“Give time some time”: A Proposed Strategy for Implementing Financial Accounting in the WAEMU Member Countries

Posted by Guilhem Blondy and Xavier Rame

The directives establishing the harmonized fiscal framework in the West African Economic and Monetary Union (WAEMU) in 2009 state that “the government shall keep budgetary accounts and financial accounts” and that implementation of the latter must be completed by January 1, 2019 at the latest.[1]

To attain that objective, this post proposes a sequenced strategy aimed at gradually, over the course of seven years (2012-2018), improving the financial information generated by financial accounting.

To understand the necessity of choosing a gradual approach, it will be helpful to recall the three basic innovations associated with the introduction of financial accounting:

In this context, 4 phases of gradual improvement of financial information can be envisaged:

Improvement of the bases of the current accounting system is the priority until 2013. In practice, improving the quality of accounting entries and the reliability of general balances should be considered a prerequisite for moving toward accrual basis financial accounting.

The preparation of an opening balance sheet should be undertaken without delay, but should continue over a long period.

The accrual basis recording of income and expenses can be introduced at different stages of the reform, depending on the progress of work on the information systems and the reforms of the revenue and expenditure procedures. The entry into force of the new chart of accounts necessitates a change in the financial information systems, which can be undertaken upon adoption of the new GCA decree. On the other hand, the recording of expenses upon validation requires the participation of the sectoral ministries in the posting of accounting entries, which is feasible only if those ministries have first strengthened their finance function.

The submission of financial statements to the Audit Office on an experimental basis during the transition period should be considered a good practice. Such a “pre-audit” or “trial audit” approach—before the Audit Office begins officially attaching to the draft budget review law the opinion on the accounts required by Article 51 of the Budget Law directive—has been adopted, for example, in the United Kingdom. This makes it possible to engage in an upstream dialogue with the external auditor and to take a collaborative approach to gradually improving the financial statements, while avoiding a public debate on the quality of the accounts at too early a stage of the reform.

Monitoring the value of assets in the accounting through depreciation charges and provisions can be postponed to the end of the transition period envisaged by the WAEMU. The use of depreciation charges and provisions makes it possible to give full meaning to the reform by introducing analytical cost accounting. Calculating them, however, is often complex and can be a major factor in the extension of closing deadlines. Consequently, some countries, such as Canada and Spain, chose several years ago to record expenses on an accrual basis but to fully depreciate fixed assets at the time of acquisition, before switching to full accrual basis accounting.

Consolidation of the accounts of the government and of public administrative institutions (EPA) is also a long-term objective. Article 1 of the GCA directive states that “government financial accounting applies to the central government and its public administrative institutions.” Book I of the instructional guide prepared by the WAEMU Commission proposes presenting the consolidated financial statements of the government and its public administrative institutions along with the government’s annual financial statements. With the exception of the consolidated TOFE (to be completed in 2017 for the 2016 accounts, according to the TOFE directive), the production of these consolidated financial statements can be pushed back to 2019. In the meantime, aggregated information on the annual accounts of these institutions would be provided in the attached statement.

The cost and the complexity of introducing financial accounting should not be overlooked. The sequencing of the various phases involved in its introduction should allow for the gradual improvement of financial information useful for decision-making by managers, taking into account the need for capacity-building both within the finance ministry and in the sectoral ministries. Let’s give time a little time…

[1] Article 86 of the directive on budget laws within the WAEMU states that “the member countries shall have until January 1, 2017 to comply fully with the provisions on […] rules and procedures relative to the accrual principle governing financial accounting, as provided for in Article 72 of this Directive. In the latter case, member countries wishing to do so may have an additional period of (2) years.”

[2] According to the GCA directive (Article 30), depreciation is the “reduction in value of fixed assets that inevitably and irreversibly lose value.” “When the decrease in the value of an asset is only probable because of events considered to have reversible effects, a provision for depreciation is established.”

[3] On December 20, 1996, the WAEMU Council of Ministers adopted a regulation defining a common accounting framework for the member countries. This framework, known as the West African Accounting System (SYSCOA), entered into force on January 1, 1998.

[4] Article 51 of the BL [budget law] Directive states that “the Audit Office shall express an opinion on the internal control system and the management control mechanism, on the quality of the accounting procedures and the accounts.” Our conclusion is that the formulation of this opinion should be based on financial audit standards and will, therefore, be similar to an audit of the government accounts.

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