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Transition to IPSAS : Achieving a Successful and Seamless Adoption in Nigeria – Part 3

IFRS Watch - Issue 6


Accrual accounting is an accounting methodology under which transactions are recognized as the underlying economic events occur, regardless of the timing of the related cash receipts and payments. Following this methodology, revenues are recognized when income is earned, and expenses are recognized when liabilities are incurred or resources consumed. This contrasts with the cash-accounting basis under which revenues and expenditures are recognized when cash is received and paid respectively. Accrual accounting in the context of the public sector would generally imply the recording of transactions on an accrual basis, and the preparation of accrual-based financial statements for the government as a whole.

An accrual accounting framework is essential to systematically determine the full costs of a government's activities. Full cost information (including noncash costs such as  depreciation) is essential for assessing the efficiency of government services and thus is a key element of any public sector performance management framework. Since accrual accounting requires the preparation of government balance sheets, and this involves the identification measurement, and periodic reporting of government assets and liabilities, it requires governments to adopt a more systematic approach for identifying,keeping track of, and valuing all assets and liabilities.

These activities can encourage the development of systems (such as asset registers) and procedures for planning and management of assets and liabilities. Thus the introduction of accrual accounting, particularly when accompanied by related reform initiatives to improve public sector performance, can promote a general improvement in the management of assets, as well as a heightened awareness of the cost of holding and deploying assets.

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