Introduction to International Public Sector Accounting ...Presentation Transcript
Introduction to International Public Sector Accounting Standards (IPSAS) SAF On the Road to Managing for Results
Table of Contents 11
Objectives of the Presentation
The Way forward
Viability: Does it work for the OAS
Drivers for change
Drivers for change An assessment of the internal and external elements which have highlighted the need for change within the OAS and in the wider international context
Drivers for Change Board of External Auditors
The Board of External Auditors has repeatedly opined that:
OAS’ proprietary accounting standards result in financial reports that do not reflect all of the assets and liabilities of the Organization , and
The GS/OAS [should] adopt an internationally-recognized set of accounting standards, such as IPSAS, and the OAS should engage its external auditors and other experts to advise on the transition to IPSAS.
Standards have fallen out of step with comparable agencies and governmental entities limiting the ability of donors and member states to compare OAS’ results against other institutions.
They prevent the GS/OAS from having a complete valuation of the Organization’s assets and liabilities and the cost of operations. This limits effective decision-making and planning and support to a results-based management framework.
Drivers for Change Limitations of OAS’ basis of accounting
Financial statements mostly reflect what is occurring rather than what is expected to occur thereby limiting the measurement of the impact of transactions/decisions.
OAS only records revenue when cash is received and does not record receivables for agreements that have been signed. Hence potential future cash flows are not captured in reports.
Similarly, termination benefits are recognized at the time an employee separates from service, but the Organization’s commitment to that employee is not recognized over the period of time that the employee earns the benefit.
Lack of consistency in accounting treatment across all funds managed by the Organization.
Drivers for Change Limitations of OAS’ basis of accounting (continued…)
Drivers for Change General Assembly Mandates
AG/RES.1 (XXXVIII-E/09, Section III)
Paragraph 18 a : “…to instruct the General Secretariat to continue studying, the viability of implementing International Public Sector Accounting Standards with a view to adopting them as recommended by the auditors, starting with the fiscal year beginning on January 1, 2011, and in subsequent periods, and to report the General Secretariat’s findings, conclusions, and recommendations to the Permanent Council through the CAAP. …”
Paragraph 19 b : “…the General Secretariat [should] take the necessary measures to ensure that the financial and budgetary reports presented to [CAAP] are consistent with the guidelines provided in International Public Sector Accounting Standards…”
Worldwide financial crisis underscores the interdependency of economies and financial markets, and highlights the need for a common standard by which entities measure and report what they own and what they owe .
Approximately 113 countries have adopted or are in the process of adopting international standards:
Costa Rica and Uruguay have mandated IPSAS adoption
Brazil’s government has announced a plan to adopt IPSAS by 2012
Canada is transitioning to IFRS by 2011, Mexico by 2012
United States has released a roadmap to implementing accrual accounting.
Implementation of IPSAS or International Financial Reporting Standards (IFRS) is already underway in other international organizations and UN system organizations.
World Bank and IMF prepare their financial statements in accordance with IFRS
UN will adopt IPSAS in January 2010
Drivers for Change Trends in the Public Sector and International Organizations
Drivers for Change Benefits to OAS Stakeholders of Adopting IPSAS
The use of accrual accounting, standard definitions, measurement criteria and reporting requirements under IPSAS are all geared towards providing more meaningful information for decision-makers.
Strategic plans and reports become more meaningful as increased transparency provides a basis for member states to assess whether resources are being used effectively and efficiently.
IPSAS supports efficient internal controls and results-based management.
Adoption will provide a unified approach to managing all funds (Regular, Specific, Voluntary, Trust and Service funds) and will allow for benchmarking with similar institutions and forecasting future flow of all resources to the Organization.
Assets and liabilities that were previously un-quantified or under-reported will now be reflected in the financial statements.
Drivers for Change Benefits to OAS Stakeholders of Adopting IPSAS
Accrual accounting means that the OAS for the first time will recognize past, present and future obligations of Organizational resources. There is nothing new here. These are not new obligations but under OAS- specific accounting rules they remain largely un-quantified; rendering them “invisible” and/or under-reported.
Initial Understanding of International Public Sector Accounting Standards (IPSAS).
Viability: Does it Work for the OAS?
IPSAS Impact on General Secretariat (GS/OAS) operations.
The Way Forward
1. IPSAS Defined Provides a brief explanation of the International Public Sector Accounting Standards and the expected benefits of complying with them
IPSAS Defined What Does Accounting Do and Why Does it Matter?
Captures, measures and reports information about the economic events of an entity (i.e., transactions that generate revenue or expense).
Reports are used by stakeholders (member states, donors, management) to evaluate performance and make effective decisions.
In order to maximize the reliability and usefulness of reported financial information, the accounting standards applied should be comprehensive, widely accepted and promote transparency.
IPSAS Defined Accounting Methods Accrual accounting is an accounting method that measures the performance and financial position of an organization by recognizing revenue when earned and expense when incurred rather than when cash is received or paid. Cash-basis accounting is an accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. OAS uses a hybrid method (“ modified-cash ”) that combines some elements of cash accounting with some elements of accrual accounting. Revenue is recognized when cash is received and expenses are recognized in full when commitments are entered into.
IPSAS Defined Why IPSAS?
