Selective application of the accrual principle in the construction of government finance statistics: EU evidence

IMPACT

This article will help preparers and users of public sector accounting information understand why there is a need to ‘translate’ accounting information into fiscal information, and how this translation takes place through several ‘adjustments’. Readers will learn that, in the EU, it is uncommon for fiscal information to be grounded on accrual-based accounting data—particularly in the central government where cash data remain the preferred input. Readers will also learn that, while cash accounting bases generate a somewhat greater need for adjustments before fiscal information is produced, no accounting basis fully embraces the selective interpretation of the accrual principle that underlies the construction of fiscal aggregates. The information produced by fiscal and accounting information systems is unlikely to overlap fully, even if the public sector were to adopt an accrual basis of accounting.

ABSTRACT

The authors studied the ‘translation’ of government accounting working balances into fiscal balances in the EU. Non-accrual-based working balances were found to represent the most frequent primary source of data that national statistical institutions use to calculate and report fiscal balances in Excessive Deficit Procedure notification tables. Compared to accrual-based working balances, non-accrual-based working balances impose significant adjustments on current revenues and expenses to obtain fiscal balances, yet they lead to limited adjustments to several long-term transactions. The authors argue that this result originates from the selective application of the accrual principle in the construction of Government Finance Statistics.

KEYWORDS:

• Accruals
• accounting convergence
• cash
• Excessive Deficit Procedure (EDP)
• Governmental Accounting (GA)
• Government Finance Statistics (GFS)
• local government
• notification tables

Acknowledgements

The authors gratefully acknowledge the civil servants at Ministero dell’Economia e delle Finanze—Ragioneria Generale dello Stato for helpful feedback and discussions on earlier versions of this article. The authors are solely responsible for any remaining errors and omissions.