Budget Reporting PDF

Public Sector Research Report
Committee May 2004
Budget Reporting
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The Research Report
This Research Report was commissioned by the Public Sector Committee (PSC). It was prepared
by Dr. Jesse Hughes with input from the Budget Reporting Steering Committee. Dr. Hughes is
Professor Emeritus of Accounting at the College of Business and Public Administration, Old
Dominion University, Norfolk, Virginia USA.
The objective of the Research Report is to provide input to the PSC’s deliberations on such
matters as whether developing International Public Sector Accounting Standards (IPSASs) on
budget reporting is within the PSC’s mandate and whether the PSC should action a project(s) to
deal with budget reporting issues.
The Research Report represents the views of the author. At the present time, it does not reflect
the views of the PSC nor necessarily of all Steering Committee members.
The PSC will consider the recommendations made by Dr. Hughes at its meeting in July 2004
(and subsequent meetings if necessary) and at that time will determine whether and how it
progresses this issue.
Acknowledgement
The Public Sector Committee’s Standards Program to develop IPSASs commenced in 1996. The
Standards Program has received general budget support from the World Bank, the Asian
Development Bank, the International Monetary Fund, the United Nations Development Program
and IFAC.
The Public Sector Committee and the author wish to acknowledge that the Budget Reporting
project, of which this Research Report is a part, has also received additional project specific
funding from the Public Expenditure and Financial Accountability Program (PEFA). PEFA is a
partnership program of the World Bank, the European Commission, the UK Department for
International Development, the Swiss State Secretariat for Economic Affairs, the French Ministry
of Foreign Affairs, the Norwegian Ministry of Foreign Affairs, the International Monetary Fund,
and the Strategic Partnership with Africa. The PEFA Secretariat is located in the World Bank
offices in Washington, DC.
Preface
International Public Sector Accounting Standards
International Public Sector Accounting Standards (IPSASs) deal with issues related to the
presentation of annual general purpose financial statements. General purpose financial
statements are those intended to meet the needs of users who are not in a position to demand
reports tailored to meet their specific information needs. Users of general purpose financial
statements include taxpayers and ratepayers, members of the legislature, creditors, suppliers, the
media, and employees. The objectives of general purpose financial statements are to provide
information useful for decision-making, and to demonstrate the accountability of the entity for
the resources entrusted to it.
The Public Sector Committee (PSC) has issued twenty accrual basis IPSASs and a
comprehensive Cash Basis IPSAS. The issuance of these IPSASs establish a core set of financial
reporting standards for public sector entities.
Budget Reporting
Most governments prepare and issue as public documents, or otherwise make publicly available,
their annual financial budgets. The budget documents are widely distributed and promoted. They
reflect the financial characteristics of the government’s plans for the forthcoming period.
Monitoring and reporting on budget execution is essential for measuring compliance with
Parliamentary (or similar) authorization. Making budget data publicly available is necessary to
enable transparent reporting of the government’s financial intentions and of its use of taxes.
Government budgets are generally approved by the legislature. While administrative

arrangements can differ from jurisdiction to jurisdiction, in most cases spending units have no
authority to commit or spend government funds until the legislation imparting spending authority
has been passed by the legislature.
In many respects, and for many external users, the budget documents are the most important
financial statements issued by governments. The budget also serves as a key tool for financial
management and control, and is the central component of the process that provides for
government and parliamentary (or similar) oversight of the financial dimensions of operations.
The IPSASs currently on issue do not require the presentation of budget/forecast financial
information at the time it is approved by the legislature or other authority, nor do they require the
historical general purpose financial statements to report period results against the budget for that
period.
Whether or not budget reporting falls within the PSC’s mandate and whether an IPSAS (or
IPSASs) on budget preparation, or budget execution or other aspects of budget reporting should
be issued is a contentious issue. Accordingly, the PSC determined that before committing
resources to the development of an IPSAS it should commission the preparation of a Research
Report to provide input to its deliberations. Consequently, the PSC commissioned Dr. Jesse
Hughes to undertake research on the following matters, and to provide a report to the PSC on his
findings together with any relevant recommendations.
• Current best practices in budget formulation and reporting under differing budget models and
government administrative arrangements.
• Whether the development of an IPSAS on budget reporting and/or other budget related
matters falls within the PSC’s mandate.
• Notwithstanding the above, whether there is any precedent, and or arguments, for an
accounting standards setter to deal with budget reporting issues.
• If an IPSAS on budget reporting (or other budget related) matters is to be prepared, the
matters which should appropriately be dealt with by that IPSAS.
The PSC established a Steering Committee to provide input to Dr. Hughes. The Steering
Committee is chaired by PSC member Mr. Ron Points and includes non-PSC members with a
wide range of experience in budget preparation, execution and reporting from a number of
jurisdictions.
Views Expressed
The views expressed in this Research Report are those of Dr. Hughes and are not those of the
PSC nor necessarily of all Steering Committee members.
The PSC commends Dr. Hughes for his work and thanks the Steering Committee for their input
to this project. The recommendations are significant for the PSC and financial reporting by
public sector entities generally. The Report provides valuable input to the PSC’s consideration of
how it could progress this critical issue and identifies key issues that will need to be dealt with in
any further project development.
The PSC will commence its consideration of this Report at its July 2004 meeting and at that
stage consider any further actions that should occur. Readers are reminded that it was not
intended that the Report resolve all issues to be addressed in developing IPSASs for budget
reporting. Rather, it was developed as an internal document to provide input for the PSC as it
considered whether to initiate a project directed at establishing an IPSAS for budget reporting,
and the nature of that IPSAS. However, in the interests of transparency of process, and given the
wide community interest in this topic, the PSC has decided to make it publicly available to
interested parties.
Philippe Adhémar
Chair
Public Sector Committee (PSC)
International Federation of Accountants
May 2004
International Federation of Accountants-Public Sector Committee (IFAC-PSC)
Steering Committee on Budget Reporting
Name Country Position

Ron Points (Chair) USA Manager, Financial Management for East Asia and
Pacific Region, World Bank
William L. Dorotinsky World Bank Finance Specialist, World Bank
Philippe Dujardin Belgium Director, Ministry of Finance–Budget and
Management Control
Ludo Goubert (NATO) FEE Head of Internal Audit SHAPE (previously Head of
Budgets and Finance Western European Union)
Claes-Goran Gustavsson Sweden Senior Expert–Swedish National Finance
Management Authority
Geoff Harry Australia Partner (Assurance)–PricewaterhouseCoopers
Lou Hong China Director, Research and Regulation Division,
Treasury Department, Ministry of Finance, Peoples
Republic of China
Steve Leith New Zealand Principal Advisor–Treasury, Budget and
Macroeconomic Branch
Alan Mackenzie South Africa CFO–Department of Justice
Sophie Mahieux France Former head of the Budget Directorate. Currently
senior position in public expenditure execution.
Mike Parry UK- African Chair of IMG (International Management Consultant
focus Group).
Ms Torun Reite Norway Deputy Director General, Norwegian Ministry of
Finance
Sietso van der Schaaf Netherlands Partner–Deloitte Touche
Christian Iver Svane Denmark Ministry of Finance–Special Adviser, Central
Government Accounting and Budget
D.Swarup India Additional Secretary (Budget) Ministry of Finance
Andy Wynne ACCA Head of Public Sector Technical Issues
Associate Members
Michael Ruffner OECD Budgeting, Management and Accountability
Division
David Shand World Bank Senior Public Sector Management Specialist
Members of the Steering Committee are appointed in their personal capacity rather than as
representatives of their nominating body. The views expressed in this study are those of the
author, and not those of the members of the Steering Committee, their employers or
nominating organization. In arriving at these views, the author has considered input from the
Steering Committee members but the views remain those of the author.
RESEARCH REPORT ON BUDGET REPORTING
Table of Contents
Page
EXECUTIVE SUMMARY ............................................................................................................. 1
OBJECTIVE.................................................................................................................................... 5
SCOPE ............................................................................................................................................ 5
DEFINITIONS ................................................................................................................................ 6
BUDGET OVERVIEW................................................................................................................... 8
The Budget............................................................................................................................. 9
Fiscal Transparency ............................................................................................................. 10
Financial Management......................................................................................................... 11
Budget Authorization........................................................................................................... 12
Budget Reports .................................................................................................................... 12
Consistency in Reporting Between Accounting and Budget Systems ................................ 13
CURRENT BUDGET AND ACCOUNTING PRACTICES ....................................................... 14
Comprehensive Budgets ...................................................................................................... 14
OECD/World Bank Survey of Current Budgetary Practices ............................................... 15
Budgeting, Accounting, and Financial Reporting ...................................................... 16
Types of Data Reported in Budget Documents .......................................................... 17
Budget Classification.................................................................................................. 18
Budgeting and Reporting............................................................................................ 18
Summary of Five African Countries.................................................................................... 18
Research Method ........................................................................................................ 18
Results ........................................................................................................................ 19
Summary of Nine European Countries and the European Commission (EC) ..................... 20
Research Method ........................................................................................................ 20
Results ........................................................................................................................ 20
PSC MANDATE ON BUDGET REPORTING AND/OR OTHER
BUDGET RELATED MATTERS................................................................................................. 20
Discussion............................................................................................................................ 21
International Public Sector Accounting Standards .............................................................. 21
BUDGET FORMULATION AND EX-ANTE REPORTING...................................................... 22
Prospective Financial Information and Medium Term Fiscal Framework (MTFF) ............ 22
Annual or Biennial Budget Formulation ............................................................................. 24
BUDGET EXECUTION AND CONTROL ................................................................................. 27

