The global financial crisis of 2008 became the catalyst for a number of public sector challenges. One of the most worrying was the sovereign debt issue. Creditors worried to what extent they could trust debtor governments’ financial reports and their capacity to meet their liabilities – including those for newly issued bonds. However, one positive outcome from this crisis was the widespread recognition of the need to adopt transparent and reliable financial reporting. For public listed companies the move towards IFRS was accelerated.
In the public sector there was a similarly clear need for the adoption of the IFRS equivalent, IPSAS. Broadly, there have been two reasons why developing countries have looked to transition to IPSAS. The first has been the establishment of a new government, or a transfer of political power within government leading to a desire to strengthen transparency, accountability and general financial management practices. The second has been the growth of donors and funders stipulating a funding requirement for the country to improve its financial management and financial reporting practices.
Many developing countries have in recent years announced their intention to adopt IPSAS standards. This report, however, suggests comparatively few have completed the process successfully and seamlessly – particularly as measured by the outcomes of government audits. Fully adopting and complying with IPSAS standards has been difficult for many countries, and it remains at best what can be described as ‘work in progress’. The transition to IPSAS type standards in many developing countries in South America, South Asia, the Caribbean and Africa has been ongoing for several years, and countries in Eastern Europe that emerged from the former Soviet bloc – for example, Latvia and Lithuania – have sought aggressively to adopted IPSAS type standards too.
This study has illustrated the need for countries adopting and implementing IPSAS to have a clear strategy, with realistic timescales, milestones and resources. Some of the current challenges pertaining to IPSAS adoption are broader change management and programme management issues; others are more basic, such as poor IT infrastructure, bad record keeping, and paucity of core accounting information under previous financial reporting practices. Yet governments and their public sector entities do not have to act on their own – the accountancy profession can, and should, assist. Professional accountancy organisations should consider what role they can play in increasing awareness of the need for transparent financial reports in the public sector, including – but going beyond – providing training on accounting standards. IFAC has played its important part too, launching the ‘Accountability Now’ initiative focusing on PFM reform and assisting users of financial statements to understand them (IFAC, n.d.). Arguably donors could also do more to support the professionalisation of public sector financial management as we move forward. Other stakeholders, including the audit firms, can also assist with improving the public finance management training environment.
Users need guidance to understand the information contained in financial statements, whether cash based IPSAS or accrual based IPSAS. The accountancy profession needs to play a fundamental role in assisting them in understanding financial reports. A partnership between governments, their public sector entities, the users of financial reports and the accountancy profession can achieve much. Transparent financial reports that increase accountability, improve public sector financial management and better decision-making and ultimately superior value for money for taxpayers should be the ultimate goals.