IPSAS and Public Sector Financial Reporting Quality in Nigeria
Chapter One
Abstract
In this quantitative research study, a survey research design was employed to investigate the impact of International Public Sector Accounting Standards (IPSAS) adoption on the quality of financial reporting within Nigerian public sector entities. A structured questionnaire was meticulously designed for data collection from a sample of 120 respondents, consisting of public sector employees from various organizations in Nigeria. The Statistical Package for the Social Sciences (SPSS) version 27 was utilized to both present and analyze the collected data. The study was centered around testing hypotheses related to the impact of IPSAS adoption. To this end, a series of one-sample t-tests were conducted to examine these hypotheses, where the assumed mean was generally zero. The computed t-statistics were then compared to critical table values at a 5% level of significance to determine whether the hypotheses could be accepted or rejected. The findings from the t-test results revealed valuable insights. The study found that IPSAS adoption significantly enhanced the credibility of financial statements reported by public sector entities in Nigeria. It was also observed that IPSAS adoption improved the comparability of financial information among these entities. Furthermore, the study indicated that IPSAS adoption promoted effective budget implementation in the Nigerian public sector. Lastly, it was established that IPSAS adoption led to efficient management of public funds by public entities in Nigeria. In conclusion, this research provides substantial empirical evidence of the positive impact of IPSAS adoption within the Nigerian public sector. The findings support the view that adherence to IPSAS significantly enhances financial reporting quality, comparability, budget implementation, and fund management. The implications of these findings are crucial for policy and decision-makers in the Nigerian public sector. As such, several recommendations are put forth to further strengthen the impact of IPSAS adoption. These include the continuous monitoring and evaluation of IPSAS implementation, enhanced training and capacity building for public sector employees, and the encouragement of transparency and accountability in financial reporting practices. In summary, this study underscores the benefits of IPSAS adoption for the Nigerian public sector, advocating for its continued implementation and further research to refine and advance these findings.
CHAPTER ONE
INTRODUCTION
Background to the Study
In recent times, countries of the world have set standards of financial reporting in their nations. Cross-border transactions have brought about ever-increasing international trade, commerce and increased collaboration among countries of the world (Ijeoma & Oghogbomeh, 2014). Due to this development, there is a greater need for increased uniformity, comparability and transparency in the standards guiding financial statements of public entities, so that such statements would remain relevant and convene the same information to users across the world.
Public Sector Accounting Standards (IPSAS) was first introduced in 1997 by the International Federation of Accountants (IFAC) to promote high-quality financial reporting and accounting standards for the public sector. Since then, many countries around the world have adopted IPSAS as their financial reporting standards, including Nigeria.
The public sector refers to the part of the country’s segment where organizations and corporations are controlled by the public through selected individuals known as the government (Acho, 2014). The public sector refers to all corporations which are established, run and financed by the government on behalf of the public (Adams, 2010).
The International Public Sector Accounting Standards Boards (IPSASB) govern the accounting activities of public sector entities except Government Business Enterprises (Heald, 2003).
International Public Sector Accounting Standards (IPSAS) are a set of accounting standards issued by IPSASB for government accounting in response to calls for greater government financial transparency, accountability and value relevance. Since IPSAS are recognized and accepted by international bodies; countries are advised to adopt and harmonize their national accounting standards in line with international best practices, however, IPSAS deserves the attention of government regulators, policy-makers, practitioners and academics alike (kanellos & Evangelos, 2003).
In 2012, the Nigerian government through the Office of the Accountant General of the Federation (AGF) adopted IPSAS as its financial reporting standard for the public sector. This was a major step towards improving transparency and accountability in the Nigerian public sector’s financial reporting.
The implementation of IPSAS in Nigeria was phased, starting with the adoption of the cash basis IPSAS in 2012, followed by the accrual basis IPSAS in 2016. The adoption of IPSAS in Nigeria was aimed at improving financial management, transparency, and accountability in the public sector, as well as promoting the comparability of financial statements across different countries.
However, the adoption of IPSAS in Nigeria has not been without its challenges. There have been issues with the capacity of public sector accountants to implement the new standards, as well as challenges with the availability and quality of financial data needed to prepare IPSAS-compliant financial statements. Nonetheless, the adoption of IPSAS in Nigeria represents a significant step towards improving the quality of financial reporting in the Nigerian public sector.
International Public Sector Accounting Standards govern the accounting of public sector entities, except Government Business Enterprises. GBEs apply International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).
Heald (2003) noted that International Public Sector Accounting Standards (IPSAS) is at present the focal point of a global revolution in government accounting in response to calls for greater government financial accountability and transparency. The Public sector comprises entities or organizations that implement public policy through the provision of services and the redistribution of income and wealth, with both activities supported mainly by compulsory tax or levies on other sectors as noted by Kara (2012).
