Public Financial Management for PRSP - Deutsches Institut für ...

Stefan Leiderer et al.
Figure 2: Levels of Control
External
Audit
Compliance Value for Certification
Money
Expenditure
Planning &
Preparation
of Budget
Accounting
Internal Control
Internal Auditing
of Accounts
Financial
Reporting
Records Management
Creation Maintenance & Use Disposition
Source: GTZ (2006)
In principle, two forms of accounting systems can be distinguished (Foster /
Fozzard 2000, 17):
— Accrual Accounting: transactions are booked when they legally arise and
not when they are actually paid. Thus, expenditures are accounted for
when liabilities arise due to the purchase of goods and services, even if
payment has not yet been made. Revenues are accounted for when
goods and services are sold, even if payment has not been received. The
advantage of this system is that it captures the full costs of activities and
provides a clear picture of the financial situation at any time during the
process of budget execution. The main disadvantage lies in its complexity,
so that its application does not seem appropriate for all countries, in
particular developing countries where weak capacities limit effective
cash flow management.
— Cash Accounting: transactions are registered only when actual payments
are done for the purchase or sale of goods and services. The advantage
of this system lies in its simplicity. The disadvantage is that cash accounting
does not provide a clear picture of the outstanding liabilities
36 German Development Institute