Institute of Public Management Prof. Andreas Bergmann andreas.bergmann@zhaw.ch Robin Braun

1. PEMPAL PCOP Leadership Group – Videoconference 23 April 2009Presentation of the ResultsREPF Republic of Tajikistan • Institute of Public Management • Prof. Andreas Bergmann • andreas.bergmann@zhaw.ch • Robin Braun • robin.braun@zhaw.ch

2. Program • Introduction • Overview of IPSAS • REPF Report on the Enhancement of Public Sector Financial Reporting - Toolkits • Current Situation of Accounting in Tajikistan • Potential In-Country-Value-Added Through Adopting IPSAS • Recommendations • Open Issues / Discussion

3. Overview of IPSAS Rationale for and History of IPSAS • IPSAS - International Public Sector Accounting Standards • 1998: another Financial Crisis • Subsequently: Funding from International Organzations made available in order to develop International Public Sector Accounting Standards • Cash Basis Standard • Accrual Basis Standards • Objective: Move from Cash Basis to Accrual

4. Overview of IPSAS (2) • Core Differences between the Economics of the Public and the Private Sector = Public Sector Specific Issues: The only reason to depart from the IAS/IFRSs • Service potential instead of cash generation • Importance of non-exchange transactions • Political control of assets and liabilities • The prominence of the budget • State owned Enterprises

5. REPF Report – Content • Content • I Introduction • II Institutional Framework • III Accounting Standards as Designed – Comparison with Accrual Basis IPSAS • IV Accounting Standards as Designed – Comparison with Cash Basis IPSAS • V Accounting Standards as Practiced • VI Potential In-country value added through adopting IPSAS • VII Recommendations

6. Current Situation of Accounting in Tajikistan • Institutional Framework • Statutory Framework: tradition of written laws and rules • Some large SOE are implementing IFRS, but not yet there • Accounting training/education programs exist • especially at lower to intermediate level: high numbers of graduates • Budget System • Cash basis • Government Financial Statistics (GFS) • Statistics in TJ based on GFS 1986 • GFSM2001 (=accrual!) currently being implemented

7. Current Situation of Accounting in Tajikistan (2) • Institutional Framework • Monitoring and enforcement • Weak institutional arrangements to monitor or enforce nationals standards • Internal Audit • Technically feasible but capacity constrained (MoF) • Some co-ordination issues with inspectorates in LM • External audit (joint with Anti-Corruption Agency) • Audit of financial reports is not main task • Independence, though improved, is still insufficient

8. Current Situation of Accounting in Tajikistan (3) • Institutional Framework • Quality and availability of financial reports • Prepared and presented according to current rules • Possible weaknesses may be undetected due to constraints in internal and external audit • Information Technology • No overall IT-system • Much manual work even in central line ministries and certainly in oblast/rayon

9. Current Situation of Accounting in Tajikistan (4) • Accounting Standards as Designed – Comparison with Accrual Basis IPSAS (1 to 26) • Financial Reporting • Statement of financial position and statement of revenues and expenses  modified accrual, partial compliance with accrual IPSAS • Consolidation financial statements and budgets of all BO‘s. But: SOE‘s are not consolidated  partial compliance with accrual IPSAS • Most but not all qualitative characteristics applied  partial compliance • Budget comparison (cash basis)  full compliance with accrual IPSAS, because budget is not required to be accrual Bottom line:Typical modified accrual format, quite advanced in some aspects

10. Current Situation of Accounting in Tajikistan (5) • Accounting Standards as Designed – Comparison with Accrual Basis IPSAS • Revenues and expenses • Revenue from cash and non-cash exchange when transaction occurs partial compliance with accrual IPSAS • Foreign exchange transactions (but not carrying amounts) at current exchange rates  partial compliance with accrual IPSAS • No rules on leases  not in compliance with IPSAS Bottom line:Some shortcomings, especially for transfers and taxes substantial effects are likely

