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Background to IPSAS

Global and Local Experience

Roadmap for adoption
Overview of the cash and accrual accounting basis

Module Three
History of Convergence
Global Adoption
IPSAS in Nigeria
Political and Economic Benefits
Cash and Accrual Accounting
Moving to Accrual Accounting


At the end of this presentation, the participants would be able to
Understand the need for and history behind the global adoption of IPSAS
Recap the progress that has been made in adopting IPSAS in Nigeria
Appreciate the benefits of adopting IPSAS

IPSAS - International Public Sector Accounting
A set of accounting standards issued by the
International Public Sector Accounting Standards
Board (IPSASB) for use by public sector entities
around the world for the preparation of Financial

IPSASs are professionally developed, high quality,
global accounting standards that require accounting
on cash or accrual basis

Increasing collaboration, trade and commerce amongst the countries of the world have
necessitated increased uniformity in the standards guiding financial statements
For the statement to remain comprehensible and convey the same information to users
across the world
Hitherto, countries of the world have defined and set the standards of financial reporting
in their individual territories.
The need for the development of unified accounting standards has been the primary driver of
the International Public Sector Accounting Standards, for public sector financial reporting.
The commercial entities across the world are moving towards International Financial Reporting
Standards (IFRS), governments are harmonizing with International Public Sector Accounting
Standards (IPSAS).

Nigeria, a leading African nation with a population of over 150million people and a
foremost OPEC member, with a public sector dominated economy, has identified the
need to consider the value proposition of the IPSAS and implement same in order to
remain relevant in the comity of nations.
An increasing number of governments and intergovernmental organizations produce
financial statements on the accrual-basis of accounting in accordance with IPSAS or
IPSAS-similar standards.
The current economic crisis and the severe fiscal constraints being experienced by
many governments has underscored the need for governments to transparently report
all their assets and liabilities.

IPSAS facilitates the alignment with best accounting practices through the application of credible,
independent accounting standards on a full accrual basis.
It improves consistency and comparability of financial statements as a result of the detailed requirements and
guidance provided in each standard.
Accounting for all assets and liabilities improves internal control and provides more comprehensive
information about costs that will better support results-based management
The information contained in accrual accounting IPSAS financial statements is considered useful,
both for accountability and for decision-making purposes.
Financial reports prepared in accordance with IPSAS
allow users to assess the accountability for all resources the entity controls and the deployment of those
assess the financial position, financial performance, and cash flows of the entity and
make decisions about providing resources to, or doing business with, the entity.
Efforts at the International convergence of accounting standards dates back to late
1950s in response to post World War II economic integration and related increases in
cross-border capital flows.
The initial efforts focused on harmonization- reducing differences among the
accounting principles used in major countries of the world.
By 1990s, the focus shifted from harmonization to the concept of convergence with
greater interest on the development of a single set of high-quality, international
accounting standards that would be used in countries of the world.
The International Accounting Standards Committee (IASC), formed in 1973 was the
first international standards-setting body.
In 2001, the IASC was reorganized to become the International Accounting Standards
Board (IASB) - an independent international standard setter.
By 2009, over 100 countries of the world had adopted the international
accounting standards and either require or permit the use of standards issued by
IASB or a local variant of such standards.
The FASB of the U.S. and the IASB have been working together since 2002 to
improve and converge U.S. GAAP and IFRS.
It is hoped that by 2015, there will be a single set of reporting standards between
the FASB and IASB.
As of 2009, Japan and China were also working to converge their standards with
the international accounting standards.
Countries that have adopted the IFRS for her private sector organisations have
also been seen to adopt the IPSAS for her government agencies.

The following are the major timelines in the evolution of the international
convergence of accounting standards:

Need for International
Accounting & Auditing
Standards is identified
International Study
Group is formed
Accounting Standards
Committee (IASC) is
IFAC is founded
IASC embarks on its
comparability and
improvements project
IASC undertakes a
Core Standard
Program: Identifying
what constitutes the
core standards
IASC is reconstituted in
the International
Accounting Standard
Board (IASB)
The European Union
adopted the
international standards
issues a Memorandum
of Understanding
The Nigerian FEC
issues a directive on
the adoption of IPSAS
in Nigeria
Approximately 113 countries have adopted or are in the process of adopting IPSAS. The
Seven countries that are fully accrual basis are, New Zealand, Australia, USA, UK, Canada,
France and Columbia
Implementation of IPSAS or IFRS is already underway in other international organisations
and UN organisations. World Bank and IMF prepare their financial statements in accordance
with IFRS, while UN adopted IPSAS in 2010.

the IPSAS maintain the accounting treatment and original text of the IFRS, unless there is a
significant public sector issue that warrants a departure.

