IPSAS and government accounting reform in Mexico

Laura Sour
School of Economics and Business,
Universidad Anhuac Mxico Norte,
Av. Universidad Anhuac s/n,
Col. Lomas Anhuac C.P. 52786,
Huixquilican, Estado de Mxico, Mexico
Fax: 55-96-19-38
E-mail: laura.sour@anahuac.mx
E-mail: laura.sour@gmail.com
Abstract: Mexico is in the early stages of a process of governmental
accounting reform at the national level. We use the Herfindahl index to
evaluate the actual harmonisation level of public accounting in Mexico
regarding IPSAS 1 and 2. The purpose of this study is to explain the
difference between the IPSASs and the actual Mexican accounting system
to determine to what extent the adoption of IPSAS during the reform of the
accounting system in Mexico can promote transparency and accountability
in all levels of government.
Keywords: international public sector accounting standards; IPSAS; public
sector accounting; accountability; Latin America; Mexico.
Reference to this paper should be made as follows: Sour, L. (2012) IPSAS
and government accounting reform in Mexico, Int. J. Public Sector
Performance Management, Vol. 2, No. 1, pp.524.
Biographical notes: Laura Sour is a full time faculty member at the School
of Economics and Business at Universidad Anhuac Mxico Norte. Her
research interests include budget and public spending, public finance,
decentralisation, tax compliance and experimental economics.
1 Introduction
More than half of Mexicos population lives in poverty and faces serious shortages of
public services. The social contrasts that exist in the country are reflected in indicators of
inequality and poverty at the national level. While these indicators show an increase in
these gaps between the Mexican populations, the fragile fiscal system and the fall in oil
production have caused a shortage in the public resources to alleviate inequality and
improve the welfare of the population in the country (Werner and Ursa, 2005). In the
past, the abundance of public funds was not enough to reduce social inequality among
Mexicans. Now, the public finance forecasts make more urgent the need to improve the
assessment of social spending to promote economic growth (Scott et al., 2010). These
elements are essential to inform and elaborate proposals to improve the debate about
whether the path it has set to build the future is correct, or if its time to change course.
6 L. Sour
Today, Mexico has no systematic information to generate statistics that clearly
identify all the resources allocated to public policies focused on poverty alleviation,
generation of skills or the reduction of economic gaps between different population
groups. Nor there is data that will enable anyone interested to evaluate the profitability of
public investment in charge of trigger improvements in the levels of competitiveness of
the country (Sour and Rosillo, 2010). Information is also needed to quantify the technical
and operational efficiency of public administration, and include these data in the dialogue
on the quality of governance in the country (Ros and Cejudo, 2010).

Studies on the quality of public spending in Mexico are scarce.1 Most of the time,
they have been the response to explicit requests by international organisations, or they are
a requirement of public sector institutional framework. Regardless of who requested the
study, the production of assessments on public spending in Mexico is not accessible to
everyone, because once the evaluation is assigned to a researcher, or research group, the
possibility that another study will be done on the same subject and/or problem is
practically zero due to lack of quality information. So, the practice of evaluation
expenditure is only feasible if the public officials, who manage the programme, provide
access to the information. Another common denominator of the emerging culture of
evaluation is that its consumption is not accessible to third parties because most studies
are not public (Hernndez, 2006).
In the broadest sense, evaluation is scarce in Mexico. Paradoxically, what we know
about resources for the production of goods and services freely available, whose
consumption does not diminish the amount available for others, is almost nothing. This
lack of information has been widely recognised at the federal level. The executive branch
has taken an active leadership in the enactment of constitutional reforms that improve
transparency and accountability in the public sector: In 2006 promoted the Law on
Budget and Fiscal Responsibility, in 2007 established the System Assessment
Performance and the Constitutional Reform to establish the Budget for Results.
Currently, Mexico is experiencing a Reform of the Accounting System at the national
level trough the Government Accounting Act (LCG). The aim of this transformation is to
achieve the harmonisation of the accounting information generated by the three levels of
government.2
The National Accounting Harmonization Council (CONAC) comprised of federal,
state and municipal authorities is in charge of coordinate the accounting harmonisation
system proposed in the LCG. The CONAC has to issue the accounting standards,
manuals, as well as guidelines for financial reporting; generate the requirements for the
establishment of a cost system, establish the methodological framework for the
integration between the accounting records and the budget process and define the rules
for the accounting recognition of the debt.3
The LCG aims to build for the first time a link between accounting and budget to feed
the decision-making process related to planning and design of public policies. With the
launch of the LCG in 2012 it is expected to know the quantity of inputs used by public
servants to achieve their annual targets. Another goal of the LCG is to standardise the
content and presentation of public accounts at the three levels of government that will
initiate a new stage in the transparency and accountability of the public sector in Mexico.
The LCG also proposes that the registration and valuation of assets and liabilities are
presented for the first time in public accounts using the same basis of accounting
measurement in such a way as to enable the comparison between states. In addition it is
hoped that all states publish their public accounts with the same format to allow
IPSAS and government accounting reform in Mexico 7
comparisons between various states over time. If accounting data are comparable,
reproducible by others and sufficient, government accountings may effectively support
the evaluation of the results achieved by public officials.4
The LCGs objectives are shared by the International Public Sector Accounting
Standards (IPSAS).5 These are financial measurements and reporting rules recommended
for adoption by governments around the world in the preparation of financial statements
by public entities applicable at all levels of government to harmonise their national
standards in response to calls for greater government financial accountability and
transparency (Chan, 2008). It is therefore considered that the adoption of IPSAS in
Mexico can achieve the goals of the LCG. In general terms, the objectives of the LCG
and IPSAS match perfectly well. However, CONAC has to overcome the political
challenge to negotiate with the sub-national governments a new accounting system based
on the IPSAS model.
Countries, such as Australia and New Zealand, are adopting the IPSAS as a sign of
public officials to improve the level of confidence in the quality and reliability of

