Discuss about the International public sector accounting and finance.
There are observed evidences to reflect that there is need of accountability as well as transparency in public sector of Nigeria. New Public Management (NPM) was introduced in the Sub Saharan region that led to adoption of new approaches of reforms of public sector management. The current study intends to examine the approaches, benefits and limitation of adoption and implementation of accrual basis of accounting and the way it will improve accountability of financial reporting in the Sub Saharan region (specifically Nigerian public sector.
Commercial accounting can be considered to be a specific mechanism of economic management in which cost comparisons are carried out between expenditures for and outcomes of economic actions. The mechanism is utilized by business enterprises (business concerns) to acquire maximum profits with minimum capital expends. On the other hand, government accounting can be considered as a procedure of recording, evaluating, categorising, summarizing, interpreting as well as communicating in aggregate and illustratively replicating business transactions along with other economic incidents engaging the receipt, usability, disposition of assets, transferring and spending processes (Ball et al., 2014). Therefore, government accounting that is maintained by different government offices is referred to as government accounting. In essence, the system of accounting that is maintained by different business concerns is referred to as commercial accounting. Taking into consideration the objective of the two different systems of accounting, it is possible to understand the variances between the two different systems.
As correctly mentioned by (), analysis of objective reveals the fact that government accounting is primarily maintained by various government offices to comprehend the definite position of public fund. Again, commercial accounting is maintained by different business concerns to comprehend both profit/loss along with financial position of different of business concerns.
In terms of budget it can be said that government accounting is prepared based on cash, while commercial accounting is presented on cash along with accrual basis. Based on level of accounting, government accounting is said to be the system of central level along with operating level accounting. Brusca & Martínez (2016) suggest that commercial accounting has little or no provision of central as well as operating level accounting.
As far as rules and provisions are concerned, government accounting is stringently maintained by following financial regulations as well as provisions of government. On the other hand, commercial accounting is mainly maintained by pursuing regulations as well as provisions of the “Generally Accepted Accounting Principles” (Oulasvirta, 2014).
As rightly put forward by Stiglitz & Rosengard (2015), government accounting and commercial accounting is said to differ based on information. Government accounting delivers information to specific government regarding the receipt, various transfers as well as disposition of specific public funds. Contrarily, commercial accounting delivers requisite information to specified concerned parties regarding the operating outcomes and financial position of the entire business.
Again, it can be hereby mentioned that there are variances in the process of conduction of audit in the two different systems of accounting (Yudi et al., 2016). In essence, an Auditor General Office necessarily audits the entire book of accounts that are maintained under government accounting. Conversely, a professional auditor can essentially audit and review all the books of accounts that are maintained under commercial accounting.
In this connection it can be said that there are several opponents as well as critics of process of adoption of style of business style accrual accounting in the heart of central government. In particular, these contributors are largely academics and their arguments are said to depart from the acknowledgment of distinctive objectives, goods as well as services, and functional environment of the public segment. Christiaens et al., (2015) suggests that they tend to reject the notion/theme that an accounting system developed for the private segment should be made then standard to which accounting system of public sector has the need to obey the rules. At the time of articulation of opposition to business approach accrual accounting system has developed in the past few years. Many of the issues expressed are not completely new facets. For instance, historical work carried out from prior centuries has documented and registered earlier attempts and problems are there is introducing accruals in central government institutions (Bellanca & Vandernoot, 2014). In addition to this, there are certain important conceptual issues in creation of common structure for non-business corporations that were already charted in the year 1970s.
There are individuals who fall out that accruals are necessarily inappropriate for specifically public sector that commonly draw from different economic conceptualisations of variances between private and public sector goods and from private sector suppositions regarding property rights. Again, among the moral contributions from opponents in current years, are necessarily the arguments that have sought for development of accounting notions for various assets of public sector (Hodge, 2018). However, there are certain opponents that adopt a second level of appraisal to various business style accruals in particularly core government. More distinctively, they are necessarily not opposed to the process of adoption of accruals per se but rather the way in which they have been implemented in the public segment.
