ACCOUNTING ACCRUALS

Accounting

Accounting

In the past decade or so, there has been significant promotion of accruals accounting and budgeting across the UK public sector. Although certain parts of the public sector have been using accruals accounting for longer periods (eg local government and the National Health Service), the adoption of accruals accounting became widespread only when the government rolled out Resource Accounting and Budgeting (RAB) systems across all central government bodies. The RAB reforms were closely followed by the WGA programme, which sought to develop RAB further by generating a consolidated set of accruals-based accounts for the public sector as a whole.

The idea of WGA is not new, having been pioneered in New Zealand and Australia. In New Zealand, a WGA for central government was published in 1992, while the Australian Commonwealth (ie federal) government first trialled WGA for the 1994/5 financial period. In both New Zealand and Australia, the publication of WGA was preceded by the move from a cash to an accruals basis for governmental financial reporting.

In the mid-1990s, the UK's Conservative government formally proposed that central government financial reporting and budgeting should change from a cash to an accruals basis. It was only after the change of government following the May 1997 general elections, however, that further action was taken. As part of its economic reform programme, the new Labour government announced in its Economic Fiscal Strategy Report that it would consider producing WGA to enhance both RAB and economic policymaking, subject to the results of a feasibility study. (Trevor Hopper et al., 2002 pp. 469-472)

The government did not give any specific rationales in the scoping study as to why WGA was better than the existing, statistically based, National Accounts, except to say that cash-based expenditure information would be replaced by an accruals-based system, and that a GAAP-based system would generate additional information regarding unfunded pension liabilities and asset depreciation charges. The scoping study, did, however, conclude that the benefits from producing WGA would outweigh their costs. It recommended that the government should first develop a whole of central government accounts (CGA), which would consolidate the resource accounts of central government departments. On completion of CGA, the scoping study recommended that it be extended to WGA, representing a consolidation of CGA with the accounts of local government and public corporations.

The UK parliamentary debate revealed a generally high level of support for the government's WGA proposals. There was a real attraction to the notion that WGA would not only enhance accountability in the parliamentary reporting sense, but could also be used for purposes of macroeconomic management, developing financial management processes within central government departments, and stimulating a general improvement in the consistency and accuracy of public sector accounting systems. That said, it has to be acknowledged that the parliamentary debating time was limited and the debate itself was not very detailed in terms of assessing WGA and the associated implementation timescales. Questions could also be raised about the general level of accounting expertise or interest among ...