Review of Literature
Review of Literature
Review of Literature
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sources such as books, journals, internet, and unpublished materials that are important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
Public Sector
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
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
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.
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.
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
According to Carlon et. al, (2016), the governmental accounting is different from
method as opposed to the accrual method used by commercial entities. The financial
units collect resources and make expenditures to fulfill societal needs. Society expects
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
They also signified that governmental units are subject to extensive regulatory
oversight through laws, grant restrictions, bond indentures, and variety of other
serves as a significant control mechanism and provides the basis for comparing actual
resources committed to the objectives of the governmental unit. Accountability for the
managers of the governmental unit must be able to show that they follow the many legal
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
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
Board for use by public sector entities around the world in the preparation of financial
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
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.
accountancy profession. IFAC was founded in 1977 and is domiciled in New York.
18
follows: “to serve the public interest by contributing to the development, adoption and
professional accountants worldwide; and speaking out on public interest issues where
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
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
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,
barangay located within its territorial jurisdiction, subject to such limitations and
recognized under this Code is a body politic and corporate endowed with powers to be
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)
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.
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
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.
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.
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
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
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
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
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
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
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
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
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
Philippine Public Sector Accounting Standards (PPSAS). The PPSAS shall apply to all
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
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
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.
provide quality accounting standards thereby enhancing the quality and uniformity in
transparency and comparability of financial information with other public sector entities
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
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
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
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
service potential will be required to settle the obligation and a reliable estimate can be
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
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
should be increased for the amount of any of these expenses paid through the tax
system.
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
because the taxable event occurs, or a condition is satisfied, the amount of the
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-
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
terms and must be completed in order to record transactions. The recording process
Presentation
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
Generally, the financial statements shall present fairly the financial position,
financial performance and cash flows of an entity. Fair presentation requires an entity:
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
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.
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
Disclosure
explanation for activities which have significantly influenced the entity's financial results
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
for everyone, companies must disclose both good and bad information (Investopedia,
2017).
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
to which each measurement basis is applied. It indicated that the application of IPSASs,
information.
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 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
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
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-
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
Yet again, accrual accounting helps to improve the measurement of a public entity’s
financial performance and financial position and provides more transparent information
Policies, processes and systems that are needed to meet data requirements and track
survey by PWC, “57% of countries view the application of accruals as one of the three
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
position, and cash flows. Global adoption of IPSASs will facilitate the comparability of
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
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.
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
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
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.
IPSAS specialist. Such experts will be available as resource person since cases where
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
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
sector in Kenya using a 5 point likert scale. The study concluded that there exists
reports and IPSAS-based financial reports in meeting the criteria for decision usefulness
implementation process and the implications for the quality of the accounting
statements both during the transition phase of IPSAS implementation and after the
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
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
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
Sector Accounting Standard (IPSAS). Two countries in ASEAN, Indonesia and Malaysia
were selected as a sample. Data analyzed using descriptive statistics. The research
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
reported by public sector entities in Nigeria and around the world. Hence, they
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
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
public accounts and to make decision makers more accountable. This modernization
seems necessary particularly in the context of the sovereign debt crisis which requires
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
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
Natural and Built Landscapes, Arts, Culture and heritage, Environment Best Practices,
The impact of these international awards given to the Local Government of Batangas
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
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
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
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
Moreover, the scholars have been speculating on how the funds generated are
managed but now researchers through the International Public Sector Accounting
39
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
departments and agencies give accountability report of their stewardship. Data on total
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
work. Interview questions were formulated and tested for validity before dispatching to
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
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
Nigeria there must be a reduction in the level of corruption, improving public sector
2014).
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
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.
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
According to Christiaens et.al, (2013) over the past 25 years significant New
characterized the public sector in many countries. The diversity in public financial
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
as well as to investigate which factors affect the differing level of their adoption.
from local experts was sent worldwide to a sample of countries. The study reveals an
.The study of Sturesson et.al, (2013) stated that accrual accounting conversion
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
accounting will be improved with gradually applying accrual based IPSAS standards.
The IPSAS will bring many advantages to the government accounting including
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
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
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
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
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
traditional cash inputs approach, towards outputs and outcomes, respectively accrual
based accounting. Arguments are the multiple advantages provided by the financial
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
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
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
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
Bellanca stated that the goal of the International Public Sector Accounting
Cekodhima and Ijeoma et.al., presented that there is a clear benefit in having IPSAS
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
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
makers more accountable. Moreover, Clark expressed that the users had
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
Several authors identified the challenges that are encountered during application
(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,
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
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the challenges that the LGUs encountered in complying with the IPSAS, same as some