The international call for a transfer from cash basis to accrual system of accounting in the public sector units stirred a debate of reforms in particularly public sector management also known as NPM. Essentially, this stress to alter to accrual accounting stemmed from Organization of Economic Co-operation for Development (OECD), International Federation of Accountants (IFAC), International Monetary Fund (IMF), Public sector Committee and World Bank that shared initiative of NPM
Nigeria adopted particularly International Public Sector Accounting Standards (IPSAS) that is a cash basis and system of accounting as a base for passage into accrual system of accounting. (Raudla & Tammel, 2015). The advantage of utilizing accrual accounting is that it augments accountability as well as transparency. Essentially, this was in expectation that the usage of accrual-based accounting by means of adoption as well as execution of International Public Sector Accounting Standards will endorse higher transparency as well as accountability in particularly public sector finances and permit for enhanced management of government debt along with liabilities for true economic insinuation. Consequently, an entirely new conceptual structure was established, in the structure of an incorporated announcement of stocks as well as flows. As such, this new structure permits a more inclusive evaluation of the economic influence of government action and sustainability of fiscal strategy. It also delivers an enhanced basis for tracking effectiveness in the allotment and usage of different government resources.
As suggested by Fisher (2015), this replicates the operating outcome and is the variance between revenue as well as expenses. In addition to this, it also excludes expenses on the acquirement of capital assets/resources but includes carious accrual costs namely entitlements of superannuation as well as depreciation. Also, this measure takes in the complete costs of delivering government services, over and above that deliver fair dimensions of the sustainability of fiscal position of a government. Moreover, accrual-based accounting measures make certain better transparency along with answerability in public sector finances on top of superior tracking of government debt in addition to liabilities. During the time when issues of sovereign debt are high up, and the truthfulness and reliability of government reporting plus transparency get questioned, it is crucial that governments operate to institute—as a precedence—higher trust between their constituent elements and themselves. In a bid to institute such kind of trust and dependence, it is vital that governments deliver accurate as well as whole information on disbursements as well as transactions, so as to express accountability with stewardship; strengthen their own integrity (Bushman et al., 2016). Particularly, this information has the need to concentrate on both short-term as well as long-term influences of decision making. However, long-term influences cannot be attained by means of reporting along with disclosure of flows of cash. The specific kind of information essentially need can only be delivered by means of a superior-quality, vigorous, and effectual accrual-based system of financial reporting.
A chief priority for different governments should be decreasing economic uncertainties along with considerable threats that are posed by incorrectly handled debt. Nevertheless, it is imperative to make out that government money owing single-handedly does not present a full picture of fiscal security (Becker et al., 2014). The complete disclosure of the entire assets, liabilities, in addition to contingent liabilities is imperative for reviewing the exact economic insinuation of financial management of public sector. In addition to this, the revelation of entire liabilities, counting the long-term government obligations (that is to say, pension obligations), might perhaps inspire various government leaders to frame decisions that concentrate on sustainability in the long-term, and that are not essentially driven by political incentives in the short-term (Bruno & Lapsley, 2018). However, it is in the course of a superior-quality, healthy, and effectual accrual-based system of reporting in which assets and liabilities of the government (counting debt) can necessarily be recorded in a appropriate manner, and divulged, and thus efficiently monitored. As such it is for different governments to deal with long-term sustainability along with the wellbeing of upcoming generations that the governments have the need to identify and take action, to augment the reporting, lucidity, liability, and decision-making process of public sector.
The claim for good governance has directed the requirement for reforms in different sectors of particularly the Nigerian economy. In essence, good governance is validated in effectual financial as well as human resource management by means of an augmented budgeting, accounting along with processes of reporting. Nigerian governance was deficient in these aspects as the nation encountered the problem of poor leadership, misuse of power and resources and many others. The nation Nigeria embraced accrual system of accounting in particularly public sector financial as well as budget reforms.
As suggested by Fisher (2015), accrual accounting can be considered to be a basis of accounting in which revenue is registered at the time when it is earned whereas expenditures are registered at the time when the benefits of the same are consumed. A group of scholars necessarily reject the utilization of accrual accounting at the heart of government as the public sector is basically different to that of the private sector. Bushman et al., (2016) argues that business approach accrual accounting can be said to be inappropriate as many of the associations it represents do not apply to specifically public sector government. As such, these arguments certainly depart from the goals for manufacturing public sector goods and the way these are different to the private segment. Furthermore, these also stress on the fact that different types of goods manufactured on the core government segment are normally of different nature to a private segment (Becker et al., 2014). As already observed, there is essentially no profit motive that deduces the decision making as regards manufacturing of both goods as well as services in particularly core public segment.
