Financial reporting under the cash basis of accounting

Comments from ACCA to the International Accounting Standards Boad, July 2009.

1. Have the Cash Basis IPSAs been adopted in your jurisdiction? 

Please outline the major implementation issues faced (or anticipated) in initial adoption or ongoing application of the Cash Basis IPSAS:

Key issues identified from ACCA's knowledge gained from working with countries adopting the cash accounting standard include the following:

The costs and resources required to implement the standard, the availability of qualified accountants in the public sector and cultural resistance to change are key issues for developing countries. Given that only one country (Malaysia) has fully implemented the IPSAS cash accounting standard suggests that there are continuing problems. Similar issues were also highlighted by participants at an ACCA workshop on the cash accounting standard in Vietnam (June 2009). Also, we have found that the introduction of cash accounting must be supported by a strong audit function and accountants with expertise in financial systems.

A number of countries perceive the adoption of the cash accounting standard as a stepping stone towards the future adoption of accruals based accounting. There is an argument for directly moving to accruals based accounting, particularly if there are a significant number of government entities already reporting on an accruals basis. In the long-term this has the potential to minimize costs and be less disruptive. Some practical guidance or advice would be helpful to counties faced with this situation.

The UK's experience of moving from a cash based system to an accruals basis was particularly fraught. A major overhaul of systems and governance arrangements was required. Even today there is further restructuring of governance processes to align disparate reporting and funding mechanisms under the current Government's “clear line of sight programme”. There is still a problem with publishing the ‘whole of government accounts' because non-central government bodies don't follow the same systems and deadlines. Lessons should be learnt form the UK's experience.

Despite the above barriers ACCA has identified some key drivers to help with the implementation of the IPSAS cash accounting standard. These include: having the support and political will of the government, strengthening the standard setting and regulator bodies, building capacity within the profession and having a clear strategy for implementation with clear deadlines. Some countries such as India have undertaken a gap analysis between existing practice and what is needed to move to IPSAS compliance. It provided a roadmap with clearly defined set of actions. Finally, any change in accounting practice needs to be supported with adequate infrastructure and systems to manage the transition together with effective communication and process management.


If you believe some amendments and/or improvements should be made to the Cash Basis IPSAS to assist in its adoption and/or ongoing application, please identify those amendments and/or improvements, and the reasons for them.

Overall, the IPSAS and presentational examples set out in Appendix (A) are clear and concise. In the spirit of accountability, transparency and openness the IPSASB should consider making the disclosure notes set out in Part (2) mandatory rather than best practice. In the longer-term this will help improve consistency and comparability between government general purpose financial statements.

(1) The guidance on the comparison of budget and actual amounts as set out in paragraph 1.9 is satisfactory. However, it could be further enhanced if it outlined the accounting treatment of budgets for significant government projects/programmes which stretch beyond a single financial accounting period. The paragraph on dealing with multi-year budgets doesn't currently deal with this issue.

(2) In paragraphs 1.3.5 and 1.3.11 government entities are required to disclose information prepared on a difference basis of accounting such as commitments, contingent liabilities, performance indicators and service delivery objectives. In the case of the latter, it would be useful if some examples of the types of performance indicators and objectives to be included in the financial statements are disclosed and the rationale for choosing them e.g. materiality, fundamental to user understanding of the financial statements etc.

(3) Presenting financial statements on a timely basis cannot be over-emphasized. Experience to date including that of the UK has shown that if financial statements are published late, such as a year after the reporting date they are rendered meaningless to the user. Paragraph 1.4.4. should give good practice examples of the sorts of time period for publishing the financial statements.

(4) As reported in paragraph 1.10.10 where external assistance is received from more than one provider the significant classes of providers should be disclosed. We consider that this disclosure would be further enhanced if it was analysed into each material provider. This disclosure would help each provider to identify in the audited statements of the entity the total assistance which they have provided. The Ugandan Government produces an Annual Budget Performance report which details assistance from each development partner.

(5) On a practical level countries which are grappling with issues such as how to consolidate multiple government agencies when a number have adopted accruals accounting need to be provided with additional guidance and/or advice on how to deal with these circumstances.

Last updated: 12 Apr 2012