Implementing Accrual Accounting in the Public Sector

Technical Notes and Manuals, September 15, 2016

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Technical Note and Manual (TNM) explaining what accrual accounting means for the public sector and discussing current trends in moving from cash to accrual accounting.
Outlines factors governments should consider in preparing for the move and sequencing the transition.
Recognizes differing starting points across the public sector, differing objectives, and varying coverage of existing financial statements.
Recommends that governments consider each of these differences and the materiality of stocks, flows, and entities outside of government accounts when planning reforms and designing sequencing and stages.

Governments considering accounting reforms have heterogeneous starting points, objectives, and coverage of financial statements.
Materiality assessment of stocks, flows, and entities outside government accounts is central to planning reforms.
International experiences inform a proposed phased approach to expanding financial operations reported in balance sheets and operating statements.
Ultimate aim is to include all institutional units under the effective control of government in fiscal reports.

The note proposes four possible phases for progressively increasing the financial operations reported in:
- the balance sheet, and
- the operating statement.
Each phase reflects a progressive expansion toward comprehensive fiscal reporting that includes all institutional units under government effective control.

Assess the current coverage and materiality of stocks, flows, and entities outside government accounts before planning reforms.
Design reform sequencing and stages tailored to:
- different starting points across the public sector,
- differing government objectives,
- varying coverage of existing financial statements.
Build on international experiences when selecting phases and implementation steps.
Aim for eventual inclusion of all institutional units under effective government control in fiscal reports.

Subject: Accounting standards, Accrual accounting, Currencies, Financial statements, Fiscal accounting and reporting, Money, Public financial management (PFM)
Keywords: accounting policy, accounting standards, accounts payable, accrual accounting, Africa, Australia and New Zealand, cash accounting, cash balance, cash basis, cash flow, central government, Currencies, equity investment, Financial statements, Fiscal accounting and reporting, GFSM, government accounting, government financial reporting, IPSAS, local government, modified cash basis, TNM