IFAC-World Bank-AFAA webinar: Moving from Cash-basis to Accruals-basis Accounting

Editor's Notes

• #4: Hatem (5 minutes): Ladies and gentlemen, distinguished participants, in my capacity as the Chairman of AFAA, I would like to convey to all of you participating in this event my heartfelt welcome. It is my pleasure to give a few opening remarks at this important event co-hosted between IFAC, the World Bank and AFAA. I want to thank our audience for coming together and considering how best to advance the accountancy profession in the MENA region (but also globally as these topics are relevant for all). We have over 500 participants registered for the event today, representing: Senior Government officials Representatives from Supreme Audit Institutions Heads of Professional Accountancy Organizations AFAA & IFAC  Members The theme for the webinar today is the transition from cash-basis to accrual-basis accounting in MENA including the challenges and exploring how to overcome them. The transition from cash-basis to accrual-basis accounting can be a difficult one, but this conversation matters to all of our stakeholders in every country, because advancing the accountancy profession means advancing the public interest. At AFAA, like IFAC, our members are Professional Accountancy Organizations (PAOs) - we have a key role in any effective transition, given our central roles in business, the public sector, and across society. We have the capacity to facilitate the production of high-quality financial information by our members. And this is a topic that is important for all, including the donor community which benefits through more reliable country systems, improved transparency and accountability, strengthened systems of monitoring and evaluation, and reliable information that facilitates donor decision making. With that, I would like to welcome Jens Kristensen, Practice Manager, in MENA at the World Bank, to provide some important opening remarks. JENS speaks
• #8: Method - Engaging over 30 experts from public finance community from IFAC, ACCA, and the IPSAS Board. 3 roundtable discussions covering UK, Aus, Canada – plus 12 semi-structured interviews with experts from jurisdictions that had implemented accruals. I will focus my contributions on 3 areas 1st, we have a few slides setting out the current reporting bases around the world 2nd, I’d like to share some of the benefits of accruals identified by our experts 3rd, we also collected lessons learned from this expert community on how to maximise the benefit of accrual information Then, I’ll close off with a final slide sharing some ways for you to continue engaging in our work.
• #10: A government’s ability to do anything depends on its public financial management (PFM) system. This is how it prepares budgets, obtainsthe financing, spends the money, and keeps its accounts. When you think about it, it is extremely impressive for governments to be able to get money into remote villages to pay school teachers.
• #11: Over half of countries using accruals by 2025. This comes from IFAC 2021 International Public Accountability Index report. Important that budgeting and accounting are BOTH on accrual basis
• #13: Transparency Consistent production of audited accounts can provide additional transparency, though this must be undertaken with caution – as a number of experts acknowledged that increased complexity could reduce effective transparency Fiscal credibility enhance comparability internationally (a good case for aligning with IPSAS) Certain jurisdictions shared that creditors expressed interest in the accrual accounts during the last financial crisis – and that this additional information help to prevent further credit rating downgrades
• #14: Transparency Consistent production of audited accounts can provide additional transparency, though this must be undertaken with caution – as a number of experts acknowledged that increased complexity could reduce effective transparency Fiscal credibility enhance comparability internationally (a good case for aligning with IPSAS) Certain jurisdictions shared that creditors expressed interest in the accrual accounts during the last financial crisis – and that this additional information help to prevent further credit rating downgrades
• #16: Now this takes us on to the last area I would like to cover this morning And that is the lessons learned by the global community of experts on HOW BEST TO CREATE AND USE the DECISION-USEFUL INFORMATION that arises from accruals In our analysis of the transcripts we saw a few key enablers of d-u info.
• #19: Starting with a pre-recorded video from David Watkins who is currently in IPSASB meetings this week, followed by a live presentation from Laura.
