Accrual accounting catching on among governments worldwide

Nearly two-thirds of governments worldwide are expected to report on an accrual basis within the next five years, even though only about one-quarter of them do now, according to a new report from the International Federation of Accountants and the Chartered Institute of Public Finance and Accountancy.

The report highlights the International Public Sector Financial Accountability Index, depicting current and future use of public financial reporting bases and frameworks by governments around the world. The 2018 Status Report from IFAC and CIPFA found that 37 governments (25 percent of the jurisdictions covered by the index) reported on an accrual basis in their last set of published financial statements. However, 45 percent are now transitioning to accrual accounting or already have some element of accrual accounting in their financial reports, while 30 percent of governments still report on a cash basis.

Even though only 25 percent of governments currently report on an accrual basis, the paper predicts that 65 percent of governments will report on an accrual basis by the end of 2023. Asia, Africa, Latin America and the Caribbean are expected to lead the projected increase by the end of 2023.

Accrual reporting helps make sure expenditure of public funds is transparent, public officials are held accountable, and future liabilities are recognized officially and planned for appropriately. “Accruals-based accounting and auditable financial statements are essential if governments are to promote trust and transparency, identify and fight corruption, and above all deliver the outcomes their citizens expect and deserve,” said CIPFA chief executive Rob Whiteman in a statement.

Approximately half the governments surveyed are already using International Public Sector Accounting Standards to improve the consistency and transparency of their financial reporting. Of the 37 governments that currently report on an accrual basis, the report found that 19 ( 51 percent) of governments that currently report on an accrual basis use IPSAS directly, indirectly or as a reference point to develop their own national standards. By the end of 2023, the report predicts that nearly three-quarters (73 percent) of governments that report on an accrual basis will use IPSAS in one of those three ways.

The report also describes some of the main actions needed for successful accrual reforms, noting that successful implementation of accrual reforms requires coordinated planning and sustained support. Other suggestions include frequent and clear communications, a change management program, and coordinated training and capacity building.

“The rapid acceleration of accrual reporting in the public sector, and IPSAS in particular, is a promising sign for citizens across the globe,” said IFAC incoming CEO Kevin Dancey in a statement. “Professional accountants play a critical role in unlocking the full benefits of accrual accounting and in improving decision making, transparency and accountability throughout the economy,”

IFAC and CIPFA intend to expand the index in the future to provide periodic status reports during the uptake period for accrual accounting around the world.