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Accounting basis

    Defined in IFAC (2000a) as "the body of accounting principles that determine when the effects of transactions or events should be recognized for financial reporting purposes. It relates to the timing of the measurements made, regardless of the nature of the measurement." There are many variations of the accounting basis. IFAC identifies two basic reference points (cash and accrual) and two variations (modified cash and modified accrual).

Accounting system

    The set of accounting procedures, internal mechanisms of control, books of account, and plan and chart of accounts that are used for administering, recording, and reporting on financial transactions. Systems should embody double entry bookkeeping, record all stages of the payments and receipts process needed to recognize accounting transactions, integrate asset and liability accounts with operating accounts, and maintain records in a form that can be audited.

Accrual accounting

    Accrual accounting systems recognize transactions or events at the time economic value is created, transformed, exchanged, transferred, or extinguished, and all economic flows (not just cash) are recorded.

Accrual reporting

    Reporting based on accrual accounting systems.


    Flows of goods and services with no payment in money or debt instruments in exchange. In some cases, "commodity aid" goods (such as grain) are subsequently sold and the receipts are used in the budget, or more commonly through a special fund, for public expenditure.


    Refers to an authority under a law given by the legislature to the executive to spend public funds for a specified purpose. Annual appropriations are made through annual budget laws. Supplementary budgets/appropriations are sometimes granted subsequent to the annual law if the annual appropriation is insufficient to meet the purpose. "Standing appropriation" is sometimes used for authority extending beyond a single budget year under separate legislation (such as social security legislation). In some countries, such as the United States, the term "authorization" is used to denote a general law setting up a program and permitting appropriation but not giving any specific authority to spend. In most countries, agencies and departments require specific executive authorization ("apportionment, allotment, or warrant") to actually incur an obligation against appropriation.

Augmented balance

    The overall balance plus any losses incurred by the central bank, and any issuance of government debt to recapitalize public financial institutions not recorded in the overall balance.

Cash accounting

    Cash accounting systems recognize transactions and events when cash is received or paid.

Cash reporting

    Reporting based on cash accounting systems.

Central government

    All government units that are agencies or instruments of the central authority of a country and that are covered by or financed through the budget or extrabudgetary funds at that level.


    In accounting usage, commitments refer to a stage in the expenditure process at which contracts or other forms of agreement are entered into, generally for future delivery of goods or services. A liability will not be recognized until delivery of the item, but the government is contractually committed to meeting the obligation once delivery is made. The term is also used in a more general, noncontractual sense to mean firm promises of the government made in policy statements.

Contingency funds or reserves

    A separate fund or a budget provision set aside to meet unforeseen and unavoidable requirements that may arise during the budget year. Certain types of contingency (such as meeting loan guarantee obligations) may be specified as a potential use for such funds.

Contingent liabilities

    Obligations that have been entered into, but the timing and amount of which are contingent on the occurrence of some uncertain future event. They are therefore not yet liabilities, and may never be if the specific contingency does not materialize.

Earmarked taxes

    Taxes raised and allocated to specific expenditure programs, often through an extrabudgetary fund (see below).

Economic classification

    The current GFS Manual refers specifically to a "classification of expenditure by the nature of transaction, that is, whether requited or unrequited, for current or capital purposes, kind of goods or services obtained, and sector or subsector receiving transactions" (p. 325). It is generally used to identify the nature and economic effects of government operations. Though not formally described as "economic" in the GFS, the classification of revenue into current (tax and nontax), capital, and grants serves a similar purpose.

Extrabudgetary funds

    The term generally refers to sets of government transactions that are not included in the annual budget presentation. These may not be subject to the same level of scrutiny or accounting standards as the annual budget. A wide variety of extrabudgetary arrangements are used, including funds (such as social security funds) set up under separate legislation, commodity funds that use proceeds of commodity aid, and earmarking specific kinds of revenue for specific purposes.

Functional classification

    The current GFS Manual refers specifically to the Classification of the Functions of Government (COFOG), which is the international standard for classifying expenditures of government according to broad purposes for which transactions are undertaken. It is generally used to measure the allocation of resources by government for the promotion of various activities and objectives (such as health, education, and transportation and communication).

General government

    Defined in the SNA as the following group of resident institutional units:

    (a) all units of central, state, or local government;
    (b) all social security funds at each level of government; and
    (c) all nonmarket, nonprofit institutions that are controlled and mainly financed by government units.

    The sector does not include public corporations, even when all the equity of such corporations is owned by government units. It also does not include quasi-corporations that are owned and controlled by government units. However, unincorporated enterprises owned by government units that are not quasi-corporations remain integral parts of those units and, therefore, must be included in the general government sector.

Government balance sheet

    A comprehensive statement of the assets, liabilities, and net worth (assets less liabilities) of government at a point in time--usually year-end. In practice, very few governments prepare statements of their financial position that could be described as balance sheets. Adoption of accrual accounting reports and generally accepted methods of asset valuation are prerequisites for a reliable balance sheet presentation.

Generational accounting

    Generational accounts are used to assess the distributional implications of fiscal policy for different cohorts. This is accomplished by estimating the present value of net tax payments (taxes paid less benefits received) over the lifetime of different generations under current tax and spending policies. A generation is defined as including all males and females (separately accounted for, because of differing tax and benefits profiles) born in the same year. The technique has heavy data requirements and the results depend on a large number of simplifying assumptions. It is generally regarded as a supplementary technique for analysis of sustainability and intergenerational distribution.

Government-guaranteed loan

    A loan contracted by a nongovernment public sector agency with a guarantee that the government will repay any amount outstanding in the event of default.