The IPSAS are also developed for financial reporting issues that are either not addressed by
adapting an IFRS or for which no IFRS has been developed.

For the purposes of IPSAS, the public sector refers to national governments, regional
governments (e.g., state, provincial, and territorial), local governments (e.g., town and city),
and related governmental entities (e.g., agencies, boards, commissions, and enterprises).

The IPSAS are intended to be applied in the preparation of general-purpose financial reports
that are intended to meet the needs of users who cannot otherwise command reports to
meet their specific information needs

Strategic plans and reports become more meaningful as increased
transparency provides a basis for member states to assess whether resources
are being used effectively and efficiently.
IPSAS supports efficient internal controls and results-based management.
Adoption of IPSAS will provide a unified approach to managing all funds-
regular; specific; voluntary; trust and service funds, and will allow for
benchmarking with similar institutions and forecasting future flow of all
resources to the organization.
To achieve FGNs of strengthening Governance and Accountability, reduce corruption and
deliver services more effectively and efficiently, the Government received a credit from the
International Development Association under the Economic Reform and Governance Project
to conduct a Gap analysis between the International Public sector Accounting Standard (IPSAS) and
relevant National Standard and Reporting System with a view of improving the state of Public
Financial Management and Reporting.
The specific objective of the assessment is to develop a report for the countries authorities
which will among other includes:
Provide the Government and other stakeholders with a common well based knowledge as to
where the country stands against the internationally developed norms of Public sector Financial
Assess the consequences of the prevailing variances;
Provide a basis for measuring interim compliance Chart paths for improved compliance with
IPSAS cash basis .
Provide a road map for migration to accrual based IPSAS.
The adoption of a firmly based Accounting, reporting and auditing framework is no doubt a solid
value proposition as it provides for competent Financial Reporting and transparency.
Consequently a transition plan was announced in July 2010 by the Federal Executive Council to
adopt the provisions of the IFRS and IPSAS for the private and public sector respectively. A
road map for implementation was launched in September 2010

Benefits of the Transition With IPSAS gap analysis and the bridging of the
identified gaps in Nigeria,
the users of Financial information will be able to benefit from a common set of
Public sector accounting and Auditing standards issued by International
Federation of Accountants and International Organization of supreme Audit
institutions that are consistent, coherent and understandable.
Migration to IPSAS based Standards will enable the provision of more
meaningful information for decision makers and Improved consistency, quality
and credibility of the Financial Reporting System
Strategic plans and reports prepared will be more meaningful as increased
transparency provides a basis for development partners and legislature to
access whether resources are being used effectively and efficiently. Thus
Enhancing Accountability, transparency and harmonization
The implementation of IPSAS based Standards makes it possible for efficient
internal controls and results based management
Its adoption has provided the country with a unified approach to managing all
funds and it has also ensured benchmarking with similar institutions and
forecasting future flows of all resources to the public organizations
In July 2012, the Office of the Accountant General of the Federation
and the Financial reporting Council of Nigeria resolve to collaborate
in promoting the uses of Accounting Standards in the Public Sector.
A FAAC sub committee on the adoption of IPSAS was constituted.
The committee had been working in creating awareness among
stakeholders as well as organising capacity building interventions
for various officials at level levels in the private sector among other
strategic activities
In January 2013, the decision to shift IPSAS transition date to
January 1
, 2014 for Cash Basis IPSAS and January 1
, 2016 to
Accrual Basis IPSAS was announced
Towards this end, A national chart of accounts has been developed
and communicated to officials at all levels of government

Sub Committee Deliverables
Unified National Chart of Accounts
Users Manual of the National Chart of Accounts
Format for General Purpose Financial Statements (GPFS) IPSAS Cash Basis including statutory
reports, statistical reports , performance reports and accounting policies
Format for General Purpose Financial Statements (GPFS) IPSAS Accrual Basis including
statutory reports, statistical reports , performance reports and accounting policies
IPSAS Compliant Budget Templates

These templates have been approved by FAAC for use by the three tiers of

In order to ensure seamless and successful implementation of the various
activities for the adoption of the provisions of IPSAS in the country,
Implementation Committees were constituted at the Federal, State and Local
Government Levels.

