Global public sector shift to accrual accounting forecast to continue

• Joint report by IFAC and CIPFA forecasts 50% of jurisdictions globally will report on an accrual basis by 2025  

In 2025, governments in 50% of jurisdictions will report on an accrual basis, according to a report released recently by the International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA). The report was drawn from the International Public Sector Financial Accountability Index, which captures current and future use of public financial reporting bases and frameworks by governments around the world.  The 2021 Index Status Report, which captures information from 165 jurisdictions, finds that while 30% of their governments reported on an accrual basis in 2020 (an increase of 6% since 2018), 50% will report on accrual by the end of 2025. Africa, Asia, and Latin America and the Caribbean will lead the projected increase in accrual adoption over the coming five years. 

By providing a comprehensive view of government finances, accrual reporting helps ensure that expenditure of public funds is transparent, public officials are held accountable, and future liabilities are recognised officially and planned for properly. With governments under more financial strain than ever following the huge levels of pandemic-related expenditure, understanding the overall picture and making the best use of the remaining resources is crucial to long-term recovery. 

In addition to the support of regional and international organisations, effective implementation of accrual accounting relies on the skills of public sector accountants to interpret the richer, more comprehensive data; as more governments move to accrual, the need for need for public sector accountants will increase correspondingly. 

“Accrual-based accounting is essential in helping governments mitigate corruption, improve trust and transparency, and deliver desired outcomes that their communities deserve and need in the post-pandemic world,” said CIPFA Chief Executive Rob Whiteman. 

Public financial reporting frameworks are developed in various ways, with many using International Public Sector Accounting Standards (IPSAS). IPSAS provide high quality financial reporting guidance for governments and other public bodies around the world, in order to improve their consistency and transparency. 57% of governments that reported on an accrual basis in 2020 used IPSAS directly, indirectly, or as a reference point. By the end of 2025, nearly three-quarters (73%) of governments that report on accrual will use IPSAS in one of these three ways. 

“This continuing shift from cash to accrual reporting in the public sector, and increased usage of IPSAS in particular, will be crucial to governments globally in making the tough choices they face following the pandemic. Professional accountants have a critical role to play in delivering the full potential benefits for citizens worldwide in terms of decision making, transparency, and accountability,” said IFAC CEO Kevin Dancey. 

IFAC and CIPFA plan to expand the Index progressively in terms of both coverage and information depth and provide periodic status reports throughout this crucial uptake period for accrual financial reporting globally.