Road to Transparent Public Financial Management in Nigeria?

By February 24, 2016Article

The credit crisis has raised several public sector accounting issues. Governments have extended credit to and guaranteed the liabilities of banks, purchased impaired debt instruments and in some instances have assumed control of banks.

The unique nature of the credit crisis and the unprecedented response by governments around the world has reinforced the importance of high-quality standards for financial reporting by governments1. However, the global diversity in the practice of public sector accounting continues to impede the reduction of bureaucracy and the creation of comparable standards in terms of accountability and transparency.

The International Public Sector Accounting Standards Board (IPSASB) continues to engage in the ongoing process of harmonizing public sector accounting with their International Public Sector Accounting Standards (IPSASs)2. IPSASB recognises the diversity of forms of government, social and cultural traditions, and service delivery mechanisms that exist in the many jurisdictions that may adopt IPSAS.

IPSAS are a set of accounting standards issued by the IPSASB for use by public sector entities around the world in the preparation of financial statements. These standards are based on International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). IASB is an independent organ of International Federation of Accountants (IFAC).

IFAC is a worldwide association of accounting professionals and organizations whose mission is to serve the public interest by continuing to strengthen the worldwide accountancy profession. IPSAS is therefore, seen as the latest attempt to inject transparency and uniformity into financial reporting but how did it all start and is Nigeria ready to adopt the IPSAS?.

At the inauguration of the implementation committee on the application of IPSAS in September 2013, the Federal Government of Nigeria announced that effective from the 2014 fiscal year, its national budget would be based on the new National Chart of Accounts (COA) strategy 3. The Accountant General of the Federation who made the statement said the new strategy would assist in achieving uniformity, transparency and accountability in Public Financial Management in the three tiers of government in the country. The new strategy he said would help government in the implementation of the IPSAS Cash by 2014 and IPSAS Accrual Basis by 2016.

The Office of Accountant General of the Federation of Nigeria said in September 2013, that States Accountant-Generals and Directors of Finance and Accounts/Treasury at Local Government Councils are to commence the implementation of the provisions of IPSAS and keep their books of account in accordance with the new Chart of Accounts (COA) and the General Purpose Financial Principles (GPFS) formats. This article examines whether or not Nigeria is ready to adopt IPSAS Cash Basis of reporting in 2014.

The Pioneers

The first meeting of the Steering Group of the International Task Force on Harmonization of Public Sector Accounting (TFHPSA) took place at the Organisation for Economic Cooperation and Development (OECD) Headquarters in Paris on 3 October 2003. The meeting was attended by representatives of Australia, United Kingdom, European Central Bank, Eurostat, IMF, OECD and the International Federation of Accountants-Public Sector Committee (IFAC-PSC). Apologies were received from the International Accounting Standards Board (IASB) 4.

The objective of the TFHPSA was to study the feasibility of harmonization between the different International government accounting and statistical standards. These include the 1993 System of National Accounts (SNA), the 1995 European System of Accounts (ESA), the Government Finance Statistics Manuel (GFSM2001), the International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS), and the International Public Sector Accounting Standards (IPSAS).

The aim was to improve the quality of general purpose financial reporting by public sector entities, leading ultimately to better informed assessments of the resources allocation decisions made by governments, increase transparency and accountability in the budgeting process in the country.

Table 1: The following pioneer intergovernmental organizations adopted IPSAS in the years shown:

Organisation Year
Organisation for Economic Cooperation and Development (OECD) 2000
European Communities (EC) 2005
Council of Europe (CoE) 2007
International Criminal Police Organization (INTERPOL) 2007
Common Wealth Secretariat 2008
North Atlantic Treaty Organization (NATO) 2008
United Nations (UN) 2010
European Space Agency (ESA) 2010

The adoption of IPSAS in different jurisdiction of the world came with some unique challenges. The IPSAS concept was not fully embraced by stakeholders such as Legislators, Audit Offices, Treasury, Government Agencies, and Development Partners. Inconsistency with existing national laws delayed implementation as laws have to be amended to give legal framework for adoption of IPSAS. IPSAS came with the imperative for change in orientation and mind set.

