Government Accounting: An Assessment of Theory, Purposes and Standards

Developments in governmental activities in recent years have raised concerns over whether the cash basis of accounting is sufficient for governmental accounting and reporting. Accrual accounting, previously thought to be only suitable in the private sector, has been seen to be an alternative for better reporting of government activities. Although there is a continuing debate over the use of cash versus accrual accounting, accrual accounting has been adopted in he governments of several countries including Australia, New Zealand and the United Kingdom. Government accounting and financial reporting aims to protect and manage public money and discharge accountability In order to achieve ambitious socioeconomic goals, developing countries require public sector institutional capacity for setting and implementing public policy, which in turn necessitates government accounting reform. The social value of government accounting reform therefore lies in its contribution to development goals, including poverty reduction. This rationale has led international and multilateral lenders and donors to endorse International Public Sector Accounting Standards (IPSAS) for adoption by developing countries. An emphasis on assuring financial integrity and a shift to accruals can make IPSAS more useful in government accounting reform in developing countries. All of these are heavily influenced by private sector practices, which favour the accrual basis and consolidated reporting. This article argues for a gradual symmetric approach to accruals and a combination of government-wide and fund reporting. The author also proposes some broad accounting principles to promote political and economic accountability .