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ACCOUNTING & AUDIT
GOVERNMENTS AND ACCRUAL REPORTING By Michalis Lardis, Senior Manager, KPMG Limited
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ccrual reporting refers to the recording of the economic substance of transactions when they occur, rather than when cash settlement occurs. Many governments have already adopted accrual reporting and many more are on the road to implementation. Taking into account the data collected for 150 governments, we list below the analysis of their reporting status: • 37 governments (25%) reported on accrual in their last set of published financial statements • 68 governments (45%) are transitioning to accrual or already have some element of accrual in their financial statements • 45 governments (30%) still report on a cash basis. Accrual reporting frameworks are developed in various ways, many making use of international standards. Of the 37 governments that currently report on accrual, 19 (51%) are using International Public Sector Accounting Standards (IPSAS), in one of these three ways: • 5 governments have adopted IPSAS directly; implementing without altering any of their requirements • 5 governments apply IPSAS indirectly; implementing through a national endorsement process, adjusting for any specific jurisdictional features • 9 governments use IPSAS to develop their own national standards; they use IPSAS as a guidance source. What is IPSAS? The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board,
ACCOUNTANCY CYPRUS
develops IPSAS, a suite of development. Adopting cash and accrual-based accrual-based accounting ADOPTING standards used by govACCRUAL-BASED will improve financial ernments and other ACCOUNTING WILL management and give a public sector entities complete, accuIMPROVE FINANCIAL more around the world rate view of assets and MANAGEMENT AND GIVE liabilities. to prepare generalA MORE COMPLETE, purpose financial ACCURATE VIEW statements. Improved accuracy in OF ASSETS AND Financial and soverreflecting revenues and LIABILITIES eign debt crises have expenses brought to light, as never Accrual-based standards probefore, the need for better fivide a complete, reliable picture nancial reporting by governments worldof a government’s financial and economwide and the need for improvements ic position and performance. in the management of public sector resources. The IPSASB has established Regional status IPSAS to improve the quality, consistThe regions expected to see the greatest ency and transparency of public sector increases in accrual adoption by 2023 financial reporting globally. include: • Latin American and the Caribbean: 21 countries (5 currently) Benefits of IPSAS • Africa: 19 countries (2 currently) • Asia: 21 countries (6 currently) Improved accountability and decision• Europe: accrual adoption predictions making are made more complicated by uncerAdopting accrual-based IPSAS: • improves the quality of general-purpose tainties surrounding the development of European Public Sector Accounting reporting by public sector entities Standards (EPSAS). It is expected that • can lead to better informed assessments the number of governments on accrual of governments’ resource allocation deciwill double to 24 total over the next five sions years. • helps increase transparency and acOf the 98 governments projected to be countability. reporting on accrual by 2023, 72 (73%) will be making use of IPSAS: Improved management of assets and • 31 governments will adopt IPSAS diliabilities rectly Governments reporting on a cash basis • 14 indirectly do not account for significant liabilities, • 27 will use IPSAS in developing their such as pensions, and property or plant national standards. and equipment, such as infrastructure
