THE ADOPTION OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS ON THE ACCOUNTABILITY OF FEDERAL GOVERNMENT MDAS, ABUJA

CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND OF THE STUDY

Over the last thirty years the public sector has gone through a wave of reforms worldwide, usually towards the adoption of business-like practices in order to enhance improved utilization of public resources. These reforms have led changes in the mode of presentation of financial reports in the public sector. Adegbite (2010) argues that these changes become imperative because the modern day government day needs vital financial information in order perform business effectively. In recent times, countries of the world have set the standards of financial reporting in their individual territories. According to Earnest and Young (2012) globalization introduced into being an ever increasing collaboration, international trade and commerce among the countries of the world, hence there is need for increase in uniformity in reporting across the globe. The agitation for the introduction of a unified accounting standards has been the primary driver of International Public Sector Accounting Standards for public sector financial reporting. While the commercial entities across the world are moving toward international financial Reporting standards (IFRS), governments are harmonizing with International Public Sector Accounting Standards (IPSAS).The Public sector includes entities or organizations that implement public policy through the delivery of services and the redeployment of income and wealth, with both activities supported mainly by compulsory tax or levies on other sectors. This also comprises governments and all publicly owned, controlled and or publicly funded agencies, enterprises, and other entities of government that deliver public programs, goods, or services. Public sector accounting is a system or process which gathers, records, classifies and summarizes as reports the financial events existing in the public provide information to information users associated to public institutions. Omolehinwa and Naiyeya (2003) opine that International Public Sector Accounting Standard (IPSAS) is the center piece of the “global revolution in government accounting in response to calls for and transparency. Apart from accountability and transparency of IPSAS, is it a crucial perquisite for accessing funds from World Bank. Developing countries are also admonished by international organizations which provide financial assistance to them to switch over to IPSAS. Other conations irrespective of their political and economic systems are encouraged to switch over to IPSAS. Ngama, (2012) reports that IPSAS has become de facto international benchmarks for evaluating government accounting practices worldwide. For these reasons, IPSAS warrants the attention of accounting policy-makers, practitioners and academics alike. The conceptual issues are problem areas or debatable points on the substance of IPSAS. Institutional issues, on the other hand, relate to the governance and process of setting IPSAS. IPSASs supervise the recognition, measurement, presentation and disclosure requirements as it regards to transactions and events in general purpose financial statement. These kind financial reports are characterized by the fact that they are issued for users who are unable to demand financial information to enable them meet their specific information needs. Some scholars argue t is costly everywhere to produce and disseminate information, hence governments in all types of political systems lack the economic incentives to do so. Olamide, (2010) further document that political systems exert a greater demand for government accountability and transparency than others; for example, representative democracies are more demanding than authoritarian and totalitarian political systems. A democratic government is obliged to be more responsive to information demands placed upon it. This would be the case in developed countries and developing countries alike. However, the opportunity cost of resources used in improving government financial information is higher in developing countries than in developed countries. Ngama, (2012) opines governments in democratic developing countries may will to undertake government accounting reform but restrained by the financial involvement. The author further argues that governments in nondemocratic developing countries are both unenthusiastic and unable to afford cost of switching over to IPSAS. Local accounting standards in Nigeria were set under the Nigerian Accounting Standards Board Act of 2003 by the Nigerian Accounting Standards Board (NASB) now Financial Reporting Council of Nigeria. Nigeria is supposed to switch over to officially over to IPSAS 2014 but it is surprising that no government (federal, state or local) agency has really prepared it report using IPSAS. This paper seeks to examine the adoption of IPSAS adoption to accountability of federal government MDAs.

