Project Topic – EFFECT OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARD (IPSAS) ON THE FINANCIAL REPORTING QUALITY IN NIGERIA
The development of any accounting system requires consideration of the underlying purpose of that system. In Nigeria, government accounting processes have been conducted within the general framework of the principles of fund accounting but the application of these principles to financial reporting has been a major challenge. This study examined the effect of International Public Sector Accounting Standards (IPSAS) on the quality of public sector organizations in Nigeria. The research is an appraisal of international public sector accounting standards (IPSAS) adoption and financial transparency in Nigeria. It assesses the extent the International Public Sector accounting standards adoption enhances credibility of financial statements reported by the public sector in Nigeria. The sample size of this study is made up of 88 respondents while the sampling procedure adopted is random sampling because it is the generally acclaimed method of probability. The questionnaires were administered based on the non-random selection of the persons as contained in the sample. This was done in such a way as to get the desired result; the questionnaire contains ten (10) questions. Methods for instrument for data collection also include personal observation. The researcher translated the data into simple percentages. This was to enable an inferential statement to be made about any relationship. The formulated hypotheses were tested chi-square test statistics which measures the significance of the difference between the observed set of frequencies. It was recommended that the Federal Government should enact an enabling law to back up the adoption and implementation of IPSAS and more importantly institute appropriate sanctions to ensure full compliance. Findings from the study showed that adoption of IPSAS would improve the quality of financial reporting of public sector organizations in Nigeria. In addition, it was found that the adoption of the standard would help in curbing corruption and mismanagement in the public sector. It was concluded that IPSASs adoption would improve the performances of government enterprises. The study recommended that government should ensure full implementation and compliance with the standard in Public organizations. Therefore, the adoption of IPSAS is expected to influence the operating procedures and reporting practices of public sector organizations in Nigeria.
Keywords: IPSAS, Quality, effect, Public Sector
From existing records, countries of the world have defined and set the standards of financial reporting in their individual territories. However, globalization has brought about ever increasing collaboration, international trade and commerce among the countries of the world; hence, there is dire need for increased harmonization in the standards guiding financial statements so that such statement would remain comprehensible and convene the same information to users across the world. The need for the development of unified accounting standards has been the primary driver of international public sector Accounting Standards for public sector financial reporting. International Public Sector Accounting Standards (IPSAS) is at present the focal point of global revolution in government accounting in response to calls for greater government financial accountability and transparency (Ibanichuka and Oyadonghan, 2014)
According to HayfronAdoagye (2012), IPSAS are high quality global financial reporting standards for application by public sector entities other than government business enterprises and being issued by international public sector accounting standard board IPSAS B which is formerly known and called public sector committee. IPSASB’s a body of international Federation of Accounting (IFAC) with autonomy to develop and issue IPSAS. In study conducted by John (2011) he revealed that IPSAS Board comprises of 18 members, out of which 15 are nominated by the member bodies of IFAC while the other three are appointed as public members whom may be appointed by any individual organization. International Public Sector Accounting Standards (IPSAS) is at present the focal point of global revolution in government accounting in response to calls for greater government financial accountability and transparency. The Public Sector comprises entities or Organization that implement public policy through the provision of services and the redistribution of income and wealth, with both activities supported mainly by compulsory tax/levies on other sectors. This comprises government and all public owned, controlled and or public programs, goods or services. 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 institution. It is interested in the receipts, custody, disbursement and rendering of stewardship of public funds entrusted.
