Government Accounting Standards and Policies

In the public financial management cycle, accounting follows budgeting and precedes auditing to produce financial information useful for understanding and assessing a government’s financial conditions. Financial accounting — the branch of government accounting concerned with measuring the financial consequences of actual transactions and events — is regulated by rules to ensure the quality of both the inputs and outputs of the accounts of governments. Some of the rules, called accounting standards, are proposed for adoption by a government as its accounting policies for actual implementation. After some preliminary remarks, this chapter provides a concise guide to government financial accounting standards and policies. Particular reference is made to international public sector accounting standards (IPSAS), which have become influential as an exemplar of accrual accounting. The chapter also describes the experiences of several countries in introducing accrual accounting. The chapter concludes that accrual accounting is desirable to improve the comprehensiveness and transparency of financial reporting by government, but it requires that certain preconditions be met before it can be successfully implemented. The chapter therefore ends with some recommendations to governments, especially those in developing countries, that are considering the transition to accrual accounting.