A reliable balance sheet

A growing number of governments are moving away from cash to accrual accounting. Private companies adopted accrual accounting more than a century ago because it was considered to be a better way of reporting their financial activities and results.

Under cash accounting, transactions are recognised only when the associated cash is received or paid and economic events are not reported if there is no immediate exchange of cash. A 2016 IMF report said that governments were tempted to exploit the system by differing cash disbursements or bringing forward cash receipts as a means of artificially inflating their financial balance.

Accrual accounting offers a number of benefits over traditional cash accounting in that it makes public financial management and reporting more transparent and accountable. It should also curb a government’s ability to window dress its financial management reporting.

The government’s announcement that it has signed an agreement with Grant Thornton to supply an accrual-based accounting system is good news for all taxpayers who contribute substantially to the government’s multi-million budget expenditure every year.

Past administrations have struggled to make...