14

Chapter II
REVIEW OF LITERATURE
This chapter presents the review of literature and studies which were found

relevant in the conduct of the study. It consists mainly of the summary of various

sources such as books, journals, internet, and unpublished materials that are important

to the present.

Conceptual Literature

This section contained all related literature that the researchers had derived from

various books and gathered from online data. The data found had been carefully

examined to find similarities or relevance to the present study.

Public Sector

The term “public sector” includes national governments, sub-national

governments, local government units and regulatory bodies. It also includes a number

of other entities with varying structures and governance arrangements. They may be

profit seeking or have a financial objective to break even. Public sector entities may

contribute to wealth generation through the application of economic stimulus measures

and fiscal interventions. Governments also make decisions on the distribution of

resources between different sectors of the economy. The future existence of public

sector entities is not dependent upon the generation of profits. The size of the public

sector and the goods and services that it provides are dependent upon factors such as

political ideology and the size of the economy (International Public Sector Accounting

Standards Board, 2011).

 15

Dube et. al, (2011) as well described that public sector consists of governments

and all publicly controlled or publicly funded agencies, enterprises, and other entities

that deliver public programs, goods, or services. They argued, however, that it is not

always clear whether any organization should be included under that umbrella.

Therefore, it is necessary to identify specific criteria to help define the boundaries.

To finish, the public sector also includes the general government sector (often

briefly referred to as government) and public sectors corporations. Most countries have

different levels of government such as federal, state, regional, central, local level.

Government levels implement either activities decentralized or ones contracted with

other agencies and organizations. Governments are selected by citizens to make

collective decisions on their behalf to provide goods and services which cannot readily

be provided by private firms, and for social welfare purposes. This provision is funded

collectively through taxation levied on citizens rather than through sales of products to

them (Bergmann, 2009).

Public Sector Accounting

According to Carlon et. al, (2016), the governmental accounting is different from

commercial accounting. They indicated that governmental entities use a fund-based

accounting system in which some of the funds use a modified-accrual accounting

method as opposed to the accrual method used by commercial entities. The financial

statements of governmental entities have a foundation in the individual funds but

aggregate to a government-wide level.

 16

They added that governmental accounting must recognize that governmental

units collect resources and make expenditures to fulfill societal needs. Society expects

governmental units to develop and maintain an infrastructure of highways, streets,

sewer and sanitation systems, as well as to provide public protection, recreation, and

cultural services. Except for some propriety activities such as utilities, governmental

entities do not have a general profit motive. Police and fire departments do not have a

profit motive; instead these units must be evaluated on their abilities to provide for

society’s needs. Governmental operations have legal authorization for their existence,

conduct revenue rising through the power of taxation, and have mandated expenditures

they must make to provide their services. They also emphasized that governmental

accounting system must make it possible to determine and demonstrate compliance

with finance-related legal and contractual provisions.

They also signified that governmental units are subject to extensive regulatory

oversight through laws, grant restrictions, bond indentures, and variety of other

constraints. Governmental entities use comprehensive budgetary accounting, which

serves as a significant control mechanism and provides the basis for comparing actual

operations against budgeted amounts. The primary emphasis in governmental fund

accounting is to measure and report on management’s stewardship off the financial

resources committed to the objectives of the governmental unit. Accountability for the

flow of financial resources is a chief objective of governmental accounting. The

managers of the governmental unit must be able to show that they follow the many legal

regulations governing its operations.

 17

Moreover, Pontoppidan and Andernack (2016) defined accrual accounting as a

fundamental tenet of strong accounting and reporting for public companies, and it

should be for governments as well. They stressed that the adoption of accrual

accounting by public sector entities should result in a more comprehensive and

accurate view of the financial position and help to ensure that government and other

public sector entities are transparent and accountable. It should also be noted, however,

that in some cases, governments do not have standardized practices for applying cash-

basis accounting and, in such cases, applying cash-basis IPSAS could be a first step

towards transparency and accountability.

In like manner, Commission on Audit (2014) defined International Public Sector

Accounting Standards (IPSAS) as a set of accounting standards issued by the IPSAS

Board for use by public sector entities around the world in the preparation of financial

statements. The standards are based on International Accounting Standards (IAS)

issued by the International Accounting Standards Board (IASB).

Berger (2012) described the scope of application of IPSAS in like manner with

Commission on Audit. They both specified that IPSAS are accounting standards for

application by national governments, regional (e.g., state, provincial, territorial)

governments, local (e.g., city, town) governments and related governmental entities

(e.g., agencies, boards and commissions). IPSAS are widely used by intergovernmental

organizations. COA pointed out that IPSAS do not apply to government business

enterprises.

He as well identified the IFAC as an international organization for the

accountancy profession. IFAC was founded in 1977 and is domiciled in New York.
 18

According to the bylaws of the International Federation of Accountants, its mission is as

follows: “to serve the public interest by contributing to the development, adoption and

implementation of high-quality international standards and guidance: contributing to the

development of strong professional accountancy organizations and accounting firms,

and to high-quality practices by professional accountants; promoting the value of

professional accountants worldwide; and speaking out on public interest issues where

the accountancy profession’s expertise is most relevant.”

