Accrual Budgeting: Accounting Treatment of Key Public Sector Items and Implications for Fiscal Policy

Abstract

Budgeting in accrual terms is one of the most controversial issues in public sector accounting. In this paper, we analyze the accounting treatment of problematic elements of the financial statements when introducing accrual budgeting, and discuss the effects of the analyzed accounting alternatives on fiscal policy. We focus on three pioneer countries in the implementation of accrual budgeting and accounting: the United Kingdom, Sweden, and New Zealand. The accounting standards of the International Public Sector Accounting Standards Board, the European System of Accounts, and the Government Finance Statistics Manual of the International Monetary Fund are taken as benchmarks.

Implementing public sector accruals in OECD member states: Major issues and challenges

“…Austria, Belgium, Denmark, Switzerland, Chile and Iceland, have in recent years introduced some degree of accruals in their appropriations, but they have excluded several important elements in the budget, for instance, the projection of public service pensions and the capitalisation of their assets (Blöndal, 2015). Such a lack of interest amongst member states to instigate accrual budgeting reforms is also evident in the bulk of academic work (Marti, 2006;Jones, Lande, Luder, & Portal, 2013;Brusca, Montesinos, & Chow, 2013).…”

Accounting basis adjustments and deficit reliability: Evidence from southern European countries

“…cash or modified cash-based (Anessi-Pessina & Steccolini, 2007;Anessi-Pessina, Nasi, & Steccolini, 2008;Bastida & Benito, 2007;Benito & Bastida, 2009;Lüder & Jones, 2003;Sterck, 2007;Sterck, Conings, & Bouckaert, 2006). Only very few countries, like Australia, New Zealand and United Kingdom, have introduced full accrual basis in both subsystems (Martí, 2006;Montesinos & Brusca, 2009;Sterck et al, 2006), making them to be considered the leaders for the convergence between the two reporting systems, GA and NA (Broadbent & Guthrie, 2008). In Continental Europe, except for the cases of Switzerland and Austria, who recently introduced accrualbased budgets (Bergmann, 2012;Seiwald & Geppl, 2013), in most European Continental countries, e.g.…”

“…Some literature emphasises differences related to recognition criteria: under NA full accrual basis is preponderant, while GA considers, as stated before, a great diversity of accounting bases, mostly accrual for financial systems, but mainly cash/modified cash-based for budgetary systems (Barton, 2007;Cordes, 1996;Jones & Lüder, 1996;Lüder & Jones, 2003;Martí, 2006;Montesinos & Vela, 2000;Torres, 2004).…”

“…Otherwise, NA is essentially a statistical system focusing on five sectors within a single economy: two for business activities (finance and non-finance companies), one for non-profits entities, one for households and one for government, known as General Government Sector (GGS), to which GA is applied (Jones & Lüder, 1996;Jones, 2000a;Martí, 2006). This system works over an economics and statistically-based conceptual framework and applies to economic activities taking place within an economy and also between it and the rest of the world (IPSASB, 2012).…”

Running the Obstacle Race towards Public Accounting Harmonization in EU-28: A Temporal Study

“…Dabbicco, 2013;Giovanelli, 2006;Keuning and Van Tongeren, 2004;Lüder, 2000;Montesinos and Vela, 2000;Martí, 2006), while Caperchione and Lapsley (2011, p. 103) noted the lack of empirical-quantitative studies.…”