Evidence lining up for accrual accounting benefits, former IPSASB chair says

13 Mar 17

The supposed benefits of switching to accrual accounting are backed up by evidence, Andreas Bergmann, former IPSASB chair and professor at Switzerland’s Zhaw School of Management and Law has highlighted.



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Summarising the results of several studies on accruals accounting at a conference in Washington DC last week, Bergmann said the number of empirical studies on the topic was far greater than he had expected.

Most of these were also “fairly recent”, he continued, and “reasonably positive”.

A global consensus around the benefits of accruals is forming, with most advanced economies adopting the method in some form. Many prominent international bodies including the World Bank, the International Monetary Fund and the OECD have lent the system their backing.

However, not everyone is convinced. As well as being costly and complicated to implement, some argue that accrual accounts are actually more opaque to the average user, more open to manipulation, and less precise than the traditional method known as cash accounting.

But Bergmann contended that the benefits of accruals were evident at a number of levels. He cited studies that assessed the impact of accruals on the macro, micro and user levels.

On the macro scale, looking at the overall impact on economies, he highlighted “very positive effects”. These included downward pressure on government debt, a decreased likelihood of economic shocks – and the improved efficacy of rescue measures for countries that endured shocks.

On a micro level – which includes individual entities that have implemented accruals – benefits were still apparent. However, the costs and complexity associated with accruals implementation were most apparent within this sphere.

As long as these costs remained reasonable, Bergmann said, studies had identified positive returns, such as lower interest rates or improved financial management outcomes.

Some of the most “surprising” results, Bergmann said, came in studies focused on the impact of accruals on users.

He highlighted two: one that confirmed voters in Spanish municipalities took accrual fiscal information into account in elections; and another that showed accrual information is the most-used resource in Swiss media coverage of the government’s public finances.

Noting a challenge also outlined by other speakers during the day, however, Bergmann said that the evidence suggests politicians don’t use the information provided by accruals accounting enough.

Overall, however, he said the findings were “encouraging and in general very positive” despite highlighting “some limitations and some small issues”.

Speaking after Bergmann, Fayez Choudhury, CEO of the International Federation of Accountants, also noted that today the “mood” in regards to accruals has changed, with a greater sense of urgency around the need for adoption seen among governments and international institutions.

He also highlighted a “remarkable fall off in [public] trust” in both public and private institutions, providing fertile ground for the “kind of populist movements we are seeing” now.

“I think the indications were clear,” he stated. “To me that indicates that citizens care now. Maybe they didn’t before, maybe they felt there is nothing they could do about it.

“But if there’s any signals that were needed from Brexit, from the US election and from populist movements elsewhere that it is fundamentally important for governments to regain trust, I think we see all the signals.”

This, he continued, makes issues such as the adoption of accruals, believed to make governments more transparent and accountable, “incredibly important”.

While good public financial management has “a lot of moving parts”, he continued, if the information element is faulty it will derail all other attempts to improve.

Also speaking alongside Choudhury was CIPFA CEO Rob Whiteman, who highlighted the “number of interlinking facets” that need to be strong in order for good PFM to be achieved.

CIPFA’s Whole Systems Approach, of which an updated version will be launched later this year, emphasises this need for coordinated improvement across the whole system and for every tool in the toolbox to be utilised. 

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