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Introduction to International Public Sector Accounting Standards (IPSAS)

Introduction to International Public Sector Accounting Standards (IPSAS). On the Road to Managing for Results . SAF. Table of Contents. Drivers for change.

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Introduction to International Public Sector Accounting Standards (IPSAS)

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  1. Introduction to International Public Sector Accounting Standards (IPSAS) On the Road to Managing for Results SAF

  2. Table of Contents

  3. Drivers for change An assessment of the internal and external elements which have highlighted the need for change within the OAS and in the wider international context

  4. Drivers for ChangeBoard of External Auditors The Board of External Auditors has repeatedly opined that: • OAS’ proprietary accounting standards result in financial reports that do not reflect all of the assets and liabilities of the Organization, and • The GS/OAS [should] adopt an internationally-recognized set of accounting standards, such as IPSAS, and the OAS should engage its external auditors and other experts to advise on the transition to IPSAS.

  5. Drivers for Change Limitations of OAS’ basis of accounting • Standards have fallen out of step with comparable agencies and governmental entities limiting the ability of donors and member states to compare OAS’ results against other institutions. • They prevent the GS/OAS from having a complete valuation of the Organization’s assets and liabilities and the cost of operations. This limits effective decision-making and planning and support to a results-based management framework.

  6. Drivers for Change Limitations of OAS’ basis of accounting (continued…) • Financial statements mostly reflect what is occurring rather than what is expected to occur thereby limiting the measurement of the impact of transactions/decisions. Example OAS only records revenue when cash is received and does not record receivables for agreements that have been signed. Hence potential future cash flows are not captured in reports. Similarly, termination benefits are recognized at the time an employee separates from service, but the Organization’s commitment to that employee is not recognized over the period of time that the employee earns the benefit. • Lack of consistency in accounting treatment across all funds managed by the Organization.

  7. Drivers for ChangeGeneral Assembly Mandates • AG/RES.1 (XXXVIII-E/09, Section III) Paragraph 18 a: “…to instruct the General Secretariat to continue studying, the viability of implementing International Public Sector Accounting Standards with a view to adopting them as recommended by the auditors, starting with the fiscal year beginning on January 1, 2011, and in subsequent periods, and to report the General Secretariat’s findings, conclusions, and recommendations to the Permanent Council through the CAAP. …” Paragraph 19 b: “…the General Secretariat [should] take the necessary measures to ensure that the financial and budgetary reports presented to [CAAP] are consistent with the guidelines provided in International Public Sector Accounting Standards…”

  8. Drivers for ChangeTrends in the Public Sector and International Organizations • Worldwide financial crisis underscores the interdependency of economies and financial markets, and highlights the need for a common standard by which entities measure and report what they own and what they owe. • Approximately 113 countries have adopted or are in the process of adopting international standards: • Costa Rica and Uruguay have mandated IPSAS adoption • Brazil’s government has announced a plan to adopt IPSAS by 2012 • Canada is transitioning to IFRS by 2011, Mexico by 2012 • United States has released a roadmap to implementing accrual accounting. • Implementation of IPSAS or International Financial Reporting Standards (IFRS) is already underway in other international organizations and UN system organizations. • World Bank and IMF prepare their financial statements in accordance with IFRS • UN will adopt IPSAS in January 2010

  9. Drivers for Change Benefits to OAS Stakeholders of Adopting IPSAS • The use of accrual accounting, standard definitions, measurement criteria and reporting requirements under IPSAS are all geared towards providing more meaningful information for decision-makers. • Strategic plans and reports become more meaningful as increased transparency provides a basis for member states to assess whether resources are being used effectively and efficiently. • IPSAS supports efficient internal controls and results-based management. • Adoption will provide a unified approach to managing all funds (Regular, Specific, Voluntary, Trust and Service funds) and will allow for benchmarking with similar institutions and forecasting future flow of all resources to the Organization. • Assets and liabilities that were previously un-quantified or under-reported will now be reflected in the financial statements.

  10. Drivers for Change Benefits to OAS Stakeholders of Adopting IPSAS Accrual accounting means that the OAS for the first time will recognize past, present and future obligations of Organizational resources. There is nothing new here. These are not new obligations but under OAS- specific accounting rules they remain largely un-quantified; rendering them “invisible” and/or under-reported.

