Professor Ciaran Connolly, Professor of Accounting and Deputy Head of Queen's Business School, and Dr Elaine Stewart, Senior Lecturer in Accounting at Queen's, weighed up the potential benefits, challenges, and implications of reforming Ireland’s cash-based accounting system by introducing an accrual accounting system. The high-profile applied research, which was launched by Ireland’s Minister for Finance, was conducted in collaboration with Chartered Accountants Ireland, the leading professional body for accountants on the island of Ireland.

The global move toward accrual accounting

There is currently a global push for governments to transition from cash to accrual accounting. While the United Kingdom and many countries in Europe already use accrual accounting in their public sectors, the Republic of Ireland is new to this system.

In simple terms accrual accounting means recording income and expenses when they are earned or owed, regardless of the timing of actual payments. For governments using this system, it helps to provide a clearer view of their financial status.

Until recently, Ireland’s public sector followed a traditional cash-based system, which records transactions on a receipts and payments basis and therefore focuses on the flow of cash rather than when income and expenditure are due.

Background

Ciaran’s main sphere of research is on the financial and performance measurement aspects of the charity and public sectors. Elaine's research focuses on public sector accounting and issues in the not-for-profit sector, specifically public sector financial reporting reforms and financial capability mechanisms in the not-for-profit sector. Together and independently Ciaran and Elaine have published several journal articles exploring different aspects of public sector accounting in the UK.

• Recent United Kingdom central government accounting reforms: claimed benefits and experienced outcomes
• UK public sector fiscal reporting: clear and contradictory
• New development: Ten years of consolidated accounts in the United Kingdom public sector—taking stock

Ciaran and Elaine’s publication history and research interests garnered the attention of Chartered Accountants Ireland, who then commissioned them to look at the Irish case.

The main output from this research was a position paper, published through Chartered Accountants Ireland: ‘The Reform of Public Sector Accounting ’.

The report examines the key changes associated with the Irish Government’s planned public sector accounting reforms, including:

• The preparation of accrual accounting information compliant with International Public Sector Accounting Standards (IPSAS);
• Central government consolidated financial statements; and
• Harmonising accounting practices across the Irish public sector.

Research findings

The underpinning research took a comparative approach, exploring and presenting the experiences of similar reforms in other countries and through stakeholder interviews. They found that accrual accounting was typically introduced in other countries as part of a broader set of reforms. This includes upgrading or replacing IT systems, making changes to legislation, adopting new fiscal regulations, and introducing programme and performance-based budgeting systems.

In terms of the cost-benefit analysis, Ciaran and Elaine found that adopting accrual accounting is expected to yield benefits that extend beyond monetary evaluation. This includes improved asset maintenance, the prevention of costly expenditure delays, and more effective monitoring of fiscal risks. These changes aim to enhance financial practices and governance within the organisation.

The research is grounded in the voices, advice, and opinions of key stakeholders. A series of semi-structured interviews with senior management in government departments and agencies, together with other interested parties, were undertaken. Through these interviews they found they explored stakeholders’ thoughts on the appropriateness of the reforms and the proposed approach, together with the anticipated benefits, challenges, and costs.

A summary of the interviewees’ views on the proposed reforms, driving forces behind the reforms, benefits, challenges, and appropriateness can be found in Chapter 4.

Engagement

The position paper was launched in an online webinar with the support from Michael McGrath, who was Minister for Public Expenditure and Reform at the time of the report’s publication. The video has over 400 views and their follow up report titled ‘Time to reform Irelands public sector accounting’ in the specialist online publication Accountancy Ireland has over 100 downloads as of September 2023.

Impact

The position paper successfully fulfilled its objective of informing the Irish Government's stance and catalysing the transition of Ireland's public sector accounting from cash to accrual accounting. The Department of Public Expenditure and Reform has taken charge of this transformative process and has devised a phased action plan to implement the proposed reforms.

This transition is segmented into four distinct phases. Part 1, spanning from 2019 to 2025, focuses on implementing accrual accounting within central government departments and offices. In Part 2, from 2025 to 2027, the emphasis shifts to creating consolidated financial statements for the central government. Part 3, spanning from 2027 to 2029, aims at harmonizing accounting practices and standards across the broader public sector. Finally, Part 4, commencing in 2030 and beyond, marks the comprehensive transition to government accounts, representing a comprehensive evolution in financial management.

A quote from Minister for Finance and Public Expenditure and Reform in support of the research and its impact: 

“These reforms will greatly assist us in delivering a new and modern system for Ireland. I don’t underestimate the scale of this task – it is quite a challenge to reform accounting rules that have their origin in legislation – still on our statute books - dating back to 1866! However, is fada an bóthar nach bhfuil aon chasadh ann – it’s a long road that has no turning, and as we embark on this journey, we can look back on a system that has served us well in the past, but needs modernisation now.”

Michael McGrath, Minister for Public Expenditure and Reform

 

Dr Elaine Stewart

Senior Lecturer Queen's Business School Centre for Not-For-Profit and Public-Sector Research

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