1.1 Background of Study
Globally, most world leaders in addition to performance of their constitutional duties and maintain legitimacy, strive to determine how best to sustain and improve on the economy of their country. Of course, the recent global economic crisis such as the 2007 global financial crisis; 2008-2009 meltdown of financial market; 2009-2012 European debt crisis and now the crude oil price fluctuation in the oil international market have challenged that spark off the International Federation of Accountant (IFAC) through International Public Sector Accounting Standard Board (IPSASB) came up with “International Public Sector Accounting Standards” (IPSAS). The standard aims at harmonization and comparability of public sector financial accounting information through global best practices which encourages comprehensive reporting, due full disclosure of all assets and transparency. IPSASs provide for high quality, robust and full disclosure of all assets, liabilities and contingent liabilities which are very essential for accessing the true economic implication of public sector financial management. Nigerian and in particular, the south Eastern states public sector notwithstanding, before now identified with cash basis of accounting in line with provisions of Finance Control and Management Ordinance Act of 1958 as amended by CAP A15 LFN 2004 which records receipts and incomes when actual cash being received and records expenditure when actual payment is made not minding the accounting period in which the services were made or benefits received. It was on this perception that Jim (2013) argues that any government that reports on cash basis does not account for significant liabilities such as pension and infrastructural developments. Kuye (2010) argued that recent crisis of inefficiency of some government organizations such as Power Holding Company of Nigeria Plc., Nigeria ports Authority Plc., and the Nigeria Police Force were due to financial malpractices and concealment of material facts as a results of lack transparency and accountability orchestrated by cash-basis of accounting.
It was in response to the above arguments that the government of Nigeria carried out the gap analysis study that was aimed at benchmarking public sector accounting system in Nigeria with cash based IPSASs with a view to identifying the gaps. Subsequently, Nigeria sets up a high powered implementation team, officially known as the Federation Account Allocation Committee (FAAC) sub-committee on the road map for adoption of IPSAS. Against this background therefore, it is not quit established that adoption and sequent proper implementation of the standards would have appreciable positive or negative economic impacts on the economy of south Eastern states of Nigeria, thus, this study to have a good evidence of the international standard and its economic implication of the economy of Nigeria.
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 the 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 finance reporting places emphasis on accountability and transparency. Revolution is not only accorded to government functional activities, instead revolution also exists in Government Accounting. Hence IPSAS i.e. international public sector accounting standard is a new revolution in government Accounting.
IPSAS are international Accounting Standards used as guidelines for preparation of public sector financial statements. Before the introduction of International Public Sector Accounting Standards and subsequent scheduled adoption of the standards in Nigeria in the year 2012 though, was later shifted to 1st January, 2014, financial statements of ministries, departments and agencies of government were being prepared in adherence to the provision of Finances and Controls Management Ordinance Act 1958 as amended by CAP 15 LFN 2004. Unfortunately, such financial information prepared and published adopting the local standards adversely affect the quality and comparability of financial information reported by the public sector entities in the south East which may in turn endanger domestic and international confidence in public sector financial management. Moreover, the traditional cash basis of accounting does not provide meaningful information that can guarantee consistency, quality, credible, transparency, accountability and harmonization of financial reporting system. That challenge was uncovered by “gap analysis study undertaken by the federal government of Nigeria in attempt to benchmark government accounting in Nigeria with cash IPSASs” which unveiled that the traditional cash basis of accounting was inadequate as it fails to take into cognizance accurate “costs, all asset and liabilities” made by the government (Dankwanbo, 2010). Again, Nigeria had painfully missed several foreign direct investments as foreign investors and several multi-national companies are being scared away by lack of accountability and transparency (Ibanichuka and Oyadonghan, 2014).
1.3 Objective of the Study
The broad objective of this study is to determine the effect of international public sector accounting standard (IPSAS) on the financial reporting quality in Nigeria. However, the study was carried out to achieve the following specific objectives:
- To assess the extent the International Public Sector accounting standards adoption enhances credibility of financial statements reported by the public sector in Nigeria.
- To determine the extent that international Public Sector Accounting Standards adoption enhances the comparability of financial information reported by the public sector in Nigeria.
- To determine the extent to which International public sector accounting standards adoption by the public sector enhances effective budget implementation in Nigeria.
- To ascertain the extent to which International public sector accounting standards adoption leads to efficient management of public fund by the public entities in Nigeria.
