Managerial Accounting
Topic:
Role of Govt. Departments in implementing
the accounts, policies in books of accounts
Submitted to:
Submitted by:
Kashif Sultan
Roll#: 58
5th semester Eve (BBA hons)
The term accrual accounting has come to be associated with four related innovations in
government accounting over the last several decades. These innovations are:
Accrual accounting therefore offers a number of benefits over traditional cash accounting
from the point of view of government transparency, accountability, and financial
managemen
At the same time, as discussed later this note, governments need to establish a well-
functioning cash accounting system before contemplating a move to accrual accounting.
Comprehensive and timely monitoring of cash reserves and flows is vital to evaluating a
government financing needs at any point in time. Accounting for uses of cash is also
important to ensuring the integrity of the government finances and ensuring that all cash
receipts and payments are authorized by law. Finally, most government budgets are on a
cash or modified cash basis, therefore effective monitoring of cash receipts and outlays is
needed to report on the execution of the budget even after moving to full accrual
accounting. This note provides those governments contemplating a move toward accrual
accounting with guidance on the preparation, sequencing, and implementation of the
reforms.
Section II describes the key tasks in preparing for transition to accrual accounting;
Section III discusses the issues in sequencing the transition to accrual accounting;
Section IV describes the content of government financial statements, accounting policies,
and management systems under a system of Cash Accounting (Phase Zero);
Section VII describes the final set of reforms to the governments accounting framework
require to complete the transition to Full Accrual Accounting (Phase Three);
Section VIII concludes with some reflections on the lessons from experience from
countries that have successfully made the transition from cash to accrual accounting;
Political support and technical leadership are important prerequisites for the reform.
Countries considering implementing accrual accounting in the public sector will come to the
task from a range of different starting points, objectives, capacities, systems, and traditions.
High- level leadership within the executive and support from the legislature and supreme
audit institution are essential to ensuring that the accrual information is produced,
understood, and used for fiscal decision-making, management, and accountability. In
addition, the support of senior officials is critical to drive the change, ensure that
momentum is maintained and that technical obstacles are overcome during the transition.
This must include commitment of the necessary resources to implement the reform. Where
such a prerequisite is not met, countries should start by implementing reforms with a
limited scope
Preparation for transition will typically involve the following preliminary tasks
Consolidation of institutions
CONCLUSION: LESSONS FROM EXPERIENCE
In addition to the specific policy and operational guidance provided above, there are a
number of more general lessons than can be gleaned from the experience of those
countries that have implemented accrual accounting in the public sector:
First, the pace, scope, and sequencing of the reform depends crucially on the desired
objectives. Countries focusing on improving management of government property
may prioritize recognition of fixed assets over recognition of pensions or financial
instruments in government balance sheets. Countries wanting to enhance surveillance
of public enterprises may consolidate these entities in financial statements before
bringing in local governments.
Second, implementing accrual accounting is about much more than adopting new
standards. Standards set principles, but most of the challenges reside in implementing
these principles. This requires the collection of additional data, reforms to business
processes, modernization of IT systems, and capacity building both within and outside
of government.
Third, it is important to preserve the benefits of cash and budgetary accounting even
after completing the transition to accrual accounting. Adopting accrual accounting
should not and does not imply an end to reporting hard data on government cash
flows and reserves. Moreover, presentation of financial statements in line with
international standards should not and does not imply no longer presenting outturn
data in format comparable with the annual budget.
Fifth, implementing accrual accounting in the public sector takes a long time. Few
countries have done it in less than three years and many countries have taken more
than ten. Moreover, publishing the first set of financial statements is not the end of
the story. Countries continue to improve the quality, coverage, timeliness, and
relevance of their financial data many years after publication of their first set of
accrual accounts.