Accrual IPSAS would be Costly: - Reduce Accountability and Increase Corruption

Accrual accounting was developed in the private sector to measure annual profit – so it is not relevant for the public sector.

A move to accrual accounting moves from actual, objective, hard cash to estimates which can be manipulated.  In the cash basis the actual payments for capital projects are compared with the budget.  Under accruals only estimates (depreciation) are provided.  Similarly, with the cash basis the actual cash collected is reported.  Under accruals we move to estimates of the revenue that is expected to be collected.

 “In most cases it is too soon to identify any discernible benefits from better resource management” - UK National Audit Office, 2003

All the objective evidence from the few countries that have adopted accrual accounting show that it is expensive and does not actually provide the expected benefits.  In contrast, the financial statements are much more difficult to understand and so accountability is worse.

“there was little evidence that [accrual] information was extensively used in decision making…  the costs were seen as substantial”  Connolly and Hyndman, 2005

Only five of the governments of the 20 largest economies in the world use accruals for their central government accounts.  The following have not adopted accrual accounting for their central government financial statements:

Argentina               Brazil                 China                   Germany            India                          Indonesia
Italy                        Japan                 Mexico                 Russia                Saudi Arabia

South Africa          South Korea        Turkey.

Only 18 central governments have issued accrual based financial statements.  So 90% of governments still use the modified cash basis.  Birmingham City Council adopted it in 1850 – but it was not adopted in Westminster for another 150 years.  The Irish Government does not use accrual.

“there was no evidence that the perceived benefits from the introduction of... accruals accounting... were being realised”  - Mellett, Macniven & Marriott, 2008

The accountancy bodies (like ICAN and IFAC) and the accounting firms support the accrual basis as it provides lots of jobs for accountants and consultancy work for their firms.  For example, one relatively small health agency in Nigeria recently gave £60,000 to an auditing firm to value its assets in preparation for a planned more to accrual accounting next year. 

Number of accountants in central government increased from less than 600 in 1989 to 2,200 in 2003 – period accruals was introduced in UK central government.

Is providing jobs for poor accountants a real priority for the Nigerian or any other government?

The British war ministry adopted accrual accounting in the early 1920s.  But this reform was reversed a few years later as the benefits were less than the high costs.

For more information read:  http://www.icgfm.org/journal/2012/no1/chapter5.pdf
and

http://publicfinanceafrica.blogspot.com/2015/06/major-study-finds-benefits-of-accrual.html

Please come back to me with the details of any objective study that shows that any significant benefits have been achieved in any government which has actually adopted this approach.