National Audit Office of Denmark

Accruals-based accounting

Government initiative

Central and local government accounting will be based on accruals in order to:

Enhance visibility of public service costs, Facilitate price comparability of public and private

suppliers, Increase efficiency through better management, Improve the order of priority.

EU accounting systems in need of urgent reform

“Widespread errors across the accounts of the European Union, are unlikely to improve until a comprehensive reform of its accounting system is completed”, according to Sir John Bourn, the head of the National Audit Office.

The NAO said: “until improvements were made in IT systems and accruals-based accounting bedded down, the accounts will continue to be qualified”.

(http://www.accountancyage.com/)

Important concepts

Expenditure Obligations incurred

Cost Assets consumed

Accrual The principle of relating income and expenditure to the relevant year

Expenditures and costs

2001 2002 2003 2004 Later

Accounting yearExpenditureCost

Salaries

Machinery boughtin 2002

Machinery boughtin 2001

Products boughtto storage

Public servantpensions

What will change?

The institutions have to prepare a new kind of accruals-based statements of accounts,

More focus on institutions’ balance sheet, Procurements will be carried on as an asset (on

acquisition date), Expenditures to be recorded: depreciations, writing

down the book value of the assets, reserves etc., The costs will be allocated (e.g. on activities,

tasks, cost locations).

Responsibilities

The ministries: Overall implementation within their fields

The individual institutions: Specific implementation and the setting up of an opening balance sheet

NAOD: Review of opening balance sheets Agency for Governmental Management: Develop

regulatory framework and guidelines, follow progress in the implementation process

Timetable for the reform

2003-2004 a pilot project for accruals-based accounts for 13

state institutions

2005 introduction of accruals-based accounts for all

state institutions

2007 introduction of accruals-based appropriations

(state budget)

The reform affects the work of NAOD

New types of audit: Preliminary statements of accounts Accrual-based accounts Accrual-based appropriations