IPSAS, Transparency, and Culture
Posted: August 26th, 2021
IPSAS, Transparency, and Culture
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Table of Contents
Chapter 2: Literature Review.. 4
2.3. The Adoption of IPSAS and Transparency. 6
2.4. IPSAS Implementation and Transparency. 7
Description of the variables. 13
The study will employ both independent and dependent variables as explained below; 13
Research Hypothesis Development 14
Chapter 1: Introduction
1. Introduction
Public or government entities provide services to the general population, which are essential in ensuring an equal distribution of national resources to citizens wherever they are located. The public entities are state-owned, and their finances originate from the taxes paid by citizens and other corporations. The onset of the global financial crisis in the last decade showed that the public institutions’ financial systems need various reforms to ensure that they do not engage in fraudulent activities, misappropriations, and accounting fraud (Karanikolos et al., 2013). Accounting procedures in a country’s public entities entails collecting, recording, and analyzing financial reports related to the entities’ financial activities (Zietlow et al., 2019). Therefore, as the key stakeholder, financial statements should be communicated to the public in the utmost transparency, depending.
However, financial statements are often a method of misrepresenting these entities’ financial reality by manipulating the reports for diverse interests. Thus, the IPSAS objective is to ensure that government entities serve only the public interest and not the wishes of a few people with ulterior motives through the development of quality public sector financial reporting standard (Schmidthuber et al., 2020). IPSAS also ensures the facilitation and convergence of national and international standards, which enhance the uniformity and quality of financial reporting globally through standardization of accounting measures (Christiaens et al., 2019). Berger (2018) contends that IPSAS development originated in the accounting profession to advance government agents’ accountability and transparency mechanisms. Hence, the government accounting systems need authentic accounting to improve the information systems found in public financial management schemes. Nevertheless, the challenge arises when the private entities perform better than the public ones, mostly due to poor management of public funds (Jones & Caruana, 2016). Thus, the poor management of the federal funds forces these organizations to request more funding to ensure its operations’ sustainable ability. Eventually, the economies of such countries end up accumulating public debts to support their entities’ activities.
Further, poor management of public corporations is mainly due to their failure to fully disclose all their accounting entities due to the culture of weak enforcement systems in most governments worldwide (Broadbent & Guthrie, 1992). The problem is most common in developing nations as they use cash-based financial accounting systems, which creates disparities in the organizations and across various entities (Aggestam-Pontoppidan & Andernack, 2016). Christiaens & Neyt (2015) noted that developed nations pioneered the movement to accrual-based accounting to enhance transparency and introduce a culture of accountability in the public sectors. Besides, the financial statements of public entities’ statements play a significant role in ensuring that their financial actions are transparent, which creates a culture of accountability, thus minimizing mismanagement of public funds (Bellanca & Vandernoot, 2014). Subsequently, adopting the IPSAS allows comparability among diverse entities in similar and different sectors in various countries. Therefore, IPSAS provides better support for the management of public resources in improving the credibility of financial statements for different countries.
Chapter 2: Literature Review
2. Introduction
The chapter is a compilation of past studies that relate to the topic under review. Previous work is essential in this analysis as it will offer a better explanation of the topic, which will give more understanding to the research. The chapter constitutes an examination of past research relating to IPSAS and its effects on transparency and culture. Besides, this section will highlight both empirical and theoretical literature review, where the theoretical literature review provides adistinct understanding of the main concepts together with the primarydefinitions used in the research. On the other hand, the empirical literature review offers in-depth knowledge and related ideas offered by other researchers and authors who have published scholarly information concerning IPSAS and its application in organizations.
2.2.Transparency
Transparency is defined as the availability of the data and necessary documents by governments to the general public following their needs. This is to hold accountable any government for the actions at later stages (Abu-Shanab, 2014). Transparency is usually associated with the concept of availability of information online; or as ‘e-government.’ This means that the data will be available on the government’s electronic platform on the internet. The association between transparency and information disclosure on e-government websites is the concept of legitimacy, whereby if the governments use information technology, the more they are transparent in their disclosures and data presentation (Abu-Shanab, 2014). Several authors studied transparency and disclosure in previous years. Roje et al. (2012) concreted the fact that the use of e-government websites appeals to democracy. Other studies tested global data on websites and found a significant correlation between transparency and e-government systems are empirically related (Abu-Shanab, 2013).In this sense, transparency is the communication means between the citizens and the government in the essence of the latter disclosing the largest capacity of information possible (Abu-Shanab, 2014). Therefore, the information at hand aims to investigate the impact of various factors on the transparency of the countries implementing IPSAS.
