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August 13, 2014

Argentina’s default sparks fresh call for accrual accounting

By Steffen Müller

In light of Argentina’s recent default of its debt the International Federation of Accountants (IFAC) has reiterated the importance of accrual based accounting in the public sector and has urged the G20 to focus on initiatives to improve governments’ management and financial reporting practices.

"Countries continue to default on their debt, yet aren’t pushed by governments, credit rating agencies, or financial commentators to significantly improve public sector financial reporting," IFAC chief executive officer Fayezul Choudhury said.

"It is critical that the G20 focuses on initiatives to improve governments’ financial management and reporting practices," Choudhury continued. "This means making accrual-based financial reporting in accordance with high-quality, globally accepted standards a key objective."

According to IFAC, adoption of the International Public Sector Accounting Standards (IPSASs) would help to avoid governments’ defaults. Choudhury therefore renewed IFAC’s call on the G20 to play a key role in enhancing governments’ financial management by promoting IPSAS based reporting frameworks, made earlier this year in May.

"IFAC urges the G20 to promote greater adoption of IPSAS, by adding these standards to the Financial Stability Board’s list of standards that are designated as deserving of priority implementation," he said.

However the international community is not the only actor who has a role to play, according to IFAC. The international federation criticised governments that have not yet transitioned from cash to accrual accounting systems.

Earlier this year The Accountant revealed that only two thirds of the world’s governments have moved from cash to accrual accounting while some economic superpowers such as Germany and the US Federal government have shown no intention to change.

"These countries require private sector companies in their jurisdictions to publish audited, accrual-based, financial statements when raising funds in capital markets," Choudhury said. "What justifies the double standard whereby a government compels private companies to be transparent and accountable, when it avoids using accrual accounting itself — despite having bonds traded on the capital markets?"

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