Is IPSAS Implementation Related to Fiscal Transparency and Accountability?
| Autor | Castaneda-Rodriguez, Victor |
| Cargo | Research Article |
INTRODUCTION
There are many governments around the world in a race to implement International Public Sector Accounting Standards (IPSAS) (1) with the hope of improving state intervention, efficiency, comparability, transparency, and accountability (Association of Chartered Certified Accountants [ACCA], 2017; Deloitte, 2013; International Public Sector Accounting Standards Board [IPSASB], 2014; Lusinyan, et al., 2009; Polzer, Grossi, & Reichard, 2021), but with uncertainty about the compliance of those goals. For their part, multilateral institutions state that the adoption of IPSAS allows obtaining high quality public financial reporting and favors transparency and accountability (Ball, 2012; Brusca, Gomez-Villegas, & Montesinos, 2016; Castaneda-Rodriguez, 2019; Schmidthuber, Hilgers, & Hofmann, 2020), although implementing them is a costly process in terms of money and time (Carnegie & West, 2005), and does not guarantee better results in those matters.
Indeed, improving transparency and accountability requires an active role of the citizens since it is more likely that governments take responsibility for their actions when people request information on public issues and exercise citizen oversight (Fung, 2015). In addition, although IPSAS define some criteria for recording, disclosing, and measuring economic transactions, they leave without deep discussion many topics (e.g., pension funds and heritage assets) (Biondi & Lapsley, 2014), which hampers harmonization and comparability (Polzer et al., 2021). For instance, some balance sheet items are not traded in an active market (e.g., many intangible assets), which gives rise to estimations that may be arbitrary and unreliable (Carnegie & West, 2005). The above obstacles make the goals pursued through IPSAS implementation more difficult to achieve, which warrants further research in this area.
Consequently, it is important to have empirical evidence on whether the characteristics behind the preparation of public financial information, particularly the accounting bases and frameworks (e.g., IPSAS), are related to transparency and accountability, for example. To the authors' knowledge, there are few empirical studies that analyze the association between IPSAS implementation and institutional features such as quality of governance, transparency, or corruption (e.g., Cuadrado-Ballesteros & Bisogno, 2020; Cuadrado-Ballesteros, Citro, & Bisogno, 2020; Kartiko, Rossieta, Martani, & Wahyuni, 2018; Galera & Bolivar, 2012). However, these researches have some limitations as they focus only on developed countries (e.g., OECD), take into account particular experiences, or use dichotomous measures to refer to the public financial information reporting frameworks (e.g., it equals one when accrual-based IPSAS are adopted and zero otherwise).
Then, this paper constitutes a step toward closing that gap in the empirical literature, since we study whether the alleged outcomes of IPSAS implementation have evidence in their favor, based on a cross-sectional dataset with observations from more than 70 both developed and developing countries in 2018. Particularly, we analyze the association between the bases and the frameworks that central governments use for financial reporting purposes, for which we use the database built by the IFAC and the Chartered Institute of Public Finance and Accountancy [CIPFA] (2018), and both budgetary transparency and accountability. We focus on budgetary transparency as politicians tend to pay more attention to budget information than to financial reports (Brusca & Montesinos, 2014; Polzer, Garseth-Nesbakk, & Adhikari, 2019) and current public financial reforms seek that IPSAS implementation contributes to improve--make more transparent--budgetary accounting. (2)
Meanwhile, budgetary transparency and accountability could change in response to other political and socioeconomic variables. Therefore, we complete our dataset with other factors that have been identified as potential fiscal transparency (or accountability) determinants (see, e.g., Besley & Burgess, 2002; Cicatiello, Simone, & Gaeta, 2017; Rodriguez, Alcaide, & Lopez, 2013). In the end, we find that other variables such as the degree of citizens' political participation and media freedom are more important for analyzing differences in fiscal transparency and accountability in the world than public financial accounting bases and frameworks (in particular IPSAS).
In addition to this introduction, this paper includes five sections. First, we briefly discuss how the so-called NPM has favored IPSAS adoption as a reference for enhancing public financial information, to the point that nowadays many countries are involved into the process of adopting them with the hope of improving also accountability and transparency, but with uncertainty to this regard. Later, we present some concepts and theoretical models that are relevant to this study and, in a third part, we describe the data and methods used. We summarize and comment on the results in the fourth section and finally list the conclusions.