financial reporting, and to encourage the provision of information for accountability and
transparency. The adoption of IPSAS has been part of their strategies for modernisation
of public administration (Benito et al., 2007; Fuertes, 2008).
Today, the reform of the accounting system is still in its early years. However, there
is no doubt that the federal governments main motivation to implement the LCG is that
state governments produce standardised information so that the accountability can be
improved in all three levels of government. Philp (2009) defines accountability as a
relation between two actors (A and B), where A is required to inform, explain and justify
her conduct to B (regarding some M subject). In this relation, B has the faculty to
examine As conduct (regarding to M) and has the instruments to monitor and influence
her behaviour. If governmental accounting generates reliable numbers, it becomes an
accountability mechanism between A (public officials) and B (citizens), which turns out
to be a core element in any democratic political system (Philp, 2009). Once the
accounting information has changed, the evaluation of public expenditure will be able to
flourish in Mexico.
The aim of this article is to determine the possibilities that the LCG will increase the
transparency and accountability of public officials. More specifically, if the accounting
reform in Mexico adopts the IPSASs model, to what extent the LCG will facilitate greater
transparency and accountability under the current conditions of the Mexican accounting
system? For this purpose, we evaluate the actual harmonisation level of the public
accounting in Mexico regarding IPSAS 1 and 2 using the Herfindahl index. We found
that some local authorities in Mexico have already followed IPSAS, but the majority is
waiting for more pressure from CONAC to begin the change. That is, even though these
results illustrate that the executive power and some governors share an interest in
generating a new government accounting system in Mexico, first they will have to
generate the political support for successfully promote and comply with measurements
and rules to harmonise the content and presentation of financial information at all three
levels of government in Mexico (Chan, 2006).
The article is structured as follows. The first section describes the benefits of the
governmental accounting to improve the financial management and the accountability of
public officials. The financial assessment of the federal and state public accounts in
Mexico based on IPSAS 1, 2 and 17 is presented in the beginning of the second section.
In Section 3, we describe the research methodology, and the evaluation of the
8 L. Sour
harmonisation of the public accounts at the state and federal level of government is
included in Section 4. The final section presents some conclusions and, based on the
coordination that up to date has occurred among sub-national governments, we discuss
the characteristic of the new government accounting system that might appear in 2012 in
Mexico.

2 The social benefits of the governmental accounting

2.1 Advantages of the cost analysis to improve the assessment of public policies
The accounting analysis of each government agency should make evident the study of
government efficiency, so that each of the movements of resources (whether material,
financial or human) should be linked to a product. When inputs are linked to the records
of products it is possible to make an assessment of the costs against the benefits achieved
(cost-benefit assessment) and/or cost effectiveness of public spending.
The first lesson of accounting is the need to generate a detailed listing of all
resources-material, human and financial-involved in the production of public goods and
services. That is, the evaluation of civil servants is only possible if there is a general chart
of all resources used by public servants. For the same reason, it is also important to
generate a complete list of outcomes or products. A final point to be defined before the
design of these charts is the unit of analysis to be used to assess government performance.
For instance, it can be cost per hour worked (productivity), or an efficiency criteria such
as the cost per unit produced (Shah and Shen, 2009). Once both charts exist, the next step
is to align each of the inputs involved in the generation of each of the outcomes or
products.

