GTZ Report on Accrual Accounting Status Quo - LGCDP

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Cash Accounting vs. Accrual Accounting 11 2.6. International Public Sector Accounting Standards – IPSAS Compared to the private sector there were only relatively few international recognized public sector accounting standards. By introducing IPSAS, this scenario has changed over recent years and more and more countries are at least orientating their reform efforts along the lines of these standards. The International Public Sector Accounting Standards (IPSAS) were developed by the International Public Sector Accounting Standards Board (IPSASB) which belongs to the International Federation of Accountants (IFAC). The IPSAS are based on the International Accounting Standards (IAS) which IFAC developed for the standardization of the international private sector accounting. The IPSASB exists since 1986 and “[…] focuses on the accounting and financial reporting needs of national, regional and local governments, related governmental agencies, and the constituencies they serve. It addresses these needs by issuing and promoting benchmark guidance and facilitating the exchange of information among accountants and those who work in the public sector or rely on its work.” (IPSASB, 2008). The IPSASB works on the standardization, harmonization, comparability and transparency enhancement of international public sector accounting. The standards reduce the risk produced by lacking accounting knowledge and misstatements, foster guidance on accounting treatment and define minimum accounting requirements (IMF, 2007, p.7). Furthermore the usage of such a standard reduces financial risks and transaction costs for possible lenders. As long as these standards are not part of the national regulation, they are only recommendations. All in all the IPSASB produced 26 IPSAS for accrual accounting in the public sector addressing different accounting topics e.g. financial statements, inventories etc. (IPSASB, 2008b; see also Annex 1 for all IPSAS, p.30). For instance an accrual based financial statement along the lines of IPSAS requests a balance statement of financial position, an income statement, a cash-flow statement and a statement on the changes in net assets/equity (IPSASB, 2008b). In addition IPSASB published a guidance manual for the transition towards accrual accounting practise, which can be of major technical help for ongoing accrual accounting activities in Nepal (IFAC, 2003). It also produced a handbook of standards for cash based accounting practise, which can be of direct usage for the national government level in Nepal (IPSASB, 2008b). On their homepage IFAC provides a list showing which countries applied IPSAS as of July 2008, however this list is confusing because it is not clearly indicated if the international standard for cash or accrual accounting is meant (IPSASB, 2008c). Very helpful is also the published glossary on accounting terms as of 2006 (IFAC, 2006). 2.7. International Experiences on the Local Level Worldwide it seems that the most progressive accrual accounting implementers are regional or local governments, which are usually ahead of central government in terms of accrual accounting reform (FEE, 2007, p.6, p.23-24; FEE,
Cash Accounting vs. Accrual Accounting 12 2003, p.1). This applies to more developed as well as developing countries. Mostly the national level of government benefits from the experiences made by the local governments (FEE, 2007, p.6). OECD Countries Within the OECD the majority of local governments use some sort of an accrual based accounting system. This is valid for most local governments in Switzerland, the Netherlands, Sweden, Spain, Portugal, Finland, France, Great Britain, Germany, Italy, USA, New Zealand, Australia, Canada and Iceland. Also relatively new OECD members like Poland and Slovakia are in the process of accrual accounting implementations. In Germany for example a comprehensive municipal reform to change to accrual accounting has started in 2003 on a regional basis. During this reform process some of the sixteen federal regions made the change to accrual accounting mandatory for their municipalities. Others approved the change to accrual accounting on a voluntary basis. The fastest and broadest approach undertaken by a bigger federal region is being done by the state of North-Rhine Westphalia, which made it mandatory for all municipalities to change to accrual accounting until the end of 2009. Besides that the federal regions of Hamburg and Bremen already introduced accrual accounting around 2006. All in all 11 out 16 federal regions made it mandatory for their municipalities to introduce accrual accounting until 2013 at the very latest. Five federal regions left the decision up to their municipalities whether they want to introduce accrual accounting or go for the traditional cash accounting system or a modified accounting system (KPMG, 2008, p.1-3). Besides these regulatory approaches there are a lot of towns and municipalities who introduced accrual accounting on a voluntary basis. For further information on the mentioned countries see Athukorala & Reid, 2003, p.79-81; IPSASB, 2008c; FEE, 2007, p.23-24; Grossi, 2006, p.4-5; IFAC, 2000, p.65; CESifo, 2007. Accrual accounting is part of a broad financial management reform in the public sector in the above mentioned countries. However, they differ on the implementation of some sort of performance budgeting, reporting and auditing but the change in accounting usually had implications for these other components. Non-OECD Countries In the case of South Asia, a couple of countries implemented some sort of accrual accounting at local level or are in the process of doing so. In India for instance, some federal states including Tamil Nadu, Maharashtra, UP and Karnataka are using accrual based accounting. The urban local bodies however are more speedily towards the implementation of accrual accounting because of a decision by the Supreme Court of India in 2001 that forces all urban governments to implement accrual accounting, e.g. Municipal Corporation of Delhi since 2003 (SAFA, 2006, p.7-8).
Page 1 and 2: Urban Development through Local Eff
Page 3 and 4: Contents 01. Executive Summary (p.1
Page 5 and 6: Cash Accounting vs. Accrual Account
Page 13: Cash Accounting vs. Accrual Account
Page 17 and 18: Findings and observations in the Ne
Page 25 and 26: How to implement Accrual Accounting
Page 33 and 34: Annex 30 05. Annex Annex 1 IPSAS Li
Page 35 and 36: References 32 06. References ADB (2
Page 37: References 34 Schiavo-Campo, S. & T

GTZ Report on Accrual Accounting Status Quo - LGCDP

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