The full accrual accounting standards of Australia
Australia has adopted full accrual accounting standards, consistent with IPSAS. According to the Financial Management and Accountability Act of 1997, accrual accounting was required to be adopted in budgeting, reporting and accounting. Since using accrual accounting, Australia was successful to show budget surplus in every year, to reduce liability and to bring economic growth in real GDP. (Mark Champoux, 2006)
In early 1990s, adoption of accrual accounting in Australia was to increase government competence and improve monetary performance. The adoption of accrual accounting was announced by the national government in 1992 and all departments are required to prepare accrual financial statements by 1994. (Nola Buhr , 2010) The first comprehensive accrual-based financial statement generated by Australia was 1999-2000 budget. Accrual output budgeting has been fully put in practice also. (Mark Champoux, 2006)
One of the issues identified by Public Accounts Committee (PAC) is the speed of implementation of accrual accounting. According to the PAC, the implementation of the accrual accounting could be more efficient and more effective. (Warwick Funnell, 1998)
There is lack of convergence between Australian Accounting Standards Board (AASB) and IPSASB standards. According to the website of AASB, one of its statutory functions is "to participate in and contribute to the development of a single set of accounting standards for worldwide use" (Nola Buhr , 2010)
The benefits brought by adoption of accrual accounting. According to the Joint Committee of Public Accountant (JCPA), too much emphasis has been placed on the preparation of accrual financial statements instead of using the accrual information as a management tool. (Warwick Funnell, 1998)
Valuation of the assets that should be used. Methods applied to measure the value of assets are crucial to determine the successfulness of adoption of accrual accounting. Examples of measurement methods are current purchasing power, current cost accounting and relative price change models. (Warwick Funnell, 1998)
Technical skills to prepare and use accrual information. According to the Scoping Study, necessary skills to use the accrual information are vital to achieve the objective of accrual framework. A lot of training and communication activities have to be carried out to succeed the adoption of accrual accounting standards. (Warwick Funnell, 1998)
Role of IPSAS
Adoption of accrual accounting standards by Australia is consistent with IPSAS. 'Australian equivalents to IFRS' (A-IFRS) was issued by AASB. A-IFRS was consisted certain amendments to the statement in IASB. The AASB introduced additional disclosures or implementing requirements for public sector entities. The changes have caused the standards applied by Australia to public sector entities are very similar to IPSAS. (Wikipedia)
Nola Buhr (2010) From Cash to Accrual and Domestic to International: Government Accounting Standard Setting in the Last 30 Years, Sixth Accounting History International Conference Wellington, New Zealand
Mark Champoux (2006) Accrual Accounting in New Zealand and Australia: Issues and Solutions, Harvard Law School Federal Budget Policy Seminar
Warwick Funnell & Kathie Cooper (1998). Public Sector Accounting and Accountability in Australia. Australia: University of New South Wales Ltd.
Development in adoption of accrual accounting in Malaysia
Now, Government of Malaysia is using cash and modified cash accounting system. Due to globalization, Malaysia involved in many different kind of international investment. These international investors become the vital stakeholders to the government reports. Therefore, Malaysian government takes into consideration to implement accrual-basis on accounting. Malaysia has incorporated the accrual-basis of accounting at the local level of government and to do so for the governmental system.
Cash basis accounting in public sector focused on the control of expenditure. The reform of the public sector has changed the traditional role of accounting to one that aimed on accountability and the efficiency allocation of resources. Therefore, accounting should concentrate on outputs, performance measurement, efficiency, cost saving, productivity and performance measurement. Cash-basis accounting is simple and there is no judgment required in determining the cash flows for the period. Currently, the public sector is increasingly utilizing the accounting of private sector through a transition from cash based accounting principles to accrual based accounting principles. The cash basis accounting brings a lot disadvantages to Malaysia. For example, the cash basis of accounting cannot provide information on assets and liabilities and this method cannot match the costs with revenues. Accrual accounting can provide relevant and valid information to the users. Accrual accounting requires revenue to be recognized in the period in which economic benefit can be measured reliable. This can improves the quality of decisions. The current basis adopted by the Malaysian government is cash and modified cash system. Moreover, Malaysian government has also made a move in implementing the accrual accounting for public sectors. Malaysian government had realized that accrual basis accounting able to generate better quality of financial information in order to fulfill the aspect of accountability and better decision making for government. Besides, the traditional cash basis accounting is no longer fulfilling user's satisfaction. According to New Straits Times, the Malaysian Cabinet through its Ministry of Finance, in October 2003 has directed the Accountants General's Office and Bank Negara Malaysia to study the possibility of adopting the widely practiced accrual accounting system, in place of the current cash accounting system.
Malaysian Accounting Standards Board (MASB) is the Malaysia standard board. MASB consisted a team of 8 peoples which are chairman, an accountant-general, and six individuals with knowledgeable accounting backgrounds. In 1997, the MASB passed the Financial Reporting Act also recognize as the Financial Reporting Foundation which provides its view on any matter that the MASB may undertake.
Role of IPSAS
International Public Sector Accounting Standards (IPSAS) are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements. These standards are based on International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). ACCA reports that the Malaysian Federal Government has adopted the Cash Basis IPSAS, that its financial statements for the year ended December 31, 2005 were prepared in accordance with the Cash Basis IPSAS, were audited by the Supreme Audit Institution of Malaysia and received an unqualified audit opinion. ( Wikipedia) An emphasis on assuring financial integrity and a shift to accruals can make IPSAS more useful in government accounting reform in developing countries. ( James L. Chan (2006) IPSAS and Government Accounting Reform in Developing Countries, University of Illinois at Chicago )
Issue and Challenge
Government accounting reform to adopt accrual accounting needs political and management support. This high demands required accountability and transparency. Resource support is also critical to successful government accounting reform. Sufficient budgetary support is necessary to acquire software and hardware, and to hire a qualified staff. In many developing countries, the shortage of technical personnel imposes a severe constraint; thus human resources are another obstacle to overcome. Reform involves changing policies and procedures of government accounting. The International Public Sector Accounting Standards Board urges all nations to adopt IPSAS.
Malaysia faces the challenge is to raise the standard of living of their peoples. The success of government accounting adoption mainly depends on political and management support, in addition to the availability of budgetary, human resources, and information technology. IPSAS is a relative newcomer to the club of domestic and international accounting standard-setting bodies. IPSAS-based financial statements are not specifically designed to demonstrate the accountability of subordinates to their superiors, and of the executive to the legislature. IPSAS can make only a limited contribution to institutional capacity building in developing countries. Recently, there are so many corporate financial scandals happened, this situation can also happen in public sector financial reporting. Considering the vulnerability of the government in developing countries to financial misconduct, the reliability of numbers in their financial statements cannot be taken for granted, even if IPSAS are used. This will reduces the amount of public money available to fund public services.
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