Call for Pakistan Public Sector Accounting Standards Board
Pakistan Consortium on Governmental Financial Management, The Pakistan Consortium on Governmental Financial Management (the Society) was established on 28 August 1999. It is now an incorporated body with the registered office situated in Islamabad. The sponsors of the Society are ICAP, ICMA and the Auditor-General of Pakistan and the governing body consists of 12 members, four from each sponsoring organization.
Any person who is a member of ICAP, ICMA or any officer of the Auditor-General’s Department holding a post of B-17 or above may be admitted by the governing body as a member of the Society.
The main objectives of the Society are as follows:
FINANCIAL MANAGEMENT AND GOVERNANCE ISSUES IN PAKISTAN
- To promote and establish the Pakistan chapter of the International Consortium of the Governmental Financial Management to promote a better understanding of the professional financial management among public officials, at all levels of budgeting, data processing, debt administration, social safety net administration, tax administration and treasury management
- To improve public financial management system by encouraging participation and affiliation of individuals and groups concerned with various specialized areas of activity of interest within a broad field of public financial management.
- To promote exchange of programs, information, documents and ideas relating to public financial management of systems nationally and internationally and develop and disseminate guidelines for professional public financial management.
- To provide a permanent organizational structure and mechanisms with national and international organizations, institutions and other bodies.
- To encourage sponsors, conduct or collaborate in appropriate research and publish results thereof, provide a clearing house of information relevant to financial management; undertake consultancy work both nationally and internationally and establish liaison with those organizations which are capable of promoting the objectives of the society.
- To promote understanding of public financial management as a basic responsibility of all public officials at all levels and providing a forum for discussion of common public financial management problems.
- To collaborate in the development of programs nationally and internationally involving sophisticated technologies, ensure professional quality and uniform criteria and provide quality control.
- To accept grants of money, sponsorships, donations, fees, securities or property of any kind, on such terms as deemed fit by the governing body.
- To provide help and assistance to Standing Committees of Senate, National Assembly and other committees whenever required.
- To organize training courses, seminars, workshops, technical meetings and other professional development events directed towards improving public financial management.
ACCOUNTING AND AUDITING STANDARDS
- To develop uniform, financial reporting formats, which ensure greater transparency, permit comparability and increase utilization of financial management information.
- To develop a code of ethics for establishing and maintaining high standards of integrity, honesty, morality, ethics and character among financial managers and staff members.
- To emphasize importance of professional management of scarce public financial resources and increase economy, efficiency and effectiveness of public sector activities, projects and programs.
- To send experts and representatives to other countries and invite representatives and experts of foreign countries, bodies, societies, institutions etc., having the same aims as the Society to attend conferences (local or international), meetings and functions to deliver lectures, etc.
- To make arrangements and take all necessary steps including entering into agreements with the governmental, national, provincial, local or municipal, or foreign institutions or individuals or other authorities at any place in which the Society may have interests and to carry on any negotiations or operations for the purpose of directly or indirectly promoting the purposes of the Society.
- The Society is in the establishment stage and Pakistan Audit Department is currently being used as the Registered Office and Secretariat. Arrangements are currently being made to hold an international seminar on one of the following topics:
- Asset management and asset accounting in the Public Sector.
- Towards a more efficient regulatory mechanism for the industrial sector.
- Managing the transition towards a market economy.
BRIEF ABOUT INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS
IPSAS aims to improve the quality of general purpose financial reporting by public sector entities, leading to better informed assessments of the resource allocation decisions made by governments, thereby increasing transparency and accountability.
IPSAS are accounting standards for application by national governments, regional (e.g., state, provincial, territorial) governments, local (e.g., city, town) governments and related governmental entities (e.g., agencies, boards and commissions). IPSAS standards are widely used by intergovernmental organizations. IPSAS do not apply to government business enterprises.
