What emerging economies and low-income countries need to do before adopting International Public Sector Accounting Standards

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The harmonization of financial reporting in the public sector has been a major recent accounting reform initiative. The International Public Sector Accounting Standards (IPSAS) have become an international benchmark for evaluating these changes. Recent academic research on the adoption of IPSAS in emerging economies and low-income countries conducted a systematic assessment of peer-reviewed journals, covering 41 articles since the standards were published in 2003.

The potential benefits for governments of adopting IPSAS include enhanced accountability and transparency, improved decision making, and increased efficiency.  Nonetheless, the literature suggests the adoption of IPSAS could present challenges, especially when countries are not sufficiently prepared, when it comes to converging diverging national accounting and administrative traditions, implementation costs or preserving national sovereignty.

The study finds that IPSAS has become an important issue in emerging economies and low-income countries. The number of publications devoted to IPSAS has increased each year, although existing research remains often explorative and descriptive. 

The recent study provides evidence that a plurality of articles (39.0%) are cross-country analyses. The majority of articles (56.1%) focus on the central government level. The state/regional level is targeted in only one single article (2.4%), and there are just two articles (4.9%) on the local government level. Only one article (2.4%) focuses on the level of single public-sector organizations. Finally, 9.8% of articles research the adoption of IPSAS in multiple levels of government (while 24.4% are not specific about the level of analysis). The study indicates that the implementation of IPSAS in emerging economies and low-income countries might be more successful if it is preceded or accompanied by further managerial reforms. Looking at the topics to which IPSAS adoption is linked, the study identifies a thematic embedding with the targets pursued with implementation (accountability, transparency, harmonization and fighting corruption).

Although the priority of the IPSAS Board has been to promote the accrual-based IPSAS, emerging economies and low-income countries are encouraged, particularly by international organizations, to adopt the Cash Basis IPSAS as a first step for a longer-term transition toward accrual-based IPSAS. In many emerging economies and low-income countries, local accounting and reporting practices already far exceed the requirements laid down in that standard. In such nations, the drive to implement the standards can stem more from external groups such as donor organizations, the accounting profession or consulting companies, than governments. These external stakeholders might have interests that differ from the interests of the governments in the countries concerned. The presence of well-developed accounting systems in such countries when compared to Cash basis IPSAS, can help such countries move towards accelerated and effective migration to accrual IPSAS, if the goals of country authorities and external partners converge.

Commonly noticed barriers to implementation of accrual IPSAS include limited planning; poorly grounded reform recipes, mainly the pursuit of once-size-fits-all approaches; inadequate IT facilities; lack of training of staff; and the intervention of consultants and professional accountants.

The study outlines a number of avenues for further research. First, it recommends evaluating the outcomes of IPSAS in different contexts, acknowledging that the specific situations of countries are far from homogenous. Indeed, formally introducing accrual IPSAS will be effective only with corresponding monitoring of progress and use. Second, research needs to focus on the role of local stakeholders, such as professional accounting bodies and professional associations of public-sector accountants, that will work with the new standards on a day-to-day basis. There also is a need for more in-depth insights about securing the commitment of accountants and users of financial reporting. Third, the study calls for more research on the regional and local level and at the level of individual organizations.

The research echoes previous recommendations that the characteristics of emerging economies and low-income countries need to be taken into account when adopting (public sector) accounting reforms.  The point is not to remove the structures already in place, but to intelligently apply existing accounting systems regulations when adopting the IPSAS. 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, for example by addressing basic issues before implementing more advanced reforms. Also, IPSAS could be first introduced in pilot programs to gain experience prior to a wide roll-out. Finally, the implementation of IPSAS in emerging economies and low-income countries often requires a large investment in educating and training public- sector employees to develop a new range of accounting skills. 


Tobias Polzer

Assistant Professor, WU Vienna University of Economics and Business

Pawan Adhikari

Professor in Accounting, University of Essex

Cong Phuong Nguyen

Associate Professor, University of Danang

Levi Gårseth-Nesbakk

Professor, Nord University Business School and NTNU Norwegian University of Science and Technology

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