CHAPTER ONE

INTRODUCTION

1.1.    BACKGROUND OF THE STUDY

The International Public Sector Accounting Standards Board (IPSASB) develops accounting standards for public sector entities referred to as International Public Sector Accounting Standards (IPSASs). The IPSASB is among the four independent standard-setting boards of International Federation of Accountants (IFAC). IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contribution to the development of strong international economies. It was founded in 1977; IFAC is comprised of 173 members and as-societies in 129 countries and jurisdictions which include Nigeria. IFAC is expected to serve the public interest by: (a) con-attributing to the development, adoption and implementation of high quality international standards and guidance; (b) contributing to the development of strong professional accountants; (c) promoting the value of professional accountants; (d) speaking out on accounting public issues. The IPSAB an independent standard-setting organ of IFAC responsible for developing accounting standards for public sector entities is focused on ensuring consistent and comparable financial information across jurisdiction. The IPSASB recognizes the significant benefits of achieving consistent and comparable financial in-formation across jurisdictions and it believes that the IPSASs will play a key role in enabling these benefits to be realized. The IPSASB issues IPSASs dealing with financial reporting under the cash basis of accounting and the accrual basis of accounting. The accrual IPSASs are based on the International Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB), where the requirements of those Standards are applicable to the public sector. They also deal with public sector specific financial re-porting issues that are not dealt with in IFRSs. IPSAS refers to the recommendations made by the IPSAS Board under the auspices of the International Federation of Accountants. T

 IPSASB strongly encourages governments and national standard-setters to engage in the development of its standards by commenting on the proposals set out in its exposure drafts and consultation papers. The members of the IPSASB are appointed by the IFAC Board. The IPSASB comprises a total of 18 members, 15 of whom are nominated by member or organizations of the IFAC. The other three are public members and can be nominated by any individual or organization. The countries represented on the IPSASB include: Australia, Canada, China, France, Germany, Japan, Kenya, Morocco, New Zealand, Pakistan, Romania, South Africa, United Kingdom, United States of America and Uruguay [1]. IPSAS are accepted for accounting for funds provided under World Bank Programs. Developing countries are urged to adopt IPSAS by international organizations which provide financial assistance to developing countries. Other countries, regardless of their political and economic systems, are encouraged to harmonize their national standards with IPSAS. Thus, IPSAS have become de facto international benchmarks for evaluating Government accounting practices worldwide. For these reasons, IPSAS deserves the attention of accounting policy-makers, practitioners and scholars alike, [2]. IPSAS seeks to improve the quality of general purpose financial reporting by public sector entities, leading to better informed assessments of the resource allocation decisions made by governments, thereby increasing transparency and accountability. IPSAS can be applied by national, state and local governments as well as related government entities. The adoption of IPSAS by Governments is expected to improve both the quality and comparability of financial information reported by public sector entities around the world. The IPSASB recognizes the right of Governments and national standard-setters to establish accounting standards and guidelines for financial reporting in their jurisdictions. Public sector can be described as entities or organizations that implement public policy through the provision of ser-vices and the redistribution of income and wealth, with both activities supported mainly by compulsory tax or levies on other sectors. This comprises governments and all publicly owned, controlled and or publicly funded agencies, enterprises, and other entities of government that deliver public programs, goods, or services [3]. However, IPSASs do not apply to government business enterprises. A government business enterprise within the meaning of IPSASs is an entity that has the following characteristics: (a) it is an entity with the power to contract in its own name; (b) it has been assigned the financial and operational authority to carry on a business; (c) it sells goods and services, in the normal course of its business, to other entities at profit or full cost recovery; (d) it is not reliant on continuing government funding to be a good concern (other than purchase of outputs at arm’s length) and (e) it is controlled by a public sector entity. The IPSASB develops IPSASs for financial statements prepared on the accrual basis of accounting as well as for financial statements prepared on the cash basis of accounting. IPSASs govern the recognition, measurement, presentation and disclosure requirements in relation to transactions and events in general purpose financial statement. Such financial statements are characterized by the fact that they are issued for users who are unable to demand financial information to enable them meet their specific information needs. Public sector accounting is a system or process which gathers, records, classifies and summarizes as reports the financial events existing in the public or government sector as financial statements and interprets as required by accountability and financial transparency to provide information to information users associated to public institutions. It is interested in the receipts, custody and disbursement and rendering of stewardship of public funds en-trusted, [4]. Government accounting refers to a government’s financial information systems and financial disclosure practices. Its state of development results from the interaction between the supply of and demand for Government financial accountability and transparency. Since it is costly everywhere to produce and disseminate information, Governments in all types of political systems lack the economic incentives to do so. However, some political systems exert a greater demand for government accountability and transparency than others; for example, representative democracies are more demanding than authoritarian and totalitarian political systems. In a democracy, the government is obliged to be more responsive to information demands placed upon it. This would be the case in developed countries and developing countries alike. However, the opportunity cost of resources used in improving government financial information is higher in developing countries than in developed countries. Therefore, even if Governments in democratic developing countries are willing to undertake government accounting reform, they may be unable to afford it; Governments in non-democratic developing countries are both reluctant to undertake and unable to afford Government accounting reforms. Local accounting standards in Nigeria were set under the Nigerian Accounting Standards Board Act of 2003 by the Nigerian Accounting Standards Board (NASB). Originally established in 1982 as a private sector initiative housed in the Institute of Chartered Accountant of Nigeria (ICAN), Nigerian Accounting Standards Board became a government agency in 1992 and reports to the Federal Ministry of Commerce. Its membership includes representatives of Government and relevant interests groups. The primary role of the Board is to ensure that published financial statements are uniform in content and in format and communicate precisely what they purport to convey. Timely, clear and open annual financial statements play a significant role in the accountability of governments to their citizens and their elected representatives. These financial statements are prepared on a cash basis or some variation of an accrual basis of accounting. However, most of these financial statements are not prepared on a consistent or comparable basis in developing countries. The benefits of achieving consistent and comparable financial in-formation across jurisdictions are very important and a set of International Public Sector Accounting Standards (IPSAS) have been established by the IPSAS Board to assist in that Endeavour.

