Jamaica's progress towards accrual accounting

Business

Jamaica's progress towards accrual accounting

BY RAKAR WILLIAMS

Wednesday, May 20, 2020

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For some time now, there has been a major move from cash accounting to accrual accounting within the public sectors worldwide. The International Public Sector Accounting Standards Board (IPSASB) is currently championing this needed change.

The difference between accrual accounting and cash accounting is the timing of when sales and purchases are recorded in your accounts. With accrual accounting, revenue is recognised when it is earned, and expenses when they are billed but not paid. For cash accounting, on the other hand, revenues and expenses are recognised only when money changes hands.

In an article from the Jamaica Information Service (JIS) website, dated February 12, 2004, entitled 'Government introduces more efficient accounting system', it was noted that the Government is introducing the accrual system of accounting in the public sector, for greater efficiency in the management of resources. According to another article on the ICAJ website entitled 'Government moves towards eliminating deferred payment with accrual accounting', it was noted that the Ministry of Finance expected to phase in accrual accounting starting 2015 over a 10-year period towards full implementation.

This shows that the Jamaican Government has great interest in moving in this direction, as the accrual accounting replaces the cash-based accounting, where transactions are posted upon payment rather than when contracted. The accrual accounting will eliminate financial transactions being ignored or unaccounted for and arrears being disclosed much earlier as they will be booked in keeping with the contractual obligations.

Of note, 75 per cent of governments around the world use cash accounting in some form. However, the move to accrual accounting will foster a more accurate picture of the Government's financial health, reflect relevant information that will lead to better decision-making, build trust between the Government and the citizens as reports will reflect what is closer to reality, and engender greater transparency.

According to the International Public Sector Financial Accountability Index, published by the World Congress of Accountants in November 2019, only 25 per cent of governments were reporting on an accrual basis. There was, however, strong take-up among Caribbean, African, and Latin American countries to adopt the accrual model.

Where is Jamaica in this process?

Commendably, some entities within the public sector are already using the accrual accounting model in preparing their financials. This is highly encouraged where the heads of the accounting department are qualified accountants or experienced in this model, and where the board of directors and management value this approach as ideal for its operations.

Currently, support is available for accounting personnel of the public sector of Jamaica to receive training in IPSASB. This is free of cost with conditions applied. There is, however, evidence that some staff who have signed up for the training are not taking the training seriously to ensure it is completed on time.

With that in mind, adjustments must be made going forward. Notwithstanding, staff needs to see this as an important requirement for the job, as the Government transitions into the accrual accounting model, which is being promoted by public sectors worldwide. The Institute of Chartered Accountant of Jamaica (ICAJ) is supporting the Government in this move towards accrual accounting, and all accounting staff of the public sector are to be mindful of this collaboration. Additionally, professional bodies like the Association of Chartered Certified Accountants (ACCA) have developed robust IPSAS qualifications that countries around the world have been using to train their public sector staff to prepare them for the move to accrual accounting. Jamaica has also got onboard.

Will this move to accrual accounting impact the efforts of the Public Sector Transformation thrust? I am of the view that they will only complement each other.

The Public Sector Transformation and Modernization (PSTM) unit continues to work to reduce non-value-added bureaucratic processes, centering operations on citizens' needs, and being more economic in government's operations. Therefore, the accrual accounting will simultaneously help in achieving or supporting these initiatives, which will ultimately benefit the country.

Rakar Williams, FCCA, FCA, JP is a chartered accountant with doctorates in business administration and ministry, coupled with over 22 years of experience in leadership and management of leading organisations in Jamaica. He is the Secretary for the Local Chapter of the ACCA, member of the Public Sector Committee and the Audit Practices Committee of the ICAJ, and the Financial Controller for Mayberry Investments Limited.


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