Political Benefits Economic Benefits
Accountability: IPSAS requirement for
increased disclosure in accounting reports
increases the level of accountability in
Transparency: where IPSAS is adopted, full
disclosure become an imperative of public
sector accounting government
Improved Credibility/Integrity: government
accounting/reporting are not credible if
government itself decides the rules
Political Leverage: Government may be
required to provide accounting information by
a higher or legal authority e.g. UN, ICJ, etc
International Best Practice &
Comparability: IPSAS seeks to ensure that
financial statements prepared in the basis of it
are internationally comparable
Comparable information assists the
stakeholders in assessing how well their
resources have been utilized.
Greater Disclosures: IPSAS encourages full
disclosure, which beams the light of
transparency, integrity and accountability

Building confidence in Donor Agencies and
Lenders: Adoption of IPSAS increases the
countrys eligibility to access economic benefits
from donor agencies (USDP, USAID etc), private
sector financial institutions (Bonds and Bonds
rating agencies), official institutions (IMF and
World Bank) etc
Improved Service Delivery: As a result of
greater accountability and transparency,
adoption of IPSAS will improve Value for Money
(VfM) expenditure
Aggregate Reporting: Adoption of IPSAS will
ensure a holistic reporting of government
financial transactions and positions
Enhanced Public-Private Partnership
arrangements: collaborative efforts between the
public and private sectors is enhanced with both
are running on similar set of accounting
standards- IPSAS and IFRS
Economic Leverage: Sovereign nations are
induced with the prospect of commensurate
benefits. Government susceptible to economic
leverage are more likely to adopt IPSAS.

Political Benefits Economic Benefits
Increased Control of Public Agencies: the increased
disclosure, transparency and comparability IPSAS
engenders will permeate the public sector bringing
about greater accountability
Enhanced Implementation of the Freedom of
Information (FOI) Act 2011: The accountability and
transparency requirements of IPSAS are consistent
with and supports the provisions of the Nigerian FOI
Act 2011 which seeks to promote access to
government information

An IPSAS compliant economy keeps abreast of the
latest market trend thereby become competitive in the
global market place
Increased Cross-border Investment and Foreign Direct
Investment: the adoption of IPSAS will put the country on
the same accounting pedestal as several other countries of
the world, increasing the propensity to generate more
cross-border and foreign direct investments through
greater transparency and a lower cost of capital for
potential investors

Political will and ownership
Technical capacity- training, re-training and personnel
Public Orientation and Enlightenment
Automated Information Systems
Financial Ability
Modular implementation
The global adoption of IPSAS is based on facts and values hinged on the
1. Accountability: while the private sector will regard management as being
accountable solely to business owners, public managers are accountable
to multiple stakeholders and more directly to elected officials and
ultimately to the people
2. Transparency: IPSAS promotes openness and access to information by
citizens and their understanding of decision-making mechanisms, thereby
bridging the divide between the government and the governed
3. International Benchmark: IPSAS has become the global accounting
language of countries around the world, necessary for information sharing
and comparability
4. Aggregated Reporting: IPSAS encourages an all-encompassing financial
reporting where consolidation is not the only level of aggregation. It
encourages columns for governmental and business activities revealing
the true and actual position of governments finances

The difference between cash and accrual basis of
accounting stem from the basis of accounting
adopted by the reporting entity.

Cash Basis of accounting is the recognition and
recording of income and expenses only when cash is
actually received (income) and expenses actually
paid (expenditure).