Additionally, he described the establishment and purpose of the Public Sector

Committee (PSC) 1986 as a standing technical committee. The PSC initially focused on

preparing and publishing studies and research reports on (international) public sector

accounting. In 2004, the PSC was renamed IPSASB. In November 2011, the Terms of

References of the IPSASB were extended. Henceforth, the IPSASB’s purpose is not

only to set standards for the general purpose financial statements, but also to take care

of general purpose financial reports (GPFRs). GPFRS refer to all financial statements

which are intended to meet the information needs of users who are unable to require

the preparation of financial reports tailored to meet their specific information needs. The

IPSASB now develops and issues, in the public interest and under its own authority,

high-quality accounting standards and other publications for use by public sector entities

around the world in the preparation of GPFRs.

And so forth, Muller and Berger (2012) stated, IPSASB has the aim of creating

high-quality international accounting standards for the public sector such that they

ensure a fair presentation of the financial position, financial performance and cash flows
 19

of public sector entities. In addition, they are intended to achieve transparency in the

presentation of the financial position of public sector entities.

Local Government Units

Republic Act No. 7160 also known as the Local Government Code, states that a

local government unit may be created, divided, merged, abolished, or its boundaries

substantially altered either by law enacted by Congress in the case of a province, city,

municipality, or any other political subdivision, or by ordinance passed by the

sangguniang panlalawigan or sangguniang panlungsod concerned in the case of a

barangay located within its territorial jurisdiction, subject to such limitations and

requirements prescribed in this Code. Every local government unit created or

recognized under this Code is a body politic and corporate endowed with powers to be

exercised by it in conformity with law. As such, it shall exercise powers as a political

subdivision of the national government and as a corporate entity representing the

inhabitants of its territory.

Income Classification

As provided for under Section 1 and Section 2 of Executive Order No. 249, dated

July 25, 1987, Provinces, Cities and Municipalities, except Manila and Quezon City

which shall remain as special class cities, shall be divided into six (6) main classes

according to the Average Annual Income actually realized during the last four (4)

calendar years immediately preceding the year of re-classification.

Based on the Financial Statements of LGUs for CYs 2004-2007 of the

Commission on Audit, the ciities with an average annual income of Php 400,000,000 or
 20

more are considered as first class cities; Php320,000,000 or more but less than Php

400,000,000 are second class cities; Php 240,000,000 or more but less than Php

320,000,000 as third class cities; Php 160,000,000 or more but less than Php

240,000,000 as fourth class cities; Php 80,000,000 or more but less than Php

160,000,000 as fifth class cities; and below Php 80,000,000 are considered as sixth

class cities.

Moreover, municipalities with an average annual income of Php 55,000,000 or

more are first class; Php 45,000,000 or more but less than Php 55,000,000 as second

class; Php 35,000,000 or more but less than Php 45,000,000 as third class; Php

25,000,000 or more but less than Php 35,000,000 as fouth class; Php 15,0000,000 or

more but less than Php 25,000,000 as fifth class; and those municipalities with an

average annual income below Php 15,000,000 are classified as sixth class

municipalities.

Legislative Districts

Based on Republic Act No. 10673, the Province of Batangas is reapportioned

into six (6) legislative districts to commence in the next national and local elections after

the effectivity of this act. First legislative district of the province of Batangas shall remain

in its composition, to wit: Balayan, Calaca, Calatagan, Lemery, Lian, Nasugbu, Taal,

and Tuy. The second legislative district of the province of Batangas shall be composed

of Bauan, Lobo, Mabini, San Luis, San Pascual, and Tingloy. The city and municipalities

that comprise the current third legislative district of the province of Batangas shall

remain in its composition, to wit: Tanauan City, Agoncillo, Alitagtag, Balete, Cuenca,

Laurel, Malvar, Mataas na Kahoy, San Nicolas, Sta.Teresita, Sto. Tomas, and Talisay.
 21

The fourth legislative district of the province of Batangas shall be composed of Ibaan,

Padre Garcia, Rosario, San Jose, San Juan, and Taysan. The fifth legislative district of

the province of Batangas shall be composed of the City of Batangas. The sixth

legislative district of the province of Batangas shall be composed of the City of Lipa.

International Public Sector Accounting Standard

According to Pontoppidan and Andernack (2016), the International Public Sector

Accounting Standards (IPSAS) are gaining increasing acceptance globally. They stated

that public administrators are today encountering important challenges in reducing the

distance between accounting systems within countries as well as across borders. They

also entail a move towards harmonization of accounting practices in the public sector

and thus require choosing an appropriate set of accounting and financial reporting

standards.

According to Muller and Berger (2012), the adoption of international accounting

standards ensures comparative and standardized information on finances and the

economic situation of public sector entities across jurisdictions. Since IPSASs have

been derived from IFRSs, they are able to build on an accounting basis that has been

well established in the private sector over recent years. This common basis makes for

convergence in private and public sector accounting for comparable matters – while at

the same time allowing for divergence where rules specifically adapted to the public

sector is required. Because they are geared towards decision-making needs, the

IPSASs provide the executive and legislature with a better basis for their decisions on

the allocation of resources. The accrual basis IPSASs take account of operational

performance indicators such as provisions or amortization and depreciation. They

 22

asserted that because of this, IPSASs makes a suitable basis for efficient and effective

public management and can thus promote action guided by the principle of

intergenerational equity and make a contribution to suitable administrative action.

Finally, they serve to enhance the accountability of the executive and legislature.