Inter-Relationship Between Accounting and Budgeting Systems ...................................... 27
Budgetary Control................................................................................................................ 30
EX-POST BUDGET REPORTS................................................................................................... 31
Part of General Purpose Financial Statements..................................................................... 31
Format of Comparative Statement ....................................................................................... 33
Reconciling Budgetary Basis With Accounting Basis......................................................... 34
QUALITATIVE CHARACTERISTICS OF FINANCIAL REPORTING ................................... 35
Understandability................................................................................................................. 35
Relevance............................................................................................................................. 36
Reliability............................................................................................................................. 36
Comparability ...................................................................................................................... 36
Constraints on Relevant and Reliable Information.............................................................. 36
DEVELOPING A CONCEPTUAL FRAMEWORK ................................................................... 37
ISSUES RAISED BY STEERING COMMITTEE MEMBERS.................................................. 39
Definition of Budget Reporting ........................................................................................... 39
Inclusion of Ex-ante Budget Reports in an IPSAS .............................................................. 39
Coverage of Budgetary Execution and Control Procedures ................................................ 39
Inclusion of Ex-post Budget Reports in an IPSAS and Format of
Comparative Statements ...................................................................................................... 39
Reconciling Budgetary Basis and Accounting Basis Where Differences Exist .................. 40
Assuring that Qualitative Characteristics of Financial Reporting Are Met......................... 40
Developing a Conceptual Framework ................................................................................. 40
APPENDICES:.............................................................................................................................. 41
A Terms of Reference ................................................................................................................. 42
B IMF Code of Good Practices on Fiscal Transparency ............................................................ 46
C NACSLB (US) Best Practices in Public Budgeting ............................................................... 50
D Sections from Existing IPSASs Pertaining To Budgets or Budget Reporting........................ 53
E UNDP Budget Preparation Process – Key Factors ................................................................. 57
F World Bank Country Financial Accountability Assessment (CFAA)..................................... 59
G Government Fiscal Management Processes and Information Systems .................................. 60
H Commitment Accounting Procedures ..................................................................................... 66
I Common Differences between GAAP and Budgetary Basis of Accounting.......................... 68
J GASB (US) Illustrative Budgetary Comparison Statements .................................................. 69
K Government Budget Characteristics ....................................................................................... 70
L Swedish Standards Regarding Actual to Budget Reporting ................................................... 75
M Budget Preparation in Denmark.............................................................................................. 78
N Information about the French Budget ..................................................................................... 85
Executive Summary
Most governments prepare and issue their annual financial budgets as public documents.
Whether there should be an IPSAS that deals with general purpose reporting of the budget as a
public document is considered in this Research Report. The objective of the IFAC Public Sector
Committee (PSC) is to develop programs aimed at improving public sector financial
management and accountability, including developing International Public Sector Accounting
Standards (IPSASs) and promoting their acceptance. To meet this objective, the PSC has issued a
number of IPSASs which identify the general purpose financial statements that are necessary to
meet the needs of users who are not in a position to demand reports tailored to meet their
information needs, and specify how a wide range of transactions and events are to be accounted
for in those financial statements. The IPSASs note that general purpose financial statements can
provide users with information indicating whether resources were obtained and used in
accordance with the adopted budget. Yet, current IPSASs only encourage governments to
include in their financial statements a comparison of the actual results of operations with the
approved budget for the reporting period.
The PSC identified budget reporting as an important project to be progressed during the second
stage of its standards program. It commissioned the preparation of this Research Report to
provide input on whether an IPSAS (or IPSASs) should be issued on budget reporting. The
Project Brief is included as Appendix A. The objectives of the research are to identify the
following:
• Current best practices in budget formulation and reporting under differing budget models
and government administrative arrangements;
matters falls within the mandate of the PSC;
• Whether there is any precedent for an accounting standard setter to deal with budget
reporting issues; and
• The issues which should appropriately be considered in any IPSAS that might be issued.
The major findings and recommendations of the Research Report are outlined below.
Budget Process
There are three main stages in the budgetary process: (1) During the formulation stage, initial
budgets and forecasts are developed and submitted to the legislative bodies for consideration.
Spending authority is granted by legislative bodies based on the political priorities and fiscal
policies of government. These ex-ante budget reports reflect the financial characteristics of the
government’s plans for the forthcoming period and are used to analyze the potential
consequences of those plans on the economy. (2) Implementation of the fiscal policies reflected
in these budgets is accomplished through the use of budgetary accounts in the accounting system
during the execution stage. (3) Public reporting of the ex-ante budgets (both legally approved
budgets and prospective budgets) permits the government to identify their financial intentions
(transparency). Further, ex-post reporting of a comparison between the actual results and the
approved budget permits the government to identify their adherence to those budgets by
1
comparing performance against the approved budget (accountability) and providing explanations
of significant variances.
Budget Practice
This study on budget reporting considers research undertaken and best practices published by
many bodies. If the budget is to be effective, it is generally recognized that the budget needs to
be comprehensive and encompass all of the expenditures by government for all budget
dependent entities. Analysis performed within five African countries indicates that their budgets
are prepared on the cash basis and there are varying degrees of transparency in the reporting of
budgetary data. Other research has found that some European countries have moved or are in the
process of moving toward the accrual basis of accounting but have not expressed significant
plans to change from the cash basis of budgeting. Also, a very comprehensive Budget Practices
and Procedures survey conducted by the Organization for Economic Cooperation and
Development (in collaboration with the IADB, IMF and World Bank) indicates that many
countries plan to move toward the accrual basis of accounting. However, some of these countries
prepare their budgets on the cash basis and they plan to continue to prepare their budgets on the
cash or near cash basis for the foreseeable future although their accounting will be on the accrual
basis.
PSC Mandate
The objective of the PSC is identified in the Preface to the IPSASs as follows: “Develop
programs aimed at improving public sector financial management and accountability including
developing accounting standards and promoting their acceptance.” This Report argues that:
• Inclusion of budgetary information and other budget related matter in the accounting
system and reporting budgetary data to constituents is crucial to improving public sector
financial management (transparency).
• To assure that government officials are held accountable for their budgetary decisions, it is
essential that users be informed on the degree by which their government officials were
able to operate within the limits of the approved budget (accountability).
• The best mechanism by which to keep the public informed is through the budget reports
(both legally approved budgets and prospective budgets) at the time of their approval as
well as the compliance reports issued as a component of the general purpose financial
statements.
As such, developing IPSASs to deal with legally approved budgets, prospective budgets, and
reporting of actual performance against such budgets fall within the PSC mandate identified in
the Preface.
2
Recommendations
Based on the research conducted in this study, the following is recommended:
1. The PSC should issue an IPSAS (or IPSASs) on budget reporting since it falls within
the mandate identified in the Preface to the PSC. It may be beneficial to issue
separate IPSASs on ex-ante and ex-post budget reports.
2. An accounting standard should be issued to require that the forecast and other
prospective financial information be reported to their constituents in order to keep
them informed on future financial implications of government policy.
3. The accounting standards should require that the legally approved budget be
published with the appropriate supporting budget documentation (e.g. assumptions).
4. The accounting standards should be broad enough to support the integration of
budgetary and accounting systems through the use of budgetary accounting
procedures. It may be beneficial to issue a separate IPSAS on budgetary accounting
procedures.
5. In relevant studies and guidance, the PSC should acknowledge and encourage the use
of commitment accounting procedures intended to assure that budgetary funds are
available prior to release of a purchase order or contract.
6. Ex-post budget reports reflecting budget to actual comparisons should be part of the
general purpose financial statements issued at the end of the fiscal period for each
reporting entity at each level of government.
7. The Comparative Budget to Actual Statement should include the original budget as
approved by the legislative body as well as the final adopted budget.
8. Governments should be encouraged to operate their budgeting and accounting
systems on the same basis. If the budgetary system is on a different basis than the
accounting system, a statement should be developed to reconcile key differences
between the two systems.
9. Ex-ante and ex-post budget reports should meet the qualitative characteristics
(understandability, relevance, reliability, and comparability) of financial reporting
specified in IPSAS 1.
10. Budget reporting should be incorporated into the conceptual framework for IPSASs.
Issues Raised by Steering Committee Members

In order to implement the above recommendations, the following key issues need to be resolved:
1. A clear definition of budget reporting needs to be developed.
2. A decision on whether to include ex-ante budget reports (legally approved budgets
and prospective budgets) in an IPSAS needs to be made.
3. The extent of coverage of budgetary accounting procedures for budgetary execution
and control procedures in an IPSAS needs to be defined.
3
4. A decision to include ex-post budget comparative statements as part of general

purpose financial statements in an IPSAS needs to be made.
5. Where there are differences between the budgetary and accounting bases, the
requirement for and format of a reconciling statement needs to be determined.
6. When a decision is made to issue an IPSAS on budget reporting, procedures will need
to be identified to assure that qualitative characteristics of financial reporting are
met.
7. Budget reporting procedures will need to be included in the Conceptual Framework
for financial reporting of government entities.
4
Research Report on Budget Reporting

Objective
The primary objective of this Research Report is to determine if an IPSAS should be issued on
budget reporting. In its initial strategy papers prepared in 2000 and 2001, the IFAC Public Sector
Committee (PSC) identified budget reporting as a key public sector specific issue to be addressed
in the second phase of its standards setting program. With the completion of its core 20 accrual
IPSASs and the comprehensive cash basis IPSAS, the PSC actioned1 this research project to
identify and make recommendations as appropriate on the various aspects of budget formulation,
execution and reporting.
Scope
This Research Report deals with budgets at all levels of government and for all reporting entities
other than Government Business Enterprises (GBEs). Readers should note that the definition of a
reporting entity in the IPSASs may differ from the legislative specification of an entity for
budget preparation and presentation purposes.
For purposes of this Research Report, budget reporting includes all budget reports issued to the
public for transparency and accountability purposes. This would include the budgets approved by
the legislative bodies for the government itself and for governmental entities at local, state, and
national levels prior to or near the beginning of the fiscal period as well as prospective or
forecast budgetary data (ex-ante). In addition, budget reports would include budget to actual
comparative statements issued at the end of the accounting period (ex-post).
This study addresses the following:

• Current best practices in budget formulation and reporting under differing budget models
and government administrative arrangements;
matters falls within the PSC’s mandate;
accounting standard setter to deal with budget reporting issues; and
issues which should appropriately be dealt with by that IPSAS. The issues to be considered
are as follows:
o The nature and requirements of any IPSAS that might be developed considering
budget formulation, execution, and reporting.
o The application of the recognition and measurement requirements of existing IPSASs
in the budget context.
1
See Terms of Reference in Appendix A.
5
The qualitative characteristics of financial reporting previously identified in IPSAS 12 will be

considered in this Research Report. These are as follows:
• Understandability
• Relevance
• Reliability
• Comparability
• Constraints on Relevant and Reliable Information
Some governments prepare tax expenditure budgets. These budgets identify the estimated costs
to the tax base due to preferential treatment for specific activities (i.e., deductibility of interest
payments on home mortgages to encourage the purchase of homes). However, these tax
expenditure budgets are not dealt with in this Research Report since income lost due to
preferential tax treatment (i.e., costs) is compiled separately from other budget reports.
Management accounting and reporting of financial information in internal or special purpose

