Introduction to IPSAS
EPSAS Seminar Thomas Müller-Marqués Berger Brussels, 19 May 2015
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Agenda
► Introduction ► IPSAS and the IPSASB ► IPSASB‘s current and future work program ► Adopting IPSAS ► IPSAS conversion diagnostic services
Agenda
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Introduction
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Introduction
► The public sector has been undertaking broad reforms in the public sector accounting – not only since the global finance crisis
► Cash basis accounting is still common in the public sector ► IPSAS is the only international accepted standard for
public sector accounting ► EPSAS as the current development in Europe
Introduction
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IPSAS and the IPSASB
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IPSAS: Background information
IPSAS and the IPSASB
International Public Sector Accounting Standards (IPSAS) are high-quality global financial reporting standards for application by public sector entities other than government business enterprises (GBEs). Accrual-based IPSAS set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events in general purpose financial statements.
The IPSAS Board (IPSASB) is the responsible body formed to develop and issue IPSAS under its own authority. IPSASB is a board under the auspices of the International Federation of Accountants (IFAC). IPSASB develops standards that apply to an accrual-based and to the cash basis of accounting.
More and more governments and other public sector entities around the world are adopting the accrual-based IPSAS as a basis for their accounting and financial reporting. In total, more than 40 countries have adopted or are adopting IPSAS or comparable standards. The European Commission is currently considering using accrual-based IPSAS as a basis for the European Public Sector Accounting Standards (EPSAS).
What are IPSAS?
What is the IPSASB?
Who is adopting IPSAS?
What are the benefits of implementing IPSAS?
IPSAS represent a global standard for best-practice accounting in the public sector. The main benefits of IPSAS are their worldwide acceptance and the increased transparency they provide over an entity’s finances. Furthermore, IPSAS require that more information is provided and disclosed in an organization’s financial statements, as compared to cash accounting, leading to better information availability and more transparency for decision-making.
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IPSASB members (May 2015)
► 15 Members ► Australia ► Brazil ► Canada ► China ► France
► In addition, the board comprises 3 public members (Canada, Italy, Switzerland)
► Current IPSASB Chair, Prof. Dr. Andreas Bergmann, is a public member from Switzerland
► Members are appointed by the IFAC Board
IPSAS and the IPSASB
► Panama ► Romania ► South Africa ► UK ► USA
► Japan ► Malaysia ► Morocco ► New Zealand ► Pakistan
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Publications of IPSASB
► Conceptual Framework ► IPSASs – Accrual (38) / Cash Accounting (1) ► Recommended Practice Guideline (3) ► Exposure Drafts (EDs) and Consultation Papers (CPs)
► As part of IPSASB’s due process ► Studies, Research or Special Reports, Invitations To Comment (ITC)
► Focus on accounting related topics such as the Transition to the Accrual Basis of Accounting (Study 14), Governance (Study 13), Budgeting or the Statistical Basis of Financial Reporting
► Developed, usually with input from a steering committee or project advisory panel
► Occasional Papers ► All agendas, agenda papers, responses to CPs and EDs as well as
summarized minutes to the meetings (3-4 times per year) are available at the IPSASB website
► Source: www.ipsasb.org
IPSAS and the IPSASB
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IPSASB‘s current and future work program
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Overview of the development of IPSASB‘s work program
Current work program of the IPSASB
► Through financial support of international institutions development of a first set of accounting standards (“Core Set”: IPSAS 1 – IPSAS 20)
Phase 1 (1997-2002)
Phase 3 (since 2010)
Phase 2 (2003-2010)
► Where relevant for the public sector, convergence with IAS/IFRS as of 31.12.2008 was achieved
► Issuance of first standards to specific issues of the public sector (IPSAS 21 – IPSAS 24)
► Development of a Conceptual Framework for the public sector ► Focus on specific issues of the public sector as well as further
development of existing standards (IFRSs convergence)
IPSASB’s current and future work program
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Relevant issues and work program of the IPSASB
IPSASB’s current and future work program
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IPSASB‘s Conceptual Framework Project
IPSASB’s current and future work program
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Adopting IPSAS
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Overview of countries which plan or already adopted IPSAS (1)
► Austria ► Brazil ► Chile ► Costa Rica ► Cyprus ► Czech Rep. ► France
► Ghana ► Indonesia ► Israel ► Kenia ► Latvia ► Lithuania ► Malaysia
► Morocco ► Nigeria ► Pakistan ► Peru ► Portugal ► Romania ► Russia
► South Africa ► Spain ► Switzerland ► Tanzania ► Uruguay ► Vietnam
Adopting IPSAS
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Overview of countries which plan or already adopted IPSAS (2)
Countries which national public sector accounting standards are broadly consistent with IPSAS requirements: ► Australia ► Canada ► New Zealand * ► United Kingdom ► USA
* On 1 July 2014 New Zealand moved its public sector accounting system form IFRS to IPSAS
Adopting IPSAS
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Overview of supranational organizations using IPSAS
► Commonwealth Secretariat ► European Commission ► EUMETSAT ► European Space Agency (ESA) ► IFAC ► INTERPOL ► NATO ► OECD ► United Nations (UN)
Adopting IPSAS
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Implications of Accrual Accounting
► IPSAS/accrual accounting will not solve financial problems of a jurisdiction, but it contributes to and promotes better financial management in the future
► Clearer financial picture in the first years of implementation need to be seen as incentive for improvement and stimulus to further reforms
► Accrual accounting information needs to get embedded in decision-making and made use of by decision makers
► Scope of information increases significantly; key is to make use of these information
► Finally, accrual accounting requires a change of mind
Adopting IPSAS
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IPSAS conversion diagnostic services
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Major steps of an IPSAS conversion
The following diagram describes the eight major phases in an IPSAS conversion project:
► EY professionals provide clients with a full range of IPSAS conversion services, from assisting in the development of diagnostic reviews and conversion implementation plans (road maps) to delivering comprehensive conversion projects.