The objective of accounting in accordance with IPSAS is, on the one hand, to provide

public decision-makers with relevant information and, on the other, to ensure

accountability for the public funds and resources entrusted to the entity. The IPSASs

can also make a significant contribution for national standard setters. They can be of

helpful to the authorities responsible for public sector accounting (e.g., specially

established standard setter) or the legislature when amending or revising accrual basis

standards.

Budding et. al., (2010) signified IPSASs as a unique set of accrual accounting

standards for the public sector, which could be implemented around the globe. The

IPSAS are designed to apply to the general purpose financial statements of all public

sector entities. This does not include governmental business enterprises, or privately

organized non-profit organizations. IPSAS could enhance the quality of general purpose

financial statements and establish consistency, transparency, accountability and

comparability in the application of those practices. The IPSASB created a special due

process to include possible comments from all stakeholders in the development of these

standards. So far, 32 IPSAS have been published, with only one standard on the use of

cash accounting.

They also point up that there is an international trend towards the adoption of

IPSAS-like accrual accounting in the public sector, but there is still a huge diversity in
 23

the existing accounting reforms and practices. Research has shown a slow movement

towards the implementation of IPSAS-like accounting systems throughout countries in

all regions of the world. Nonetheless, there is still a level of reluctance, especially in

central governments, due to the limit of the IPSAS and the difficulty of their

implementation.

Yet again, the adoption and implementation of a new accounting system involves

huge changes that affect the functioning of a government as a whole. Existing

differences between accounting systems around the world man that the modification

process towards the IPSAS will be different in every country, jurisdiction or organization.

Nonetheless, a number of general preparatory steps have been listed that can facilitate

a smoother implementation of the IPSAS. Other arguments against the implementation

of an IPSAS-like accrual accounting system are the fact that the IPSAS are not yet a

complete set of standards, their insufficient stability at this moment, and the lack of

participation by legislative authorities in the development process.

Philippine Public Sector Accounting Standard

Based from Commission on Audit (2014), the Public Sector Accounting

Standards Board (PSAcSB) under the Office of the COA Chairman created under COA

Resolution 2008-012 dated October 10, 2008 to assist the COA in formulating and

implementing public sector accounting standards, recommended the adoption of the

International Public Sector Accounting Standards (IPSAS) to be referred to as the

Philippine Public Sector Accounting Standards (PPSAS). The PPSAS shall apply to all

National Government Agencies (NGAs), Local Government Units (LGUs) and

 24

Government-Owned and/or Controlled Corporations (GOCCs) not considered as

Government Business Enterprises (GBEs). For NGAs and GOCCs not considered as

GBEs, the PPSAS took effect in CY 2014 while for LGUs, in CY 2015. This means that

accounts and financial reporting of NGAs and GOCCs not considered GBEs are PPSAs

compliant effective CY 2014 while those for LGUs, in CY 2015.

The PPSAS were developed by adopting the International Public Sector

Accounting Standards (IPSAS) issued by the International Public Sector Accounting

Standards Board (IPSASB). The accounting treatment and original text of the IPSASs

and the approved amendments thereof unless there is a significant accounting issue

that warrants departure are adopted and maintained by the Public Sector Accounting

Standards Board (PSAB); or by developing a specific accounting standard of PPSAS to

deal with a specific accounting issue that is either not comprehensively dealt with in an

existing IPSAS or for which an IPSAS has not been developed by the IPSASB.

In addition, the PPSAS, as aligned with the prevailing international standards,

provide quality accounting standards thereby enhancing the quality and uniformity in

financial reporting by Philippine public sector entities, and ensuring accountability,

transparency and comparability of financial information with other public sector entities

around the world. If there is an accounting principle or a significant element of a

disclosure requirement contained in IPSAS which conflicts with Philippine laws, rules

and regulations, the conflict is considered a fundamental issue and has to be resolved

to the end that the accounting principle or disclosure maybe changed to conform to the

laws, rules and regulations. A Philippine Application Guidance (PAG) shall be issued to

the standards in the IPSAS when they deviate from Philippine regulatory or legislative
 25

environment. As it is now, PPSAS standards were covered with Philippine Application

Guidance (PAG).

Recognition

According to the IPSASB (2016) that the standard does not prescribe the unit of

measure for recognition, example is what constitutes an item of property, plant, and

equipment. Thus, judgment is required in applying the recognition criteria to an entity’s

specific circumstances. Also, it may be appropriate to aggregate individually

insignificant items, such as library books, computer peripherals, and small items of

equipment, and to apply the criteria to the aggregate value. Moreover, that resources

arising from taxes satisfy the criteria for recognition as an asset when it is probable that

the inflow of resources will occur and their fair value can be reliably measured. The

degree of probability attached to the inflow of resources and determined on the basis of

evidence available at the time of initial recognition. Taxation revenue arises only for the

government that imposes the tax, and not for other entities.

Furthermore, it also indicated that net gains or net losses on financial assets or

financial liabilities at fair value through surplus or deficit, showing separately those on

financial assets or financial liabilities designated as such upon initial recognition, and

those on financial assets or financial liabilities that are classified as held for trading in

accordance with IPSAS 29. Also, that the nature of the liability recognized is based on

the nature of the consideration exchanged between the grantor and the operator. The

nature of the consideration given by the grantor to the operator is determined by

reference to the terms of the binding arrangement and, when relevant, contract law.
 26

Moreover, COA (2016) mentioned that LGU expects some or all of a provision to

be reimbursed. And that an outflow of resources embodying economic benefits or

service potential will be required to settle the obligation and a reliable estimate can be

made of the amount of the obligation.

