Adoption of international public sector accounting standards in emerging economies

The harmonization of financial reporting in the public sector has been one of the major components of recent public sector accounting reform initiatives. In this context, International Public Sector Accounting Standards (IPSASs) have become an international benchmark for evaluating public sector accounting reforms. A recent study on IPSASs adoption in Emerging Economies (EEs)/Low-income Countries (LICs) conducts a systematic literature review in peer reviewed journals, covering 41 studies since the first publication of these standards in 2003.

Claimed benefits for governments of adopting the IPSASs include, among others, enhanced accountability and transparency, improved decision-making and increased efficiency. However, despite such claims, the literature suggests that convergence of accounting systems such as through the adoption of IPSASs may face challenges, with regard to, for example, diverging national traditions, implementation costs or preserving national sovereignty.

This study finds that IPSASs have become an important public sector accounting reform issue in EEs/LICs relatively quickly. An analysis of the number of articles published per year demonstrates an increasing trend in the number of publications on IPSASs, although existing research remains often explorative and descriptive. The analysis provides evidence that the majority of studies (39.0%) are cross-country analyses. The majority of studies (56.1%) focus on the central government level. While the state/regional level is targeted in only one single study (2.4%), there are just two studies (4.9%) on the local government level. Only one study (2.4%) focuses on the level of single public sector organizations. Finally, 9.8% of studies research IPSASs adoption in multiple levels of government (while 24.4% are not specific about the level of analysis). The study brings out the fact that the implementation the IPSASs in EEs and LICs might not be an appropriate reform unless the adoption is preceded or accompanied by further managerial reforms. Looking at the topics to which IPSASs adoption is linked, the study identifies a thematic embedding with the targets pursued with implementation (accountability, transparency, harmonization and, maybe of particular relevance to EEs/LICs, corruption). Second, references to general accounting issues and accounting standards (such as accounting reforms, accounting standards and accrual accounting), public sector accounting (public sector accounting and government accounting) and wider public sector reforms (public sector reform and New Public Management) are found.

Although the priority of the IPSAS Board has been to promote the accrual-based IPSASs, EEs/LICs are encouraged, particularly by international organizations, to adopt the Cash Basis IPSAS as a necessary first step for a longer-term transition towards accrual-based IPSASs. However, in many EEs and LICs, local accounting and reporting practices already far exceed the requirements laid down in that standard. EEs/LICs might have less discretion whether to adopt IPSASs, as the drive to implement mainly stems from external groups such as donor organizations, the accountancy profession or consulting companies. These external stakeholders might have their own interests, which can differ from the interest of the countries concerned. As a result, attempts made by many EEs/LICs to embrace IPSASs have proved to be problematic at the implementation stage.

In terms of implementation barriers, the particularities of EEs/LICs in the area of (public sector) accounting and governance are being highlighted. Examples for such barriers include, among others, limited planning; poorly grounded reform recipes, mainly the pursuit of once-size-fits-all approaches; inadequate IT facilities and human resources; and the intervention of consultants and professional accountants.

The study outlines a number of avenues for further research. These stem from the blank spots of the literature and an identified need to contextualize IPSASs adoption in EEs/LICs. First, while implementation has been researched, the study recommends to evaluate the outcomes of IPSASs in different contexts. Indeed, formally introducing IPSASs might end up as an exercise that adds little to improving public sector accounting and development without corresponding monitoring of progress. Second, research needs to put a focus on the role of local stakeholders, such as professional accounting bodies and professional associations of public sector accountants who will work with the new standards on a day-to-day basis, as these local stakeholders shape the implementation. More in-depth insights as to how to secure the commitment of accountants and users of financial reporting in the course of deciding on the adoption are required. Third, the study calls for more research on the regional and local level and the level of individual organizations.

From a practical point of view, the research echoes observations according to which the characteristics of EEs/LICs have to be taken into account when adopting (public sector) accounting reforms. The main point here is not to ‘wash away’ the structures already in place, but to intelligently apply existing accounting systems regulations when adopting the IPSASs. Second, IPSAS reforms are interconnected to a wider range of (public sector accounting, management and good governance) reform activities, for example enhancing systems of accountability or internal auditing capacities. After an assessment of institutional capability, a sequencing/prioritization approach might be suggested, i.e. starting reforms with more basic issues or reform packages before implementing more advanced instruments. Also, IPSASs could be first introduced in pilot entities. Finally, the implementation of IPSASs in EEs/LICs often requires a large investment in educating and training public sector employees to develop a new range of accounting skills.