Accounting
Government financial accounting has traditionally consisted of providing an out-turn report, comparing the actual payments and receipts with those which were authorised in the budget by parliament.
This approach still forms the basis for the practice of almost all governments across the world. It is a simple and robust approach, which provides assurance through the audit of such accounts that government spending has been in line with the agreed budget and that fraud and other irregularities have been minimised.
Traditionally most governments have used a modified cash basis for accounting for their finances. Thus, expenses are accounted for as they are paid, with accounts being kept open at the end of the year to account for expenses that relate to that year. This still remains the basis for the overwhelming number of the world's governments and even half of those of the most developed countries (Organisation for Economic Co-operation and Development (OECD) members).
International Federation of Accountants (IFAC)
International Federation of Accountants (IFAC) explores budget reporting for governments and need for international public-sector standards
Most governments prepare and issue as public documents their annual financial budgets. These budget documents are usually widely distributed and commented upon in the local media. Monitoring and reporting on budget execution is essential for measuring compliance with parliamentary (or similar) authorisation. Making budget data publicly available is necessary to enable transparent reporting of the government's financial intentions and of its use of taxes. It is fundamental to the financial accountability of governments.
Government budgets are generally approved by parliament and in most cases public-sector spending units have no authority to commit or spend government funds until parliament has provided authority to spend. Although there will be arrangements for necessary, routine spending to be undertaken at the beginning of the financial year before the budget has been passed by parliament.
Many ACCA members see the public sector's accountability primarily in terms of its budget.
IFAC Public Sector Committee
The IFAC Public Sector Committee (PSC), has set itself the task of developing a full set of international public-sector accounting standards and ensuring that these are adopted as widely as possible.
The PSC has issued twenty accrual-basis International Public Sector Accounting Standards (IPSASs). The issuance of those IPSASs, together with the comprehensive Cash Basis IPSAS in early 2003 establishes a core set of financial reporting standards for public-sector entities.
The PSC has now commenced the second phase of its standards-setting programme, which includes the development of guidance on key public-sector-specific issues that are not dealt with by the existing IPSASs. This includes the issue of two Invitations to Comment (ITCs).
- Revenue from Non-Exchange Transactions (Including Taxes and Transfers)
- Proposed International Public Sector Accounting Standard, January 2004
ACCA’s response to the invitation to comment which preceded the above document has been published in our public sector policy papers - Accounting for Social Policies of Governments
- 20 January 2004
ACCA’s response to the above invitation to comment has been published in our public sector policy papers.
Other related reading
- Budget Reporting
- IFAC, May 2004. This research report by Dr. Jesse Hughes, commissioned by the International Federation of Accountants (IFAC) Public Sector Committee (PSC), considers best practices in budget formulation and reporting under differing budget models and government administrative arrangements, and examines whether the development of an International Public Sector Accounting Standard (IPSAS) on budget reporting falls within the PSC's mandate
- Cash Basis IPSAS: Financial Reporting Under The Cash Basis of Accounting
- IFAC, January 2002. IFAC Public Sector Committee has issued a standard for the cash basis of accounting. This standard still adopts a private-sector-style approach, rather than the traditional approach adopted in most countries of comparing the actual payments and receipts with the budget which was originally approved by parliament.