Recognition is the process of incorporating in the balance sheet or income

statement an item that meets the definition of an element and satisfies the criteria for

recognition. An item that meets the definition of an element should be recognized if: It is

probable that any future economic benefit associated with the item will flow to or from

the enterprise; and the item has a cost or value that can be measured with reliability

(Ballada, 2014).

Measurement

According to IPSASB (2016) that the revenue is measured at the fair value

of the goods or services received, adjusted by the amount of any cash or cash

equivalents transferred. And when the fair value of the goods or services received

cannot be measured reliably, the revenue is measured at the fair value of the goods or

services given up, adjusted by the amount of any cash or cash equivalents transferred.

Also, where an item of property, plant, and equipment that qualifies for recognition as an

asset shall be measured at its cost. Also, it includes that an asset may also be acquired

through a non-exchange transaction by the exercise of powers of sequestration. Under

these circumstances, the cost of the item is its fair value as at the date it is acquired.

Additionally, that the amount is payable irrespective of whether the individual pays

taxes. Consequently, this amount is an expense of the government and should be

recognized separately in the statement of financial performance. And tax revenue

 27

should be increased for the amount of any of these expenses paid through the tax

system.

In the same manner, it stated that where a liability is required to be recognized it

will be measured in accordance with the best estimate of the amount required to settle

the present obligation at the reporting date and the amount of the increase in net

assets, if any, will be recognized as revenue. When a liability is subsequently reduced,

because the taxable event occurs, or a condition is satisfied, the amount of the

reduction in the liability will be recognized as revenue.

Furthermore, revenue from non-exchange transactions has future economic

benefits to the flow of the entity there is no recognition of the measurement otherwise

when it is improbable that future economic benefits will flow to the entity the other non-

exchange revenues is recognized in accordance to the statement of COA (2016).

Ballada (2015) and Valix et. al., (2014) similarly defined measurement as the

process of determining the monetary amounts at which the elements of the financial

statements are to be recognized and carried in the balance sheet and income

statement. This involves the selection of a basis of measurement. Several these are

used to different degrees and in varying combinations in financial statements.

In addition, measurement is the process of quantifying transactions in monetary

terms and must be completed in order to record transactions. The recording process

results in a systematic record of all of the transactions of an entity and provides a

history of business activities (Beans, 2015).

 28

Presentation

Presentation includes how financial statements should be structured the

minimum requirements for their content and overriding concepts such as going concern,

the accrual basis of accounting and the current/non-current distinction. The standard

requires a complete set financial statements to compromise a statement of financial

position, a statement of profit or loss and other comprehensive income, a statement of

changes in equity and a statement of cash flow (IAS, 2017).

Generally, the financial statements shall present fairly the financial position,

financial performance and cash flows of an entity. Fair presentation requires an entity:

to select and apply accounting policies in accordance with applicable standards; to

present information including accounting policies, in a manner that provides relevant

and faithfully represented financial information; to provide additional disclosures

necessary for the users to understand the entity’s financial statements (Valix et. al.,

2016).

According to the IPSASB (2016) that an entity presents its cash flows from

operating, investing, and financing activities in a manner that is most appropriate to its

activities. And the classification by activity provides information that allows users to

assess the impact of those activities on the financial position of the entity, and the

amount of its cash and cash equivalents. This information may also be used to evaluate

the relationships among those activities. the presentation of the financial statements

with original and final budget amounts and actual amounts on a comparable basis with

the budget that is made publicly available will complete the accountability cycle by

enabling users of the financial statements to identify whether resources were obtained
 29

and used in accordance with the approved budget. And the differences between the

actual amounts and the budget amounts, whether original or final budget (often referred

to as the variance in accounting), may also be presented in the financial statements for

completeness. Also, the entity shall present current and non-current assets, and current

and non-current liabilities, as separate classifications on the face of its statement of

financial position in accordance with the standard, except when a presentation based on

liquidity provides information that is reliable and is more relevant. When that exception

applies, all assets and liabilities shall be presented broadly in order of liquidity. Also, it is

important that assets and liabilities, and revenue and expenses, are reported

separately.

Moreover, offsetting in the statement of financial position, except when offsetting

reflects the substance of the transaction or other event, detracts from the ability of users

both: to understand the transactions, other events and conditions that have occurred,

and to assess the entity’s future cash flows. And if the line item is not individually

material, it is aggregated with other items either on the face of those statements or in

the notes. An item that is not sufficiently material to warrant separate presentation on

the face of those statements may nevertheless be sufficiently material for it to be

presented separately in the notes.

Disclosure

It is additional information attached to an entity's financial statements, usually as

explanation for activities which have significantly influenced the entity's financial results

(Accounting Tools, 2017).

 30

In addition, it is an act of releasing all relevant information pertaining to a

company that may influence an investment decision. To be listed on major U.S. stock

exchanges, companies must follow all of the Securities and Exchange Commissions

(SEC) disclosure requirements and regulations. To make investing as fair as possible

for everyone, companies must disclose both good and bad information (Investopedia,

2017).