reports to governments and senior government officials are significant issues that warrant further
study. Budget information may be presented in documents other than general purpose financial
statements and a cross-reference from general purpose financial statements to such documents
may be appropriate, particularly to link budget and actual data to non-financial budget data and
actual service achievements. However, management accounting issues are outside the specific
objectives and scope of this study. Consequently, they are excluded from this Research Report.
Definitions
Accounting terms included in this Research Report are defined in the “Glossary of Defined
Terms in IPSAS 1 to IPSAS 18” as published in the Handbook of International Public Sector
Accounting Standards, 2004 Edition. Budgetary terms that are in common use in the budget
literature are defined below and are used with these meanings throughout this paper:
Allocation—part of an appropriation that is designated for expenditure by specific organization
units and/or for special purposes, activities, or objects.
Allotment—an internal allocation of funds on a periodic basis usually agreed upon by the heads
of government departments or similar entities and the chief executive.
Appropriated Budget—the expenditure authority created by the appropriated bills or
ordinances that are signed into law and the related estimated revenues. The expenditure authority
is generally considered the legal limit within which a governing body must operate.
Appropriation—an authorization granted by a legislative body to set aside funds for purposes
specified by the legislature. It is usually limited in amount and time over which it can be
expended.
2
Appendix 2, Presentation of Financial Statements, IPSAS 1 (May 2000).
6
Budgetary Definitions:
1. Line item (or object class) budget: The budget is separated into expenses by economic
classification such as compensation of employees, use of goods and services, etc., as well
as the purchase of capital assets.
2. Program budget: a budget made up of programs as groupings of activities intended to
contribute to identifiable government objectives (e.g., poverty alleviation, literacy, control
of contagious disease.).
3. Performance budget: a program budget that also presents measures of performance and
service delivery (e.g., students graduating, surgical operations performed, tons of cargo
unloaded).
4. Zero-base budget: a budget that is justified from zero. Each agency has to justify its whole
budget as if it were applying for funding for the first time.
5. Biennial budget: a budget that provides funds for two years instead of one. Budget
allocations do not lapse until the end of the second year.
6. Multi-year budget: a budget that takes into account not just the budget year, but two or
more subsequent years. Usually lapse of funds occurs at the end of the budget year. Figures
for “out years” are indicative.
7. Medium-term fiscal framework (MTFF): a process for improving government
expenditure programs that assists decision-makers to gauge what is affordable in aggregate
over the medium-term and to reconcile this with spending policies and their costs over the
same period.
8. Capital budget: a plan of proposed capital outlays, such as for infrastructure, buildings,
equipment, and other long-lived assets, and of the means to finance them.
9. Recurrent budget: a plan of proposed funding needed to service the ongoing operations of
government. Such a plan would include compensation of employees, use of goods and
services, etc.
10. Supplementary budget: These are budgets that are enacted during or after the end of the
financial year to authorize expenditures not within original budgets. These do not normally
represent policy changes, but may be necessary where the original budget did not
adequately envisage expenditure requirements (e.g., war, natural disasters, etc.).
11. Development budget: Typically the development budget is a collection of projects,
whether internally or externally funded. The rest of the budget is then described as a
recurrent budget. The development budget frequently includes non-capital items, and the
recurrent budget often includes capital items.
12. Below the line items: In some countries, this term is used to refer to asset and liability
accounts (accounts that are “below the line” of budget accounts), and also in some cases to
monies that are effectively held in trust by government for some special purpose.
Budgetary Processes:
1. Budget formulation: the practices and concepts that budget professionals use to create and
review a budget until enacted into law.
7
2. Budget execution: the management activities that take place from enactment of the budget
into law until the end of the fiscal period.
3. Budget reporting: considered to be of two types: ex-ante—the external reporting of the
budget approved by the legislative body at or near the beginning of the fiscal period as well
as external reporting of prospective or forecast budgetary data; and ex-post—the external
reporting of the financial activities relative to the approved budget for the fiscal period
until the final audit after the end of the fiscal period. The budget to actual comparative
statement is generally issued as a component of the historical financial statements.
Commitment (also known as an encumbrance)—There is not a generally accepted single
definition of this term. It is sometimes considered to be synonymous with obligations. A
commitment is generally acknowledged as the government’s responsibility for a possible future
liability based on a contractual agreement. It includes outstanding purchase orders and contracts
where goods or services have not yet been received. Some governments consider the term
“commitments” to only apply to purchase requests or other such pre-obligation documents. As
such, outstanding commitments lapse at the end of the fiscal period. For purposes of this report,
commitments, encumbrances, and obligations are considered to be intended actions that could
result in a possible future liability, and are subject to the same accounting treatment.
Encumbrance—See definition under “commitment.”
Estimated Revenue—an amount anticipated to be collected during the accounting period.
Expenditures—the incurrence of a liability for a capital asset or the disbursement of cash during
the fiscal period as used in the cash or modified accrual basis of accounting.
Gross Domestic Product—the value of all final goods and services produced in the country
within a given period.
Infrastructure Asset—a long-lived asset that normally is immovable, part of a system or
network, specialized in nature, does not have alternative uses, and may be subject to constraints
on disposal. Examples include roads, bridges, tunnels, drainage systems, water and sewer
systems, dams, and lighting systems.
Prospective budgetary information—financial information based on assumptions about events
that may occur in the future and possible actions by an entity. Prospective financial information
can be in the form of a forecast, a projection or a combination of both, for example, a one year
forecast plus a five year projection.
Virements—the transfer of expenditures between budget heads. Normally, these will be
constrained by legislation and/or financial rules.
Warranting—the three stages of budgeting are identified as formulation, execution and
reporting. In some countries, there is a sub-stage within budget execution of “warranting.” The
budget as approved does not in itself provide authority for expenditure. Rather, expenditure
authority has to be warranted under procedures that will be laid down in the financial procedures.
It is often used as a mechanism for cash management.
Budget Overview
Most, but not all, governments prepare and issue their annual financial budgets as public
documents, or otherwise make them publicly available. There are three main stages in the
budgetary process which may be conducted on a cash or accrual basis at each of the levels of
8
government (local, state, and national): (1) During the formulation stage, initial budgets are
developed and submitted to the legislative bodies for consideration. Spending authority is
granted by legislative bodies based on the political priorities and fiscal policies of government.
These budgets reflect the financial characteristics of the government’s plans for the forthcoming
period and are used to analyze the potential consequences of those plans on the economy. (2)
Adherence to these fiscal policies is accomplished during the execution stage. (3) Ex-ante public
reporting of the initial budgets and forecast budgetary data (important for transparency) permits
the government to identify its financial intentions. In the ex-post reporting stage, a comparison
of the actual results with the final budget permits the government to identify its actual
performance against the approved budget (accountability) and provide explanations of significant
variances. The following budget reporting model is used throughout this Research Report to
identify this relationship:
Exhibit 1. Budget Reporting Model
Cash
Budgetary
Basis Modified
Ex-
ly
Full Accrual g al ed Ante
Types of
v
L e p ro Budget
Ap Reports
National ive
e ct
p
os
Government
Pr
Agencies
Local
State
Central
t
os
x-P
E
Levels of Government
Note: The modified budgetary basis encompasses both the modified cash and modified accrual
bases. It could also apply to the commitments/obligations basis that is referred to by some
governments.
The Budget
Budget documents are usually published and frequently widely commented upon in the mass
media. Given the lateness of issue and complexity of historical public accounts in some
countries, the budget reports (both ex-ante and ex-post) are often the most important source
9
of publicly available information on public finance. They reflect the financial characteristics
of the government’s plans for the forthcoming period and are used to analyze the consequences
of those plans on the economy. Making budget data publicly available at the time of approval is
necessary to enable transparent reporting of the government’s financial intentions. Reporting
period results against the budget for the same period is a necessary component of any
accountability regime. The matters to be considered in the three stages of budget formulation,
execution, and reporting are identified in Exhibit 2 below:
Exhibit 2: Matters to be Considered in the Budgetary Process
Stage Possible areas for consideration and guidance
1. Formulation Budget formulation is a policy process and there are important aspects of the matters in
the budget documents that could be addressed by an IPSAS, e.g.,
• Basis on which budget revenues and expenditures are estimated and time
periods to which budgeted amounts are allocated (linked to accounting base for
financial reporting)
• Information to be included to achieve transparency, including need to facilitate
analysis by external stakeholders
• Classification of items –as defined in the chart of accounts
• Presentation and aggregation of data - linked to concepts of transparency
• Incorporation of non-financial performance targets
• Where accrual is the basis for budgeting, inclusion of cash flow data to be able to
assess fiscal impact of budget decisions
2. Execution This tends to be an “internal” government process and not subject to external reporting
as indicated below. However, there is a need to consider how “virements” and
supplementary budgets will be reported to external stakeholders
3. Reporting Ex-ante and ex-post budget reporting should be an important part of financial
statements. There are many issues to be considered, e.g.,
• Consistency of definitions between accounting and budget figures

• What figures are used as comparators when budgets are adjusted through
virements and supplementaries
• Incorporation of non-financial information
• Achieving transparency and accountability
Fiscal Transparency
Fiscal transparency is a major contributor to the cause of good governance. It should lead to
better informed public debate about the design and results of fiscal policy, make governments
more accountable for the implementation of fiscal policy, and thereby strengthen credibility and
public understanding of macroeconomic policies and choices. Some countries (i.e., Germany)
have special mechanisms for reviewing the realism of underlying economic forecasts, as well as
10
related revenue estimates, to assure that the public is fully informed regarding these projections.
Fiscal transparency requires disclosure of more than just budget (and actual) figures. It also
requires disclosure of information on the assumptions behind budget figures (i.e., economic and
other risk factors) that may be subject to audit or review by the external auditors. In a globalized
environment, fiscal transparency is of considerable importance in demonstrating macroeconomic
stability and high-quality growth. However, it is only one aspect of good fiscal management.
Attention has to be given also to increasing the efficiency of government activity and
establishing sound public finances.
To encourage countries to publicize their budgetary practices, the International Monetary Fund
(IMF) issued a Code of Good Practices on Fiscal Transparency (See Appendix B). The Code
recommends the following four key objectives:
• The roles and responsibilities in government should be clear;
• The public should be provided with full information on the past, current, and projected
fiscal activity of government in a timely manner;
• Budget preparation, execution, and reporting should be undertaken in an open manner; and
• Fiscal information should attain widely accepted standards of data quality and be subject to
independent assurances of integrity.
Financial Management
Many governments provide various guidance documents on the procedures to be followed as part
of the budget process. These include the areas to be considered when developing proposals and
new initiatives, capital budgeting and working capital management, setting user charges, and
output costing. An example of the range of information that a government might provide is
available on the New Zealand Treasury’s “Managing the Public Sector” section of their website:
http://www.treasury.govt.nz/publicsector/.
Some professional organizations publish best practices in public budgeting in order to encourage
their members to improve their budgeting procedures. One such set of practices, by the National
Advisory Council on State and Local Budgeting in the United States, is summarized in Appendix
C. The following four principles are recommended:
1. Establish broad goals to guide government decision making;
2. Develop approaches to achieve goals;
3. Develop a budget consistent with approaches to achieve goals; and
4. Evaluate performance and make adjustments.
The budget also serves as a key tool for financial management and control, and is the central
component of the process that provides for government and parliamentary (or similar) oversight
of the financial dimensions of operations. For budgetary control by internal management, many
governments prepare budget to actual comparative schedules periodically within the budgetary
period as well as at the end of the fiscal year. The format of these comparative schedules is
generally similar to the following:
11
Organization Original Budget Adjustments Modified Budget Actual Variance

XXXXX $XXX,XXX $XXX $XXX,XXX $XXX,XXX $XXX
Note: Some countries compute the variance from the original budget and explain the reason
(including in-year updates) for subsequent adjustments. Other countries compute the variance
from the modified budget and explain significant differences. (See Appendix J.)
Budget Authorization
Government budgets are approved by the legislature and compliance is a legal matter. At each
level of government, these budgets serve as plans for economic governance and controlled use of
resources for the governmental entity. While administrative arrangements can differ from
jurisdiction to jurisdiction, in most cases, spending units have no authority to commit or spend
government funds until the legislation imparting spending authority (the budget) has been passed
by the legislature. In some cases, spending authority is granted at the same level as the prior year
under a continuing resolution if the budget is not passed prior to the beginning of the fiscal year.
In addition, some governments permit purchase orders that have not been filled prior to the end
of the fiscal period to be carried forward and funded in the next fiscal year.
Budget Reports
Each level (local, state, or national) of government will issue budget reports to inform users of
their fiscal plans. These budget reports include those that are issued at or near the beginning of a
fiscal period to reflect the legally approved budget as well as those reports that identify
prospective or forecast data (ex-ante). In addition, budget reports are issued at the end of the
fiscal period to reflect the actual use of resources compared to those resources that had been
approved by the legislative body (ex-post). The relationship between the types of budget reports
and the levels of government are identified below:
Types of Budget Local State National

Reports Agencies Central
Govt.
Legal Limits
Ex-Ante
Approved by
Legislature
Prospective
Ex-Post
12
Budget reports by type may be prepared on the cash, modified cash or modified accrual
(including obligation/commitment), or the accrual basis as reflected in the table below:
Types of Budget Reports Cash Modified Accrual

Legal Limits
Ex-Ante
Approved by
Legislature
Prospective
Ex-Post
Consistency in Reporting Between Accounting and Budget Systems

Most governments will prepare their budget reports on the cash basis because the cash
information is more readily available. In addition, some argue information about only cash is
more readily understandable than information about all assets and liabilities. Further, cash
systems are simpler to implement and costs are low due to the lower level of accounting skills
required. As some governments transition to the accrual basis of accounting, a few prepare their
budget reports on the modified accrual basis (which includes current assets and liabilities) in
order to plan for the use of financial resources. If the full accrual basis of accounting (which
includes total assets and liabilities) is used, some governments may move to the accrual basis of
budgeting so that they can plan for the use of total resources. This relationship is reflected in the
table below:
Budgeting Basis
Cash Modified Accrual
Accounting Cash
Basis Modified
Accrual
Note: The shaded areas identify those governmental entities where the budgeting system and the
accounting system use the same basis.
As countries transition to the accrual basis of accounting, some may prefer to retain the cash
basis for budgetary reporting purposes. Consequently, the accounting system would retain the
cash or near cash basis for budgetary control and use the accrual basis for preparation of the
general purpose financial statements. A few countries are in the process of moving the budgetary
system from the cash basis to the accrual basis in order for the budgetary system to be consistent
with the accounts recorded on the accrual accounting basis. However, this transition period can
be lengthy in order to assure that control is retained in the budgetary system. When there is a
difference between the budgetary basis and the accounting basis, readers of the financial
statements may get confused between the differences reported as surplus/deficit from operating
activities in the accrual accounting reports and net cash flows from operating activities in the
cash or modified cash/accrual basis budget report.
13
Current Budget and Accounting Practices

