Page 2057 - Week 07 - Thursday, 16 June 1994
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In addition, the committee met with the Speaker of the House of Representatives, the Hon. Peter Tapsell, and with officers of the parliament and observed a meeting of the House of Representatives Transport Committee. In all, the committee consulted with some 23 persons in the three days.
The committee has for some time been giving consideration to the question of the desirability of the ACT government accounts being presented on an accrual accounting basis. Accrual accounting is, of course, the basis upon which all Australian businesses and most government commercial enterprises are required to operate and present their accounts. Accrual accounting provides a comprehensive picture of the financial operations, assets, liabilities and performance of a business enterprise. Government, on the other hand, has traditionally operated on a cash accounting basis, with annual budget appropriations and with performance measured in terms of expenditures against those appropriations. In essence, the rationale for cash accounting is that no moneys be collected or spent except in ways and amounts approved by parliament through budget appropriations. However, it is becoming increasingly obvious that cash accounting gives mixed signals both to the government agencies which are required to work under the system and to parliaments, and there is an increasingly widespread opinion that this is not good enough. On the one hand, agencies are required to meet performance objectives with economic performance measured against expectations - in essence, using accrual methods - and, on the other, they are required to comply with the cash appropriation. This effectively means that the appropriation process determines rather than reflects criteria for agency performance.
Additionally, reporting to the parliament based on cash accounting fails to present a complete picture of government financial operations, and this aspect was exemplified in our Auditor-General's report No. 5 of 1992 on the budget outcome presentation and the aggregate financial statement for the year ended 30 June 1992, which indicated the current limitations of Consolidated Fund reporting. From the parliamentary perspective, cash accounting means that parliament has an inadequate information base from which to authorise and scrutinise government activities.
Why did we go to New Zealand? The committee has been particularly fortunate to be able to avail itself of an extended briefing on accrual accounting by senior representatives of the Australian Society of Certified Practising Accountants. As a result of this and other research on the matter, the committee had reached a stage in its consideration of accrual accounting where it judged it highly desirable that it view at first hand the operation of accrual accounting in a place where it has been fully adopted by a government. A clear example is New Zealand, which has been undergoing a comprehensive program of economic reform for the past 10 years. Virtually every sector of the economy has been subject to some change, and improving the performance of the public sector at both central and local government levels has been integral to this overall program of reform. The reform process has seen the separation of commercial activities from government departments with the formation of state owned enterprises.
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