Etude PwC sur les pratiques comptables des Etats (2013)


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Face au contexte de crise économique dans les pays industrialisés et à la nécessité d’accompagner le développement économique des pays émergents, la maîtrise des dépenses et des recettes publiques devient un enjeu majeur pour les Etats partout dans le monde. L’accès au financement (et la compétition entre pays) est au cœur de l’actualité. Pour répondre à ces évolutions, les gouvernements prennent de plus en plus de mesures pour améliorer la comptabilité de l’Etat et renforcer son niveau de transparence.

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Etude PwC sur les pratiques comptables des Etats (2013)

  1. 1. Global survey on accountingand reporting by central governmentsTowards a new era ingovernment accountingand reportingApril 2013
  2. 2. ContentsCreating a legacy 1About the survey 2Key findings from the survey 5Part 1: Government accounting and financial reporting,today and tomorrow ... The dynamic for accrual accounting 6Part 2: Making the transition to accrual accounting(IPSAS or equivalent), benefits and challenges 18Part 3: The future of the government finance function 30List of survey respondents 38Let’s talk 40
  3. 3. 1PwC Global survey on accounting and financial reporting by central governmentsAs a result of the global financial crisisand the subsequent sovereign debtcrisis, governments and other publicsector entities around the world,notably those in OECD countries, arehaving to cope with substantialpressure due to restricted budgets,significant debts and stagnanteconomies. At the same time, Asian,South American and Africaneconomies are growing at rapid rates,increasing the demand for publicgoods and services and infrastructureinvestments.This context creates a direct challengeto governments to improvemanagement of resources and reporthigh-quality information to theirstakeholders (citizens and parliament,donors, investors and financialmarkets, etc.).While sound and transparent publicaccounting does not in itself lead tohigh-quality public financialmanagement (PFM), it is a necessarycomponent. Better accounting leads tobetter reporting, which provides theinformation necessary for betterdecision-making, which in turnshould lead to better use of publicresources. Public sector entities andtheir stakeholders need to understandthe full, long-term economic impact oftheir decisions on financialperformance, financial position andcash flows.Creating a legacyCash accounting systems fail tocapture information on public sectorassets and liabilities and present avery short-term view of publicfinances in primary financial reports.Weak financial reporting practicesmay present the illusion of positivefinancial results in the short term, atthe expense of longer-term fiscalstability.By introducing accrual accounting,governments demonstrate their desireto achieve greater transparency andaccountability, and also to producebetter information for decision-making.Applying financial reportingstandards such as the InternationalPublic Sector Accounting Standards(IPSAS) or similar standards furtherimproves the quality of financialinformation and facilitatescomparison across governments andorganisations.The full benefits of implementingaccrual accounting can be captured aspart of a wider finance reform,serving as a catalyst to providehigh-quality financial informationthus, and even more importantly,improving operational and serviceperformance and contributing to thelong-term sustainability of publicfinances.“When we talk about governmentaccounting and public financialmanagement, it all comes down toone question: do we create or dowe consume a legacy for the nextgeneration?”Jan Sturesson, PwC Global leaderGovernment and Public Services“To state the facts frankly is not todespair the future nor indict thepast. The prudent heir takescareful inventory of his legaciesand gives a faithful accounting tothose whom he owes an obligationof trust.”John Fitzgerald KennedyJan SturessonGlobal leader Government& Public Services Jean-Louis RouvetGlobal Public Finance& Accounting leaderPatrice SchumeschGlobal Public Finance& Accounting PartnerJean-Philippe DuvalGlobal Public Finance& Accounting Partner
  4. 4. 2 PwC Global survey on accounting and financial reporting by central governmentsAbout the surveyThe PwC global survey analyseskey aspects of governmentaccounting and financial reportingin terms of three themes.1 Government accounting andfinancial reporting, todayand tomorrow. The dynamic foraccrual accounting.To establish a baseline understandingof current government accountingand reporting rules, as well asbudgetary and auditing practices, andshow the trends in terms of reforminitiatives that are currently inprogress around the world.2 Making the transition toaccrual accounting: benefitsand challenges.To understand the impact ongovernments of the transition, orpossible transition, to accrualaccounting standards based on IPSASor equivalent and learn more aboutthe resulting benefits and challenges.3 The future of the governmentfinance function.To put government accounting in thecontext of the wider finance functionand evaluate governments’performance in various aspects offinancial management, and get insightinto how governments envisionmoving this forward.Survey methodology140 countries were targeted toparticipate in the PwC global surveycovering all geographic regions andlevels of development. The surveyfocused exclusively on centralgovernments and did not take intoconsideration the accounting andfinancial reporting practices of localgovernments.Survey data was collected over a12-month period ending in March2013, via interviews conductedin-person and by telephone, or via anonline survey questionnaire. Data wasthen compiled and carefully analysedby our public finance and accountingexperts. The results presented arebased on individual countryresponses, which reflect the bestjudgement of survey respondents as tothe current situation and expectedfuture trends in the countriesconcerned.
  5. 5. 3PwC Global survey on accounting and financial reporting by central governmentsIn total, 100 countries are included inthe results of the PwC global survey.Responses were received directlyfrom 75 central governments,including 15 countries in the Asia-Pacific Region, which were gatheredwith the assistance of the AsianDevelopment Bank. All surveyresponses have been kept strictlyconfidential, except where explicitpermission has been given by therespondent.Desk research was performed by PwCexperts covering an additional 25countries.The 100 countries included in oursurvey provide a good basis to gaugethe government accounting landscapearound the globe. The surveycoverage provides a balanced view interms of both its geographicalcoverage and its inclusion of countriesacross the development spectrum,from emerging economies to G20nations. A full list of the countriesincluded in the PwC global survey, aswell as a breakdown by continent andlevel of development (using OECDmembership as a proxy) are providedat the end of the report.The PwC global survey does not serveany scientific purpose, but ratherseeks to highlight current practicesand expected trends as identified bypractitioners in the field ofgovernment finance and accountingfrom around the world. The surveyresults offer insight into practices andperceptions of government accountingfor those interested in the publicaccounting debate.PwC’s global conference onaccounting and financialreporting by centralgovernmentsPreliminary highlights of the PwCglobal survey were presented at aconference organised in Brussels on17 and 18 December 2012. Theconference was attended by over 200delegates from 43 countries coveringall continents and regions.Keynote speakers were invited to talkabout the topics covered by oursurvey, exchange views and shareexperience by means of presentationsand panel discussions.This publication is enriched withquotes from speakers and delegatesand other key findings conveyed atthe conference.
