The International Federation of Accountants(IFAC), their member
bodies like CIPFA and the major auditing firms are leading the charge to
accrual accounting in the public sector (a bit like the fabled lemmings running
over a cliff). This is despite the fact that almost every single independent
and objective study has found that the costs of introducing accrual accounting
are far greater than any benefits can actually be achieved.
The one major ‘benefit’ that has been consistently achieved,
in the few governments that have actually adopted the accrual basis of
accounting, is that far more professionally qualified accountants are employed
and the major in accounting firms are often used to facilitate this reform. So
of course IFAC, the global trade union for the accounting profession, is in
favour of these jobs for the boys (and a few girls).
But not only is IFAC inciting many governments to waste
money on the adoption of accrual accounting, but they are also distorting the
reform agendas of many governments, especially those of the Global South. Financial reporting is not a particularly
important area in the public sector. Even in terms of public accountability, the
annual report of the auditor general is far more important than the annual
financial statements of a government.
Few governments across the world gain any publicity when
they issue their annual accounts and almost nobody takes the effort to review
the financial statements of their government. In contrast, the annual budget of
almost every government is headline news on the day that it is announced in
Parliament. The publication of the
annual report of the auditor general is also often worthy of some coverage in
the local media - it is through this
report that the government is held to account by parliament, the media and its
citizens.
So why is it that so much emphasis is put on the importance
of government accounts? Why is it that so many conference papers are devoted to
this topic and why is the change from the cash basis of accounting to accrual
accounting seen as an important part of the reform agenda for many governments
of the Global South. The editor of one
international accounting journal even asked me what I did in Nigeria if I was
not in favour of the move towards the adoption of accrual accounting!
Obviously, public financial management is far wider than
annual financial reporting! Budgeting, cash management and planning, internal
control & audit, payroll and contracting are all key areas which need to be
improved, optimised and refined. The
effort and reform agenda of many governments will be distorted if the
importance of their financial statements is exaggerated.
At a recent conference, it was suggested to me that the
following study by the French Cour des comptes (court of accounts) provided
evidence of the benefits of the French government’s move to accrual accounting a
decade ago:
However, this reports clearly states that the costs of this
reform were significantly greater than any benefits that have actually been
achieved:
"to date, the benefits of
accrual accounting do not appear to be as much as the investments which were
made by the administration in its establishment. Maintaining accounts requires
significant resources, particularly within authorising departments. There are
many recurring difficulties: the complexity of operations, perceived
understaffing, sometimes insufficient training, lack of team support. Moreover,
the related measures implemented by the professionals of the accounting
function remain to be optimised. More broadly, attention to the modalities of
accounting reform has sometimes taken precedence over that accorded to the
expected results. In addition, several substantive reservations made by the
auditor on the reliability of the financial statements and the possibility of
auditing these statements still need to be addressed." (page 69).
Not only are the consultancy firms often gaining significant
income from moves to accrual accounting by some governments, but the EU project
to introduce accrual accounting across the EU is heavily reliant on
PriceWaterhouseCoopers (PWC) for its research and they will probably be used
for a proposed study of the costs and benefits of this reform. See, for example previous work commissioned
by the EU from PWC on this topic: http://ec.europa.eu/eurostat/documents/1015035/4261806/EPSAS-study-final-PwC-report.pdf
IFAC and the global accountancy profession, led by the big
four auditing firms, should be congratulated for the scam that they have pulled
off. Even though only a small minority of governments have actually fallen for
this prank, it has provided tens of thousands of lucrative jobs for
professionally qualified accountants and millions of pounds worth of
consultancy fees.
For the governments of the G20, the 20 largest economies in
the world, the move to accrual accounting will only cost a small proportion of
their budgets and so this reform can probably be introduced with little harm being
done. Despite this only a minority of
these governments have actually taken the bait and adopted this reform. However,
across the Global South, this scam will probably cost the lives of many people
and their children and so it is a far more serious matter. In Nigeria, for example, the National Primary
Health Care Development Agency of Nigeria spent N15million ($75,000) valuing
its assets as part of the process of adopting accrual accounting. Is this move really more productive or
important than buying drugs, mosquito nets or training nurses?
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