SESSION 2010/2011 SEMESTER 2
PUBLIC SECTOR Accounting
TUTORIAL SLOT: 10.00AM – 11.00AM
PPEPARED BY: GROUP 1
MARTINA BT LATUWO CEA070081
NURFADILA SHAFINA BT MOHD REDHA CEA080131
SITI ZAINON ZAKARIA CEA080158
THENMALAR SANDRESEGER CEA080175
YAP HOONG YUN CEA080199
Nowadays, most of the states have the consciousness towards the benefits of accrual based accounting and increasing twenty-four hours by twenty-four hours they implement the accrual based accounting. Furthermore, some states besides have chalked out programs introduce of modified accrual based accounting and others are easy traveling from the cash-basis to accrual footing of accounting.
In Malaysia, hard currency and modified hard currency based accounting was adopted by the Malayan authorities. As the cited, Malayan authorities are besides has made a move in implementing the accrual accounting for public sectors. Harmonizing to paper rubric “ Adoption of Accrual Accounting in Local Authorities in Kedah Darul ” , this alterations are been made due to the consciousness of accrual based accounting benefits which generates better quality of fiscal information and a better manner of dispatching answerability among the public sectors. As mentioned Malaysia, still traveling and merely implementing the accrual based accounting on the local authorities.
Besides Malaysia, there are many states change overing their systems to accrual based accounting and some are was started early 1990s excessively. Worldwide it seems that the most progressive accrual accounting implements are regional or local authoritiess, which are normally in front of cardinal authorities in footings of accrual accounting reform. Between developed states the bulk of authoritiess use the accrual based accounting system. The scenarios are as follows:
Their authorities accounting system is based on accrual or modified accrual accounting system. It presents reasonably and with full revelation the fiscal place. Furthermore, the consequences of fiscal operations are conformance with general accepted accounting rules. In April 2001, a new epoch with full execution of Resource Accounting and Budgeting ( RAB ) was introduced. RAB is an accrual based attack to authorities accounting and budgeting. This term shows UK goes wider than merely acceptance of accrual techniques.
Reasons, challenges, and issues in following accrual accounting in United Kingdom
The passage to accrual accounting in this state was truly started with the wellness service in 1991. At that clip, UK wellness service sector was extremely employ capital intensive. So, there is an grounds show that the passage to accrual accounting at that clip is to supply high benefits in term on how to more expeditiously and efficaciously usage in these capital assets ( Andy Wayne 2008 )
Recently, members of the UK parliament have started to kick about the complexness and trouble in understand the Government ‘s fiscal coverage. The members claimed that the authorities ‘s fiscal statements are excessively complex as even members with fiscal background and experience are still confronting job in understand the fiscal information provided ( House of Commons, 2008 )
It is the most complete state in the accrual based Government accounting system. The authorities published the histories similar to those of private sectors. It introduced accrual accounting in early 1990s and the 1st set histories on accrual footing for twelvemonth stoping June 1992. These histories are audited independently and besides promote authoritiess to concentrate on longer-term effects of policies.
Reasons, challenges, and issues in following accrual accounting in New Zealand
The reformation of accrual accounting have been started on 1980s when there are wisdespread denationalization and corporatization of government-owned commercial entities and the deregulating of New Zealand ‘s currency and fiscal market. Therefore the authorities sought to increase public presentation and answerability in public commercial entities by acceptance modern direction patterns. Mark Champoux ( 2006 )
The accrual-based reforms in this state besides arguable comprehensively and have important affect by the authorities direction procedure and it besides hard to determine the true financial and economic impact of the reforms.
Australia besides has reform to full accrual footing accounting system as other developing states. A hard currency based information does non supply an indicant of long term financial strength and the relationship between grosss, disbursals and alterations in net worth and merchandise off between the loads of current and future taxpayers. ( Thuy Mellor,1996 ) . The authorities accrual studies supply a more complete image of authorities fundss and aid in accessing the fiscal public presentation and fiscal place of authorities.
Reasons, challenges, and issues in following accrual accounting in Australia
While in Australia the force per unit area to increase authorities efficiency and better financial public presentation in 1990s was major ground why Australia follow accrual based system. Beside the comprehensive reforms to implement the accrual based system have been develop by two enterprises which are the Financial Management Improvement Program and Program Management and budgeting. This consequence on the reform of each authorities bureaus were required to get down budgeting, coverage, and accounting on an accrual footing. Mark Champoux ( 2006 )
The State authorities merges to the accrual as the general footing of accounting since July 1st 1993. The reform of accounting required monolithic attempt on all the degrees. In general observation, the quality of authorities accounting has been improved well. Relevant accounting information is a tool which can be used to work out the present fiscal troubles in their state and to do authorities activities more efficient.
Reasons, challenges, and issues in following accrual accounting in Sweden
Sweden besides has some troubles to implement accrual accounting particularly in acknowledgment on plus such as military, intangible plus, revenue enhancements, transportation and substructure. Sweden besides faces some challenges when the IPSAS Handbook is non available in Swedish linguistic communication and cause to do audience on cardinal degree to do position and decision. ( Andy Wayne 2008 )
States that in advancement traveling from hard currency footing accounting to accrual footing accounting
The cardinal and province authoritiess still undergoing by hard currency footing system but has programs to present to the accrual footing accounting system. The honest Supreme Court of India in 2001 opinioned that urban local organic structures besides should accommodate from hard currency to accrual footing accounting. The histories of Municipal Corporate of Delhi are maintained on accrual footing accounting excessively.
