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Email: iyika4real@yahoo.com
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CONTENT
➢ INTRODUCTION
➢ REFERENCES
INTRODUCTION
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In recent years, there has been a gradual but steady shift from traditional
accounting practice in public sector (which is cash based) to accrual
accounting system. This change first started about three decades ago as
political and ideological reforms. Such reforms include ‘Thatcherism’
(in the UK), ‘Reagonomics’ (in the USA), ‘Rodgernomics’ (in New
Zealand) (Broadbent and Guthrie, 1992).
Thus, this paper is aimed at reviewing the existing cash basis accounting
system and determining how adaptable accrual accounting can be in the
government owned entities.
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Cash basis accounting can be defined as a book-keeping method that
records financial events based on cash flows and cash positions. The
following characteristics can be seen from the above definition:
• It is simple to operate
ITS CHARACTERISTICS
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The accrual basis of accounting is a system which recognizes income or
revenue when earned and expenses when incurred whether cash has
been received or paid not withstanding.
From the foregoing, accrual basis can be said to possess the following
characteristics:
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also currently been made for public sector organization in the same
direction.
IPSASB has made considerable progress over the last few years in
developing a set of International Public Sector Accounting Standards for
public sector financial reporting on the accrual basis of accounting
(Sutcliffe 2003). However, as the Standards are not comprehensive,
there are as yet no agreed standards for such significant areas as taxation
and social policy obligations (for example, state pensions). In addition
there is no universally agreed approach to the valuation of particular sets
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of assets such as heritage, infrastructural or military assets. As a result,
individual governments that wish to move to the accrual basis will have
to develop their own standards (Hepworth 2003). This may involve
adapting private sector standards or, for some public sector activities
such as for the treatment of tax revenues and social policy obligations,
either inventing new country standards or acting in a way that effectively
ignores the problems that exist.
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Despite this, the emphasis of the IPSASB has been on encouraging all
governments and other public sector entities to make the transition to the
accrual basis of accounting for their general purpose financial
statements. The Committee "has commented extensively on the benefits
of accrual accounting for governments and individual public sector
entities in previous studies (Studies 5, 6, 8, 9, 10, and 11) and
Occasional Papers (Papers 1 and 3)" (IFAC Public Sector Committee
2002, p.7). Even the introduction of the International Public Sector
Accounting Standard for the cash basis of accounting states that, "the
Committee encourages governments to progress to the accrual basis of
accounting" (IFAC 2003, p. 1).
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compensate for the additional cost involved and so result in a significant
increase in efficiency or reduction in cost of the provision of such
services.
✔ It shows how a government has financed its activities and met its
cash requirements,
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Cash basis IPSAS was compared to the local accounting system at
it was discovered that Nigeria has only adopted it in principle. This
means that in practice, Federal government financial statements are
not Cash IPSAS compliant. This very fact poses a serious
challenge that the stakeholders are presently grappling with.
• Corruption,
• Poor infrastructure,
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Some of the above challenges are not limited to developing
countries since researches have shown that even the so-called
developed have encountered similar bottlenecks in trying to transit
accrual based IPSAS. Countries like UK, New Zealand, and
Australia are few examples.
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➢ Be encouraged to converge with cash IPSAS at least in the interim,
REFERENCES
1. Guthrie, J. (1998) Accrual Accounting in the Australian
Public Sector. Financial Accountability and Management, 14 (1)
pp 1-19
2. Hepworth, N.(2003) Introducing Accrual Accounting in the
Public Sector: Some introductory remark Chartered Institute of
Public Finance and Accountancy(CIPFA).
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5. IFAC Public Sector Committee (2000a) ‘IPSAS 1 –
Presentation of Financial Statements’ IFAC
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12. Rowan, J and Maurice, P. (2000) Public Sector Accounting
Prentice Hall, England
p.166.
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.
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