Avantage ESA95vsCashaccounting
Avantage ESA95vsCashaccounting
Avantage ESA95vsCashaccounting
16
Primary sources:
• Diamond, Jack. 2002. Performance Budgeting: Is Accrual Accounting Required?
Working Paper WP/02/240. Washington, DC: IMF.
• IFAC. 1996. Perspectives on Accrual Accounting. Occasional Paper 3. New York:
Public Sector Committee.
• IMF. 2002. Government Finance Statistics 2001 Companion Material. Washington, DC.
• IMF. 2001. Manual on Fiscal Transparency. Washington, DC: Fiscal Affairs
Department.
• Mellor, Thuy. 1996. Why Governments Should Produce Balance Sheets.
Australian Journal of Public Administration. 55(1). March. pp. 78-81.
• OECD. 2002. Accrual Accounting and Budgeting: Key Issues and Recent Developments.
PUMA/SBO (2002)10. Paris.
• Schiavo-Campo, Salvatore and Daniel Tommasi (eds.). 1999. Managing Government
Expenditure. Manila: ADB.
• World Bank. 1998. Public Expenditure Management Handbook. Washington, DC.
16 ACCRUAL BUDGETING AND ACCOUNTING IN GOVERNMENT AND ITS RELEVANCE FOR DMCS
17
Based on papers prepared by the New Zealand Treasury when considering whether
government budgets should be accrual-based (New Zealand Treasury. 1993. Reports
of the Fiscal Indicators Working Party. Unpublished documents).
18
UN. 1993. System of National Accounts (SNA) Manual. New York. paras. 3.92–3.96.
19
IMF. 2001. Government Finance Statistics Manual. paras 3.47–3.53. Washington, DC.
ARGUMENTS FOR AND AGAINST ACCRUAL ACCOUNTING 17
Year
Total
0 1 2 3 4 5
Cash Basis
Cash Flows 700 0 0 0 0 -1000 -300
Accrual Basis
Operating Statement: Interest expense 0 52 56 60 64 68 300
Balance Sheet: Outstanding liability 700 752 808 868 932 0*
20
IMF. 2001. Manual on Fiscal Transparency. Washington, DC: Fiscal Affairs Department.
21
IMF. 2001. Government Finance Statistics Manual. Washington, DC. paras 3.47–3.53.
18 ACCRUAL BUDGETING AND ACCOUNTING IN GOVERNMENT AND ITS RELEVANCE FOR DMCS
22
Ball, I., T. Dale, W. D. Eggers and J. Sacco. 1999. Reforming Financial Management in the
Public Sector: Lessons US Officials Can Learn From New Zealand. Policy Study No. 258. Los
Angeles: Reason Public Policy Institute. Reason Foundation.
23
Campos, J. E. & Pradhan, S. 1997. Evaluating public expenditure management
systems: an experimental methodology with an application to the Australia and New
Zealand reforms. Journal of Policy Analysis and Management, 16(3), 423-445. p. 432
24
Brumby, Jim in Schiavo-Campo, Salvatore and Daniel Tommasi (eds.). 1999. Managing
Government Expenditure. Manila: ADB. p. 360.
25
For further information on creative cash accounting practices, see: Diamond, Jack.
2002. Performance Budgeting: Is Accrual Accounting Required? Working Paper WP/02/240.
Washington, DC: IMF.
ARGUMENTS FOR AND AGAINST ACCRUAL ACCOUNTING 19
tion.26 For instance, the 1992 Maastricht Treaty, together with the
Stability and Growth Pact, set the basis for the European Economic and
Monetary Union (EMU). Several European countries manipulated their
cash-based fiscal information in order to achieve the fiscal targets set
out in these agreements, To combat these practices, the European Sys-
tem of Accounts (ESA 95) mandated accrual-based accounting stan-
dards.27
More comparable and consistent. The IMF contends that accrual
information improves understanding of the underlying fiscal position by
removing year-to-year variability caused by the timing of cash receipts
and payments (particularly capital payments).28
The revised GFS and the major macroeconomic statistical sys-
tems (SNA, balance of payments, and monetary and financial statistics)
use the accrual basis.29 Consequently, preparing government financial
statements and forecasts on the accrual basis improves the accuracy of
national accounts and economic forecasts (see Box 4).