The filling of these charts will vary in each of the offices, depending on the nature of
its powers and responsibilities, but the goal should not be overlooked. The establishment
of a list applicable to all activities, to exhaust the process of gestation of public policies,
will allow the construction of a single object of study, capable of being evaluated by
others, creating certainty about the performance and results achieved by government. It
requires a negotiating effort to get common agreement on what the government must
register. This information will serve to feed the discussion on government performance,
but also to improve the budgeting of resources, the registration of financial operations
and control the government apparatus (Sevic, 2004).6
The ability to disaggregate the unit costs of each of the programmes by the various
offices of public administration is a key factor in improving the evaluation of public
action to promote responsible economic development. The existence of unit cost
information facilitates the classification of costs associated with each of the fixed inputs
(buildings, machinery and equipment) that vary depending on the level of goods and
services to be made available to the public (energy, workers and supplies).
Knowing the cost associated with equipment and working capital will allow the
decision maker to evaluate data based on solid performance of the bureaucracy. The
generation of these data facilitates the construction of scenarios consistent with the real
capacity of the public sector to improve public action and to develop better living
conditions for the population. Government accounting can build a complete diagnosis on
administrative activities performed by the public sector. Thus, accounting is a key to
IPSAS and government accounting reform in Mexico 9
identify those areas with the greatest potential to increase the countrys economic
development (Klaassen, 2010).
In the actual government accounting system in Mexico there is a single account called
Programme Costs where the budget is recorded gradually over the years (SHCP,
2008a). This data does not contribute to the design and evaluation of social programmes
at the federal level, as this information precludes the assessment of costs per unit
produced, by type of input or per unit of progress in social programmes (Sour, 2007). For
this reason, one of the most anticipated contributions of the accounting reform in Mexico
is the presentation of the cost of the results achieved by government offices. CONAC is
empowered to issue guidelines for the establishment of a cost system (LCG II, Chapter 1,
Article 9-III). The disclosure of the cost information is not yet defined. However, the
adoption of these changes in the administrative culture will generate information that in
the case of social programmes, will enrich the discussion on policy design and
maintenance of those programmes. The data on best practices can be disseminated in the
search for their assimilation and implementation in other areas. Equally important is to
have the information on those public actions that do not achieve satisfactory results,
especially if these are the programmes that serve the poorest areas in the country. This
accumulation of data will allow to determine whether the quality of inputs required is
adequate or if the cost of maintenance is very expensive.

2.2 The importance of recording government assets and liabilities

Public officials use goods and services to fulfil their duties. Some of these goods last
more than one fiscal year, for instance: land, buildings, roads, vehicles, furniture, office
equipment, computers, ships, aircraft, military equipment, electrical distribution
networks, roads and heavy machinery. This group of goods is called fixed assets (IFAC,
2007).
Proper registration of fixed assets in the governmental accounting is important to
show the existence, level and location of such property in each level of government.
Also, it is important to register the cost of the use of these assets. This cost is known as
depreciation. The greater precision in the depreciation of fixed assets will improve the
estimates of the amount of resources needed to repair or restore the asset to be used in
order to meet the obligations of social spending (Hughes and Minovski, 2004). There are
several ways to recognise the depreciation; thus it is recommended that governments
standardised this measure so the accounting treatment will be the same in all states. This
agreement allows comparisons among the levels of public investment in infrastructure

required in each region of the country, for instance. Both the valuation of fixed assets and
depreciation are important elements to enhance the assessment of economic development
(Walker et al., 2004).With this information, the forecast of the level of resources required
to maintain or replace the level of public investment in each level of government can be
more precise (Pallot, 1997).
IFAC recommends the accrual accounting system, rather than the cash flow system.
A prepaid rent is a good example to demonstrate the difference between these two
systems. In the beginning, this operation is recorded as a right in favour of the
government office that made this payment. Over time, the payment is no longer a right in
favour and becomes an expense (Hepworth, 2003). If this operation is registered under
the cash flow system it will be counted only as an expense, but never as a right in favour
of the government.
10 L. Sour
The main difference between the accrual system and cash flow is that the latter only
accounts for transactions involving a cash entry or exit, making it impossible to
distinguish between categories of expenditures for acquisitions of non-financial
resources. When the registration system is cash flow, the implementation of an accrual
system automatically eliminates the problem of asset valuation due to the registration of
all domestic and economic transactions. Accrual registration provides a closer look at
real state of public funds for what is considered a more reliable tool in the planning of
public expenditure. For this reason, the accrual system is described as extensive and
complete because since it allows the generation of financial information on all the public
economic resources of public-financial assets, physical capital, liabilities of short- and
long-term (MIPA, 2001). Benito et al. (2007) argue that the use of accrual system is best
suited for a more accurate analysis on the performance of the administrative units in
charge of the promotion of economic development.
The accrual accounting system can combine the cost accrued assets and liabilities, but
by itself does not supply the required information for a cost-benefit or cost-effectiveness
analysis. The accrual system is not a substitute for the cost information explained above;
however, it helps to have more accurate information about overdue payments and
accumulated debts-costs that were incurred in the past but that their valuation has not
been public in a systematic way.