► EY’s IPSAS conversion diagnostic services are an essential building block of the “gap analysis and feasibility” phase (see graph above).
1 2 3 4 5 7 8 6
Sensitivity 1 Legal foundation
3 IT and processes
5 Audit readiness
7
Consolidation 8 First-time adoption, opening
balance sheet 6 Capacity
building 4 Gap analysis
and feasibility 2
IPSAS conversion diagnostic services
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Challenges public entities are facing when converting to the IPSAS framework
Comprehensive IPSAS requirements
Comprehensive IPSAS requirements demand entities to conduct an inventory of all assets and liabilities, as well as apply new measurement provisions. Furthermore, IPSAS requires notes disclosures that make new processes necessary to capture the required information.
A conversion project is not limited to the finance function of a public sector entity. IPSAS reporting reflects the operations of the whole entity, meaning that many areas of the organization without accounting background are affected. Clear and understandable messages about the “why” and the “how” of the conversion are needed.
Many areas of organization affected
In many cases, a detailed time line for the conversion project is either not available or not specific enough. A lack of experience with such projects often means the sequencing of the necessary transition steps is not clear.
Detailed time line missing
The time and costs associated with an IPSAS conversion are always expected to be substantial, but they often remain unclear. This uncertainty is a major challenge for promoters of accounting reforms in political discussions.
Cost and time efforts needed
Required skills Finance staff members may not have experience in leading a conversion. Therefore, capacity building and personnel development programs should be high on the agenda of every conversion project.
IPSAS conversion diagnostic services
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EY’s IPSAS conversion methodology Diagnose phase is crucial for subsequent phases
► Validate IPSAS requirements
► Identify specific IPSAS conversion issues
► Jointly perform engagement- specific planning
Identify
► Conduct assessment of existing GAAP, IT and capacity
► Evaluate impact of accrual-based IPSAS on current state
► Generate and prioritize observations and next steps
► Analyze capacities
Diagnose
► Set up a road map
► Draft accrual- based IPSAS accounting policies
► Design IPSAS-compliant processes
► Develop a capacity-building strategy
Design
► Capture and measure all assets and liabilities
► Perform training and briefings
► Assist entity with IPSAS-compliant financial statements
Deliver Close
► Close out conversion project
► Review the success and learning points from the project
► Support continuous improvement
► React and adapt to any new IPSAS requirements
Sustain
Del
iver
► Kick off IPSAS conversion project
► Execute project plan
► Monitor conversion progress
► Complete execution of the project plan
IPSAS conversion diagnostic services
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EY’s IPSAS conversion methodology Diagnose phase is crucial for subsequent phases
The main objective of EY’s IPSAS conversion diagnostic services is to provide an IPSAS impact assessment. This assists in identifying the gaps between an entity’s current accounting system and the accrual-based IPSAS reporting framework. The results of the gap analysis build the basis for:
► The design of the conversion road map
► An assessment of the efforts needed
Diagnose
Deliver
Sustain
Identify
Human resources and organizational
structure
Design
Diagnostic report
Current accounting
system
IPSAS requirements Gaps
IPSAS conversion diagnostic services
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Your contact
Thomas Müller-Marqués Berger Wirtschaftsprüfer ● Steuerberater Partner Global Leader International Public Sector Accounting Phone: +49 711 9881 15844 Mobil: +49 160 939 15844 Fax: +49 181 3943 15844 thomas.mueller-marques.berger @de.ey.com
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Mittlerer Pfad 15 70499 Stuttgart
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