Comprehensive Budgets
To be effective, it is generally recognized that the budget needs to be comprehensive and
governmental activities should encompass all of the expenditures by government for all budget
dependent entities. Since one objective of this Research Report is to identify guidance on best
practices in budget formulation, execution, and reporting, it is necessary to develop some criteria
for such best practices. The World Bank Public Expenditure Management Handbook3 suggests
three levels of goals for expenditure management. These are linked to criteria in a matrix
provided by Michael Parry (International Management Consultants), as indicated in Exhibit 3
below:
Exhibit 3: Financial Management Goals and Criteria
GOALS CRITERIA
Level 1 - fiscal management
¾
format that facilitates understanding
public resources made accountable

Flows - revenues, debt, transfers, capital and
legal and regulatory requirements

In accordance with constitutional,
Those accountable for the use of
for their actions and stewardship

Information for stakeholders in a
recurrent expenditures
Proper use of public resources

¾
Avoidance of corrupt practices

Balances - internal and external debt, assets
¾ Risk - contingent liabilities
Accountability
Transparency
Level 2 - resource allocation
¾ Optimal resource allocation

¾ In accordance with government policy priorities
and analysis
Level 3 - value for money
¾ Management of public resources in order to
achieve efficiency, economy and
effectiveness in expenditure
¾
¾
In some jurisdictions, budget formulation and execution is a centralized function. In others, it is ¾

decentralized. For example, in Europe, some budgets are prepared and reported for the aggregate
of three levels of government: national, state or provincial, and local governments. Where it is
decentralized, the national government does not control the state or local government.
Extra budgetary funds weaken the budget both as a resource allocation tool, and as a tool of
fiscal management. Many systems, especially in developing countries, have the potential for
large extra budgetary expenditures. Some examples include the following:
(i) Funds are received by line agencies that are then available for expenditure, without passing
through the consolidated fund. There may be merit on occasions for linking expenditures to
revenues raised, but these need to be planned and controlled through a central budget
process. In most countries, direct use by agencies of monies they collect is against the
Constitution (which requires all monies to be paid into the consolidated fund) but it still
3
Chapter 2, Public Expenditure Management Handbook, 1998 (The World Bank).
14
happens. From a managerial perspective, such linkage may be beneficial since it links
expenditure to collection efficiency.
(ii) Quasi-fiscal activities of state financial institutions exist to subsidize state enterprises. This
includes loans at low interest rates without the expectation of repayment.
(iii) Some government entities permit direct access by projects to donor funds. From a project
management perspective, it may be desirable to by-pass the bureaucracy and have direct
access to donor funds. In some cases, donors encourage such a system. However, this
reduces the effectiveness of the budget process to control expenditures.
(iv) Some government entities have multiple funds outside the consolidated fund that are not
included in the central budget process. This includes special funds for ongoing
expenditures (e.g. road construction, health care projects, etc.), special funds managed by
the central budget authority, budgets of autonomous/decentralized agencies,
emergency/contingency funds, etc. In such cases, it is difficult to achieve effective control
over these funds.
OECD/World Bank Survey of Current Budgetary Practices

The Organization for Economic Cooperation and Development or OECD (in collaboration with
the World Bank, the Inter-American Development Bank, and IMF) developed a very
comprehensive survey on Budget Practices and Procedures. They are in the process of surveying
30 OECD Member countries and 30 non-OECD countries on their Budget Practices and
Procedures. The goal of this survey is to create a database of quantitative measures that will
provide a unique and comprehensive resource for various groups to assist them in making well-
informed analyses and enable them to compare and contrast national practices. The OECD/World
Bank recently published the results of their Budget Practices and Procedures Survey on their
website (see http://ocde.dyndns.org). Forty-four of the 60 polled countries responded by
December 31, 2003 although not all the questions were answered in full by each of the countries.
Responses are in the process of being verified. The countries responding to the survey were as
follows:
Algeria Argentina Australia Austria

Belgium Bolivia Cambodia Canada
Chile Colombia Czech Republic Denmark
Egypt Finland France Germany
Greece Hungary Iceland Indonesia
Ireland Israel Italy Japan
Jordan Kenya Korea Mexico
Morocco Netherlands New Zealand Norway
Peru Portugal Slovak Republic Slovenia
South Africa Spain Suriname Sweden
Turkey United Kingdom United States Uruguay
15
The results of the survey are grouped under these separate and distinct parts:
1. General Information
2. Formulation
3. Budget Execution
4. Accounting, Control and Monitoring Systems
5. Budget Documentation and Performance Management
6. Fiscal Relations Among Levels of Government
7. Special Relationships/Issues
Selected sections of the survey results that were felt to be especially pertinent to this study are
reflected below:
Budgeting, Accounting, and Financial Reporting

Section 4.2 of the survey discusses the Budgeting, Accounting and Financial Reporting practices
of the countries. The major findings were as follows:
Number with a unified accounting and budget classification system 35

Authority for determining the technical standards for the budget:
Internally by Ministry of Finance (MOF) or Central Budget Authority 26
Formal Advisory Board 9
Authority for determining the technical standards for the financial statements:
Internally by MOF or Central Budget Authority 17
Formal Advisory Board 9
Cash or obligations/commitments basis of accounting for the budget
Full accrual basis budgeting to be introduced 5
Additional accrual basis information to be presented 11
Planning to change from cash to obligations/commitment basis 2
Not planning any change from the cash or obligations/commitments basis 16
Number indicating public debt interest as highest chance of being on accrual basis 10
Number providing a partial or full statement of their accounting basis in the budget 28
Consolidated, government-wide annual financial statements:
Number reporting on a cash, or cash with a few exceptions, basis 20
Number reporting on a full accrual, or full accrual with a few exceptions, basis 7
Number not reporting such a statement 4
Government organization annual financial statements:
Number reporting on a cash, or cash with a few exceptions, basis 18
Number reporting on a full accrual, or full accrual with a few exceptions, basis 8
Number reporting on full accrual basis that capitalize and depreciate all assets 10
16
Assets not capitalized and depreciated:

Military assets 11
Historical buildings 9
Highways 7
Basis for valuation of capital assets with readily identified market values:
Historical cost 13
Current market value or replacement cost 10
Audited final accounts published and available publicly:
Within three months of the end of the fiscal year 4
Within three to six months of the end of the fiscal year 13
Generally more than six months of the end of the fiscal year 17
Not published and available 2
Types of Data Reported in Budget Documents4

In Section 5.2, the countries were questioned on the Types of Data Reported in Budget
Documents. The major findings were as follows:
Time period of budget forecasts:
Forecast of fiscal aggregates for the budget year plus two years 23
Formal rolling medium-term (3-5 years) estimates of expenditures 20
Formal rolling medium-term (3-5 years) estimates of revenues 17
Audited final accounts submitted to the legislature:
Within six months 20
Within six to 12 months 13
After more than 12 months or not at all 7
Budget to actual comparative statement prepared:
Yes, for past year 27
Yes, for past two years or more 6
No 2
Other 5
Budget to actual comparative statement legally required:
Yes 13
No 27
4
There was no indication that the budget forecasts were subject to external review. Budget information was
included in ex-post comparative financial statements. Although it is not specified in the survey instrument, it is
assumed that budgetary information is included in the audited final accounts when submitted to the legislature.
17
Budget Classification
Section 5.3 of the survey addresses Budget Classification. The major findings were as follows:
Classification schemes:
By function 33
By economic class 35
By line-item or object class 21
Capital/current expenditure breakdown 33
By organization or administrative unit 29
By program 22
UN/GFS functional classification used 14
Budgeting and Reporting

Section 6.5, Budgeting and Reporting, asks questions about the fiscal relationships between the
various levels of government. The major findings were as follows:
Common standard for budgeting by national and sub-national governments:

Yes, same budget classification and accounting rules set by national government 18
No, common standards are not used but national government sets standards for both 11
No, common standards are not used and each authority decides own classification 9
Actual general government figures transmitted to legislature:
Yes, transmitted and discussed at the end of the financial year 8
Yes, transmitted for knowledge purposes at the end of the financial year 17
No, figures are not transmitted at the end of the financial year 10
Summary of Five African Countries

In 2002, civil society budget analysis organizations from Ghana, Kenya, Nigeria, South Africa
and Zambia published the results of a research project on Budget Transparency and Participation
in the Budget Process.5 The purpose of the study was to evaluate the extent to which these
countries provided sufficient budgetary information and access to citizens and civil society
organizations so that they can participate effectively in the budget process. The study was
intended to create a civil society agenda to demand changes in the budget process.
Research Method
The research results were derived from semi-structured interviews with respondents in the
executive and legislature branches of government, independent organs of state, civil society and
the media. The qualitative data derived from these interviews was supplemented by a survey of
budget documentation, audit reports, policy papers and legislation. In addition, a peer review
5
Details of the project may be found at http://www.internationalbudget.org/resources/africalaunch.htm.
18
group was established in each country to check the congruency and accuracy of the results. The
study framework examined three issues. The first dimension examines the four stages of the
budget process – the drafting, legislative, implementation and auditing stages. The second
dimension examines each of these stages by looking at the availability of information, the clarity
of roles and responsibilities between institutions in the budget process, and the systems and
capacity to generate budget information. The third dimension focuses on the legal framework
supporting transparency and participation in the budget process.
Results
Although aspects of budget transparency and participation in the budget process were found to
be wanting in each country, there were important distinctions between the countries studied. The
results suggest that the countries could be classified into three layers. South Africa scored the
highest, Ghana and Kenya occupy a second layer, and Nigeria and Zambia a third layer. South
Africa scored “good” on the legal framework and “moderate” on transparency and participation
in the budget process. This reflects the comprehensive overhaul of the budget process undertaken
since 1994 and the substantial improvements in public availability of information. There is a
clearer framework for accountability for public resources and delivery and more transparent
management of the wider public sector. The primary concern now is the creation of better access
for parliament and citizens, and the development of capacity in these institutions to make good
use of the information.
The next layer of countries is Kenya and Ghana. Both countries scored “moderate” on the legal
framework and “weak,” but improving, on participation. The Kenyan legal framework was found
to be comprehensive, but outdated and in conflict with government policy. Although substantial
public information is generated, it is often late, inaccurate and in formats that are hard to use.
The budget process in Kenya does not easily accommodate external participation, but both
parliament and civil society are increasingly exploiting opportunities to hold the executive
accountable. In Ghana, a moderately good legal framework should ensure greater information
and participation. However, this potential is compromised by gaps and the official secrets
legislation, and is often outdated. Although public information is more available in Ghana than in
Zambia and Nigeria, the information that is produced is frequently late, inaccurate and not
particularly useful – in many cases the result of poor capacity to produce information. On the
positive side, the introduction of the Medium Term Expenditure Framework (MTEF) and
increasing participation by civil society is helping to push the country in the right direction.
In the third layer of countries, Zambia and Nigeria were found to have both “weak” legal
frameworks and “weak” transparency and participation. The legal framework in Zambia allows
for virtually limitless expenditure with approval after the fact and requires very little information
to be published. While transparency is hampered by lack of compliance and cash budgeting, civil
society and parliament are starting to forge a space for participation with positive effects. In
Nigeria, a contradictory and ambiguous legal framework is a large part of the problem,
particularly as it impacts on the comprehensiveness of the budget and the audit process. While
civil society participation also remains weak, the increasingly active engagement of the
legislature is a positive sign.
19
Summary of Nine European Countries and the European Commission (EC)