1.2 STATEMENT OF THE PROBLEM

The preparation and presentation of financial statement at each level of government have pose series of problems worldwide. Over the years, government accounting has been anchored on cash basis of accounting while private sector accounting has been predicated on accrual basis. Whereas the accrual basis has been working perfectly well in the private sector, the continued application of the cash basis in the public sector appears to have thrown up a number of challenges relating to under-utilization of scarce resources, high degree of vulnerability to manipulation, lack of proper accountability and transparency, inadequate disclosure requirement due to the fact that the cash basis of accounting does not offer a realistic view of financial transaction. IPSAS adoption is expensive in all material respect, so expensive that some experts have contended that it’s much advertised benefits do not justify the cost of the implementation predominantly accounting or financial reporting places emphasis on accountability and transparency. Revolution is not only accorded to government functional activities, instead revolution also exists in Government Accounting. Thus, it is not quite established whether the adoption and subsequent proper implementation of IPSAS would have appreciable positive or negative impacts on the Nigerian economy. Therefore, this study seeks to evaluate the impact of adoption of IPSAS on the accountability of public funds in Nigeria.

The concerns for harmonization of accounting standards and later, convergence in the 1990s with International Reporting Standards are due to the globalization of the capital markets. In fact, it is believed that accounting harmonization is necessary for the globalization of capital markets. The major assumptions of IPSASs are:

1. There are so many common transactions in the private and public sectors that it is possible, and indeed pre-farmable to have one set of generally accepted accounting principles for both sectors. Most IPSASs can there-fore be set by making modest changes to the standards promulgated by the international (Business) Ac-counting Standard Board (IASB). Additionally, the IP-SASs Board would establish standards for transactions and events unique to the public sector.

