The introduction and impact of EPSAS have not been included in this report as there is significant available material from other sources. Some relatively new EU Member States have made significant progress in the adoption of IPSAS.
Estonia adopted IPSAS type standards from 2004, with a short implementation period beginning in 2003. The process included: amending legislation; creating a unified chart of accounts and a reporting database for the MOF; acquiring accounting software for automatic reports; and setting-up guidelines, additional explanations, examples, a help desk and the delivery of training. The public sector accounting reform took two years from 2004-05, with consolidation of government business enterprises and revaluation of fixed assets occurring in 2005. In 2009, Estonia decided that all state agencies should use one software platform (SAP) to allow the country to consolidate and prepare national accounts while introducing a number of shared services. The MOF introduced several electronic initiatives, including e-invoices, e-reports and a self-service portal (PwC, 2016).
Estonia’s accounting under IPSAS is relatively mature and the NAO is now focusing on specific technical issues rather than financial management issues. Estonia has produced an annual report of the state since 2005, audited by the NAO (Maar, 2013). The 2014 report highlighted various issues relating to IPSAS compliance and financial management, including: the consolidation process in terms of sign-off from private sector auditors, which was not completed in a timely manner; the lack of disclosure of reasons for unspent funds that were carried forward; and separate treatment of finance and operating leases.
Latvia adopted accrual accounting basis for the public sector in 2007 and began IPSAS implementation in 2015. It is in the process of assessing IPSAS standards with a view to adopting national standards based on IPSAS by 2019. However, it needs to make progress in its assessment and implementation of accruals for tax accounting, financial instruments and consolidations. Challenges in adopting accrual accounting have included researching IPSAS implementation from other countries to assess experiences and best practice; selecting a single approach where multiple options are provided in IPSAS; assessing how taxes and levies should be measured and recognised in terms of IPSAS 23 (Latvia recognises revenue from taxes on a cash basis); assessing consolidation principles and their impact, especially government business enterprises (which are currently accounted for on the equity method); and assessing whether any transitional periods and provisions are necessary (EY, 2016).
The State Audit Office 2016 Annual Report raised several concerns. These included: the verification of fixed assets; justification of additional staff pay; and end of year spending value for money (Latvia, State Audit Office 2016).
All public bodies in Lithuania were told by the MOF to adopt full accrual accounting from January 2010 (Lithuania Ministry of Finance, 2013). More than 4,500 entities – including hospitals, municipalities and universities – were to prepare financial statements in accordance with Lithuanian National Public Sector Accounting Standards. The project was planned in 2005 and the government knew that there would be implementation issues having completed research into other countries and a thorough assessment of what was required. Lithuania followed a very structured approach in terms of adopting accrual accounting including: the passing of necessary legislation; issuing of national standards based on IPSAS; establishing a unified chart of accounts; drafting and issuing accounting manuals; training staff; assessing IT requirements; standardizing IT systems for entities and consolidation; and establishing a centre to support implementation (EY, 2015d).
A number of lessons were learnt during implementation, not least that there was strong resistance to change. It was essential to optimise the accounting and financial reporting function to ensure that the government received value for money from public entities and to encourage entities’ management to use financial statements effectively. Realistic long-term planning was essential and training was needed to provide the necessary skills in the public sector, with a recognition that there were insufficient resources within the MOF for the reform. Clear communication was required regarding the transition plan, backed by a database acting as a single source of information, and the transition period had to focus on data quality. EU funding was important (EY, 2015d).
Although Lithuania has adopted NPSAS, it is still faced with challenges and account qualifications. Consolidated national accounts have been qualified because of underlying issues at entities and technical matters relating to which entities to consolidate. Other qualifications relate to the recognition and measurement of tax revenues, the treatment of property, plant and equipment by some entities and accounting practices in municipalities, including for finance leases, consolidation, accounting for infrastructure assets and for transfers with conditions attached (EY, 2015d).
Malta announced in 2012 that it would adopt IPSAS, and conducted a gap analysis in 2013 to plan the conversion process (Camilleri, 2014). Steps taken by the Malta government for conversion included: reviewing the accounting framework against the IPSAS framework and aligning and selecting accounting standards that were appropriate for Malta; assessment of the legacy IT systems for potential use with the IPSAS requirements; revision of all financial and related processes; capacity building of staff, not just finance staff, so that changes could be embedded across all employees to ensure they have the skills, knowledge and experience required; legislative changes required to reflect the change in accounting systems; stakeholder management, including politicians; and change management processes to encourage all stakeholders to respond positively to the change.
Malta is still in the process of adopting IPSAS, with conversion beginning from the 2014 audit cycle onward. Issues identified so far by the NAO include: the recording of capital expenditure and the absence of verification; weaknesses in internal controls related to payroll payments, including unreliable leave records; collection of outstanding balances of amounts due to the government; collection of outstanding balances of amounts due to the government; disclaimed and qualified audit opinions of local councils; and the inability to produce financial statements (Camilleri, 2014).