Credit Moment Makers Group/iStock
Credit Moment Makers Group/iStock
Credit Moment Makers Group/iStock
Credit Moment Makers Group/iStock
Historically, accountants have been perceived as mere ‘bookkeepers’ who record vouchers and prepare budget execution statements of government. Accounting was seen as a technical responsibility of the Accountant General's office, which prepares financial statements, and the Auditor General, who conducts audits. This was considered a ‘control formality’ with limited implications for the rest of the government or citizens. However, the past two decades have seen significant changes to this perception. Here are five top trends on the emerging role of the accounting profession in the public sector, which can be transformative in 2025.
1. Sustainability Reporting in the Public Sector
With the support of the World Bank, the International Public Sector Accounting Standards Board (IPSASB) in 2024 took the landmark decision to issue the first set of draft Sustainability Reporting Standards (SRS) dealing with Climate-Related Disclosures. While the full suite of public sector SRS may take up to a decade, the ball is set rolling. For the first time, public-sector accountants have taken the challenge of moving outside their comfort zone of traditional accounting and auditing.
There remain several unanswered questions, from the need for increased capacity within the accounting profession to deal with sustainability to harmonization with several other sustainability reporting approaches, including IFRS Sustainability. Supreme Audit Institutions have already initiated discussions on the role of external audit in sustainability reporting through the Global Summit of SAIs. The year 2025 is likely to be a watershed year through public consultation on draft SRS issued by IPSASB and the broader alignment of expectations, thereby significantly scaling up the responsibilities of the accounting profession in the public sector.
2. Accounting Information as the Fulcrum of Public Financial Management
Public Financial Management (PFM) is one of the most interdisciplinary professions. Accountants, economists, public policy experts, and administrators in governments play a key role in managing public finances. Public Expenditure and Financial Accountability (PEFA), the gold standard measuring framework for PFM, uses 31 indicators further segregated into 94 dimensions. Accounting and Reporting (Pillar VI) of the PEFA framework covers three Performance Indicators (PI) – PI 27 on ‘Financial data integrity,’ PI 28 on ‘In-year budget reporting,’ and PI 29 on ‘Annual Financial Statements,’ which are directly the responsibility of public sector accounting. Most of the other dimensions of PEFA either draw from accounting information or are influenced by government accounting, and the role of public accountants is likely to expand.
3. Balance Sheet Approach to Public Finances
Dust seems to have settled over two decades of debate over the merits of government accounting moving from a cash to an accrual basis. It is forecasted that by 2025, the number of countries reporting on an accrual basis will reach 50%. If achieved, this change will be a watershed moment for accounting reforms fundamentally influencing government policy decisions. Accrual accounting provides a complete picture of revenues, expenditure, assets, and liabilities, enabling government and all stakeholders to consider intergenerational equity in present-day policy making. In making the transition to accrual accounting, countries will be able to draw on the full suite of accrual basis international standards issued by IPSAS, guidance under pathways to accrual accounting, as well as international development partners support.
4. Artificial Intelligence in Public Sector Accounting
The past two decades have seen countries make rapid strides in the implementation of GovTech solutions in PFM. These developments include IFMIS / FMIS solutions, Debt Management Systems, eProcurement systems, and Public Investment Management systems. Computer Assisted Audit Tools (CAATs) and Audit Management Systems enable Supreme Audit Institutions (SAIs) to conduct audits. GovTech solutions in PFM are large transaction processing systems, which can benefit significantly from leveraging AI. A recent OECD paper on AI in PFM notes, “Over time, and with the quality of data increasing, new layers of technology have been added (to PFM): data analytics, BI tools, RPA, and more recently AI technologies.”
The year 2025 is likely to see the emergence of trends where several routine public sector accounting and auditing tasks move from humans to machines, enhancing the role of public sector accountants to value-added functions. These could range from predictive analysis on the impact of budget decisions on service delivery, perpetual forecasting of balance sheets, consolidation of accounts of various levels of government for whole of government balance sheets, and identification of red flags and risks of wastage, fraud, and corruption.
5. Collaboration between IFAC, PAOs, and Development Partners
MOSAIC (Memorandum of Understanding to Strengthen Accountancy and Improve Collaboration) sets out the basis for improving cooperation and collaboration between IFAC, international donors, and the international development community. A high-level meeting, in September 2024 in Bucharest, Romania, co-chaired by the World Bank and PAODC in September 2024 in Bucharest, Romania, took landmark decisions to scale up the impact of MOSAIC as a cornerstone for a unified global approach to enhance the capacity of professional accountancy organizations (PAOs) and elevate the quality of financial management systems in emerging economies. This initiative is expected to see a dramatic increase in the scale and impact of activities in the public sector.
In conclusion, 2025 will witness a significantly greater role for the accounting profession. It can better equip itself for this role through enhanced collaboration with all stakeholders and improvements in the curriculum of professional accounting qualifications and university courses, with a greater emphasis on government accounting and auditing. This proactive approach will ensure that accountants are well-prepared to meet the challenges and opportunities that lie ahead, ultimately contributing to more robust and transparent PFM systems globally.