Reasons, challenges, and issues in following accrual accounting in India
Harmonizing to “ E-Communique of Committee on Public Finance & A ; Government Accounting ” , the chief unfavorable judgment in their current system which is hard currency footing at that place have deficiency of transparence and non meaningful of hard currency direction and resource allotment. The systems that have been used are lack informality to mensurate the norm and insufficiency. So, they move to reform following accrual footing. However, the major barrier to accounting reform is the authorities themselves. They have to alter their direction in facet of proper preparation and instruction in order to reform to the accrual accounting footing.
With aid from international advisers, a figure of states in Africa such as Ghana, Tanzania, Uganda, and Zimbabwe have adopted public fiscal direction Torahs in recent old ages. Under these Torahs, authorities ‘s fiscal statements required to be prepare conformity to by and large recognized accounting pattern ( GAAP ) . In other words, accrual footing of accounting should be adopted in readying of authorities ‘s fiscal statements. However, these new pattern may non hold been realized by the members of the parliament. Due to this, these states are still lack in advancement in really implementing accrual accounting. ( Andy Wayne, 2008 )
Other Countries that non yet follow accrual accounting
Some of the states of the largest economic systems in the universe such as Germany and Italy have yet to present the passage from hard currency footing accounting to accrual footing accounting. Besides, Japan besides has decided non to present such alterations. In 2003, the Dutch authoritiess decide to drop its programs to pass through to the accrual footing because of the high costs involved. ( Andy Wynne, 2004 ) .
Role played by IPSAS in passage of hard currency footing accounting to accrual footing accounting
IPSAS are set of professionally developed, high quality, planetary Accounting Standards that provide counsel for both hard currency footing accounting and accrual footing accounting. The acceptance of IPSASs by authoritiess will better both the quality and comparison of fiscal information reported by public sector entities around the universe. Other than that, to traveling the fiscal coverage to accrual, IPSAS is used as counsel on this passage. It is because IPSAS are tailored for the populace sector and its usage is considered best pattern for public sector entities. Therefore, it can standardise and achieved the harmonisation of national demands.
New Public Management
Harmonizing to Christensen and Laegreid ( 2001 ) , New Public Management has become a tendency, its theory have become cosmopolitan and being acceptable and applicable everyplace irrespective of the different fortunes of different states of the universe. Its ideas focal point on the debut of private sector direction techniques and application of competitory market behaviour. As a consequence, most of the states has follow the accrual footing of accounting in public sector which substitute old pattern of budget studies prepared on the hard currency footing ( Andy Wynne 2003 ) .
Argument by assorted writers for accrual accounting
Harmonizing to Christians ( 1999 ) , “ There is merely one general theory can explicate the causes of accounting reforms in authoritiess. ” nevertheless still no accounts why every authorities are different in footings of accounting patterns even though they stem from a cardinal inclination of reforming. Current governmental accounting reform aims to better the New Public Management by following accrual accounting ( Christians, 1999 ) . Besides, other ground of following accrual accounting is because deficiency of a conceptual governmental accounting model other than concern accounting. Yet, some writers agree that this development cause jobs to New Public Management.
Harmonizing to Zeljko Sevic ( 2004 ) , accrual accounting has a positive impact on the better direction at the departmental degree every bit good. In general, this accounting intervention provides utile information to all possible users such as stakeholders but it must be looked in more far and broad position. Information green goods from accrual accounting method is for answerability on top of determination devising intents. So if it ‘s been used in authorities, accrual accounting will supply a better overview of the fiscal activities and the fiscal place of authoritiess. So, acceptance of accrual accounting systems will be seen as ‘new procedure of fiscal direction ‘ .
What have been addressed by Blondal ( 2003 ) is “ Do n’t stress that accumulations is a ‘magic slug ‘ for bettering the public presentation of the public sector. ” So, it does n’t intend that one time accrual accounting construct has been adopted by it will clearly give a better public presentation of public sector. In fact, it ‘s been used to help for better direction and public presentation in public sector either in fiscal every bit good as non fiscal public presentation.
Arguments by assorted writers against accrual accounting
In contrast, there are Numberss of writers argue that accrual accounting is non appropriate for public sector. For illustration, George Jones ( 1997 ) has a position that the debut of accrual accounting by the UK Government is non appropriate. He has argued that acceptance of accrual accounting by UK Government was one type of false regulating impression. The government required the authorities to develop set of plans that driven by the specific aims. He stated that this is non appropriate because the authorities activities should concentrate on pull offing webs within restraints, modulating relationships, and non to accomplish set aims.
Harmonizing to McKendrick 2003, the acceptance of accumulations accounting in public sector is valid for developing states, but it may non suitable for less developed states. In add-ons, in recent old ages, there are some concern expressed in developed states that doubt about the accomplishment and impacts of acceptance of accrual accounting. Furthermore there is some grounds show that the acceptance of accrual accounting does non run into its expected addition.
Tom Rowles ( 2004 ) has suggested that primary ground that leads to lift of set of statements that hold accrual accounting is irrelevant to the populace sector is several cardinal differences in the nature of economic determination devising between the two sectors. Harmonizing to Barton ( 2000 and 2002 ) , the acknowledgment of heritage plus under accrual accounting is non appropriate since they are ‘public goods ‘ . Government decides to supply these substructure and installations because it can be more efficaciously and expeditiously in provide these installations to the citizen than the private sector.
Besides that, Robinson ( 1998 ) besides rejects relevancy of acceptance of accrual accounting to the populace sector and suggested that partial accrual accounting is more relevant. He argue that the acceptance of accrual accounting is inconsistent with simple economic sciences, which province that the relevant cost for economic determination devising are variable and evitable costs.