Implementation of accrual accounting in the public sector : easier said than done

The days of the cash basis of accounting in the public sector are past. The cash basis of accounting does not provide accurate cost information with regard to resources consumed in the process of service delivery and without accurate cost information the decision-making process in the public sector is seriously hindered. The Public Finance Management Act, 1999 (PFMA) prescribes the adoption of the Generally Recognised Accounting Practice which prescribe accruals-based accounting. Public sector entities are therefore forced to change from the cash basis of accounting to accrual accounting to harmonise with the requirements of the PFMA and to improve their financial information with regard to the costing of resources consumed. The public service entities are currently in the process of implementing new accounting and reporting systems. The current accounting systems are to be modified to incorporate accrual accounting and the financial reporting models are to be upgraded to move closer to those used in the private sector. The management information will be accruals-based in the future and will require different management techniques such as accruals-based budgets and outcomes-based performance reports. The purpose of this article is to highlight the implications and difficulties of this transformation process.