IPSAS are issued by IPSASB (International Public Sector Accounting Standards Board), an independent organ of IFAC (International Federation of Accountants). The IPSASB adopts a due process for the development of IPSAS that provides the opportunity for comment by interested parties including auditors, preparers (including finance ministries), standard setters, and individuals. IPSASB meetings to discuss the development and to approve the issuance of IPSAS or other papers are open to the public. Agenda papers, including the minutes of the meetings of the IPSASB, are published on the IPSASB’s website: www.ipsasb.org. Observers on the IPSASB meetings include ADB, EU, IASB, IMF, INTOSAI, OECD, World Bank, UN and UNDP.
Convergence of IPSAS with IFRS
IPSAS are based on the International Financial Reporting Standards International Financial Reporting Standards (IFRS), formerly known as IAS. IFRS are issued by the International Accounting Standards Board (IASB). IPSASB adapts IFRS to a public sector context when appropriate. In undertaking that process, the IPSASB attempts, wherever possible, to maintain the accounting treatment and original text of the IFRS unless there is a significant public sector issue which warrants a departure.
Language of IPSAS
The approved text of IPSAS standards is that published by the IPSASB in the English language. The IPSASB Handbook has been translated from English into a number of languages, including French, Spanish, German, Russian and Chinese. The Arab Society of Certified Accountants (ASCA) of Jordan issued an Arabic version of the IPSASB Handbook. In addition, Brazil is working on translation of IPSAS into Portuguese.
Features of IPSAS
There are 26 standards on the accrual basis of accounting and one standard on the cash basis of accounting. Further standards are being prepared. When the accrual basis of accounting underlies the preparation of the financial statements, the financial statements will include the statement of financial position, the statement of financial performance, the cash flow statement and the statement of changes in net assets/equity. When the cash basis of accounting underlies the preparation of the financial statements, the primary financial statement is the statement of cash receipts and payments.
IPSAS Adoption by neighboring Country
Process in place to adopt IPSAS, first cash basis then accruals. Legislation passed.
The Malaysian Federal Government has adopted the cash basis IPSAS. Its financial statements for the year ended December 31, 2005 were prepared in accordance with the cash basis IPSAS, were audited by the Supreme Audit Institution of Malaysia and received an unqualified audit opinion.
There is general consensus among policy makers, accounting professionals, and international organizations on the need for Nepal to adopt the cash basis IPSAS. Nepal has been developing Nepal public sector accounting standards by referring to the cash basis IPSAS in a close collaboration between the professional accountants and government officials. Attempts are being made to change the accounting regulations in order to incorporate the mandatory use of IPSAS.
The state annual accounts are prepared in accordance with the cash basis IPSAS since 2002. The incorporation of the additional accrual disclosures in the financial statements has been seen as a first step towards the accrual-basis of accounting. The government has expressed its commitment towards adopting the accrual-basis IPSASs for accounting and budgeting. The Government of Sri Lanka has requested that the Institute of Chartered Accountants of Sri Lanka prepare suitable accrual basis accounting standards for use by public sector entities. The ICASL’s Public Sector Accounting Standards Committee has begun the process of developing Sri Lankan versions of the IPSASs, as at July 2009, five standards had been completed and forwarded to the Government.
The Government Accounting Standards Advisory Board is in favor of limited adoption of cash basis IPSAS for cash transactions and corresponding accrual IPSASs for those transactions recorded on other than the cash basis. A road map has been prepared for transition from the cash to accrual accounting system and an operational framework for its implementation. The possible transition towards accrual accounting has been planned incremental and in phases spanning from 10–12 years. The central government and the majority of Indian state governments have accepted the idea of accrual accounting. The Committee on Accounting Standards for Local Bodies is reviewing IPSAS with a view to their adoption.
The impact of the credit crisis on public sector accounting
The credit crisis has raised several public sector accounting issues. Governments have extended credit to banks, guaranteed the liabilities of banks, purchased impaired debt instruments and in some instances have assumed control of banks. The unique nature of the credit crisis and the unprecedented response by governments around the world has reinforced the importance of high-quality standards for financial reporting by governments. The credit crisis has increased the need for accountability in the public sector and for transparency in its financial dealings.
