Various challenges have faced countries in South America 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.
Argentina uses public sector accounting standards set by the federal government. IPSAS have not been adopted, but the National Accounting Office (CGN) has begun to develop public sector accounting standards that are harmonised with accrual basis IPSAS – although there is no clear timeframe for doing so (IFAC: Argentina). Public listed companies, other than banks, are required to use IFRS, while state-owned enterprises are required to apply accrual basis Argentine Generally Accepted Accounting Principles (GAAP) for their financial statements (IFRS: Argentina).
Argentina has been involved in international legal disputes regarding non-payment of government debt. IFAC has previously suggested that sovereign debt crises of this kind has emphasised the need for countries to adopt IPSAS. It has previously criticised Argentina’s government for not using accrual-based financial statements, ‘which are essential for effective management’, and argued that it is inconsistent for a country to require IFRS to be used for public listed companies, but not for a government’s own accounts (Ugwumadu, 2014).
Brazil enacted a transparency law in 2009 to mandate the convergence of the country’s accounting standards with IPSAS (Cardosa et al. 2014). The national chart of accounts was issued in 2014, with gradual and full implementation of IPSAS scheduled by 2020 (EY, 2015). The process has encountered a number of implementation challenges, however, in part because of the size and complexity of Brazil – it has a federal government, 26 states and 5,564 local authorities, which makes the consistent application of standards by a given date more difficult (EY, 2015). Brazil has needed to improve public financial management processes alongside the implementation of IPSAS, and increase resources and expand staff capacity. The country’s budget is cash based, but financial statements are accrual based, requiring a dual ledger to serve budget reporting and accrual accounting. Specific accounting issues have related to infrastructure assets, intangible assets, financial instruments, social benefits and revenue from non-exchange transactions (Cardosa et al. 2014).
Chile announced in 2010 that it would adopt IPSAS and it developed a methodology of indirect adoption of the standards (Gourwinkel, 2016). The Comptroller General of Chile was instrumental in reforming the country’s public finance management function. A process of analysing each IPSAS standard and prioritising these into high, medium, low and no impact was undertaken, providing timelines for the implementation of each standard. High priority (for implementation in 2012) comprised fixed assets, transfers, property investments, taxes, financial assets and liabilities; medium priority (2013) comprised revenue from exchange transactions, associates and joint ventures, provisions and contingencies, intangible assets, leases and concession arrangements; low priority (2014) comprised financial statements, inventories, segment reporting, employee benefits, related parties, foreign exchange agriculture and accounting policies; and no priority (2014) comprised hyperinflationary economies and construction contracts. Chile planned to use the transitional provision in IPSAS 33 with effect from January 2016, to adopt IPSAS type standards by 2019 and recognise and measure certain assets and liabilities (Gourwinkel, 2016).
Chile faced a number of implementation issues (Alonso et al, 2015. These included: the preparation for the first time of financial statements by public sector entities; increased responsibility for maintaining accounting records; resistance from financial services authorities to implement some standards, especially IPSAS 17 (property, plant and equipment); the need for finance officials to have greater skills and knowledge on the application of accounting principles, such as the use of judgment to recognise and depreciate assets, where in the past, a formula was used; relationships with other authorities and stakeholders in the process, including the MOF, budget office, universities; and the modification of computer systems to meet the needs of IPSAS (Pimenta et al, 2015).
Colombia adopted accrual accounting for the public sector in 1996 (EY, 2015). Some IPSAS recognition, measurement and disclosure requirements were incorporated into the domestic accounting standards applied by public sector entities in 2007 before Colombia committed to the transition and full implementation of IPSAS by 2017 (EY, 2015). Columbia established in 2015 the Regulatory Framework for Government entities and faced a number of implementation challenges including the need to change information systems environments to support IPSAS disclosure and consolidation requirements, the technical challenges of consolidating state owned entities that are applying IFRS, not IPSAS, and the need for capacity building of staff applying IPSAS.
Despite this progress, Colombian government accounts have had qualified audit opinions on a regular basis from the NAO (Brusca et al, 2016). Issues have included: the recognition and measurement of taxes under IPSAS 23, in particular income taxes; recognition, measurement and subsequent measurement of assets in terms of IPSAS 16, 17 and 31 with regard to property, plant and equipment, investment property and intangible assets, including complications around estimating depreciation and amortisation, including useful life; recognition of specific assets such as heritage assets and infrastructure assets, including determining fair value; budgetary processes and financial information; and the criteria for consolidation and the usefulness of the consolidated numbers.
Peru adopted accrual accounting standards based on IPSAS in 2002, with a particular focus on IPSAS 1-21 between 2004 and 2006. IPSAS implementation was not achieved initially because sufficient resources were not made available, but implementation was legislated for in 2013 and Peru formally adopted IPSAS in 2016 (Brusca et al, 2016).
Elements of the annual financial statements are not fully adapted to IPSAS. Peru has been issued with modified audit opinions by the National Audit Office of Peru since 2002, including a Disclaimer of Opinion in 2014. The Comptroller concluded that the Peru government had not adopted a General Purpose Framework as defined by the International Standards of Auditing. There were also errors in the reporting of some assets and liabilities, including in relation to fair value, depreciation, service concessions and pension liabilities (Ramirez, 2015).