Technical Articles

International Journal of Auditing – January 2004

Five Countries Pioneering Accrual Budgeting and Accounting in Central Government


In its 2001 Budget Memorandum, the Dutch government announced that accrual budgeting and accounting would replace the current obligation-cash budgeting and accounting system in ministerial budgets and accounts in several years’ time.

In order to support the Dutch parliament and the government in their preparations to introduce this system, the Netherlands Court of Audit published a report on this subject in April 2003, Accrual Budgeting and Accounting in Central Government-Budgets and Accounts in Balance. The report discusses the government’s proposals and describes and analyzes accrual budgeting and accounting standards and practices in the Netherlands and abroad.

The report states that accrual budgeting and accounting have been introduced in many countries. This has happened because results-oriented and transparent budgeting, accounting, and management require a focus on costs instead of (or as well as) expenditures and a greater understanding of income, expenses, and financial position.

It should be noted, though, that at present no two countries have introduced identical systems. No trend towards international harmonization has developed as yet. Even within individual countries, the details differ significantly from one part of the public sector to another. In addition, many countries are reluctant to apply accrual systems to their budgets. Many members of parliament consider the authorization of cash expenditures to be a great benefit; they have an abiding fear of cash overruns and are daunted by the technical complexity of the accrual system and the attendant potential for manipulating financial data. In a more technical sense, moreover, the system must take account of specific government issues as well as those known from the private sector, such as the valuation of buildings and the recognition of provisions.1 These issues include the appropriate accounting treatment of defense equipment, cultural heritage, social security obligations, and obligations relating to the government’s position as ultimate guarantor of the continuity of such privatized services as public transport and the electricity supply.

The remainder of this article compares the technical manifestations of the accrual system in five countries (New Zealand, Australia, the United Kingdom, the United States, and Sweden) that have been pioneers in this area. These examples may serve as a source of reflection for other countries that are considering introducing this system. This also goes for the Netherlands, whose government has recently decided to postpone the introduction of the new system for several years.

Five Pioneering Countries Compared

With respect to the general design of the accrual system, the following can be observed about the five countries whose practices we compared:

  • Most introduced an accrual system that was both comprehensive (for all central government entities) and full (including complete statements of financial position and financial performance and a link between these two main documents).
  • Most adopted an accrual basis for both budgeting and accounting.
  • The budgets and, in particular, the accounts of most include the three main accrual-based financial statements (statement of financial position, statement of financial performance, and cash flow statement).
  • The financial statements of the various parts of central government are generally consolidated into central government financial statements; the public sector as a whole is generally not consolidated.
  • The legislature authorizes various items: costs, cash expenditures, obligations, or both; in most cases it principally authorizes costs.
  • Accounting standards in most pioneering countries are based on private sector standards, with certain departures to allow for the unique characteristics of their government. National and government accounting are separate; national accounting standards played virtually no role in the development of government accounting standards in most pioneering countries.

The details of these observations are presented in table 1.

Table 1: Design of Accrual Systems in Five Countries

With respect to the main accounting principles applicable in each country, the following observations were made:

  • There are considerable differences in valuation policies from primarily historical cost (Sweden, United States) to primarily modified historical cost (New Zealand, United Kingdom) to primarily current value (Australia).
  • The main statement of financial position classification agrees with the generally accepted classification of fixed and current assets, liabilities, and equity as a balancing item.
  • Provisions are permitted in all five countries.
  • All five countries calculate equity (under a variety of names) in accordance with generally accepted principles as the balance of assets and liabilities.
  • In all five countries, tax revenue allocated by the central tax collecting agency is accounted for by the other parts of central government receiving the revenue.
  • All five countries calculate an operating result (in a variety of ways) as the balance between income and expenses.
  • Three of the five countries apply a capital charge.

Table 2 presents the main accounting principles applicable in each country.

Table 2: Accounting Principles Applicable in Five Countries



The optimal design of accrual systems in the public sector is expected to remain hotly debated both nationally and internationally in the years ahead. Organizations and networks such as INTOSAI, the Organisation of Economic Co-operation and Development (OECD), the International Federation of Accountants (IFAC) Public Sector Committee, and Comparative International Accounting Research (CIGAR) might provide valuable information and stimulus for further development and international harmonization.

An English copy of the report Accrual Budgeting and Accounting in Central Government–Budgets and Accounts in Balance is available on request from the author ( or on the Internet ( Further information on government budgeting and accounting in nine European countries (Finland, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland and the United Kingdom/Ireland) can be found in a recent book, Reforming Governmental Accounting and Budgeting in Europe, Klaus Lüder and Rowan Jones (eds.), (Frankfurt, Germany: Fachverlag Moderne Wirtschaft, November 2003), ISBN: 3-934803-13-X.

1 Provisions are part of an organization’s liabilities created for a clear and specific purpose to meet certain future obligations.