3 IPSAS to improve the public sector transparency and accountability

The financial statements are the representation of the results and cash flows of a public
entity. They provide information to assess the financial condition of the government as a
result of the decisions made by public officials. For these reasons the financial statements
can play a predictive role in the level of resources required for the functioning of
government, and stand as a means of accountability of officials.
The aim of IPSAS 1 is to ensure that the financial statements of any government
entity are comparable with those of other governments, or with their own information
(past or future). Thus, IPSAS 1 states the minimum requirements on information content
and the structure of the presentation of each of the reports contained in the set of financial
statements. Table 1 details the requirements according to IPSAS 1.
The cash flow statement provides information to evaluate the governments ability to
generate cash. These data is necessary to know the dates when the government will have
the cash to settle their obligations, know the ability to adapt to changes in the flow, and to
take advantage of investment opportunities. The great plus of this report is that it is
comparable regardless of whether the government uses the accrual registration system
or cash flow.7 The IPSAS 2 presents the regulations for the cash flow statement.
IPSAS 1 and 2 list the minimum requirements for the generation of the information
presented in the financial statements to compare and be able to make efficient decisions
in the public sector. However, as already mentioned, there are two techniques for
recognising and measuring financial assets or economic events in the financial
statements: the registration system of accrual and cash flow. The use of each of these
techniques has particular methodological implications. Thus governments should make
explicit the registration system apply to generate their financial statements otherwise the

financial information will not be comparable to each other. In Mexico sub-national

governments have some different degrees of accruals.
IPSAS and government accounting reform in Mexico 11
Table 1 Minimum requirements for financial statements according to IPSAS 1
Balance sheet
Statement of
financial
performance
Statement of changes
in net assets/equity
Accounting policies
disclosure
Property, plant and
equipment
Revenue Result of period The measurement-based
used in preparing the
financial statements (i.e.,
historical cost, current
cost, net realisable
value, fair value, or
recoverable amount or
recoverable amount of
service)
Investment properties Financial cost Each item of income
and expenditure for
the period recognised
directly in net
assets/equity
Other accounting
policies that are relevant
to understanding
financial statements
Intangible assets Profit or loss before
taxes
Total income and
expenses in the period
Financial assets Results The effects of changes
in accounting policy
and correction of
acknowledged errors
Stocks
Accounts receivable
from transactions
without benefit (taxes
and transfers)
Receivable from
exchange transactions
Cash and cash
equivalents
Taxes and transfers
payable
Payables from
exchange transactions
Financial liabilities
Minority interest,
presented within net
assets/equity
Contributed capital,
equal to cumulative
total to date reporting
Retained earnings

Reserves
Source: Own elaboration with information from IFAC (2007)

Finally, IPSAS 17 deals with the recognition and valuation of fixed assets. The
government controls resources other than cash to achieve its objectives and the
12 L. Sour
provision of public services. Governmental offices borrow money and make
commitments to disburse money in the future for the acquisition of capital assets. The
purpose of IPSAS 17 is to rule the information regarding investment in fixed assets by
the government, its depreciation and the determination of their book value (IFAC, 2007).
The IPSASB acknowledges that governments have the right of to establish guidelines
and accounting standards for the presentation of financial statements, and therefore issued
IPSAS for both accounting systems. However, the IPSASB openly promotes the adoption
of accrual recording system as the best mechanism to obtain more reliable information to
guide decision-making (Fuertes, 2008). According to Benito et al. (2007) developing
countries should incorporate IPSAS within their accounting standards and practices.
The IPSAS 1 for cash basis requires the statement of cash receipts and cash
payments. In the presence of these omissions, the IFAC recommends using the IPSAS 1
for the accrual registration system. Governments should voluntary disclose the detail
about the accounting policies and measurement bases used to elaborate their financial
statements (IFAC, 2007). In this way, government authorities could use the
recommended IPSAS 1 in countries that have not adopted the accrual system for their
accounting records.

4 Methodology
Compliance with IPSAS is considered the first step taken by all countries interested in
starting a process of modernisation in their governmental information systems (Fuertes,
2008). For this reason, Chan (2008) catalogues compliance with IPSAS as an
international benchmark for evaluating government accounting practices and financial
accountability. First, we evaluate the federal and state public accounts using as
parameters IPSAS 1, 2 and 17 (accrual basis) whose nature is similar to the goals of the
LCG regarding the content and presentation of the financial statements and the valuation
of asset. Then we use the Herfindahl index to assess the level of harmonisation of the
governmental accounting. The sample consists of 31 states with the exception of
Quintana Roo, state that at the time of this research had not issued this information.
We hypothesise that if all levels of government in Mexico follow IPSASs model the
greater the probability that the LCG achieves the harmonisation and comparability of the
accounting information in order to improve transparency and accountability. Our
objective is to set the possibilities of IPSAS to build an accounting system able to
improve harmonisation, transparency and accountability in Mexico.
We grade the presence or absence of the following items within various reports of the
financial statements:
a In the balance sheet (statement of financial position) the items of current assets, cash,
cash equivalents (banks), stocks, receivables from exchange transactions (services),
transfers receivable from transactions without benefit (taxes, fines),
short-term loans, investment income, non-current assets, property, plant and
equipment, investment properties, land and buildings, current liabilities, long-term
liabilities, stockholders equity, retained earnings, reserves, profit or loss
b in the statement of financial performance the items of income, expenses, financing
costs, profit or loss before taxes, profit or loss
IPSAS and government accounting reform in Mexico 13
c we verify if the notes include a summary of accounting policies, such as
measurement basis and carrying amount of non-current assets
d the statement of changes in net assets/equity, otherwise a state of origin and use of
resources
e cash flow statement within the set of financial statements presented in the public
accounts of each state.
We use the items in (a), (b), (c), (d) to assess compliance with IPSAS 1, while the report

