This technical note addresses the following main questions:
What is accrual accounting?
What are the reasons for moving from cash to accrual accounting?
What are the differences between accrual accounting and accrual budgeting?
What are the main steps to be taken in moving from cash to accrual accounting?
What are the preconditions for introducing accrual accounting?
How should a move to accrual accounting be sequenced and managed in relation to the government’s overall agenda for public management reform?
IFAC (International Federation of Accountants), 2003, Transition to the Accrual Basis of Accounting: Guidance for Governments and Government Entities (Second Edition), December 2003.
IFAC (International Federation of Accountants), 2005, International Public Sector Accounting Standards (IPSASs) and Statistical Bases of Financial Reporting: An Analysis of Differences and Recommendations for Convergence, January 2005.
An earlier version of this note was previously issued as part of a series of technical notes on the IMF’s Public Financial Management Blog (http://blog-pfm.imf.org).
Abdul Kahn is a Senior Economist in the Fiscal Affairs Department; Stephan Mayes is a Public Finance Management Advisor at the IMF Regional Technical Assistance Center in Dar es Salaam, Tanzania.
GFSM 2001 suggests that statistics for the public sector rather than the general government sector are more suited for fiscal analysis.
The relationship between accrual accounting and accrual budgeting is discussed below.
The initial valuation and periodic depreciation of heritage assets, for example, can be difficult and contentious, and may require sustained effort over a period of years. A pragmatic approach may be necessary to ensure that the efforts are commensurate with the expected fiscal policy and management benefits.
For example, in some countries a capital charge has been introduced as part of an accrual-budgeting system to provide incentives to agencies to minimize the cost of owning and holding assets, in order to release resources for other more productive uses. However, there are differences of opinion on the effectiveness of such measures.
Indeed, some of these would be desirable even in a well functioning cash accounting system.