Commercial Accounting and Accruals Accounting

Document Type:Essay

Subject Area:Accounting

Document 1

Accrual accounting is important in assisting fiscal sustainability that will be evaluated. Moreover, the role of accrual accounting in Vietnam will be introduced. The relationship between Commercial accounting and central government Commercial accounting refers to the accounting system that is used in businesses in recording transactions and determination of the profit and losses. It is a different with the goal of government adopted traditional accounting, since the government aim is to present a true picture of the financial status including the annual budget, allocation and monitoring while ensuring optimum utilization of the public welfare on the intended purposes. In principle, the two accounting systems are similar as they adhere to the basic rules of debiting and crediting transactions. The main divergent point is the fact that commercial accounting is done on an accrual basis, while the government accounting is done on a cash basis (Lapsley, Mussari, & Paulsson, 2009, p. More clearly, the private companies use commercial accounting on accrual basis while the government employs the cash basis system in their budget. The government accounting standard is set by the ministry of finance in conjunction with the national treasuries. The private companies publish financial reports prepared under IFRS adopted in IAS while the public sector uses the International Federation of Accountants (IFAC) that develops the International Public Sector Accounting Standards (IPSASs). The government accounting is strictly guided by a set budget whereas commercial budgets employ budgeting technique as a control measure that is optional. However, such discussions are often marred with opposition owing to the differences between the way government operates and the principle of accrual that is applied in the commercial accounting.

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The main objective of the government is to present a precise picture of the financial position which can be achieved by the cash accounting system. The accrual system is expensive to maintain and require skilled accountants. With the government accounting being necessary even at the lowest level, the skills necessary for accrual accounting may not be available. Therefore, since cash accounting is as effective as the accrual accounting in the government operations, it would be ideal as it lowers the operational costs. In addition, the government operations are mainly in the form of receipts and expenditures with the differences being recorded as either surplus or a deficit (Ball, Online Source). Critical Evaluation of the Arguments that Accrual Accounting is Important in Assisting Fiscal Sustainability As from the early 2000s, countries started adopting IAS and IPSAs with some countries such as Canada adopting accrual accounting in the government accounting.

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Other countries followed suits with the adoption of accrual accounting in some sectors, especially in South America. Australia and New Zealand as well adopted the accrual accounting for their government accounting practices. A good example of a country that had adopted accrual accounting in some areas of the government operations is the United Kingdom. This includes the use of assets, cost of capital, and other non-cash costs then directly relating them to the benefits and revenues generated by the department. This increases accountability in the management of assets and liabilities within the specific government departments. On the overall, it facilitates the reduction wastage of resources by ensuring that they are appropriated to the designated purposes, and the expected outcomes are achieved. In spite of the above benefits of using accrual accounting system, many countries find it expensive to implement.

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This is because there is a need to invest in massive infrastructures and as well skilled accountants. These are deliberate efforts geared towards improving the service delivery while improving efficiency and transparency in the public sector. As the country transition from being a low-income country to a middle-class country, there is a need for improved efficiency and effectiveness of the systems that have been put in place. The government has been committed towards this cause and thus on the forefront in developing and implementing policies meant to enhance service delivery to the people (Painter, 2003, p. Many countries have adopted the New Public Managemnet (NPM) tool in the quest to make the government more accountable for the service delivery. This has necessitated the implementation of the accrual accounting system in the public financial management system as a tool that will facilitate matching the inputs and outputs in the government.

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The process thus necessitates the use of accrual accounting in matching the revenues and the expenses within a particular period. Also, the process is geared towards improving the quality of the financial information data developed in a country (Schiavo-Campo, 2009, p. In a pilot case study that was carried out between 2003 – 2011 in Sonla province, some aspects of MTEFs were deemed effective and applicable in Vietnam. The study noted that the application of MTEF in Sonla province could have been effective but required collaboration with the national government for it to be effective. The main elements that have been deemed critical in enhancing the effectiveness of the process are ensuring that the estimates are accurate. The combination of accrual accounting and performance budgeting offer unique insights unavailable in other budgeting and accounting methods.

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The information can be analyzed further and be applicable in the decision making (Schick, 2009, p112). Vietnam has a GDP of over US$202 billion as at 2016. The main economic sectors include agriculture, energy, industry, services, and finance. Services accounts for 44% of the GDP, followed by industries at 39% and agriculture at 15%. imf. org/pfm/2012/02/accrual-accounting-essential-for-government-transparency-and-accountability. html Christiaens, J. Reyniers, B. Rollé, C. Hyndman, N. Johnsen, A. Lapsley, I. Reforming central government: An evaluation of an accounting innovation.  Critical Perspectives on Accounting, 254-5, 409-422. IPSAS implementation: current status and challenges. Available at https://www. imf. org/~/media/Files/Publications/CR/2017/cr17191. ashx Lapsley, I. org/common/attachfile/attachfileDownload. do?attachNo=00001530 Lemieux, R. Hale, J.  L. Intimacy, Passion, and Commitment in Young Romantic Relationships: Successfully Measuring the Triangular Theory of Love.  Public Budgeting & Finance, 292, 1-26. doi:10.

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j. x Schick, A. Performance Budgeting and Accrual Budgeting. vn/News_Detail/tabid/179/ArticleId/1036/language/en-US/Administrative-Reforms-under-New-Public-Management-Doctrine-in-Japan-and-Some-ASEAN-Countries. aspx The World Bank. April 15. Fiscal Management Reform for Middle-Income Vietnam. Available at http://www.

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