PART 1 MODULE 1 ACHIEVING RESULTS WHAT MAKES

PART 1 MODULE 1 ACHIEVING RESULTS, WHAT MAKES ACHIERVERS TICK? 1

INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS) Implementation of international Best Practices (IPSAS): Benefits of adopting and implementing accrual based IPSAS. By CPA Ibrahim Ngugi Gatimu +250 782 117 222, +254 708 676 782 2

INTRODUCTION TO INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS) International Public Sector Accounting Standard Boards (IPSASB) Focuses on: 1. Public sector Accounting and financial reporting needs 2. Issuing and promoting benchmark guidance 3. IPSASB is responsible for issuing IPSAS. 3

INTRODUCTION TO INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS) TWO TYPES OF IPSAS § Cash basis: Recognizes income when it is received and expenses when they are paid for. It is simple. § Accrual Accounting: Recognize revenue fulfilled even when not received and expenses even when not paid for. § Most IPSAS lean to accrual basis that aligns with IFRS. 4

Cash basis IPSAS § Allows for transparent financial reporting of cash receipts, payments and balances. § The IPSAS Board encourages governments to progress to the accruals basis of accounting. 5

Cash basis IPSAS § If a government uses the cash basis, IPSAS Board suggests the adoption of the cash-basis IPSAS Standard. § Financial statements under the cash basis show the sources of cash raised during the period, the purposes for which cash was used, and the cash balances at the reporting date. 6

Cash basis IPSAS § IPSAS Cash Basis Financial Reporting is in two parts: § Part 1: Addresses mandatory reporting requirements, and § Part 2: Sets out disclosures to support information reported under Part 1. 7

Cash basis IPSAS § The standard encourages an entity to voluntarily disclose accrual-based information. § While moving from cash accounting to accrual accounting may include particular accrual-based disclosures in the process of transition. 8

Cash basis IPSAS Financial statements under the cash basis consist of: § Statement of cash receipts and payments § Accounting policies and explanatory notes –should include descriptions, detailed schedules, and analyses of amounts shown on the face of the statements. 9

Cash basis IPSAS § Comparison of original budget, revised budget, and actual amounts on a comparable basis (only when the entity makes publicly available its approved budget) – IPSAS 24 will apply for such. § When an entity elects to disclose information prepared on a different basis (e. g. , modified cash, modified accrual, or full accrual) such information should be disclosed in the notes to the financial statements. 10

Cash basis IPSAS § Key Disclosures include: § § § Cash balances held but not available at year end. Undrawn borrowings and loan facilities. External assistance received – loans and grants. External assistance debt rescheduled or cancelled. Significant terms and conditions of external assistance – loans or grants not complied. 11

Modified Cash basis IPSAS § The following are the modifications to cash basis: i) Prepaid expenditure/advances are treated as receivables Commitments which are outstanding on the date of the closure of the fiscal year are recognized as accounts payable for that specific fiscal year iii) Income earned but not yet received at the end of an accounting period is recognized as accounts receivable ; ii) 12

Modified Cash basis IPSAS § The following are the modifications to cash basis: iv) Loans and advances are recognized as income at the time of disbursement and are expensed at the time of payment. However, interest payable on public debt is accrued; The IMF gave the Go. R a launch pad towards migration to accrual basis of accounting. ; 13

Cash basis IPSAS Migration to Accrual from Cash basis IPSAS: § An entity which intends to migrate to the accrual basis of accounting is encouraged to present a statement of cash receipts and payments in the same format as that required by IPSAS 2 Cash flow statements. 14

IPSAS: Accrual Accounting 1) Accrual accounting recognizes income when fufilled, 2) 3) 4) 5) rather than when it is paid for, and Records expenses when they are incurred, irrespective of any movement of cash. Slightly complicated method Enables matching revenue to associated expenses. Most IPSAS are on accrual basis which is in line with IFRS. 15

IPSAS: Accrual Accounting (Cont. ) EXCEPTIONS; 1) Does not apply to condensed interim financial information. 2) Applies to all public sector entities other than Government Business Enterprises (GBEs). 16

WHY ADOPT IPSAS? a) Guarantees “true and fair view” of the financial status of an organization as is. b) Compliance with IFRS. c) Comparability/benchmarking of organizations that adopt them. 17

WHY ADOPT IPSAS? 1. More transparency: Quality of financial reports. 2. Meets financiers expectations 3. Simplifies communication with the general public. 4. Enhance public trust. 5. Understandable, demonstrates accountability by Government bodies to taxpayers/stakeholders and development partners. 18

BENEFITS OF ADOPTING IPSAS 1. Quality- Meets international standards. Reliability and accuracy. Guarantees “true and fair view” 2. Comparability between -Various government agencies, parastatals, donor funded projects etc. -Different financial periods, even within the same institutions, hence facilitating management decisions. 19

BENEFITS OF ADOPTING IPSAS 3. Transparency § Disclosures: i) Facilitate transparency. ii) Ease report interpretation in the right context iii) Results in better decision making processes. 20

BENEFITS OF ADOPTING IPSAS 4. Accountability § Ease the audits of public institutions and hence: § Timely audit reports, better information to donors and countries providing external assistance, § Better quality and credibility of financial reports. 21

BENEFITS OF ADOPTING IPSAS 5. Consistency § IPSASs improve consistency in preparation and reporting of financial information. § This enable users draw consistent conclusions given similar sets of financial statements. 22

BENEFITS OF ADOPTING IPSAS 6. Governance § IPSASs result in stronger governance procedures § Provides a framework for the accounting practice in the public sector. § Strengthens the financial management of public institutions. 23

APPROACHES IN ADOPTION OF IPSAS § Big bang -Very rare § Phased approach -Preferred/ recommended 1. Identify priority areas- e. g begin with voted entities. 2. Identify control of the national government on other levels of government and government owned entities(Control as laid out in IPSAS 35) 3. Piloting of IPSAS-Consider to apply simpler standards first before moving on to the complex ones. 24

CHALLENGES OF ADOPTING IPSAS 1. Stakeholder backing 2. Legislation 3. costs 4. Politics 5. Funding 25

ADOPTION OF IPSAS IN RWANDA CASE FOR RWANDA § ESAAG member states aim to adopt IPSAS. § Since 2006, the Government of Rwanda (Go. R) has been using modified cash basis IPSAS for reporting and consolidation for general government entities. 26

ADOPTION OF IPSAS IN RWANDA CASE FOR RWANDA § Go. R has made the following steps towards adoption of accrual IPSAS: § The Identification of gaps against IPSAS standards and monitoring of progress against the cash basis commenced in 2012/13 with technical assistance (TA) from East AFRITAC – East Africa Regional Technical Assistance Centre. 27

ADOPTION OF IPSAS IN RWANDA CASE FOR RWANDA § A high level IPSAS implementation roadmap developed with a technical assistance (TA) mission from East AFRITAC (East Africa Regional Technical Assistance Centre) of the IMF in 2015. § Go. R is currently using modified accrual. § The road map requires full compliance to IPSAS accrual basis by 30 June 2022. 28

ADOPTION OF IPSAS IN RWANDA 29

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REFERENCES 1. Google search: IPSAS definition of various terms. 2. 2018. Deloitte & Touche: Implementation of International Public Sector Accounting Standards (IPSAS) in Kenya 31