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PUBLIC SECTOR ACCOUNTING:

EXPERIENCES IN OTHER COUNTRIES


AND APPLICATION TO VIETNAM
Presentation to the Vietnam State Treasury
June 24, 2003
Susan J. Adams, PhD
IMF Office-Hanoi

OUTLINE OF PRESENTATION
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BACKGROUND/INTRODUCTION
PUBLIC SECTOR ACCOUNTING
STANDARDS
STATUS OF COUNTRIES MOVING TO
ACCRUAL ACCOUNTING
COUNTRY EXPERIENCES
HARMONIZATION ISSUES
RESOURCES

1. BACKGROUND/INTRODUCTION
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Both accounting and statistical frameworks are used


for organizing Government data.
For ACCOUNTING purposes, transactions are
organized by government unit.
For PLANNING purposes, transactions are
organized by input or output function.
For BILLING AND CONTROL, transactions are
organized by the partner of transaction.
Often private companies use accrual accounting,
while Governments have tended to use cash basis
in their budgets.

GOVERNMENT FINANCIAL
STATISTICS (GFS) - IMF
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GFS is about STATISTICS,


NOT ACCOUNTING.
The GFS framework is
designed to facilitate
MACROECONOMIC
FISCAL ANALYSIS.
The GFS Manual (2001) is
the latest update on GFS
standards for IMF member
countries.
A committee has formed to
harmonize GFS and
IPSASs, as about 11 basic
differences still remain.

Generally Accepted Accounting


Principles (GAAP)
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Accounting data, for budgets and financial reports,


are usually compiled in accordance with national or
international GAAP.
In some countries, required statistical standards are
also addressed in the accounting data.
Bridge tables are used by some countries where the
chart of accounts does not incorporate the
requirements of statistical standards.
Statistics and Accounts require HARMONIZATION.

2. Public Sector Accounting Standards


(PSA Standards)
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Private sector accounting standards are


generally set by professional accounting
standard-setters, while public sector
standards are set by Ministries of Finance or
national Treasuries.
Countries are now recognizing that there is a
need for independence (and globalization) of
the public sector standard-setters.

PRIVATE VERSUS PUBLIC


PRIVATE STANDARDS:
International
Accounting Standards
Board (IASB) publishes
International Financial
Reporting Standards
(IFRSs) and adopted in
2001 the International
Accounting
Standards (IASs).

PUBLIC STANDARDS:
The Public Sector
Committee of the
International Federation
of Accountants (IFAC
PSC) is responsible for
developing
International Public
Sector Accounting
Standards (IPSASs).

International Public Sector Accounting


Standards (IPSASs)
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In 1996, the IFAC PSC


launched a project to develop
the IPSASs by adapting
private sector IASs to a public
sector context.
So far 20 IPSASs on an
accrual basis and one on a
cash basis have been
released.
As IPSASs do not apply to
public corporations, they are
following the IASs.

3. STATUS OF COUNTRIES MOVING


TO ACCRUAL ACCOUNTING
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Governments may produce their budgets and


financial reports on different recording bases (e.g.,
cash versus accrual basis).
A recent OECD study found that there is a greater
acceptance of accrual accounting for financial
reporting than for budgeting purposes by
governments.
State Treasurers are the best-placed agent to
determine national accounting standards, checked
by Independent State Auditors. The standards
selected form the basis for the countrys CHART OF
ACCOUNTS.

Countries Adopting Accrual


Accounting in PSA
1.
2.
3.

4.

EU has announced that its member countries will adopt IAS


and IPSASs in 2005.
Canada moved to an accrual budget in 2003 (see:
www.fin.gc.ca)
Seven countries in Latin America have adopted accrual
accounting for various parts of the public sector: Argentina,
Bolivia, Brazil, Columbia, El Salvador, Paraguay and Peru.
Uruguay has a mixed system. Three others have accrual
information only for public corporations: Chile, Ecuador and
Honduras. Three others are considering accrual accounting:
Dominican Republic, Mexico and Venezuela.
Australia and New Zealand have adopted for government
financial reporting.

4. COUNTRY EXPERIENCES: UK
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Accrual accounting in the UK has


existed for some time in the central
government, but only newly affects
specific government departments.
During the mid-1990s, health
provider units were established as
separate entities and prepared
GAAP-based accounts. Health units
are classified as non-financial public
corporations for national accounts
purposes.
In April 2001, the UK moved to a
new resource-based financial
management system (RAB).

