G20 countries moving to accruals will ‘encourage others to do the same’

27 Nov 18

The move to accrual accounting by the world’s most powerful economies could put “healthy” peer pressure on others to follow suit, the global accountancy body has said.

Ahead of the G20 meeting in Buenos Aires, Argentina, at the end of November, the International Federation of Accountants said accrual accounting would lead to better decision-making and a more accurate picture of public finances.

This comes just weeks after IFAC and CIPFA released a joint index, which predicted that two out of three governments will be using accrual accounting in five years.

Speaking to PF International, Russell Guthrie, IFAC’s executive director and CFO, said: “We certainly expect reforms around accrual accounting to accelerate in the coming years.

“Commitment by the G20 [governments] would really support that and make sure we continue to see the progress we have seen so far. Peer pressure can be a healthy incentive, and often when countries see others taking these steps it creates an incentive at home to do something similar.”

According to the joint CIPFA and IFAC index, launched in Sydney at the World Congress of Accountants, 25% of governments around the world report on an accrual basis. But this is predicted to jump to 65% within five years. At least 11 of the G20 countries are already accounting on an accrual basis and three are transitioning from cash to accruals. Some of the G20, like Mexico, are using another accounting basis. Germany, India and Italy report on a cash basis.

Guthrie said: “We think that accrual accounting and reporting by governments is key to good decision-making, enhanced transparency and accountability.”

IFAC also called for stronger governance. “In the public governance sense, [governance] seems to be a never ending job. The quest for good governance is something that constantly has to be reviewed… in the context of external environment, which changes so rapidly.”

Ian Ball, emeritus chair of CIPFA International and professor of Public Financial Management at Victoria University of Wellington in New Zealand, told PF International that accrual accounting was “essential” for financial transparency.

But Ball, who was chief executive of IFAC from 2002 to 2013, added: “By far the most significant benefit from accrual information lies not in enhanced transparency but in better decision-making, including fiscal decision-making.

“So unless governments place accrual information at the heart of their financial management, and budget on this basis, they will realise only a fraction of the possible benefits.”

 

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