The extent of applying the International Public Sector Accounting Standards by the Jordanian Public Sector

Abstract

This research paper examines the extent of applying the International Public Sector Accounting Standards (IPSAS) by the Jordanian public sector. Since the Jordanian public sector is recently applying these standards, so the research will examine how effectively these standards were applied, also how the Jordanian public sector activate these standards in Jordan. In order to achieve the purpose of the study the SPSS package were applied in addition to other statistical measures. Finally, the study concluded that, the Jordanian public sector is applying the International Public Sector Accounting Standards in weakly form and the research study recommended that these standards should be applied in a wide manner in collaboration with competent authorities; raise the efficiency of monitoring regarding the applying procedure, and keep up with the IPSAS updates.

Keywords: International Public Sector Accounting Standards (IPSAS), Public Sector, Economic System, Government Accounting

Introduction

Over the years, every country in the word have its own accounting system , however the accounting system needs a specific accounting standards for the purpose of internal audit and disclosure of financial statements, to take advantage of them in many ways like: the statement of financial position.

Most of the countries tried to issue unified standards to avoid misunderstanding of the financial statement that disclosed to the concerned parties. Many economic systems worldwide have two sectors: public sector and the private sector, for that reason the International Public Sector Accounting Board (IPSAB) issued the International Public Sector Accounting Standards (IPSAS), to unify the economic systems for the public sectors in these countries.

International Public Accounting Standards (IPSAS) are (31) standards issued by the International Public Accounting Board (IPSAB), to be able to treat the financial transactions in the public sector specifically and to converge between the International Public Sector Accounting Standards (IPSAS) and the International Financial Reporting Standards (IFRS), therefore the table below shows the converge between the (IPSAS) and the (IFRS):

There is 107 countries have been applying the International Public Sector Accounting Standards (IPSAS) 8 of them are Arabic countries and the Hashemite kingdom of Jordan is the ninth. The notable Talal Abu Ghazaleh and the president of the accounting divan gave recommendations to apply the International Public Sector Accounting Standards in Jordan by the vision of to keep up with the economic development, the president of the accounting divan has put a strategic plan for the years ( 2011-2015 ) to apply the International Public Sector Accounting Standards (IPSAS); because these standards are one of the best methods of the financial controlling and internal auditing for these public governmental institutions.

Study problem

Because the International Public Sector Accounting Standards (IPSAS) were issued to unify the economic systems in the world on a specific standards on a statically way in the public sector, so the strategic plan of Hashemite kingdom of Jordan that issued by the president of the accounting divan for the years (2011-2015) is to seek to apply the International Public Sector Accounting Standards ( IPSAS ) to keep up with the economic development and to contribute in the financial reform in the kingdom, since this current year is in the implementation period of this strategic plan, we will study in this research if these standards were applied in Jordan in the best way or not and what is the extent of this applying if these standards were applied.

Study importance

Since the Hashemite Kingdom of Jordan is in a transition period to apply the International Public Sector Accounting Standards (IPSAS), we should study these standards, how to deal with these new standards, how these standards have contribute in the financial reform in the previous three years (2011–2014), to confirm on the Realism vision for the financial stability in Jordan, the extent of efficiency of the strategic plan issued by the president of the accounting divan, how the public sector has take advantage of it in the monitoring system and how efficiency it is to achieve the most important goal which is achieve the financial stability to unify its economic system with the worldwide economic systems to develop economically in Jordan.

Study objectives

This research study aims to achieve the following objectives:

a) The efficiency of the International Public Sector Accounting Standards.

b) The extent of applying the International Public Sector Accounting Standards inJordan.

Study hypothesis

H0: The Jordanian Public Sector don’t apply the International Public Sector Accounting Standards.

Previous studies

Literature review

Public sector includes the general government sector (often briefly referred to as government) and public sector corporations (Bergmann, 2009, p.3). Most countries have different levels of government such as federal, state, regional, central, local level. Government levels implement either activities decentralized or ones contracted with other agencies and organizations. Governments are elected by citizens to make collective decisions on their behalf to provide goods and services which cannot readily be provided by private firms, and for social welfare purposes. Their provision is funded collectively through taxation levied on citizens rather than through sales of products to them.

The IPSASB (formerly Public Sector Committee (PSC)) is a Board of IFAC formed to develop and issue under its own authority International Public Sector Accounting Standards (IPSASs). IPSASs are high quality global financial reporting standards for application by public sector entities other than Government Business Enterprises (GBEs). The IPSASB’s Consultative Group is appointed by the IPSASB. The Consultative Group is a non-voting group. It provides a means by which the IPSASB can consult with and seek advice as necessary from a broad constituent group. The Consultative Group is chaired by the Chair of the IPSASB. The IPSASB comprises 18 members, 15 of whom are nominated by the member bodies of IFAC and three of whom are appointed as public members. Public members may be nominated by any individual or organization. The objectives of the IPSASB are to serve the public interest by developing high quality public sector financial reporting standards and by facilitating the convergence of international and national standards, thereby enhancing the quality and uniformity of financial reporting throughout the world.