  6. 6. 4 PwC Global survey on accounting and financial reporting by central governments
  7. 7. 5PwC Global survey on accounting and financial reporting by central governmentsKey findings from the surveyThe top 10 key messages PwC insightsGovernment accounting and financial reporting, today and tomorrow ...The dynamic for accrual accountingThere is great diversity in accounting practicesbut the trend towards accrual accounting is clearThere is an urgent need for sound and transparentaccounting by all governments. Governments financialstatements should reflect the full economic impact ofpolitical decisionsA major shift to accrual accounting is expectedin developing countries, with IPSAS serving as acommon reference pointHarmonisation of high-quality public sector accountingstandards on the international level enhance the credibilityof government financial statements and facilitatescomparison within the global public sectorBudgets remain largely on a cash basis Accrual budgeting provides better insight for decision-making, considering the long-term impact of politicaldecisionsMaking the transition to accrual accounting (IPSAS or equivalent), benefits and challengesConversion to IPSAS or similar accrualaccounting standards is useful for governmentstakeholdersThe full benefits of accrual accounting implementation basedon IPSAS or equivalent can only be captured as part of awider finance reformGreater transparency and accountability,comprehensive inventory of assets and liabilities,and performance assessment are the mainbenefitsBetter accounting leads to better reporting, which providesinformation for better decision-making, and in turn shouldlead to better use of public resourcesAccounting for fixed assets, application ofaccruals concepts and disclosure requirementsare the major areas of impactThe change in accounting rules will impact the numbers,require the production of new data and a cultural shift in themindset of those involved. The impact will be even greater ifconsolidation and employee benefits are includedMore than three years is required on average totransition to accrual-based IPSAS (or similar)The change to accruals-based IPSAS is much more than anaccounting exercise, it is a transformation of the governmentfinance function which impacts the whole organisationThe lack of trained staff and IT systemrequirements are the main challengesA well-designed project and effective change managementstrategy, which considers people and systems requirements,are crucial for successful implementationThe future of the government finance functionGovernments indicate a desire to improve theirfinance functionBy transitioning from scorekeeper to business partner,government finance functions will realise significantimprovementsCost accounting, performance management, fixedassets management and long-term planning andforecasting are the key areas for improvementImproving these key areas will contribute to the overallobjective of enhanced service performance and long-termsustainability of public finances12345678910
  8. 8. 6 PwC Global survey on accounting and financial reporting by central governmentsGovernment accounting and financialreporting, today and tomorrow ...The dynamic for accrual accountingPart 1
  9. 9. 7PwC Global survey on accounting and financial reporting by central governmentsThere is great diversity in accountingpractices but the trend towardsaccrual accounting is clear........................ 8A major shift to accrual accountingis expected in developing countries,with IPSAS serving as a commonreference point........................................ 11Budgets continue to be run largelyon a cash basis......................................... 17Key finding1Key finding2Key finding3
  10. 10. 8 PwC Global survey on accounting and financial reporting by central governmentsThere is an urgent need for sound,transparent accounting by all governments.Governments’ financial statements shouldreflect the full economic impact ofpolitical decisions.PwC insight1There is great diversity inaccounting practices butthe trend towards accrualaccounting is clear.Government accountingaround the worldGovernment accounting practices aregenerally classified into fourcategories, moving from the least tothe most sophisticated side of thespectrum: cash accounting, modifiedcash accounting, modified accrualaccounting, and accrual accounting.There is great diversity in governmentaccounting practices worldwide.Classification in one of the fourcategories requires judgement and isinevitably somewhat subjective.Cash accounting has been the primarymethod used in the public sector formany years and remains in place formany governments. However, anincreasing number of governmentsare now using accrual-basedaccounting frameworks, while othersstill follow hybrid approaches that canbe classified as either modified cashaccounting or modified accrualaccounting. Over half (54%) of thecountries surveyed report that theyfollow the cash or modified cash basisof accounting, while only 46% followthe accrual or modified accrual basis(see Figure 2).Figure 1: The spectrum of government accounting practicesCashaccountingModified cashaccountingModifiedaccrualaccountingAccrualaccountingCash payments andreceipts arerecorded as theyoccur.Cash receipts anddisbursementscommitted in thebudget year arerecorded andreported until aspecified periodafter year-end.Accrual accountingis used but certainclasses of assets(e.g. fixed assets)or liabilities are notrecognised.Transactions andeconomic eventsare recorded andreported when theyoccur, regardless ofwhen cashtransactions occur.Figure 2: The government accounting landscape worldwide todayCash basis (31)Modified Cash (23)Modified Accrual (20)Accrual basis (26)
  11. 11. 9PwC Global survey on accounting and financial reporting by central governmentsLooking at the picture five yearsahead, we can see a clear trend, withmany countries initiating accountingreforms and moving to the moresophisticated end of the governmentaccounting spectrum. Thirty-sevencountries express an intention tomove to accrual accounting over thenext five years, bringing the totaladoption rate to 63% of governmentssurveyed (See Figure 3).Figure 3: Government accounting around the world in five yearsCash basis (14)Modified Cash (9)Modified Accrual (14)Accrual basis (63)142%increase in the applicationof accrual accounting overthe next five years.
  12. 12. 10 PwC Global survey on accounting and financial reporting by central governmentsGetting the foundations rightThe objectives of financial statementsare to provide information that isuseful to a wide range of users inmaking and evaluating decisionsabout the allocation of resources, andto demonstrate the accountability ofthe entity for the resources entrustedto it.These objectives can only be fullyachieved by applying accrualaccounting. Accrual accounts providea comprehensive view of agovernment’s assets and liabilities,and of its financial performance andcash flows for the period underreview. Accrual accounting standardsreflect the long-term economic impactof political decisions in the financialstatements.Cash accounting systems simply donot allow for this.Governments need to step up andprovide information that delivers realinsight into public financialmanagement and decision-making.This requires more robust accountingsystems in the public sectorworldwide, with reporting done on aconsistent basis, e.g. with applicationof IPSAS or equivalent standards, andfull reporting of liabilities. This will inturn assist long-term stability incapital markets by increasing thequality and reliability of, and trust in,governments’ financial statementsand help restore confidence in theirability to manage their fiscal balances.“Cash accounting is simply not fitfor the 21st century.”Brian Quinn, Director Loan Department,World Bank“Governments around the worldrequire private companies to betransparent about theiraccounting but governmentsthemselves are not transparent.The reasons why governmentsneed to be transparent are verysimilar to those of companies: weneed to know how well they areperforming, what their fiscalposition is, whether they are wellmanaged and we cannot tell itwithout good accounting.”Ian Ball, Chief Executive Officer,International Federation of Accountants“Investors are no longer confidentthat what governments tell themabout their finances is completeand accurate. Greatertransparency - not less - is what isrequired now to increaseconfidence of investors.”Brian Quinn, Director Loan Department,World Bank“The State is the single largestpublic interest entity in everycountry. Just as the board ofdirectors of a private company isaccountable to shareholders,governments should beaccountable to parliament andcitizens. And to do that you need tobe transparent and produceaccruals accounts based on thehighest-quality standards.”Patrice Schumesch, PwC Partner
  13. 13. 11PwC Global survey on accounting and financial reporting by central governments50%of non-OECDcountries plan totransition to accrualaccounting over thenext five years.Figure 4:Expected trend toward accrual accounting among OECD and non-OECD countriesNow (26)5 years (63)0% 10% 20% 30% 40% 50% 60% 70% 80%OECD (n=32)Non OECD (n=68)60%10%69%59%The momentum forbetter public accountingThe momentum for better publicaccounting is building, with morejurisdictions around the worldadopting accrual accounting practicesor putting plans in place to do so.The trend toward accrual accountingis particularly evident in non-OECDcountries. Results from the surveyindicate that many developingcountries recognise the importance ofaccrual-based accounts, with 34 of thenon-OECD countries surveyedexpressing their intention to move toaccrual accounting over the next fiveyears. Such a shift will bring theoverall adoption rate close to thatcurrently observed among OECDcountries, at 60% (see Figure 4).Harmonisation of high-quality publicsector accounting standards at aninternational level enhancesthe credibility of government financialstatements and facilitates comparisonwithin the global public sector.PwC insight2IPSAS often serves as a referencepoint in the PFM reform programmesof many developing countries.International and supranationalorganisations contribute to theadoption of accrual accounting andIPSAS by laying down reportingrequirements for their members orfunding recipients. Internationalorganisations such as the World Bankand the International Monetary Fund(IMF), for example, often includefinancial management reforms intheir financial assistance and capacitydevelopment programmes. Their rolewill be key in the implementation offuture government finance reforms.“We are currently drawing aroadmap for a PFM reform withthe IMF regional office. The IMFassistance is also to align thesystems to move from cash toaccrual. They want to ensure thatour systems are strong enough.The goal is to have an integratedfinancial managementinformation system (FMIS). If webuild confidence in the system,donors will be more willing to fundus.”Deputy Accountant General, East Africancountry“There are number of PFM projectsfunded by multilateral agenciesand donors. These came in a mix ofgrants, loans and technicalassistance. Much of the donors’activities are in the social sectorand all major donors like to have agood PFM system in place.”Non-OECD country, South AsiaA major shift to accrualaccounting is expectedin developing countries,with IPSAS serving as acommon reference point.
