Impact of IPSAS on reforming governmental financial information systems: a comparative study

Abstract

The diversity in reformed governmental financial information systems created a need for harmonized international accounting standards, resulting in the elaboration of the IPSAS (International Public Sector Accounting Standards). By means of a survey on experts, this study examines the extent to which European governments adopt IPSAS accrual accounting and how the differing levels of adoption can be explained. The study reveals diversity in the adoption process of IPSAS and accrual accounting. Some governments still use cash based accounting. Only a minority apply IPSAS. The majority of local and central governments apply accrual accounting disregarding IPSAS. The trend toward accrual accounting can be explained by the need for transparency and efficiency. The fact that the IPSAS are unique and offer specific know-how is the main argument for making use of them. However, a number of jurisdictions do not adopt IPSAS because they transfer their own local business accounting rules. Points for practitioners The transition to business accounting is an important element of New Public Management in that modernized governmental management needs useful financial information, and business accounting is supposed to accomplish this need. An important characteristic of the IPSAS accounting standards is that governments are not obliged to adopt them and thus their adoption depends on a free choice. Therefore, it is clear that the success of IPSAS strongly depends on setting out its strengths and highlighting the necessary conditions to be met. Based on this article, an important condition is that practitioners keep in mind that in governments business accrual accounting rules are not a substitute for IPSAS.