Fiscal Transparency Manual Home
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).
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 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.
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.
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 systems recognize transactions and events when cash
is received or paid.
Reporting based on cash accounting systems.
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.
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.
Taxes raised and allocated to specific expenditure programs, often
through an extrabudgetary fund (see below).
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.
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.
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).
Defined in the SNA as the following group of resident institutional
(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 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
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.
A loan contracted by a nongovernment public sector agency with a guarantee
that the government will repay any amount outstanding in the event
Implicit contingent liabilities
Liabilities that reflect noncontractual obligators of government (e.g.,
potential liabilities arising in connection with financial sector
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.
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
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).
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
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
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.
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 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
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.
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.
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
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.
Payments made by consumers to providers of government services.