Accrual accounting and fiscal discipline in Government - Business - Jamaica Gleaner - Friday | December 28, 2012:
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Don Wehby, Financial Gleaner Guest Columnist
By Don Wehby, Financial Gleaner Guest Columnist
In view of the global financial crisis and recent debt crises in several countries, there has been growing recognition worldwide of the need to strengthen public-sector financial systems and procedures.
In view of the global financial crisis and recent debt crises in several countries, there has been growing recognition worldwide of the need to strengthen public-sector financial systems and procedures.
This has been accompanied by increased demand for accountability and transparency.
Many countries, initially using cash-based accounting, have moved to more sophisticated modified cash or accrual-based accounting.
When one considers how cash accounting actually distorts the true picture, then the case for accrual becomes even more evident.
In Jamaica, there is the non-recording of pension liabilities, arrears to suppliers, tax on interest refund arrears and deferred financing, to name a few disadvantages. All of these are significant liabilities which are not recorded when incurred.
The accrual accounting method recognises expenses when they are incurred and revenue when it is earned, rather than when payment is made or received - for example, sales are recorded as revenue when goods are shipped even though payment is not expected for days, weeks, or months.
Most firms use the accrual basis of accounting in recording transactions.
A recent report from the International Public Sector Accounting Standards Board stated that over 80 countries have either adopted, or have processes in place to adopt these international accounting standards for public-sector financial management reporting. They include New Zealand, Australia, Italy, Germany, the Cayman Islands and Barbados.
Our country's own macroeconomic performance in the last 20 years indicates that there is dire need to strengthen the system of public-sector financial management. In this period, economic growth has averaged in the region of one per cent.
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