  14. 14. 12 PwC Global survey on accounting and financial reporting by central governmentsBiggest moves in Africa, Asiaand Latin AmericaThe biggest move is expected in Africa(+ 11 countries), but the trend towardaccrual accounting is also evident inother parts of the world, withaccounting reforms in process orplanned in Asia, including the MiddleEast (+ 10), and Latin America (+8)(see Figure 5).Figure 5: Expected trend toward accrual accounting by continent100%67%35%22%31%33%21%37%62%52%0% 20% 40% 60% 80% 100%North America (n=2)Oceania (n=3)Europe (n=34)Asia (n=27)Latin America & the Caribbean (=13)Africa (n=21)Now (26)5 years (63)In OECD countries, accrualaccounting is generally wellestablished and stable, with certainexceptions noted at present.Nevertheless, a further 10% of OECDcountries, currently following cash ormodified bases of accounting, indicatethat they expect to implement fullaccrual accounting over the next fiveyears (see Figure 4).“All Nigerian Government entities,at Federal level and State levels,including agencies, will move tocash basis IPSAS by 31 December2014, and to accrual basis IPSASby 31 December 2016.”James Nongo, Secretary, FederationAccounts Allocation Committee (FAAC),sub-committee on the roadmap for theadoption of IPSAS, Nigeria“We have already achievedcompliance with the cash-basisIPSAS. Reforms are now inprogress to adopt a full accrualaccounting system, and eventuallyachieve compliance with accrualIPSAS.”Non-OECD Country, South East Asia“The country is currently applyingaccrual accounting and we are inthe process of converging to IPSAS,with 2015 as target date.”Patricio Barra Aeloiza, Head of AccountingAnalysis Division, Comptroller GeneralDepartment, ChileIn some cases, these rules are basedon the statistical reporting basis. InEurope for example, governmentfinance statistics (GFS) provide thebasis for fiscal monitoring.Governments must report under theso-called ESA (European System ofAccounts) rules, a macroeconomicaccounting framework based onaccrual principles.A number of countries have developedtheir own public sector accountingstandards, based on nationalstandards or IFRS, adapting theserules to the public sector environmentand seeking inspiration in IPSAS asthey deem appropriate.In many countries, we see aninteresting trend whereby the move toaccrual accounting begins with anintermediate objective of complyingwith the cash-basis IPSAS as part of agradual, or step-by-step, approach toadopting an accrual accountingframework and, in many cases,accrual IPSAS. These accountingreforms are normally accompanied byimprovements in government FMIS.
  15. 15. 13PwC Global survey on accounting and financial reporting by central governmentsThe European contextIn Europe, consideration has beengiven to public sector accountingstandards in the context of the budgetsurveillance mechanism and fiscalmonitoring. While the ESA rules arenot designed for entity-levelaccounting, the EuropeanCommission recognises the need foruniform and comparable accrual-based accounting practices for allsectors of general government toensure the quality of the informationon which ESA data is based.“There is a strong need forharmonised accruals-based publicsector accounting systems in theEU, in particular for the purposesof fiscal surveillance, and notably,the Maastricht Excessive DeficitProcedure. The proposed wayforward is a balanced approachthat builds on existingachievements and takes intoaccount the Member States’resources constraints.”Alexandre Makaronidis, Head of Unit, GFSquality management and governmentaccounting, EurostatIn this context, the Commission(Eurostat) has just finalised itsassessment of the suitability of IPSASas a basis for financial reporting forMember States and has forwarded theassessment to the European Counciland European Parliament. Based onthe public consultation conducted byEurostat, there is wide acceptance ofthe need for a set of harmonisedaccrual-based public sectoraccounting standards in Europe. Thereport concludes that, even if IPSAScannot be implemented in EuropeanUnion (EU) Member States as itcurrently stands, the IPSAS standardsrepresent an indisputable referencefor potential development ofEuropean Public Sector AccountingStandards (EPSAS), based on a strongEU governance system.The proposed way forward is athree-stage process:• a preparatory stage, that includespublic debates, to create thenecessary momentum and gainco-ownership on the project to movetowards harmonised accrualaccounting principles within the EU,• a development stage to put in placethe practical arrangements for thenew regulatory framework,including synergies and cooperationwith the IPSASB,• the implementation stage.
  16. 16. 14 PwC Global survey on accounting and financial reporting by central governmentsHarmonisation of public sectoraccounting standards at aninternational levelBetter integration and comparabilityin government accounting systems arestill a challenge. With the increasedpressure on countries’ credit ratings,protecting sovereign debt holders anddemonstrating government’s ability torepay debts have been key concernsfor investor confidence in recentyears.The G20 has recently emphasised theneed for transparent, comparablepublic sector financial reporting,including public sector balance sheets,to better assess risks related to publicsector debt sustainability. Indeed,sound, transparent accountingsystems are part of the solution torestore confidence and contribute tosustainable financial management.“We are transitioning fromIFRS-like standards to IPSAS-likestandards in anticipation ofgreater decision-usefulness andtransparency from applyingstandards developed specificallyfor public benefit entities with adifferent set of users in mind ...and enhanced comparability withother governments applying IPSASor IPSAS-like standards.”Fergus Welsh, Chief Financial Officer andChief Accountant, Treasury, New Zealand“Harmonisation of GFS and IPSASis desirable. It is very hard forgovernments to understand whythey have to adopt two differentreporting systems. There may be adifference in the entity perimeterbut there should not be differencesin recognition and measurementprinciples.”Andreas Bergmann, Chair, IPSASBAlongside the general trend towardsadopting accrual accounting, which isgenerally inspired by IPSAS, and thedevelopments currently beingdiscussed at European Union level,other initiatives aimed at increasedharmonisation can be noted.In New Zealand for example, whichhas been at the forefront ofgovernment accountingdevelopments, having implementedaccrual accounts two decades ago, thecentral government is now movingfrom New Zealand IFRS for the publicsector to IPSAS.Other developments are observedtowards an integrated approach toaccrual accounting and GFSguidelines, aligning them to thegreatest extent possible to avoidcreating confusion by having two setsof accrual-based financial statementsreporting different results for thesame reporting entity.
  17. 17. 15PwC Global survey on accounting and financial reporting by central governmentsTimeliness and audit ofgovernment financialstatementsThe usefulness of financial statementsalso depends on the timeliness of theinformation provided to decision-makers. Institutional structure andprocesses must be in place to assessthe accuracy of governmentrepresentations and ensure thequality of financial statements.To remain relevant, both for externalaccountability purposes as well asinternal decision-making, financialinformation must be provided on atimely basis.Timeliness will depend upon theprocedures and systems in place tocollect, process and analyse thenecessary financial information.Further, people must know how to usethe information once it has beenprovided; knowledge gaps can resultin significant delays in preparing andeventually auditing governmentaccounts.Publishing annual financialstatements within six months of thebalance sheet date would seem to bethe minimum requirement in terms oftimeliness. Financial information thatis published later than this loses itsrelevance as it becomes increasinglyout-of-date. 23% of governments donot achieve this; 14% do not makegovernment accounts available to thepublic (see Figure 6).Figure 6: Publication of government financial statements22% 41% 19%4%0-3 months 4-6 months 7-12 months 12+ months14%Not released63%of governments publishtheir financial statementswithin six months of theclosing date, 37% do not.These statistics should also beinterpreted in the light of currentreporting practices and bearing inmind the relative simplicity ofcash-based financial reports currentlyproduced by many governments.When these governments move toaccrual accounting, enhancedprocesses and change managementprogrammes will be required toensure an efficient, timely closingprocess.