According to IPSASB (2016) an accounting policy may be significant because of

the nature of the entity’s operation, even if amounts for current and prior periods are not

material. It is also appropriate to disclose each significant accounting policy that is not

specifically required by IPSASs, but is selected and applied in accordance with IPSAS

3. Also, it is important for users to be informed of the measurement basis or bases used

in the financial statements, because the basis on which the financial statements are

prepared significantly affects their analysis. When more than one measurement basis is

used in the financial statements, for example when particular classes of assets are

revalued, it is sufficient to provide an indication of the categories of assets and liabilities

to which each measurement basis is applied. It indicated that the application of IPSASs,

with additional disclosures wants to present information, including accounting policies,

in a manner that provides relevant, reliable, comparable, and understandable

information.

Furthermore, it indicated that prospective recognition of the effect of a change in

an accounting estimate means that the change is applied to transactions, other events,

and conditions from the date of the change in estimate. There is a change in an

accounting estimate may affect only the current period’s surplus or deficit, or the surplus
 31

or deficit of both the current period and future periods. Also, the effect of the change

relating to the current period is recognized as revenue or expense in the current period.

The effect, if any, on future periods is recognized in future periods.

The study of Austin (2007), there is externally acquired intangible which are

purchased from outside the firm and usually have identifiable costs and discernible

benefits. However, there have been difficulties in accounting for these assets. There

has been a conservative tendency to expense many of the costs involved, and for those

capitalized there have been inconsistent approaches to recording, revaluing, and

amortizing these assets.

Benefits of International Public Sector Accounting Standards

According to Caseware Africa (2016), government financial information is used by a

variety of stakeholders. Public entities are accountable for the utilization of public funds

and must ensure the highest levels of transparency exist across financial processes. It

should also provide a reliable basis for evaluating the current financial position and past

performance for decision-making purposes. Stakeholders need to understand

government finances before making commitments for new programs and services –

IPSAS Accrual and IPSAS Cash and Modified Cash can help them do that.

Transparency and accountability: these are arguably the greatest motivators for

adopting IPSAS Accrual or IPSAS Cash and Modified Cash. Transparent accrual-

based financial statements help governments to demonstrate, and users to evaluate,

accountability in the use of public funds. According to Brian Quinn, director at the World

Bank, “Research has shown that more transparent countries have better credit ratings,
 32

better fiscal discipline, and lower borrowing costs.” A comprehensive inventory gives

stakeholders a clear view of government resources and future obligations. This will

allow for more effective administrative processes and controlling costs to be put into

place. Bringing liabilities onto the government balance sheet provides a view of the

long-term implications in terms of spending commitments and borrowing needs.

Yet again, accrual accounting helps to improve the measurement of a public entity’s

financial performance and financial position and provides more transparent information

on government sustainability. Recording fixed assets in government financial

statements has a major measurable impact on government financial statements.

Policies, processes and systems that are needed to meet data requirements and track

asset-related information on an ongoing basis are also heavily impacted. According to a

survey by PWC, “57% of countries view the application of accruals as one of the three

most significant impacts of adopting accrual-based IPSAS or similar standards.”

The IFAC supports the global adoption and implementation of IPSASs for public

sector financial reporting. And the adoption of IPSASs by governments worldwide will

improve the quality of financial information reported by public entities, which is critical

for investors, taxpayers, and the general public to understand the full impact of

decisions made by governments with respect to their financial performance, financial

position, and cash flows. Global adoption of IPSASs will facilitate the comparability of

information on a global basis and assist in internal management decisions in resource

allocation planning and budgeting, monitoring, and accountability (International

Federation of Accountants, 2012).

 33

Research Literature

This portion refers to the previous researches that are relevant to the present

study. Researchers exerted time and effort visiting different libraries in Batangas City

and even other university libraries in Manila.

A study by Olanrewaju (2016) of Nigeria examined the expectations and benefits

of adoption of International Public Sector Accounting Standards in Nigeria. He indicated

Nigeria is expected to adopt the International Public Sector Accounting Standards in

2014. Sequel to Nigeria’s implementation and adoption of this accounting standard, the

study examined possible benefits of adopting the system. From the findings of the

study, it was observed that adoption of IPSAS is expected to increase the level of

accountability and transparency in public sector of Nigeria. It was found that the

adoption of IPSAS will enhance comparability and international best practices. Also, it

was denoted that adoption of IPSAS based standards will enable the provision of more

meaningful information for decision makers and improve the quality of financial reporting

system in Nigeria.

In addition, adoption of IPSAS by Nigerian government improved comparability of

financial information reported by public sector entities in Nigeria and around the world.

Hence, they concluded that the adoption of IPSAS in Nigeria is expected to impact

operating procedures, reporting practices and hence strengthen good governance and

relations with the government and the governed.

According to Otunla, (2016) in the journey of the Nigerian government on

implementing the International Public Sector Accounting Standards, they encountered

 34

different issues and challenges. There are seamless consolidation of the fiscal reports

of the three tiers of government with uniform reporting format of having the same chart

of accounts, and need to develop IT hardware and software to automate the process.

The relevant enabling legislations need to be changed in line with reality of the

requirements of IPSAS. The relevant accounting manuals must be reviewed and

rewritten. There’s a need for training and retraining of accounting personnel in

accordance to the need for the right staffing skills and levels. There will also be a need

to change the management. The central guidance and the automation of the business

process is very critical. The accounting curricula need to systematically convey IPSAS

to students of Accountancy.

