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- 10 Marks
Question
Accrual basis of Accounting has been recommended as the best approach to ensure accountability and transparency in the management of public funds. Despite its favorable advantages, many countries are yet to implement a full accrual public sector accounting system.
Required:
Discuss FOUR (4) reasons why many countries have not been able to implement a full accrual public sector accounting system. (10 marks)
Answer
- Accrual accounting financial statements are more technical and relatively more difficult to understand by users. Users require some technical knowledge to understand such statements.
- A lot of subjective judgments can go into the determination of some estimates or the making of provisions. Relevant accounts are therefore difficult to prepare and can also be manipulated easily to suit the preparer’s desires.
- It requires significant investment in time and human capacity to produce accrual basis financial statements.
- To the extent that budgets and other requirements are cash-based; accrual basis accounting fails to demonstrate compliance with budgetary estimates.
- Users of financial information such as legislators, taxpayers, public sector officers, etc. may require a lot more technical guidance and support to appreciate the utility of accrual-based financial reports compared to financial statements based on other bases of accounting.
- High cost of implementation discourages poor countries from implementing the accrual public sector accounting system.
- Lack or weak political commitment towards the implementation of accrual public sector accounting system. Political leadership often fails to prioritize the implementation of accrual accounting.
- Topic: The context of public financial management
- Series: APR 2022
- Uploader: Joseph