The Relevance of IPSAS and the IPSASB Conceptual Framework for Malta
The article is based on a dissertation presented in partial fulfillment of the Master in Accountancy degree programme at the University of Malta. The study focused on the relevance of the IPSASB (International Public Sector Accounting Standards Board) Conceptual Framework for the changeover to accrual accounting in the public sector. Findings were collected through interviews performed with local Maltese experts and academics.
A brief history of the accounting reform in the public sector
The Government of Malta is currently undertaking a very important accounting reform. The central government will start reporting its accounts using the accrual basis, replacing the long-outdated cash accounting basis. Cash accounting for central government emerged from the Departmental Accounting System (DAS) introduced in 1996.
The financial reporting duties of the Government increased substantially with Malta’s membership in the European Union and the Eurozone. In 2012 it was decided to start the International Public Sector Accounting Standards (IPSAS) project, where the IPSAS Committee was established locally. In that same year, the Financial Policy and Management Directorate under the Ministry for Finance, organised a seminar to introduce IPSAS and identify the way forward for Malta to adopt and implement the accounting standards.
Meanwhile the EU was moving towards a state of harmonisation. The European bloc decided not to implement IPSAS and instead develop its own set of standards – the European Public Sector Accounting Standards (EPSAS). In 2013, the Treasury commissioned the CIPFA (Chartered Institute of Public Finance and Accountancy) which performed a ‘gap analysis’ on the transition from cash to accrual accounting. The analysis concluded that full accrual accounting and reporting principles were needed since the Government was using solely cash accounting principles. Since the EPSAS project was still in progress, CIPFA also recommended to use IPSAS as a basis for the new accounting system locally and to later adapt the system to the requirements mandated by EPSAS, once the standards were finalised.
In the wake of this report, the Ministry for Finance set up the IPSAS Project Board and the IPSAS Project Team in 2014. Currently, IPSAS are in the process of being adapted in the local context. Each IPSAS is being assessed in terms of its impact on government procedures, reporting and legislation. Once the assessments are concluded and guidelines are developed, the IPSAS have to be approved by the IPSAS Project Board.
In July 2017 a contract was entered into by the Ministry for Finance, that commenced the change of the financial operations of Central Government, effectively introducing accrual accounting based on IPSAS as adopted by the Maltese Government. The project is planned to have three implementation phases, with the first phase planned to be finished by January 2019.
The IPASAB Conceptual Framework
The IPASAB conceptual framework is predominantly based on the IASB (International Accounting Standards Board) framework. One of the questions posed to interviewees was, whether this was ideal since the IASB framework was predominantly designed for the private sector. It transpired that for the most part, the amendments to the IASB framework that resulted in the codification of the IPASAB framework, are enough to cater for the public sector’s needs. The only issue identified by respondents was that the IPASAB framework does not conceptualise ‘stewardship’ in the context of the public sector. While the concept of ‘accountability’ applies to any entity, ‘stewardship’ is particularly relevant to the public sector. Having said that, the IPSASB Conceptual Framework was deemed applicable and was in fact adopted in toto by the Government.
Interviewees pointed out that accrual accounting is the way forward for Malta, and it was due time for this reform to finally take shape. With accrual accounting, a more inclusive set of financial information will be presented. It was also highlighted that the IPSASB Conceptual Framework is relevant to the changeover and is being referred to when adapting the IPSAS standards to the local context. The framework acts as a sounding board to the adaptation of IPSAS to the local scenario.
What are the alternatives?
When it comes to the accrual changeover, there are other routes that the Government could have taken. International Financial Reporting Standards (IFRS) could have been implemented and adopted specifically for the Maltese public sector needs. However, IFRS are predominantly based on private sector organisational and accountability characteristics. Adapting IFRS to the local public sector would have therefore required much more effort and resources.
Another option would have been to develop local reporting standards which would have catered for issues unique to the public sector in Malta. This option would also have required a lot of resources, not to mention that the changeover has been long overdue and the development of a new set of standards would have delayed the changeover even further.
Malta’s approach was seen by respondents as a natural application of what was already available off the shelf, adapted to the local context: IPSAS as adopted by the Maltese Government. In this way, the limited resources will be used for adapting what is already available and internationally recognised to the local scenario. The IPSAS Project Team is analysing each individual IPSAS to apply it to the local context. Guidelines specific to Malta will also be issued.
Since IPSAS originated from private sector standards, they will require the same level of technical knowhow from its users, particularly preparers of financial reports. There should be more focus on training public sector employees and on engaging qualified accountants to maintain the new reporting system.
The adoption of IPASAB framework and IPSAS is the starting point of the Government’s move to accrual accounting. The Government can re-visit the implementation of IPSAS after a few years, whilst assessing the implications surrounding the eventual development of EPSAS.