Academic journal article Economics, Management and Financial Markets

The Reform of the Romanian Budget System - a New Step

Academic journal article Economics, Management and Financial Markets

The Reform of the Romanian Budget System - a New Step

Article excerpt

1. Introduction

Our paper analyses the role of the budget system reforms of the emerging economies (which includes Romania) in terms of budget performance. Moreover, we believe that if we take into consideration the costs of adopting the accrual accounting, at the expense of the cash accounting, then such a transition is useful in the context of the adoption of broader reforms in the public sector.

The public administration reforms from the early 90s in the Anglo-Saxon countries, through which the public sector receives better transparency and governance, were named "New Public Management" (NPM) by Christopher Hood. Subsequently, this concept, through which the traditional public management is replaced by one based on results, was supported by the International Monetary Fund, the World Bank, the European Bank, and the Organization for Economic Co-operation and Development (OECD). NPM leads to a higher demand for useful information for the decision making process and responsibilities beyond budgetary control (Cortes and Marti, 2012). These changes are aimed at blurring the boundaries between the public and the private sectors. Among the NPM provisions we find the introduction of the accrual accounting in the public sector at the expense of the cash accounting.

Champoux (2006) states that by using the accrual accounting only for the financial reports, they may not be taken seriously and risk becomes a purely technical exercise. Furthermore, "one of the major goals that justified the introduction of the accrual accounting in the public budget was to make the latter more transparent and to improve the efficiency of the public expenditures and of accountability" (Monteiro and Gomes, 2013).

In these circumstances, the budget becomes a fundamental tool in the management of the public institutions. For some authors, the budget is the main tool used in planning ahead and in describing what the institution wants to achieve (Hoek, 2005). For other authors, the budget is a mandatory forecast document which compares the revenue and expenditure for the period to which it relates (Dascälu et al, 2006). Most of the reforms applicable to the field of budgeting in the public sector represented a step towards changing the traditional model of the public management with one based on results (Cortes and Marti, 2012).

Internationally, the public management models use two types of budgets: the budgets prepared according to the cash accounting and the budgets prepared according to the accrual accounting.

The difference between the two methods consists in the moment where the transactions occur. The budget prepared under the accrual accounting norms will estimate the revenues and expenses of a given period in order to determine the profit that is to be achieved. At the macro level, the adoption of the accrual budgeting is a new framework for the planning, management and control of the public expenditure (Cortes and Marti, 2012)

Instead, a budget prepared under the cash accounting norms will relate only to the items received or paid for. The purpose of this type of budget is to determine whether there is sufficient cash. The budget prepared under the accrual accounting norms presents long-term events while the budget prepared under the cash accounting norms present short-term ones.

Besides these two types of budgets, United States Government Accountability Office (GAO) mentions other models as well (GAO, 2000). The bond-based model, a variant of the cash accounting model, can be included here. This budget type is used in the United States and admits the expenses when the purchase contract is assigned.

Both bases, cash and accrual, are required in order to obtain a complete image of the Government's financial statement (GAO, 2007). The introduction of the cash budget model or of the accrual budget model raises controversy, being correlated with the two accounting models applied to the public domain. …

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