  18. 18. 16 PwC Global survey on accounting and financial reporting by central governments“There is in Belgium, at the level ofthe Flemish region, a strongpolitical will to promote theconcept of single audit, with theCourt of auditors, working jointlywith the internal audit andexternal auditors. It would beinteresting, next to introducingaccrual accounting and IPSAS, toalso have a strong independentand external audit in the publicsector as promoted by the EU in thecontext of the sovereign debtcrisis.”David Szafran, Secretary General, BelgianInstitute of Registered AuditorsIt is not rare that governmentaccounts are qualified, but little publicattention is given to these instances.There is clearly no such tolerance forpublicly listed companies.Despite this, auditors play animportant role in the overall quality ofpublic sector financial information.Not only do audit reports addcredibility to financial statements, butauditors’ pressure leads managementto seek continuous improvements inthe quality of the financial statements.An independent audit report that isbased on internationally recognisedauditing standards and that is madeavailable to the public increases thecredibility of government financialstatements, and enhancesaccountability and transparency.90% of governments have theiraccounts audited, which means that10% have not. And 19% of governmentsthat do have their accounts auditeddeclare that they do not make theauditor’s report publicly available.The vast majority of governmentaccounts are audited by a governmentaudit service (e.g. Court of Auditors,National Audit Office, or equivalent).Only 4% of governments indicate thataudits are performed by a private sectoraudit firm.90%of governments have theiraccounts audited... but19% of them do notmake the auditor’s reportpublicly available.Figure 7:Overview of government audit practices86%4%10%Yes - government audit serviceYes - private sector audit firmNo
  19. 19. 17PwC Global survey on accounting and financial reporting by central governments89%of the countriesuse cash budgets.The budgetary cycle lies at the heartof any public financial managementsystem, proceeding in stages frombudget formulation, approval andexecution, to audit and performanceassessment and evaluation.While a move toward the accrual basisis clear on the accounting side, thereseems to be less appetite for accrualbudgeting (see Figure 8). Thecommon reason given is that accrualbudgeting is viewed as too complexand that politicians are unwilling tochange given their understanding of,and familiarity with, cash budgetingsystems.Accrual budgeting provides better insightfor decision-making, considering thelong-term impact of political decisions.PwC insight3Cash budgets include only the currentperiod’s expected cash receipts andpayments; accrual budgeting providesbetter insight for decision-making bytaking the long-term impact ofgovernment policies intoconsideration. The reasoning isexactly the same as for accrualaccounting.The ability to compare budgetsagainst actual results is alsoimportant for accountabilitypurposes. Such comparisons aredifficult, however, when accountingand budget documents are preparedaccording to different financialreporting bases (e.g. cash versusaccrual).“The crisis has been the trigger forbudgeting reforms. We arepreparing to take use of an accrualbased budget starting from2014-2015. Accrual-based budgetis essential to get betterinformation for decision making.”Kadri Jõgiste and Juta Maar, respectivelyHead of Budgeting Methodology Departmentand Head of State Accounting Department,Ministry of Finance, Estonia“Accrual budgeting facilitates farbetter decision making because itbrings more discipline to theprocess and ensures that the fulleconomic impact of politicaldecisions are considered.”Fergus Welsh, Chief Financial Officer andChief Accountant, Treasury, New Zealand“Having a consistent system foraccounting and budgeting hasvalue. Why would you present yourresults in a different way fromyour budget? Of course you canreconcile but being able tocompare is the most compellingreason.”Andreas Bergmann, IPSASB ChairBudgets remain largelyon a cash basis.Figure 8: Comparative trend toward accrual accounting and budgeting5 yearsNowAccrual accountingAccrual budgeting0% 10% 20% 30% 40% 50% 60% 70% 80%26%11%63%26%
  20. 20. 18 PwC Global survey on accounting and financial reporting by central governmentsMaking the transition to accrual accounting(IPSAS or equivalent), benefits and challengesPart 2
  21. 21. 19PwC Global survey on accounting and financial reporting by central governmentsConversion to IPSAS or similar accrualaccounting standards is useful forgovernment stakeholders........................20Key finding4Greater transparency and accountability,comprehensive inventory of assets andliabilities, and performance assessmentare the main benefits................................ 21Key finding5Accounting for fixed assets, applicationof accruals concepts and disclosurerequirements are the majorareas of impact........................................22Key finding6More than three years is required onaverage to transition to accrual-basedIPSAS (or similar)...................................24Key finding7The lack of trained staff and IT systemrequirements are the main challenges......... 26Key finding8
  22. 22. 20 PwC Global survey on accounting and financial reporting by central governmentsFinancial statement users includeboth internal and external groups, allof whom stand to benefit fromhigh-quality accrual-based financialinformation.Financial information should beavailable to the citizens who, astaxpayers and service recipients, holdgovernment accountable for the use ofpublic resources and seek to evaluateoverall financial performance, andperformance against policycommitments and in specific interestareas. Politicians also have a role toplay, representing the interests of thecitizens who elect them through theparliamentary process. They need tounderstand the current position ofgovernment finances to understandthe government’s financial capacitybefore making commitments for newprogrammes and services.Governing body officials may useaccrual accounting information tomanage their activities moreefficiently; further, they can usemeasures of past performance as abasis for future resource-allocationdecisions with a view to increasingthe effectiveness and impact of publicspending.Investors and rating agencies have aparticular interest in assessing theoverall fiscal health of governments,while donors are more broadlyconcerned with the government’sfinancial management practices andability to meet specified outcomes andobjectives.Conversion to accrual-based IPSAS orequivalent standards is considered tobe especially useful for citizens andpoliticians, as indicated by 77% and69% of respondents, respectively (seeFigure 9). However, it should be notedthat, beneath these aggregate results,variance can be seen betweendeveloped and developing countries,with developing countries assigninggreater usefulness to fund donors andless to citizens.Government financial information isused by a wide range of stakeholders,all of whom have an interest in thefinancial health and management ofpublic resources. Financialinformation should be transparent inorder to effectively hold governmentaccountable for its use of public funds.It should also provide a basis forevaluating the current financialposition and past performance fordecision-making purposes.The full benefits of implementingaccrual accounting based on IPSAS orequivalent can only be captured aspart of a wider finance reform.PwC insight4“The inclusion of a balance sheetand the recording of transactionson an accrual basis contribute tothe political debate on thegovernment’s fiscal and economicmanagement.”First assistant, Ministry of Finance, OECDcountry“Donors may use the financialstatements and disclosures thereinto take informed decisions onfinancing certain programmes andprojects.”Geoffrey Malombe, Assistant AccountantGeneral, KenyaConversion to IPSAS orsimilar accrual accountingstandards is useful forgovernment stakeholders.Figure 9: Usefulness of accrual-based financial statements77%69%50% 50% 49%0%20%40%60%80%100%Citizens Politicians Governing bodyofficialsFund donors Rating agenciesPercentage rated ‘very useful’ or ‘useful’ to government stakeholders.Citizens are viewed asthe main beneficiariesof accrual-basedfinancial statements.
