National Audit Office of Denmark Accruals-based accounting

Government initiative Central and local government accounting will be based on accruals in order to:  Enhance visibility of public service costs,  Facilitate price comparability of public and private suppliers,  Increase efficiency through better management,  Improve the order of priority.

EU accounting systems in need of urgent reform  “Widespread errors across the accounts of the European Union, are unlikely to improve until a comprehensive reform of its accounting system is completed”, according to Sir John Bourn, the head of the National Audit Office.  The NAO said: “until improvements were made in IT systems and accruals-based accounting bedded down, the accounts will continue to be qualified”. (

Important concepts ExpenditureObligations incurred CostAssets consumed AccrualThe principle of relating income and expenditure to the relevant year

Expenditures and costs Later Accounting year Expenditure Cost Salaries Machinery bought in 2002 Machinery bought in 2001 Products bought to storage Public servant pensions

What will change?  The institutions have to prepare a new kind of accruals-based statements of accounts,  More focus on institutions’ balance sheet,  Procurements will be carried on as an asset (on acquisition date),  Expenditures to be recorded: depreciations, writing down the book value of the assets, reserves etc.,  The costs will be allocated (e.g. on activities, tasks, cost locations).

Responsibilities  The ministries: Overall implementation within their fields  The individual institutions: Specific implementation and the setting up of an opening balance sheet  NAOD: Review of opening balance sheets  Agency for Governmental Management: Develop regulatory framework and guidelines, follow progress in the implementation process

Timetable for the reform  a pilot project for accruals-based accounts for 13 state institutions 2005  introduction of accruals-based accounts for all state institutions 2007  introduction of accruals-based appropriations (state budget)

The reform affects the work of NAOD New types of audit:  Preliminary statements of accounts  Accrual-based accounts  Accrual-based appropriations