Implicit contingent liabilities

    Liabilities that reflect noncontractual obligators of government (e.g., potential liabilities arising in connection with financial sector restructuring).

Individual government ledger accounts

    The government (or general) ledger is the book where all transactions by the central government, as a debit or a credit, are recorded. The government ledger is generally maintained by the general accounting office. Each transaction affecting a specific bank account is reflected in a corresponding individual account of the government ledger, thus allowing for a full reconciliation with the bank statement.

Line-item budgeting

    A general term used to describe a relatively unsystematic budgetary chart of accounts. In addition to standard votes or "lines" for items such as "salaries and wages," separate lines for new requirements are introduced as they arise, thus giving rise to lengthy, ad hoc forms for appropriating and accounting for spending.

Medium-term budget framework

    A framework for integrating fiscal policy and budgeting over the medium-term by linking a system of aggregate fiscal forecasting to a disciplined process of maintaining detailed medium-term budget estimates by ministries reflecting existing government policies. Forward estimates of expenditures become the basis of budget negotiations in the years following the budget and the forward estimates are reconciled with final outcomes in fiscal outcome reports.

Modified accrual accounting

    Modified accrual accounting differs from accrual accounting in that physical assets are expensed at time of purchase.

Modified cash accounting

    Modified cash accounting differs from cash accounting in that it recognizes receipts and disbursements committed in the budget year and allows a specified period after year-end for payments of these to be recorded and reported.

Moral hazard

    The possibility that the signal or expectation of possible future government support may induce an undesirable change in behavior by management of an enterprise or bank, for example by engaging in more risky activities because some of the potential losses are seen as being effectively underwritten by the government.

Outputs and outcomes

    In performance assessment in government, outputs are defined as the goods or services produced by government agencies (e.g., teaching hours delivered, welfare benefits assessed and paid); outcomes are defined as the impacts on social, economic, or other indicators arising from the delivery of outputs (e.g., student learning, social equity).

Overall balance

    This term corresponds to the GFS terminology of "Overall Deficit/Surplus," which is defined as revenue plus grants received less expenditure less "lending minus repayments." The balance so defined is equal (with an opposite sign) to the sum of net borrowing by the government, plus the net decrease in government cash, deposits, and securities held for liquidity purposes. The basis of this balance concept is that government policies are held to be deficit or surplus creating and thus the revenue or expenditures associated with these policies are "above the line." Borrowing or a rundown of liquid assets, however, are deficit financing or "below the line." It should be noted that the term lending minus repayments included above the line in the current GFS covers government transactions in debt and equity claims on others undertaken for purposes of public policy rather than for management of government liquidity or earning a return.

Payment arrears

    Amounts that have not been paid by the date specified in a contract or within a normal commercial period for similar transactions. Payment arrears may arise from nonpayment by government in such areas as bills due from suppliers, due salaries or transfers, or due debt repayment or service.

Primary balance

    The overall balance excluding interest payments. Since interest payments represent the cost of past debt, and the determinants of future debt that are under policy control of government are other spending and revenue measures exclusive of interest payment, the primary balance is of particular importance as an indicator of the fiscal position in countries with high levels of debt.

Program budgeting/program classification

    "Programs" are groupings of government activities in relation to specific government objectives. Program classification applies this principle across all government activities. Program budgeting attempts to apply cost-benefit analysis to the allocation decision, allocate expenditures by program, and assess results of programs in relation to objectives. A full system of program budgeting (or subsequent proposals such as zero-based budgeting) has not been successfully realized in any country, in large part because of the high information and complex management requirements of such systems.

Public sector

    A classification drawn from sectors and subsectors of the SNA classification consisting of general government and the public subsectors of nonfinancial and financial corporations. The principle of classification is that of government ownership and/or control rather than function (as in the primary classification of SNA). An important subdivision within this sector for fiscal analysis purposes is the "nonfinancial public sector" comprising general government and nonfinancial public enterprises.

Public sector balance

    The overall balance of the public sector. It is distinct from public sector borrowing requirement, which is the overall balance of general government plus the net borrowing requirements of nonfinancial public enterprises.

Quasi-fiscal activities

    Activities (under the direction of government) of central banks, public financial institutions, and nonfinancial public enterprises, that are fiscal in character--that is, in principle, they can be duplicated by specific fiscal measures, such as taxes, subsidies or other direct expenditures, even though precise quantification can in some cases be very difficult. Examples include subsidized bank credit and noncommercial public services provided by an enterprise.

Supplementary budgets/appropriations

    (see appropriations)

Tax arrears

    Taxes due to government but not paid. Other arrears in receipts could arise from nonpayment of loans by government or nonpayment of bills for government services.

Tax expenditures

    Concessions or exemptions from a "normal" tax structure that reduce government revenue collection and, because the government policy objectives could be achieved alternatively through a subsidy or other direct outlays, the concession is regarded as equivalent to a budget expenditure. Precise definition and estimation of tax expenditures thus require definition of the normal base as well as determination of the most appropriate way of assessing costs (i.e., by revenue foregone or the expenditure required to achieve the policy objective).

Unfunded public pension liabilities

    This term refers to future liabilities of government under unfunded (pay-as-you-go), or partially funded public pension schemes. Liabilities for such schemes are generally not recognized in accounting terms until the obligation to pay arises (see IFAC, 2000a), though this will depend on institutional arrangements in particular countries. (These points are under continuing consideration by the IFAC-PSC.) Such future liabilities need to be taken into account in assessing fiscal sustainability over the long term.

User charges

    Payments made by consumers to providers of government services.


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