in (e) determines compliance with the IPSAS 2.

The purpose of IPSAS 17 is to standardise the accounting records corresponding to
the acquisition and sale of assets, such as properties, plant, equipment, and infrastructure.
For each fixed asset, it requires the public disclosure of very specific information (basis
of measurement, method of depreciation, gross carrying value, accumulated depreciation
at the end of each accounting period, among other data). Depreciation should be taken
into account as an expense or a cost. IPSAS 17 does not require the registration of the
historical, artistic or cultural heritage, however, if the country is interested in recording
this information, such as the case of Mexico, IPSASB recommends to follow the
guidelines established in this rule (IFAC, 2007). To assess compliance with IPSAS 17,
we reviewed the statement of financial position or any other report included in the
financial statements.
Finally, we calculate the level of harmonisation regarding IPSAS 1 and 2 based on
the Herfindahl index (H), which considers the weight of the relative frequency of one
accounting element over the others [Rodriguez, (2009), p.8]. The relative frequency is
obtained by dividing the number of elements that each entity uses consistent with the
IPSAS 1 and 2 over the total number of elements that occur at the national level in
accordance with IPSAS. Thus, H indicates the percentage of entities with similar
accounting policies to IPSAS 1 and 2. H is constructed as follows:
2
1
k
i
i

Hp
=

where p is the number of items that appear in the reports reviewed in state (i) in
compliance with IPSAS 1 and 2, k is the number of governments analysed. The value of
H depends on the sample size. We analyse 32 governments (31 states, including the
Federal District, and the federal government). Thus, the minimum value that H can take
is 1/32 (0.03125), which would mean that all governments use the same percentage of
items in accordance with IPSAS 1 and 2.

5 Results
Table 2 shows how many reports and notes are publish in the financial statements
according to IPSAS 1. The average is 2.6 out of the five financial reports requested by
IPSAS 1. The Federation and the state of Guanajuato are the entities that generate the
highest number of reports. Chihuahua, Mexico State, the Federation, Guanajuato and
Nuevo Len are the only states that present their notes to the financial information
concerning the basis of measurement and asset valuation. Based on this information we
14 L. Sour
can conclude that the federal government and the states comply with the publication of
one of the reports requested in IPSAS 1. Also in Table 2, we can see that none of the
governments publish a cash flow statement (fourth column), consequently nobody
complies with IPSAS 2 in the country.
Table 2 Publication requirements according to IPSAS 1 and 2
State Balance
sheet
Statement of
financial
performance
Statement changes in
financial position or
state origin and use
or resources
Statement
of cash
flows

Notes Total
Federacin X 4
Guanajuato X 4
Estado de Mxico : X 3.5
Aguascalientes X X 3
Baja California X X 3
Campeche X X 3
Chihuahua X X 3
Colima X X 3
Distrito Federal X X 3
Hidalgo X X 3
Jalisco X X 3
Morelos X X 3
Nayarit X X 3
Nuevo Len X X 3
Oaxaca X X 3
Puebla X X 3
San Luis Potos X X 3
Sonora X X 3
Veracruz X X 3
Yucatan X X 3
Zacatecas X X 3
Coahuila X X : 2.5
Baja California Sur X X X 2
Chiapas X X X 2
Durango X X X 2
Michoacn X X X 2
Quertaro X X X 2
Sinalola X X X 2
Tlaxcala X X X 2
Guerrero X X X X 1
Tabasco X X X X 1
Tamaulipas X X X X 1
Quintana Roo * * * * * *
Notes: Rating to one, X zero rating, : rating point five and (*) no information.
Source: Own elaboration with Federal and State Public Accounts (2007)

