- Dawn Rehm, and Taryn Parry
- Published Date:
- October 2007
Defined in IFAC (2000b) as “the body of accounting principles that determine when the effects of transactions or events should be recognized for financial reporting purposes. It relates to the timing of the measurements made, regardless of the nature of the measurement.” There are many variations of the accounting basis. IFAC identifies two basic reference points (cash and accrual) and two variations (modified cash and modified accrual).
The set of accounting procedures, internal mechanisms of control, books of account, and plan and chart of accounts that are used for administering, recording, and reporting on financial transactions. Systems should embody double entry bookkeeping, record all stages of the payments and receipts process needed to recognize accounting transactions, integrate asset and liability accounts with operating accounts, and maintain records in a form that can be audited.
Accrual accounting systems recognize transactions or events at the time economic value is created, transformed, exchanged, transferred, or extinguished, and all economic flows (not just cash) are recorded.
Reporting based on accrual accounting systems.
A calendar that indicates the dates on which regular publications will be available to the public. Hence, the public will know in advance when certain statistics or data will be available.
Flows of goods and services with no payment in money or debt instruments in exchange. In some cases, “commodity aid” goods (such as grain) are subsequently sold and the receipts are used in the budget, or more commonly through a special fund, for public expenditure.
An authority under a law given by the legislature to the executive to spend public funds for a specified purpose. Annual appropriations are made through annual budget laws. Supplementary budgets/appropriations are sometimes granted subsequent to the annual law if the annual appropriation is insufficient to meet the purpose. “Standing appropriation” is sometimes used for authority extending beyond a single budget year under separate legislation (such as social security legislation). In some countries, such as the United States, the term “authorization” is used to denote a general law setting up a program and permitting appropriation but not giving any specific authority to spend. In most countries, agencies and departments require specific executive authorization (“apportionment, allotment, or warrant”) to actually incur an obligation against an appropriation.
Any economic resource controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained. Types of financial assets include cash, deposits, loans, bonds, shares and other equities, financial derivatives, and accounts receivable. Examples of nonfinancial assets include buildings, machinery, equipment, inventories, valuables, land, subsoil mineral deposits, and leases.
The overall balance plus any losses incurred by the central bank, and any issuance of government debt to recapitalize public financial institutions not recorded in the overall balance.
A calendar indicating the key dates in the process of preparing and approving the budget. These would include the date the budget circular is issued, time period for discussing estimates with the ministries and departments, the date the executive budget is submitted to the legislature, legislative review including dates for budget hearings, and the date the budget appropriations bill should be passed by the legislature. There may be other important steps in the process, which varies by country.
The annual budget presentation and the budget-supporting documents, including but not limited to background to policy proposals and discussion of fiscal risks, within-year budget reports for monitoring budget execution, and the final accounts.
Cash accounting systems recognize transactions and events when cash is received or paid.
Reporting based on cash accounting systems.
All government units that are agencies or instruments of the central authority of a country and that are covered by or financed through the budget or extrabudgetary funds at that level.
In accounting usage, commitments refer to a stage in the expenditure process at which contracts or other forms of agreement are entered into, generally for future delivery of goods or services. A liability will not be recognized until delivery of the item, but the government is contractually committed to meeting the obligation once delivery is made. The term is also used in a more general, noncontractual sense to mean firm promises of the government made in policy statements.
A separate fund or a budget provision set aside to meet unforeseen and unavoidable requirements that may arise during the budget year. Certain types of contingency (such as meeting loan guarantee obligations) may be specified as a potential use for such funds.
Obligations that have been entered into, but whose timing and amount are contingent on the occurrence of some uncertain future event. They are therefore not yet liabilities, and may never be if the specific contingency does not materialize.
The misuse by government or political officials of their governmental powers and resources for illegitimate, usually secret, private gain.
Taxes raised and allocated to specific expenditure programs, often through an extrabudgetary fund (see extrabudgetary activities).
The GFSM 2001 refers specifically to a “classification of expenditure by the nature of transaction, that is, whether requited or unrequited, for current or capital purposes, kind of goods or services obtained, and sector or subsector receiving transactions” (IMF, 2001, p. 325). It is generally used to identify the nature and economic effects of government operations. Though not formally described as “economic” in the GFSM 2001, the classification of revenue into current (tax and non-tax), capital, and grants serves a similar purpose.
The term generally refers to sets of government transactions that are not included in the annual budget presentation. These may not be subject to the same level of scrutiny or accounting standards as the annual budget. A wide variety of extrabudgetary arrangements are used, including extrabudgetary funds (such as social security funds) set up under separate legislation that may or may not have a separate annual appropriation. Other examples include commodity funds that use proceeds of commodity aid, specific kinds of revenue for earmarked specific purposes not included in the annual budget, or any other use of public funds that is not appropriated.
A set of policies is sustainable if a borrower is expected to be able to continue servicing its debt without an unrealistically large future correction to the balance of income and expenditure.
