Effects of Implementation of Ipsas on the Quality of Financial Reports of Ngos Operating in Ethiopia

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The increasing need for accountability and transparency in financial reports in today’s public sectors and in other non-profit making organizations’ has driven accounting standards into a new era of development. The outcome was the heightened pressure for harmonized accounting standards to enhance quality of financial information for its decision-usefulness. Implementing standards that embody such quality is not only important but also seen as an imperative in some jurisdictions. Following the publication of Financial Reporting Proclamation No. 847/2014 and related regulation in Ethiopia directing NGOs operating in the country to prepare and present their annual financial report on the basis of the standards, most of them have demonstrated their compliance to the regulation. Nevertheless, little effort is made to know the extent to which the desired quality is being achieved. The study aimed at ascertaining the quality differences between IPSAS based audited financial reports vs the old standard based audited financial reports of the NGOs. The study used descriptive design, and secondary data were collected from the sampled NGOs. Non-probability convenience sampling procedure was employed. The study used 5-points Likert scale to measure data collected on the primary qualitative characteristics(relevance and faithful representation) and on enhancing qualitative characteristics(understandability, comparability, and timeliness) to help assess qualities of the reports. The study used descriptive statistics and paired-sample t-test procedures to analyse the data and assess the statistical significance of the differences. STATA software is used in processing the data. Tables and appendices are used to present the data. The study results revealed that, when considered separately, relevance, faithful representation, comparability and timeliness of the financial reports are significantly improved due to application of IPSAS. However, quality difference on understandability, though showed positive change, is not statistically significant. However, overall quality of financial reports based on IPSAS showed significant improvement compared to those of the Old-standards. Thus, adoption of IPSAS provides more decision useful financial information. Yet, for the NGOS to effectively realize the maximum benefits from implementation of IPSAS , much effort need to be exerted by all stakeholders which in turn needs efficient coordination by the regulatory body.



Quality of Financial reports, NGOs, International Public Sector Accounting Standards(IPSAS)