2.3.The Adoption of IPSAS and Transparency
IPSAS has long been seen as a method of modernizing government accounting means which has been extensively adopted by many countries worldwide (Brusca & Martinez, 2016). One of the essential aspects that IPSAS calls for is transparency. It revolves around the availability of data presented by the governments (Abu-Shanab, 2014). However, the level of adoption of IPSAS and the transparency level achieved vary based on different factors. Public sector entities have witnessed insightful changes in their cultural settings over the last couple of decades (Brusca & Martinez, 2016). Similarly, the last financial crisis drove many to realize the need for reform in accounting in the public sector, which can be achieved through convergence and harmonizing those standards (Roje et al., 2012). Accordingly, many countries have exerted efforts to adopt International Public Sector Accounting Standards (IPSAS) to modernize their governmental accounting mechanisms. This is most likely imminent because diversity in the public sector’s financial information systems generated a necessity of harmonizing accounting standards, hence elaborating IPSAS. Although standards developed by IPSAS are relevant, the process of their adoption is vaguely known (Christiaens et al., 2015). However, one of the main reasons for adoption is the transparency factor.
Accounting systems in most countries have been improved to facilitate the notion of further transparency and accountability in order for citizens to restore trust in their governments (Brusca & Martinez, 2016). It comes with no doubt that the improvements have been highly contributed by IPSAS established by the International Public Standards Board (IPSASB) (Brusca & Martinez, 2016); Christiaens, et al., 2015; Harun, 2016). According to Christiaens et al., 2010, 2015; Jones and Caruana, 2014), many worldwide countries took initiatives to implement IPSAS. However, many individual country studies have been made to investigate the factors affecting the adoption of IPSAS (Christiaens, et al., 2015; IPSASB, 2014a; Stefanescua, et al., 2016). Additionally, some studies were taken to analyze the factors that stimulate countries to adopt IPSAS (Brusca & Martinez, 2016). However, very little is known of the factors that affect transparency achieved through IPSAS implementation or adoption. Thus, this study aims to investigate several factors that influence the level of transparency resulting from the implementation of IPSAS on a global scale.
2.4.IPSAS Implementation and Transparency
IPSAS aims to improve transparency, accountability, comparability, and quality of general purpose financial reporting of the entities in the public sector (IPSASB, 2014). The success of the efforts exerted by the IPSASB depends on the support of existing local interest groups of each country (Brusca & Martinez, 2016).At present, different countries and organizations have different processes for adopting IPSAS (Brusca & Martinez, 2016). By adopting IPSAS on a national level in an international context, harmonization and convergence would become a reality. Adoption here is defined by Pacter (2005) as the ‘process that implies the incorporation of the criteria of international standards in local regulation,’ where different sets of standards would coexist with criteria that converge towards the same sets of principles. By this, implementation and adoption will be used interchangeably throughout this paper. Some context-based variables are highlighted in the contingency model (Luder, 2002), such as the stimuli and the barriers of the adaptation of IPSAS.The stimuli for implementing IPSAS are the events that happen in the initial stage of the implementation process, which lead to a positive impact of the implementation by governments. There are several different aspects to the adoption of IPSAS by a government and the level of transparency it achieves. The issuing of the process for the standard, the role of IPSASB, the sovereign debt crisis, and the closeness of IPSAS standards to business accounting standards. As such, the first of the stimuli, that is, the issuing process of the standard is an essential factor in legitimizing the implementation (Brusca & Martinez, 2016). The Role of the IPSASB is about how active the board is in promoting the standards to different national governments and proper guidance. The sovereign debt crisis stimuli pertain to the accounting issues which resulted from the debt crisis, where many governments suffered extreme deficits. This resulted in a considerable level of distrust, and the need for transparency increased. Lastly, the closeness of the IPSAS to business accounting standards depicts that based on what business reporting standard the country implements, it will pave the way to a smoother IPSAS implementation. Therefore, the level of adopting IPSAS also has specific barriers such as the familiarity of it to the business accounting model, and countries need to remain in control and the concern to train people on the adoption and the governance of IPSAS.
The first barrier is the similarity of the model to the business model, which has been criticized in the literature (Bursca & Martinez, 2016). Secondly, many countries want to maintain control over the standards they implement in their systems as a notion of ‘deep-rooted’ nationalism. Also, adopting IPSAS depends on the training of the people to apply the standards. The lack of expertise in the field will develop biased results or lead to the misuse of the standards, hence decreasing transparency.
