Building Competence. Crossing Borders.
PEMPAL PCOP Leadership Group – Videoconference 23 April 2009
Presentation of the ResultsREPF Republic of Tajikistan
Institute of Public Management
Prof. Andreas [email protected]
Robin [email protected]
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Program
Introduction
Overview of IPSAS
REPF Report on the Enhancement of Public Sector Financial Reporting - Toolkits
Current Situation of Accounting in Tajikistan
Potential In-Country-Value-Added Through Adopting IPSAS
Recommendations
Open Issues / Discussion
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Overview of IPSAS
Rationale for and History of IPSAS
IPSAS - International Public Sector Accounting Standards
1998: another Financial Crisis
Subsequently: Funding from International Organzations made available in order to develop International Public Sector Accounting Standards
• Cash Basis Standard
• Accrual Basis Standards
Objective: Move from Cash Basis to Accrual
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Overview of IPSAS (2)
Core Differences between the Economics of the Public and the Private Sector = Public Sector Specific Issues: The only reason to depart from the IAS/IFRSs
• Service potential instead of cash generation
• Importance of non-exchange transactions
• Political control of assets and liabilities
• The prominence of the budget
• State owned Enterprises
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REPF Report – Content
Content
I Introduction
II Institutional Framework
III Accounting Standards as Designed – Comparison with Accrual Basis IPSAS
IV Accounting Standards as Designed – Comparison with Cash Basis IPSAS
V Accounting Standards as Practiced
VI Potential In-country value added through adopting IPSAS
VII Recommendations
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Current Situation of Accounting in Tajikistan
Institutional Framework
Statutory Framework: tradition of written laws and rules
Some large SOE are implementing IFRS, but not yet there
Accounting training/education programs exist
• especially at lower to intermediate level: high numbers of graduates
Budget System
• Cash basis
Government Financial Statistics (GFS)
• Statistics in TJ based on GFS 1986
• GFSM2001 (=accrual!) currently being implemented
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Current Situation of Accounting in Tajikistan (2)
Institutional Framework
Monitoring and enforcement
• Weak institutional arrangements to monitor or enforce nationals
standards
• Internal Audit
- Technically feasible but capacity constrained (MoF)
- Some co-ordination issues with inspectorates in LM
• External audit (joint with Anti-Corruption Agency)
- Audit of financial reports is not main task
- Independence, though improved, is still insufficient
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Current Situation of Accounting in Tajikistan (3)
Institutional Framework
Quality and availability of financial reports
• Prepared and presented according to current rules
• Possible weaknesses may be undetected due to constraints in internal
and external audit
Information Technology
• No overall IT-system
• Much manual work even in central line ministries and certainly in
oblast/rayon
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Current Situation of Accounting in Tajikistan (4)
Accounting Standards as Designed – Comparison with Accrual Basis IPSAS (1 to 26)
Financial Reporting
• Statement of financial position and statement of revenues and expenses
modified accrual, partial compliance with accrual IPSAS
• Consolidation financial statements and budgets of all BO‘s. But: SOE‘s
are not consolidated partial compliance with accrual IPSAS
• Most but not all qualitative characteristics applied partial compliance
• Budget comparison (cash basis) full compliance with accrual IPSAS,
because budget is not required to be accrual
Bottom line:
Typical modified accrual format, quite advanced in some aspects
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Current Situation of Accounting in Tajikistan (5)
Accounting Standards as Designed – Comparison with Accrual Basis IPSAS
Revenues and expenses
• Revenue from cash and non-cash exchange when transaction occurs
partial compliance with accrual IPSAS
• Foreign exchange transactions (but not carrying amounts) at current
exchange rates partial compliance with accrual IPSAS
• No rules on leases not in compliance with IPSAS
Bottom line:
Some shortcomings, especially for transfers and taxes substantial effects
are likely
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Current Situation of Accounting in Tajikistan (6)
Accounting Standards as Designed – Comparison with Accrual Basis IPSAS
Fixed assets
• Simple asset accounting in place, measured at cost and depreciated over
useful life full compliance with accrual IPSAS
• Treatment of inventories (stocks) less rigorous partial compliance
• Simplified and limited impairment testing partial compliance
Bottom line:
Almost full compliance with IPSAS, differences in details rather than
substantive matter
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Current Situation of Accounting in Tajikistan (7)
Accounting Standards as Designed – Comparison with Accrual Basis IPSAS
Financial Assets
• Accounting unclear and presentation not compliant with accrual IPSAS
• Ambiguities include substantial transactions with SOE‘s
Financial Liabilities
• Same as Financial Assets not compliant with accrual IPSAS
• Borrowing cost expensed when they occur full compliance with accrual
IPSAS
Bottom line:
Area of the most important shortcomings, effects very substantial
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Current Situation of Accounting in Tajikistan (8)
Cash Basis
Cash Basis IPSAS as a benchmark
• Presentation partly based on cash basis, but in some aspects also on
accrual basis, especially fixed assets
• Cash Basis does not require accrual treatment for transactions full
compliance in respect of Revenues and Expenses
• Current fixed asset practise exceeds requirement
• Current treatment of financial assets and liabilities is compliant with Cash
Basis IPSAS, despite obvious shortcomings
Bottom line:
Compliance would be easier to achieve, but not necessarily addresses all
relevant issues
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Current Situation of Accounting in Tajikistan (9)
Cash Basis
Cash Basis IPSAS has even more rigorous requirement in some respect
• Incremental/stepped approach not envisioned (1 standard!)
