Inter-Country Public Sector Comparisons and Harmonization of International Accounting, Auditing and Regulation
Wallace, Wanda A., The Journal of Government Financial Management
Countries can learn from one another's experience. This article describes inter-country public sector comparisons and developments toward international harmonization. Game theory research offers insights as to why international harmonization of auditing and regulation in the public sector is valued.1
Public sector Variations
In the governmental sector, a schism is emerging around the globe on the benefits of cash versus the accrual basis of accounting. Disagreements also prevail as to the wisdom of aligning corporate and governmental sector reporting. The belief that standards for governments should be as similar as possible to those of private sector companies is dominant in Australia and New Zealand. Indeed, these countries have one standard-setting group, with a goal to harmonize standards with the International Accounting Standards Board (IASB).2 Synchronization efforts began with an agreement with the IASB Improvements Project. The IASB3 said key features of that project included: eliminating accounting alternatives, clarifying matters of application, and achieving consistency in wording and style. Since members of the IASB have explicit 'liaison' responsibilities with Australia/New Zealand, Canada, France, Germany, Japan, U.K. and the U.S., the opportunity for successful concurrent debate within and across standard-setting groups is enhanced.
For a sense of the challenges facing harmonization, consider the changes in the U.S. and differences among government levels. Big changes are observable at the state and local level through the Governmental Accounting Standards Board's (GASB) Statement No. 34, requiring:
* A governmentwide single operating statement that aggregates governmental-type and proprietary-type funds, reflecting a single basis of accounting-deemed best achieved by using an economic resources measurement focus.
* Adjustment from modified accrual basis used in fund financial statements to a full accrual basis for governmentwide statements.
* Omission of fiduciary-type funds from governmentwide financial statements since fiduciary responsibility precludes legal use of those resources for its own activities.
A comparison of federal to state and local government accounting in the United States reveals stark differences.4 While both levels of government integrate budgetary accounting into the financial accounting system, the federal use of budgets is more pervasivewith one track of the accounting system for budgetary transactions and a second track for financial accounting. Both use funds and similarities exist in structure. Yet, state and local governments use modified accrual basis for some funds and full accrual for others, whereas the federal government uses more accrual accounting for expenses but uses a "modified cash" basis for tax revenues.
State and local governments have a dual set of reports: one governmentwide and one fund-level. The federal government issues consolidated financial statements. Rarely are departmental financial statements used for other than internal purposes at the state and local governmental levels. In contrast, separate accounting records are maintained and financial statements are issued for each agency or fund, and often the agency statements only relate to a portion of a fund, such as the general fund. State and local governmental units compute a net assets number that shows fund balance accounts and are amounts available for expenditures, among other things. Federal accounting can record many different agencies in a "common fund." Each agency as an accounting entity uses different terms to identify that agency's net assets, such as 'net position,' 'unexpended appropriations' and 'cumulative results of operations.' These federal net assets are not always liquid.
State and local governments delineate cash in bank accounts, using a bank and making disbursements. In contrast, individual federal agencies generally do not deal directly with banks; the Treasury acts as their banker. …