Public Accounting
Introduction
Traditionally, cash basis of accounting has been used in the public sector; however, in recent years extensive debates have emphasised whether a move to accruals basis of accounting would be more feasible. The proponents argue for such a change due to the benefits accruals basis has to offer. There are still heavyweight supporters for cash basis such as IFAC – a body that issued 21 IPSAS based on IMF, EU Commission, and IFRS / IAS (Jorge Faustino, 2008). Moreover, there are several organisations such as DFID and SIGMA that extensively operate in developing and transnational economies and argue that for such countries transition from accrual to cash basis should be given priority (Cangiano, Curristine and Lazare, 2013). Although, such a move hasn’t received universal acceptance, there have been continuous efforts nonetheless in such direction. In Europe at least, there are still significant doubts over such an exchange with various countries against such change.
The paper aims to explain why (or not) an accrual-based accounting system would be an ideal choice and whether it would be based (or not) on IPSAS both at local and central levels. In continuation, provides evidence of adoption (or not) of accrual-based accounting system by other governments around the world.
Different public sector accounting systems
Two basic accounting methods – the accrual method and cash method, are widely used to determine how and when to report expenses and income in the books of accounts (Terkper and Terkper, 2008). Although the nature of transactions remains unchanged, the two differ in their timing of recognition of expenses and income in the books of accounts (Tracy, 2011). Whilst accrual basis records transactions in the general ledger when transactions occur (i.e. the date of transaction / event), cash basis on the contrary records transactions when cash inflows and outflows relating to the transactions occur (Bankman, Griffith and Pratt, 2008). Hence, income and
Traditionally, cash basis of accounting has been used in the public sector; however, in recent years extensive debates have emphasised whether a move to accruals basis of accounting would be more feasible. The proponents argue for such a change due to the benefits accruals basis has to offer. There are still heavyweight supporters for cash basis such as IFAC – a body that issued 21 IPSAS based on IMF, EU Commission, and IFRS / IAS (Jorge Faustino, 2008). Moreover, there are several organisations such as DFID and SIGMA that extensively operate in developing and transnational economies and argue that for such countries transition from accrual to cash basis should be given priority (Cangiano, Curristine and Lazare, 2013). Although, such a move hasn’t received universal acceptance, there have been continuous efforts nonetheless in such direction. In Europe at least, there are still significant doubts over such an exchange with various countries against such change.
The paper aims to explain why (or not) an accrual-based accounting system would be an ideal choice and whether it would be based (or not) on IPSAS both at local and central levels. In continuation, provides evidence of adoption (or not) of accrual-based accounting system by other governments around the world.
Different public sector accounting systems
Two basic accounting methods – the accrual method and cash method, are widely used to determine how and when to report expenses and income in the books of accounts (Terkper and Terkper, 2008). Although the nature of transactions remains unchanged, the two differ in their timing of recognition of expenses and income in the books of accounts (Tracy, 2011). Whilst accrual basis records transactions in the general ledger when transactions occur (i.e. the date of transaction / event), cash basis on the contrary records transactions when cash inflows and outflows relating to the transactions occur (Bankman, Griffith and Pratt, 2008). Hence, income and
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