Certain public officers resisted the change due to lack of will to make well the ills of the previous eras or the general preference for comfort zones. Cost considerations were also a major obstacle. Competency level of the project members and of the level of sophistication of the existing systems were additional factors. The public sector generally lacks the ability to attract and retain staff with the relevant skills and experiences.

In 2001, the acronym BRIC entered the popular vocabulary to recognise the burgeoning potential of the emerging economies of Brazil, Russia, India and China. Nigeria has been identified as one of the four countries to follow Brazil, Russia, India and China onto the list of world economies.

The four countries coined the MINT countries are Mexico, Indonesia, Nigeria and Turkey. In May 2012, The Office of Accountant General of the Federation of Nigeria explained during the workshop that IPSASB standards would build confidence of donor agencies but how does Nigeria compare in this group of MINT in the adoption of IPSAS.


Nigeria appears to be playing catch-up in the adoption of IPSAS compared to the other 3 MINT nations. The plan to move from cash basis to Accrual basis in two years looks too optimistic. Nigeria has some serious internal issues to resolve like perceived embedded corruption, Boko Haram and the Niger Delta lingering questions.

The nation’s general elections due in 2015 may temporarily cause government activities to slow down to a snail speed in 2014 as politicians plot their re-election strategies.

Since 1997, IPSASB has developed and issued a suite of 32 accrual standards and a cash basis standard for countries moving toward full accrual accounting. Governments that report on a cash basis do not account for significant liabilities like pensions and infrastructure development. IPSASB encourages public sector entities to adopt the accrual basis of accounting.


Nigeria’s Readiness for Cash Basis IPSAS in 2014
IPSASB acknowledges that ‘in many developing countries, the capacity among the accounting staff is not sufficient to fully implement the IPSAS, the data collection procedures are not adequately identified to collect the necessary data or the software is not sophisticated enough to handle the various financial transactions’. IPSAS has compiled 6 stages to IPSAS adoption from preparation to Whole of Government Reporting. Nigeria has declared it will adopt the IPSAS Cash Basis reporting in 2014. How does the nation’s steps taken so far compare with IPSAS guide?


Nigeria appears to be on the road to adopting Cash Basis IPSAS. However, systems and training on their own are not enough to ensure sound economic management or sustained financial accountability and transparency in managing public finances. There must be a change in citizen’s mindset set that it is not cool to misuse or divert public resources to personal benefits with impunity. Citizens must see it as a duty to abide by the highest standards of probity in dealing with financial issues.

This can be facilitated by ensuring everyone is clear about the standards to which they are working and the controls that are in place to guarantee standards are met. Standards and controls must be reviewed regularly to ensure a fit for purpose.

The following financial measures are recommended as a start:

 Link progress or actual results with budget release. The three tiers of Government should not present to the relevant parliament, budgets for approval unless it is accompanied by a retrospective review of measurable goals, results and outputs.

 All budget requests from spending units (Ministries, Parastatals etc) should only be approved if it contains detailed retrospective and prospective quantitative reports and measurable goals.

 In any year, expenditure by a spending unit outside its approved budget must not be approved without detailed report on the reasons for the out of budget expenditure.

 Severe sanctions should be rained down on spending units or persons authorising non-budgeted expenditure.

 Strengthen the expenditure-monitoring framework through robust written guidance and internal control procedure.

Some of these issues may require changes in legislation but above all, a change in the mindset of all in positions of authority, leadership or trust is precondition.

Omusa Baba Ohyoma BA(Hons), MBA, FCCA, ACA is Chairman of the Institute of Chartered Accountants of Nigeria (ICAN) UK District, Financial Secretary of the Nigerians in Diaspora Europe (NIDOE) UK South and founding member/former Vice Chairman of the Central Association of Nigerians in the UK (CANUK).

3 Premium times, 19 September edition
4 TFHPSA Steering Group minutes, 3rd October 2013.
5 Deloitte IFRS Watch issue 5

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