Issues about Continuing Professional Education on Ethics and Professional

Responsibility may arise. The profession needs to make commitment to producing

IPSAS specialist. Such experts will be available as resource person since cases where

IPSAS is in use. IPSAS specialist should be knowledgeable about available resources

that can help answer professional responsibility.

Furthermore, a study by Opanyi (2016) conducted in Kenya focused on effect of

adoption of IPSAS on quality of financial reports in meeting the criteria for decision

usefulness. The design used in the study was the descriptive survey design while the

target population was the 19 ministries of the national government in Kenya. Data was

collected using secondary means and was analyzed using descriptive statistics and t-

test for differences. The study indicated enhancement in the quality of characteristics of

comparability, relevance, timeliness and faithful representation by adoption of IPSAS

while the quality of characteristics of understandability declined. Additionally, the study

 35

showed no significant difference in items pertaining to transparency and accountability

indicating that the goal for government reforms in achieving greater transparency and

accountability may not be fully achieved. The study also revealed that adoption of

IPSAS is adjudged to have moderate effect on quality of financial reports in public

sector in Kenya using a 5 point likert scale. The study concluded that there exists

statistically significant difference between old accounting standard-based financial

reports and IPSAS-based financial reports in meeting the criteria for decision usefulness

as revealed by paired-sample t-test.

Moreover, Cekodhima (2016) conducted a study which looked at the

implementation process and the implications for the quality of the accounting

statements both during the transition phase of IPSAS implementation and after the

implementation is complete. It accomplished a case study that examines statements

during their transition phase and compares the way the accounting was done pre-

IPSAS to the way it was done post IPSAS implementation. The paper also provides an

overview of the IPSAS implementation in Europe, its challenges during the

implementation period, the reasoning behind picking accrual accounting over cash

accounting, and, finally, the effect of this implementation on statements released by the

public sector. Overall, the paper concludes that switching to an accrual based

accounting standard such as IPSAS in the public sector is the right choice, as it

provides a more accurate overview of the entity's financial reality.

A study conducted by Sukmadilaga et. al., (2015) investigated the disclosure

level in the Association of South East Asian Nations (ASEAN) governmental financial

statement for year ended 2012-2013. The research method employed is exploratory
 36

quantitative. Data collected using disclosure checklist provided by International Public

Sector Accounting Standard (IPSAS). Two countries in ASEAN, Indonesia and Malaysia

were selected as a sample. Data analyzed using descriptive statistics. The research

indicated that although Indonesia’s government financial statements provide more

disclosure rather than Malaysia’s, but generally, disclosure level in both countries is low;

indicate that both countries still has to increase their disclosure level in the future.

Furthermore, the study of Ijeoma et. al., (2014) of Nigeria stated the adoption of

IPSAS by Nigerian government will improve comparability of financial information

reported by public sector entities in Nigeria and around the world. Hence, they

concluded that the adoption of IPSAS in Nigeria is expected to impact operating

procedures, reporting practices and hence strengthen good governance and relations

with the government and the governed. Furthermore, the standard is expected to

provide useful information for better management and decision. IPSAS will also expose

the government and finance officers to greater public scrutiny thereby making them

more accountable for the efficiency and effectiveness of their services. The adoption of

IPSAS will no doubt serve as the foundation for financial reporting system in Nigeria and

equally build trust between the government and the citizens.

Another study conducted by Bellanca (2014) of Europe briefly pointed out the

goal of the International Public Sector Accounting Standards (IPSAS) is to improve the

quality of financial information of public sector entities, to strengthen the transparency of

public accounts and to make decision makers more accountable. This modernization

seems necessary particularly in the context of the sovereign debt crisis which requires

particular attention to accountability and control of public accounts.

 37

In Addition, a local study carried out by Silang (2014) depicted that the success

of Batangas City in the area of good governance may still be very young but having

achieved such status in the whole world is something every Batangueño should be

aware of and be proud of. This study aimed to analyze the adherence of Batangas City

to the criteria set by the LivCom Awards that reflected the ideals of Good Governance.

This study used qualitative-documentary analysis. Qualitative Data Analysis (QDA) was

used based on an interpretative philosophy in examining the meaningful and symbolic

content of qualitative data. The researcher employed interview and focus group

discussion to substantiate the documents of this research. The various awards received

by Batangas City are The Seal of Good Housekeeping 2012, Pamana ng Lahi 2012,

Top 5 Luminaries ng Meralco 2012 and two international awards being the Most

Liveable Community in 2011 and 2012. The Local Government of Batangas City

adheres at par with criteria set by international standards as Enhancement of the

Natural and Built Landscapes, Arts, Culture and heritage, Environment Best Practices,

Community Participation and Empowerment, Healthy Lifestyle and Strategic Planning.

The impact of these international awards given to the Local Government of Batangas

City is a manifestation of the best practices on good governance in as far as its

responsibility with the national government with the advancement.

Additionally, Cardoso et. al., (2014) stated that Brazilian governmental

accounting is affected by two reform processes: the implementation of accrual

accounting and convergence with the International Public Sector Accounting Standards

(IPSAS). The study analyzed the origins, the process and preliminary outcomes of such

reforms. In order to characterize the Brazilian accounting system, they followed the
 38

questionnaire from Chan, Jones and Lüder (1996) as a protocol, analyzed financial

reports and reviewed official literature that regulates Brazilian public sector accounting.