In Pakistan a Governmental Accounting Standards Board (GASB) or Pakistan Public Sector Accounting Standard Board (PPSASB) could be formed under as in United States, the auspices of the Commission/foundation consisting of Ministry of Finance, Auditor General of Pakistan, Pakistan Institute of Public Finance Accountants, Institute of Chartered Accountants of Pakistan and Institute of Cost and management Accountants of Pakistan to establish financial accounting and reporting and auditing standards for country, provinces and local government entities. These standards would be important because external financial reporting can demonstrate financial accountability to the public. They would be the basis for many legislative and regulatory decisions, as well as investment and credit policies. The foundation would responsible for selecting the any predetermined numbers of members of GASB/PPSASB and its Advisory Council, funding their activities, and exercising general oversight. Except for the chairman of GASB/PPSASB, all members could be part time.
GASB/PPSASB ‘s mission would be to establish and improve standards of country, provinces and local governmental accounting and financial reporting that will (1) result in useful information for users of financial reports and (2) guide and educate the public, including issuers, auditors, and users of those financial reports. To accomplish its mission, GASB/PPSASB would acts to:
1. Issue standards that improve the usefulness of financial reports based on (a) the needs of financial report users, (b) the primary characteristics of understandability, relevance, and reliability, and (c) the qualities of comparability and consistency.
2. Keep standards current to reflect changes in the governmental environment.
3. Provide guidance on implementation of standards.
4. Consider significant areas of accounting and financial reporting that can be improved through the standard-setting process.
5. Improve the common understanding of the nature and purposes of information contained in financial reports.
GASB/PPSASB would formulate and uses concepts to guide them in the development of their standards. These concepts would provide a frame of reference for resolving accounting and financial reporting issues. This framework would help to establish reasonable bounds for judgment in preparing and using financial reports; it would also help the public understand the nature and limitations of financial reporting. GASB/PPSASB would actively solicit and consider the views of its various constituencies on all accounting and financial reporting issues. GASB/PPSASB ‘s activities would be open to public participation and observation under “due process” procedures. These procedures are designed to permit timely, thorough, and open study of accounting and financial reporting issues. Consequently, broad public participation may encouraged in the accounting standard-setting process, which may permits communication of all points of view and expressions of opinion at all stages of the process. Use of these procedures would recognizes that general acceptance of the GASB/PPSASB conclusions is enhanced by demonstrating that the comments received during due process may be considered carefully.
In establishing concepts and standards, the GASB/PPSASB may exercises its judgment after research, due process, and careful deliberation. Some of the principles may be used by GASB/PPSASB could be as follows:
1. One of GASB/PPSASB ‘s overriding principles may be that it would be objective and neutral in its decision making. This principle ensures, as much as possible, that the information resulting from its standards is a faithful representation of the effects of federal, provincial and local government activities. Objective and neutral means freedom from bias, precluding GASB/PPSASB from placing any particular interest above the interests of the many who rely on the information contained in financial reports.
2. Another primary principle may be to weigh carefully the views of its constituents in developing concepts and standards. This would permits GASB/ PPSASB to (a) meet the accountability and decision-making needs of the users of government financial reports and (b) gain general acceptance among federal, provincial and local government preparers and auditors of financial reports.
3. A third principle could be to establish standards only when the expected benefits exceed the perceived costs. GASB/PPSASB would strives to determine that proposed standards (including disclosure requirements) fill a significant need and that the costs they impose, compared with possible alternatives, are justified when compared to the overall public benefit.
4. A fourth principle could be to consider the applicability of its standards to the separately issued general-purpose financial statements of governmentally owned special entities. GASB/PPSASB would specifically evaluates similarities of special entities and of their activities and transactions in both the public and private sectors, and the need, in certain instances, for comparability with the private sector.
5. A fifth principle could be to bring about needed changes in ways that minimize disruption of the accounting and financial reporting processes. Reasonable effective dates and transition provisions are established when new standards are introduced. GASB/PPSASB may considers it desirable that change should be evolutionary to the extent that can be accommodated by the need for under-standability, relevance, reliability, comparability, and consistency.
6. A final principle for now could be to review the effects of past decisions for appropriateness. This will permits continual interpretation, amendment, or replacement of standards, when deemed necessary.
