Evidence on the costs of changes in financial reporting frameworks in the public sector

This paper examines the impact of changes in reporting frameworks on New Zealand public sector audit costs in terms of both audit fees and effort. Audit costs increased with the adoption of both International Financial Reporting Standards (IFRS) and International Public Sector Accounting Standards (IPSAS) reporting frameworks. The costs of auditing across various financial reporting frameworks in the public sector is shown to be significantly influenced by auditors? specialization. IMPACT Many countries are changing their public sector reporting from a cash basis to IPSAS and these changes can have significant cost implications in terms of audit fees and audit effort. This paper will be of interest to accounting standard-setters, regulators and policy-makers in countries that are transitioning to IPSAS reporting or considering IPSAS. The authors suggest planning for an increase in audit fees when assessing the costs and benefits of adopting new reporting frameworks.