Nigeria, a leading African nation with a population of over 150 million people and a foremost Organization of the Petroleum Exporting Countries (OPEC) member, with a public sector-dominated economy, has identified the need to consider the value proposition of the IPSAS and implement it into main relevant (Ijeoma & Oghoghomeh, 2014). However, government interventions following the global financial crisis in the private sector have increased many governments’’ exposures and debt levels. Hence, decision-making is getting harder, especially if the view of what is “sustainable” is difficult to see.
The focus on the private sector is huge when failure occurs and therefore accounting, audit, and reporting standards are set at a high level and rigorously enforced (Ijeoma & Oghoghomeh, 2014).
Timely, clear, and open annual financial statements play a significant role in the accountability of governments to their citizens and their elected representatives. These financial statements are prepared on a cash basis or some variation of an accrual basis of accounting. The benefits of achieving consistent and comparable financial information across jurisdictions are very important and International Public Sector Accounting Standards (IPSAS) have been established by the IPSAS Board to assist in that endeavour (Stephen et al, 2012).
The adoption of IPSAS is expected to improve the quality of financial reporting by providing a common framework for accounting and reporting. However, there is a need to conduct empirical research to investigate the relationship between IPSAS adoption and financial reporting quality in the Nigerian public sector. Therefore, this study aims to analyze the relationship between IPSAS adoption and financial reporting quality in the Nigerian public sector.
By examining the extent of IPSAS adoption and the quality of financial reporting, this study will provide valuable insights into the benefits and challenges of IPSAS adoption for the Nigerian public sector. The findings of this study will be useful to policymakers, practitioners, and researchers interested in financial reporting quality and IPSAS adoption in the public sector.
Statement of the Problem
The statement research problems identified in this study are, firstly, the poor budget implementation and lack of accountability in the financial reporting of the Nigerian public sector under the cash basis regime (Ibanuchuka & James, 2014). Secondly, according to Transparency International 2014, Nigeria was ranked 136 out of 175 countries on the corruption perception index on public sector transparency and accountability. Lastly, there exist various economic crises in many developing countries in Africa and Nigeria inclusive. There a high government debt levels in various sectors therefore, there is high-quality quality financial reporting to manage government finances carefully.
IPSAS adoption is expensive in all material respects, so expensive that some experts have contended that its 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.
Purpose of The Study
The research objectives identified in this study are stated as follows due to the approval of the Federal Executive Council adoption of IPSAS in the year 2014:
- To examine the overall impact of IPSAS adoption on the quality of financial reporting in the Nigerian public sector.
- To examine the extent to which IPSAS adoption has improved the elements of quality of financial reporting in terms of accountability, transparency, comparability, value relevance and full representation in the Nigerian public sector.
- To ascertain the extent to which IPSAS-based accrual basis promotes efficient and effective financial reporting of public sector organizations compared to cash basis.
Research Questions
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 the credibility of financial statements reported by the public sector entities in Nigeria?
- To what extent would the International Public Sector Accounting Standards adoption enhance 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 enhance effective budget implementation in Nigeria?
- To what extent would International public sector accounting standards adoption lead to efficient management of public funds by the public entities in Nigeria?
Research Hypothesis
The following hypotheses shall be tested
Hypotheses One
Ho: The International Public Sector Accounting Standards adoption does not enhance the credibility of financial statements reported by the public sector in Nigeria.
H¹: The International Public Sector Accounting Standards adoption enhances the credibility of financial statements reported by the public sector in Nigeria.
Hypotheses Two
Ho: The International Public Sector Accounting Standards adoption does not enhance the comparability of financial information reported by the Public sector entities in Nigeria.
H¹: The International Public Sector Accounting Standards adoption enhances the comparability of financial information reported by the Public sector entities in Nigeria.
Hypotheses Three
Ho: The International Public Sector Accounting Standards adoption by the public sector does not enhance effective budget implementation in Nigeria.
H¹: The International Public Sector Accounting Standards adoption by the public sector enhances effective budget implementation in Nigeria.
Hypotheses Four
Ho: The International Public Sector Accounting Standards adoption does not lead to efficient management of the public fund by the public entities in Nigeria.
H¹: The International Public Sector Accounting Standards adoption leads to efficient management of public funds by the public entities in Nigeria.
Significant 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, and th informative and comprehensiveness of financial information.
Ministries at the federal government level in Nigeria and beyond will be brought to terms with 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.
scope and limitation of the study
International public sector accounting standard (IPSAS) and public sector 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 institutions.
definition 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 standard to be used by publicly accountable enterprises.
Accounting: Accounting or accountancy is the measurement, processing and communication of financial information about economic entities such as businesses and corporations.
Financial Statements: 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: This means timely, meaningful and reliable disclosures about a company’s financial performance. Companies need to provide transparent financials to raise capital. Investors need transparency 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.
References
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