IPSAS and government accounting reform in Mexico 15

The content detail with which the states and the federation publish their financial
information appears in Table 3. All states, including the federal government, disclose
information regarding their income and expenditure. However, only three states reveal
key elements to provide greater transparency, such as accounts receivables from
exchange transactions (services) and accounts receivable from transactions without
payment (taxes and fines). The update of fixed assets is issue in two states across the
country. In summary, in Mexico there is a great diversity in the quality and transparency
of the information requested by IPSAS 1.
Table 3 Compliance with IPSAS 1 requirements
Financial
statement Item States Federation
Current assets 24
Cash 18 X
Cash equivalent 18
Stocks 9
Receivable from exchange transactions 3 X
Accounts receivable from transactions
without benefit (taxes and transfers)
3
Short-term loans 21
Investment income 15 X
Non-current Assets 22
Property, plant and equipment 25
Investment properties 6

Land and buildings 25

Current liabilities 24
Long term liabilities 20
Equity 23
Retained earnings 18
Reserves 1 X
Balance sheet
Results 21
Revenue 30
Expenses 30
Interest charge 15
Profit or loss before taxes 2
Statement financial
performance
Results 29
Measurement basis 2.5
Notes
Carrying amount of non-current assets 2 XSource: Own elaboration with Federal and State Public Accounts (2007)
Source: Own elaboration with Federal and State Public Accounts (2007)

16 L. Sour
Table 4 Compliance with IPSAS 17 requirements
State Non-current asset Property, plant
and equipment
Investment
properties
Land and
buildings
Measurement
basis
Carrying amount
of non-current
assets
Percentage
Federacin X 83.33
Chiapas X X 66.67
Distrito Federal X X 66.67
Estado de Mxico X X 66.67
Guanajuato X X 66.67
Morelos X X 66.67
Nayarit X X 66.67
Yucatn X X 66.67
Aguascalientes X X X 50.00
Baja California X X X 50.00
Baja California Sur X X X 50.00
Colima X X X 50.00
Durango X X X 50.00
Jalisco X X X 50.00
Michoacn X X X 50.00
Nuevo Len X X X X 50.00
Oaxaca X X 50.00
Notes: rating to one, X zero rating, : rating point five, and (*) no information.
Source: Own elaboration with Federal and State Public Accounts (2007)

IPSAS and government accounting reform in Mexico 17

Table 4 Compliance with IPSAS 17 requirements (continued)
State Non-current asset Property, plant
and equipment
Investment
properties
Land and
buildings
Measurement
basis
Carrying amount
of non-current

assets
Percentage
Puebla X X X 50.00
Quertaro X X X 50.00
Sinaloa X X X 50.00
Sonora X X X 50.00
Tlaxcala X X X 50.00
Veracruz X X X 50.00
Zacatecas X X X 50.00
Hidalgo X X X X 33.33
San Luis Potos X X X X 33.33
Campeche X X X X X 16.67
Chihuahua X X X X X 16.67
Coahuila X X X X : X 8.33
Guerrero X X X X X X 0.00
Tabasco X X X X X X 0.00
Tamaulipas X X X X X X 0.00
Quintana Roo * * * * * * 0.00
Total 23 26 7 26 3.5 2
Notes: rating to one, X zero rating, : rating point five, and (*) no information.
Source: Own elaboration with Federal and State Public Accounts (2007)

18 L. Sour
The separation between publication and content detail has the purpose to demonstrate that
the dissemination of a document is not sufficient to ensure compliance with IPSAS
requirements. For example, five states file their statement of financial position in its
public accounts, but none of them meets the elements requested by the IPSASB
(Chihuahua, Coahuila, Guerrero, Tabasco and Tamaulipas). That is, in Table 1 these
states are complying with the publication of the reports, but none of them presents the
information listed in Table 3. The disclosure of a document that fully complies with
IPSAS is an exceptional case: Only the Federacin and the state of Oaxaca publicise their
statements of income complying 100% with the items requested. The general practice is
to make public a document requested by the IPSAS without the information
internationally requested.
In Table 4, we can see the federal governments leadership regarding best practices
for recording and valuation of assets according to IPSAS 17. However, even though 26
states recognise the value of the property, plant and equipment, lands and buildings, only
four of them (Chihuahua, Coahuila, the Federacin and the State of Mexico) reveal the
basis used to measure fixed assets. That is, depreciation is not part of the system of
recording and valuation of fixed assets in the country. This precludes the harmonisation
of cost accounting due to the different systems of accrual accounting records among
states. Also, the lack of valuation of assets prevents the comparison of information
between the three levels of government.

