Measuring accrual-based IPSAS implementation and its relationship to central government fiscal transparency.
| Autor | Kartiko, Sigit Wahyu |
| Cargo | International Public Sector Accounting Standards - Report |
Introduction
Good public governance principles have become a foundation used by several countries to reform their public administration. Enhancement of accountability, transparency, efficiency, effectiveness, responsiveness, and the rule of law are the key objectives for government to successfully deliver public desires (Organisation for Economic Co-operation and Development [OECD], 2011). One of the most interesting concerns is with taxpayers' and investors' accessibility demands towards the central government's public finance policy. Government responses have been to increase their public financial, or fiscal, transparency by reforming their Public Financial Management (PFM) practices (Marti & Kasperskaya, 2015).
The positive trend towards fiscal transparency has pervasively spread across entire countries (Seifert, Carlitz, & Mondo, 2013). Based on the guidelines for fiscal transparency provided by prominent international organizations--such as the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), the International Organization of Supreme Audit Institutions (INTOSAI), and the World Bank--the International Budget Partnership (IBP) documented that more than 22% of around 100 central governments surveyed had sufficient fiscal transparency (IBP, 2015). Since the recovery from the 2008 global financial crisis (Berger, 2012), this percentage has been growing steadily, simultaneously with PFM reforms. Using statistical reports as a fiscal transparency measurement, Wang, Irwin, and Murara (2015) also demonstrated a positive trend in the availability of Government Finance Statistics (GFS) in OECD countries.
Some argue that better fiscal transparency has a positive link with most countries' PFM reforms (De Renzio & Masud, 2011; Marti & Kasperskaya, 2015). Public sector accrual accounting practices--as PFM best practices--assist in the provision of richer information with a single set of accounting procedures for the decision-making process (see Alt, Lassen, & Skilling, 2002; Chan & Zhang, 2013; Diamond, 2002; Guthrie, 1998). Therefore, most central governments have made extra efforts to improve recording and to present their advanced financial transactions by upgrading their book-keeping systems. PricewaterhouseCoopers (PwC, 2013) demonstrated the increasing trend toward accrual accounting in central governments around the world. It was predicted that more than 63% of countries would convert their traditional cash basis to accrual accounting by 2018.
However, accrual practices have been quite varied across central governments. State-of-the-art central government accrual accounting implementation reflects the resultant factor of such political compromises, cultural backgrounds (Hyndman & Connolly, 2011; Lapsley, Mussari, & Paulsson, 2009), economic structures, and characteristics of business infrastructure (Pina & Torres, 2003). The factors underlying the recognition, measurement, and presentation (RMP) of accrual policies were mainly categorized as (a) GAAP businesslike, (b) statistical-based, and (c) accrual-based IPSAS (Christiaens, Vanhee, Manes-Rossi, Aversano, & Cauwenberge, 2014; PwC, 2014). The variation in their adoption leads to incomparability and inconsistency in publicly provided government financial indicators. Even when a government financial performance outlook was provided by international financial institutions (i.e., the IMF or the World Bank), the financial adjustment inside its metadata--reflecting methodological soundness--potentially reduced its fiscal information quality (Giosi, Brunelli, & Caiffa, 2015).
Accrual-based IPSAS as a de-facto international public sector accounting standard has been--gradually, partially, or fully--referred by several country standard-setters to overcome such information quality problems. The rationale behind IPSAS adoption is that its comparability and consistency for governmental reporting systems cover systematic public fund RMP rules (International Federation of Accountants [IFAC], 2014). Based on International Financial Report Standards (IFRS), IPSAS is compatible with the recent fair value model of the financial instrument that attracted government entities to improve their public asset and liability valuations (Bolivar & Galera, 2012). IPSAS provides not only a full set standard of procedures for advanced credit-economy transactions (Chan & Xu, 2012) but also consensus on the treatment of special government entity transactions and presentations (i.e., non-exchanged revenue transactions and budgetary reports) (Diamond, 2002).