Whilst accrual basis of accounting recognises
transactions and events when they occur ( and not
only when cash or its equivalent is received or paid
Cameralistic/cash-based accounting has been the mainstream
accounting and financial information system in the sector for many
years, with some governments using and preferring this method.
Although cash accounting has its merits, it gives no information
concerning liabilities and the future benefits for assets,
accountability and decision-making.
Accrual accounting was introduced as an alternative to cash
accounting to improve the financial management of public sector
Between the opposite poles of cash and accrual accounting,
two other bases of accounting were identified by the International
Federation of Accountants (IFAC):
modified cash accounting and
modified accrual accounting.

Cameralistic/Cash based Accounting
Transactions and other events are recognized only when cash is received or paid.

Modified Cash Accounting
Transactions and other events are recognized on a cash basis during the year. Additionally,
unpaid accounts and/ or receivables are also taken into account by keeping the book open for
a month after the years end.

Modified Accrual Accounting
Transactions and other events are recognized on an accrual basis,but certain classes of assets
or liabilities are not recognized. A typical example is the expensing of all non-financial assets
at the time of purchase.

Accrual Accounting
Transactions and other events are recognized when they occur, meaning they are recorded in
the accounting records and recognized in the financial statements of the periods to which they

Accrual accounting is an accounting methodology under which
Transactions are recognized as the underlying economic events occur ,regardless of the timing of the related
cash receipts and payments. Following this methodology, revenues are recognized when income is earned,
and expenses are recognized when liabilities are incurred or resources consumed.
This contrasts with the cash-accounting basis under which revenues and expenditures are recognized when
cash is received and paid respectively.

Accrual accounting in the context of the public sector would generally imply
the recording of transactions on an accrual basis,
and the preparation of accrual-based financial statements for the government as a whole.
systematically determining the full costs of a government's activities.
Full cost information (including noncash costs such as depreciation) is essential for assessing the efficiency of government services and
thus is a key element of any public sector performance management framework.
requires the preparation of government balance sheets,
and this involves the identification measurement, and periodic reporting of government assets and
it requires governments to adopt a more systematic approach for identifying,
keeping track of, and valuing all assets and liabilities.
encourage the development of systems (such as asset registers) and procedures for
planning and management of assets and liabilities.

The introduction of accrual accounting, particularly when accompanied by related reform
initiatives to improve public sector performance, can promote a general improvement in the
management of assets,
as well as a heightened awareness of the cost of holding and deploying assets.
In a similar fashion, the requirement to identify, measure, and report government liabilities, and the resulting enhanced transparency, can foster better
financial planning to ensure that the government is able to meet its liabilities as they fall due.

Accrual accounting helps to generate behavioral changes on the part of budget decision makers
and managers.
For example, the accrual based additional information they receive may prompt legislators to ask ministers and bureaucrats questions that they otherwise
would not have asked.
Such questions may concern, for example, the status and role of fiscal policy, or the use of public resources, including capital assets.
In this way, an accrual accounting system may facilitate changes in the attitudes and behavior of ministers and civil servants, and hence to changes in
government policy, that benefit the citizens.
The progress toward accrual accounting is good news for financial reformers,
who have long held the view that the accrual approach is better suited for financial management, accountability, risk management and decision-making.
his is due to the fact that it provides better insight on the financial position of governmental bodies, liabilities and the future benefits of assets.
However, research have shown that the adoption of a single accrual method is some way off as
most entities consider the IPSAS as more of an aspiration than a feasible destination.

The global financial crisis and in particular, the crucial role that sovereign debt recognition has
played would seem to be a teachable moment for focusing the attention of leadership on the
advantages of accrual accounting..

An acceptable cash accounting based system
Improving existing systems and processes
Political Ownership
Executive championing and Legislative backup and utilisation
Technical Capacity
Core accounting and IT Skills, Consider Outsourcing
Integrated Systems
Proven functionality in General Ledger, Purchases, accounts payable, assets management
Sequencing of reform steps
Supportive in a broader public sector reform agenda budgeting, etc
Implementation timeframe and sequencing
Spaced reforms of budget classification, cash accounting, and fiscal reporting
Implementation staging by business areas
- From simple to complex transactions..financial before non financial assets and liabilities
Implementation staging by sector or size, and pilot studies
State owned enterprises before full government reporting

Thank You