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February 22, 2010

Colombia: A Success Story in Implementing Accrual Accounting in the Public Sector

Posted by Mario Pessoa and Maria Eugenia Benavides 

While many countries are still struggling to adopt accrual accounting standards, Colombia has had considerable success with this reform. The main motivation to adopt the international accrual accounting standards was the desire to meet the information needs arising from economic globalization. The Colombian public sector accounting standards (PSAS) are now broadly in line with the International accrual-basis Public Sector Accounting Standards (IPSAS - International Public Sector Accounting Standards). It is the most advanced practice in Latin America. In the case of Colombia, this process did not involve a traumatic change throughout the public sector because the PSAS was already significantly aligned with accrual-based standards particularly in the state-owned enterprise sector. The changes consisted mainly of conceptual redefinitions, accuracy, capacity building, dissemination, and development of detailed written instructions.

The greatest challenge for the Colombian National Accounting Office (Contaduría General de la Nación orCGN[1]) was implementing the accounting standards. In 1995, the first General Chart of Accounts for the Public Sector (GCoAPS) entered into force. It was developed with the participation of a large number of accountants of different government entities in order to encompass all of the operations of the public sector. One of the most difficult tasks was to determine the value of assets and liabilities, especially for some local authorities that did not have all the supporting documentation. Initially this situation impacted the quality of the information and consequently the reliability of the consolidated financial statements. Hence, CGN proposed legislation under the name "Accounting Improvement Law" (Ley de Saneamiento Contable) which required public entities to standardize, reconcile, streamline, and improve accounting procedures.

The need to cover the entire public sector led to the reformulation of the GCoAPS in 2006 and implementation of a new Public Accounting Regime (PAR). These were important tools for supporting the standardization and regulation of the public sector accounting practices. The PAR includes the Chart of Accounts, a Manual of Accounting Procedures, and the so-called public accounting doctrine. The Chart of Accounts, included in the Manual, is composed of 10 categories, as follows: 1. Assets, 2. Liabilities, 3. Net Worth, 4. Revenue, 5. Expense, 6. Cost of sales and operations, 7. Production costs, 8. Other control accounts (for debit transactions), 9. Other control accounts (for credit transactions), and 10. Budget and treasury accounts. In turn, the classes are subdivided into accounts and subaccounts.

In some areas the public accounting standards used in Colombia complement the IPSAS standards. For example, PAR regulates aspects such as social investments, natural resources and environment; assets for public use (parks, for example), as well as an underlying conceptual framework that is not covered by the IPSAS. The International Federation of Accountants (IFAC) recognizes that the government of each country can establish guidelines and accounting standards in their respective jurisdictions.

The information systems used to capture and process the accounting information are the so-called Integrated Financial Information System (SIIF in Spanish) and the Public Sector Financial Information Consolidator System (CHIP in Spanish). The first is an integrated financial management information system that records the financial transactions of the central government, while the second is a system for capturing financial information from the other entities of the public sector (public enterprises and subnational governments). However, CHIP does not identify automatically the reciprocal financial operations, leaving to the CGN staff the responsibility to reconcile and adjust the information and consolidate the financial statements.

The CGN has invested strongly in training and capacity building in the public sector over a number of years through seminars, workshops, working groups, and preparation of written manuals and instructions. A biannual national seminar is conducted to disseminate the best practices and discuss the most controversial and difficult issues. CGN has an email box available for all public accountants to give support on a daily basis.

You can find more information at the CGN website: http://www.contaduria.gov.co/

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[1] CGN is a technical unit created by the 1991 constitution responsible for setting the public sector accounting standards (PSAS) in Colombia, and consolidating the financial statements of the public sector (central, departmental, and municipal governments, and public corporations).

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