The paper found that the accounting reform has two origins: the need to prepare cost

accounting information (year 2000) and the requirement to converge towards IPSAS

(year 2009). Reform affects both central government and subnational governments, and

is being coordinated by the Treasury’s central government. In the process, the Treasury

has required the adoption of some sophisticated accounting policies that were beyond

the capacity of IT platform installed on either central and local governments, and has

had to postpone aspects of their implementation. Treasury has used this as a

convenient opportunity to select which IPSAS requirements to implement, taking into

account political agendas (e.g. avoiding the recognition of deficit). For these and other

reasons, some states’ courts of accounts do not require compliance with some of the

standards issued by the Treasury, which impairs the comparability of accounting

information prepared by different Brazilian public sector entities.

A study affirmed that the Nigerian society has been filled with stories of wrong

practices such as stories of ghost workers on the pay roll of Ministries, Extra-ministerial

Departments and Parastatals, a frauds, embezzlements and setting ablaze of offices

housing sensitive documents and corruption leading to none or poor accountability of

individuals in public offices of the country. One of the most researched and least

understood variables in public sector accounting of the nation is how the accountability

and stewardship of financial controls are conducted.

Moreover, the scholars have been speculating on how the funds generated are

managed but now researchers through the International Public Sector Accounting
 39

Standards (IPSAS) have conducted systematic investigation of funds and leakages in

Nigeria with direct reference to ministries, departments and agencies. They concluded

that even with this, there is still an increasing difficulty and doubts in establishing the

fact that the generated revenues are put to good use by individuals in public offices. The

paper also contains an evaluation of the source of revenue and the impact of the

financial control system in the ministries, departments and agencies particularly. The

work actually examined the effect and implementation of International Public Sector

Accounting Standards (IPSAS) in terms of how public office holders in ministries,

departments and agencies give accountability report of their stewardship. Data on total

federal government revenue and expenditure, state governments revenue and

expenditure were collected from Statistical bulletin of the Central Bank of Nigeria from

1961-2008 and used to expatiate the points indicated above. The researcher designed

a research questionnaire, which was made of hypothetic questions of the research

work. Interview questions were formulated and tested for validity before dispatching to

the chosen sample populace.

Also a stratified sampling technique was used for the study as the sample is

made up of both male and female staff of the ministries, departments and agencies in

the country. The data collected were analyzed and from the analysis there on, the

researcher revealed that the level of accountability is very poor in Nigeria because the

attributes of accessibility, comprehensiveness, relevance, quality, reliability and timely

disclosure of economic, social and political information about government activities are

completely non available or partially available for the citizens to assess the performance

of public officers mostly the political office holders. The research report recommended
 40

among others that for accountability to be successfully implemented public offices in

Nigeria there must be a reduction in the level of corruption, improving public sector

accounting and auditing standards, legislators taking positions as champions of

accountability and total restructure of public accounts committees and monitored

application of the value of money in the conduct of government business (Anonymous,

2014).

Furthermore, World Health Organization began implementing IPSAS in 2006.

IPSAS was a key requirement of WHO’s Enterprise Resource Planning project, the

Global Management System (GSM), which went live in 2008. The alignment of the

changes required by IPSAS to the design and implementation of GSM was an important

step towards introducing accrual accounting and avoided costly additional system

modifications. WHO achieved partial IPSAS compliance by 2010, and proceeded

toward full implementation when GSM was adopted by all WHO Regional Offices. In

2012, WHO’s Financial Report and Audited Financial Statements fully complied with

IPSAS. WHO used its existing staff for IPSAS implementation rather than recruiting a

specialized IPSAS team that would leave WHO once IPSAS implementation was

complete. Using existing staff has ensured that IPSAS information and knowledge is

embedded into WHO’s finance and accounting teams. As a result of the above steps,

the cost of implementing IPSAS at WHO was limited to US$ 500,000 and consisted of

short-term staffing and some external consultancy support in more complex accounting

areas.

However, there will be ongoing costs associated with maintaining IPSAS

compliance including the costs of annual audits rather than biennial audits, the costs of
 41

having an annual actuarial valuation of future staff liabilities, and staff costs associated

with the tracking, maintaining and recording of property, plant and equipment (PP&E)

and inventory. There are also additional costs associated with maintaining reporting

requirements. In total, these ongoing costs are estimated to be about US$ 150 000 a

year (World Health Organization, 2013).

According to Christiaens et.al, (2013) over the past 25 years significant New

Public Management (NPM) reforms, particularly towards accrual accounting, have

characterized the public sector in many countries. The diversity in public financial

information systems created a need for harmonization, resulting in the elaboration of

International Public Sector Accounting Standards (IPSAS). Despite their relevance, little

is known on the adoption process of IPSAS. This study aims to examine to what extent

IPSAS-inspired accrual accounting is adopted in central / local governments worldwide

as well as to investigate which factors affect the differing level of their adoption.

Methodologically, a specific questionnaire constructed to obtain relevant information

from local experts was sent worldwide to a sample of countries. The study reveals an

important move to accrual accounting, particularly to IPSAS-accrual accounting

whereby there still remains a level of reluctance mainly in central governments,

especially in countries where businesslike accrual accounting has been developed.