“Reforming Governmental Accounting and Budgeting in Europe” was published in late 2003.6
To facilitate convergence in the accrual-based reforms, this book describes (at national and sub-
national levels) the current and prospective forms of financial reporting and budget preparation
for nine countries in Europe: Finland, France, Germany, Italy, Netherlands, Spain, Sweden,
Switzerland, and the United Kingdom. In addition, a chapter was added on the reform of the
EC’s accounting system. The goal of the publication was to spark discussion, highlight areas for
action, and present practical solutions. The reform of governmental budgeting and accounting
practices was identified as an important and necessary long-term objective.
Research Method
Research was conducted in each of the countries by one or more nationals of the relevant country
in a cooperative effort between academe and practice. The intent of the research was to identify
current governmental accounting practices, as well as current budgetary accounting principles
and procedures. Workshops were conducted throughout the research period to establish a
uniform structure for the country studies, to discuss relevant findings, and to assist in developing
cross-country conclusions.
Results
All of the countries covered by the study have embarked on reforms of the accounting reporting
systems towards full accrual accounting for their core national or local governments. Whereas all
local government systems have been or are being reformed, the reform process has not yet
started in the national governments of Germany, Italy, and the Netherlands. Six of the national
governments (Finland, France, Spain, Sweden, Switzerland, and United Kingdom) have begun
the reform process, as has the EC. Three of them (Finland, Spain, and Sweden) have essentially
completed the reform by creating the necessary legal requirements and the new system is in
regular operation. This also applies to the United Kingdom except that whole-of-government
financial statements are not yet in place. The accounting method used impacts on the budgetary
reporting practices, especially relative to comparative budget to actual statements if the budget is
on a different basis than the accounting system.
The clear pattern was for the local governments in each country to precede the national
governments; in none of the countries was national governmental accounting reformed first.
“The norm for budgeting is that the accrual accounting either has no influence on budgeting
(which retains its basis of cash or cash plus changes in financial assets and liabilities) or the
influence is implicit (the accrual accounting is used to report on realization of the budget but the
budget itself does not significantly refer to accruals).”7
PSC Mandate on Budget Reporting and/or Other Budget Related Matters

This Report focuses on IPSASs that are standards for general purpose financial statements.
Recommendations made about the PSC role in developing standards (rather than identifying and
6
Reforming Governmental Accounting and Budgeting in Europe; Klaus Luder and Rowan Jones, editors
(Fachverlag Moderne Wirtschaft, Frankfurt, Germany), 2003.
7
Ibid, p. 55.
20
encouraging best practices) refer to standards that will be complied with in preparation of general
purpose financial statements. These statements will be audited to ensure compliance with the
IPSASs. Thus, use of these standards is different from benchmarks (or industry standards)
identified by international oversight bodies for best budget practice and often relate to matters of
process, technique and skill.
Discussion
The objective of the PSC is identified in the Preface to the IPSASs as follows: “Develop
programs aimed at improving public sector financial management and accountability including
developing accounting standards and promoting their acceptance.”8 Further, the Preface notes
that: “financial statements issued for users that are unable to demand financial information to
meet their specific information needs are general purpose financial statements. Examples of such
users are citizens, voters, their representatives and other members of the public. The term
‘financial statements’ used in this Preface and in the Standards covers all statements and
explanatory material which are identified as being part of the financial statements.”9
Inclusion of budgetary information and other budget related matter in the accounting system and
reporting budgetary data to constituents is crucial to improving public sector financial
management (transparency). To assure that government officials are held accountable for their
budgetary decisions, it is essential that users be informed on the degree by which their
government officials were able to operate within the limits of the approved budget.
International Public Sector Accounting Standards10

IPSASs deal with issues related to the presentation of annual general purpose financial
statements at each level of government (local, state, and national) and for public sector entities
other than GBEs. General purpose financial statements include those that are presented
separately or within another public document such as an annual report. The objectives of general
purpose financial statements are to provide information useful for decision-making, and to
demonstrate the accountability of the entity for the resources entrusted to it. IPSAS 1 notes that
users include taxpayers and rate payers, members of the Legislature, creditors, suppliers, the
media, and employees. Elected representatives act on behalf of their constituents and use the
financial statements to hold the government and the civil service to account for the resources that
they were allocated to provide the agreed level of goods and services. Where the financial
information needs of members of government for these purposes differ from the needs of other
users, and where governments are dependent on general purpose financial statements for such
information, their information needs should dominate.
In addition, general purpose financial statements can have a predictive or prospective role since
they can provide information useful to predict the level of resources required for continued
operations. Further, these statements provide users with information indicating whether resources
were obtained and used in accordance with the legally adopted budget. Currently, the IPSASs
8
“Preface to International Public Sector Accounting Standards”, Handbook of International Public Sector
Accounting Standards (2003 Edition), International Federation of Accountants, p. 18.
9
Ibid, p. 19.
10
Sections from the existing IPSASs pertaining to budgets or budget reporting are identified in Appendix D.
21
encourage governments to include in the financial statements a comparison of the actual results
of operations with the approved budget for the reporting period.11
The current IPSASs prescribe standards for the presentation of annual general purpose financial
statements on the cash or the accrual basis of accounting. The accrual basis is preferred12 for the
following reasons: improved resource allocation, strengthened accountability over all resources,
enhanced transparency on total resource costs of government activities, and more comprehensive
view of government’s impact on the economy. A Cash Basis IPSAS has been issued to prescribe
financial reporting requirements where the countries do not prepare financial statements of
public sector entities on the accrual basis. The Cash Basis IPSAS requires an annual Statement of
Cash Receipts and Payments. If their financial statements are prepared on the cash basis, the
government entities are encouraged to transition to the accrual basis as soon as proper
procedures and systems can be established.13
Recommendation #1: The PSC should issue an IPSAS (or IPSASs) on budget reporting
since it falls within the mandate identified in the Preface to the PSC.14 It may be beneficial
to issue separate IPSASs on ex-ante and ex-post budget reports. An IPSAS (or IPSASs) on
Budget Reporting will provide guidance on information that should be disclosed in general
purpose financial reports about budgetary actions (both legally approved budgets and prospective
budgets) at the time of their approval as well as the comparative reports issued as a component of
the general purpose financial statements at the end of the fiscal period. The IPSASs should also
provide guidance on the format of disclosure.
Budget Formulation and Ex-Ante Reporting

Budget formulation is the practices and concepts that budget professionals use to create and
review a budget until enacted into law. Ex-ante budget reporting includes the external reporting
of the budget approved by the legislative body at or near the beginning of the fiscal period as
well as prospective or forecast budgetary data. The approved budget and forecast budgetary data
are generally issued as separate reports at or near the beginning of the fiscal period.
Prospective Financial Information and Medium Term Fiscal Framework (MTFF)—also

known as Medium Term Budget Framework (MTBF)
Fiscal targets are now widely accepted as a useful guide to sound public financial management
and are increasingly required under such mechanisms as fiscal responsibility/transparency laws.
These targets may cover a range of variables (budget balance, net public debt, net worth, etc.)
and they are invariably medium term covering more than one year. Given that governments have
medium term targets (under a MTFF or other documents), governments are encouraged to report
on future projections beyond the current year in their budget reports.
11
Paragraph 22, IPSAS 1, Presentation of Financial Statements (May 2000).
12
Government Finance Statistics Manual, International Monetary Fund (2001).
13
For further guidance, see Study 14—Transition to the Accrual Basis of Accounting: Guidance for
Governments and Government Entities, IFAC Public Sector Committee (December 2003).
14
It is interesting to note, at meetings in July 2003 and November 2003, the PSC expressed the view that
compliance reporting was in its scope. However, PSC members had different views about an IPSAS on
Budgetary Reporting. PSC members agreed not to prejudge the outcome of the research on this subject.
22
A MTFF includes both revenue and expenditure forecasts. If the forecasts only deal with
expenditures, it is referred to as a Medium Term Expenditure Framework (MTEF). To ensure
consistency in taxing and spending policies from one fiscal period to another, it is beneficial to
have a planning horizon of at least three years. This planning horizon can be assisted by the work
of macroeconomists to assure comparability in reporting from country to country. Accurate
accounting systems are critical to providing good information for computing a country’s gross
domestic product and other key statistics used by macroeconomists.
Each country hopes to improve their standard of living over time. Dividing GDP by the
population is a good guide to measure average living standards. The degree of improvement in
the standard of living from year to year is measured by the percentage change in the per capita
GDP. Decision makers use this information to develop their taxing and spending policies (i.e.,
fiscal policy) for future years. Some countries incorporate this information into a MTFF to assist
in preparing future budgets. The objectives of a MTFF (as identified by the World Bank15) are as
follows:
• Improve macroeconomic balance by developing a consistent and realistic resource
framework;
• Improve the allocation of resources to strategic priorities between and within sectors;
• Increase commitment to predictability of both policy and funding so that ministries can
plan ahead and programs can be sustained; and
• Provide line agencies with a hard budget constraint and increased autonomy, thereby
increasing incentives for efficient and effective use of funds.
A MTFF is generally prepared for at least a three-year period. The stages for the preparation and
implementation of a MTFF have been identified as follows by the World Bank:16
1. Link economic projections to fiscal targets on what is fiscally affordable and construct a
macroeconomic model.
2. Perform sector review of ministry objectives, outputs, and activities with agreement on
programs and their costs over a three year period.
3. Conduct series of hearings between the Ministry of Finance and sector ministries to go
over the outputs of the sector reviews.
4. Develop strategic expenditure framework to provide the basis for the sector expenditure
ceilings for the upcoming budget year as well as the two outer years.
5. Ceilings approved by the main decision-making body in government (i.e., Cabinet) in order
to make medium term sectoral resource allocations on the basis of affordability and inter-
sectoral priorities.
6. Ministries adjust their budget estimates to make them fit within the approved ceilings.
15
Page 46, Public Expenditure Management Handbook, Poverty Reduction and Economic Management, The
World Bank, 1998.
16
Ibid, Pp. 47-52.
23
7. Revised ministerial budget estimates are reviewed again by the Ministry of Finance and
presented to the Cabinet and the Parliament for final approval.
At least one country (New Zealand) requires that prospective financial information be prepared
and presented to its constituents.17 Its objectives are to assist users:
(a) In assessing the entity’s prospective financial performance, prospective financial position
and prospective cash flows;
(b) By informing them of the entity’s actual or future likely compliance with legislation,
regulations, common law and contractual arrangements, as these relate to the assessment of
the entity’s prospective financial performance, prospective financial position and
prospective cash flows; and
(c) In making decisions about providing resources to, or doing business with, the entity.
Recommendation #2: An accounting standard should be issued to require that the forecast
and other prospective financial information be reported to their constituents in order to
keep them informed on future financial implications of government policy. Preparation of a
MTFF or other prospective financial information so that the “predictive or prospective role”
provided by the general purpose financial statements can be met and one of the purposes of
financial statements specified in IPSAS 118 can be achieved. The elements of historical financial
information used in the preparation of a MTFF and other prospective financial reports primarily
include revenue and expense data. In some cases, the value of fixed assets and their age is also
included in order to compute the anticipated cost for replacement of those assets and to plan for
new construction. In addition, the repayment (both principal and interest) of debt is an essential
component of the MTFF and other prospective financial reports. This information is very
beneficial to the users in the ongoing debate of government policy. If this recommendation is
adopted, issues associated with the recognition and measurement of the data will need to be
identified and the extent of external validation by auditors will need to be determined.
Annual or Biennial Budget Formulation

