Various challenges have faced countries in Asia that adopted IPSAS. Those challenges have been identified in national audit reports and other publicly available documents, including presentations, articles and research reports. Other documents reviewed include annual reports of supreme audit institutions and finance ministries/treasuries.
2.1 Abu Dhabi
All of the Abu Dhabi government’s financial statements as at 31 December 2016 were prepared using cash basis IPSAS as part of the progress towards the adoption of accruals IPSAS (Abu Dhabi Accountability Authority, 2017). Most entities included in the financial statements either adopted accruals IPSAS or (where appropriate, according to the nature of an entity’s operations) IFRS. Abu Dhabi’s phased approach is intended to assist the government to move towards the adoption of full IPSAS accrual standards.
The Abu Dhabi Accountability Authority issued an unqualified audit report on all government financial statements for 2016 (Abu Dhabi Accountability Authority, n.d). Despite this, challenges were encountered at the level of individual entities, where issues included: the impairment testing of goodwill and intangible assets; revenue recognition; depreciation of assets over their useful lives; preparation of consolidated financial statements; the accounting treatment of finance and operating leases; approved spending of annual budgets; asset recognition; the presentation in financial statements of government contributions; the estimation of fair value of investment properties; the payment of annual bonuses and staff incentives; assessment of the likelihood of recovery of financial facilities and loans; and profit recognition, including of foreign investments and comparisons between budget and actual spend. There was an additional issue of the need to present financial statements in Arabic, as required by government.
Bangladesh applies cash basis IPSAS in its reporting after a period of public sector reform that has taken place over several years. Individual departments and public sector entities do not manage their own cash, which is held centrally by government. Consequently, the Bangladesh accounting function consists of a consolidated fund and a treasury single account. Parliament limits the financial authority provided through the annual budget. Responsibility for setting the accounting framework as well as auditing the framework lies with the Comptroller and Auditor-General.
A challenge for Bangladesh is with respect to the timeliness of reporting; that is the delayed production of these documents which are submitted late to the relevant authorities; and the fact that they are not made available to the public. This is due at least in part to the lateness of information being supplied by the self-accounting entities (SAE) such as Defense and Railways which delays the preparation of a consolidated financial statement. SAEs report their financial transactions to Controller General of Accounts (CGA) for eventual incorporation in both monthly central accounts and annual finance accounts. However much of the delay in the production of these accounts is due to the delayed reporting of their transactions to CGA. In addition, the quality of their financial data is compromised by the limitations of their separate accounting systems and adversely affects the overall quality of financial reporting by CGA and the ability of Ministry of Finance to monitor budget implementation Government of the People’s Republic of Bangladesh (2016) Public Finance Management (PFM) Reform Strategy 2016-2021.
Bangladesh experiences IPSAS implementation challenges that will take a number of years to overcome and the country will arguably find it difficult to achieve full compliance with IPSAS (Hakeem, 2012).
India uses a cash basis of accounting, with certain accrual disclosures made in the financial statements (Asian Development Bank, 2013). The Government Accounting Standards Advisory Board of India (GASAB) has commissioned reports on the adoption of accrual accounting for the Indian Government and issued accrual based standards based on the IPSAS standards (Kothari, 2013), but the standards need to be approved by government. IPSAS implementation is likely to take between 10 and 12 years and a project management task team would be needed to ensure appropriate leadership and political buy-in (Government Accounting Standards Advisory Board of India, n.d.). Implementation of full accrual accounting for India seems likely to be delayed until the challenges are overcome and a detailed roadmap has been agreed.
Identified challenges in India firstly include the differing states of readiness of entities within the Indian Government and across different public sector entities for IPSAS adoption. There are more specific core accounting challenges too – there is a paucity of information on assets and liabilities across many public sector entities in India at present. As part of a strong project management approach pilot studies will need to be conducted; accounting standards and policies and a chart of accounts will need to be developed; mapping will also be required to create a timetable for new processes; decisions will have to be made on IT requirements to support accrual accounting; organisational restructuring is also likely to be necessary; pilot implementation sites will have to be determined and prioritised; and a thorough implementation programme agreed for the whole of government financial statements.