.The study of Sturesson et.al, (2013) stated that accrual accounting conversion

requires a significant commitment of resources in terms of time, effort and money. It

also demands specialized skills and a general shift in the mindsets of people at all

levels of the organization. IT systems need to be upgraded or new systems put in place
 42

in order to support the change. Commitment from senior management and politicians is

essential in order to secure the necessary resources and promote buy-in.

The study of Trang (2012) of Vietnam described that Vietnamese government

accounting will be improved with gradually applying accrual based IPSAS standards.

The IPSAS will bring many advantages to the government accounting including

providing financial position and performance, assuring a better financial integrity,

meeting requirements of international financial organizations or sponsors such as WB,

ADB, etc, being more efficient to make use of the knowledge of IPSASB, improving

accountability and transparency for resources, being a benchmark for evaluating and

improving government accounting, enhancing international comparability of financial

information of the Vietnamese government with other governments, facilitating the

consolidation of financial statements better than the present accounting system,

improving public financial management, implementing NPM reforms.

Yet another, the study of Warren (2012) indicated that most resource allocation

decisions in the public sector are made by elected representatives, who are very

interested in how general purpose financial reports will portray their decisions. His

article is about which way IPSAS is going. Speculating on this is possible because the

International Public Sector Accounting Standards Board (IPSASB) is currently

developing a public sector conceptual framework that provides a sort of road map to its

future standards. Some key decisions are pretty much settled, others are still very much

the subject of debate. The users of general purpose financial reports of public sector

entities are resource providers and service recipients; to discharge accountability

obligations to these users and to contribute to, and inform, their decision making. To
 43

meet these objectives, general purpose financial reports need to provide information on

the performance of the entity during the reporting period in meeting its service delivery

and other operating and financial objectives; the sustainability of the entity’s service

delivery and other operations over the long term, and changes therein as a result of the

activities of the entity during the reporting period.

In addition, a study by Bunea-Bontas et. al., (2010) of Romania pointed out that

the public accounts provide information on budget management and proper and

appropriate use of public funds, ensuring for users the possibility of making the best

economic decisions. In achieving this requirement is necessary to move from the

traditional cash inputs approach, towards outputs and outcomes, respectively accrual

based accounting. Arguments are the multiple advantages provided by the financial

statements, transparency and accuracy, improved assets and liabilities management

and budgeting process, reliable source for decision making, better assessment of

programs and related services costs. In Romania, introducing accrual accounting for

public sector was part of a wider reform agenda. According to the EU requirements, the

whole government accounts passed to accrual accounting system, by adopting new

general accepted accounting principles. These principles had to be in compliance with

the European rules, and adequate to our country’s circumstances and to its public

sector. Given the engagements assumed by Romania, started from 2006 for all the

public institutions is mandatory to base their accounting on accruals. And because

accounting is changing as the world changes, reform will continue and the next step is

adopting IPSAS.
 44

The study of Cenar et. al., (2009) of Romania indicated that internationalization is

a phenomenon that hasn’t spared even the public sector, so the issue of the accounting

convergence has been raised even at this level. Aspects approached in the study

referred to the following: shaping the premises that led to the accounting reform in

Romanian public institutions, the chronological history of the legal framework for the

restructuring of the public institutions’ accounting (starting from the need of adding

accrual accounting to the traditional cash accounting), the regulation of the financial

reporting requirements through the International Public Sector Accounting Standards

and the utility of converging the national accounting norms to these standards.

Synthesis

The different studies in the review of literature helped a lot in pursuing the

proposed study. The related studies gave more knowledge to the researchers in better

understanding the study.

According to Olanrewaju and Opanyi, they concluded that there is a significant

difference between the old accounting standard-based financial reports and

International Public Sector Accounting Standards-based financial reports. The adoption

of International Public Sector Accounting Standards to their respective countries

enhanced the level of accountability and transparency of the public sector.

Bellanca stated that the goal of the International Public Sector Accounting

Standards is to improve the quality of financial information. Hence, the studies of

Cekodhima and Ijeoma et.al., presented that there is a clear benefit in having IPSAS

being implemented because it provides useful information to managers for better

 45

management and decision making. In contrast to that, Vašiček et. al. stated that only

several countries had successfully implemented the IPSAS because the process of

moving on principles of business sector is very complicated, long-lasting and costs

expensive process. He added that the benefits that can be acquired from having IPSAS

cannot be achieved in advance. In addition, Bellanca also pointed out that the IPSAS is

established to strengthen the transparency of public accounts and to make decision

makers more accountable. Moreover, Clark expressed that the users had

acknowledged the financial information of the public sector as a useful purpose in

making governments accountable. In support to that, Ijeoma et. al. stated that IPSAS

will expose the government and finance officers to greater public scrutiny for the

efficiency and effectiveness of their service.

Several authors identified the challenges that are encountered during application

of the International Public Sector Accounting Standards. World Health Organization

(WHO) recognized that implementing IPSAS is costly. Opanyi stated that it declines the

characteristics of understandability. Poutos et. al., together with Schumesch et. al.

determined that there’s an issue about staffing because it demands specialized skills

and a general shift in the mindsets of people at all levels of the organization. In addition,

development on IT systems is necessary to support the implementation.

The related studies show the adoption of the International Public Sector

Accounting Standards among the public sector while the present study is conducted to

determine the extent of compliance of the said standard among the local government

units (LGUs) which is one of the compositions of the public sector. This study discloses
 46

the challenges that the LGUs encountered in complying with the IPSAS, same as some

of the related studies present.