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Focus on Accounting

Which Way Now? A Theoretical Programme for the Transition to Accrual-Based Accounting


Ferenc Bathó
PhD, Titular Associate Professor, Ministry of National Resources, Deputy State Secretary

Published in: Public Finance Quarterly 2012/4 (p. 394-411.)


Summary: Today in Hungary, cash-based accounting dominates all areas related to the accounting settlement of public sector expenditures and revenues, which represents significant problems from planning through implementation to auditing. The greatest disadvantage of the system currently in place is that it is impossible either to exactly assess the financial situation, or to determine precisely what anything truly costs. The European Commission and the OECD have been soliciting for and recommending the application of accrual-based accounting for several years, as it increases the transparency of financial statements, ensures accountability and establishes a better, more secure foundation for the implementation of planning, including revenue collection and cost-cutting, and in particular the achievement of management objectives. Accrual-based accounting is a modern system that books economic transactions as they are originated. It manages the problem of the wear and tear of tangible assets, improves resource allocation, provides up-to-date information about trade payables, shows current and future commitments and helps audit activity. The changes are necessary; therefore, it would be reasonable to create a new piece of complex legislation to regulate the financial management of the public sector. Creating such new legislation would enable a Hungarian model to be developed that could ensure longterm good governance that is based on prudent social consensus, and could make keeping public finances secure, while ensuring efficient performance of public functions. Through a fundamental change in financial management culture, by way of ensuring that revenue and expenditure can be efficiently planned and controlled, the deficit can be reduced and so can the volume of national debt.

Keywords: cash-based approach, public sector, accrual-based accounting, unique Hungarian model

Journal of Economic Literature (JEL) kód: H83, H50


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