Two out of three governments to be using accrual accounting in five years

4 Nov 18

Almost two thirds of governments around the world will shift to accrual-based accounting within the next five years, CIPFA and the International Federation of Accountants have predicted.

By 2023, 65% of governments will be reporting on an accrual basis – an increase from just one quarter of governments that have so far made the transition from cash, an index issued by the two accountancy bodies revealed.

Africa, Asia, and Latin America and the Caribbean are at the forefront of the transition, with the number of countries using accruals in these regions set to increase from 13 to 61 within five years.Index_CIPFA/IFAC

Globally, 98 governments will have moved to accrual-based accounting over the same period, an increase from the 37 currently reporting this way.

The International Public Sector Financial Accountability Index looked at information from 150 countries around the world and was launched at the World Congress of Accountants in Sydney today.

Ian Carruthers, chair of the International Public Sector Accounting Standards Board, which sets the accrual-based international public sector accounting standards, explained it was the first time that CIPFA and IFAC have captured detailed information about accrual adoption and the role IPSAS play around the world.

He said: “The extent of the increase in IPSAS implementation projected for the next five years is extremely exciting.”

The report highlighted that accrual-based financial reporting is “fundamental to good decision making, transparency and accountability”.

Rob Whiteman, chief executive of CIPFA, added: “Accrual-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.”

In Europe, however, predictions are “more complicated” because of the uncertainty surrounding the development of the European Public Sector Accounting Standards, the report said.

But based on the information available, it estimated the number of European governments using accruals would double to 24 over the next five years.

Kevin Dancey, incoming chief executive of IFAC, said: “The rapid acceleration of accrual reporting in the public sector, and IPSAS in particular, is a promising sign for citizens across the globe.

“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.”

The report also highlighted that successful implementation of accrual reforms requires long-term planning and support by international and regional organisations.

Just under half (45%) of governments are already transitioning to accrual accounting or use some element of it in their financial reports, while 30

Accrual_CIPFA/IFAC

% of governments still report on a cash basis.

Of the 37 governments currently reporting on an accrual basis, 19 are using IPSAS either directly without altering any requirements, indirectly by adjusting aspects of the standards, or as a reference point to develop their own national standards. 

By 2023, 72 of the 98 governments projected to be reporting on accrual will be using IPSAS in one way or another, the report added.

CIPFA and IFAC said they intend to update and expand the coverage and depth of the index over time.

Planning to move to accruals? Read these top tips on how to manage the transition

 

Images are from CIPFA and IFAC's International Public Sector Financial Accountability Index

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