IPSAS or IFRS as the Framework for Public Sector Financial Reporting? New Zealand Preparers’ Perspectives

Abstract

The last 30 years have seen public sector accounting in many countries undergo considerable change. More recently, some governments adopted accrual accounting and International Public Sector Accounting Standards (IPSAS), some adopted modified International Financial Reporting Standards (IFRS) while others continued with cash-based accounting. New Zealand (NZ) has, for more than two decades, followed a sector neutral approach to financial reporting and standard setting where the same accounting standards were applied to all entities in all sectors: for-profit, not-for-profit and the public sector. This period included the adoption of IFRS by for-profit entities with minor modifications for the public sector. The suitability of IFRS for the public sector has been questioned and, recently, standard setters in NZ decided to adopt a sector-specific standard-setting approach with multiple tiers for each sector. The for-profit sector will continue to follow IFRS but reporting standards for the public sector will be based on IPSAS. In this period of change we sought the views of preparers of public sector financial reports regarding the users of such reports and their preferences for the public sector reporting framework. We also sought the views of the preparers regarding the usefulness of each financial statement for users, and whether the benefits of reporting by their organisations exceeds the costs. The findings indicate support for maintaining IFRS as a basis for reporting in the NZ public sector. However, IPSAS modified to NZ conditions is also perceived as an acceptable option by respondents in this study. The income statement is, in the opinion of the respondents in this study, the most useful statement while cash flows appear to hold little value. A high proportion of respondents believe that the benefits of reporting exceed the costs, which contradicts the view that such reports are mainly compliance documents that provide little value. This finding contributes to the continuing debate on costs versus benefits on the recent introduction of IPSAS as the reporting framework for the public sector and the perceived appropriateness of IPSAS in public sector reporting.

Accounting Research in Abacus, A&F, AAR, and AJM from 2008–2015: A Review and Research Agenda

“…The standards were supposed to bring many benefits, for example, reducing the cost of capital, decreasing information asymmetry, and increasing comparability and understandability. However, they have been found to also have drawbacks; for instance, the cost of implementation (Lai et al ., 2013); unintended consequences relating to fair value accounting (Goncharov and van Triest, ); the process of convergence with existing regulatory regimes (Devi and Samujh, ; Mala and Chand, ; Nguyen and Gong, ) and limited suitability to the public sector (Laswad and Redmayne, ); and small to medium‐sized businesses (Chand et al ., ; Devi and Samujh, ).…”

Are Financial Reports Useful? The Views of New Zealand Public Versus Private Users

“…A number of studies have examined how the financial reporting process is perceived from the preparers’ perspective (e.g., Andriani et al. ; Jermakowicz and Gornik‐Tomaszewski ; Laswad and Botica Redmayne ; Morris et al. ; Navarro‐García and Bastida ), the consequences and effects of the financial reporting process and accounting information (e.g., Brochet et al.…”

“…A number of studies have examined how the financial reporting process is perceived from the preparers' perspective (e.g., Andriani et al 2010;Jermakowicz and Gornik-Tomaszewski 2006;Laswad and Botica Redmayne 2015;Morris et al 2013;Navarro-García and Bastida 2010), the consequences and effects of the financial reporting process and accounting information (e.g., Brochet et al 2013;Horton et al 2013;Jermakowicz et al 2007), the user information needs of large public entities (e.g., Gassen and Schwedler 2010;Lee and Tweedie 1975a;McNally et al 1982), and the user information needs of smaller (private) entities (e.g., Maingot and Zegbal 2006;Quagli and Paoloni 2012). However, there is a significant gap in the literature with regard to the difference between the user information needs of public entities and private entities, especially in light of the arguments made for reduced disclosures and differential reporting for private entities.…”

Adoption of International Public Sector Accounting Standards in Public Sector of Developing Economies -Analysis of Five South Asian Countries

“…According to PWC (2013) and Vasicek and Gorana (2014), it takes an average of three years for an entity to transit to accrual-based IPSAS. The reason for the long period as noted by Laswad and Redmayne (2015) is that the change is more than an accounting exercise but a transformation of the public entity function which subsequently impacts the entire organization. The implication of these observations is that implementing the IPSAS framework is challenging to most government entities.…”