By ALEX METCALFE, ACCA head of public sector policy From NewsDay T&T

Last month marked the publication of the new International Public Sector Financial Accountability Index, which was launched at the World Congress of Accountants in Sydney, Australia.

The index provides an optimistic picture of the future of accrual accounting around the world. In the next five years, it is forecasted that 65 per cent of governments will be reporting on an accrual basis, up from only 25 per cent today. The new index shows that there is a clear intention to adopt more advanced accrual accounting methods, with strong take-up in the Caribbean, Africa, Asia and Latin America.

But what’s driving this desire to move from cash accounting methods to full accrual? ACCA sets out some of the clear benefits of governments moving to the International Public Sector Accounting Standards (IPSAS), which includes an agreed global accrual standard, in IPSAS Implementation: Current Status and Challenges.

There is compelling evidence that IPSAS provide greater clarity on the financial position of public sector entities across the world. There are a range of benefits that arise from improving transparency, such as curbing fraud and corruption. Financial statements, prepared in accordance with IPSAS, capture what a government receives and allocates, as well as what it owns and owes. This holistic picture better reflects a public sector entity’s true position and performance, and therefore makes it easier for the public and other interested parties to hold government to account.

Knowing both the financial position of an entity and the financial implications of a proposed policy measure helps decision-makers to make better financial judgements about an entity and its activities. Public bodies and other stakeholders are assisted in planning for the future. Greater standardisation of the reporting processes and underlying data provides more opportunities to analyse data and improve decision-making. Supreme audit institutions can access standardised information created through the use of IPSAS to make meaningful judgements and comparisons through the application of techniques such as data analytics.

The state of New South Wales, Australia created an assets and liability committee to maximise the efficient use of their assets, while also reducing the cost of their liabilities. It is much more likely to see an ALCO in a multinational bank than in the public sector, but its adoption in New South Wales has led to an additional AUS$33b being made available for new public infrastructure spending in the Australian state. Governments have substantial asset portfolios, such as utilities and large plots of land, and maximising the use of these assets can significantly improve a government’s financial position.

The adoption of IPSAS plays a significant part in increasing “professionalisation” of the finance function and accounting across the public sector. The use of international accrual standards means that a government can tap into a global talent pool well versed in these internationally agreed standards, helping to share good practices and accessing a wider pool of talent. It also presents significant opportunities to increase the influence of the finance organisation, while capitalising on the skills of younger entrants into the profession within the sector, ensuring that the public sector becomes a desirable career destination of choice for professional accountants.

Even with the benefits highlighted above, advocates of good public financial management can struggle to make the case to public sector decision makers that the upfront investment to adopt accrual will be justified by future benefits. This is because the benefits of adopting accrual accounting are often seen as only being realised years after implementation, while the costs can take immediate effect.

To help mitigate this view, ACCA and IFAC are working together to showcase good practices in public financial management (PFM) from around the world. By bringing together thought leaders from Tanzania, Australia, Pakistan, Canada and others, this project shares the stories of good PFM and documents how adoption of good practice can lead to quick wins and an immediate benefit for citizens.

Look out for more information from this collaboration between IFAC and ACCA on IFAC’s Knowledge Gateway and through the ACCA Professional Insights page, where new video case studies will be shared documenting successes in PFM from around the world.

For more on this story go to: https://newsday.co.tt/2018/12/20/clear-benefits-of-accrual-accounting-to-caribbean-governments/