26
Behaviors of the US government in response to Gramm-Rudman-Hollings incentives
and those of European governments regarding Maastricht criteria, belie the common
belief that cash information is less manipulable than accrual information. For a fuller
discussion, see Easterly, W. 1999. When Is Fiscal Adjustment an Illusion? Paper 2109,
World Bank Country Economics Department. Washington, DC: World Bank.
27
Buti, Marco and Gabriele Giudice. 2002. Maastricht’s Fiscal Rules at Ten: An Assessment.
European Commission.
28
IMF. 2001. Manual on Fiscal Transparency. Washington, DC: Fiscal Affairs Department.
29
IMF. 2001. Government Finance Statistics Manual. Washington, DC. paras 3.47–3.53.
30
IMF. 2001. Manual on Fiscal Transparency. Washington, DC: Fiscal Affairs Department.
20 ACCRUAL BUDGETING AND ACCOUNTING IN GOVERNMENT AND ITS RELEVANCE FOR DMCS
31
Ibid.
32
IMF. 2001. Government Finance Statistics Manual. Washington, DC. paras 3.47–3.53.
33
Ibid.
ARGUMENTS FOR AND AGAINST ACCRUAL ACCOUNTING 21
34
Kraft, Evan and Tihomir Stucka. 2002. Fiscal Consolidation, External Competitiveness and
Monetary Policy: A Reply to the WIIW. May. Zagreb: Croatian National Bank. p. 1.
35
US Government. 2002. 2001 Financial Report of the United States Government. Washington,
DC. p. 1.
36
Primary source: Ball, I., T. Dale, W. D. Eggers and J. Sacco. 1999. Reforming Financial
Management in the Public Sector: Lessons US Officials Can Learn From New Zealand. Policy
Study No. 258. Los Angeles: Reason Public Policy Institute. Reason Foundation.
22 ACCRUAL BUDGETING AND ACCOUNTING IN GOVERNMENT AND ITS RELEVANCE FOR DMCS
3. Opposing Views
While generally recognizing that the accrual accounting basis is supe-
rior to the cash basis, opponents tend to raise concerns about implemen-
tation difficulties. But, at the extreme, some commentators appear to
oppose private sector use of accrual accounting (see Box 6). This section
attempts to present the arguments against the use of accrual accounting
in government.
37
Mellor, Thuy. 1996. Why Governments Should Produce Balance Sheets. Australian
Journal of Public Administration. 55(1). March. pp. 78-81.
24 ACCRUAL BUDGETING AND ACCOUNTING IN GOVERNMENT AND ITS RELEVANCE FOR DMCS
“Extending accruals to budgeting is controversial. Much of that controversy arises from the
government administration itself and Parliaments. Before this change is contemplated, a
significant amount of time needs to be invested in educating and consulting with
government managers and other interested groups, like parliamentarians. In those countries
that have adopted accruals, the change has been linked to other public management reforms.
Accrual accounting places a premium on confidence in audits and a willingness to accept
fluctuations in valuations. Practice in Australia and New Zealand has shown that the use of
accruals in the budget has led to a better realization of future unfunded liabilities, better
infrastructure management and a more efficient budget reallocation process.” 39
38
Schick, Allen. 2002. Fiscal Rules and Fiscal Risks. Presentation at the World Bank
Training Course. 21 May.
39
Matheson, Alex. 2002. Better Public Sector Governance: The Rationale for Budgeting and
Accounting Reform in Western Nations. OECD Journal on Budgeting. Vol 2(1). December. pp. 44–45.
ARGUMENTS FOR AND AGAINST ACCRUAL ACCOUNTING 25
40
Ibid.
41
Brumby, Jim and Marco Cangiano. 2001. Public Expenditure Management Reform and
Fiscal Consolidation in OECD Countries. Paper presented at the Fifth International
Conference Institutions in Transition organized by the Slovenian Institute of
Macroeconomic Analysis and Development in Otočec, Slovenia, 13–14 July.
26 ACCRUAL BUDGETING AND ACCOUNTING IN GOVERNMENT AND ITS RELEVANCE FOR DMCS
4. Conclusion
Table 3 attempts to summarize the comparative usefulness of accrual
and cash accounting in government.
42
Ministry of Finance and National Planning Survey reported in: ADB. 2002. Diagnostic
Study of Accounting and Auditing Practices in the Fiji Islands. Manila. p. 82.
43
World Bank. 1998. Public Expenditure Management Handbook. Washington, DC. p. 8.
ARGUMENTS FOR AND AGAINST ACCRUAL ACCOUNTING 27