INTHEBLACK May 2022 - Magazine - Page 25
AT A G L A N C E
According to recent
research, about 50 per
cent of governments will
have transitioned to
reporting on an accrual
basis by 2025.
Countries such as
Australia, New Zealand,
the UK, France and Canada
have been reporting purely
on an accrual basis since
the 1990s, and the
momentum for adoption
of accrual accounting has
been building steadily.
The push is being driven
by more calls for
transparency from
governments around
budgeting and spending.
I T H AS B E E N A L O N G A N D W I N D I N G R O A D , A N D M O S T O F T H E K E Y
S TA K E H O L D E R S O V E R S E E I N G I T W O U L D A G R E E T H AT P R O G R E S S H AS
B E E N PA I N F U L LY S L O W. H O W E V E R , A F T E R T H E B E S T PA R T O F T H R E E
D E C A D E S , T H E R E I S S O M E L I G H T AT T H E E N D O F T H E T U N N E L ,
R E P R E S E N T I N G T H E S H I F T BY G O V E R N M E N T S A R O U N D T H E W O R L D
F R O M C AS H T O A C C R U A L A C C O U N T I N G .
A
t the most fundamental level, the difference
between cash and accrual accounting is when
revenue and expenses are recognised in the
financial accounts.
Cash accounting books revenue at the time it is
received and as an expense when money is paid out.
As such, revenue earned in one financial year may
end up being reported in the next financial year’s
accounts. The same goes for expenses.
Accrual accounting books revenue when it
is actually earned and as an expense when it is
incurred. In other words, revenue and expenses
are booked in real time rather than deferred.
As such, accrual accounting effectively produces
a clearer and more accurate picture of an
organisation’s financial position at any point in time.
This increased transparency is particularly important
for the public sector.
In a status report released last year, the
International Federation of Accountants (IFAC)
and the Chartered Institute of Public Finance
and Accountancy (CIPFA) have forecast that
50 per cent of governments will have transitioned
to reporting on an accrual basis by 2025.
The joint report is based on the International
Public Sector Financial Accountability Index,
which captures the current and future use of public
financial reporting bases and frameworks from
165 government jurisdictions around the world.
ACCRUAL MIXED BAG
As at the end of 2020, about 30 per cent of
governments globally were reporting on an
accrual basis.
Australia, New Zealand, the US, the UK, France
and Canada are among the early adopters of accrual
accounting and have been reporting purely on an
accrual basis since the 1990s.
Other countries have been slower off the mark,
but the list has been growing steadily since then.
Many European countries have moved to accrual
basis accounting by now, although Germany, the
Netherlands and Norway remain notable exceptions
and currently appear to have no immediate
intention of switching from the cash accounting
method. Other countries in the region have
indicated they intend to move from partial accrual
accounting to full accrual by 2025.
Elsewhere, momentum for accrual adoption over
the next few years is building. There are currently
17 jurisdictions in Asia, 15 in Latin America and
the Caribbean, and nine in Africa in line for accrual
accounting adoption by 2025.
However, while Japan, Hong Kong, South Korea
and Indonesia have already made the shift to accrual
accounting, other significant Asian economies,
including India and Singapore, appear to be wedded
to cash basis accounting at this stage. Thailand
is intending to continue using a partial accrual
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