Why is fiscal management machinery not living up to its promise? What are the factors impeding its full potential, and how can these factors be addressed? This book writes about fiscal machinery in general, but it surveys recent advances made in Australia, New Zealand, the UK and the US.
This chapter starts with the premise that government accounting has suffered from prolonged neglect in recent years. In the debates about the tasks of government and the design of institutions, the discussion on accounting has been low-key. However, the accounting system is expected to play a crucial role in policy formulation and the data produced by the accounting system makes a decisive contribution.
The two major features associated with conventional accounting systems relate to single-entry bookkeeping and cash basis. Gradual progress is being made towards the introduction of accrual accounting via a ‘modified accrual’ system.
- Cash-based systems show capital outlays at the time they are expensed rather than when they are consumed
- They have proven to be narrow in that they are not inherently capable of revealing the full picture of the government’s monetary liabilities.
- Accrual accounting can improve internal decision-making within governments through an open portrayal of liabilities and assets.
- Although there are issues inherent in the accrual system that suggest caution, accrual represents a moderate improvement over cash basis in that receivables and payables have greater recognition.
- The introduction of the accrual system may not in itself improve fiscal reporting unless efforts are made to make financial statements more understandable.
The future management of public expenditure is likely to evolve around costs, and thus will move away from the process controls that have characterised the system so far. Cost accounting deals with the identification and measurement of resources used in the provision of a service or product. Installing cost accounting machinery will require adapting the structure of the budget.
- Cost accounting means that the government will have to provide cost- based information. The accrual system has the potential to provide a reliable basis for the calculation of costs.
- The accrual system has the potential for providing, in the form of properly calculated costs, a substantial anchor to expenditure management.
- A cost or illustrated-activity accounting system would have the potential of aiding the decision- maker in budget formulation and implementation.
- Ideally the budget classification would permit a clear display of the costs associated with each objective so that legislators and the public better understand the operations of government.
- In most government activities, calculated costs tend to be statistical attributions rather than accounting realities. To affect these realities a qualitative change in day-to-day management of government accounting systems is needed.
