
It happens first in individual economic entities. Then it is rolled up to the next level of controlling entity in the form of consolidation in line with IPSAS 6: consolidated and separate financial statements.
In most of Africa and the developing world, semi-autonomous and extra-budgetary units – called parastatals in Nigeria – are ahead of central, state or local government in accounting and reporting compliance. They are usually smaller, more automated and attract more competent, better-paid staff.
So it may be a good idea to create a group within the IPSAS implementation team to focus on parastatals and deliver them as quick wins; early adopters and change agents to whom the rest of the public sector should look up.
Line ministries and other non-autonomous budgetary units are harder nuts to crack due to their size and slowness to adapt to change.
The second level of IPSAS compliance is consolidation at government level. This is, without doubt, the most challenging in every country.
First, there is a disparity in accounting bases used by component entities. Second, some will operate under constitutional and legal provisions that are at variance with IPSAS requirements. And, third, there may be political and other interests that will resist bringing them into the IPSAS net.
So, when is a country IPSAS compliant? The best answer is one that is correct in all circumstances: ‘It depends.’
That a country is IPSAS-compliant may mean that: some economic entities are producing IPSAS-compliant financial statements; or, some economic entities are consolidating their statements in line with IPSAS; or, the country is producing consolidated whole-of-government IPSAS-compliant general purpose financial statements.
A casual survey suggests that few countries will achieve the latter in the near future.
So focusing on individual entities first – and letting consolidation come last – would seem to make sense. IPSAS implementation should never be seen as an all-or-nothing project.
Sylva Okolieaboh is deputy director in the Office of the Accountant General of the Federation, Nigeria
This article appears in the Winter 2014 issue of Public Finance International magazine