Funds are appropriated on an annual or biennial basis to permit control of funds within a fiscal
period. The United Nations Development Program has identified some of the key factors that
contribute to making the budget preparation process effective in practice. These are as follows:
transparency, management, decentralization, co-ordination and co-operation, integration,
flexibility, discipline, link to medium term framework, accountability and credibility, and
comprehensive. Specifically, it recommends that the budget contain information on the previous
and current years’ expenditures. (See Appendix E.)
To permit comparisons between countries, the IMF encourages the use of prescribed codes that
assist in computing analytic measures for fiscal policy decisions. The reporting system
prescribed by the IMF is a statistical system to measure fiscal performance but it is not an
accounting system. The functional classification of expenses is the same as that used by the
17
Financial Reporting Standard No. 29, Prospective Financial Information, Institute of Chartered Accountants of
New Zealand (October 2001).
18
Paragraph 14, IPSAS 1.
24
United Nations in their System of National Accounts. The breakout of the revenue and expense
codes is summarized below:19
• Classification of Revenue
o Taxes
o Social Contributions
o Grants
o Other Revenue
• Economic Classification of Expenses
o Compensation of Employees
o Use of Goods and Services
o Consumption of Fixed Capital
o Interest
o Subsidies
o Grants
o Social Benefits
o Other Expenses
• Functional Classification of Expenses
o General Public Services
o Defense
o Public Order and Safety
o Economic Affairs
o Environmental Protection
o Housing and Community Amenities
o Health
o Recreation, Culture, and Religion
o Education
o Social Protection
Note: Countries and regions (i.e., the European System of Accounts) may provide alternative
economic and functional classifications. Although the classifications may differ slightly from
those specified above, they can generally be converted to the classifications desired by the IMF
and the UN.
In those countries in which a MTFF or other prospective financial information is prepared, the
initial efforts to formulate the annual budget and set the spending limits is taken from the
19
Summarized from pages 178-179, 182-183 of the Government Finance Statistics (GFS) Manual 2001,
International Monetary Fund. See http://www.imf.org/external/pubs/ft/gfs/manual/ for detailed breakout.
25
forecast information for the upcoming budget year. This planning budget is revised, based on
input from responsible decision makers (i.e., ministers, etc.), to reflect any major changes in
priorities due to changes in economic or political situations. In those countries in which a MTFF
or other prospective information is not prepared, a budget call is sent to responsible decision
makers in order that they might identify their needs for the upcoming fiscal period.
Historical accounting records are used to identify the revenues received and expenses incurred
for each fiscal period. This historical data is critical to assure that proposed budgets are
consistent with prior periods and that the proposed budgets might be sustainable in future
periods. These records are maintained at a sufficiently low level of detail to establish spending
limits by functional and economic expense classifications.
As soon as the decision makers have identified their needs to the Minister of Finance, a series of
meetings and hearings are held to give all concerned parties an opportunity to assist in
establishing spending priorities for the upcoming budget year. Depending on the amount of
revenue anticipated, spending limits are established and the budget is sent to the legislative body
for deliberation (with revisions, as necessary) and approval. Once approved, a law is passed that
legally authorizes the expenditure of funds for the upcoming fiscal period. If the financial
management system is automated, this approved budget is then loaded into the accounting
system in order to assure that budget users operate within their authorized budgetary authority
and to provide commitment control over expenses.
As a result of the African study mentioned earlier, numerous reforms were proposed. Across all
countries included in the study, growing civil society and legislative demand for transparency,
access and better results were shown. Given the shift in the political climate towards
democratization, the study argues that now is a fortuitous time for budget reforms, provided that
they pay attention to the principles of transparency and participation. Although greater civil
society and legislative monitoring of budgets is a relatively recent development, their
intervention can contribute to modest first steps on the road to more open systems and can help
kick-start a virtuous cycle of transparency, participation and better spending results. In addition
to recommendations for each country, the study concludes with the following cross-country
recommendations for budget reform:
• The improvement of budget documentation is a critical first step. Budget documentation
should include fiscal policy statements, explain the policy base of allocation decisions and
be framed in the previous years’ actual spending and non-financial information.
• Repeal official secrets legislation and replace it with legislation that guarantees appropriate
citizen access to state-held information.
• Entrench the provision of comprehensive and timely information on estimated and actual
expenditure and revenues in a budget law that also sets out a clear budget process and
clarifies roles and responsibilities.
• External reporting during the spending year should be obligatory, including a cash
budgeting system. This should include departmental reporting on achievements. If late
audit information makes early annual reports at central government and spending agency
level unfeasible, interim mechanisms should be created.
26
• Extra-budgetary spending should be brought onto budget. If this is difficult, comprehensive

and accurate information on these activities should be included with the budget.
• The enhancement of external transparency should coincide with efforts to build internal
transparency. Often political decision-makers and their administrative advisors make
decisions on very imperfect information.
• The capacity of auditors general should be enhanced. Parliamentary capacity to scrutinize
budget proposals and oversee implementation should be institutionalized.
Recommendation #3: The accounting standards should require that the legally approved
budget be published with the appropriate supporting budget documentation (e.g.,
assumptions). The following documentation and procedures are suggested:
• Clearly identify the assumptions used and their rationale, risks associated with those
assumptions, sensitivities, etc.
• Use of asset, liability, net assets, revenue, and expense codes in accordance with IPSASs
and statistical classification bases to the maximum extent possible. Although attempts have
been made to harmonize the statistical bases with the IPSAS, some differences may exist
particularly in respect of the reporting entity. In those instances, the procedures prescribed
by the IPSAS should prevail. Further, budgets may be prepared on the basis of programs
relevant for financial management and service delivery in some jurisdictions and the need
to complete statistical returns should not undermine that role of the budget.
• Preparation of an annual budget in sufficient time to establish spending limits prior to the
beginning of the fiscal period. It is expected that the annual budget would use the prior
year financial statements in the preparation stage of the budget. As stated in paragraph 74,
IPSAS 1, “An entity should be in a position to issue its financial statements within six
months of the reporting date.”
• The scope of the budget should be comprehensive including all aid, government business
enterprises, revolving funds, income of dedicated funds, etc.
Budget Execution and Control
Budget execution is the management activities that take place from enactment of the budget into
law until the end of the fiscal period. Budget control is assuring that the budget is executed
within the legal limits established by the legislative body.
Inter-Relationship between Accounting and Budgeting Systems

The World Bank has developed a diagnostic tool (called a Country Financial Accountability
Assessment or CFAA) to enhance the Bank’s knowledge of public financial management (PFM)
arrangements in client countries.20 The CFAA supports both
• The Bank’s fiduciary responsibilities by identifying the strengths and weakness of PFM
arrangements so that the likelihood that all public funds, including those provided by the
Bank and development partners managed through the country’s PFM system, are
appropriately managed, and
20
Guidelines to Staff, Country Financial Accountability Assessment, Financial Management Sector Board,
World Bank (March, 2003).
27
• The Bank’s development objectives, by facilitating a common understanding by the

borrower, the Bank, and development partners that leads to the design and implementation
of capacity-building programs to improve the country’s PFM system.
The key issues to be examined in the CFAA in the areas of external fiscal reporting and
transparency (including the standards to be used in their preparation—GFS, IPSAS or
modifications of either) are identified in Appendix F. Integration between the financial reporting
and budgeting systems are essential for budgetary control as explained below.
There is a close relationship between accounting systems and budgetary systems in order to
identify whether funds are expended in the manner desired by the legislature. This close
relationship has been identified in an OECD document on Best Practices for Budget
Transparency. The Best Practices are in three parts: Part I lists the principal budget reports that
governments should produce and their general content. Budget reports identified were as
follows: the budget, pre-budget report, monthly reports, mid-year report, year-end report, pre-
election report, and long-term report; Part II describes specific disclosures to be contained in the
reports; and Part III highlights practices for ensuring the integrity of the reports. The budget is
identified as the government’s key policy document and should include a medium-term
perspective illustrating how revenue and expenditure will develop during, at least, the two years
beyond the next fisca year. The year-end report is identified as the key accountability document
showing compliance with the level of revenue and expenditures authorized by parliament in the
budget. The OECD Report recommends that the year-end report be audited by the Supreme
Audit Institution and released within six months of the end of the fiscal year. The document
further states that “All fiscal reports referred to in these Best Practices should be made publicly
available.”21
The OECD Report also argues it is essential that these systems be integrated to the maximum
extent possible. These integrated systems are sometimes referred to as Government Financial
Management (GFM) systems. The objectives of a well-performing budget resource allocation
and management system are to:
• Control aggregate spending and the deficit;
• Facilitate strategic prioritization of expenditures across policies, programs, and projects for
allocative efficiency and equity; and
• Encourage better use of budgeted resources to achieve outcomes and produce outputs at the
lowest possible cost.
As explained in a World Bank document,22 “management of these three objectives is integrated
through a perspective that goes beyond the annual budget cycle. This is achieved by linking
policy, planning and budgeting in a medium term expenditure framework at both the overall
government and sectoral levels. GFM systems provide decision-makers and public sector
managers with a set of tools to support these objectives. The architecture of the information
systems network is determined by the basic functional processes that public sector managers
21
Par. 3.4, OECD Best Practices for Budget Transparency, 19 September 2000, http://www.oecd.org.
22
Page 9, Information Systems for Government Fiscal Management by Ali Hashim and Bill Allan, The World
Bank, 1999.
28
employ to achieve these objectives and the overall regulatory framework that underpins these
processes.” (See Appendix G for the basic functional processes including budget preparation,
execution, accounting, and fiscal reporting.)
The overall regulatory framework for operating the various component modules of the GFM
system consists of the following elements:
• Control Structure—Generally derived from a legislative framework with basic principles
laid down in financial provisions in the constitution and laws related to the management of
public finances.
• Accounts Classification—The code structure for classification of accounts is a
methodology for consistently recording each financial transaction for purposes of financial
control and costing as well as economic and statistical analysis. This structure is needed to
provide a consistent basis for the following:
o Consolidating government-wide financial information;
o Integrating planning, budgeting and accounting;
o Capturing data at the point of entry throughout the government; and
o Compiling budget allocations as well as program and project costs within and across
various government agencies.
o Reporting Requirements—Generally specified in two areas: (1) external reporting to
provide information to the legislature, the public, and other interested parties, and (2)
internal management reporting for government policy makers and managers.
Members of the World Bank and the IMF explain the importance of the relationship between
accounting and budgetary information as follows:23
The Treasury System is used to produce periodic fiscal reports that give a consolidated picture of
all receipts and expenditures and progress against budget targets. For these reports to be
comprehensive, all items of receipts and expenditure need to be captured. The Government Chart
of Accounts is the basis of the fiscal reporting process. These include the Fund, organizational,
functional and economic classifications structure of the budget and the classification of account
groups, assets and liabilities. . . . On the basis of this data, the MOF can prepare overall fiscal
reports that compare actual expenses and receipts with the budget estimates. These reports
provide a status report and recommendations and action plans for corrective action during the
course of the year.
Recommendation #4: The accounting standards should be broad enough to support the
integration of budgetary and accounting systems through the use of budgetary accounting
procedures. It may be beneficial to issue a separate IPSAS on budgetary accounting
procedures. Budgetary accounting procedures may include separate accounts for estimated
revenues, appropriations, allotments, allocations, and commitments. The elements of financial
information (especially revenue and expenses) used in the accounting system should be the same
23
Page 176, Treasury Reference Model by Ali Hashim (World Bank) and Bill Allan (IMF),
http://www1.worldbank.org/public sector/pe/trmodel.htm (3/14/2001).
29
as that used in the budgeting system in order to compare the results of operations with the
approved budget. For maximum benefit, these comparative results should be reported in the
general purpose financial statements although such comparative information is not currently
required by the IPSASs. This does not mean that the budgetary system and the accounting
system need to be on the same basis. It does mean that the accounting system needs to support
the preparation of a comparative statement on the same basis as the budgetary system. For
example, if a cash budget is approved by the legislative body and the accounting system is on an
accrual basis, the revenue and expenses in the accounting system would need to be reported in
the comparative statement on the cash basis in order to be comparable to the budgetary data.
Budgetary Control
To assure that spending limits are not exceeded, the approved budget is entered into the
accounting system at the beginning of the fiscal period at the level of control desired (i.e., by
economic and functional expense classifications) in a fully integrated financial management
system. Then, as transactions occur, the actual revenue and expenses can be compared to the
budgeted revenues and expenses in order to provide assurance that the spending limits have not
been exceeded. For those budgetary systems that are not well integrated with the accounting
module, a separate budget or funds control module is often maintained. In addition, a separate
cash management module is used to assure that cash is available to compensate employees or
pay invoices when payment is due. Consequently, proper cash planning is critical to the overall
management process.
Compensation of employees (an economic expense classification in GFSM 2001) is generally the
largest recurring expense item in any government. Funds are set aside in the approved budget to
assure that sufficient funds (by functional expense classification) are available for periodic
payment of employees. As actual payrolls are processed, the financial managers within each
function can monitor this economic expense and be assured that the expense will not exceed the
approved levels during the fiscal period.
Repayment (both principal and interest) of debt is often another large outlay of funds. Funds are
set aside in the approved budget for this purpose. Fiscal discipline by the financial managers in
their respective areas of responsibility is critical in order to assure that sufficient funds are
available for payment of debt when due. In this manner, the country is able to maintain a good
credit rating that will generally contribute to lower interest payments on future debt.
The use of goods and services, as well as expenditures for capital projects, is also budgeted at the
beginning of each fiscal period. To assure that these spending limits are not exceeded, some
countries use “commitment” accounting procedures. This technique permits a financial manager
to compare budgetary fund availability to the anticipated expenses for the goods or services or
the approved budget for capital projects prior to the release of a purchase order or a contract.
Once approved and released, the financial manager can be assured that budgetary funds will be
available for the payment of the goods or services at the time they are received or the payment on
capital projects when due. There is some inconsistency throughout the world in the use of
“commitment” accounting procedures. To clarify these procedures and lessen the confusion over
30
the terminology, see Appendix H for a more complete discussion of this technique as explained
by IFAC in a previous study.24
Recommendation #5: In relevant studies and guidance, the PSC should acknowledge and
encourage the use of commitment accounting procedures intended to assure that budgetary
funds are available prior to release of a purchase order or contract. Although budgetary
accounting procedures are not presently included in an accounting standard, effective use of
commitment accounting procedures will lessen the explanatory notes at the end of the fiscal
period when actual expenditures exceed the approved limits. Further, these procedures can be
beneficial in a budgetary system for the acquisition of infrastructure and military special assets,
as well as the control of government grants.
Ex-Post Budget Reports