Previous studies have been attempted by considering accrual-based IPSAS implementation levels, with some limitations. For example, they attempted to simplify conformity of accrual-based IPSAS relying on main presentations (Pina & Torres, 2003), identify accrual-based IPSAS regardless of RMP procedures (Christiaens et al., 2014), build a conformity index without non-exchanged transactions policies and employee benefits (Benito, Brusca, & Montesinos, 2007), and produce a highly detailed disclosure checklist based on IPSAS paragraphs (Ernst and Young [EY], 2012). The accounting maturity level was developed for nine (9) European countries. However, the maturity of each of the accounting policies with accrual-based IPSAS was constructed based on the European Public Sector Accounting Standards (EPSAS) context (PwC, 2014).
This study aims to explore accrual-based IPSAS implementation level measurement and test the measures associated with central government fiscal transparency by extending or contributing previous studies in three aspects. Firstly, we measure the accrual-based IPSAS level index in an intuitive manner based on hierarchical accrual adoption information from simple to complex identification statements. It builds upon the following information: (a) whether accrual adoption has declared--implicitly or explicitly--accrual-based IPSAS (accrual commitment), (b) whether elements of financial statements--financial position, financial performance, cash flow, changes in equity, and notes of financial statements--have been formally publicly provided (accrual report), and (c) how the specific accounting transaction policies of accrual characteristics substantially conform with IPSAS policies (accrual policy). Secondly, it completes the methodological aspect of index construction. Content analysis scored the highlighted criteria, relying on published central government financial statements and accounting policies. Further, confirmatory factor analysis was obtained for the internal validity of each accrual dimension relationship and loading factors that construct accrual level as the latent variables. Thirdly, this article demonstrates an empirical test involving 77 central governments (OECD, non-OECD, BRICS) from 2008 to 2015 for panel data--instead of cross-sectional--accrual accounting development and extends Bolivar and Galera's (2012) and Galera and Bolivar's (2007, 2010, 2011) studies of the impact of accrual-based IPSAS on government financial or fiscal transparency.
This article is organized as follows: first, it presents the theoretical framework of accrual accounting adoption and hypothesis development regarding its association with fiscal transparency. The second section outlines the research method for building the accrual level index and the regression model. The third part discusses the results and provides concluding remarks on this study.
Literature Review and Hypothesis Development
Government accounting and fiscal transparency
Improving transparency by modernizing government accounting practices is supported by agency theory. It has been assumed that bureaucratic policymakers engage in opportunistic behavior to obscure financial information from mandate givers, such as parliament, legislation, voters, or authorities (see Alt et al., 2002; Debrun & Kumar, 2007; Irwin, 2012). Better quality fiscal information assists policymakers conduct their fiscal actions transparently to demonstrate public governance practices, reduce abuse of power, and safeguard government assets (see
Cicatiello, De Simone, & Gaeta, 2017; De Renzio & Masud, 2011; Hameed, 2005; Wehner & Renzio, 2013).
The terms accounting stratagems (Irwin, 2012; Weber, 2012), creative accounting (Luder, 2000; Reischmann, 2016), and fiscal illusions (Guillamon, Bastida, & Benito, 2011) have been highlighted to express the problematic accounting choices of agents or policymakers. Policymakers will choose a reporting method to articulate public fund usage that reflects their best performance in the presence of voters (see Copley, 1991; Zimmerman, 1977). Together with democratization, political competition, and high tax rates, the policymakers or elected politicians need to satisfy voters by using public resources in a transparent way (Arapis & Reitano, 2017; Zimmerman, 1977). Thus, the competitive situation between politicians and voters will result in the demand for better procedures, standards, or regulation of choices for financial transparency reports (Baber & Sen, 1984).
Within the concept of public financial management, financial or fiscal transparency, according to Heald (2012), is defined as the systematic disclosure of government actions that have consequences for government accounts: revenues, expenditures, finance, liabilities, assets, and ownership changes. It stresses the openness of government policy actions that should be coherently disclosed in every PFM cycle: budget formulation, execution, and year-end report processes. In addition, the IMF (2012, p. 4) highlights fiscal transparency as "[t]he clarity, reliability, frequency, timeliness, and relevance of public fiscal reporting and the openness to the public of government's fiscal policy-making process...". It emphasizes the principles of fiscal transparency, such as (a) the comprehensiveness, relevance, timeliness, and reliability of a...
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