Indonesia began its public sector reform programme in 1999, giving itself several years to carry out the changes with full implementation of IPSAS planned from 2015 (EY, 2015). The programme included: the introduction of a unified budgeting system; introduction of performance based budgeting; a medium-term expenditure framework; cash management reform; establishing government accounting standards; creating a common, web based, chart of accounts; reforming government procurement processes; and assigning the Ministry of Finance (MOF) with the authority to implement administrative reform. Accountability for entities was transferred to their financial controllers from the Treasury. The government strengthened its technology systems, moving towards an integrated financial management information system and a fully centralised and integrated IT infrastructure in the MOF (Harjowiryono, 2016).
The Indonesian Government Accounting Standards (IGAS) are based on IPSAS (Asia Pacific Economic Co-operation, 2013), with IGAS set out in 13 statements – four interpretations and nine technical bulletins (Simanjuntak, 2016). However, this remains a work in progress in several specific areas. For example, disclosure standards on related parties and financial instruments have not yet been included and accounting standards have also not been specifically developed for employee benefits and financial instruments to account for the complexities in the balances and transactions.
Lessons have been learnt from the reform programme however. Robust implementation and transition strategies were required, including: issuing the accounting standards with sufficient time for adoption; stakeholder involvement; the need to align accounting standards and policies with the legal framework; and the necessity to develop an integrated financial management system that supports the improvement of business processes and the requirements of the accounting standards. There was also a recognition of the need to build capacity among existing staff, recruit skilled staff and place them with those entities that needed assistance.
Yet other challenges also faced the Indonesia government. The country decided to adopt the standards for all entities on the same date, so there was a scarcity of resources, and initial consultancy costs were high. The lack of skills in accrual accounting also caused difficulty in producing timely and credible financial statements. Politicians and other stakeholders also questioned the benefits gained from IPSAS reports and have been reluctant to use the financial statements, placing more faith on the information contained in the budget and resource allocation processes (Chan, 2006).
The audit outcomes for Indonesia government entities, especially at regional government level have, however, improved substantially from 2013 to 2014; the number of disclaimed or adverse opinions fell from 166 out of 577 audits, to 47 out of 626 audits (Simanjuntak, 2016). And, for the first time in 12 years, the central government consolidation accounts received an unqualified audit opinion for 2016.
Jordan’s MOF officially endorsed the adoption and implementation of IPSAS in 2015, having previously used modified cash basis public sector accounting standards (IFAC: Jordan). A five-year IPSAS implementation roadmap is in place, with implementation assistance coming from the United States Agency for International Development (USAID) under Jordan’s Fiscal Reform Project. Implementation has also been supported through the translation of IPSAS into Arabic by the International Arab Society of Certified Accountants, which also provides training events on IPSAS (IFAC, 2017).
Jordan had already undertaken a programme of public financial management reform, which included: the adoption of cash basis IPSAS; a review and consolidation of tax legislation; the adoption of results-oriented budgeting; applying a new chart of accounts; applying a common data standard; moving to a Treasury single account; and establishing a government financial management information system. The MOF reported that the move to cash basis IPSAS itself faced challenges in the small number of qualified staff, difficulties in collecting data for payments made by third parties and administrative arrangements (Bashabsheh, n.d.).
The government’s financial statement for 2015 was prepared using both cash basis IPSAS and accrual IPSAS, with Jordan claiming that this made it the first Arab country in the region to use full IPSAS – though several other Arab states are also in the process of implementing IPSAS. Al-Zubi (2015) concluded, however, that Jordan is applying IPSAS incorrectly and in a weak form. Al-Zubi also concluded that Jordan needs to strengthen its monitoring of IPSAS implementation, improve the efficiency of staff engaged in the process, collaborate more closely with ‘competent authorities’ – presumably the International Public Sector Accounting Standards Board (IPSASB) – and be more aware of IPSAS updates.