The IPSASB achieves its objectives by:

• Issuing International Public Sector Accounting Standards (IPSASs);
• Promoting the acceptance and the international convergence to these standards;
• Publishing other documents which provide guidance on issues and experiences in financial reporting in the public sector.
• The IPSASs are the authoritative requirements established by the IPSASB. Apart from developing IPSASs, the IPSASB issues other non-authoritative publications including studies, research reports and occasional papers that deal with particular public sector financial reporting issues .( Hayfron. Aboagye 2013)

Are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements. These standards are based on International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). (http://en.wikipedia.org/wiki/International_Public_Sector_Accounting_Standards)Annual periods beginning on or after January 1, 2008.

To set out the manner in which general purpose financial statements shall be prepared under the accrual basis of accounting, including guidance for their structure and the minimum requirements for content.

Periods beginning on or after July 1, 2001.

To require the presentation of information about historical changes in a public sector entity’s cash and cash equivalents by means of a cash flow statement that classifies cash flows during the period according to operating, investing and financing activities.

Annual periods beginning on or after January 1, 2008.

To prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates, and corrections of errors.

Annual periods beginning on or after January 1, 2010.

To prescribe the accounting treatment for an entity’s foreign currency transactions and foreign operations.

Periods beginning on or after July 1, 2001.

To prescribe the accounting treatment for borrowing costs.

Annual periods beginning on or after January 1, 2008.

To prescribe requirements for preparing and presenting consolidated financial statements for an economic entity under the accrual basis of accounting. Also how to account for investments in controlled entities, jointly controlled entities and associates in separate financial statements.

Annual periods beginning on or after January 1, 2008.

To prescribe the investor’s accounting for investments in associates where the investment in the associate leads to the holding of an ownership interest in the form of a shareholding or other formal equity structure.

Annual periods beginning on or after January 1, 2008.

To prescribe the accounting treatment required for interests in joint ventures, regardless of the structures or legal forms of the joint venture activities.

Periods beginning on or after July 1, 2002.

To prescribe the accounting treatment for revenue arising from exchange transactions and events.

Periods beginning on or after July 1, 2002.

To prescribe specific standards for entities reporting in the currency of a hyperinflationary economy, so that the financial information (including the consolidated financial information) provided is meaningful.

Periods beginning on or after July 1, 2002.

To prescribe the accounting treatment for revenue and costs associated with construction contracts in the financial statements of the contractor.

Annual periods beginning on or after January 1, 2008.

To prescribe the accounting treatment of inventories, including cost determination and expense recognition, including any write-down to net-realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.

Annual periods beginning on or after January 1, 2008.

To prescribe, for lessees and lessors, the appropriate accounting policies and disclosures to apply in relation to finance and operating leases.

Annual periods beginning on or after January 1, 2008.

To prescribe:

‐When an entity shall adjust its financial statements for events after the reporting date.

‐ Disclosures that an entity should give about the date when the financial statements were authorized for issue, and about events after the reporting date.

Annual periods beginning on or after January 1, 2008.

To prescribe the accounting treatment for investment property and related disclosures.

Annual periods beginning on or after January 1, 2008.

To prescribe the principles for the initial recognition and subsequent accounting (determination carrying amount and the depreciation charges and impairment losses) for property, plant and equipment so that users of financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment.

Periods beginning on or after July 1, 2003.

To establish principles for reporting financial information by segments to better understand the entity’s past performance and to identify the resources allocated to support the major activities of the entity, and enhance the transparency of financial reporting and enable the entity to better discharge its accountability obligations.

Periods beginning on or after January 1, 2004.

To prescribe appropriate recognition criteria and measurement bases for provisions, contingent liabilities and contingent assets, and to ensure that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. IPSAS 19 thus aims to ensure that only genuine obligations are dealt with in the financial statements. Planned future expenditure, even where authorized by management, is excluded from recognition, as are accruals for self-insured losses, general uncertainties, and other events that have not yet taken place.

Annual periods beginning on or after January 1, 2004.

To ensure that financial statements disclose the existence of related party relationships and transactions between the entity and its related parties. This information is required for accountability purposes and to facilitate a better understanding of the financial position and performance of the reporting entity.

Annual periods beginning on or after January 1, 2006.

To ensure that non-cash-generating assets are carried at no more than their recoverable service amount, and to prescribe how recoverable service amount is calculated.

Annual periods beginning on or after April 1, 2009.

To prescribe disclosure requirements for governments which elect to present information about the general government sector (GGS) in their consolidated financial statements. The disclosure of appropriate information about the GGS of a government can provide a better understanding of the relationship between the market and non-market activities of the government and between financial statements and statistical bases of financial reporting.

Annual periods beginning on or after June 30, 2008. There are several transitional provisions.

