The paper 'Need for a Public Sector-Specific Accounting System in Australia" is a perfect example of a finance and accounting case study. As from the early 1980s, there has been a lot of transformation in public sector financial reporting and accounting. New Zealand and Australia led this, and one major feature of the new trend was the abandonment of cash accounting in favour of a commercial accrual approach (Hooks & Tooley 2007) The public sector comprises of the state apparatus that ensures the provision of social goods to the people, funded by taxes, while the private sector includes businesses which sell utilities to the people, and are funded from voluntary customer purchases (Funnell & Cooper 2012).
Although the adoption of a private-sector approach has been functional for many decades in Australia, having a private-sector approach to public sector accounting is wrong. This paper discusses the adoption of accrual accounting in Australia’ s public sector accounting and argues against the assumption that a uniform system can work for both the private and public sectors. For a long while, business accounting has gradually been accepted as the best model for public affairs accounting.
According to Hooks & Tooley (2007), the main reason behind this is the perception of convergence between the private sector and the public sector’ s processes and objectives in management. Accrual accounting has since been considered as not only offering a means for measuring results and reporting achievements, but also a basis for negotiation. Tickell (2010) explains that the largest feature of reform in Australia’ s public sector accounting has been the move from cash basis accounting to accrual accounting, especially from 1998 to 2000.
In Australia, accrual accounting covers Accrual Management Systems, Accrual Financial Reporting, Accrual Budgeting and Whole of Government Reporting. According to Davis (2010), the adoption of accrual accounting in the Australian Public Sector dates back to 1976 when the Royal Commission on Australian Government Administration (RCAGA) recommended devolved management, greater accountability and improved performance measurement within the sector that was then a traditional bureaucratic one. In Senate Standing Committee reports on the issue presented between 1978 and 1982, accrual accounting was suggested as a remedy. The AASB recommends a sector-neutral, unified set of standards for accounting, and these will fit differently into the respective contexts depending on the types of entities or sectors and the kind of transactions which they conduct.
The International Financial Reporting Standards (IFRS) offers the core direction on accounting’ s handling of transactions or other related events. Local standards are created in a way that would cover matters which have not been addressed at the international level. Transaction neutrality is upheld, and this is considered to be a guiding principle and not a constraint (Funnell & Cooper 2012). The accrual system is used as the basic measurement of performance in terms of expenses and revenues.
According to Rich (2012), these come out as decreases and increases in net assets. Because liquidity is important in the entire process, a Statement of Cash Flow is prepared. The organization is assumed to have the primary goal of providing goods and services. It is therefore allowed to recognize its sales revenues, and these are either decreased liabilities or increased assets to the much that it has done so. This measurement method for financial performance is referred to as full accrual, and expenses are matched with revenues in order to identify net loss or income.
Barton, A., 1999. Public and Private Sector Accounting - the Non-identical Twins. Australian Accounting Review, Vol. 9(2), pp. 22-31
Davis, N., 2010. Accrual Accounting and the Australian Public Sector- A Legitimation Explanation. Australasian Accounting, Business and Finance Journal, Vol. 4(2), pp. 61-78
Funnell, W and Cooper, K., 2012, Public Sector Accounting and Accountability in Australia, Sydney: UNSW Press
Harun, H, Van Peursem, K and Eggleton, I., 2012. Institutionalization of Accrual Accounting in the Indonesian Public Sector. Journal of Accounting & Organizational Change, Vol. 8 (3), pp.257 – 285
Hooks, J and Tooley, S, 2007. Exercising Professional Judgment in an Era of Sector Neutrality: A Study of Choices Made by New Zealand Reporting Entities. Financial Reporting, Regulation & Governance, Vol. 6:1
Khan, A and Mayes, S., 2009, Transition to Accrual Accounting, Washington, DC: International Monetary Fund
Rich, J., 2012, Cornerstones of Financial & Managerial Accounting, Mason: South-Western/Cengage Learning
Tickell, G., 2010. Cash to Accrual Accounting: One Nation's Dilemma. The International Business & Economics Research Journal, Vol. 9 (11), pp. 71-78