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August 28, 2018

Are European Auditors Moving Against Accrual Accounting?

Posted by Andy Wynne[1]

Public sector auditors across Europe are taking a dim view of the introduction of accrual accounting in EU member states. In recent years, audit reports from Britain, France, and especially Germany have become increasingly critical, arguing that any benefits from the adoption of accrual accounting may not be worth the significant costs involved.  

The National Audit Office (NAO) in Britain have undertaken three studies in this area since the introduction of business-style resource (accrual) accounting by the government in 2001.

The first of these studies concluded that:

In most cases it is too soon to identify any discernible benefits from better resource management in terms of contributing to improved public services from for example, enhanced efficiency (NAO, 2003, page 31).

The NAO’s second study reported that:

Departments have made significant progress in using accruals-based accounting and budgeting systems since our previous study. This has allowed departments to better understand how they are using their financial resources, for example by offering more detailed information to manage their assets and liabilities. Departments have used this information to help identify under-utilised assets and to dispose of those no longer required. (NAO, 2008, paragraph 9, page 7)

So the only proven benefit was that ministries (called departments in the UK) were able to identify and sell assets (mainly buildings) which were no longer used! However, almost all the information required for such an exercise was already available from asset registers before the introduction of resource accounting.

The third NAO study, reporting in March 2011, recognised that business style resource accounting was now well developed, but noted that senior managers do not appear to be making effective use of the information provided:

Full resource-based information is created at the year-end for Parliamentary reporting purposes. Resource information is therefore generally not integrated into, and does not drive, management of departments’ business (page 18).

In 2016, the French state auditor (Cours des comptes), reported in a major study that:

The benefits of accrual accounting, to date, do not appear to justify the level of resources devoted to its introduction by the administration (page 69), and 

The benefits of accrual accounting to the transparency of the State’s financial situation and the modernization of its management have not proved to be equal to the efforts made by the administration to introduce this style of accounting and, above all, the expectations placed on it by the legislators during its introduction (page 99).

A decade after the introduction of accrual accounting by the French government, the opinion of its auditors is clear.  The efforts and costs involved are, at this stage at least, greater than any benefits that have been achieved.

Perhaps learning from their colleagues in Britain and France, the Federal Court of Auditors in Germany (Bundesrechnungshof) issued a report in 2017 arguing that the federal government should not be required to implement accrual accounting based on the proposed European Public Sector Accounting Standards (EPSAS).

The report noted that such a move would involve “high implementation costs for Germany not matched by any real benefits” (page 2).  The costs could considerably exceed the European Commission’s estimate of €3.1 billion or 0.1 percent of GDP. The auditors argued that the Commission monitors compliance with its fiscal rules through statistical reports and thus the lack of high-quality financial data is not a problem.

The Bundesrechnungshof was also concerned by the undue influence of major audit firms, and potential conflicts of interest that might arise. These firms are frequently invited to advise the European Commission on the introduction of accrual accounting, and could therefore benefit from the multi-million consultancy market for implementing new accounting and financial reporting systems in member states.

The views of the Bundesrechnungshof on moves to accrual accounting have been supported by the German Federal Ministry of Finance and by the parliament.

The reports just cited indicate that the arguments often used in favor of moving from the cash to the accrual basis of accounting do not appear to stand up to independent scrutiny. The reports indicate that the significant costs of these reforms have not translated into significant benefits, even a decade or more after their introduction.

Governments thinking of adopting the accrual basis for their annual financial statements should take note of these reports. Many governments are being lobbied by donors, consultancy firms and accountancy bodies to adopt accrual accounting, whose supposed benefits may be illusory. In addition, many of those arguing for accrual accounting—especially the accountancy profession and the major audit firms—may expect to make significant financial gains from such a move, in terms of highly-paid government posts for professionally qualified accountants, and enriching consultancy assignments.

Reports of the British National Audit Office:




Report of the French Audit Office:


Report of the German Federal Court of Audit:


[1] Andy Wynne is a public financial management consultant, working mainly in Nigeria. He is also an Associate Professor at  the University of Leicester, United Kingdom.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


A wider-ranging study on the benefits of accruals was presented at a recent OECD meeting (“Getting Added Value Out Of Accrual Reforms”, OECD,March 2018). Its findings are more nuanced, and recognize that it is still early days in the adoption of accruals accounting in many countries. Initial benefits are in greater transparency about the public finances, especially on assets and liabilities that were previously unrecognized and unreported; and that a few countries have begun to use their accruals accounts more actively to review assets and liabilities,as well as contingent liabilities, and to look at fiscal risk. Nonetheless, the use of accruals for internal management or at agency level is not yet common, especially where budgeting and thus control was still based on cash. It will surely take time, both in capacity and mindset, before accruals becomes second nature to public sector managers. There are plenty of examples where accruals accounting has been embedded for much longer - local government or arms-length bodies, for example, which operate within a fiscal and financial framework similar to central government. In these organizations, accruals accounting is already "part of the furniture". There isn't a tidal wave of complaint about the burden of accrual accounting, nor a huge clamour for them to return to cash accounting. That's because they have had longer to adopt and develop their accounting practice, and typically have a corps of accountants trained in public-sector accruals accounting. These things take time.

Thanks Joe, this is exactly what we are saying in terms of developing countries. It will take time so we need to recognize this reality.
Hasten slowly.
Less push and more help, probably.

What appears to take the most time is providing any evidence for the advantages of accrual accounting in the public sector. The OECD publication you refer to is worried about the lack of any such evidence. Why should governments spend so much to subsidise the accountancy profession when they can provide not evidence of such a move for the general population?

My challenge to you and other readers to come up with one single report that indicates the clear advantages of accrual accounting that have actually been achieved in practice by any government in the world.

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