To prescribe requirements for the financial reporting of revenue arising from nonexchange transactions, other than non-exchange transactions that give rise to an entity combination.

Annual periods beginning on or after January 1, 2009.

To ensure that public sector entities discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating compliance with the approved budget for which they are held publicly accountable and, where the budget and the financial statements are prepared on the same basis, their financial performance in achieving the budgeted results.

Periods beginning on or after January 1, 2011. Earlier application is encouraged.

To prescribe the accounting and disclosure for employee benefits, including short-term benefits (wages, annual leave, sick leave, bonuses, profit-sharing and non-monetary benefits); pensions; post-employment life insurance and medical benefits; termination benefits and other long-term employee benefits (long-service leave, disability, deferred compensation, and bonuses and long-term profit-sharing), except for share based transactions and employee retirement benefit plans.

Periods beginning on or after April 1, 2009. Earlier application is encouraged.

To prescribe the procedures that an entity applies to determine whether a cashgenerating asset is impaired and to ensure that impairment losses are recognized. This Standard also specifies when an entity shall reverse an impairment loss and prescribes disclosures.

Periods beginning on or after 1 April 2011.

To prescribe the accounting treatment and disclosures for agricultural activity.

Periods beginning on or after 1 January 2013.

To prescribe principles for classifying and presenting financial instruments as liabilities or net assets/equity, and for offsetting financial assets and liabilities.

Periods beginning on or after 1 January 2013.

To establish principles for recognizing, derecognizing and measuring financial assets and financial liabilities.

Periods beginning on or after 1 January 2013.

To prescribe disclosures that enable financial statement users to evaluate the significance of financial instruments to an entity, the nature and extent of their risks, and how the entity manages those risks.

Periods beginning on or after 1 April 2011.

To prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IPSAS.

Periods beginning on or after 1 January 2014.

To prescribe the accounting for service concession arrangements by the grantor, a public sector entity.

IPASB provides countries with the option to adopt either cash and or accrual basis depending on the specific needs and systems of financial operation in place for the government or the countries in question.

The cash basis allowed providers of external assistance, particularly providers of development assistance to follow a variety of accounting practices. Many recipients of external assistance therefore maintain their accounts on the cash basis of accounting and the development of a cash basis standard was therefore a step in the right direction.

Accrual accounting focuses on revenue, cost, assets, liabilities and equity – instead of cash flows only. The capitalization of assets, such as computers and machines, makes it possible to calculate depreciations and account for them in each period during which the machine is used. Most of the IPSAS are based on accrual basis which is in line with IFRS (Aboagye, Hayfron 2013).

Study Community

The study community is formed out of two (2) different institutions listed in the Jordanian public sector. A questionnaire has been developed and distributed among different management levels. Total of sixteen (16) questionnaires was distributed, Twelve (12) was recovered, which means that, Seventy five percent (75%) of it was valid for analysis, Tables below shows these results:

For the purpose of description and analysis of the study data , generally many statistical measures is used to analyze the questionnaires such as , arithmetic mean , standard deviation , frequencies , t test , percentages , and cornbrash alpha: the latest measure used to test the reliability , and the credibility of the study.

Data Analysis

The study takes the deductive from, as it depends on the outcomes of the data analysis derived from the questionnaire.

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Results and Testing Hypothesis

The study hypothesis stated that the Jordanian public sector is applying the International Public Sector Accounting Standards (IPSAS). Regression test has been made in order to figure out whether is the Jordanian Public Sector is applying the IPSAS or not.

Table above shows that F = 2.026, Sig. = 0.185 and the researchers assumed that a=0.05,as sig. (0.185) > a (0.05) and as table (4) shows the statistical median of four scale so F (2.026) considered as (Low), therefore we accept the null hypothesis (H0) and reject the positive hypothesis (H1), This means that the Jordanian public sector don’t apply the International Public Sector Accounting Standards.

Conclusions

As per the above data analysis, hypothesis testing and the median four scales presented in table (5), the study had concluded the following:

There is a problem in applying the International Public Sector Accounting Standards in the Jordanian public sector, this because of many reasons like:

• The Jordanian public sector is applying the International Public Sector Accounting Standards in a weakly form.
• The Jordanian public sector is not applying the International Public Sector Accounting Standards correctly.
• There is a problem in monitoring the applying procedures of these standards.

Recommendations

According to the study conclusions the researcher recommend the following:

• Apply the IPSAS standards correctly in collaboration with the competent authorities.
• Raise the efficiency of monitoring the applying procedures of the IPSAS.
• Raise the efficiency of the employees working with these standards.
• Keep up with the IPSAS updates.
• More research to be carried on the same field to ensure that the IPSAS standards will be applied perfectly in the future.

References

• Delottie 2012 Edition IPSAS Summary February 20122 Prof. Dr. Frans van Schaik Email: fvanschaik@deloitte.nl

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