2.5.Culture
One of the significant elements affecting practices of transparency is culture. Hofstede-Gray theory has been applied in the literature to clarify the impact of culture on transparencyand its impact on accounting disclosure as a cultural value. Hofstede (1984) explained culture as “The learned, socially acquired traditions and lifestyles of the members of society, consist of their repetitions way of thinking patterned, feeling and acting.” Hofstede’s (1984) model determined four value pillars illustrating the framework of any countries cultural systems: (1) Large VS small power distance; (2) Masculinity VS feminity; (3) Individualism VS collectivism; (4) Strong VS weak uncertainty avoidance. While Gray (1988) has combined Hofstede’s social values four pillars to the accounting system development stemming from four accounting values: (1) Secrecy VS transparency; (2) Professionalism VS statutory control; (3) Conservatism VS optimism; (4) Uniformity VS Flexibility. The theory suggests that different countries have different cultural attributes that predominantly affect the attitudes, perceptions, and ideas of the stakeholders towards a specific phenomenon. Societies with more collective cultural thought are likely to compromise the personal benefits for the more significant benefit of the society, whereas societies having high scores on individual attributes are more focused on personal interests. Cultural differences also impact the mangers’ decision, and it can explain the causes behind transparency in any state.
Consequently, the application of IPSAS encompasses three notions. These are; the need for financial information, legal enforcement of rules, and holding intrinsic values. Embracing these notions results in public accountability application, thereby providing appropriate information from where the evaluation and analysis can praise or blame (Harun et al., 2013). The IPSAS standards used by public entities are of high quality. Thus, the adoption of different cultural aspects in a country is essential to serve the public interest. Besides, the federal entities must disclose all the information consistently and comprehensively to ensure public resources are managed transparently (Ijeoma, 2014). Stefanescua et al. (2016) observed that many governments worldwide adopt IPSAS due to the increased need for accountability measures from the citizenry. The study noted that most countries had taken the accrual basis in IPSAS, though; the cash system is yet fully approved. Hence, the use of IPSAS can largely contribute to acquiring the best accounting practices for organizations besides embracing different cultures in government agencies.
2.6.Language
Similarly, there have been several studies about the effects of IPSAS on incorporating different languages in international business, which have shown positive findings. Erin et al. (2016) examined the relationship between the language impact on the implementation of IPSAS and perceived levels of corruption in government sectors. From their findings, corruption perceptions varied significantly between developing nations that had adopted IPSAS and those that had not yet been implemented. Hence, they concluded that countries that haveadopted different languages and IPSAS systems have higher transparency and accountability levels. Another study by Roje et al. (2012) investigated the suitability of the government’s accounting standards, language, and financial reporting models in Croatia, Slovenia, Bosnia, and Herzegovina adoption of IPSAS. The studies observed that the adoption of IPSAS’s across these countries was crucial in ensuring effective reporting mechanisms among public entities, ensuring consistency and reflecting the actual financial situation.
2.7.Conclusion
As demonstrated through literary works, most governments worldwide have grown to aspire for a transparent and efficient financial reporting system. This situation can be attributed to increased public awareness of public funds use, which demands the credibility of financial statements and reports. The studies have shown that the adoption of and implementing IPSAS accounting standards is crucial in institutional accountability. More so, enhanced public resources accountability will improve transparency levels and change the entities’ culture, which will eventually reduce corruption. Equally, it was noted that public bodies that fully enhance transparency measures are always accountable to their citizens. They present financial statements that fully show the correct financial position at the end of each accounting period. However, the case is significantly different when it comes to those institutions that are less transparent to the public. Thus, the accounting statements are essential, and they should be a representation and disclosure of the financial position of an organization within a particular period to help assess the company’s real performance.
Chapter 3: Methodology
The study investigates the impact of using IPSASs in developed and developing countries. The secondary data collected is from 174 countries on various continents, including Africa, America, Asia, Europe, and Oceania. The countries were randomly picked across their particular regions.
The study adopted secondary data to analyze the impact of using IPSAS in developed and developing countries. The secondary data will expound on the transparency and culture of IPSASs in the countries that it has adopted.
- Research Design
The study will use a descriptive research technique in analyzing the impact of using IPSAS in developed and developing countries. Atmowardoyo (2018) contends that descriptive research is a data collecting method for testing a research hypothesis in the topic under review. Besides, the ordinary least square (OLS) technique will be used in estimating the unknown variables in a linear equation. Additionally, multiple linear regressions are used to analyze the variables in the study, identify the variables, hypothetically construct linear regression models, and solve the unknown variables in the expressed equations.
The study will employ both independent and dependent variables as explained below;
In this research, the dependent variable adopted to analyze the impact of using IPSAS in developed and developing countries is the transparency index. The country’s transparency index is adopted in equation 1-4 to test the effects of using IPSAS across the selected countries. The IPSASs adoption is used as the dependent variable, as shown in equations 5 and 6 in this review, to establish the use of IPSASs in developed and developing countries.
The study’s independent variables are culture, government size, government debt, government revenue, corporate governance index, and budget index.
3.4.Research Hypothesis Development
Null Hypothesis, H0: IPSASs has an impact on a country’s transparency and culture
H1: IPSASs has no significantimpact on a country’s transparency and culture
3.5.Model Specification
Multiple linear regressions are used to test the hypothesis in the sampled countries to establish IPSAS, transparency, and culture. The following are the models developed from the dependent and independent variables.
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