Governance, Risk, and Compliance Handbook: Technology, Finance, Environmental, and International Guidance and Best Practices

CHAPTER 69

ACCOUNTING, BUDGETING, AND REPORTING—HOW IS THE REGULATORY FRAMEWORK CHANGING IN THE PUBLIC SECTOR?

Massimiliano Claps

69.1 INTRODUCTION: ACCRUAL AND CASH BASED—WHAT DOES IT MEAN?

69.2 PUBLIC SECTOR MIGRATION TO ACCRUAL ACCOUNTING: PROS AND CONS

69.3 INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS

69.4 ADOPTION OF ACCRUAL ACCOUNTING IN EUROPE

(a) France

(b) Germany

(c) Italy

(d) The Netherlands

(e) Spain

(f) United Kingdom

69.5 CONCLUSIONS

69.6 APPENDIX

REFERENCES

69.1 INTRODUCTION: ACCRUAL AND CASH BASED—WHAT DOES IT MEAN?

Two main accounting bases exist for recognition and measurement: the accrual basis and the cash basis.

1. Accrual-based accounting recognizes income in the accounting period in which it is earned, regardless of when the cash is received. Expenses are recorded when they are owed, instead of when they are paid.
2. Cash-based accounting recognizes receipts when cash is received and deposited and payments when bills are paid within the accounting period.

According to the International Federation of Accountants, this has implications for the type of statements that are presented. When the accrual basis of accounting underlies the preparation of the financial statements, the financial statements will include the statement of financial position, the statement of financial performance, the cash flow statement, and the statement of changes in net assets/equity. When the cash basis of accounting underlies the preparation of the financial statements, the primary ...