THE EMERGENCE OF THE IPSAS AS A BENCHMARK FOR PUBLIC ACCOUNTING REFORMS AND THEIR IMPLEMENTATION DIFFICULTIES
The application of reforms based on the New Public Management (NPM) gives a notable role to financial and budget information for public administration purposes. Indeed, the cost-benefit analysis, in which measuring costs, revenues, and debt is central, has become a requirement to approve and implement certain policies. For instance, Kurunmaki (2009, p. 1375) stresses that "to make themselves heard and believed, health professionals had started to inform their various proposals with economic rationality, rather than in purely medical terms."
Thus, the NPM fostered the implementation of private sector and business approaches in order to make public sector more efficient (Gomes, Fernandes, & Carvalho, 2015; Kartalis, Tsamenyi, & Jayasinghe, 2016). Financial information is taken as a key input to make decisions in the public arena (e.g., the approval and funding of an investment project), although its preparation requires that accountants follow certain criteria to recognize and measure economic transactions. To this regard, policy makers and multilateral institution (e.g., the Organization for Economic Cooperation and Development--OECD, the International Monetary Fund--IMF, and the World Bank) have promoted, especially since the 90s, the adoption of accrual accounting systems and IPSA[S.sup.3] (Ball, 2012; Brusca et al., 2016; Carnegie & West, 2005; Castaneda-Rodriguez, 2019; Chan, 2008; Gomez-Villegas, Brusca, & Bergmann, 2020; Krishnan, 2021).
Indeed, pressures to adopt IPSAS in particular countries, especially in developing ones, come also from abroad (Castaneda-Rodriguez, 2019; Chan, 2008; Krishnan, 2021). (4) Multilateral institutions such as the IMF, the World Bank, and the IFAC stress that these standards favor comparability, transparency, and accountability. For instance, many IMF reports suggest that disclosure under IPSAS favors fiscal stability, monitoring, and risk management (see, e.g., GomezVillegas et al., 2020; Lusinyan, et al., 2009). Likewise, the IPSASB (2014) points out that "highquality, robust and effective accrual-based financial reporting systems, such as those based on International Public Sector Accounting Standards (IPSAS), are integral to enhancing accountability and transparency in government financial reporting." (IPSASB, 2014, p. 2).
Therefore, public financial information reporting under a private sector-like approach is considered internationally as a required step toward the improvement of public management (Kartalis et al., 2016). IPSAS have become a benchmark for public sector modernization since they are based on International Financial Reporting Standards (IFRS) (Chan, 2008; Christiaens, Reyniers, & Rolle, 2010; Kartiko et al., 2018), which suggests an easier comparison between public and private agents' performance, although that is debatable (see, e.g., Mattei, Jorge, & Giulio, 2020). However, this has been a reason for criticism since the IFRS disregard particular dynamics and aims of public sector (Brusca et al., 2016; Castaneda-Rodriguez, 2019).
For instance, IPSAS include few changes or additions to full IFRS (Chan, 2008), which responds to the idea that financial information should be useful for measuring profitability (or fiscal balance) or making cost-benefit analysis in the public arena. The comparison between IPSAS and IFRS shows that similarities prevail and only some modifications have been included when public transactions go beyond the IFRS scope (Brusca, Montesinos, & Chow, 2013). Thus, there are few specific accounting standards for public sector, and nowadays only five IPSAS (i.e., 22, 23, 24, 32, and 40) are not based on IFRS.
The adoption of IPSAS, based on the principle of accrual accounting, is taken as the right way to increase public transparency and accountability (Brusca et al., 2016). Accrual accounting implies that revenues and expenditures are recorded when they occur rather than when cash is disbursed, which makes easier identifying timely and faithfully the costs of state's interventions. Likewise, the fair value, as a measurement criterion promoted by these standards, points to the recognition of changes of assets and liabilities because of market forces, which makes accounting values closer to market prices depending on the revaluation frequency.
In line with the above, many governments are adopting IPSAS and accrual accounting or planning to do so for their financial reporting purposes. For instance, and according to the IFAC and the CIPFA (2018), 65% of the governments under study would report on accrual basis within five years (today this figure is close to 25%) and 73% of them (around 72 governments) would be applying IPSAS.
But despite the supposed benefits of IPSAS adoption, such as harmonization, comparability...
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