Introducing Accrual Accounting Across SEE Region

Latest developments in governmental accounting and reporting  and emerging requirements of managers to improve efficiency and effectiveness in the use of public resources show the need for a better quality and comprehensive information that accrual accounting can provide. Responding to this need the CEF is adapting its program on accounting to help SEE countries develop their understanding of how they can use accrual-based accounting to achieve their objectives.

We designed the workshop on the “Steps Needed to Implement Accrual Accounting in Accordance with the IPSASs”. This learning event discussed the challenges and steps that need to be taken into account as part of the accrual accounting reform pointing out that to achieve the benefits management as well as accounting practice required reform.  Without management reform the benefits from changing to accrual accounting were unlikely to be achieved.

In the preparatory phase, countries face considerable challenges. As was pointed out by Victoria Bainbridge from the Chartered Institute of Public Finance and Accountancy (CIPFA), “the workshop reminded everyone of the workload involved across multiple dimensions and stakeholders and the need to scope, plans and implement an accruals project carefully so that it delivers added value to public finance management as well as producing complete and accurate financial reports.“

Adding to the complexity of this reform, accrual accounting is about the whole public financial management system. As pointed by Noel Hepworth, the CEF Associate Fellow, "just to treat the introduction of accrual accounting as simply a technical accounting reform is a mistake, yet this is how it is perceived in so many countries. To secure the benefits it does have to be accompanied by a management reform which will allow managers to identify the information they require and to make decisions about what should be done. This involves the establishment of effective managerial structures within organizations and the delegation of authority to individual managers accompanied by appropriate accountability arrangements. Managers need to be trained to understand and how to make use of the information that the accountant provides. Simply training accountants to understand the technicalities of the IPSASs is nowhere near enough. Accrual accounting is not just about preparing a set of financial reports (final accounts) by a Treasury or Ministry of Finance on the budget sector as a whole or even on individual public sector entities. Accrual accounting is about much more than that and if gains in efficiency and effectiveness are to be achieved (which are the real „pay-off” to the investment) the person best placed to achieve those gains is the manager and definitely not the Ministry of Finance or the finance department of a ministry. This is the real challenge of accrual accounting. SEE countries have not been too good, on the whole, at developing effective public sector managerial arrangements even though such arrangements are required as part of the accession treaty conditions (Chapter 32).“

Duncan Last from the IMF pointed to the importance of accrual accounting, as the fiscal challenges of many CESEE countries include contingent liabilities and arrears which are not covered by cash accounting. Progressive adoption of accrual features, extending the accounts coverage to general government and public sector, and systematic in-year and end-year reporting, will all greatly assist countries to better understand the fiscal risks they face and how to address them in a timely manner. However he cautioned that this reform takes time and needs to be carefully planned to ensure continued political support especially across mandates.

26 delegates from Central and South East Europe attended the learning event. It allowed financial officials to exchange experiences and it also demonstrated that for most countries the change to accrual accounting was perceived as simply a technical accounting reform. Little thought has been given to the managerial consequences of the reform. Detailed practical examples of accrual accounting reform were provided by Lucia Kašiarova from Slovakian Ministry of Finance, and Marija Popović from Montenegrin Ministry of Finance

The regional learning event was held on September 30–October 2, 2015, and jointly delivered by Noel Hepworth and Victoria Bainbridge from CIPFA, and Duncan Last, IMF Public Financial Management Advisor for South East Europe.