IPSAS are the right choice for improving public financial management
South Africa has a long history of applying accounting based on IPSAS – 15 plus years now. While we do not adopt IPSAS directly, we use them as a basis for developing our national standards – Standards of Generally Recognised Accounting Practice.
A team of academics from the universities of South Africa, Johannesburg, Stellenbosch recently completed research on the adoption of IPSAS in South Africa. A team of academics from Turkiye undertook the same research to assess the adoption of IPSAS in their country. The result of the research is intended to share information about how IPSAS are adopted or adapted in each country, if the standards had the required impact, and what lessons can be learnt.
While the full research results will be published in the second half of the year, the high-level feedback is positive. It indicated that the use of IPSAS has a positive effect on public financial management.
The South African experience
The research was undertaken by surveying local stakeholders about accounting and reporting in the public sector; reviews of financial statements, audit reports and audit action plans; and reviewing the legislative environment.
Stakeholders that participated in the research:
- were aware of IPSAS/Standards of GRAP; and
- perceived the IPSAS as being useful to hold officials accountable, making decisions, and strengthening governance.
It is not unsurprising that a key finding is that stakeholders sometimes lack an in-depth understanding of the Standards. This is reflected in the audit outcomes for national, provincial and local government.
Key proposals from the research to bridge the knowledge gap are to:
- Develop targeted guidance and templates for smaller or under-resourced entities to reduce reliance on external consultants.
- Improve knowledge sharing through accessible handbooks, FAQs and model financial statements; expand e-learning and digital dissemination of material.
- Leverage the Auditor General of South Africa as a capacity-building partner by integrating education into audits and feedback loops.
- Undertake future research to assess the impact of training on the actual quality of financial reporting. This research will better enable us to assess if development initiatives, whether at universities, by professional bodies, or others such as the National School of Government, are effective.
Looking ahead
National and provincial government departments apply a modified cash basis of accounting. The adoption date and adoption methodology of Standards of GRAP for the departments are still to be determined by the Minister of Finance.
Governments are all operating in environments with constrained resources. It is important that South Africa focuses its resources on implementing fiscal and financial policies that are optimal to the needs of a developing economy. The country needs financial information that strengthens democratic processes by enabling and empowering citizens, communities, funders and others to hold government officials accountable and make financial, economic and other policy decisions.
This research confirms that past decisions to adopt and adapt IPSAS were indeed appropriate and relevant for the South African public sector. The outcome of the research also provides recommendations on how to improve the adoption process so that entities can be more efficient and effective – whether it be the adoption of accrual accounting by departments, the implementation of new or modified accrual-based Standards; or eventually sustainability standards.
Thank you to the academics from both countries for their dedication and commitment to this important work. Also thank you to UNISA for their support, and Professor Lourens Erasmus for leading this initiative.
We look forward to the final publication in the next few months.