  23. 23. 21PwC Global survey on accounting and financial reporting by central governmentsTransparency andaccountabilityGreater transparency andaccountability stands out as the greatestbenefit of adopting IPSAS or equivalentstandards. Information prepared inaccordance with internationallyrecognised accounting standardsprovides a basis for comparinggovernments with one another andmaking comparisons across individualgovernment units. Transparentaccrual-based financial statements helpgovernment to demonstrate, and usersto evaluate, accountability for the use ofpublic funds.Inventory of assets andliabilitiesA comprehensive inventory ofgovernment assets and liabilitiesprovides a view of governmentresources and future obligations.Almost half of the governmentssurveyed recognise the value ofadopting accrual accounting for bettermanagement of government resources.It provides a basis for building more-effective administrative processes andcontrolling costs. Equally, bringingliabilities onto the government balancesheet provides a view of the long-termimplications in terms of spendingcommitments and borrowing needs.Performance assessmentOverall, accrual accounting helps toimprove the measurement of a publicentity’s financial performance andfinancial position and provides moretransparent information ongovernment sustainability.In addition to the top five benefitsshown in figure 10, respondentsidentified benefits in terms of accessto better funding sources and reducedrisk of fraud and corruption.Developing countries can be seen toplace greater emphasis on thesebenefits.Better accounting leads to better reporting,which provides information for betterdecision-making, which should inturn lead to better use of public resources.PwC insight5“With adoption of accrualaccounting standards based onIPSAS, the country will be able tobetter project its cash flows,evaluate and compare itself withother countries”.Gilvan Dantas, Accounting Subsecretary,Ministry of Finance, Brazil“For the first time, governmentcan prove whether the statebecame poorer or richer over aperiod of time!”Gerhard Steger, Head of Budget Section,Ministry of Finance, Austria“Research has shown that moretransparent countries have bettercredit ratings, better fiscaldiscipline, and lower borrowingcosts.”Brian Quinn, Director, World Bank“Benefits brought by internationalaccrual accounting standards inNew Zealand include greater fiscaltransparency (with a particularpositive impact on debt rating),greater fiscal debate, enhancedcredibility and clearerunderstanding of real impacts ofpolitical decisions (and reducedpotential of corruption).”Fergus Welsh, Chief Financial Officer andChief Accountant, Treasury, New ZealandGreater transparencyand accountability,comprehensive inventoryof assets and liabilities, andperformance assessmentare the main benefits.Figure 10: Benefits of accrual-based financial statements0%20%40%60%80%100%79%50% 48%45%41%TransparencyandaccountabilityInventory ofassetsand liabilitiesPerformanceassessmentComparability Cost controlPercentage ranked in top 3 benefits of adopting IPSAS or similar standards.
  24. 24. 22 PwC Global survey on accounting and financial reporting by central governmentsOne of the inevitable consequencesgovernments face in the adoption ofaccrual accounting is the need toproduce an opening balance sheet andput in place accounting policies totrack government assets and liabilitieson a go-forward basis. Governmentsagree that moving to accrualaccounting has a major impact on thefinancial accounts.The change in accounting rules will impactthe numbers and require the productionof new data and a cultural shift in themindsets of those involved. The impact willbe even greater if consolidationand employee benefits are included.PwC insight6“The greatest challenge is datacollection for fixed assets whichinvolves 26 ministries. The taskincludes identifying the assets andvaluing them.”Accountant General, non-OECD country,South East Asia“The inventory and valuation ofmilitary equipment has beencomplex, with high-level issues atstake. It was due to keepinginsufficient historical accountingtrack of our assets and thespecificity of our assets. Toovercome these difficulties, we hadto develop a specific approachbased on a very precise analysis ofprocurements expenditures.”Véronique Nativelle, Ministry of Defence,FranceAccounting for fixed assets,application of accrualsconcepts and disclosurerequirements are the majorareas of impact.Figure 11: Accounting impacts of accrual-based financial statements66%57%39% 38% 36%0%20%40%60%80%100%Fixed assets Application ofaccrualsDisclosurerequirementsConsolidationscopeEmployeebenefitsPercentage ranked in top 3 impacts of adopting IPSAS or similar standards.Fixed assetsOverall, recording fixed assets infinancial statements is seen aspresenting the greatest accountingimpacts. Accounting for fixed assetsincludes not only traditional assetssuch as government land andbuildings but also covers morecomplex items such as infrastructureassets (road networks, railwayinfrastructure, airports or bridges,etc.), military assets, and assetsmanaged under service concessionarrangements and public-privatepartnerships.Recording fixed assets in governmentfinancial statements therefore has asignificant quantitative impact ongovernment financial statements, butpolicies, processes and systems thatare needed to meet data requirementsand track assets-related informationon an ongoing basis are also heavilyimpacted.
  25. 25. 23PwC Global survey on accounting and financial reporting by central governmentsApplication of accruals57% of countries view the applicationof accruals as one of the three mostsignificant impacts of adoptingaccrual-based IPSAS or similarstandards. Applying accrualaccounting introduces more-complexrequirements for the treatmentfinancial statement items, especiallyin respect of the year-end closureprocess.The treatment of governmentexpenses, for example, is impacted interms of both measurement andtiming for recognition in financialstatements. Expenses must berecognised at the time the underlyingeconomic event occurs and willinclude transactions for which cashpayments have not yet been made.Increased effort will be required toanalyse a large volume of transactionsto determine the appropriateaccounting treatment.The timing of revenue recognitionwill also be impacted as governmentswill need to match with the revenue-generating activity and properlyreflect the terms and conditions ofgrants and other cash paymentsreceived.Disclosure requirementsDisclosure requirements are identifiedas one of the top three impacts for39% of governments surveyed.Indeed, the quantity of informationthat must be disclosed under accrual-basis IPSAS increases, includingsegment information, reconciliationsbetween accounting and budgetinformation, information ongovernment financial assets andliabilities (including guarantees),pension and other employee benefits,contingent liabilities, related parties,etc.OthersFewer than 40% of surveyrespondents ranked consolidationscope and employee benefits in thetop three impacts of accrualaccounting. These items are oftenomitted from the scope of thegovernment accounting framework,but their complexity and impactshould not be underestimated. Ascountries move toward fullcompliance with IPSAS standards, theimpact of consolidation requirementsand recognition of employee benefitswill have a more pronounced impact.PwC experience inaccounting for fixed assets:implementing andembeddingThe effort and complexity of thedata-collection exercise shouldnot be underestimated. It isimportant to involve ministriesand include accrual experts fromthe very outset in order to createcapacity and build momentum.The objectives should be set outin a strategy document to presenta common vision for all involved.The strategy should be clear andachievable, considering the costsand benefits of intended actions.If it is important to secure quickwins and rapid results and getbuy-in from ministries, as the firstmonths of data collection arecritical, it is also important tospend sufficient time identifyingissues and data gaps.Any fixed asset project shouldalso go beyond accrualcompliance to incorporate keyperformance indicators that willbring added value tostakeholders. For example,governments can use theinventory of land and buildings tomove to more-active portfoliomanagement. It is also anopportunity to simplify andrationalise processes through, forexample, better supply chainmanagement. Similarly,determining assets’ useful livesand components can help toimprove programming andbudgeting decisions in terms ofmaintenance, asset replacementor investments.
