‘Accruals will create better, more transparent and more trusted governments’

3 Mar 20

A complete global transition to accrual accounting would result in better public services around the world, according to a new report.

 

The International Federation of Accountants and the Association of Chartered Certified Accountants, which released the paper, made the case for adopting accruals and published specific recommendations to improve their implementation.

“The message is really simple: accrual accounting gets you better financial information, and the better your resources are, the better your decisions will be,” said IFAC executive director Alta Prinsloo.

She said accruals-based accounts and budgets increase the transparency of governments and enable better scrutiny, and the resulting public sector balance sheets show a more complete picture of public finances.

“You wouldn’t invest in a business without seeing full financial statements,” said Prinsloo.

“And in a way by paying taxes we are investing in a country. Many people are paying for governments to publish financial statements that don’t give them the full picture.”

Accruals give a clearer picture of the value and condition of assets, which disappears from cash-based accounts after the assets are paid for, and accrual accounting incentivises maintenance to preserve that condition, the report states.

The authors said accruals would better identify unproductive public assets such as unfinished schools with no children, or wells that do not give water.

By 2023 almost two thirds of governments will be using accrual accounting, according to IFAC and CIPFA’s International Public Sector Financial Accountability Index, published in 2018 with the aim of understanding financial reporting methods around the world.

Asked whether she believed a total global move to accruals is inevitable, Prinsloo said “yes and no”.

“It really depends on where the pressure is coming from,” she explained, adding that she hopes the report will give people advocating for accruals the tools to better make the case.

The report builds on work started with the 2018 Index report, pushing for accruals to be adopted worldwide.

“Our hope is that the index would become something that countries look at and work out what needs to be done to improve their score,” said Prinsloo.

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