Openness toward the public at large about government structure and functions, fiscal policy intentions, public sector accounts, and projections. It involves ready access to reliable, comprehensive, timely, understandable, and internationally comparable information on government activities so that the electorate and financial markets can accurately assess the government’s financial position and the true costs and benefits of government activities, including their present and future economic and social implications (Kopits and Craig, 1998, p. 1).
The GFSM 2001 refers specifically to the COFOG, which is the international standard for classifying expenditures of government according to broad purposes for which transactions are undertaken. It is generally used to measure the allocation of resources by government for the promotion of various activities and objectives (such as health, education, and transportation and communication).
Defined in the SNA as the following group of resident institutional units:
(a) all units of central, state, or local government;
(b) all extrabudgetary funds, including social security funds at each level of government; and
(c) all nonmarket nonprofit institutions that are controlled and financed mainly by government units.
The general government sector can be defined as all the public institutional units that are nonmarket producers. It does not include public corporations, which are market producers, even when all the equity of such corporations is owned by government units.
The accounting rules used to prepare financial statements for publicly traded companies and many private companies in the United States. Generally accepted accounting principles for local and state governments operate under a different set of assumptions, principles, and constraints, as determined by the Governmental Accounting Standards Board. Currently, the Financial Accounting Standards Board sets accounting principles for the profession. The U.S. GAAP provisions differ somewhat from International Financial Reporting Standards, though efforts are under way to reconcile the differences.
Generational accounts are used to assess the distributional implications of fiscal policy for different cohorts. This is accomplished by estimating the present value of net tax payments (taxes paid less benefits received) over the lifetime of different generations under current tax and spending policies. A generation is defined as including all males and females (separately accounted for, because of differing tax and benefits profiles) born in the same range of years. The technique has heavy data requirements and the results depend on a large number of simplifying assumptions. It is generally regarded as a supplementary technique for analysis of sustainability and intergenerational distribution.
The process by which decisions are made and implemented (or not implemented). Within government, governance is the process by which public institutions conduct public affairs and manage public resources. Good governance refers to the management of government in a manner that is essentially free of abuse and corruption, and with due regard for the rule of law.
A comprehensive statement of the assets, liabilities, and net worth (assets less liabilities) of government at a point in time—usually year’s end. In practice, very few governments prepare statements of their financial position that could be described as balance sheets. Adoption of accrual accounting reports and generally accepted methods of asset valuation are prerequisites for a reliable balance sheet presentation.
The most common type is a government-guaranteed loan, which requires the government to repay any amount outstanding amount on a loan in the event of default. In some contracts with a public or private sector entity, the government may provide a revenue or demand guarantee that requires the government to make up the difference if revenue or quantity demanded is below the guaranteed level. Similarly, contracts may also have exchange rate or price guarantees.
Debt consists of all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future. Thus, all liabilities in the government finance statistics (GFS) system are debt, except for shares and other equity and financial derivatives. Net debt includes the stocks of all financial liabilities minus the corresponding financial assets.
Liabilities that reflect noncontractual obligations of government (e.g., potential liabilities arising in connection with financial sector restructuring).
The government (or general) ledger is the book where all transactions by the central government, as a debit or a credit, are recorded. The government ledger is generally maintained by the general accounting office. Each transaction affecting a specific bank account is reflected in a corresponding individual account of the government ledger, thus allowing for a full reconciliation with the bank statement.
A set of accounting standards. Currently they are issued by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (http://www.iasb.org/Home.htm).
An obligation of an entity arising from past transactions or events, the settlement of which results in the transfer or use of assets, provision of services, or other yielding of economic benefits in the future.
A general term used to describe a relatively unsystematic budgetary chart of accounts. In addition to standard votes or “lines” for items such as “salaries and wages,” separate lines for new requirements are introduced as they arise, thus giving rise to lengthy, ad hoc forms for appropriating and accounting for spending.
A framework for integrating fiscal policy and budgeting over the medium term by linking a system of aggregate fiscal forecasting to a disciplined process of maintaining detailed medium-term budget estimates by ministries reflecting existing government policies. Forward estimates of expenditures become the basis of budget negotiations in the years following the budget, and the forward estimates are reconciled with final outcomes in fiscal outcome reports.
Modified accrual accounting differs from accrual accounting in that physical assets are expensed at time of purchase.
Modified cash accounting differs from cash accounting in that it recognizes receipts and disbursements committed in the budget year and allows a specified period after year-end for payments of these to be recorded and reported.
The possibility that the signal or expectation of potential future government support may induce an undesirable change in behavior by management of an enterprise or bank, for example by engaging in more risky activities because some of the potential losses are seen as being effectively underwritten by the government.
A nonfinancial public corporation (state-owned enterprise) that is involved in the exploration, extraction, processing, or sale of minerals or oil.
The net operating balance equals revenue minus expense. The gross operating balance equals revenue minus expense other than consumption of fixed capital.
Equals net operating balance minus the net acquisition of nonfinancial assets. Net lending/borrowing is also equal to the net acquisition of financial assets minus the net incurrence of liabilities. See Box 4.1 in the GFSM 2001 for definitions of other important fiscal policy measures.