  26. 26. 24 PwC Global survey on accounting and financial reporting by central governmentsMost conversion projects take morethan three years of intensive work,and extend beyond the accountingdepartment to include operationalstaff and business owners. Transitionto accrual accounting concerns theentire organisation, through systemchanges, process reengineering, andredefinition of roles andresponsibilities.The conversion project does not endwith release of the first set ofgovernment financial statements. Itrequires that quality improvement bemanaged in subsequent years and thataccrual practices and mindsets beembedded as ‘business-as-usual’throughout the organisation.The change to accrual-based IPSAS ismuch more than an accounting exercise;it is a transformation of the governmentfinance function that impactsthe whole organisation.PwC insight7“The transition to accrualaccounting is much more than anaccounting exercise; it is atransformation of the financefunction. It requires a change ofmindset. Embedding the reformafter the preparation of the firstaccrual-based financialstatements is crucial.”Jean-Louis Rouvet, PwC Partner“Time is of the essence. You have togo fast, but not too fast. Acceptthat the reform will take severalyears and proceed in stages.”David Litvan, Director of Accounting,Ministry of Finance, FranceMore than three yearsis required on averageto transition to accrual-based IPSAS (or similar).Figure 12:Length of the conversion process64%24%12%Less than 2 years2 to 3 yearsMore than 3 years“The scope of accountingmodernisation project includesaccrual accounting, budgetaryaccounting and managementaccounting, using a uniformsoftware solution for all federalpublic services. We have used agradual approach. Accounting forfixed assets and tax revenue arethe last areas for which accrualaccounting concepts areimplemented.”Ludo Goubert, Federal Accountant adinterim, Belgium“We started with initial awarenesstrainings. Next step is a gapanalysis and the development of aroadmap to continue thetransitioning towards IPSAS-based standards in a modular orphased approach.”Herald Bonnici, Director-General FinancialPolicy and Management Division, Ministry ofFinance, the Economy and Investment, Malta“There is such a great need forIPSAS and accrual accounting,often in fragile countries. You needa roadmap that gets you there,and often that is what is missing.”Darshak Shah, Chief Financial Officer,United Nations Development Programme(UNDP)The conversion toaccrual accounting isa multi-year project.
  27. 27. 25PwC Global survey on accounting and financial reporting by central governmentsPhase two: ConversionThe second phase of the conversionmethodology involves project set-up,component evaluation and issueresolution, plus the initial conversion.The project set-up is designed to enablethe organisation to manage theconversion project to a successfulconclusion while continuing to run itsactivities effectively. For this purpose,the project management structure is setdown, conversion tools are tailored, andthe project strategy is communicatedthroughout the entity.The initial conversion enablespreparation of the entity’s first IPSAS orIPSAS-like financial statements andmeans that an informed decision can bemade on the ongoing conversionstrategy. For this, IPSAS (or equivalent)reporting process and systems need to bedesigned, built and tested, adjustmentsneed to be calculated, reporting packscompleted for required disclosures, andIPSAS (or equivalent) resultsconsolidated and analysed.Phase three: EmbeddingThe final phase is designed to enable theorganisation to move smoothly to a new‘business-as-usual’ operation, using its‘new language’ comfortably andauthoritatively. Embedding the changeinvolves continuing IPSAS (orequivalent) training throughout theentity, finalising the accounting manualand chart of accounts, completingsystems’ design, build and testing,designing and rolling out new businessprocesses and procedures includinginternal control and risk management,and modifying budgeting processes.In practice, depending on the needs andtime constraints of the project, portionsof the work relating to phases two andthree may be carried out simultaneously.Once conversion is completed, the newaccounting framework is embeddedacross the organisation, with modifiedsystems, updated controls andprocedural documentation, and fullytrained staff.Phase one: Gap analysisand roadmapThe objective of a gap analysis(comparison of the situation “as is” withthe situation “to be”) is to gain a detailedunderstanding of the impact of IPSAS (orequivalent) on the organisation,highlight key accounting and reportingissues that need to be addressed,understand which business processesmay be impacted, and take an informeddecision on how to proceed with theconversion.The roadmap allows the organisation todevelop a detailed project plan, define itsneeds and estimate the cost of the entireconversion process, including from aninformation system point of view.Figure 13: PwC conversion methodology for the adoption of IPSAS or similar government accounting standardsFinancialmanagementand reportingSystemsProjectand changemanagementPoliciesPeople ProcessesGapanalysis androadmapEmbeddingConversionThe PwC IPSAS (or equivalent)conversion methodology suggestsfollowing a three-phase approach, asillustrated opposite:• the initial diagnostic involves adetailed gap analysis, whichproduces a roadmap for successfulconversion;• the actual conversion phase resultsin production of the first IPSAS orIPSAS-like financial statements;• the embedding phase ensures thatsystems, processes, policies andbehaviours are adapted to reportefficiently under IPSAS (orequivalent) on a ongoing basis.
  28. 28. 26 PwC Global survey on accounting and financial reporting by central governmentsAccrual accounting conversionrequires a significant commitment ofresources in terms of time, effort andmoney. It also demands specialisedskills and a general shift in themindsets of people at all levels of theorganisation. IT systems need to beupgraded or new systems put in placein order to support the change.Commitment from seniormanagement and politicians isessential in order to secure thenecessary resources and promotebuy-in.Lack of trained staffAccrual accounting is more complexthan cash accounting. It requiresgreater technical accountingexpertise, increased professionaljudgment, and greater involvement ofnon-accounting staff in the decision-making process. Over half of thesurvey respondents identified the lackof trained staff as the principalchallenge faced by governments whenimplementing accrual accounting.The expertise required is not limitedto understanding the basic accrualconcepts; technical knowledge isrequired for complex accounting areassuch as financial instruments,employee benefits, property valuationand consolidation, to name just a fewexamples. Staff training is alsonecessary on an operational level inareas such as fixed asset andinventory management.A well-designed project and effectivechange management strategy that considerspeople and systems requirements arecrucial for successful implementation.PwC insight8“Adoption of IPSAS-like standardswas supported by lots of trainingsand organising a help-desk in theMinistry of Finance.”Juta Maar, Head of the State Accounting,Estonia“The lack of trained staff is ourbiggest challenge, academicqualifications are not enough, weneed professionals.”Emmanuel Sinzohagera, CharteredAccountant, Burundi“We plan to move the nationaltraining plan forward, extendingknowledge and coverage,including by creating synergieswith the academic world.”Pedro Bohorquez Ramirez, AccountantGeneral, ColombiaThe lack of trainedstaff and IT systemrequirements are themain challenges.Figure 14: Challenges of accrual accounting conversion55%46%27% 27%18%0%20%40%60%80%100%Lack of trained staff IT systemrequirementsLack ofcommitmentfrom seniormanagementCost ofconversionExpected impacton reportedfinancial positionPercentage ranked in top 3 challenges of adopting IPSAS or similar standards.55%of survey respondents identify the lack oftrained staff as one of the top three challenges.
  29. 29. 27PwC Global survey on accounting and financial reporting by central governmentsIT system requirementsAlmost half of the survey respondentsidentify IT system requirements asone of the top three challenges facedwhen adopting IPSAS or similarstandards. Governments recognisethat the right IT systems need to be inplace to record and report the datanecessary for accrual accounting (e.g.add details of goods and servicesreceived in the expense workflow,develop new ways of reporting andcommunicating financial information,etc.). Technical IT and enterpriseresource planning (ERP) expertise isrequired from the very start of theconversion process, in such activitiesas system architecture and design,through to embedding activitiesincluding staff training for data entryand management.The scope of the governmentreporting entity must be consideredwhen designing IT solutions to allconsolidated entities and multiplefinance functions includingprocurement, budgeting, accountingand treasury operations.“What we see in many countriesand consistently in lower incomecountries is a fragmentation ofaccounting and financialreporting systems, lack of anintegrated FMIS and wide use ofspreadsheets. These challengesshould be addressed when movingto meaningful reforms.”Simon Bradbury, Controller, AsianDevelopment BankThe initial set-up could be done on apilot basis with consideration beinggiven to future roll-out with interfacesto local systems that can be integratedin the future. Many public sectorentities use their accrual adoption asan opportunity to set up an ERPsystem and upgrade their financialfunction with new functionalities likecost accounting and enhanced budgetfollow up.The IT system must be configured soas to capture all necessary data inputsin order produce the required outputs(i.e. accrual-based reports). In thearea of fixed assets, for example,systems and processes must be inplace to capture information over avery large perimeter and resolvecomplex technical issues. In somecases, governments may have an assetregister but the information availableis not always exhaustive and thesoftware not designed to embarknecessary accrual data.
