A consistent bottom-up approach for deriving a conceptual framework for public sector financial accounting

ABSTRACT

Discussion to date has focused on whether business-style accrual accounting fits the public sector, rather than analysing which alternative options of accrual accounting best serve the needs of public sector stakeholders. This paper looks at what the primary users of government accounting information actually need and describes a new analytical approach that can be used to assess the existing public sector financial accounting standards. The author then presents the most suitable conceptual framework for the public sector. The paper argues that the income statement first approach is better than the balance sheet approach for the public sector.

IMPACT

This paper will help accountants and standard setters to improve public sector financial accounting. The transaction-led method presented is a realistic and practical way to implement current accounting in tax-financed public sector entities. It is closer to the traditional core of public sector accounting than the balance sheet approach promoted by the IPSASB. Based on a new framework, the author proposes a solution to the current problems of harmonization of accounting standards in EU countries via EPSAS: a general conceptual framework accompanied by practical guidance, and no separate binding standards.

KEYWORDS:

• Bottom-up approach
• conceptual framework
• EPSAS
• financial accounting
• income-statement-first approach
• IPSAS
• public sector

Disclosure statement

No potential conflict of interest was reported by the author(s).