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Building the foundation for better public financial management

Modern government accounting and reporting as an enabler

By Patrice Schumesch

The need for more transparent and more insightful reporting

Government finances are a significant component of national economies, giving governments a huge influence on economic growth through their fiscal policies. For the success of national economies, upon which the well-being of citizens so largely depends, it is critical that all governments catch up with modern accounting. They need to do so to ensure decision-making is fully informed, public resources are optimally managed, and that there is effective evaluation and ultimately democratic accountability.

Governments around the world have undertaken swift, wide-ranging and substantial actions in response to the social and economic challenges stemming from the COVID-19 pandemic. Such actions include drastic increases in the levels of public sector spending, much of it to support the private sector. Combined with reductions in receipts from taxation, this amplifies the pressure on public sector budgets, but also brings some new challenges. For example, how to ensure that the funds spent have been properly used and how to assess the effectiveness of the measures taken.

More than ever, high-quality information is needed for effective policymaking and financial planning. Greater transparency and comparability are also needed to underpin informed debate on the use of public money. This is a key feature of democratic accountability.

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By introducing accrual accounting, governments demonstrate their desire to achieve greater transparency and accountability and to produce better information for decision making. Accrual accounting records transactions and economic events when they occur, regardless of when cash is received or paid. 

Applying financial reporting standards, such as the International Public Sector Accounting Standards (IPSAS), further improves the quality of financial information and facilitates comparison across governments and organisations.


As seen by the example of many successful economies in the region (such as Poland, Estonia and Slovakia), the introduction of international financial reporting standards and modern, transparent accounting led to more suitable planning frameworks, strengthened internal controls, developed internal audit and improved fiscal policy.

Biljana Bogovac, Partner, PwC Serbia

The benefits of accounting reform

Better accounting leads to better reporting, which in turn should lead to better public financial management.

Transitioning to accrual accounting is not an end in itself; it is an enabler. 

The comprehensive and transparent reports that come from accrual-based financial statements reflect the true long-term implication of political decisions. This helps governments to demonstrate, and users to evaluate, accountability for the use of public funds. Adoption of high-quality accrual accounting also lays the basis for developing better management information systems, which should in turn contribute to better decision making and better use of public money. Performance management should help governments to measure the achievement of their service delivery objectives and in doing so add value for citizens. 

The end goal is to deliver a better public service and to achieve sustainable public finances, therefore creating a positive legacy for the next generation.

Examples of benefits include:

  • The production of relevant and reliable information that can be used to assess whether a government has achieved its service delivery objective.
  • Optimal asset management, as reporting assets on their balance sheet forces governments to make conscious decisions on how best to use these assets.
  • Comprehensive reporting of government (long-term) liabilities, reflecting the substance of the transactions, and of the risks associated with these liabilities. This is important for the assessment of the long-term sustainability of public finances.
  • Comprehensive and timely reporting of tax revenue, which is also a key element to assess the long-term sustainability of public finances.
  • Reporting on how and to what extent grants given are effectively used by the beneficiary, enhancing transparency and accountability.
  • Proper reporting and measurement of the risks involved with financial guarantees given.
  • Reporting of the financial implications of equity investments, based on the level of control over the entity in which the government has invested.
  • Reporting of the financial consequences of the granting of loans to a variety of stakeholders, potentially at favourable conditions.
  • Nurturing the political debate between decision makers about the long-term financial impact of the social, environmental or other policies to be implemented, introducing an element of intergenerational fairness at the heart of political decision making.

Implementing the reform – challenges and success factors

Making the change to accrual accounting and International Public Sector Accounting Standards (IPSAS) is much more than a change in accounting rules. It impacts the government’s policies, people, systems and processes. A holistic implementation approach is required.

Implementing accrual accounting based on IPSAS or similar standards and moving along the maturity spectrum of the government’s finance function is a journey, and governments need to adequately address the associated challenges. This task is not easy, but it is doable. Governments can benefit from experiences of successful reforms and leverage best implementation practices. There is no room for inaction; the cost of not reforming would be much higher than the cost of reform.

So what does this approach look like?


A multi-dimensional project


One of the inevitable consequences an organisation faces when it adopts accrual accounting is the need to review and amend its policies, governance and control structures. 

First, financial rules and regulations are affected. A comprehensive accounting manual, possibly supplemented with concise implementation rules, can help staff quickly adhere to the new accounting principles and understand the concepts behind the IPSAS standards. Introducing accrual accounting may also require the entity to revise its budgetary policies, even if budgets remain on a cash or some other basis. Policies for other business processes (e.g. HR, procurement or asset management) may also be affected.