International standard-setting body for the public sector is The Public Sector Committee of the International Federation of Accountants (IFAC-PSC) assumed responsibility in 1998 for developing a set of financial reporting standards to be adopted worldwide by public sector entities. More information is available from IFAC-PSC at 535 Fifth Ave., 26th floor, New York, NY;(212) 286-9344; or http://www.ifac.org/Committees/PublicSector/index.html.
International Public Sector Accounting Standards Summary
IPSAS 1 Presentation of Financial Statements IAS 1
IPSAS 2 Cash Flow Statements IAS 7
IPSAS 3 Accounting Policies, Changes in
Accounting Estimates and Errors IAS 8
IPSAS 4 The Effects of Changes in Foreign
Exchange Rates IAS 21
IPSAS 5 Borrowing Costs IAS 23
IPSAS 6 Consolidated and Separate
Financial Statements IAS 27
IPSAS 7 Investments in Associates IAS 28
IPSAS 8 Interests in Joint Ventures IAS 31
IPSAS 9 Revenue from Exchange Transactions IAS 18
IPSAS 10 Financial Reporting in Hyperinflationary
Economies IAS 29
IPSAS 11 Construction Contracts IAS 11
IPSAS 12 Inventories IAS 2
IPSAS 13 Leases IAS 17
IPSAS 14 Events After the Reporting Date IAS 10
IPSAS 15 Financial Instruments: Disclosure and
Presentation – superseded by IPSAS 28 and IPSAS 30
IPSAS 16 Investment Property IAS 40
IPSAS 17 Property, Plant and Equipment IAS 16
IPSAS 18 Segment Reporting IAS 14
IPSAS 19 Provisions, Contingent Liabilities and
Contingent Assets IAS 37
IPSAS 20 Related Party Disclosures IAS 24
IPSAS 21 Impairment of Non-Cash-Generating
Assets IAS 36
IPSAS 22 Disclosure of Financial Information
About the General Government Sector N/A
IPSAS 23 Revenue from Non-Exchange
Transactions (Taxes and Transfers) N/A
IPSAS 24 Presentation of Budget Information in
Financial Statements N/A
IPSAS 25 Employee Benefits IAS 19
IPSAS 26 Impairment of Cash-Generating Assets IAS 36
IPSAS 27 Agriculture IAS 41
IPSAS 28 Financial Instruments: Presentation IAS 32
IPSAS 29 Financial Instruments: Recognition
and Measurement IAS 39
IPSAS 30 Financial Instruments: Disclosures IFRS 7
IPSAS 31 Intangible Assets IAS 38
It is my heartiest recommendation that the ‘Pakistan Institute of Public Finance Accountants’ should approach the Society (i.e The Pakistan Consortium on Governmental Financial Management) and the Government for being given the task of to create the Public Sector Accounting Standards Board.
Beside the above it is also recommended that a Research and Development Committee of the Professionals may be formed to analysis the adaptability of the International Standards on Accounting and Auditing in the environment of Pakistan and to propose a draft for adoption of the same. Likewise India mind-set has to be cultivated for the adoption of cash basis IPSAS for cash transactions and corresponding accrual IPSASs for those transactions recorded on other than the cash basis. A road map has to be prepared for transition from the cash to accrual accounting system and an operational framework for its implementation. While dealing with the road map The Role of the Regulator in the Interpretation and Enforcement of Public Sector Accounting Standards would also be the point of discussion.
This could only be happen with the help of Auditor General of Pakistan and Ministry of Finance. PIPFA may also formulate and propose a bill to assembly via Ministry of Finance for the said purpose. This is the social responsibility of the professional bodies working in the country to formulate and propose the best guidelines after the detailed discussions in various professional forums as these bodies are the think-tank comprising of professionals. We have to propose improvements in the Statue in this regard i.e The Auditor General’s Ordinance 2001. Committee/Board as recommended should be set up to review and adopt the International Standards on Auditing on a continuous basis.
PIPFA must continue to review its syllabus in order to cover all areas recommended by IFAC-issued International Educational Standards (IES). Mandatory Training Programs, Seminars and conferences should also be conducted.