GTZ Report on Accrual Accounting Status Quo - LGCDP

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How to implement Accrual Accounting 21 04. How to implement Accrual Accounting 4.1. Recommendations and preconditions for the implementation of Accrual Accounting The different starting points and needs of the municipalities in the process have to be adequately addressed in all stages of future implementation and post implementation phases (see Table 1, p.18). Drawing on the findings of the study as well as international recommendations (Athukorala & Reid, 2003, p.56-62; Wynne, 2004, p.16-20; FEE, 2003, p.10-12; IMF, 2007, p.13-14; IPSASB, 2003) this part of the report displays a possible way of implementing accrual accounting at the municipal level. It will start with technical recommendations and preconditions for accrual accounting as well as general recommendations and preconditions for the implementation of accrual accounting and will be concluded with a micro and macro level implementation strategy. 4.1.1. Technical accrual accounting recommendations and preconditions Table 2: Technical accrual accounting recommendations and preconditions Accrual Accounting Laws and Regulations • In order to guarantee an effective implementation the current legal framework has to be revised. Accrual accounting activities need to have an in tune and interconnected legal framework, including an adapted municipal and national budgeting, reporting and auditing (internal and external) system. 5 • Concerning that issue one has to review possible linkages to performance or outcome based budgeting as well as reporting and auditing (Diamond, 2002; IMF, 2007, p.9). Who is supporting Udle (MLD-<strong>GTZ</strong>),, Comptroller General Office, Institute of Chartered Accountants, LBFC, MuAN, 5 For further information on national level budgeting, accounting and auditing as well as international literature please refer to World Bank, 2007; World Bank 2003 and Shah, 2007.
How to implement Accrual Accounting 22 • Currently the Comptroller General Office does not accept accrual based financial statements for external auditing purposes. This indicates that existing procedures between the local and central level of government are not matched and have to be revised. • A Nepal Public Accrual Accounting Standard should be developed according to IPSAS and the Nepal Accounting Standard (NAS). • Regulations must acknowledge the different starting points and experiences of the municipalities in accrual accounting (see p.18-19). • An efficient auditing and monitoring of the implementation process combined with selected support is essential for the success of the accrual accounting implementation. • The term Corporate Accounting System or “CAS” should be revised since it implies that public and private accounting are identical, which however is not the case. Accrual Accounting Guidelines and Manuals • Accrual accounting guidelines and manuals are supposed to close the gap between the developed public accrual accounting regulations/standards and the practical implementation, transition period and operation (see also IPSASB, 2003 and IMF, 2007). • Specific technical accrual accounting guidelines and manuals which address not only accrual accounting in general but also the transition or implementation are necessary. This is an important lesson learnt since there needs to be more clarity on how to proceed during the implementation process. Information must be provided on difficult issues like the valuation methods of specific asset types, inventory, depreciations, debt management, revenue management, opening balance sheet, closing balance sheet, and other financial statements. • The guidelines should use standardized methods for each accrual accounting component, e.g. in the valuation of certain asset types, since many different methods will be misleading and would be an obstacle to achieve a certain quality standard of accrual accounting across Nepal. Conceptual Clarity • During past reforms municipal staff was not sufficiently trained and informed about the characteristics, the meaning, the scope and the environment of accrual accounting. • One has to ensure that the accounting staff is capable of using and understanding the manual accrual accounting practise. Only after that software training and following project phases should be started • Also in this case it is important to acknowledge the different starting points and needs of the municipalities before a possible accrual accounting implementation consultants Who is supporting Udle (MLD-<strong>GTZ</strong>), Comptroller General Office, the Institute of Chartered Accountants, LBFC, MuAN, , consultants Who is supporting Udle (MLD-<strong>GTZ</strong>), Comptroller General Office, MuAN
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Page 5 and 6: Cash Accounting vs. Accrual Account
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Page 37: References 34 Schiavo-Campo, S. & T

GTZ Report on Accrual Accounting Status Quo - LGCDP

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