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The author is grateful for the many helpful comments received from his colleagues in the Fiscal Affairs Department, IMF, and in particular the invaluable assistance of Messrs. Lienert, Prakash, Desai, and Olliffe. Mr. Weisman, Statistics Department of the IMF, also made valuable comments. The remaining errors remain the author’s.
Currently about half of all OECD member countries have adopted accruals to some degree. There are great variations, however, on the extent of this movement: some at agency and ministry level financial reporting; some to whole of government financial reporting; and some others to budgeting. See OECD (2002).
Such as those required by the Maastricht criteria.
It should be noted that the IMF’s standards for the reporting of GFS emphasizes accrual concepts as a statistics standard and not an accounting standard, whose design is for macroeconomic analysis of fiscal data. See IMF (2001).
Even government debt has to be recorded through subsidiary registers, and balances carried forward. The formal cash accounts carry forward only one balance—the cash balance.
Also, for example, generally accepted accounting principles leave investment in human capital off the balance sheet along with projected receipts, the tax base or the power to tax, as assets.
Hence, on an accrual basis, the recording of flows should occur when economic value is exchanged or transferred (economic transactions), or created, extinguished, or transformed (other economic flows).
“As reporting is but one aspect of the whole management cycle (planning, short-term budgeting, implementation, performance monitoring and reporting), it is a truism that management planning and budgeting in the public sector should be undertaken using the same basis of accounting to ensure the benefits of reforms are achieved,.” (see Mellor, 1996, pp. 78–81).
Hood (1991,1995), described the New Public Management as centrally involving, first, a lessening or removing of difference between the public and private sector, and, second, seeking a shift in emphasis from process accountability to accountability in terms of results.
The use of accrual appropriations is now a feature of the Australian “accrual output budgeting” approach. For a description of the general outlines of the system, see, for example, Australia, Department of Finance and Administration (1999).
Ideally, the appropriation for output purchases should be made on the basis of a contestable market price, i.e., agencies should be invited to quote prices for the provision of the goods and services the government is contemplating buying from them that would be compared to alternative quotations from private sector suppliers where available. In practice, this is likely to occur only in exceptional cases.
The approach of the recent French reforms; see France, Ministère de l’Economie, des Finances et de l’Industrie (2001).
As indicated previously, there is a wider question about how national pay-as-you-go pension schemes are treated under accrual accounting, which is alternately a question of defining a liability under accrual accounting. Present practice requires us to treat future public service pension costs as a liability and thus recognize the emerging expense, but not future national pension costs. Thus GFSM 2001 recognizes only liabilities for government employer pension schemes, and not social security, with contingent liabilities included only as a memorandum item.
As succinctly put: “accruals is not a “magic bullet” for improving the performance of the public sector. It is simply a tool for getting better information about the true cost of government. It needs to be used effectively and in tandem with a number of other management reforms in order to achieve the desired improvement in decision-making in government.” (OECD, 2002, p. 11.)
There are not too many differences between “old” and “new” GFS classifications for expenses/expenditures and revenues, although since “expense” is conceptually different from “expenditure” this could create confusion. Certainly, when planning a new chart of accounts and designing future information systems it might be expedient to begin by adopting the new classifications.
Expenses are the consumption or loss of future economic benefits resulting in the reduction of assets or increases in liabilities. They contribute to an accrual fiscal indicator. Expenditures are above-the-line cash payments that contribute to a cash fiscal indicator.
Other specific examples are discussed in section 4.49 of GFSM 2001.
For example, depreciating new buildings 100 percent in the first year, so as to reflect the entire “capital cost” as an expenditure in the same fiscal year (as Canada); valuing heritage assets by a token value, etc. Others eliminate the difference between “expense” and “expenditure” by assuming immediate consumption of stocks on purchase, etc.