There are about 6 (six) bases of public sector accounting as compare to only 3 (three) bases of accounting in financial accounting.

Disadvantages of accrual basis accounting in public sector

But in this particular public sector accounting guide we will consider the disadvantages of accrual basis accounting in public sector or the disadvantages of accrual basis in public sector accounting. first let see the meaning and explanation of public sector accounting basis.

Related Guide: Advantages of accrual basis accounting in public sector

MEANING OF PUBLIC SECTOR ACCOUNTING BASIS

These are the main fundamental assumptions that underpin financial statement preparation in the public sector.

It refers to the order in which revenues, expenditures, and transfers are recognized in the accounts and presented in the financial statements, as well as the accompanying assets and liabilities.

It establishes a framework for tracking the government’s and government agencies’ financial activities, as well as when those actions are recognized and reported in the financial statement.

WHAT ARE THE BASES OF PUBLIC SECTOR ACCOUNTING

There are several accounting bases that can be applied in public sector accounting depending on the policies and regulations of the government.

the public sector accounting bases include the following:

1. Cash Basis
2. Accrual Basis
3. Budgetary / Appropriation Basis
4. Commitment Basis
5. Modified Accrual Accounting Basis and
6. Modified Cash Accounting Basis

IPSASB allows for the use of both cash basis (in the short term) and accrual basis (ultimately) form of financial reporting.

The implementation of accrual-based financial reporting is recommended as the ideal goal for all public financial reporting.

This IPSASB has created standards expressly for nations that continue to report on the cash basis of accounting but encourage the voluntary disclosure of accrual-based data.

Linkages with budgeting (which is still done on a cash basis in many countries) and statistical reporting standards, such as the International Monetary Fund’s Government Finance Statistics, are also being considered by the IPSASB.

THE ACCRUAL BASIS OF PUBLIC SECTOR ACCOUNTING

Accrual basis of accounting is done with the assumption that transactions are recognised when they occur and not when they are paid for.

READ ALSO: WHAT IS INSTITUTIONAL FRAMEWORK FOR PUBLIC SECTOR ACCOUNTING

Thus expenses are booked when they are incurred while revenues are recorded when they are earned not when monies are received for them.

This concept matches revenue to expense in the period in which they are earned and incurred and not when there is the actual movement of cash for them.

Revenue is recognised when it is earned  (that is the benefit has been given and the entity is entitled legally to receive compensation for the benefit given) rather than when it is received.

READ ALSO: WHY IS A REGULATORY FRAMEWORK NECESSARY

Expenses, on the other hand, are recognised when incurred (that is the benefit has been received and the entity is obliged legally to pay in exchange) rather than when paid

ACCRUAL BASIS

Accrual basis of accounting is done with the assumption that transactions are recognised when they occur and not when they are paid for.

READ ALSO: WHAT IS INSTITUTIONAL FRAMEWORK FOR PUBLIC SECTOR ACCOUNTING

Thus expenses are booked when they are incurred while revenues are recorded when they are earned not when monies are received for them.

This concept matches revenue to expense in the period in which they are earned and incurred and not when there is the actual movement of cash for them.

Revenue is recognised when it is earned  (that is the benefit has been given and the entity is entitled legally to receive compensation for the benefit given) rather than when it is received.

READ ALSO: WHY IS A REGULATORY FRAMEWORK NECESSARY

Expenses, on the other hand, are recognised when incurred (that is the benefit has been received and the entity is obliged legally to pay in exchange) rather than when paid

DISADVANTAGES OF ACCRUAL BASIS IN PUBLIC SECTOR ACCOUNTING

• The accounting basis incorporates non-cash transactions such as depreciation and provision which are all based on estimation. incorporating these elements in the financial statement can be complicated and subjective.
• Using accrual basis to measure management performance can encourage creative accounting where managers manipulate the financial statement to show improved performance.
• It is not useful for cash flow management, in fact, it may hide cash flow problems. As a result, full accrual basis financial statements are normally accompanied by statements of cash flows.

Conclusion

We have seen that there are about 6 (six) bases of public sector accounting as compare to only 3 (three) bases in financial accounting.

We have also consider in this guide the advantages of accrual basis accounting in public sector accounting

basis of accounting is done with the assumption that transactions are recognised when they occur and not when they are paid for. This concept matches revenue to expense in the period in which they are earned and incurred rather than when there is actual movement of cash for them.

Note:

The public sector accounting post or guides or articles are not limited to these 10 countries alone:

1. Ghana
2. Nigeria
3. United States
4. Uganda
5. India
6. Kenya
7. Philippines
8. Malaysia
9. Tanzania
10. South Africa

But instead targeted all the countries in the world since public sector accounting is being practice in every country in the world, so wherever country you are in the world can read public sector guides here since public sector accounting applications are similar.