CHAPTER ONE
INTRODUCTION
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
H0: There is no
significant impact of adoption of IPSAs on accountability of federal government
MDAs.
H1: 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.