The government accounting system in Pakistan, as in many other countries, is not based on a commercial system of bookkeeping.

It is essentially understood to be cash based system using single bookkeeping. Government's financial statements differ from those of commercial undertaking on account of its sovereign functions and depiction of actual expenditure and revenues with reference to the budget rather than the results of operation in the form of profit or loss in case of commercial entities.

The budget focus on accounting is specific to government accounting. In some other countries like Australia, they have a single set of accounting standards applicable for government and commercial entities. The cash basis of accounting in Pakistan under single entry system makes it difficult for government to adopt accounting standards applicable to commercial entities.

The Constitution of Pakistan delineates the authority of the Auditor General of Pakistan for prescribing the forms, principles, and methods of accounts of the federation and of the provinces with the approval of the President. Under these conferred powers, the Auditor General has endorsed the accounts codes (now reported to have been obsolete) and introduces new accounting model (NAM) modernisation of audit and accounts set-up.

The NAM is a set of seven books on accounting principles manual, policies and procedures manual, chart of accounts, guidelines, procedures for self- accounting entities, book of forms and financial reporting manual. The Project to Improve Financial Reporting and Auditing Model (PIFRA) is to be implemented fully through Controller General of Accounts who is responsible for accounting function.

The present practice of accounting leads to produce accounting not on absolute professional footing due to the use of very old methodology and it is not users-friendly as well. For example, the method of accounting is single entry and cash basis of accounting which gives chances of misrepresentation and improper disclosures. However this is transition issue as PIFRA-supported implementation of NAM will switch over to double entry and will record commitments. Now the government has started the preparation of state financial statements on Cash Basis IPSAS.

Government is making all efforts for the compliance of the global standards and transparency. For example, government in finalisation of its accounts, uses the Cash Flow Statement on the format prescribed in the International Public Accounting Standard (IPSAS-2) in spite of the fact that the production of cash flow statement is not mandatory under the Cash Basis IPSAS. The donor agencies and World Bank Mission for Pakistan have appreciated this effort.

The story of the standardised government. accounting started when the United Nations system accounting standards were first developed and International Accounting Standards for non-profit organisations did not exist. Because of this gap, the Panel of External Auditors recommended that the United Nations system develop its own accounting standards. Since then the IPSAS have been developed for non-profit public sector organisations.

The International Public Sector Accounting Standards Board-IPSASB (formerly Public Sector Committee) is a board of International Federation of Accountants (IFAC). IFAC is a non-profit, non-governmental, non-political, international organisation of accounting bodies and represents 163 professional accounting institutions from 120 different countries.

IPSASB has developed two types of IPSASs, namely Accrual IPSAS and Cash Basis IPSAS. A vast majority of governments do not have accrual-based systems. The countries who have applied full accrual accounting standards and applied accounting standards that are broadly consistent with IPSAS requirements are Australia, Canada, New Zealand, United Kingdom, United States of America.

IPSASB applies a policy that IPSAS standards will be the same as International Financial Reporting Standards (IFRS) unless there are demonstrable reasons for public sector/not for profit differences. This policy is consistent with the principle of accounting standards convergences.

Within this group, the public sector accounting standards applied in Australia and New Zealand are the closest to IPSAS, because of those jurisdictions' convergence with IAS/IFRS with public benefit entities amendments. Next closest would be the United Kingdom, then Canada; again because of their commitment to convergence with IFRS and the work they do with IPSASB. Till date, 26 IPSASs have been developed for financial statements prepared on the accrual basis, plus a new cash basis IPSAS.

The disadvantages of using the cash basis accounting are more than the advantages and these are of various nature--- like it fails to provide the complete detail of liabilities, thus create the hidden liabilities. You cannot find out the information on the earned revenue, no information on the total cost of services is provided, inadequate for control purposes, not cost-effective and gives rise to deliberate manipulation etc.

In 1993, two Dutch Accountants, J.Poot and C.Boeri made an attempt to prepare the State Balance according to accrual accounting system. They found out that the central government did very defective financial reporting over its assets and liabilities. According to the data of Dutch ministry of finance, the net worth of the state (asset-liabilities) is f70 billion negative, but according to the balance sheet prepared by the two accountants (based on accrual accounting systems), the net worth is f180 billion negative.

So the use of cash basis by the Dutch central government accounting system has helped the ministry of finance to reduce the negative result from f180 billion to f70 billion (de volkskrant 1994). So it can be inferred that even though the cash based government accounting does not provide the required information which can assist government leaders in evaluating the performance, discharging the accountability and decision-making. Thus the use of cash basis serves the interest of the government more than the public.

Financial transactions are essentially the same whether in Pakistan or in the US. Inventories remain inventories and financial instruments remain financial instruments whether in government or commercial entities. Users of the financial statements expect similar information across sectors (commercial and government) and countries. Today, many of the countries are either adopting IFRS directly or adapting them by issuing domestic accounting standards in harmony with IFRS. There is also an attempt to harmonise US GAAP with IFRS.

On the government accounts side, IFAC is issuing IPSAS to harmonise with IFRS. With IFRS emerging as the global standards for business and IPSAS its equivalent for governments and also seeking to move from cash system of accounting to modified accrual or accrual system of accounting (e.g. New Zealand experience with change over). With IFRS and IPSAS increasingly mandating identical practice for most transactions, time may not far when we see a single unified set of global accounting standards applicable to business and government as well.

The writer is the Deputy Accountant General, Sindh