Ex-post budget reporting would include external reporting of the financial activities relative to
the enacted budget for the fiscal period until the final audit after the end of the fiscal period. The
budget to actual comparative statement is generally issued as a component of the historical
financial statements.
Part of General Purpose Financial Statements

In a prior IFAC study, the following user needs25 were noted:
“49. Although the users described above have a range of information needs, and
some groups may place a higher or lower priority on certain types of information
than other groups, the user groups also have similar information needs. The PSC
considers that, taken as a collective group, users expect that governmental financial
reports will help them to:
• Assess the sources and types of revenues;
• Assess the allocation of and use of resources;
• Assess the extent to which revenues were sufficient to cover costs of
operations;
• Predict the timing and volume of cash flows and future cash and borrowing
requirements;
• Assess the government’s long term ability to meet financial obligations, both
short and long term;
• Assess the government’s or entity’s overall financial condition;
• Provide the public with information concerning those assets held on behalf of
taxpayers, specifically information on ownership and control, composition,
condition and maintenance;
24
Study 11, Government Financial Reporting, May 2000. IFAC Public Sector Committee.
25
Ibid. Pp. 11-12.
31
• Assess the financial performance of the government or entity in its use of

resources;
• Assess the economic impact of the government on the economy;
• Evaluate government spending options and priorities;
• assess whether resources were used in accordance with legally mandated
budgets and other legislative and related authorities such as legal and
contractual conditions and constraints; and
• assess the government’s or entity’s stewardship over the custody and
maintenance of resources.”
[emphasis added]
The present IPSASs encourage comparisons with budget but do not specify any financial reports
that would satisfy user needs in assessing “whether resources were used in accordance with
legally mandated budgets and other legislative and related authorities such as legal and
contractual conditions and constraints.” To fill this void and provide a higher degree of
transparency, almost all countries prepare and publish “Budget to Actual Comparative
Statements.” Differences between the actual expenses and the final (or original) budget are
reflected in the comparative statements in order to assist the user in determining how close the
government came to meeting the budget expectations. The budgetary comparisons are generally
made at the major levels of control as approved by the legislature. Since approved budgets are
considered law in many countries, explanations are generally required in those instances where
expenses exceed budgetary authority. Guidance in the present IPSAS26 is as follows:
General purpose financial statements can also have a predictive or prospective role, providing
information useful in predicting the level of resources required for continued operations, the
resources that may be generated by continued operations, and the associated risks and uncertainties.
Financial reporting may also provide users with information (emphasis added):
(a) indicating whether resources were obtained and used in accordance with the legally adopted
budget, and
(b) indicating whether resources were obtained and used in accordance with legal and
contractual requirements, including financial limits established by appropriate legislative
authorities.
The scope of general purpose financial statements is usually clearly designed and defined in the
statements (with a list of entities covered by the statements, and the description of the method
used to built that list). It is not always the case for budgetary reports, which are not necessarily
based on the “control” approach described in IPSAS 6. The budget scope can be broader or
narrower than the scope of the financial statements based on the “control” approach, to the extent
that the budget reflects the financial relationships between the government and a range of
national or international entities. Moreover, budgetary reports don’t deal with consolidation
aspects. Sometimes national accounting systems are also built on a different basis, concerning
the links between governments and other entities. In the event of conflict between the budgetary
26
Paragraph 14, IPSAS 1, Presentation of Financial Statements.
32
reporting system and the IPSAS, the IPSAS definition of a reporting entity would be expected to
prevail. However, the budget to actual comparative statement would need to be prepared on the
basis of the approved budget.
Recommendation #6: Ex-post budget reports reflecting budget to actual comparisons

should be part of the general purpose financial statements issued at the end of the fiscal
period for each reporting entity at each level of government. Inclusion of the budgetary
information in the general purpose financial statements will “meet the needs of users who are not
in a position to demand reports tailored to meet their specific information needs.”27 While it is
appropriate to advocate inclusion in general purpose financial statements of comparisons
between budget and actual data, it is acknowledged that further guidance is needed in the
following areas:
• How budget data should be summarized to avoid information overload. To ensure that
reports are not too voluminous, any future IPSAS should specify that only major classes be
included in the comparative reports that would include the primary and secondary levels of
control identified by the legislature. This would apply to the whole-of-government
statements as well as the statements covering general and sub-national governments.
• How an IPSAS should deal with comparisons if the scope of the budget entity and the
IPSAS reporting entity differ. The reporting entity needs to be clearly defined so that the
budget to actual comparisons relate to the same entity.
• How extra-budgetary funds that may be excluded in government financial statements
should be handled. It is essential that comprehensive budgets be presented in order to
reflect the actual results of operations as compared to the budgetary authority.
• How an IPSAS should deal with comparisons if different measurement bases were adopted
for such items as inventory, investments, and provisions in budget document and financial
reports.
Format of Comparative Statement
Since budgets are prepared in advance of the current fiscal year, natural disasters, political, or
economic conditions may dictate a need for revisions to the initially approved budget during the
fiscal year. Consequently, most countries identify those procedures necessary for budgetary
revisions. In some countries, this authority is delegated to the Minister of Finance (within
specified limits); in other countries, the revisions must be approved by the legislature. In some of
those countries where comparative statements are encouraged (see Appendix J for an illustration
from the United States), the initial budget as approved by legislation is expected to be included
in the comparative statement along with the final, revised approved budget.
Guidance in the present IPSAS28 is as follows:
Public sector entities are typically subject to budgetary limits in the form of appropriations or budget
authorizations (or equivalent), which may be given effect through authorizing legislation. General
purpose financial reporting by public sector entities may provide information on whether resources
27
Paragraph 2, IPSAS 1.
28
Paragraph 22, IPSAS 1, Presentation of Financial Statements.
33
were obtained and used in accordance with the legally adopted budget. Where the financial
statements and the budget are on the same basis of accounting, this Standard encourages the
inclusion in the financial statements of a comparison with the budgeted amounts for the
reporting period. (Emphasis added). Reporting against budgets may be presented in various different
ways, including:
(a) the use of a columnar format for the financial statements, with separate columns for budgeted
amounts and actual amounts. A column showing any variances from the budget or
appropriation may also be presented, for completeness; and
(b) a statement by the individual(s) responsible for the preparation of the financial statements that
the budgeted amounts have not been exceeded. If any budgeted amounts or appropriations have
been exceeded, or expenses incurred without appropriation or other form of authority, then
details may be disclosed by way of footnote to the relevant item in the financial statements.
Recommendation #7: The Comparative Budget to Actual Statement should include the
original budget as approved by the legislative body as well as the final adopted budget.
Significant variances should be appropriately identified and justified. This would include
comparison of actual expenditure and income with the budgeted amounts agreed by parliament,
variances for each line between these two items considering budget assumptions, and
explanations for all variances (positive and negative) above a certain significant level (e.g. 5%).
Clarification is needed in the following areas:
• Whether comparisons of actual should be made with original and/or revised budgets (and
which revision if the budget was revised periodically during the reporting period to reflect
changing policies, economic environment and experience);
• What impact a change in policy settings might have if comparisons were to be made
against original budgets and how such changes should be dealt with if comparisons were to
be made with revised budgets;
Reconciling Budgetary Basis with Accounting Basis

Some countries that have adopted the accrual basis of accounting as their generally accepted
accounting principle (GAAP) continue to prepare their budgets on the cash basis. If the
accounting basis (i.e., accrual) is different from the budgetary basis (i.e., cash), the comparative
statement is generally prepared on the budgetary basis. A reconciliation is made so that the
reader is informed about the differences between the budgetary and accounting balances in the
general purpose financial statements. Some of the more common differences are identified in
Appendix I. An example from the US of a comparative statement is shown in Appendix J. In
addition, the UK includes the requirement for a “reconciliation of resources to net cash
requirement” in their Summary of Resource Outturn Report.29 The present IPSASs do not
specify the action to be taken in those instances where the budget and accounting are on different
bases. However, a similar reconciling statement is encouraged in IPSAS 2 when the Cash Flow
Statement is prepared using the direct method. An illustrative note (reproduced below) is
29
Paragraph 12.1.12, Schedule 1 – Summary of Resource Outturn, UK Accounting Manual. Schedule 1 is the
parliamentary control schedule comparing outturn with Estimate for both resource expenditure and the overall
cash requirement. (See http://www.accounting-manual.gov.uk)
34
included in the Appendix to IPSAS 2 and reflects a reconciliation of the surplus/deficit from
ordinary activities with the net cash flow from operating activities.30
Notes to the Direct Method Cash Flow Statement in the Appendix

