Treasury of the Republic of Cyprus

The accrual accounting basis provides for recognizing revenue and expenses based on when each economic event has taken place, irrespective of when any associated monies have been respectively received or paid. Adopting the accrual accounting basis in the public sector strengthens the trustworthiness and dependability of the Government’s financial statements and supports the decision-making centers through the provision of comprehensive financial and other information.

The main benefit of this accounting reform of the public sector in the medium- and long-run is thought to be enormous. The relevant actions of the said Project are already underway, making the underlying change one of the central axes of the Public Financial Management Reform, the requirements of which are not restricted in merely changing the relevant accounting rules. First and foremost, it requires a change in the mentality of all the parties involved, including the top management and other personnel that work for the government, so as to achieve better financial management of all public resources.

It is expected that when the transition to the accrual basis of accounting is realized, it will be possible, among other things, for Line Ministries to identify and utilize their assets, to know in real time who their debtors and creditors are (thus improving the collectability of funds owed to the government), while also being able to manage risks more effectively and promptly via providing useful economic information pertaining to contingent liabilities. Additionally, the presentation of the true financial state of each Line Ministry as well as of the whole of the government will be reinforced. In this same vein, the new accounting basis will form a valuable tool at the disposal of each Line Ministry for the assessment of the latter’s performance and accountability, since the decisions to be taken will have to be supported by the true economic facts applicable to them.

The timing of the transition to the accrual basis of accounting coincides with the initiative of many countries on a European and international level to produce more trustworthy and useful financial information, an initiative which has been expedited in recent years, mainly due to the economic developments evident throughout the world. Many member-states of the European Union, such as the United Kingdom, France, Denmark, Estonia, and others, have already adopted the accrual basis of accounting.

At the same time, an important initiative by the European Commission is underway, the coordination of which is being handled by Eurostat, for the obligatory adoption of European Accounting Standards based on this new accounting basis by the member-states of the European Union.

Based on the
Action Plan that has been approved by the Council of Ministers, all the necessary actions must be exerted for the purpose of preparing the Initial Balance Sheet based on the new accounting basis. At the same time, the underlying Accounting Policies, rules and practices must be redesigned so that there is a continuous and undisrupted financial information flow based on the accrual basis.