2. Since business firms annually prepare consolidated financial statement under the accrual basis, it is expected that governments should do the same. Consolidated financial statements cover a primary organization and its subsidiaries in which the primary organization has a majority ownership interest. The accrual basis used by business firms regards sale (not production) of goods and services as the criterion for judging financial performance.

3. Accounting standards are more objective and of a higher quality if they are set by an expert group inde-pendent of the organizations, obliged to follow the standards. For the public sector, independence can be achieved or at least enhanced by giving the task to a private sector body, an advisory board, or increase the number of public (non-government) members.

4. Accounting standard should be produced through due process. Due process means that research and deliberation should precede decisions. Furthermore, adequate opportunities are provided for interested parties to provide input before standards are finalized.

1.3AIMS OF THE STUDY

The major purpose of this study is to examine the impact of adoption of international public sector accounting standards (IPSAs) on the accountability of public funds in Nigeria. Other general objectives of the study are:

1. To examine the extent to which International public sector accounting standards adoption leads to efficient management of public fund by the public entities in Nigeria.

2. To examine the extent to which International public sector accounting standards adoption by the public sector enhances effective budget implementation in Nigeria.

3. To examine the effect of International public sector accounting standards adoption on the accountability of public funds in Nigeria.

4. To examine the extent the adoption of International public sector Accounting Standards checks cases of corruption among public officers in Nigeria.

5. To examine the relationship between the adoption of International public sector accounting standards and accountability of public funds.

6. To suggest ways for improving on the accountability of general purpose financial reporting by the public sector.

1.4 RESEARCH QUESTIONS

1. What is the extent to which International public sector accounting standards adoption leads to efficient management of public fund by the public entities in Nigeria?

2. What is the extent to which International public sector accounting standards adoption by the public sector enhances effective budget implementation in Nigeria?

3. What is the effect of International public sector accounting standards adoption on the accountability of public funds in Nigeria?

4. To what extent is the adoption of International public sector Accounting Standards checking cases of corruption among public officers in Nigeria?

5. What is the relationship between the adoption of International public sector accounting standards and accountability of public funds?

6. What are the ways for improving on the accountability of general purpose financial reporting by the public sector?

1.5 RESEARCH HYPOTHESIS

Hypothesis 1

H0: There is no impact of adoption of IPSAs on the accountability of public funds.

H1: There is a significant impact of adoption of IPSAs on the accountability of public funds.

1.6 SIGNIFICANCE OF THE STUDY

The findings of the study is expected to be of immense significance to the federal, state and Local governments in Nigeria will appreciate from the findings of the study the need to adopt and swing into full implementation of International Public Sector Accounting Standards as the economic implications of its adoption will be unveiled. The government will be fully aware of the gains of full disclosure requirements of IPSAS adoptions as it affects transparency, comparability, credibility, informative, and comprehensiveness of financial information. Again, Nigerian government ministries and beyond will be brought to terms, the realities of IPSAS adoption and the economic benefits. Preparers and users of public sector accounting information will also be encouraged on the need for full disclosure arising from IPSAS adoption as it influences accountability, transparency and credibility of accounting information. Again, the result will guide members of the public on the likely gains or otherwise arising from the adoption of International Public Sector Accounting Standards and their effects on financial reporting.

1.7SCOPE OF THE STUDY 

The study is based on impact of adoption of IPSAs on the accountability of public funds in Nigeria.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Accountability: The obligation of an individual or organization to account for its activities, accept responsibility for them, and to disclose the results in a transparent manner. It also includes the responsibility for money or other entrusted property.

Funds: All the financial resources of a firm, such as cash in hand, bank balance, accounts receivable. Any change in these resources is reflected in the firm's financial position.

Public: Relating to or involving people in general, rather than being limited to a particular group of people.

IPSAS:   i.e. international public sector accounting standard is a new revolution in government Accounting. IPSAS are international Accounting Standard used as guidelines for preparation of public sector financial Statements.