Qatar University has managed its finances in accordance with IPSAS for several years

Sagun Vaidya is director of audit and assurance for Deloitte Middle East

The impact of the Covid-19 pandemic will have a long and lasting impact on public finances, following the actions taken by governments to ease the effect on businesses and individuals. Advanced economies have introduced fiscal support in various forms averaging at 6% of their GDP, and several developing and underdeveloped economies have received significant financial aid from international organisations.

Meanwhile, the International Monetary Fund (IMF) recently projected 2020 global growth at -4.4%, with a higher than anticipated impact of the pandemic on the first half of 2020. The IMF further projects the recovery to be more gradual than previously forecast.

Better understanding

Amid the complexity, financial information prepared in accordance with high-quality accrual-based financial reporting, such as International Public Sector Accounting Standards (IPSAS), will allow stakeholders to get a clear understanding of the financial position and activities of governments.

IPSAS-based financial statements promote accountability and transparency, which in turn build trust and confidence. They enhance decision-making ability and assist policymakers to explain changes. They also allow taxpayers to assess the statements with confidence and to understand the utilisation of resources, current and future commitments and their government’s ability to fulfil them.

IPSAS-based financial statements promote accountability and transparency, which in turn build trust and confidence

In current conditions, reviewing existing financial reporting policies may not be a priority. However, it is important for governments to fully understand the state of the financial reporting framework in their respective jurisdiction and identify the changes required to facilitate preparation of high-quality accrual-based financial reports in the near future.

Complete picture

Ian Carruthers, chair of the International Public Sector Accounting Standards Board (IPSASB), has rightly highlighted that the Covid-19 pandemic will have a long-lasting effect on public finances. To navigate the recovery, governments need the complete picture that modern accounting standards provide.

Since the International Federation of Accountants (IFAC) first issued IPSAS, several government and public sector entities around the world have moved away from the traditional cash-based accounting to IPSAS or IPSAS-based policies.

Global momentum

According to IFAC’s International Standards: 2019 Global Status Report, 11% of member jurisdictions have fully adopted IPSAS and 52% have partially adopted some of the standards or converged with national standards.

The United Nations showed the way, adopting and producing its first set of IPSAS‐compliant financial statements for the fiscal year 2014, and the European Union has announced the adoption of IPSAS-based European Public Sector Accounting Standards.

Although quality accrual-based financial reports are still not readily available to many governments and public sector organisations around the world, steady progress in the acceptance of IPSAS is clearly visible. As users of government financial reports plan and monitor in the post-Covid period, they will find those prepared to IPSAS standards especially useful and relevant.

Middle East progress

In the Middle East, several countries have expressed significant interest in moving towards an accrual-based public sector accounting framework. Saudi Arabia, the largest economy in the region and a member of the G20 forum, recently announced its plan to adopt IPSAS, and the ministry of finance has begun implementation in some government ministries.

In the United Arab Emirates, meanwhile, Abu Dhabi hosted an IPSASB meeting in December 2019, as part of its ongoing efforts to improve the quality and basis for financial statements preparation at the emirate level by the government and public sectors.

Dubai’s Department of Finance has also embarked on the implementation phase of IPSAS, in close collaboration with the finance leadership of government entities, while Qatar has expressed interest in adoption. (Qatar University, one of the largest government universities, adopted IPSAS-based accounting policies several years ago.)

Major undertaking

Maintaining, if not accelerating, the momentum towards adoption and implementation of IPSAS is important. However, it is crucial not to underestimate the considerable planning and preparation required.

Factors such as the status and maturity of the existing financial reporting process, buy-in from stakeholders, the local legal and regulatory changes required, governmental or organisational priorities, and availability of resources determine the rate and success of implementation. Timely support from non-finance departments – often the custodians of relevant data – is also crucial.

Implementation of high-quality accrual-based accounting standards, and preparation of government financial reports based on such standards, can appear an overwhelming undertaking. However, the importance of such quality financial reports cannot be ignored.

A thorough plan catering to local realities, based on the experiences of various adopters of IPSAS, coupled with the right tone at the top, are key elements of a successful implementation.