  30. 30. 28 PwC Global survey on accounting and financial reporting by central governments
  31. 31. 29PwC Global survey on accounting and financial reporting by central governments“It is important to train staff andto invest in IT system changes.Furthermore, it is important todeal with politicians in order tomake them understand andsupport the changes.”Gilvan Dantas, Accounting Subsecretary,Ministry of Finance, Brazil“To sell the accounting reformproject you must bring added-value to the partners. They need tosee the value for their purposes. Ifthey had not seen the value added,they would not have come along.”Abdelkrim Guiri, Director of AccountingStandards, Kingdom of Morocco“Implementing accrualaccounting standards based onIPSAS will require political buy-inand support, intensive training,development partners’ supportand improvement of ourinformation system.”Blaise Allela, Permanent Secretary, GabonLack of commitment fromsenior management andpoliticians27% of survey respondents identifiedthe lack of commitment from seniormanagement as one of the top threechallenges faced in the conversion toaccrual accounting.Strong commitment from seniormanagement and politicians isimportant to increase the buy-in andparticipation of key stakeholders andpromote the benefits of accrualaccounting throughout theorganisation. Moving to accrualaccounting includes many people inthe accounting and decision-makingprocess, as non-accountants becomeinvolved in data collection anddecision-making.A significant shift is required in themindset of management, staff andother stakeholders and effectivechange management is indispensibleto achieve this shift and ensure asuccessful transition overall. Changemanagement processes should be putin place, including training, projectmanagement, awareness campaignsand organisational changes. Changemanagement should take a holisticapproach considering the entireorganisation and not only focusing onaccounting departments.Cost of conversionThe cost of the conversion is seen asone of the top three issues by 27% ofthe respondents. Making thetransition to accrual-based standardsmay require significant investment,namely in IT and capacitydevelopments. However, the benefitsin terms of increased transparencyand improved public financemanagement should clearly outweighthe costs.The expected impact on thereported numbersThe expected impact on the reportednumbers is identified as a majorbarrier only by 18% of therespondents. The concern primarilyrelates to reporting the actual level ofgovernment liabilities, includingpension liabilities and liabilitiesarising from various financialtransactions.
  32. 32. 30 PwC Global survey on accounting and financial reporting by central governmentsThe future of the government finance functionPart 3
  33. 33. 31PwC Global survey on accounting and financial reporting by central governmentsGovernments indicate a desire toimprove their finance function................32Cost accounting, performancemanagement, fixed assets managementand long-term planning and forecastingare the key areas for improvement .........36Key finding9Key finding10
  34. 34. 32 PwC Global survey on accounting and financial reporting by central governmentsImproving the compliance,control and efficiency of thegovernment finance functionThe conversion to accrual accountingprovides an opportunity to rethinkthe transactional process flow, buildaccounting capacity and reduce theoverall cost of public administration.Internal control frameworks can berevised and reflect the changes inaccountability, roles andresponsibility resulting from accrualprocedures.Effective control environments andoptimal risk management procedurescan be put in place to improve areas ofcompliance and control, whilesimplified, standardised processes aretypically used as a means of achievingefficiency gains.Process improvements may leveragetechnology or involve transactionalprocessing solutions and may includeshared service centres or outsourcingarrangements that can handlecomplex transactions. Policy andprocedure manuals would also beupdated to reflect the accrualframework and dashboards would bedeveloped to monitor data quality andsystem outputs. As a result, newstandards and processes will flowacross the entire organisation.Survey respondents were asked toevaluate three key dimensions thatcontribute to the overall effectivenessof the government finance function:compliance and control, efficiency,and insight. These dimensions shouldbe viewed as complementary andmutually reinforcing. Together, theystand to enhance the effectiveness ofthe finance function and contribute tothe sound, accountable, transparentmanagement of public finances.On average, governments rate theircurrent performance in these areasbetween ‘fair’ and ‘good’ but show aclear intention to improve their financefunctions over the next five years(see Figure 18).By transitioning from scorekeeper to businesspartner, government finance functionswill attain significant improvements.PwC insight9“Back-office efficiencies are anarea of focus. A key initiative isconvergence to one standardconfiguration for one type of ERPsystem.”James Ralston, Comptroller General, Canada“Once all data are in the financialrecords, there are very significantefficiency gains. You can reportaccurately at any moment, analyseby unpaid invoices, uncollecteddebts, you know how old yourequipment is and can set up areplacement schedule, you candevelop scorecards and othermanagement tools.”Brian Gray, former Accounting Officer andformer Director General of the Internal AuditService, European CommissionGovernments indicate adesire to improve theirfinance function.Figure 15: PwC’s finance assessment frameworkInsightCompliance& ControlEfficiencyComplying with existing policies,rules and regulations andestablishing procedures to ensurethat such compliance is achieved.Performing tasks in the mosttimely and cost effective manner,typically via simplified,standardised processes.Producing value by producinginformation necessary for optimaldecision-making by managementand external stakeholders.
  35. 35. 33PwC Global survey on accounting and financial reporting by central governmentsFrom scorekeeper to businesspartnerWhile accrual accounting provides thebasic foundation for a modern financefunction, moving finance up the valuechain within government needs it toproduce more than year-end orhistorical financial statements in therole of scorekeeper. The financefunction must play a proactive role inproviding key information thatinforms strategic, operationaldecisions, thereby earning a place atthe decision-making table as animportant business partner within thegovernment entity. To provide thisinsight, the finance function should gobeyond simply maintaining accountsand producing financial statements; itshould be concerned with analysingfinancial data, assessing the cost ofpublic services and offering practicalinterpretations on the meaning andrelevance of financial information.In fact, such insight lies at the heart ofthe finance function and places afocus on the way in which informationis used. Accrual-based data anddashboards can be used to carry outperformance assessment and producebusiness analytics that feed back intothe system, leading to the adjustmentof policies and processes as a result ofthe performance outcomes observed.In order to successfully transitionfrom scorekeeper to business partner,the finance function must be able tocontribute information that is relevantto decisions as they are being made,not after. Thus, the timeliness offinancial information becomescrucial. Information should beproduced and updated regularly tosupport decision-making on anongoing basis.Figure 16: Moving from scorekeeper to business partnerCommunicatorScorekeeperBusiness partnerDiligent caretakerProactiveReactiveUnderstanding activitiesAccounting skillsmandatory activitiesShift from reconciliation toinsightful analysisMonitor servicelevel agreementsEarn a place at thedecision making tableAutomate & seekprocess efficiencyCurrent profile Target profile“Accrual accounting provides agreat view of everything behindyou, but you must also look at thetraffic ahead.”Jean-Philippe Duval, PwC Partner
  36. 36. 34 PwC Global survey on accounting and financial reporting by central governments
  37. 37. 35PwC Global survey on accounting and financial reporting by central governmentsFigure 17: Preparation of government financial statements14% 14%2%70%Quarterly Every 6 months Annually Ad hocPublic entities lag behind their privatesector counterparts in terms of in-yearreporting. Publication of quarterlyreports has become a norm for listedcompanies, whereas only 14% ofsurvey respondents indicated thatthey do this. Another 14% producesemi-annual statements, however, thevast majority (70%) of governmentsproduce financial statements just oncea year.Thus, there is significant room forimproving public accounting in termsof timing and frequency. Ideally,quarterly financial reports should beproduced and aligned with budgetreports in order for governments torealise the full benefits of accrualaccounting. Interim financial reportsprepared on a monthly or quarterlybasis provide real-time informationthat can be used as a monitoring toolthroughout the year.“The ultimate aim is a betterpublic service. We are redefiningwhat the objectives are and how wemeasure achievement of thoseobjectives. We want to establishmeasures that can be used to helpwhen making marginal decisions.”Fergus Welsh, Chief Financial Officer andChief Accountant, The Treasury, NewZealand“It is possible for developingcountries to implement bestpractices. If you look at the case ofKazakhstan, they have moved in afour-year period from passing thelegislation to rolling out the fullFMIS.”Simon Bradbury, Comptroller, AsianDevelopment Bank“The department of finance is veryfocused on being able to interpretthe differences between budgetand the actual situation. Far andabove everything else, it is whatgathers attention.”James Ralston, Comptroller General, CanadaAccrual accounting is a key driver to increasing capacity and improvingquality in the government finance function. It is an essential step towardimproved public financial management and decision-making. Thegovernment finance function must demonstrate its usefulness by providinginsights into business performance and contributing to public value creation.
