IN a speech at an investor’s conference early last month, aptly named ‘A New Dawn’, Finance Minister Lim Guan Eng affirmed that the government would shift from a cash-basis accounting system to accrual accounting standards by 2021, as part of a wider move to improve transparency and accountability in the public sector.
This is a significant shift for the federal and state governments (and their related agencies, statutory bodies and authorities) who have long used a system of modified cash accounting — where financial transactions are simply recorded only when there is an inflow or outflow of cash in the reporting period.
This is in contrast to accrual accounting, where revenues and expenses will be recorded when earned and incurred, respectively. Financial obligations, debts and leases are also accounted for when undertaken. This is intended for a more comprehensive management approach towards public finance.
It is envisioned that the adoption of accrual accounting in the public sector (combined with other outcome-based benchmarks and in tandem with the wider government transformational agenda) will significantly improve good fiscal management and the effectiveness of government accounting systems.
The announcement of change has so far been received positively and underlies the administration’s commitment to clean up “excesses of the past”. The finance minister has delivered a clear statement through ushering in these new accounting standards — “our new government is determined to clean-up our accounts and make the public sector more transparent in its finances”.
However, there is no quick fix or easy turnaround. Last year’s figures from the Malaysian Institute of Accountants reveal that the country is facing an acute shortage of certified accountants, with only 33,000 or so professionals, and there is a long way to go in reaching the national target of 60,000 by 2020.
It can often take several years to implement change on such a scale, and even longer to ingrain and institutionalise within the government. Time will be needed to change mindsets, instil a sense of fiscal discipline and reskill public servants to have the necessary skills and expertise. Lim has said that the shift towards accrual accounting standards may take up to seven years.
For the shift to be truly successful, and for the public sector to be demonstrably more transparent in its finances, it is important that we all support this reformation.
Accountancy academies, stewards, practitioners and professional bodies will all have a role to play in this transition.
Collectively, they form a bedrock of quality training, rigorous education and stringent governance that will usher in this new dawn of accountability.
As the arbiters of financial governance, they have to maintain high thresholds for accountancy excellence as well as earn the public’s trust and confidence in their various accreditations, lest we devolve into a scenario where there is an abundance of qualified yet practically ineffective accountants.
This transition period provides an opportunity for the public sector to build on a new accounting foundation, one where future administrations can learn from the past and instill confidence in the future.
It will be a rocky road, but it can certainly be an exciting and tremendously satisfying path to a better and more accountable public sector. To borrow the words from the finance minister, “it is always darkest just before dawn”.
The writer is an international development manager with AAT (the Association of Accounting Technicians), one of the largest accountancy bodies in the world