Using Accrual accounting for Public Sector financial reporting: A rhetoric, trend or reality?


By Dr. Alexander Otopah (CA, MRes, MBA, B.Com, HND)

Accra, March 17, GNA – Accrual accounting has been no doubt a preserve of the private sector since creation.

However, over the past five decades, governments around the world have made frantic efforts to mainstream this system of accounting into public sector financial management.

Such efforts are buttressed by the numerous advantages that the accrual accounting has over the cash system which had been the main system of financial reporting in the public sector.

Arguments Against public sector accruals

Some scholars argue that the cash basis encourages the dreadful lacuna of corruption as it prohibits the reporting of financial transactions unless cash is received or paid.

In spite of the superiority of accrual accounting over the cash system, opponents of public sector accruals argue that the public sector is charged with the responsibility of providing public goods and services but not the generation of profits.

Consequently, the appropriateness of implementing accrual accounting in the public sector has been questioned and brought under intense scrutiny.

For instance some critics opine that the implementation of accrual accounting, has generated negative impacts as it generates complex financial information which citizens and policy makers do not understand.

Further, the opponents argue that, the quest to implement accrual accounting is as a result of neo institutional isomorphism fueled by the Bretton woods institutions.

Argument in favor of public sector accruals

Proponents of the accruals system also argue that, accrual accounting does not only determine profit but accounts for all the elements of financial statements present in the public sector financial management system whether cash has been received, paid or not.

For many developing countries, loans secured for the provision of critical infrastructure are not recorded on the face of the financial statements.

And even in situations where these loans are recorded, the corresponding costs of the infrastructure financed by these loans are not recorded in the financial statement resulting in negative net worth for many nations and huge debt exposure.

As a result, the monetary value of state assets such as vehicles, roads, hospitals, airports, buildings, and strategic installations remain unknown.

These and many more superior reasons which are the shortfalls of the cash system, has intensified the march towards the implementation of accrual accounting in the public sector globally.

International trends in public sector accruals

Globally, Australia and New Zealand are touted as having the most comprehensive accrual system of accounting in their respective public sectors.

Many nations, especially developing economies are trying their possible best to emulate the Australian and New Zealand example.

However, it has been established that no developing economy has been able to implement accrual accounting successfully in its public sector.

In some cases, countries such as Nepal, Sri Lanka, Indonesia, and Malaysia among others at a point made an attempt to transition from cash to accrual but encountered so many challenges.

The journey to public sector accruals may be described as a slippery and a deadly voyage in view of the challenges and failures recorded in both developed and developing economies where these reforms have taken place.

It therefore stands to suggest that any country that attempts to transition to accruals must tread cautiously.

Factors militating against public sector accruals

Empirically, lack of financial support, high cost of implementation, lack of political will, poor readiness towards change, lack of use and understanding of complex accrual information by policy makers and citizens, weak human resources, over reliance on external consultants who do not understand public sector financial management, weak IT infrastructure, valuations of legacy assets and resistance to change are often cited as factors militating against implementation of accrual accounting in developing nations.

Ghana’s march towards public sector accruals

Ghana has joined the community of nations transiting from cash to accrual in its public sector. So far implementers have done a lot and a lot has been achieved.

For instance, a secretariat for this reform has been established, a lot of capacity building programmes and orientations have been held, materiality threshold and depreciation rates have been set and templates designed.

Training on asset data collection has been completed and currently, legacy assets data collection is ongoing.

The Fixed Asset Coordinating Units (FACU) has also been established in all relevant covered entities. There is no visible resistance by the staff to the transition and there is a significant leadership commitment.

The whole implementation is being led, driven and managed by the lead implementing institution and allied agencies with no visible reliance on external consultants.

Furthermore, an overwhelming number of State Owned Enterprises and a significant number of Ministries Departments and Agencies and all Metropolitan, Municipal District Assemblies financials have been consolidated into the national accounts.

In addition, there is quarterly validation of financial statements of covered entities to ensure validity and reliability of financial data.

Looking at what Ghana has been able to achieve in a relatively short time, Ghana may become the first developing nation to comprehensively produce International Public Sector Accounting Standard (IPSAS) accrual compliant financial statements.

Undoubtedly, the institution legally charged to prepare public accounts for Ghana and itself, that is the Controller and Accountant General Department, needs to be patted on the shoulder for the work done so far.

This stems from the fact that some developing economies missed the meticulous steps that the CAGD has taken and along the way, had to revert to the dreadful cash basis with millions of dollars that has been invested; going to waste.

Suggestions for consideration

For Ghana to ultimately and fully implement accruals in the public sector and possibly rub shoulders with the likes of Australia and New Zealand, the following are recommended.

There should be a yearly specific budgetary allocation. Relying on donor support for such reforms could have a devastating effect on the project when the donors pull out.

Relevant stakeholders must begin to demand for and use accrual information for decision making. And all assets acquired from say 2023 and beyond should be capitalized whiles the ongoing efforts to capture legacy assets is sustained.

Ghana may emulate the South Korean and Canadian model where the implementation of accrual accounting in the public sector was captured in the manifestoes of the major political parties to demonstrate and sustain political will.

Readiness towards change which is a function of leadership commitment, change efficacy, personal valence and change management must be guarded and both the national budget and the national accounts must be prepared on accrual basis.

Staff motivation is an indispensable factor and should be prioritized to defuse resistance to change.


To conclude, it is an undisputable fact that Ghana is on the verge of making history as her attempt to transit to accruals seems a reality than a trend or a rhetoric.

However, Ghana must avoid the mistakes of some developing countries who presumed that accrual accounting is an alteration of cash accounting instead of an accounting system of its own.



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