Total assets less total liabilities at the end of an accounting period. See Table 4.4: The Balance Sheet in the GFSM 2001. Certain analyses are focused on only the financial assets of the general government sector rather than its total assets. As a result, net financial worth is defined as total financial assets less total liabilities.
Includes unfunded pension obligations, exposure to government guarantees, and arrears (obligatory payments that are not made by the due date), and other contractual obligations. For example, a contract permitting a firm to set up a mine may explicitly or implicitly obligate the government to pay for the cleanup costs when the mine is abandoned.
A legal or social entity created for the purpose of producing nonmarket goods and services, but whose status does not permit them to be a source of income, profit, or other financial gain for the units that establish, control, and mainly finance them. It is a nonmarket producer if themajority of its output isnotsold at an economically significant price.
Goods and services that are not sold at an economically significant price. Economically significant prices are prices that have a significant influence on the amount producers are willing to supply or on the amounts purchasers wish to purchase. See Annex 2 of the GFS Manual 2001 Companion Material: Coverage and Sectorization of the Public Sector (http://www.imf.org/external/pubs/ft/gfs/manual/comp.htm).
In performance assessment in government, outputs are defined as the goods or services produced by government agencies (e.g., teaching hours delivered, welfare benefits assessed and paid); outcomes are defined as the effects on social, economic, or other indicators arising from the delivery of outputs (e.g., student learning, social equity).
This term corresponds to the GFSM 1986 terminology of “Overall Deficit/Surplus,” which is defined as revenue plus grants received less expenditure less “lending minus repayments.” The balance so defined is equal (with an opposite sign) to the sum of net borrowing by the government, plus the net decrease in government cash, deposits, and securities held for liquidity purposes. The basis of this balance concept is that government policies are held to be deficit- or surplus-creating, and thus the revenue or expenditures associated with these policies are “above the line.” Borrowing or a rundown of liquid assets, however, is deficit financing or “below the line.” It should be noted that the term lending minus repayments included above the line covers government transactions in debt and equity claims on others undertaken for purposes of public policy rather than for management of government liquidity or earning a return.
Amounts that have not been paid by the date specified in a contract or within a normal commercial period for similar transactions. Payment arrears may arise from nonpayment by government in such areas as bills due from suppliers, due salaries or transfers, or due debt repayment or service.
The overall balance, excluding interest payments. Because interest payments represent the cost of past debt, and the determinants of future debt that are under policy control of government are other spending and revenue measures exclusive of interest payment, the primary balance is of particular importance as an indicator of the fiscal position in countries with high levels of debt.
“Programs” are groupings of government activities in relation to specific government objectives. Program classification applies this principle across all government activities. Program budgeting attempts to apply cost-benefit analysis to the allocation decision, allocate expenditures by program, and assess results of programs in relation to objectives. A full system of program budgeting (or subsequent proposals such as zero-based budgeting) has not been successfully realized in any country, in large part because of the high information and complex management requirements of such systems.
A legal entity that is owned or controlled by the government and that produces goods or services for sale in the market at economically significant prices. All corporations are members of the nonfinancial corporations sector or financial corporations sector.
An arrangement whereby the private sector provides infrastructure assets and services that traditionally have been provided by government, such as hospitals, schools, prisons, roads, bridges, tunnels, railways, and water and sanitation plants. Cases where the private operator has some responsibility for asset maintenance and improvement are also described as concessions. Although there is no clear agreement on what does or does not constitute a PPP, it should involve the transfer of risk from the government to the private sector.
A classification drawn from sectors and subsectors of the SNA classification consisting of general government and nonfinancial and financial public corporations. It includes all entities that are either owned or controlled by government.
The overall balance of the public sector. It is distinct from public sector borrowing requirement, which is the overall balance of general government plus the net borrowing requirements of nonfinancial public corporations.
Activities undertaken by financial and nonfinancial public corporations, and sometimes by the private sector, at the direction of the government, that are fiscal in character—that is, in principle, they can be duplicated by specific fiscal measures, such as taxes, subsidies, or other direct expenditures, even though precise quantification can in some cases be very difficult. Examples include subsidized bank credit and noncommercial public services provided by a public corporation.
A “what-if” type of analysis to determine the sensitivity of the outcomes to changes in parameters. If a small change in a parameter results in relatively large changes in the outcomes, the outcomes are said to be sensitive to that parameter.
Taxes due to government but not paid. Other arrears in receipts could arise from nonpayment of loans by government or nonpayment of bills for government services.
Concessions or exemptions from a “normal” tax structure that reduce government revenue collection and that, because the government policy objectives could be achieved alternatively through a subsidy or other direct outlays, are regarded as equivalent to a budget expenditure. Precise definition and estimation of tax expenditures thus require definition of the normal base as well as determination of the most appropriate way of assessing costs.
This term refers to future liabilities of government under unfunded (pay-as-you-go) or partially funded public pension schemes. Liabilities for such schemes are generally not recognized in accounting terms until the obligation to pay arises (see IFAC, 2000b), though this will depend on institutional arrangements in particular countries. (These points are under continuing consideration by the IFAC-PSC.) Such future liabilities need to be taken into account in assessing fiscal sustainability over the long term.
Payments made by consumers to providers of government services.