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2013/SOM3/EC/PD2/001a

Benefits of IPSAS
Submitted by: International Public Sector Accounting Standards Board

Policy Discussion on International Public

Sector Accounting Standards
Medan, Indonesia
28 June 2013
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Benefits of IPSAS

Dr. Guohua Huang

IPSASB Member
June 2013

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Overview

• High quality of government financial

reporting is required

• Accrual accounting and reporting matters

• Why IPSAS?

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What do governments do?

• 1. Provide public goods and services

– Roads, education, police, defense

• 2. Insure Socially
– Social security retirement, disability, disasters

• 3. Regulate
– Corporate, trade, environment, traffic

• 4. Employ workers
– Clerks; soldiers; teachers; police

• …

Page 3

Government finance

• Expenses
– public goods, employee benefits

• Revenues
– taxes, non-taxes

• Liabilities
– Treasury bonds

• Assets
– Roads, buildings, natural resources

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Government activity accounts for a major part of GDP

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Government activity accounts for a major part of GDP

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Government Financial Reporting is relevant

• Citizens and other resource providers want accountability

• Decision makers need a reliable basis for their decisions

– Lenders, creditors, donors
– Taxpayers

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Government Financial Reporting is relevant

• IMF-FAD addressing issue of transparency in a

comprehensive paper
– Fiscal transparency does matter
– Harmonization of Accounting and Statistics needed
– ROSC initiative should be followed up

• G20 Finance Ministers press release February 2013

– Strengthening government balance sheet →looking at financial
reporting to improve debt management

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Government Financial Reporting is relevant

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Government Financial Reporting is relevant

• Significant correlation between PEFA indicator (PI25)

and overall PEFA performance (Vany, 2010)

• Main advantages:
– Financial planning
– Financial control, debt, investment and liquidity management
– Reliable base for audit

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Accrual accounting and reporting matters

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Accrual VS Cash

• Accrual accounting is the only generally accepted

information system that provides a complete and reliable
picture of the financial and economic position and
performance of a government (EC 2013)
– Full picture of assets and liabilities
– Reliable information about costs and income

• Cash accounting and reporting?

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Accrual accounting and reporting is needed!

• Just a few headlines

– Greece: “Strong evidence for manipulation of the deficit and debt
data presented”
– Germany: “55 billion accounting mistake reduces debt levels”
– Almost everywhere: “Pension Liabilities not included …”

• Who’s next to follow?

• But it is clear: Government financial management needs
accrual accounting and reporting!

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Challenges faced

• Some adopt only cash accounting and reporting

– Missed assets and liabilities
– Allowed window-dressing

• Some adopt different accrual accounting and reporting

standards
– Impacts on comparability, transparency, accountability

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Why IPSAS?

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IPSASs are the international financial reporting

standards for public sector

• 32 Standards approved (accrual basis) covering all main

areas of government activity, 1 cash basis standard

• The standards are designed for Public Sector entities

other than Government Business Enterprises (which
should use IFRS), i.e. IPSASs are for non-commercial
organizations
– International governmental organizations
– National governments, including controlled entities such as
ministries or agencies
– Subnational governments, including controlled entities

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IPSASs are the international financial reporting

standards for public sector

• «Transaction Neutral Approach»: If transaction is the

same in private and public sector, the accounting should
be the same
– Substantial convergence of all relevant IFRS at December 31,
2009 with IFRSs at December 31, 2008

• Standards include sector specific standards where

transactions are specific to the public sector
– Disclosure of Information about the GGS (Financial Statistics)
– Revenues from Non-Exchange Transactions (Transfers and Taxes)
– Presentation of Budget Information
– Service Concession Arrangements: Grantor

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Converged with IFRSs

IFRS
(Private Sector)

• Terminology
• Guidance for Public S.
• Issues of the Public S.
• Examples from the PS
IPSAS
(Public
Sector)

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Public sector is different: Key characteristics

• Volume and Significance of Non-Exchange transactions such

as Taxes and Transfers, or the provision of goods and services
in a non-market environment
• Importance of Budget
• Nature of PPE: To provide goods/services – not cash
generation, often very specific nature
• Responsibility for Heritage
• Longevity of public sector entities
• Regulatory role of government
• Ownership or control of rights to natural resources
• Statistical reporting

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Who is IPSAS Board?

• Independent Accounting Standards Setter under IFAC

• Governance is the same as for other independent standard
setters (e.g. IAASB), except for the lack of a public interest
oversight board
• 18 members, 14 from Public Sector, 2 from NPO, 2 from
firms (8 from APEC members)
• 10 international organizations with formal observers status,
including IMF, World Bank, EU
• 7 staff, mainly based in Toronto/Canada
• Diverse funding by IFAC (approx 50 percent) and various
Voluntary Contributions from Governments and Observers
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IPSASB strategy themes

Governance not a strategic theme, but an area for

discussion, consultation and change

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Momentum in adoption

• About 40 countries are adopting accrual basis IPSAS;

including France, South Africa, Switzerland, Russia, Israel,
Slovakia, Brazil
– Some adopt IPSAS directly (e.g. Switzerland, Slovakia, Austria,
Estonia, Lithuania, Chile)
– Some adopt IPSAS through national standards (e.g. South Africa,
Brazil, Indonesia, Malaysia, Spain, new New Zealand)
• Also sub-national governments are adopting IPSAS when
the decentralized structure allows them to move
independently – e.g. Prefecture of Tokyo, State of Hesse,
States of Zurich/Geneva – with Berne/Basel/Luzern on
their way
• Entire UN system, OECD, NATO, Interpol and EC
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Momentum in adoption

• A group of about 10 countries are using IPSAS as a

reference
– Some with a long tradition in standard setting: Australia, Canada,
United States (both FASAB and GASB), UK
– Some of them are virtually compliant with IPSAS (namely Australia)

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And what is the value added of using IPSAS?

Adoption and implementation of Accrual Basis IPSAS

adds value
• Direct value added of fair presentation under IPSAS:
– Transparency and Accountability: Governments are
accountable to citizens, but increasingly also to other
stakeholders, like the economy
– Decision making: Is improved especially in areas with
capital expenditure, e.g. government interventions
(loans, asset purchase, nationalization) and non-
exchange transactions.
• Both are key areas for economic prosperity
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And what is the value added of using IPSAS?

Adoption and implementation of Accrual Basis IPSAS

adds value
• Strengthen government financial management
– Identify non-bond types of debt more easily and
limit/reduce that; debt shifting is effectively prevented
– Assets are more actively managed, leading to
disinvestment or better usage
– Enhance long term fiscal sustainability and service
performance
• Accounting and reporting are keys for sound financial
management

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And what is the value added of using IPSAS?

Adoption and implementation of IPSAS adds value

• Value added through consequential effects – obviously not
exclusively attributable to IPSAS:
– Reputation: Rating agencies take accounting/reporting
into consideration as one of the key elements. Capital
markets are increasingly on alert about financial
reporting issues of governments following the GFC.
– Motivation of employees involved.
• Reputation effects are likely to gain importance in the
aftermath of the GFC

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Questions and Discussion

• Visit our webpage http://www.ipsasb.org

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