Question

PUBLIC SECTOR ACCOUNTING ASSIGNMENT

CASH vs ACCRUAL ACCOUNTING IN PUBLIC SERVICES

Transition from cash based accounting to modified accrual accounting has imperatively been slow but a gradually evolving global movement across the nation which is being undertaken by majority state and local governments over past two decades. This migration from cash to modified accrual accounting was being called from increased demand for accountability and transparency in the public sector which only the use of cash accounting was not able to suffice. Therefore, the Public Service Committee [PSC] of International Federation of Accountants [IFAC] has been continually putting forward words of encouragement to adopt the International Public Sector Accounting Standards [IPSAS] to all developing nations.

Many countries has made several attempts to achieve this on two previous occasions back in the years 1994 and 1998, however the project of migration was put aside on both occasions. Besides that, in the year 2005 a similar attempt was made, yet public service ended up adopting a different approach which was used in the previous unsuccessful attempts. Despite of many years of attempts, many countries are still in the process of this migration. It was noted that overall unstable government and regular coups created hindrance in the progress of fast migration towards modified accrual accounting.

Therefore, modified accrual accounting is yet to be effectively blended into the accounting systems of one countries public service. IFAC has signified that there may have been certain “factors” that has influenced the migration of cash based accounting to modified accrual accounting and made it a slow progress.

DISCUSSION POINT 1: From your viewpoint what could have been these factors that IFAC is placing emphasis on?

Required: Students must include a reference list [Mandatory] – APA referencing style AND in writing the report, the emphasis should be placed on the above mentioned discussion point [content/body of the assignment]

Answer 1

The migration from cash-based accounting reports to accrual-based accounting reports is far easier said than done. For countries such as Australia and New Zealand, despite their highly skilled and relatively well-paid public service, the transition has been quite difficult and there are many issues yet to be resolved. For example, what value should be placed on community assets and heritage assets and how should they account for and value BOOT (build, own, operate, transfer) projects. As noted, for developing economies with low-skilled and transient labor forces and out-of-date infrastructure, these difficulties are intensified. Irrespective of these issues, developing nations are also expected to, and are attempting to, move to accrual accounting. For many developing nations, their aid funds are linked to them modernising their accounting information systems and, by implication, adopting accrual accounting. For Fiji, the project is continuing at a very slow pace. The size of the project has been down-sized considerably from the initial implementation. Personnel training is more structured and focused. The expertise is residing rather than visiting from overseas. The expertise will oversee the completion of the whole project rather than consult only on managing the software. Furthermore, managers of the change now appreciate that the move to accrual accounting involves substantially more than just changing the accounting software. However, vital questions still remain.

1. Will key personnel, after being trained in accrual accounting, leave for the local or overseas private sector for larger salaries and other benefits? Unless the public sector is able to meet private sector remuneration (which seems very unlikely for this small nation), high labor turnover of skilled personnel is likely to continue. It is noteworthy that governments of developed nations also experience difficulties in attracting and keeping highly skilled accounting personnel. They also depart for the more attractive remuneration of the private sector (Taylor, 2005).

2. Are the project leaders, once again, underestimating the amount of training that is required of personnel whose task it will be to implement accrual accounting procedures on a daily basis?

3. Is the government of this nation prepared to make a large investment into upgrading the required infrastructure (e.g., computer hardware)? An upgrade will be required for the proper accounting of assets and liabilities, asset management, and stronger internal control procedures. It is possible that the government of this nation might not be able to afford the investment required.

4. Will the public servants, not presently involved in the accrual accounting project, enthusiastically embrace the change that accrual accounting will bring and will they willingly undertake the required on-the-job training when the reforms reach their branch? Many of the public servants have been involved in accrual accounting training on the two previous occasions and will, most likely, be pessimistic about the future of another attempt.

With these difficulties expected, it is anticipated that, for this nation, it will take many years for the full migration from cash to accrual accounting to be complete. To the present investigator, the main questions to be answered are: “Is it worthwhile for this and other developing nations to adopt accrual accounting?” “Will the benefits outweigh the costs?” “Will the accrual accounting reports lead to better decision-making from government departments?” To be fair, these questions remain unanswered, not only for developing nations pursuing accrual accounting, but also for developed nations that have made the move.