• #40: CHALLENGES Lack of awareness Successful IPSAS adoption requires the understanding, education, and engagement of key stakeholders which is not easy because the Executive Arm of government needs to be engaged and supportive of the process along with the public accounts committee (or equivalent). So stakeholder engagement is key to increase awareness. Legislative Barriers Legal changes are required, as well as new regulations and governance practices to accommodate IPSAS implementation which presents a significant challenge. Resistance to Change IPSAS adoption requires cultural change which is a significant challenge. The best way to overcome this is effective project management, supported by change management capability and relevant experience. Effective communication is also essential. Skills capacity Governments and public sector organizations may not have the skills, competence and staffing levels needed; so, to overcome this, it would be helpful to have a program of training to raise skills, recruit and retain IPSAS-focused and skilled staff. Implementation Cost Costs will be incurred from awareness raising activities, training, the use of consultants, IT upgrades, and the development of appropriate guidance and translation tools. For these reasons, countries in MENA may need to adopt IPSAS in conjunction with a wider public financial management improvement program, which requires additional investment. PAOs can help to raise awareness of the need for transparent financial reports in the public sector, including providing training on accounting standards. Donors can support the professionalization of public sector financial management Audit firms and other stakeholders can assist with public finance management training, expertise and capacity building
• #41: PAOs can leverage the a) knowledge gained through development of systems of training, education, and preparation of accountancy professionals; b) experience assisting members in transitioning from national to international standards; c) and international insight into best practices in quality control and investigation and discipline to support public sector efforts to professionalize and enhance the capacity of their workforces, adopt and implement international standards, and develop internal processes for quality control within the government. When PAOs work together through regional organizations they achieve greater development gains than when they work alone. Regional accountancy organizations can have a strong impact on the development of national-level PAOs. By combining regional knowledge, expertise, and ability at the regional level, they offer opportunities for mutual support and assistance to individual national-level efforts in PAO development. In MENA, some PAOs struggle to identify how they can support the public sector and their own members as many employment opportunities occur in the public sector. Some PAOs in the region plan or currently offer IPSAS certifications to public sector employees to support strengthening public financial management. Most PAOs use their best endeavors to raise awareness of the importance of adoption and implementation of IPSAS, engage in dialogue with public sector standard setters to highlight the benefits if IPSAS, and/or undertake research into the lessons learned and best examples of adoption and implementation.
• #42: In Jordan, the Ministry of Finance is responsible for adoption of public sector accounting standards which are modified cash-basis at the moment. But there is now an IPSAS implementation roadmap in place, with implementation assistance being provided by the United States Agency for International Development under Jordan’s Fiscal Reform Project. Significant progress has been made in supporting the Government of Jordan’s application of the cash-basis IPSAS. The project envisions a gradual transformation from cash basis to accrual basis of IPSAS accounting. IASCA signed a Memorandum of Understanding with the Jordanian Association of Certified Public Accountants to support IPSAS implementation through the project and both bodies have been providing support producing seminars/training courses on the subject; (b) giving consultancy and advice in implementing each standard; (c) recommending the adoption of best accounting policies that will serve the Jordanian economy and governmental budget; and (d) providing any assistance to the project as needed. IASCA also promotes and raises awareness by making available Arabic translations of the standards in a timely manner and provides updates via its website on IPSASB pronouncements. It has established dialogue with professional accountancy organizations in the countries of the region to enhance knowledge sharing on IPSAS adoption and implementation. In addition, IASCA offers courses and hosts conferences and lectures on IPSAS throughout the Arab world. In 2018, IASCA launched its IPSAS certification program, IPSAS Expert. --- Now to Palestine. The Palestinian Ministry of Finance is responsible for issuing public sector accounting policies, which are implemented by the Palestinian National Authority (PNA). IPSAS have not been adopted, and there are currently no known plans for adoption. BUT, the Palestinian Association of Certified Public Accountants (PACPA) has been very active in raising awareness amongst the entities responsible for adoption and implementation of IPSAS. For example, PACPA sent a formal letter  to the President of Palestine explaining the importance and the positive effects resulting from the adoption of IPSAS. It is also sent the President a copy of the translated IPSAS. PACPA has received a positive response from the State Audit & Administrative Control Bureau regarding the formal letter that was sent. Also, PACPA has established an internal committee to promote adoption of IPSAS and collaborates with regional and international institutions to gather information and cases on IPSAS adoption and implementation experiences to share with the Palestinian National Authority. PACPA also organizes workshops and publishes articles on IPSAS-related topics for its members.