  38. 38. 36 PwC Global survey on accounting and financial reporting by central governmentsImproving these key areas will contributeto the overall objective of enhancedservice performance and long-termsustainability of public finances.PwC insight10Cost accounting,performance management,fixed assets managementand long-term planningand forecasting are the keyareas for improvement.Figure 18: Expected evolution of the effectiveness of the government finance functionVery poor Poor Neither nor Good Very good0 1 2 3 4Fixed assets managementCost accountingPerformance managementLong term planning and forecastingAccounts receivableAccounts payableFinancial reportingGeneral accountingBudgetOverallNow In 5 yearsFixed asset managementFixed asset management is a vast areafor improvement, with governmentsmanaging a large and diverse numberof fixed assets. Assets are heldprimarily for their service potentialand a significant portion of theseassets are of a specialised nature (e.g.bridges, military assets, etc.), forwhich there is a very limited market.Strong asset management practiceswill provide information for use indetermining financing strategies,repair and maintenance schedules,optimal space allocation, logistic andsupply chain management practices,and asset-disposal decisions.Availability of such rich, detailedinformation in turn helps to identifyopportunities for cost savings andoptimisation.Cost accountingCost accounting practices stand tocontribute to efficiency and insightobjectives within the finance function.Cost accounting provides a basis forevaluating the cost of deliveringgovernment programmes and servicesand can be used to communicate theresults of specific governmentoperations. As governments begin toplace increased emphasis onmanaging for performance, costaccounting becomes important to thefinancial indicators that trackgovernment performance.Cost information must be consideredwhen evaluating government outputs(what it delivers to achieve objectives)and outcomes (impact of the outputsin delivering against objectives) toassess performance in deliveringvalue for money.Despite assessing the current capacityof their finance functions between‘fair’ and ‘good’ overall, governmentssee an opportunity, or even anecessity, to improve in specific areasof financial management. Fixed assetmanagement and cost accounting arekey areas in which informationimprovements can increase insightand, thus, overall effectiveness of thefinance function. Performancemanagement and long-term planningand forecasting, provide additionalinsight in terms of the future of thefinance function and the long-termsustainability of government policies(see Figure 18).
  39. 39. 37PwC Global survey on accounting and financial reporting by central governments“The focus of our reform was toincrease efficiency in governmentspending especially on operatingexpenditure and to support costaccounting, performancemanagement and planning, andasset management (especiallyfixed assets and intangibles).”Erik Hammer, Head of Division, Ministry ofFinance Agency for the Modernisation ofPublic Administration, DenmarkPerformance measurementEffective performance measurementsystems have a critical role to play insupporting government policy-making and implementation. Theymust be designed and implemented soas to optimise the link betweenstrategic planning, the subsequentdelivery of services, and measurementin both financial and non-financialterms against budgets andoverarching policy objectives.Such an approach helps governmentsmeet their service delivery objectivesand thereby add value for citizens.Long-term planning andforecastingAccrual-based financial informationprovides a vast amount of informationon government resources and itsfuture obligations. The financefunction has an indispensible role toplay in planning future governmentprograms and services and assessingthe sustainability of governmentpolicy, especially in light ofdemographic trends.By strengthening the planning andforecasting capacity, the financefunction stands to increase itsrelevance in the decision-makingprocess.Individual initiatives can be taken fortargeted improvements in assetmanagement, cost accounting,performance measurement or anyother aspect of the financialmanagement. However these areclosely interrelated, with datagathered on area often used in, andnecessary for, subsequent reportingand analysis functions. Thus, aholistic approach is often the bestapproach to improve the financefunction as a whole. Accrualaccounting will lead to improvementsin the quality of financial data, which,can be used in the context of a widerfinance function to assessperformance and influence resourceallocation and other strategicdecisions.
  40. 40. 38 PwC Global survey on accounting and financial reporting by central governmentsList of survey respondentsCountryLevel ofcountrydevelopmentContinentOECDNonOECDAfricaAsiaEuropeLatinAmerica&CaribbeanNorthAmericaOceaniaAlgeria2� �Angola2� �Argentina � �Armenia1� �Australia � �Austria � �Bangladesh1� �Belgium � �Brazil � �Bulgaria2� �Burundi � �Cambodia1� �Cameroon2� �Canada � �Chad2� �Chile � �China � �Colombia � �Costa Rica � �Croatia � �Cyprus � �Czech Republic � �Democratic Republic Congo � �Denmark � �Dominican Republic � �CountryLevel ofcountrydevelopmentContinentOECDNonOECDAfricaAsiaEuropeLatinAmerica&CaribbeanNorthAmericaOceaniaEl Salvador � �Estonia � �Fiji1� �Finland � �France � �Gabon � �Georgia � �Germany � �Ghana2� �Guatemala � �Guinea � �Honduras � �Hungary � �Iceland � �India � �Indonesia1� �Ireland2� �Israel � �Italy � �Ivory Coast � �Japan2� �Kazakhstan1� �Kenya � �Latvia2� �Laos1� �1Gathered with contributions from the Asian Development Bank.2Gathered via PwC desk research.
  41. 41. 39PwC Global survey on accounting and financial reporting by central governmentsCountryLevel ofcountrydevelopmentContinentOECDNonOECDAfricaAsiaEuropeLatinAmerica&CaribbeanNorthAmericaOceaniaLebanon2� �Liberia � �Lithuania2� �Luxembourg � �Malawi � �Malaysia � �Malta � �Mauritius � �Mexico2� �Monaco � �Mongolia1� �Morocco � �Nepal1� �Netherlands � �New Zealand � �Nigeria � �Norway2� �Oman2� �Pakistan � �Panama � �Peru � �Philippines1� �Poland � �Portugal2� �Qatar2� �CountryLevel ofcountrydevelopmentContinentOECDNonOECDAfricaAsiaEuropeLatinAmerica&CaribbeanNorthAmericaOceaniaRomania � �Russia � �Rwanda � �Saudi Arabia � �Serbia � �Slovakia2� �Slovenia2� �South Africa � �Spain � �Sweden � �Switzerland � �Tajikistan1� �Tanzania � �Thailand1� �Turkey2� �Turkmenistan1� �Turks & Caicos Islands � �Uganda � �Ukraine2� �United Arab Emirates2� �United Kingdom � �United States2� �Uzbekistan1� �Vietnam1� �Zambia � �Total 32 68 21 27 34 13 2 3100 100
  42. 42. 40 PwC Global survey on accounting and financial reporting by central governmentsLet’s talkIf you have any questions about the PwC global survey on accounting andfinancial reporting by central governments, or would like to discuss further anyof the topics covered in this publication, please get in contact with us.Jan Sturesson Global leader Government & Public ServicesTel: +46 10 212 99 Jean-Louis RouvetGlobal Public Finance & Accounting leaderTel: +33 1 5657 Schumesch Global Public Finance & Accounting PartnerTel: +32 2 710 4028 Jean-Philippe DuvalGlobal Public Finance & Accounting PartnerTel: +33 1 5657
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