Governments shift towards accrual basis reporting

Nearly two thirds of governments will report on an accrual basis by 2023, compared to the 25% of governments that do so now, according to the latest research from the International Federation of Accountants (IFAC) and CIPFA

The study found that governments are using various public financial reporting frameworks, including the  International Public Sector Accounting Standards (IPSAS) while others borrow elements from the framework to support a pre-existing process.

Accrual reporting, which involves the recording of the transactions when an underlying economic event occurs, rather than when cash settlement is completed, is touted by IFAC as ‘fundamental to good decision making, transparency and accountability’. At present it is used by 37 governments, with 45% of the total transitioning to accrual or already in the process of incorporating some elements into their financial reports. 33 countries use IPSAS as a reference point, with only two - the UK and Australia - using a national accounting standard based on IFRS.

The study found that implementation of IPSAS differed significantly across governments. Of the 37 governments that currently report on accrual, 19 (51%) use IPSAS in one of these three ways: five governments have adopted IPSAS directly; five have applied IPSAS indirectly; and nine use IPSAS to develop their own national standards.

IFAC does in the report warn that the adoption of accrual reforms requires ‘coordinated planning and sustained support’, and must be ‘based on a firm foundation of strong financial and other controls, well-understood financial processes, and accurate and timely reporting’.

Although IFAC does believe that accrual reporting is a necessary precursor to accrual budgeting, it found that ‘transition is not inevitable: the majority of governments that have already implemented or plan to implement an accrual reporting framework over the next five years do not currently have plans to introduce accrual budgeting’, with only 15 jurisdictions reporting that budgets are prepared on accrual.

Rob Whiteman, chief executive of CIPFA, commented on the report, saying: ‘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.’

The international public sector financial accountability index: 2018 status report is here

Report by James Bunney


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