Africa takes a lead in reforming public accounts

BY BUSINESS REPORTER

FIVE out of seven countries in Africa and Asia have concrete plans to implement a new accounting system to improve public sector accounting practices, more than Europe or the US, a new study has found.

This comes as countries are generally still creating unnecessary barriers to transparency and comparability for cross-border investors.

The Ernst & Young survey of governmental financial officials across 33 countries, released on Monday, found that only 45% of countries have concrete plans to implement a new accounting system.

The aim of a new system is to take accounting policies from cash-basis accounting towards accrual accounting, and onto International Public Sector Accounting Standards (IPSAS).

A lack of convergence has already been pinpointed by the G-20 as a hindrance to stability for capital markets and investors and the study found out that national financial reporting standards "are still mostly unique, making financial comparisons between governments very difficult".

"Africa's plans to move towards accrual accounting are to be welcomed but, of course, actual progress will depend on practicality and costs," says Kuben Moodley, director of public sector assurance at Ernst & Young SA.

The majority of the entities surveyed had already converted to (modified) accrual accounting (52%) and, according to the survey, identified clear benefits in doing so, including that it facilitates decision making, improves asset and cash management, and improves cost awareness and efficiency.

Most do not plan to further reform their accounting system. Of particular concern, says Ernst & Young, is that a third of those (55%) who are not planning any changes are based in Europe where there is continued sovereign fiscal instability.

A large majority of the countries (75%) identified "fair presentation" as the main focus of information presented in financial reports.

Most government financial administrations know about IPSAS, but only three countries in the study had actually implemented the standards (IPSAS accrual basis).

But Moodley says Africa's move towards accrual accounting might also be hampered by various practical considerations. "It's well known that Africa faces a lack of financial skills - and that lack is most acute in the public sector. Governments need to find ways of attracting and retaining the right level of financial skills if they aim ultimately to fully adopt IPSAS."

Another barrier is implementing the right IT systems to enable accrual accounting. Here, both cost and the choice of the right system are barriers to be overcome.

"However, it is worth finding ways to overcome these challenges because accrual accounting's greater transparency and comparability could play a substantial role in helping Africa to investor confidence and fulfil its growth potential," says Moodley.