PUBLIC SECTOR

ACCOUNTING

Lecture 14
Development in Public
Sector Accounting

Public Sector Reforms

Public sector is entrusted with a twin task:

~ Socio-economic development
~ Nation building
Series of reforms or modernization were undertaken.
Factors:
~ Environmental (economic conditions and societal
demands)
~ Developmental policies
~ Objectives of the government
Referred to as New Public Management (NPM) or New
Public Financial Management (NPFM)
Associated with doctrines of public accountability and
organisational best practice
Involved deliberate changes to the structures and processes
of public sector organisations with the objective of getting
them (in some sense) to perform better
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Public Sector Reforms

Public sector reform emerged as a result of perceived
problems in the following areas:
Inputs ~ public sector was seen to require unsustainably
large and/or unsustainably increasing public expenditure.
Processes ~ there was concern about inefficiency in the
use of public resources (waste, delay, mismanagement
and corruption)
Outputs ~ Concerns were widespread that the public
sector was not delivering what it should be.
Emphasis on
economy and cost
Hands on of new public management
Characteristics
cutting
management
Competition
Decentralization
Focus on outputs
Private sector
based
management

Citizen oriented
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Changes in Public Sector

Accounting
Public sector accounting becomes more in line with the private
sector
The emphasis of accounting has changed from showing stewardship
and accountability to measuring performance and efficiency in
the public sector.
Adopted accrual accounting [E.g. UK, Australia, New Zealand, US],
because:
accountability is unclear under the present system
goals and performance requirements of government departments are
poorly specified
incentives often encourage dysfunctional behaviour (for example, yearend spending)
asset levels are poorly maintained, and changes in value or depreciation
are not required to be recorded
losses, long-term liabilities, and future revenues are not reported
responsiveness to changing circumstances is slow
global competitive forces that demand efficiency for survival are often
ignored in designing governmental financial systems

Change towards Accrual

Cash basis is simple,Accounting
objective, ability to demonstrate fiscal compliance
Accrual basis improved accountability, better financial management,
greater comparability for performance, accurate picture of financial
position
Challenges in implementation [refer to lecture 7~accrual
accounting]
Future of accrual accounting
Feasible as privatization and corporatisation of major government
projects proven successful.
Government accounts would have to be compelled by circumstances to
produce the accounts of acceptable standards for commercial use.
Promoters of accrual accounting in public sector
International Federation of Accountants (IFAC)
International Organisation of Supreme Audit Institutions (INTOSAI)
Asian Organisation of Supreme Audit Institutions (ASOSAI)
IMF and World Bank Feasible as privatization and corporatization of
major government projects proven successful.

The International Federation of

Accountants (IFAC)
The International Federation of Accountants (IFAC), established
the International Public Sector Accounting Standards Board
(IPSASB) formerly the Public Sector Committee (PSC)
focuses on the accounting and financial reporting needs of
national, regional and local governments, related
governmental agencies, and the constituencies they serve.
issuing and promoting benchmark guidance, conducting
educational and research programs
facilitating the exchange of information among accountants
and those who work in the public sector or rely on its work

Accountants General
Department
Computerisation of accounting system
Standard Accounting System for Government
Agencies (SAGA)
The State Government's Standard Computerised
Accounting System (SPEKS)
Electronic Budget Planning and Control System
(eSPKB)
Government Financial & Management Accounting
System (GFMAS- 1GFMAS)

Accounting standards
Malaysian Public Sector Accounting Standards - for
Federal and State Governments
Adopting IPSAS for Local government
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Development in Malaysia
Administrative reforms
Economic Reforms (1960s 1970s)
Promote growth, New Economic Policy
Public Administrative Reforms (1980s 1990s)
Total quality management (TQM), quality control circles
(QCC), Excellent Work Culture Movement, Development
Administrative Circulars
Privatization, E-government
Budgeting system
Traditional line item budgeting programme performance
budgeting system modified budgeting OBB
Financial management and performance
Efficiency, effectiveness, economy indicators, KPI
Micro accounting system
Full costing Activity based costing together with accrual
accounting and OBB
Enhancement of information technology
Computerised accounting system GFMAS 1GFMAS
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Orientation of Accounting System in

Malaysia
Political power strong executive
Legal tradition common law
Professional influence weak and almost non-existent
Most favorable to management oriented governmental accounting
system
Nevertheless, despite several challenges:
There have been changes and improvements in the Malaysian
governmental accounting and reporting (procedural changes)
Accrual accounting has become of the policy measures under the
New Economic Model ~ already at the implementation stage
Socio-political-administrative variables are getting favorable
involvement of
professionals
within PEMANDU
Professional
body such as
KPMG appointed
as consultant
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Tutorial Questions

1. Discuss the implications of public sector reforms on public sector

accounting practices.
2. The following article has been uploaded to spectrum:
Accrual Accounting and Budgeting: Key Issues and Recent
Developments by Blondal, published in OECD Journal on
Budgeting, Vol. 3, No. 1, 2003.
Based on the article, answer the following questions:
(a) Why is there much greater acceptance of accruals for financial
reporting than for budgeting purposes?
(b) What would be the potential problems when government adopts
accrual basis for financial reporting and not for budget purposes?
(c) Discuss some disadvantages of adopting accrual accounting in
the public sector.

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