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

196 Paul Boothe
transitional countries has been remarkable, but the adjustment of others has
been less rapid. However, even the most advanced of the transitional economies
still have much unfinished business in managing their finances. (Athukorala
and Reid 2003: 54)
Thus, it may be that because of the environment and challenges they
face, the benefits promised by the advocates of accrual accounting are not
available to developing countries.
One of the key questions developing countries must ask is whether they
have the capacity to implement accrual accounting in the public sector.
Capacity may be very constrained in two key areas: human resources and IT.
As Allen and Tommasi (2001: 306) argue, the level of accounting sophistication
needed to fully benefit from accrual accounts is quite high:
Making accrual accounting effective requires a true and fair recognition of
expenses. Applying only formal accounting rules does not increase transparency.
Accrual accounting therefore requires the availability of many highly
skilled accountants both inside and outside the government.Accrual accounting
can improve transparency but only if decision-makers and the public are well
informed about the nature of the information provided and its financial implications.
This is not always the case, even in many OECD countries where
reporting by the financial media is often inadequate.
Hepworth (2002: 9) focuses on the demanding IT requirements of
accrual accounts:
Without an information technology (IT) capability, it will be difficult to assemble
the information required and provide the information necessary for or
efficient management of operations. More complex IT systems will be required
than those associated with a traditional cash system.
In addition to these capacity constraints, developing countries may face
obstacles related to the underlying state of their revenue collection systems.
In the view of Allen and Tommasi (2001: 298), transition economies in
which tax collection is a problem and tax arrears accumulate may find cash
accounting to be the better option.
The valuation of physical assets and estimation of the cost of long-term
social programs are also problematic. On the issue of public sector pensions,
Allen and Tommasi (2001: 299) suggest that estimation of pension liabilities
is technically demanding and requires sophisticated judgments. These judgments
may be open to manipulation. Such payments should be reported on
a cash basis, with parallel attempts to estimate accrued costs.