Accrual Accounting for the Public Sector

a fad that has had its day?

Andy Wynne andywynne@lineone.net
The latest issue of the International Journal of Governmental Financial Management
(www.icgfm.org/digest.htm) contains a useful review of the experience of implementing
accrual accounting by central governments. ts findings should increase the number of
governments which have considered this approach! but have decided that other reforms are
more important and are more li"ely to deliver significant benefits.

#or the last decade accrual accounting has been presented as the reform for public sector
accounting. $owever! it is becoming increasingly clear that the claimed benefits of
introducing accrual accounting are not being realised in practice. #ew countries have
actually adopted accrual accounting as the basis for their central government accounts.
%pain was possibly the first in &'(' followed by the celebrated case of )ew *ealand. A few
other governments followed suit over the next decade or so! but! according to Wynne (+,,-)!
by +,,. still only around &, of the nearly +,, governments in the world had adopted accrual
accounting.
n Australia! )ew *ealand and the /0 the evidence now suggests that! if their governments1
"new then what they "now now! then the move to accrual accounting may never have ta"en
place (2orotins"y! +,,(). Wynne1s most recent paper on this topic reviews the evidence
which is available from these countries so that governments considering this type of reform
can base their decisions on the actual experience of those few countries which have
adopted this approach. 3ust as the current world recession is undermining the previously
dominant view on the efficacy of the free mar"et! so the failure of accrual accounting to
deliver on its promises is having a demoralising effect on at least some of its previous
supporters.
%upporters of the move to accrual accounting argue that a range of significant benefits are
available to governments which move from the cash to the accrual basis of accounting.
%uch arguments have been widely reported and repeated at many conferences. $owever!
the authoritative independent research which is now available suggests that few! if any! of
these benefits have been actually achieved in practice. n contrast! the costs of moving to
accrual accounting are accepted as being substantial.
%ome governments may consider that a move to accrual accounting will provide the
opportunity for a complete overhaul of their financial management systems through the
adoption of leading edge twenty first century reforms. $owever! )oel $epworth (+,,4)
argues against such a strategy and recommends that5
before this reform [accrual accounting] is introduced, cash accounting should be
robust, control should be secure, external audit should be functioning well and the
legislature should have an ability to call the executive to account. (page 4-)
%everal leading 6782 countries are still not convinced of the overall benefits of moving to
full accrual accounting and budgeting! for example! 8hina! 9ermany! taly! 3apan and
:ussia. A recent multi;country overview by the /% 9eneral Accountability 6ffice also
concluded <Accrual =udgeting useful in certain areas but does not provide sufficient
information for reporting on our nation1s longer;term fiscal challenge>. This reinforces
growing recent scepticism on the value of a full transition to accrual accounting and
budgeting.
The full article is available for free download from5 http5//tinyurl.com/ceu?-+