Adopting accrual accounting and/or moving towards IPSAS requires a significant cultural shift in the mindset of management, staff, regulators, funds providers and other organisational stakeholders. For this to be successful, it is essential that change management processes, including training, project management, awareness campaigns and organisational reform, are put in place and that they work.


Accrual accounting also requires organisations to develop new ways of reporting and communicating financial information. As the focus for governments has traditionally been on budgetary execution rather than wider financial reporting, new data needs might crop up when accrual accounting is adopted under IPSAS. In order to capture and analyse the increased accounting data and information, IT systems often need amending. Many public sector entities see their IPSAS implementation as an opportunity to set up an enterprise resource planning system or to upgrade their current system.


Beyond policies, people and systems, IPSAS adoption also has an impact on entities’ processes. Governments must enhance existing processes, create new ones and re-examine internal control frameworks to ensure that internal control and risk management are effective under the new accounting standards.

The step-by-step process

Phase 1 - Gap analysis and roadmap

The objective of a gap analysis (comparison of the situation ‘as is’ with the situation ‘to be’) is to gain a detailed understanding of the impact of IPSAS on the organisation, highlight key accounting and reporting issues that need to be addressed, understand which business processes may be impacted by IPSAS, and take an informed decision on how to proceed with the IPSAS conversion. The roadmap allows the organisation to develop a detailed project plan, define its needs and estimate the cost of the entire conversion process, including from an information system point of view, therefore informing investment decisions that need to be made.


Phase 2 - Conversion

The conversion methodology involves project set-up, component evaluation (i.e. analysis of the impact of the application of the new reporting requirements for each accounting area) and issue resolution, plus the initial conversion. The project set-up is designed to enable the organisation to successfully manage the IPSAS conversion project while continuing to effectively run its normal activities. For this purpose, the project management structure is set down, conversion tools are tailored, and the project strategy is communicated throughout the entity. The initial conversion helps prepare the entity’s first IPSAS compliant financial statements and means that an informed decision can be made on the ongoing conversion strategy. For this, IPSAS reporting processes and systems need to be designed, built and tested, IPSAS adjustments need to be calculated, reporting packs completed for required disclosures, and IPSAS results consolidated and analysed.

Phase 3 - Embedding

The implementation of IPSAS is not a one-off exercise. 

The embedding phase is designed to enable the organisation to move smoothly to a new ‘business-as-usual’ operation, using its ‘new language’ comfortably and authoritatively. Embedding the change involves continuing:

  • IPSAS training throughout the entity, 

  • finalising the accounting manual and chart of accounts, 

  • completing systems design, build and testing, 

  • designing and rolling out new business processes and procedures including internal control and risk management, 

  • and modifying budgeting processes. 

The aim of embedding is to produce IPSAS-compliant data on a recurring basis in the most efficient way. Ideally, embedded solutions are implemented as early as possible in the process, to enable a smooth and efficient preparation of the IPSAS opening balance sheet and first IPSAS financial statements. In practice, depending on the needs and time constraints of the project, portions of the work relating to phases two and three may be carried out simultaneously. 

Once implementation is completed, IPSAS rules are embedded across the organisation, with modified systems, updated controls and procedural documentation, and fully trained staff.

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Over the last 30 years, the rise of Central and Eastern Europe has been nothing short of outstanding. For many countries, membership in the EU has both unlocked opportunities that were unconceivable a generation ago and increased interest from the economic, financial and political perspectives.

Accession to the EU by many of the CEE countries meant compliance with new regulations and introduction of many reforms that will help gain credibility and improve investment climate.

Consequently, financial reporting reform was high on the list of priorities in order to bring assurance to international businesses and investors. As seen by the example of many successful economies in the region (such as Poland, Estonia and Slovakia), the introduction of international financial reporting standards and modern, transparent accounting led to more suitable planning frameworks, strengthened internal controls, developed internal audit and improved fiscal policy.

The attention however should be given to the territories that are less economically integrated. Some CEE countries still lag behind their EU counterparts due to the lack of EU membership, an fully-advanced business environment and/or transparent public financial management infrastructure. 

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Faced with a global pandemic, it is easy to push public finances to the side. But I believe improving public financial management should be a top priority, even during crisis recovery. When you look at the scale of governments’ interventions, there is an urgent need to understand the full impacts they have on public finances. And this is where accrual based accounting comes into play.

Without complete understanding of a government’s current and future finances, planning will be based on inadequate information. Politicians and other decision-makers in CEE need high-quality financial information in order to make decisions that will lead to a sustainable future for our region.


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Contact us

Patrice Schumesch

Patrice Schumesch

Partner, PwC Belgium

Tel: +32 477 61 91 13

Biljana Bogovac

Biljana Bogovac

Partner, Assurance Services, PwC Serbia

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