5.1 Harmonisation index

Table 5 indicates that the H equals 0.03634. For interpretation purposes the index can be
normalised (Hn) as follows:
1
1
H1
k
Hn
k

Hn takes values between 0 and 1, where zero indicates non-existence of harmony in the

use of similar accounting policies, and the number one denotes that all entities are in
complete harmony according to the requirements of IPSAS 1 and 2 [Rodriguez, (2009),
p.8]. If Hn is less than 10 indicates dispersion on the use of the accounting practices. If
Hn is between 10 and 18 there is a moderate harmonisation. If Hn is greater than 18 there
is a high harmonisation. In this case, Hn is calculated as follows:
1
0.0363
32
0.00525
1
1
32
Hn

==

The Hn for the Mexican case is less than 10 which indicates that governmental
accounting is disperse. In this sense, if the Mexican states incorporate IPSAS 1 and 2 in
their new accounting model, and comply with these rules, the financial and accounting
items published in their public accounts will increase. This information will facilitate the
transparency and accountability of the all levels of government. For instance, based on
IPSAS and government accounting reform in Mexico 19
the reports proposed by the IPSAS 1, there is a series of indicators that are widely
accepted and used in the financial analysis (profitability, liquidity, balanced budget,
among others). Today, only five governments are in the position to build these indicators
(Baja California, Durango, the Federacin, Oaxaca and Zacatecas), while only seven of
them can calculate its balanced budget to know if they have enough resources to meet
their spending needs (Chihuahua, Coahuila, Guerrero, Hidalgo, Nuevo Len, Tabasco
and Tamaulipas).
Table 5 Harmonisation index
State IPSAS 1 and 2 items
found p p
2

Aguascalientes 20 0.04474 0.00200

Baja California 18 0.04027 0.00162
Baja California Sur 13 0.02908 0.00085
Campeche 6 0.01342 0.00018
Chiapas 16 0.03579 0.00128
Chihuahua 5 0.01119 0.00013
Coahuila 4.5 0.01007 0.00010
Colima 16 0.03579 0.00128
Distrito Federal 16 0.03579 0.00128
Durango 18 0.04027 0.00162
Estado de Mxico 16.5 0.03691 0.00136
Guanajuato 19 0.04251 0.00181
Guerrero 4 0.00895 0.00008
Hidalgo 6 0.01342 0.00018
Jalisco 16 0.03579 0.00128
Michoacn 16 0.03579 0.00128
Morelos 18 0.04027 0.00162
Nayarit 20 0.04474 0.00200
Nuevo Len 7 0.01566 0.00025
Oaxaca 19 0.04251 0.00181
Puebla 17 0.03803 0.00145
Quertaro 17 0.03803 0.00145

Quintana Roo * * *
San Luis Potos 13 0.02908 0.00085
Sinaloa 14 0.03132 0.00098
Sonora 18 0.04027 0.00162
Tabasco 3 0.00671 0.00005
Tamaulipas 3 0.00671 0.00005
Tlaxcala 14 0.03132 0.00098
Veracruz 16 0.03579 0.00128
Yucutn 19 0.04251 0.00181
Zacatecas 18 0.04027 0.00162
Federacin 21 0.04698 0.00221
Total 447 1 0.03634
Source: Own elaboration with Federal and State Public Accounts (2007)

20 L. Sour
The low level of harmonisation that we found indicates that so far the federal government
and some states share an interest for the new government accounting system. This result
indicates that there is plenty of opportunity to increase transparency and accountability in
all levels of government, if different levels of government in Mexico accept and comply
with the implementation of IPSAS. However, CONAC will have to generate the political
support for successfully promote and comply with measurements and rules to harmonise
the content and presentation of financial information in Mexico. If CONAC makes
governments comply with IPSAS rules, this will be a breakthrough in financial and
accounting information available in Mexico.

6 Conclusions
Mexico is currently in the early years of an accounting reform to generate comparable
and useful information among all levels of government. The objective of the LCG to
standardise the content and presentation of government accounting in the three levels of
government is shared by the IPSAS, reporting rules that enjoy international recognition
as best practices to increase transparency and accountability.
The aim of this study is to assess the level of harmonisation based on IPSAS 1 and 2,
to define the starting point of the LCGs path to fulfil its objectives in all three levels of
government. We choose IPSAS 1, 2 and 17 due to its nature corresponds to the goals of
the LCG regarding the content and presentation of the financial statements and the
valuation of asset. The lack of harmonisation in the governmental accounting information
in Mexico represents a window of opportunity to increase transparency and
accountability with the adoption of IPSAS.
CONAC the council set up expressly to negotiate with the sub-national
governments the new accounting system is the responsible of achieving the national
agreements (technical and political) to fill key gaps so that governmental accounting
provides financial information regarding the purposes, goals achieved and costs incurred
in the public sector. For instance, the promise made by the LCG to value assets will not
be solved only with the harmonisation of the financial information. It is necessary that
CONAC agrees on a definition of assets and equity. Up to date, IFACs proposal is very
broad compared to the definition proposed by the LCG CONAC (2009) includes assets
that have never been in the Mexican public debate, such as the radio frequency space.
Thus, CONAC needs to define a clear and narrow concept of fixed assets applicable to
the three levels of government. The presence of this information within the statement of
financial position will bring a better budgetary control and will help to determine more
accurately the effectiveness of public administration.
The use of fixed assets is part of the cost that governments incur for providing public
goods and services. This cost is measured by the depreciation. Both, valuation and
depreciation of fixed assets are important issues to determine more accurate calculations
of the resources needed to repair, restore and purchase fixed assets. The LCG requires to
carry out valuations of the assets, but omits the depreciation issue. SHCP (2008b) does
not mention the depreciation method, nor the rate to be applied) as opposed to IPSAS 17
that states the need to show the initial value of fixed assets, the amount of depreciation
and the net value of the assets. The other concept that needs to be clearly defined in