Essentially, basis of accounting is exercised in the private segment. However, introduction of New Public Management (also known as NPM) initiative has developed and made it an important part of financial management enhancement programme in particularly public sector. Fundamentally, New Public Management can be referred to as the implementation of private sector administration approaches and mechanisms to public sector administration (Bruno & Lapsley, 2018). In current times, some governments throughout over the globe embraced the system of NPM and participated in diverse reforms counting reforms of financial management that are steadily and progressively shifting from conventional cash basis accounting exercise to accrual accounting. Essentially, financial reforms were initiated by the aspiration to do away with waste, ineffectiveness, poor delivery of service, extravagance, lack of answerability, transparency as well as improvement of service delivery quality in particularly public service. Hodge (2018) suggests that the New Public Management scheme was established in the UK during the year 1979 and 1991, it turned out to be a key reform policy which was undertaken by several nations throughout the globe and exercised by majority of member states of particularly Organization for Economic Co-operation and Development (also referred to as OECD).
As rightly indicated by Hodge (2018), Medium-term expenditure frameworks (MTEF) developed as well as refined by several nations to aid development of fiscal policy reliability and inevitability through a deliberate, multi-year perspective of budget planning. During the same period, performance-based budgeting (also referred to as PBB) notions as well as methods have been particularly significant in different nations in introducing an enhanced stress on the outcomes asked and attained from spending of the government (that is to say, acquiring superior value for wealth). As regards accounting standards in the state, it is adequate at this period to observe that PBB strategies operate entirely well on different types of largely cash-based methods that are widespread in the area. In all nations, the financial plans and budget get presented on a cash basis; however, certain supporting documents for particularly a consolidated universal government are offered on accrual basis. Essentially, issues of accounting become really imperative at the time of designing a specific IT system to uphold budget exercises. Prior to formulating the system, it is important to review accounting standards of the government to test out inconsistencies (Raudla & Tammel, 2015). However, even if the system of accounting is cash based, transparency of fiscal policy calls for the need of recording system to commitment along with payments. In spite of of the accounting basis, the scheme should be able of tracking assets as well as liabilities and their alterations. Due to the intricacy of both identified issues, concurrent functioning of PBB scheme and introduction of particularly accrual budgeting is sometimes not suggested.
References
Ball, A., Grubnic, S., & Birchall, J. (2014). 11 Sustainability accounting and accountability in the public sector. Sustainability accounting and accountability, 176.
Becker, S. D., Jagalla, T., & Skærbæk, P. (2014). The translation of accrual accounting and budgeting and the reconfiguration of public sector accountants’ identities. Critical Perspectives on Accounting, 25(4-5), 324-338.
Bellanca, S., & Vandernoot, J. (2014). International public sector accounting standards (IPSAS) implementation in the European Union (EU) member states. Journal of Modern Accounting and Auditing, 10(3).
Bruno, A., & Lapsley, I. (2018). The emergence of an accounting practice: The fabrication of a government accrual accounting system. Accounting, Auditing & Accountability Journal, (just-accepted), 00-00.
Brusca, I., & Martínez, J. C. (2016). Adopting International Public Sector Accounting Standards: a challenge for modernizing and harmonizing public sector accounting. International Review of Administrative Sciences, 82(4), 724-744.
Bushman, R. M., Lerman, A., & Zhang, X. F. (2016). The changing landscape of accrual accounting. Journal of Accounting Research, 54(1), 41-78.
Christiaens, J., Vanhee, C., Manes-Rossi, F., Aversano, N., & Van Cauwenberge, P. (2015). The effect of IPSAS on reforming governmental financial reporting: an international comparison. International Review of Administrative Sciences, 81(1), 158-177.
Fisher, R. C. (2015). State and local public finance. Routledge.
Hodge, G. (2018). Privatization: An international review of performance. Routledge.
Oulasvirta, L. (2014). The reluctance of a developed country to choose International Public Sector Accounting Standards of the IFAC. A critical case study. Critical Perspectives on Accounting, 25(3), 272-285.
Raudla, R., & Tammel, K. (2015). Creating shared service centres for public sector accounting. Accounting, Auditing & Accountability Journal, 28(2), 158-179.
Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company.
Yudi, Y., Sudarma, M., Djamhuri, A., & Baridwan, Z. (2016). The meaning behind accrual accounting at a local government in Indonesia. Russian Journal of Agricultural and Socio-Economic Sciences, 58(10).
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