Malaysia has undertaken a financial management reform programme over several years, with the implementation of accrual accounting as part of this process. The Malaysian government announced in May 2011 that the country would adopt IPSAS type standards by 2015, with all public sector entities adopting IPSAS on the same date (IPSASB, 2013a). Various initiatives were undertaken by the government to support the move, including: a gap analysis exercise between existing standards and IPSAS; development of Malaysian Public Sector Accounting Standards (MPSAS) based on IPSAS; revision of finance legislation to ensure MPSAS were embodied in the financial reform; development and selection of accounting policies; development of change management strategies; implementation of capacity building initiatives including on the job training and IPSAS class room training; adaption of policies, procedures and processes to accommodate IPSAS; and selection of IT infrastructure to accommodate IPSAS (Mahedi et al, 2014).
Malaysia experienced several challenges in IPSAS implementation; some of these related to specific accounting issues such as unavailable, incomplete and inaccurate records to determine opening balances, and difficulties in valuing particular asset types and complex financial instruments. Yet there were broader issues too – capacity issues resulting in over-reliance on donor funding and consultants, talent and skills issues with a paucity of appropriate IPSAS skills to move to accrual based accounting and the need to manage stakeholder expectations. Consequently the Accountant-General of Malaysia notes the following lessons from the implementation: the need to adopt practical implementation solutions; ensuring there is sufficient IT capacity for the conversion process, particularly in relation to reporting the accounting treatment of assets; motivating entities to start the adoption process as early as possible; the need for relevant staff to understand which parts of the accounting system are most critical and the concept of materiality; to focus on long-term sustainable solutions, not just the short term; project management that adheres to a proper programme; and project management disciplines with agreed deadlines and clearly stated milestones (PwC, 2015).
The National Audit Office Malaysia (NADM) audit on the Federal Government’s Financial Statement for the Year 2016 revealed that the statement as a whole reflected a true and fair view on the financial position of the Federal Government, its operations and cash flows for the year ended 31st December 2016. Its accounting records were properly maintained and updated accordingly. The NAO noted that there was an improvement in financial management when comparing 2015 to 2016: however, the financial management audit revealed that several ministries and departments did not fully comply with financial regulations, with weaknesses including negligence in complying with stipulated financial rules and procedures, insufficient staff, lack of financial management training and inadequate supervision and management (NADM 2016).
Nepal’s Accounting Standards Board has developed Nepal Public Sector Accounting Standards (NPSAS), which are similar to cash based IPSAS and contain mandatory and non-mandatory parts for enhanced disclosures. In 2009, the government gave executive approval for these to be applied by all public sector entities. An implementation process was initiated by the Financial Comptroller General Office (FCGO), under which central government was first to adopt NPSAS, before operational entities did the same. A steering committee for implementation was established, led by the Joint Financial Comptroller General, the Auditor-General, MOF, Institute of Chartered Accountants and the Accounting Standards Board. Implementation and reform was funded by the World Bank (Prasad, 2016).
NPSAS was piloted by two ministries in 2011/12 and 2012/13. Roll-out took three years and financial statements for 16 economic entities for the financial year end 2015/16 were submitted for audit to the Auditor General. Several implementation issues were identified relating to the transition process: weak capacity of staff, especially in finance and audit; lack of qualified staff, resulting in non-accountants being involved in government accounting; lack of stakeholder engagement; insufficient change management to enable entities to take responsibility for the reform and be accountable for the results; and difficulty in collecting the data required for disclosures of third party information. Further initiatives are required to address these issues along with the need for legislation to require NPSAS adoption, the professionalisation of the accounting profession and the computerisation of the Government Accounting System (Prasad, 2016).