1.2 STATEMENT OF THE PROBLEM

The preparation and presentation of financial statement at each level of government have pose series of problems worldwide. Over the years, government accounting has been anchored on cash basis of accounting while private sector accounting has been predicated on accrual basis. Whereas the accrual basis has been working perfectly well in the private sector, the continued application of the cash basis in the public sector appears to have thrown up a number of challenges relating to under-utilization of scarce resources, high degree of vulnerability to manipulation, lack of proper accountability and transparency, inadequate disclosure requirement due to the fact that the cash basis of accounting does not offer a realistic view of financial transaction. IPSAS adoption is expensive in all material respect, so expensive that some experts have contended that it’s much advertised benefits do not justify the cost of the implementation predominantly accounting or financial reporting places emphasis on accountability and transparency. Revolution is not only accorded to government functional activities, instead revolution also exists in Government Accounting. Thus, it is not quite established whether the adoption and subsequent proper implementation of IPSAS would have appreciable positive or negative impacts on the Nigerian economy. Therefore, this study seeks to evaluate the impact of adoption of IPSAS on the accountability of public funds in Nigeria.

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine the adoption of adoption of international public sector accounting standards (IPSAs) on the accountability of federal government MDAs. Other general objectives of the study are:

1. To examine the extent to which International public sector accounting standards adoption leads to efficient management of public fund by the public entities in Nigeria.

2. To examine the extent to which International public sector accounting standards adoption by the public sector enhances effective budget implementation in Nigeria.

3. To examine the effect of International public sector accounting standards adoption on the accountability of public funds in Nigeria.

4. To examine the extent the adoption of International public sector Accounting Standards checks cases of corruption among public officers in Nigeria.

5. To examine the relationship between the adoption of International public sector accounting standards and accountability of public funds.

6. To suggest ways for improving on the accountability of general purpose financial reporting by the public sector.

1.4 RESEARCH QUESTIONS

1. What is the extent to which International public sector accounting standards adoption leads to efficient management of public fund by the public entities in Nigeria?

2. What is the extent to which International public sector accounting standards adoption by the public sector enhances effective budget implementation in Nigeria?

3. What is the effect of International public sector accounting standards adoption on the accountability of public funds in Nigeria?

4. To what extent is the adoption of International public sector Accounting Standards checking cases of corruption among public officers in Nigeria?

5. What is the relationship between the adoption of International public sector accounting standards and accountability of public funds?

6. What are the ways for improving on the accountability of general purpose financial reporting by the public sector?

1.5 RESEARCH HYPOTHESIS

Hypothesis 1

1.  There is no significant impact of adoption of IPSAs on accountability of federal government MDAs.
2. : There is a significant impact of adoption of IPSAs on accountability of federal government MDAs.

Hypothesis 2

H0: There is no significant relationship between adoption of IPSAs and accountability of public funds

H1: There is a significant relationship between adoption of IPSAs and accountability of public funds.

1.6 SIGNIFICANCE OF THE STUDY

The findings of the study is expected to be of immense significance to the federal, state and Local governments in 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 implications of its adoption will be unveiled. The government will be fully aware of the gains of full disclosure requirements of IPSAS adoptions as it affects transparency, comparability, credibility, informative, and comprehensiveness of financial information. Again, Nigerian government ministries and beyond will be brought to terms, the realities of IPSAS adoption and the economic benefits. Preparers 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. Again, the result will guide members of the public on the likely gains or otherwise arising from the adoption of International Public Sector Accounting Standards and their effects on financial reporting.

1.7    SCOPE OF THE STUDY 

The study is based on the adoption of adoption of international public sector accounting standards (IPSAs) on the accountability of federal government MDAs, Abuja.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Accountability: The obligation of an individual or organization to account for its activities, accept responsibility for them, and to disclose the results in a transparent manner. It also includes the responsibility for money or other entrusted property.

Funds: All the financial resources of a firm, such as cash in hand, bank balance, accounts receivable. Any change in these resources is reflected in the firm's financial position.

Public: Relating to or involving people in general, rather than being limited to a particular group of people.

IPSAS:   i.e. international public sector accounting standard is a new revolution in government Accounting. IPSAS are international Accounting Standard used as guidelines for preparation of public sector financial Statements.