How Should the Government Measure Spending? The Uses of Accrual Accounting

The Impact of Accrual-Based Public Accounting Harmonization on EU Macroeconomic Surveillance and Governments’ Policy Decision-Making

“…A systematic and comprehensive reporting of this item is not usually carried out under "pure cash" (Pina & Torres, 2009, p. 336) accounting (Blondal, 2004;Chan, 2008a;Jones & Lüder, 2011 accrual-based accounting, with a complete reporting of receivables and payables, would provide the necessary source data, in addition to leading to a better and more transparent approach to the use of resources in public management by policy makers (Redburn, 1993). This could be notably in relation to avoiding the practice of deferring payments without accounting invoices and/or improperly using trade credit instruments (often not reported in the budget), since this can lead to a mis-measurement not only of the debt but also of the deficit, in addition to wider adverse economic effects such as access to finance for small and medium enterprises (SMEs) (Corte dei Conti, 2013; Franco, 2013) and the potential for inefficient and even corrupt procurement practices.…”

“…The estimation of contingent liabilities in the government balance sheet (as well off-balance sheet)-liabilities potentially arising from outstanding guarantees provided by governments, from other contractual obligation such as in public-private partnerships, or from specific financial interventions by governments-is an important issue for transparency of the exposure of governments to future events (Curristine, Joumard, & Lonti, 2007;Mintz & Smart, 2006;Redburn, 1993). 26 Accrual accounting requires the establishment of provisions (liability uncertain in timing or amount) in certain circumstances, whereas macroeconomic statistics do not recognize provisions and contingent liabilities, although Eurostat has started to collect data on contingent liabilities more systematically within the EU.…”

“…In fact, the main issues in accounting are related to the complexity of calculation and the availability of reliable information on which to compile and report on such items. Accrual-based recording of pension liabilities requires liabilities representing accrued rights (for both public and private employers) and assets (for beneficiaries) not only to be recorded, but also to measure the significant ongoing costs incurred by the employer during the period of service (EC (Eurostat)/ECB, 2008;Redburn, 1993). Despite its complexity, to ignore these elements can affect the depiction of the financial position, may lead to misreporting of costs, may bias decision-making through costs not being reported in the present, and may mean inadequate provisions for the required future cash flows (Blondal, 2003;EC (Eurostat)/ECB, 2008;ECB, 2009;Semeraro, 2007).…”

Budgeting for Mandatory Spending: Prologue to Reform

“…Redburn () provides an early case for accrual accounting for insurance and the House Budget Committee's November 30, 2016 Budget Reform proposes accrual accounting for all federal pensions and insurance (U.S. House of Representatives Committee on the Budget ).…”

Federal Use of Implied Guarantees: Some Preliminary Lessons from the Current Financial Distress

“…2 2 A significant difference between the direct loans and loan guarantees accounted for under the Federal Credit Reform Act and the GSE subsidies is that loans have well‐defined expected maturities (after accounting for the effect of prepayments and defaults). By contrast, the federal guarantee of the obligations of a GSE is for the life of the enterprise, which is indefinite (Cooperstein, Pennacchi, and Redburn 1995; Lucas and McDonald 2007; Redburn 1993). The open‐ended cost of GSE guarantees may be bounded by restricting the estimated cost to new obligations (all of which have estimable maturities) issued in the budget period.…”