  11. Objectives of the Presentation • IPSAS Defined Initial Understanding of International Public Sector Accounting Standards (IPSAS). • Viability: Does it Work for the OAS? IPSAS Impact on General Secretariat (GS/OAS) operations. • The Way Forward

  12. 1. IPSAS Defined Provides a brief explanation of the International Public Sector Accounting Standards and the expected benefits of complying with them

  13. IPSAS DefinedWhat Does Accounting Do and Why Does it Matter? • Captures, measures and reports information about the economic events of an entity (i.e., transactions that generate revenue or expense). • Reports are used by stakeholders (member states, donors, management) to evaluate performance and make effective decisions. • In order to maximize the reliability and usefulness of reported financial information, the accounting standards applied should be comprehensive, widely accepted and promote transparency.

  14. IPSAS DefinedAccounting Methods Cash-basis accounting is an accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Accrual accounting is an accounting method that measures the performance and financial position of an organization by recognizing revenue when earned and expense when incurred rather than when cash is received or paid. OAS uses a hybrid method (“modified-cash”) that combines some elements of cash accounting with some elements of accrual accounting. Revenue is recognized when cash is received and expenses are recognized in full when commitments are entered into.

  15. Argentina Bahamas Barbados Bolivia Brazil Canada Chile Colombia Costa Rica Dominican Republic Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Trinidad and Tobago United States Uruguay IPSAS DefinedWhy IPSAS? • IPSAS are a set of independently developed, high quality, global accounting standards that require accounting on a “full accruals” basis (i.e., all assets and liabilities are recorded). • IPSAS are issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants (IFAC). • 23 OAS Member States are also members of IFAC. Canada, Brazil, Mexico and the US are represented on the IFAC Board. • IPSAS are tailored for the public sector and its use is considered best practice for public sector entities (governments, governmental business entities, non-governmental organizations, and international organizations). www.ipsas.org

  16. IPSAS DefinedBroad themes Recording: Defines what are assets, liabilities, revenues, and expenses and when you should record them. Measurement/Valuation: Establishes a standard method for valuing assets, liabilities, revenues and expenses. Financial Reporting: Prescribes the format and content of reports including the type of disclosures that should be made in the reports in order to heighten transparency.

  17. IPSAS DefinedFrom Cash Basis Accounting to Accrual Accounting • Moves away from cash accounting which focuses primarily on the receipt and disbursement of cash towards accrual accounting which provides for full costing of an Organization’s activities, regardless of when cash is received or paid out. • Accrual accounting supports efficiency and performance assessment as results are matched to the use of resources.

  18. IPSAS Defined Modified Cash vs. Accrual Accounting Expense Recognition: Contracting Services At Contract signing Period of Performance • Economic event being recognized is the signing of the contract not the performance. Period of Performance • Costs are matched to the period of the performance.

  19. IPSAS Defined Modified Cash vs. Accrual Accounting Liability Recognition: Employee Termination Benefit Period of Performance • Cost is recognized upon separation, not as the employee earns the benefit. Period of Performance • Cost is matched to employee services.

  20. 2. Viability: Does it Work for the OAS? A Gap Analysis between OAS standards and IPSAS and a discussion of the suitability of IPSAS for GS/OAS operations

  21. IPSAS: Does it Work for the OAS? OAS Financial Standards International Standards National Governments

  22. Employee Benefits (terminations, annual leave) Expense Recognition (obligations) Investments (fair value) IPSAS Unexpended Advances (travel/accountable advances) Financial Statements (cash flow, disclosures, budget reports) Property & Equipment (capitalization, depreciation) Revenue (quotas / pledges/ specific fund agreements) GAP AnalysisImpacted elements Under OAS’ current proprietary basis of accounting, certain economic/financial events are not recognized in a manner consistent with IPSAS.

  23. IPSASWhat Changes?

  24. IPSASWhat Changes?(continued…)

  25. IPSASWhat Changes? For illustrative purposes only

  26. IPSASWhat Changes? For illustrative purposes only

  27. IPSASFinancial Statement Format under IPSAS For illustrative purposes only

  28. 3. The Way forward Describes the progress achieved to date as the foundation of this larger modernization effort and in particular the Organization’s transition to IPSAS

  29. Progress report Actions taken at OAS

  30. Next Steps • SAF and GS/OAS’ External Auditors work to quantify financial implications of IPSAS adoption. • Recent appraisals value OAS properties at $343 million. Unrecorded liabilities (annual leave, post-employment health benefits, etc.) approximate $100 million. • Perform assessment of changes required to existing ERP to support IPSAS based financial statements. • 2009 Annual Report will include certain IPSAS required reporting formats and disclosures. • Second progress report to CAAP by March 2010. • Obtain Governing Bodies approval to adopt standards by June 2010. • Recommend and adopt changes to the General Standards by June 2011. • Commence accounting and reporting under IPSAS Standards in Jan 2012.

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