International Transition Experience

Session objective To discuss the transition experience of various countries and understand the key factors leading to the successful transition

Accounting Systems followed by Different Countries -I Developed countries AccountingBudgeting New ZealandAccrual Accrual 1995 SwedenAccrual 1994Cash AustraliaAccrual 1997Accrual 2000 CanadaAccrual 2003Accrual 2005 GermanyCash FranceSome features of accrualCash ItalyAccrual UKAccrual 2003Accrual USAAccrual 1998Cash SpainModified accrualModified cash

Accounting Systems followed by Different Countries -II Asian countries Philippines – Modified accrual accounting Indonesia – Modified cash accounting China – Govt. organisations – cash basis and non-profit organisations – modified accrual Japan, India, Pakistan, Sri Lanka, Bangladesh, Nepal, Maldives, Bhutan - Cash

Transition Experience of a Few Countries

UK: Resource-based financial management system (RAB) The new system provided: More accurate and relevant management information with which departments can cost the resources that they use, decide on the mix of resources they need with the outputs they deliver. Better informed decisions on the balance between current and capital expenditure, taking into account the opportunity cost of capital and its consumption over time. Made comparisons of services provided across the public sector with the private sector more straightforward. Government, Parliament and the public got better information on how resources are helping to achieve Government objectives.

Sweden: Accrual Accounting Focus of the accounting system was on revenue, cost, assets, liabilities and equity, rather than just on cash flows. The reform facilitated the development of comprehensive cost accounting, enabling comparison of consumption of resources (not the cash payments) against performance. Useful segregated information on operating and financial segments, is provided to facilitate comparative analysis and forecasts. Implementation of performance indicators and management accounting information systems -The information provided about accrued expenses and revenues in the economic result account is a very useful aid for performance evaluation and decision-making.

Spain: accrual accounting Presentation of statement of financial position - The presentation of a balance sheet with sub classifications of assets, equity and liabilities items, provide a rational picture of the financial position of governmental entities, instead of the non-articulated lists of the old accounting system. Presentation of operating statement, with the exceptions of depreciation on infrastructure assets and amounts relating to capital subsidies. Movements in wealth and the impact on intergenerational equity are reported in this statement, providing very useful information for long- term evaluation of public sector entities' financial performance and future economic viability.

New Zealand: Accrual Accounting The accounting and related reforms were a response to: Concern at the size of the government sector A growing fiscal deficit A Desire for greater transparency and accountability in the provision of public services Dissatisfaction within the public service with centralised input controls Dissatisfaction and frustration by Ministers that the existing system did not provide them with the information they needed for decision-making Concern from Ministers about significant inefficiency in the public sector

Australia: Accrual Accounting To address the intermittent concerns about the standard of accountability and the adequacy and consistency of financial reporting by the public sector for almost three decades. To increase the efficiency, economy and effectiveness of government in particular, given the relatively unfavourable financial condition that existed in some Australian jurisdictions.

USA: Accrual Accounting Shift as part of a wider financial management initiative, aimed at making it difficult for governments to hide liabilities and pass on current costs to future generations without public scrutiny. This entails a sea change in government financial reporting and management since it involves recording of the value of all assets and liabilities.

Canada: Accrual Accounting A growing realization that new social programs, such as Old Age Security, unemployment insurance and welfare was giving rise to many long-term commitments. Further, in times of restraint, many Canadian governments promised their employees enriched pension and other post-retirement benefits in lieu of salary increases. i.e. growing long-term liabilities In some provinces, the size of the unrecorded liability equaled or exceeded their accumulated deficits. And yet, these amounts were not recognized as liabilities.

Key Success Factors-I Support from leaders in the public sector Enactment of appropriate legislations A willing and capable (qualified) staff to develop and implement accounting changes Independence of the standard setting process Intensive communication strategy On-going consultation with ministries and departments

Key Success Factors-II Overcoming specific accounting issues in the initial phase – capital asset identification and valuation Revenue recognition issues across the major revenue collecting areas Consultation with other government entities Management capacity to use the information Quality of audit and reporting process Use of reports by stakeholders