The UK Governments RAB:


Resource Accounting and Budgeting
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RAB is an accrual based approach to


Government accounting and budgeting,
which also reflects Parliamentary control and
a move to focus on outputs, rather than
inputs. It is wider than simply the adoption of
accrual accounting techniques.
Other key elements: linking inputs and
department aims and outputs. (Not every
country using accrual accounting includes
these other elements.)

ADVANTAGES OF ACCRUAL
ACCOUNTING AND RAB in the UK:
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Provides a better picture of the true costs of a


departments activities, including use of assets, costs
of capital and non-cash costs, and relating these
more directly to any revenues generated by the
activity.
Improves local accountability capacity for asset and
liabilities of local government units.
Each financial year the Treasury updates the
accounting guidelines according to the standards set
by the UKs Accounting Standards Board.

The UK Debate on Who Should Set the


Public Sector Accounting Standards
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It would be inappropriate for those


responsible for preparing financial
statements to have the sole responsibility
for deciding on the standards such
statements should follow.
Clearly the Treasury should have a major
role in the development of accounting
requirements specific to central
government. However, Parliament and
other users of the accounts, auditors and
professional bodies should also play a role.
In Canada, the US and Australia, the
arrangements provide for an independent
body to oversee and approve central
government accounting standards.

COUNTRY EXPERIENCES:
NEW ZEALAND
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New Zealand experienced


major reforms in its public
sector during the late 1980s
and early 1990s.
Accounting reform was part
of a general overhaul to an
Integrated Public Financial
Management System.
The design of legislation was
key in rolling out the reforms.

NEW ZEALANDs CHANGING PUBLIC


SECTOR ACCOUNTS
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The Public Finance Act of 1989 required all NZ Government


and Department financial statements to be prepared using
GAAP.
NZ has one professional accounting body to set standards and
certify professionals.
Once departments had fully converted to the new financial
management regime, they could then focus on the aggregated
financial reporting of the Government.
A central NZ Audit Office provided opinions attached to the
financial statements of Government agencies.
Publication, communications and marketing of audited financial
statements was encouraged for public use and transparency.

COUNTRY EXPERIENCES: FRANCE


A DUAL SYSTEM:
The national budget is
expressed and executed on a
modified cash basis, while
the General Account of the
Finance Administration
(CGAF) is expressed on
accrual basis, as it represents
the financial statement of the
central government.
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WHY IS FRANCE COMMITTED TO


MODERNIZING ITS PUBLIC FINANCE?
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Internationally, the governments of major industrial


countries are committed to introducing accrual
accounting; the EU is adopting by 2005 for all
members. France will introduce accrual-based
general government accounts on Jan. 1, 2005 and
adopt officially on Jan. 1, 2006.
The European System of Accounts (ESA 95) has
defined new accounting standards on an accrual
basis, including the Maastricht budget balance.
The French central government is serving as a
leader for all of its local public sector agencies, to set
an example of transparency and accountability.

5. HARMONIZATION ISSUES: THE


CASE OF AUSTRALIA
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Australia has implemented accrual


accounting for its budget and financial
reporting. Central, state and local
governments in Australia are required
to report in Australian Accounting
Standards (AASs).
Australia will adopt IASs in 2005.
Harmonization of GFS and
accounting standards is a big issue
for Australia. A separate national
project is underway, to be completed
ahead of the international
harmonization exercise.

HARMONIZATION or CACOPHONY?
IPSAS
Public
Sector
GAAP
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International Statistics

Private Sector
GAAP

GFS

IFRS

European
Statistics

ESA 95

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HARMONIZATION ISSUES
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An international project is underway to


identify the differences between the IPSASs
and the GFSM-2001, in order to create
convergence between the accounting and
statistical standards.
The PSC may issue reconciliation statements
to link the key aggregates produced under
accounting and GFS reports.

ACCOUNTING FOR DEVELOPMENT


ASSISTANCE: ISSUE FOR VIETNAM
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Stage one deals with disclosure of


information on ODA under the cash basis of
accounting
Stage two deals with the disclosure under
the accrual basis of accounting
Project advisory panel to be established
Work is beginning now (QII, 2003)

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6. RESOURCES FOR FURTHER


INVESTIGATION
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IFAC WEBSITE: www.ifac.org/PublicSector/


IMF Website for GFS Manual: www.imf.org
UK: www.resource-accounting.gov.uk
France: www.minefi.gouv.fr

Also note: IMF Manual on Fiscal Transparency

THANK YOU!
IMF OFFICE-HANOI
sadams@imf.org
www.imf.org/hanoi

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