Public sector accounting practises: A global view

Dr BK Mukhopadhyay *

To start with it is better to quote International Olive Oil Council's Felix Madrid Garcia ["Developments and challenges in public sector accounting", Journal of Public Budgeting, Accounting & Financial Management, Vol. 26 Issue: 2] : 'What could be dubbed traditional public sector accounting was adequate for the public sector as it existed up to the late 1980s. When it became evident that this type of accounting no longer sufficed, attention turned to seeking a role model in business accounting that differed significantly from public sector accounting.

Despite the move of public sector accounting towards business accounting practices, some issues still remain unresolved. The accounting treatment of fixed assets is the question which has perhaps generated the most literature. Today much ground has been covered; however, to be modern and effective, public sector accounting has still to grapple with three important challenges: standardisation and accounting convergence; consolidation of financial statements; and management indicators and additional information for disclosure.'

The Global View

Needless to say that public sector accounting refers to an accounting method applied to non-profit pursuing entities in the public sector - including central and local governments, and quasi-governmental special corporations - for which the size of profits does not of course provide an effective measurement for evaluating performance.

This, in particular, is relevant in the context of new age public management in as much as it is the most important approach not only for recording but also for reporting management acts, that help public managers to achieve their objectives related to internal and external reporting so far as accountability purposes are concerned. It is heartening to locate that International Bodies are endeavouring a lot to better the coming days' through practical, realistic and achievable work outs.

The standard setting exercises are targeted to help the professional leading to strengthen economies and inching forward. It is a well known fact today that the International Public Sector Accounting Standards Board. (IPSASB) works to improve public sector financial reporting worldwide through the development of IPSAS, international accrual-based accounting standards, for use by governments and other public sector entities around the world.

IPSASB wants to Sharpen Focus on Public Financial Management and Benefits of IPSAS Adoption and few months back published its Strategy and Work Plan 2019-2023: Delivering Global Standards. Inspiring Implementation , which will shape the Board's work and priorities for the next five years. In order to ensure it delivers in the public interest, the IPSASB's strategic objective is: strengthening Public Financial Management (PFM) globally through increasing adoption of accrual-based IPSAS.

Delivered through two main areas of activity, both of which have a public interest focus:
o Developing and maintaining IPSAS and other high-quality financial reporting guidance for the public sector;
o and Raising awareness of IPSAS and the benefits of accrual adoption.

So far as financial instruments are concerned it is IPSAS 41, Financial Instruments, that establishes new requirements for classifying, recognizing and measuring financial instruments to replace those in IPSAS 29, Financial Instruments: Recognition and Measurement. It is IPSAS 41 which provides users of financial statements with more useful information than IPSAS 29, by:
o Applying a single classification and measurement model for financial assets that considers the characteristics of the asset's cash flows and the objective for which the asset is held; o Applying a single forward-looking expected credit loss model that is applicable to all financial instruments subject to impairment testing; and
o Applying an improved hedge accounting model that broadens the hedging arrangements in scope of the guidance.

The model develops a strong link between an entity's risk management strategies and the accounting treatment for instruments held as part of the risk management strategy. Reference must be mentioned here regarding IFAC [International Federation of Accountants] which is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies.

IFAC is comprised of over 175 members and associates in more than 130 countries and jurisdictions, representing almost 3 million accountants in public practice, education, government service, industry, and commerce. IFAC's vision and purpose reflect the strategy that supports a more agile IFAC in coping with a rapidly changing environment, including the uncertainty created by the Monitoring Group's review of international standard-setting arrangements.

The strategic actions are grouped under its three strategic objectives and leverage IFAC's unique position. They will be regularly reviewed to ensure they are responsive to challenge and opportunity. The Strategic Plan concludes by defining success, providing the stakeholders with a view of our priorities and key targeted outcomes for the two-year period.

So, changes have been there for betterment of the system, strengthen institutions, which, in turn, help advancing the economies. Examples are not far to seek. In Ghana gradual shift has been noticed from cash accounting to accrual accounting practices (modified), including computerization of the entire public sector accounting and reporting processes.

Indeed, the World Bank and IMF sponsored reform (PUFMARP) instigated many of the major developments in the public sector accounting practices, including the adoption of accrual accounting and deployment of integrated financial management information system.

In Barbados changes in public sector accounting practices were long felt in as much as in the previous accounting systems it was located that the same suffered from inefficiency and ineffective revenue collection system, outdated financial and budgetary reporting systems, and weak management of public expenditure.

Concerns were raised about the inadequate accounting and auditing systems (e.g poor internal controls), poor budget formulation, poor accountability and transparency, lack of compliance with accounting and financial management procedures, leading to untimely and tardy submission of financial reports.

Time Changes, So Also The Practises

It is all about accepting the change, adapting to the change. Obvious enough it is to be seen whether proposed changes could better the situation, implementable, measurable and a realistic one, environment-friendly, among others. In doing so, a stage-wise process implementation can give better results. All of the accounting and auditing staff should be trained on a continuous basis. Such a training has to be purposive to the specific accounting practices (e.g accrual basis of accounting) to be ultimately effectively utilised in the public sector.

Adequate training, backed by effective communication, can help assist in keeping staff up to-date about purpose and details of proposed modifications / amendments, related legislations, accounting and auditing standards that are relevant to the process. Thus, proper planning and orientation could lead to all persons being sensitised and trained in phases. A multi-stage approach could cause minimal disruption.

The procedures, rules and regulations governing the financial management process are to be outdated. Secondly, the financial records of public sector's organisations and departments properly followed to ensure timely and accurate acquisition of financial information necessary for proper planning and decision-making, assuring the public efficient and authorised usage of public funds and resources.

It is better not forgotten that Government accounting must honour the transparent process of recording, analyzing, classifying, summarizing communicating and interpreting financial information about government in aggregate and in detail that reflect transactions and other economic events involving the receipt, spending, transfer, usability and disposition of assets and liabilities.

So adhering and adapting to the time-tuned best practices is most welcome!