11. Current Situation of Accounting in Tajikistan (6) • Accounting Standards as Designed – Comparison with Accrual Basis IPSAS • Fixed assets • Simple asset accounting in place, measured at cost and depreciated over useful life  full compliance with accrual IPSAS • Treatment of inventories (stocks) less rigorous  partial compliance • Simplified and limited impairment testing  partial compliance Bottom line:Almost full compliance with IPSAS, differences in details rather than substantive matter

12. Current Situation of Accounting in Tajikistan (7) • Accounting Standards as Designed – Comparison with Accrual Basis IPSAS • Financial Assets • Accounting unclear and presentation not compliant with accrual IPSAS • Ambiguities include substantial transactions with SOE‘s • Financial Liabilities • Same as Financial Assets  not compliant with accrual IPSAS • Borrowing cost expensed when they occur  full compliance with accrual IPSAS Bottom line:Area of the most important shortcomings, effects very substantial

13. Current Situation of Accounting in Tajikistan (8) • Cash Basis • Cash Basis IPSAS as a benchmark • Presentation partly based on cash basis, but in some aspects also on accrual basis, especially fixed assets • Cash Basis does not require accrual treatment for transactions  full compliance in respect of Revenues and Expenses • Current fixed asset practise exceeds requirement • Current treatment of financial assets and liabilities is compliant with Cash Basis IPSAS, despite obvious shortcomings Bottom line:Compliance would be easier to achieve, but not necessarily addresses all relevant issues

14. Current Situation of Accounting in Tajikistan (9) • Cash Basis • Cash Basis IPSAS has even more rigorous requirement in some respect • Incremental/stepped approach not envisioned (1 standard!) • Presentation of payments made by donors („donor reporting“), only required under Cash Basis IPSAS! • Consolidation of entities which are on accrual, by then possibly IFRS; reconciliation to Cash Basis required … both to be audited, also for completeness! Bottom line:Compliance very hard to achieve, even harder than accrual basis

15. Current Situation of Accounting in Tajikistan (10) • Bottom line • RoT is on modified accrual basis • Strength in presentation and fixed asset accounting • Main shortcomings in the area of financial assets/liabilities and the relationship with SOEs • The gap to full compliance with Accrual IPSAS is substantial • Incremental/stepped improvement possible • Compliance with Cash Basis IPSAS is (at least) equally challenging, namely because of particularities of Cash Basis Standard

16. Potential In-Country-Value-Added Through Adopting IPSAS • Improved Reporting  information for decision makers • Accrual Basis IPSAS • Incremental improvement, areas with major weaknesses first • Existing strengths (e.g. fixed assets) are preserved • However, full compliance with all standards not to be achieved quickly/easily • Cash Basis IPSAS • No improvement in some areas of weakness, e.g. financial assets/liabilities • Full compliance not to be achieved quickly/easily

17. Potential In-Country-Value-Added Through Adopting IPSAS (2) • Training/capacity bulding • Few highly qualified individuals available, but requirement is more on lower to intermediate level  in line with current development • Further training efforts necessary, but they obviously become more effective if knowledge can be used/applied • Synergies with IFRS adoption by SOEs • Reputation effects • Improvements will improve reputation, both in country and with donors • However, reputation risk if goals are not achieved (e.g. qualified audit opinion)

18. Recommendations (1) • Maintain cash basis for budgeting • Improve accounting and reporting • Ranking of the three alternatives • Best: Incremental (stepped) adoption of Accrual IPSAS, first in important/critical areas • Second best: Full adoption of Cash Basis IPSAS • Third: Full adoption of Accrual Basis IPSAS • Implementation needs to be coordinated closely with project on budget classifications/chart of accounts and enhancement of IT used

19. Recommendations (2)

20. Recommendations (3) • Partial adoption of Accrual IPSAS should include the following steps: • Step 1: Presentation and Financial Transactions (IPSAS 1, 15, 23 transfers only, 24) • Step 2: Assets (IPSAS 12, 16, 17) • Step 3: Consolidation (IPSAS 6, 7, 8) • Step 4: Adoption of the IPSAS with lower priorities • Accounting reform needs to be embedded in other PFM reforms • IT improvements/Chart of Accounts/GFS • Internal and external auditing • Financial control

21. Open IssuesDiscussion