Accrual Financial Reporting in the Australian Public Sector:

Australian governments have recently moved from cash accounting to accrual accounting. In doing so they have made simultaneous use of two rival accrual accounting frameworks: AAS 31 and GFS. AAS 31 and GFS operating result measures differ significantly. To date, the AAS 31 framework has enjoyed primacy. This paper evaluates these two frameworks, and suggests that GFS is superior. Accrual accounting has been accompanied at the national government level by the introduction of a new key fiscal policy measure: the ‘fiscal balance’. This paper explains and evaluates this new fiscal measure. It concludes that, given the present fiscal policy of the Australian government, fiscal balance is a superior fiscal policy measure to the 'cash' budget balance measure which it replaced. However, from the alternative ‘golden rule’ policy standpoint, fiscal balance is not a meaningful fiscal policy measurealthough its stock counterpart, net financial liabilities, is. 1. The Move to Accrual Accounting Over recent years, Australian Governments have progressively implemented accrual accounting in their general government (ie budget) sectors, replacing the traditional 'cash' accounting system which is still used by most governments around the world. This process culminated with the presentation of the annual government budget on a full accrual basis, a step which took place at the Commonwealth government level and in most of the States in 1999-2000. The adoption of accrual accounting in the Australian public sector has been complicated by the simultaneous use by governments of two significantly different accrual accounting frameworks. The dominant framework is that derived from Australian Accounting Standard (AAS) 31. The other is the Government Finance Statistics (GFS) framework developed by the Australian Bureau of Statistics' (ABS). The GFS accrual framework is a reformulation in accrual concepts of a statistical series which prior to 2000 was principally based upon cash accounting concepts. GFS generally follows the international economic-analysis accounting frameworks developed by the International Monetary Fund and the United Nations. 1 Accrual accounting was long ago applied to government business enterprises in Australia.