Public
sector auditors across Europe may be moving against the introduction of accrual
accounting as the evidence mounts. In
recent years, reports from Britain, France and especially Germany have
become increasingly critical, saying any benefits are not worth the significant
costs involved.
The
National Audit Office in Britain undertook three studies in this area since the
introduction of business style accrual accounting by the Government in 2001.
The
report of the first of these studies concluded that:
In most cases it is too
soon to identify any discernible benefits from better resource management in
terms of contributing to improved public services from for example, enhanced
efficiency (NAO,
2003, page 31).
Its
second study reported that:
Departments have made
significant progress in using accruals-based accounting and budgeting systems
since our previous study. This has allowed departments to better understand how
they are using their financial resources, for example by offering more detailed
information to manage their assets and liabilities. Departments have used this
information to help identify under-utilised assets and to dispose of those no
longer required. (NAO,
2008, paragraph 9, page 7)
So
the only specific benefit was that ministries (called departments in the UK)
were able to identify and sell assets (mainly buildings) which were no longer
used! However, almost all of the information for such an exercise was already
available from asset registers before the introduction of accrual accounting.
The
third National Audit Office study, reporting in March 2011, recognised that
business style accrual accounting was now well developed, but clearly indicates
that senior managers do not appear to be using the information provided.
Thus
the view of the British National Audit Office was that, after a decade of
business style accrual accounting, the additional information available is not
being used by senior managers. In fact, the accrual financial statements are
only really produced at the end of the year as a legal obligation.
In
2016, the French state auditor, reported in a major study undertaken 10 years
after the adoption of accrual accounting by the French central government, that:
The benefits of accrual
accounting, to date, do not appear to justify the level of resources devoted to
its introduction by the administration (page 69).
The benefits of accrual accounting
to the transparency of the State’s financial situation and the modernization of
its management have not proved to be equal to the efforts made by the
administration to introduce this style of accounting and, above all, the
expectations placed on it by the legislators during its introduction
(page 99).
A
decade after the introduction of accrual accounting by the French Government,
its auditors are clear. The efforts and
costs involved are, at this stage at least, greater than any benefits that have
been achieved.
Perhaps
learning from their colleagues in Britain and France, the Public Audit Board in
Germany issued a report in 2017 arguing that the Federal Government should not
be required to implement accrual accounting based on the proposed European
Public Sector Accounting Standards (EPSAS).
They said
that such a move would involve “high implementation costs for Germany not
matched by any real benefits” (page 2). They state that the costs could considerably exceed the European Commission’s estimate of €3.1
billion or 0.1% of GDP. The Auditors argued that the Commission monitors
compliance with its fiscal rules through statistical reports and so lack of
high-quality financial data is not a problem.
The
German Audit Board was also worried by the undue influence of audit firms. They were being used to advice on the
introduction of accrual accounting and would then benefit from the resulting
multi-million consultancy market. This would
involve significant conflicts of interest.
The
views of the German Audit Board on moves to accrual accounting are fully supported
by the German Federal Ministry of Finance and by parliament.
This range
of reports by public auditors from several major European countries indicates
that the arguments often provided in favour of moving from the cash to the
accrual basis of accounting do not appear to stand up to independent
scrutiny. All these reports indicate
that the significant costs of a government moving to accrual accounting are not
likely to be justified by the meagre benefits that may be achieved. Significant benefits were not being achieved
even a decade after the introduction of these reforms.
Governments
of the Global South should take note of these reports. They are currently being lobbied by donors,
consultancy firms and accountancy bodies to adopt accrual accounting, but these
independent studies indicate that many of the supposed benefits are illusory. In addition, many of those arguing for
accrual accounting may expect to have significant financial gains from such a
move, in terms of consultancy assignments as well as highly paid government posts.
Reports
of the British National Audit Office:
www.nao.org.uk/report/managing-resources-to-deliver-better-public-services/
(2003)
www.nao.org.uk/report/progress-in-improving-financial-management-in-government/
(2011)
Report
of the French Audit Office (2016):
Report
of the German Audit Office:
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