Technical Notes and Manuals 16/06 | 2016 3
the government accrues tax revenue), performance of a public service by a government employee
(for which the government accrues a salary and perhaps a pension expense), or the loss or theft of
a government asset such as a vehicle or equipment (for which a reduction in the asset stock will
be recognized). These economic events may directly generate a corresponding or simultaneous
cash flow, but in many cases—such as depreciation, revaluations, or impairment—they do
not. This is an important difference between cash and accrual bases. Note however these other
economic events are real, and can be connected to previous or subsequent cash impacts: for
example, depreciation usually represents the allocation of the cost of an asset over its useful life;
and revaluation or impairment may reflect a changed view of the (cash) amount that can be
recovered from the asset when sold.
• The recording of all stocks of assets and liabilities, in balance sheets. Governments
that follow pure cash accounting typically account only for their cash holdings on the assets
side and, possibly, debt on the liability side of their balance sheets. These are often valued
at “book value” or the value at which they were initially acquired or issued. Under accrual
accounting, governments recognize all assets and liabilities including financial assets (such
as equities), non-financial assets (such as land and buildings), and liabilities other than debt
securities and bonds (such as payment arrears and pension obligations). These stocks are
usually recorded at their current market value, their value in use, or some approximation,
and regularly revalued to ensure the balance sheet reflects the government’s true financial
position at a given point in time.
• Enhanced monitoring of liabilities and contingent liabilities. Liabilities such as employee
entitlements, environmental obligations, insurance claim obligations, expected losses under
guarantee schemes which are not typically recognized in a cash accounting environment
receive much more attention once recognized under accruals.
• The consolidation of all entities under government control. Cash accounts typically only
cover budgetary central government (central government ministries and agencies). Accrual-
based international accounting standards call for financial statements which consolidate all
entities under government control
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(such as extra-budgetary funds, arms-length agencies,
and public corporations).
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Accrual accounting therefore offers a number of benefits over traditional cash accounting
from the point of view of government transparency, accountability, and financial manage-
ment. First, by capturing both cash transactions and non-cash flows in financial statements,
accrual-based fiscal reports provide a more comprehensive view of the government’s financial per-
formance and the cost of government activities. Second, accrual accounting can help focus greater
attention on the part of policymakers and the public on the acquisition, disposal, and manage-
ment of government assets, liabilities, and contingent liabilities. Third, by consolidating not only
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The denition of control will vary depending on the accounting framework considered, but can be summarized as
the ability to determine or govern the nancial and operational policies of an entity. In addition, consolidation of entities
under government control is not stricto sensu an innovation to be associated with accrual accounting, as consolidation is
an important feature of scal statistics. It is to be noted that statistical standards have different consolidation concepts.
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IPSAS uses the term “government business enterprise” rather than “public corporation”, although the denitions
are broadly similar. Under IPSAS, government business enterprises should follow commercial accounting standards,
although their nancial results may need to be restated in IPSAS terms so as to permit their consolidation in a Whole
ofGovernment account.