Public Sector Governance and Accountability Series: Budgeting and ...

Accrual Accounting in the Public Sector 185
accountability is better served by accrual accounting, which recognizes
expenses when they are deemed to have been incurred, rather than when
they were actually paid, as in cash accounting.
Athukorala and Reid (2003: 2) also review the arguments in favor of
accrual accounting in the public sector:“At one extreme, supporters of accrual
accounting in government argue that ‘if it’s good enough for the private sector,
it’s good enough for the public sector.’” Athukorala and Reid go on to list the
main arguments in favor of accrual:
It matches with national accounts economic statistics.
It recognizes transactions when they occur rather than when cash is paid.
It separates ongoing spending from capital spending.
It gives better information on the sustainability of policies.
It discloses liabilities such as public sector pensions.
It promotes intergenerational fairness.
It identifies payments arrears.
They argue that accrual accounting is the preferred approach for
industrial countries:
In summary, evidence suggests that at the aggregate level, accrual-based fiscal
indicators provide better information about the sustainability of fiscal policies
(for instance, the effects of pension policies on a government’s balance sheet are
disclosed) and provide a stronger basis for government accountability (accrual
accounting information can not be manipulated as easily as cash-based information).
Furthermore, accrual-based fiscal indicators arguably provide a better
measure of the effects of government policies on aggregate demand; and, at the
organization level, accrual-based financial statements provide better measures
of organizational efficiency and effectiveness. Accrual-based financial information
also reduces opportunities for fraud and corruption, particularly as regards
stewardship of assets. (Athukorala and Reid 2003: 28)
Concerns Regarding Accrual Accounting in the Public Sector
Despite the enthusiasm of international institutions and some professional
accounting organizations for accrual accounting in the public sector, there is
a sizable body of opinion to the contrary. The criticisms range from concerns
over technical issues such as the valuation of assets to broader questions
regarding differences in the requirements of the public sector versus the
private sector and democratic accountability.
A fundamental concern arises over the question of whether the accounting
requirements of private and public sector organizations are comparable