The relationship between the adoption of international public sector accounting standards and sources of government financing: evidence from developing countries

Abstract

We examine the association between the adoption of International Public Sector Accounting Standards (IPSAS) and the level of government financing in the context of developing countries. We draw upon signalling theory, robust econometric techniques and a sample of 54 developing countries over a 13-year period. Our results show that adopting IPSAS is significantly associated with increased financing from international sources and foreign aid. In contrast, there is no significant association for the case of domestic credit. Our results are more pronounced for developing countries that have adopted accrual-based IPSAS than for those that have adopted cash-based IPSAS. Finally, we find that the association between IPSAS and government financing remains similar regardless of the country's level of institutional quality. Our evidence implies that there is a benefit of increased debt financing after adopting IPSAS, indicative of the incremental signal international capital providers place on the availability of IPSAS-based public sector financial reports.

Guest editorial: Public sector accounting in emerging economies in the evolving post-COVID-19 era

“…To what extent such transparency and accountability can be restored through the adoption of international public sector accounting standards is a key question (Grossi et al, 2023;Van Helden et al, 2021;Polzer et al, 2019Polzer et al, , 2022. Whilst a few studies (Tawiah, 2023;Tawiah and Soobaroyen, 2022), as well as the reports published by international organisations and the accounting profession (Khan and Mayes, 2009;ACCA, 2017), outline several benefits that emerging economies can derive from IPSAS-based reporting, a paper by Polzer et al (2023) (in this special issue) has charted the different cultural, structural and economic constraints in the implementation process. However, with the evolving post-COVID-19 thinking and the different roles being assigned to public sector accounting (for instance, addressing the issues of social significance such as resilience building, facilitating coproduction and hybridity, mitigating climate risks and promoting grass-roots level engagement, empowerment and digitalisation), further research is required to delineate what role (if any) IPSASs could play in widening both the scope and role of public sector accounting in the new era.…”

“…However, the outcomes from these reforms stimulated the ascendency of critical research in public sector accounting (Adhikari and Jayasinghe, 2022). With a few exceptions (Tawiah, 2023; Tawiah and Soobaroyen, 2022), much of the accounting work in emerging economies delineates several unintended consequences resulting from the adoption of these measures, ranging from their ceremonial adoption to comply with loan conditionalities, to the misuse of these measures in promoting and covering up large-scale state-level malpractices such as corruption, patronage and clientelism (Adhikari et al , 2013; Hopper, 2017; Nyamori et al , 2017; Bakre et al , 2017). It is worth noting that such critiques relating to NPFM measures also prevailed in developed Western economies and continue to this day, following their own experiences of NPM over the last four decades, which are alleged to be persistently “ undermining democratic legitimacy” (Grossi et al , 2023; Polzer et al , 2022).…”

Assessing the countries’ convergence to IPSAS from a cultural perspective

“…Hopper et al (2017, p. 36) argue that accounting knowledge and practices in developing countries “are driven by ‘international accounting institutions’ such as the IASB and IFAC, with the World Bank (WB), International Monetary Fund (IMF), and United Nations (UN) acting as mediating agents, and large Northern (often the “Big 4”) accounting consultants delivering the technical detail.” The authors highlight the “asymmetry of power,” “as many developing countries lack the resources, expertise, and sometimes the leadership to influence global accounting principles and practices” (Hopper et al , 2017, p. 36). There is also a suspicion that, in developing countries, the IPSAS implementation costs outweigh the benefits and that those are not extensible to the local stakeholders but are limited to only some of them, such as international investors (Tawiah and Soobaroyen, 2022).…”

“…However, this research field is still limited because IPSAS research has been primarily focused on assessing local impacts after countries implement those standards, including their improvement effects as regards economic, political and governance areas (e.g. Al-Jawahry et al , 2022; Cuadrado-Ballesteros and Bisogno, 2020; Hamed-Sidhom et al , 2022; Tawiah, 2022; Tawiah, 2021; Tawiah and Soobaroyen, 2022). Furthermore, a few research has recently focused on the country determinants of IPSAS convergence, which include, for instance, the countries’ IFRS experience, the legal and the political system (Amor and Ayadi, 2019; Boolaky-Doorgakunt et al , 2022; Christiaens et al , 2015).…”

Effects of IPSAS Adoption in Public Institutions in Romania on the Quality of Financial Reporting

“…Cross-border transactions fuel economic growth and increased cooperation between countries around the world (Ijeoma & Oghoghomeh, 2014). Due to this development, there is a greater need for standardization, comparability and transparency in terms of the fundamental standards for the preparation of the financial reports of public institutions, so that they keep on being relevant and provide the same information to users around the world (Tawiah & Soobaroyen, 2022). Public institutions refer to organisations that are controlled by the public through elected persons, known as public administrations (Acho, 2014).…”