Where your law and the standard disagree, the law wins

Rules, Unfiltered

The standard says capitalise the truck. The financial instructions, written twenty years before anyone in the ministry had heard of accrual, say anything bought from the recurrent budget is expenditure of the vote (budget), full stop. Both sentences are sitting on the same desk, about the same machine, and the officer reading them has to pick one.

Versions of that desk exist in every country I have worked in. The names change: financial instructions in one place, treasury regulations in another, a finance act with schedules that prescribe the exact shape of the accounts in a third. The shape of the problem does not change. A government that adopts an accounting standard does not repeal its own rulebook along the way, and the two were written in different decades, by different people, to protect different things.

So “is this compliant?” turns out to be two questions wearing one coat. One is whether the accounting treatment follows the standard. The other is whether the decision followed your own law. Most offices answer whichever question the loudest document in the room is asking, and hope the other one was somehow covered.

Here is the thing I want to say plainly, because I have watched people get this wrong in both directions: most of the time, the two rulebooks are not actually disagreeing. They are answering different questions.

The law, most of the time, governs authority. Whether you were allowed to spend, who had to approve it, what procedure the purchase had to follow, whether the write-off needed the minister or just the accountant-general. The standard governs reporting. How the thing you were authorised to do is recognised, measured, and shown to the reader of the statements. The legislature’s control over public money and the reader’s ability to understand the accounts are different protections, held by different rules. A cash-based appropriation account required by the finance act and an accrual set of statements prepared under the standard are not a contradiction. They are two documents doing two jobs, and plenty of governments produce both.

When someone tells me the law and the standard conflict, the first thing I ask is whether they actually govern the same question. Most apparent conflicts dissolve right there. The instructions say the purchase needed three quotations; the standard says the asset is depreciated over its useful life. There is no collision. Follow both, each on its own ground.

But not always. Sometimes both rules govern the same question, and they genuinely pull apart. The schedule to the finance act prescribes a statement format that accrual reporting has made obsolete. The instructions forbid revaluing assets that the standard would allow you to revalue. The rulebook demands a treatment the standard has withdrawn. These are real, they are common in the first years of an adoption, and they are nobody’s scandal. Amending financial instructions has no champion; adopting a standard has a project, a budget, and a deadline. The law falls behind because falling behind is what unamended law does.

When that happens, the law wins. Not as a matter of preference. As a matter of what you can defend.

Think about where each choice leaves the person who signs. An officer who follows the standard against the law is telling a public accounts committee that an international board’s document outranks the statute their own parliament passed. That sentence does not survive the hearing, and the officer saying it stands alone. An officer who follows the law, and says so, is standing behind the only authority the committee itself answers to.

And here is what should take the sting out of it: following the law over the standard, openly, is not a betrayal of the standard. The standard expects it. IPSAS 1 only lets you claim compliance when you comply in full; anything less, and the honest statement is that you prepared the accounts under the standard except where your law required otherwise, and here is where, and here is why. That sentence is not a confession. It is exactly the kind of disclosure the reader of a public account is owed, and auditors see it, without alarm, in jurisdiction after jurisdiction that is partway through an adoption.

So the working order, when two rules land on the same desk, is short enough to keep in your head.

First, ask whether they govern the same question. Authority is not reporting. If the law is telling you what you were allowed to do and the standard is telling you how to show it, there is no conflict, and you apply both.

Second, if they truly collide on the same question, follow the law. Your parliament outranks any board, including the good ones.

Third, and this is the part that gets skipped, put both citations in the file. The section you followed, the paragraph you departed from, and one sentence saying why. An auditor who finds both references in the working paper is looking at someone who knew exactly what they were doing. An auditor who finds neither has just been invited to wonder what else the file does not know.

The difference between those two files is not the treatment. In both cases the truck got expensed, or capitalised, or whatever the law required. The difference is that one file shows the disagreement was seen, weighed, and decided, and the other looks like luck.

A departure the reader can see is a judgement. A departure the reader discovers is a finding. The distance between the two is a citation and a sentence, written down on the day you decided, and that is about the cheapest audit defence public money can buy.