• Presentation of payments made by donors („donor reporting“), only
required under Cash Basis IPSAS!
• Consolidation of entities which are on accrual, by then possibly IFRS;
reconciliation to Cash Basis required
… both to be audited, also for completeness!
Bottom line:
Compliance very hard to achieve, even harder than accrual basis
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Current Situation of Accounting in Tajikistan (10)
Bottom line
RoT is on modified accrual basis
• Strength in presentation and fixed asset accounting
• Main shortcomings in the area of financial assets/liabilities and the
relationship with SOEs
• The gap to full compliance with Accrual IPSAS is substantial
• Incremental/stepped improvement possible
Compliance with Cash Basis IPSAS is (at least) equally challenging, namely because of particularities of Cash Basis Standard
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Potential In-Country-Value-Added Through Adopting IPSAS
Improved Reporting information for decision makers
Accrual Basis IPSAS
• Incremental improvement, areas with major weaknesses first
• Existing strengths (e.g. fixed assets) are preserved
• However, full compliance with all standards not to be achieved
quickly/easily
Cash Basis IPSAS
• No improvement in some areas of weakness, e.g. financial
assets/liabilities
• Full compliance not to be achieved quickly/easily
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Potential In-Country-Value-Added Through Adopting IPSAS (2)
Training/capacity bulding
• Few highly qualified individuals available, but requirement is more on
lower to intermediate level in line with current development
• Further training efforts necessary, but they obviously become more
effective if knowledge can be used/applied
Synergies with IFRS adoption by SOEs
Reputation effects
• Improvements will improve reputation, both in country and with donors
• However, reputation risk if goals are not achieved (e.g. qualified audit
opinion)
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Recommendations (1)
Maintain cash basis for budgeting
Improve accounting and reporting
Ranking of the three alternatives
• Best: Incremental (stepped) adoption of Accrual IPSAS, first in important/critical areas
• Second best: Full adoption of Cash Basis IPSAS
• Third: Full adoption of Accrual Basis IPSAS
Implementation needs to be coordinated closely with project on budget classifications/chart of accounts and enhancement of IT used
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Recommendations (2)
Type of Organization
Basis of Accounting Standard to be adopted
Budget Organizations (BO)
Accrual Basis of Accounting(Cash Basis of Budgeting)
Accrual Basis IPSAS
State-owned-Enterprises (SOE)
Accrual Basis of Accounting IFRS/IAS
Large Private Enterprises Accrual Basis of Accounting To be determined, not subject of this study (usually IFRS/IAS)
Small Businesses Accrual Basis of Accounting, if formal book-keeping required
To be determined, not subject of this study (usually simplified rules based on the tax legislation)
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Recommendations (3)
Partial adoption of Accrual IPSAS should include the following steps:
• Step 1: Presentation and Financial Transactions (IPSAS 1, 15, 23 transfers only, 24)
• Step 2: Assets (IPSAS 12, 16, 17)
• Step 3: Consolidation (IPSAS 6, 7, 8)
• Step 4: Adoption of the IPSAS with lower priorities
Accounting reform needs to be embedded in other PFM reforms
• IT improvements/Chart of Accounts/GFS
• Internal and external auditing
• Financial control
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Open Issues
Discussion
