IPSAS 5 : borrowing costs : an assesment of the applicability of IPSAS 5 to debt management directorate (treasury)

Abstract

The purpose of this study is to explain the current treatment of borrowing costs and offer an assessment of the possibility of implementing IPSAS 5 within the Government of Malta. The study presents this within the context of the transition from a cash to an accrual based accounting within the Debt Management Directorate at the Treasury Department. Chapter one gives an overview on how IPSASs were introduced within the public sectors across the world. It highlights their scope and the need for a Government to adopt such standards; thus this chapter promotes the need for the Maltese Government itself to implement such standards. The chapter introduces IPSAS 5, and explains the aim and scope of this standard and how it may be implemented within the Debt Management Directorate. It also highlights the main aims of the Public Debt Management Directorate itself and the present functions and systems. The second chapter gives an overview of the importance of the transition from cash to accrual accounting. Apart from giving a deeper insight of all the benefits, it gives a clear idea of the current situation with the Maltese Public Sector. It explains the early stages of such adoption, and in particular mentions the gap analysis of the Maltese Public Sector done by CIPF A, in which they highlighted the present systems, and the changes needed in order for this project to be successful. Several points regarding the Maltese debt management are mentioned and how all these issues might be mitigated and resolved, in order to be able to adopt IPSAS 5 in conjunction with IPSAS 28-30 which reflects the reporting aspect of the accounting treatment of borrowing costs. The third chapter shows the applicability of IPSAS 5 in different countries including New Zealand, Republic of South Africa and Lithuania. These. three countries all adopted IPSAS 5 in somewhat different ways. A brief explanation on their adoption is given and what lead these 3 countries to such implementation of the standard. The chapter also shows the planning requirements and the intensive research needed in order to adopt IPSAS 5 to the particular country situation and needs. The last chapter of the study amalgamates all the concepts discussed and shows how the adoption of IPSAS 5 in the Debt Management Directorate could be undertaken. It mentions how borrowing costs are currently being treated and the importance of the transition. It lists options on how IPSAS 5 might be adopted within the Maltese Public Sector. Options are assessed in the light of the current financing and servicing processes within the Maltese Debt Management Directorate. By way of conclusion, the study suggests a course of action based on the relevance of IPSAS 5 to the Maltese Public Service and also the applicability and feasibility of adopting and implementing IPSAS 5.