- Research Question
The following research questions are formulated to guide the attainment of the foregoing objectives of the study:
- To what extent would the international Public Sector Accounting Standards adoption enhance credibility of financial statement reported by the public sector entities in Nigeria?
- To what extent would the International Public Sector Accounting Standards adoption enhances the comparability of financial information reported by the public sector entities in Nigeria.
- To what extent would International public sector accounting standards adoption by the public sector enhances effective budget implementation in Nigeria
- To what extent would International public sector accounting standards adoption leads to efficient management of public fund by the public entities in Nigeria.
- Statement of hypotheses
Ho: The international Public Sector Accounting Standards adoption does not enhance the credibility of financial statement reported by the public sector in Nigeria.
Hi: The international Public Sector Accounting Standards adoption enhances the credibility of financial statement reported by the public sector in Nigeria.
Ho: The International Public Sector Accounting Standards adoption does not enhance the comparability of financial information reported by the Public sector entities in Nigeria.
Hi: The International Public Sector Accounting Standards adoption enhances the comparability of financial information reported by the Public sector entities in Nigeria.
Ho: The International Public Sector Accounting Standards adoption by the public sector does not enhances effective budget implementation in Nigeria.
Hi: The International Public Sector Accounting Standards adoption by the public sectorenhances effective budget implementation in Nigeria.
Ho: The International Public Sector Accounting Standards adoption does not leads to efficient management of public fund by the public entities in Nigeria.
Hi: The International Public Sector Accounting Standards adoption leads to efficient management of public fund by the public entities in Nigeria.
1.6 Significance of the Study
The federal governments of 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 implication of its adoption will be unveiled. The government will be fully aware of the gain of full disclosure requirements of IPSAS adoption as it affects transparency, comparability, credibility, informative and comprehensive of financial information. Again, ministries at the federal government level in Nigeria and beyond will be brought to terms to the realities of IPSAS adoption and the economic benefits. Preparers, members of the public 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.
On the side of prospective foreign investors and entrepreneurs, who might have been scared by the cash basis of public sector financial reporting, the result of this study will bring to fore the real essence of adoption of adoption International Public Sector Accounting.
1.7 Justification of the Study
The outcome of this study will be a little guide for the international Public Sector Accounting Standards. The research will also serve as a source base to other scholars and researchers interested in carrying out further research in this field in future. The study therefore will extend the frontiers of the existing literature by emphasizing the effect of international Public Sector Accounting Standards Adoption and Financial Transparency in Nigeria.
1.8 Scope of the Study
Effect of international public sector accounting standard (IPSAS) on the financial reporting quality in Nigeria with particular reference to ministries and agencies of federal governments in Nigeria. The study made use of only Accountants and Internal Auditors in government ministries and other related public institution.
1.9 Definitions of Terms
- Adoption: is a process whereby a person assumes the parenting of another, usually a child, from that person’s biological or legal parent or parents and, in so doing, permanently transfers all rights and responsibilities, along with filiation, from the biological parent or parents.
- Accounting Standards: are authoritative standards for financial reporting and are the primary sources of generally accepted accounting principles (GAAP). The AcSB has adopted International Financial Reporting Standards (IFRS) as the accounting standards to be used by publicly accountable enterprises.
- Accounting: accounting or accountancy is the measurement, processing and communication of financial information about economic entities such a businesses and corporations.
- Financial Statements: is a formal record of the financial activities and position of a business, person, or other entity. A balance sheet or statement of financial position, reports on a company’s assets, liabilities and owners’ equity at a given point in time.
- Financial Transparency: it means timely, meaningful and reliable disclosures about a company’s financial performance. Companies need to provide transparent financials to raise capital. Investors need transparent financial to make informed investment decisions.
- Public Sector: the public sector (also called the state sector) is the part of the economy composed of both public services and public enterprises. It is usually comprised of organizations that are owned and operated by the government and exist to provide services for its citizens.
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Project Topic – EFFECT OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARD (IPSAS) ON THE FINANCIAL REPORTING QUALITY IN NIGERIA