Accrual Accounting in Developing Countries: A Lesson in PFM Reforms

23rd April 2026

Andrew Keith on the Flywheel Economics Podcast

In the landscape of international development, the push toward accrual accounting in developing countries is often framed as the gold standard for transparency. While the theoretical benefits of recording transactions when they are incurred rather than when cash moves are clear, the practical reality is frequently quite different.

The Implementation Gap

Andrew Keith highlights a significant divide between policy adoption and daily practice. Many nations adopt sophisticated standards like IPSAS primarily to meet donor expectations or look like a modern state. Consequently, they often find themselves with high-end digital systems but no underlying human engine to run them. Because accrual accounting requires significant professional judgment, a chronic shortage of trained accountants becomes an absolute bottleneck. Without these experts, a government cannot accurately track complex variables like depreciation or long-term liabilities.

Missing Foundations

Furthermore, successful reform depends on boring foundations that are often overlooked. Transitioning to accrual methods is nearly impossible without comprehensive asset registers and reliable purchase order systems. In many emerging markets, a lack of trust between suppliers and the state further complicates matters. When vendors demand upfront payments due to historical payment delays, the fundamental logic of accrual accounting, recognising obligations before cash moves, is undermined by the necessity of immediate liquidity.

Technology vs. Capacity

Additionally, the implementation of Integrated Financial Management Information Systems (IFMIS) can be a double-edged sword. While technology can automate reporting, it often simply digitizes existing dysfunction if the manual processes and human skills are broken. Instead of buying a subscription to complexity, policymakers should focus on high-leverage results. This means prioritising the vital few reforms that actually change the rules of the game. This will help create a sustainable flywheel of institutional growth.

A New Path Forward

Ultimately, reform must move beyond looking modern and focus on being functional. By prioritising the professional workforce and securing the foundational scaffolding, nations can ensure that their accounting systems become useful tools for governance. Real legacy is not found in an international certification. It is found in the simple, functional systems that a country chooses to keep running long after external consultants have left.

Special thanks to Andrew Keith for his invaluable insights. Listen to the full episode below and share your thoughts with us on Instagram, LinkedIn, and X (formerly Twitter).

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accrual accounting, developing countries, Economic policymaking, emerging economies, flywheel economics, international development, podcast

2 responses to “Accrual Accounting in Developing Countries: A Lesson in PFM Reforms”

Pat Mc Loughlin

May 12, 2026 at 5:00 pm

In developed economies, change usually happens gradually, with each change representing a step closer to best practice. All progress is progress, regardless of scale, allowing each stakeholder time to understand proposed changes and consider their implementation. At one time, the same methodology was applied by international agencies to developing nations. For whatever reason, these agencies changed their approach to one requiring the introduction of best current day international practice in all areas, regardless of the starting point. If the Soviet Union was to collapse today & assistance was targeted at, say, Lada car manufacturing, the winning consultancy bid would likely suggest that, within 3 years, the factory would be capable of producing cars of a quality to rival Ferrari. Privately, all would consider the proposal bonkers but he who pays the fiddler calls the tune and everyone remains silent, acutely aware that the paymaster will accept nothing less than the promise of best international standards. At the end of 3 years, the final report will describe wonderful progress, carefully avoiding all mention of Ferrari in favour of stressing the need for a follow up contract.

And so it is with accruals accounting. It may represent best accounting / business practice but even many developed nations continue to adhere to cash accounting, perhaps one reason being that politicians understand cash movements. And then there is the necessity to develop the skills and systems required to implement accruals accounting. It is often the case in state organisations that accounting staff have no recognised accounting qualification and, even where they do, their experience is often limited to a single government system. Given many state owned entities struggle to manage cash accounting, an instruction to implement accruals accounting can make a bad situation worse. Financial information based on accurate cash accounting is preferable to that based on accruals accounting of a dubious quality.

So, why are international agencies obsessed with accruals accounting, regardless of the situation on the ground? I wish I knew. Obviously, the desire to tick a box and claim a victory is inherent within most systems and, in a perfect world, accruals accounting is desirable – but not at the expense of unreliable output. We should also remember that the people drafting and approving ToRs may have little experience of specific topics and may, like armchair generals, be basing their logic on text book theory. One example is a short term ToR requiring the upgrade of existing accounting standards to comply with International Accounting Standards, together with immediate implementation. The target institutions had no existing accounting standards, no staff with an accounting qualification, and didn’t even use/understand double entry bookkeeping. Nor, apparently, was the author aware that the Ministry of Finance was opposed to the introduction of IFRS. Like Hitler issuing orders to his armies after they had been destroyed, this ToR was doomed to failure.

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1. Richard Ough
  
  June 2, 2026 at 11:00 am
  
  Thanks so much for sharing your insight and experience.
  
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