Mexico is public heritage: CONAC considers heritage as the amount of public property
and ownership rights [CONAC, (2010), p.8], while the LCG does not have a definition.
IPSAS and government accounting reform in Mexico 21
CONAC will have to fill this gap that creates confusion about the logistics that will
be implemented nationwide to asset valuation. Failure to unify the evaluation system of
depreciation in all three levels of government will make impossible to compare the
information, since each entity could use one of the various methods to value their assets.
Moreover, CONAC has to promote the obligation to record depreciation over assets, real
estate, but also over intangible assets.8 The proper valuation of assets, equity, heritage
with an objective and verifiable depreciation method will help to assess whether the
expenses incurred by the government allows the fulfilment of their functions, as only then
can glimpse what is required for maintenance or replacement of fixed assets. The
CONAC needs to recommend to federal and state authorities to report the amounts of
depreciation in the Statement of Financial Position of each asset, as is customary in the
private sector to facilitate the revision of the information. It should be noted that neither
IPSAS 1, nor 17, clearly establish where to submit information related to the depreciation
in the financial statements.
After defining the terms asset, CONCAC will inevitably needs to standardise the
system of accounting records used in the country, which means move from the existing
system of bookkeeping (cash flow) to the accrual system. In fact, the recommendation of
IPSAS is to use the accrual system, which is consistent with the provisions of LCG
(Articles 19 and 34). The inequality of income that prevails in certain parts of the country
demands the valuation of public assets more accurately. Only it will be possible to
estimate the financial requirements for the maintenance of these assets if the available
information reveals more accurately the value of assets, the availability of resources and
the level of public funding sources. This information is essential to generate better
approximations of the required changes in regional investment levels, and to contribute to
achieve significant growth rates at the national level. Thus, we will be able to better
assess the present, but also to generate more accurate estimates of different futures for
Mexico.
It is necessary to include in CONACs agenda key elements to ensure the generation
of quality information regarding the financial performance of government, but also the
production of data necessary for the development of quality studies about public spending
in Mexico. CONAC will have to convince governors that in order to evaluate the
efficiency of public spending, defined as the ability to do more with less, first, they need
to know the cost of the decisions and actions by public officials. An accounting costs
system requires a series of changes in routines and administrative management processes,
as well as a change in the culture of the institutions. Once sub-national governments have
completed this change, they will be able to generate valuable information about the
decisions that public officials have made regarding public spending. This is a necessary
step to fully achieve the social benefits of the accounting reform in Mexico.
Governmental accounting is the starting point for generating information for decision
makers, it provides data and information that are the raw materials for the evaluation of
public expenditure. Only then one can establish common parameters to rate the
government in relation to the progress of programmes. Government information
generated with the same registration system is necessary to allow evaluation of costs. The
window of opportunity that opens the LCG is unique to initiate a change in the public
administration at all levels of government. The urgency is be able to perform economic
evaluations, and put in perspective the results achieved in light of the expenditure
required to support them. The production of quality information will eliminate the rivalry
in the production of assessments on the quality of public spending in Mexico. Only then,
22 L. Sour
the evaluation culture will flourish in the country. Then will be able to enrich the
discussion of development of the country based on quality assessments of public policy.

Acknowledgements
I would like to thank Eunises Rosillo and two anonymous referees for very valuable

comments and discussions. The usual disclaimers apply.

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24 L. Sour

Notes
1 Among the few studies available that evaluate public expenditure in Mexico are Hernndez
and Tamayo (2004), Parker and Teruel (2005) and Scott (2007). All of them focused on
evaluating efficiency and equity.
2 Mexico is a federal republic comprising 31 states with over 2.400 Municipalities and the
Federal District. States, but not the Federal District, are subdivided in Municipalities.
3 Ley Federal de Presupuesto y Responsabilidad Hacendaria (LFRH) Article 110.
4 Ley Federal de Presupuesto y Responsabilidad Hacendaria (LFRH) Article
27-Section II.
5 IPSAS are issued by the International Public Sector Accounting Standards Board (IPSASB),
the internal agency of the International Federation of Accountants (IFAC). The IFAC was
founded in 1977 with the aim of ensuring that the values of integrity, transparency and
competition were the guiding axes of the accounting profession.
6 See the chat of accounts from Chile, for example.
7 See 27th paragraph of IPSAS 2 (IFAC, 2007).
8 Tangible assets are stocks, property, plant and equipment, while intangible assets mean radio
frequency space, patents and trademarks and not financial assets (IFAC, 2007).