IPSAS are a set of independently developed, high quality, global accounting standards that require accounting on a “ full accruals ” basis (i.e., all assets and liabilities are recorded).
IPSAS are issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants ( IFAC ).
23 OAS Member States are also members of IFAC. Canada, Brazil, Mexico and the US are represented on the IFAC Board.
IPSAS are tailored for the public sector and its use is considered best practice for public sector entities (governments, governmental business entities, non-governmental organizations, and international organizations).
Canada Chile Colombia Costa Rica Dominican Republic Argentina Bahamas Barbados Bolivia Brazil Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Trinidad and Tobago United States Uruguay
Defines what are assets, liabilities, revenues, and expenses and when you should record them.
Establishes a standard method for valuing assets, liabilities, revenues and expenses.
Financial Reporting :
Prescribes the format and content of reports including the type of disclosures that should be made in the reports in order to heighten transparency.
IPSAS Defined Broad themes
IPSAS Defined From Cash Basis Accounting to Accrual Accounting
Moves away from cash accounting which focuses primarily on the receipt and disbursement of cash towards accrual accounting which provides for full costing of an Organization’s activities, regardless of when cash is received or paid out.
Accrual accounting supports efficiency and performance assessment as results are matched to the use of resources.
IPSAS Defined Modified Cash vs. Accrual Accounting At Contract signing Period of Performance Period of Performance
Economic event being recognized is the signing of the contract not the performance.
Costs are matched to the period of the performance.
2. Viability: Does it Work for the OAS? A Gap Analysis between OAS standards and IPSAS and a discussion of the suitability of IPSAS for GS/OAS operations
IPSAS: Does it Work for the OAS? National Governments International Standards OAS Financial Standards
GAP Analysis Impacted elements Under OAS’ current proprietary basis of accounting, certain economic/financial events are not recognized in a manner consistent with IPSAS. Employee Benefits (terminations, annual leave) Expense Recognition (obligations) Investments (fair value) Financial Statements (cash flow, disclosures, budget reports) Unexpended Advances (travel/accountable advances) Property & Equipment (capitalization, depreciation) Revenue (quotas / pledges/ specific fund agreements) IPSAS
IPSAS What Changes? Currently, commitments to disburse monies in future periods are fully expensed even before services are rendered. IPSAS stipulates that expenses should be recorded when a product or service is delivered. 4. Obligations & Expenses (Contracts) Purchase amount (including any costs to bring it into operation) are fully expensed under the current system. Under IPSAS this cost will be spread over the asset’s useful life. Assets may be reported at market value. 3. Fixed assets (Buildings, equipment, land) Accrued benefits will no longer be recognized only when disbursements are made, but will be accrued as the employee earns the benefit. 2. Staff Benefits (Annual leave, home leave, repatriation) Instead of recording quota/contribution income when cash is received, a receivable is recorded when the commitment becomes binding, regardless of the actual payment date (budget resolution, signed agreements).
Quotas & Other Income
(Regular Fund, FEMCIDI, Specific Funds)
IPSAS What Changes? (continued…) Financial statements will have enhanced disclosures that heighten transparency and accountability. A Statement of Cash Flows is required and financial statements must be reconciled to budgets. 7. Financial Statements Instead of immediately expensing cash advances, employee receivables will be recorded. These will be expensed as the underlying good or service is acquired. 6. Unexpended Advances (accountable advances, travel advances) Investments are currently recorded at purchase price, which fails to reflect any possible fluctuations in its market price. Under IPSAS, the fair market value for OAS investments will be adjusted at the end of each reporting period. 5. Financial instruments (Investments)
IPSAS What Changes? For illustrative purposes only
IPSAS What Changes? For illustrative purposes only
IPSAS Financial Statement Format under IPSAS For illustrative purposes only
3. The Way forward
Describes the progress achieved to date as the foundation of this larger modernization effort and in particular the Organization’s transition to IPSAS
Progress report Actions taken at OAS
Documented existing business processes and assessed changes required in order to transition to accrual-based accounting.
Standardized project costing and budget formats.
Joined the UN IPSAS Task Force in order to keep abreast of developments, share knowledge and develop solutions.
Initial training efforts: Joint orientation session with PAHO on IPSAS adoption, IPSAS Technical Update Seminars, Training and Certification programs for financial managers (CGFM).
3. Technical Capacity
IPSAS GAP Analysis: Public accounting firm performed a detailed comparison of OAS Standards vs. IPSAS Standards (2007).
Began quantifying existing employee liabilities as part of the standardization of human resource hiring and contracting mechanisms.
2. Analysis Developed project plan for IPSAS Implementation.
SAF and GS/OAS’ External Auditors work to quantify financial implications of IPSAS adoption.
Recent appraisals value OAS properties at $343 million. Unrecorded liabilities (annual leave, post-employment health benefits, etc.) approximate $100 million.
Perform assessment of changes required to existing ERP to support IPSAS based financial statements.
2009 Annual Report will include certain IPSAS required reporting formats and disclosures.
Second progress report to CAAP by March 2010.
Obtain Governing Bodies approval to adopt standards by June 2010.
Recommend and adopt changes to the General Standards by June 2011.
Commence accounting and reporting under IPSAS Standards in Jan 2012.