Pakistan has made initial steps towards IPSAS conversion by aligning cash based accounting standards with cash basis IPSAS; however, there are significant differences. Reform began with the development and implementation of the New Accounting Model (NAM). Pakistan’s accounting reform has continued through a phased programme, which began the adoption of IPSAS. Since 2006/07, the state and federal Financial Statements of Accountants General have been prepared using cash basis IPSAS. At present, financial statements blend the reporting formats under NAM and IPSAS cash basis by reporting cash flow statements over and above the requirements of cash basis IPSAS, with a focus on budgetary compliance for the financial year in line with the procedure established in the constitution (World Bank, n.d.).
Pakistan has faced a number of challenges in moving to IPSAS. These include: the accuracy, reliability, completeness and timeliness of information; inconsistency of processes across government entities in recognising and recording transactions; and the capacity of finance staff at government entities to deal with the requirements of the standards, particularly as they change. There is also an issue of integration between accounting and budgeting, so that both frameworks are compatible and enable stakeholders to hold entities accountable for the manner in which they spend allocated resources (Babar, 2012).
2.9 Sri Lanka
Sri Lanka has followed a phased approach towards the implementation of IPSAS. The country has issued 10 accounting standards out of 32 IPSAS currently in issue across the world. But adoption of the 10 Sri Lanka Public Sector Accounting Standards (SLPSAS) which are equivalent to IPSAS is not currently mandatory and, as a result, most public sector financial statements do not fully comply with SLPSAS. The 10 SLPSAS include: presentation of financial statements; cash flow statements; accounting policies; property, plant and equipment; inventories; and provisions. Some important transactions and activities are not covered by SLPSAS, including revenue from non-exchange transactions, employee benefits and financial instruments. (World Bank, 2017; Sri Lanka Institute of Chartered Accountants, 2012; Harasgama, 2015).
Vietnam is in the initial assessment stages of adopting IPSAS-type standards. A revised accounting law came into effect in January 2017 (Vietnam Ministry of Justice, 2017) mandating the adoption of accrual basis standards, but these standards for public sector accounting have not yet been issued. As far back as 2007, IFAC reported that Vietnam was in the process of moving to IPSAS with the support of the World Bank and translation of IPSAS standards underway (IFAC, 2007). In 2011 an Action Plan was developed by the Vietnam Association of Accountants and Auditors (VAA), which included the promotion of IPSAS to the MOF, but it also reported that there were ‘currently no plans to convert to IPSAS’. In 2013, the World Bank reported that Vietnam had an ongoing public financial management reform programme, but despite this there was a lack of transparency in its financial reporting that prevented account users understanding resource allocation. The World Bank’s report strongly recommended Vietnam should move to accruals based standards for reporting government finances (World Bank, 2013).
In 2016, the Asian Development Bank reported the lack of progress in developing public sector standards (Asian Development Bank, 2016). There remain a number of differences between IFRS and Vietnamese Accounting Standards (VAS) for the private sector, including VAS continuing to use the historic value principle for asset valuations. The Asian Development Bank reported that the MOF ‘is expected in the next few years to issue new VAS that are closer to IAS’. It added: ‘The VAS are used for corporate accounting but not public accounting.’ There remain significant differences between the accounting practices used in Vietnam by the public sector and cash basis IPSAS, including: recognition of receipt of funds as revenue; recognition of expenditure on assets at time of procurement; the use of MOF exchange rates to record revenue and expenditure in foreign currency; and the absence of specific guidelines on recording real estate investment, contingent liabilities and financial instruments.
An academic study concluded that while the Vietnamese government has implemented a reform of public financial management which, among other things, means that the accounting regime now meets the requirements of budget management, it provides very little information of financial position and performance (Trang, 2012). That study concludes that Vietnam is not in a position to apply full IPSAS at present and will instead have to apply modified IPSAS. It argued that additional public sector management reform is necessary, along with the training of highly qualified professional accounting staff and the development of accounting information systems, for the country to move to a point where full IPSAS implementation is possible.