(c) Reconciliation of Net Cash Flows from Operating Activities to Net Surplus/(Deficit) from
Ordinary Activities (in thousands of currency units)
20X2 20X1
Surplus/(deficit) from ordinary activities X X
Non-cash movements X X
Depreciation X X
Amortization X X
Increase in provision for doubtful debts X X
Increase in payables X X
Increase in borrowings X X
Increase in provisions relating to employee costs X X
(Gains)/losses on sale of property, plant, and equipment (X) (X)
(Gains)/losses on sale of investments (X) (X)
Increase in other current assets (X) (X)
Increase in investments due to revaluation (X) (X)
Increase in receivables (X) (X)
Extraordinary item (that falls within the definition of operating (X)
activities)
Net cash flows from operating activities X X
Recommendation #8: Governments should be encouraged to operate their budgeting and

accounting systems on the same basis. If the budgetary system is on a different basis than
the accounting system, a statement should be developed to reconcile key differences
between the two systems. Since the accrual financial reports include cash flow statements, a
reconciliation may be achieved by ensuring these cash flow statements articulate with the cash
budget. In those instances where the budgetary system is transitioning to accrual budgeting, a
separate reconciliation procedure with the accrual financial reports will be necessary. Further
guidance is needed on how an IPSAS should deal with comparisons if differences in the basis of
accounting were adopted in budget and historical financial reports.
Qualitative Characteristics of Financial Reporting

Budget reports would be expected to meet the qualitative characteristics of financial reporting
specified in IPSAS 1.31 These are discussed below:
Understandability
Budget reports should be clearly and concisely presented in sufficient detail in order for users to
comprehend its meaning. Taxing and spending policies of the government should be adequately
30
Paragraph 29, IPSAS 2 and Note (c), Appendix, p. 112, Cash Flow Statements.
31
Appendix 2, IPSAS 1 – Presentation of Financial Statements.
35
explained in the budget reports so that the average user, after due study, can apprehend the
economic impact of the entity’s activities and the environment in which it operates. Complex
economic concepts should not be excluded from the financial statements merely on the grounds
that it may be too difficult for certain users to understand.
Relevance
Information included in the budget reports should be provided in a timely manner and relevant to
the decision-making needs of users by helping them evaluate past, present, or future events. To
prevent information overload, only the information that is material to the user’s needs should be
included in the budget reports. Materiality implies that omission or misstatement of information
could influence the decisions of users or assessments made on the basis of the budget reports.
For example, information about financial position and past performance is frequently used as the
basis for predicting future financial actions in which users are directly interested. The ability to
make predictions on budget reports is enhanced, by the manner in which information on past
transactions and events is displayed.
Reliability
To be reliable, budget reports must be free from material error and bias so that they can be
depended on by users to represent faithfully that which they purport to represent. This implies
that information in budget reports be complete and presented in accordance with their substance
and economic reality; not merely their legal form. Further, the budget reports should be free from
bias and presented in such a manner that a user would not be unduly influenced in making a
decision or judgment in order to achieve a predetermined result or outcome. In addition,
preparers of budget reports do have to contend with the uncertainties that inevitably surround
many events and circumstances in which budget forecasts are made. Consequently, prudent
judgment needs to be exercised in making the estimates required under conditions of uncertainty.
Comparability
Users must be able to compare the budget reports of a governmental entity through time in order
to identify trends in their financial position and performance. In addition, users must be able to
compare the budget reports of different governmental entities in order to evaluate their relative
financial position, performance, and changes in net assets. An important implication of
comparability is that users be informed of the accounting policies employed in the preparation of
the budget reports, any changes in those policies and the effects of such changes.
Constraints on Relevant and Reliable Information

To be useful, budget reports must be presented in a timely manner. All information needed to
prepare complete and accurate budget reports may not be available in time for preparation of the
budget or legislative action may delay the approval of the budget. Conversely, if reporting is
delayed until all aspects are known, the information may be highly reliable but of little use to
users who have had to make decisions in the interim. In achieving a balance between relevance
and reliability, the overriding consideration is how best to satisfy the decision-making needs of
users. In addition, a balance must be maintained between benefit and cost to assure that the
benefits derived from the budget reports do not exceed the cost of providing it. Further,
36
professional judgment must be applied to achieve a balance between the qualitative

characteristics in order to meet the objectives of the budget reports.
Recommendation #9: Budget reports should meet the qualitative characteristics

(understandability, relevance, reliability, and comparability) of financial reporting
specified in IPSAS 1. In order to assure that these qualitative characteristics are achieved,
external validation (after considering the constraints on relevant and reliable information) of the
budgetary data by the external auditor will be necessary.
Developing a Conceptual Framework

As this research progressed, it became obvious that a conceptual framework was needed on
which to build an IPSAS or IPSASs on Budget Reporting. Such a framework could identify how
a new IPSAS (or IPSASs) would be used and by whom, as well as specify what the new IPSAS
would do and what specific guidance it would provide. An attempt in made in this section to
discuss some of the issues for such a framework.
The International Accounting Standards Board has not established accounting standards for
budgetary reporting by private sector entities. Budgetary reporting in the public sector is
different from and more significant than budgets of commercial entities for many of the
following reasons:
• Because many governments deal with non-exchange transactions, financial measures must
be combined with non-financial performance measures to provide a comprehensive model.
Budget standards must recognize the importance of such non-financial measures and
address how they are to be incorporated within budget reporting. In the public sector,
planned income and expenditure in future years together with information on unfunded
current and future priorities is as (if not more) important as historical actual to budget
reports. The attainment of projected service delivery, measured against predetermined
objectives, is also central to performance evaluation. Productivity in delivering outputs in
support of desired outcomes should be and can be measured by setting measurable
objectives in advance.
• Investment in and lending to commercial entities is voluntary with the major financial
consequences of the actions of those entities impacting on investors, lenders, employees,
customers, and suppliers. While governments may borrow, most funding comes from taxes,
fines and fees and is not usually provided voluntarily. Therefore, stakeholders in
government encompass a much broader range of constituents and the decisions made
impact on current and future generations. Consequently, information needs, on a planned
future, are as important as information needs on historical actual to budget performance.
• Options for the volume, nature and form of delivery of services in the public sector are also
wider and different than the private sector—for example, additional funds may be collected
to provide addition services. Alternatively, current collections and services may be
reduced. Possible service providers include the public and private sectors as well as
Public/Private Partnerships. The spending level, in itself, does not guarantee service
delivery and thus the provision of performance indicators on preset measurable objectives
are needed in much the same way as private sector shareholders may look to an Earnings
37
Per Share indicator. Budget reporting is not only about finance. It is also about meeting
measurable performance promises and about offering choice, in the prioritization of the use
of available funding, with the medium term fiscal framework.
There is then a sound basis for acknowledging that budget reporting (both ex-ante and ex-post)
fits within the public sector financial reporting conceptual framework, and should be developed
as that framework is developed. Budget reporting on historical and future budget allocations
enables stakeholder involvement in exercising choice in the setting of equitable share slices to
ministries. The reporting of budget needs, marginal priorities, and unfunded priorities support the
revenue collection decision. These and other characteristics could form the basis for identifying
issues that need to be addressed in budget reporting standards. The matrix in Appendix K is the
beginning of such an exercise.
At the present time, IPSAS 1 only encourages countries to prepare budget to actual comparative
schedules. Many countries routinely prepare such schedules for budgetary control purposes. If
the comparative schedules were required as part of the general purpose financial statements, they
would require external validation. This would provide users of the financial statements with the
assurance that the budgetary information is fairly presented and that budgetary authority had not
been exceeded unless otherwise annotated.
PSC Study 14 provides guidance on migration from a cash to an accrual basis of financial
reporting. A similar publication could provide guidance on the “reform path” to assist countries
further develop their budget formulation and execution processes and to adopt “best practices” as
recommended and updated, from time to time. Such a guide would give leadership, alignment
and direction, as well as promote the achievement of the objectives and qualitative characteristics
set out earlier in this Research Report.
The allocation of funding between governmental units is mostly a subjective decision driven by
policy and political priority on disparate needs, productivity improvements, and functionality
growth. Disclosure of information about future financial commitments and financial
prioritization decisions could usefully be reported upon by the presentation of a management
report. A report of progress against the “Code of Good Practices on Fiscal Transparency” as
presented in Appendix B and the “Best Practices in Public Budgeting” as presented in Appendix
C of this Research Report could also usefully be included in such a management report.
Recommendation #10: Budget reporting should be incorporated into the conceptual

framework for IPSASs. The recommendation in this Research Study to require the reporting of
financial actual to budget performance is but one aspect of concern to stakeholders on budget
matters. Reporting on the planned future is as important as reporting on the past. A case study on
South Africa has been published by the International Consortium of Governmental Financial
Managers32 to demonstrate the actions taken in one country to strengthen budget reporting.
32
See http://www.icgfm.org/digest.htm, Vol. IV, No. 1, 2004 for article by Alan Mackenzie titled “Case Study on
South Africa.”
38
Issues Raised by Steering Committee Members

Definition of Budget Reporting.
There was a difference of views among Steering Committee members as to what was meant by
budget reporting. Some members felt that budget reporting included the budgets submitted to and
approved by the legislative body during the budget formulation stage. Some members believed
that budget reporting included the budget to actual comparisons made during the fiscal period in
the budget execution stage. Other members felt that budget reporting only related to the final
approved budget as compared to the actual revenues and expenses for the entire budgetary period
(the budget reporting stage). While conducting due process through Invitations to Comment or
Exposure Drafts for an IPSAS (or IPSASs) on Budgetary Reporting, these positions need to be
clarified.
Inclusion of Ex-ante Budget Reports in an IPSAS.

The position taken in this Research Report is that budget reporting referred to the external
reporting of the budget approved by the legislative body at or near the beginning of the fiscal
period as well as the external reporting of the financial activities relative to the enacted budget
for the fiscal period until the final audit after the end of the fiscal period. The approved budget is
generally issued as a separate report at or near the beginning of the fiscal period while the budget
to actual comparative statement is generally issued as a component of the historical financial
statements.
Coverage of Budgetary Execution and Control Procedures.

Current best practices in budget formulation, execution and reporting among international
financial institutions and developed countries indicate a high degree of consistency in those
practices. However, the Steering Committee members generally felt that the budget formulation
and execution practices reflect significantly different administrative arrangements as well as
political, institutional and cultural systems and processes. Consequently, accounting standards
for budget formulation and execution would probably not be beneficial except to ensure that data
collected through the use of budgetary accounting procedures will support the preparation of the
budget with the financial information desired for comparison to actual performance. Further, the
use of commitment accounting procedures for budgetary control purposes should be clarified.
Inclusion of Ex-post Budget Reports in an IPSAS and Format of Comparative Statements.

There was a high degree of consensus among Steering Committee members for an accounting
standard on ex-post budget reporting. Further, it was believed that such a standard falls within
PSC’s mandate for general purpose financial statements and that it meets the qualitative
characteristics of financial reporting (i.e., understandability, relevance, reliability, comparability,
and constraints on relevant and reliable information). However, the format of such a statement
needs to be clarified.
39
Country specific laws33 and accounting standard setters (i.e., Croatia, France, Ghana, Honduras,
Nigeria, Sweden, Tanzania, Uganda, United Kingdom, United States and many others)
encourage the preparation of comparative “budget to actual” financial statements. In addition,
such a standard would permit comparability of budget reports over time and between
governments. For such comparisons to be beneficial, disclosures in the general purpose financial
statements would need to identify the basis of accounting used for the budgetary reports and
whether they were in compliance with the cash or accrual IPSASs. Additional information would
be needed to identify the government business enterprises included in the budget, as well as the
functions (identified in the GFS Manual) included within general government.
Reconciling Budgetary Basis and Accounting Basis Where Differences Exist.

In those instances where the budget is prepared on a basis (i.e., cash) different than the
accounting basis (i.e., accrual), the Steering Committee members believed the proposed
accounting standard should identify the need for a reconciliation between the cash
increase/(decrease) projected in the budgetary report and the net surplus/(deficit) reflected in the
Statement of Financial Performance. Such a reconciliation would disclose the cause for the
differences between the cash and accrual basis of accounting. However, there was no consensus
that the budgetary reports should address the recognition and measurement requirements of the
existing IPSASs in the budget context.
Assuring That Qualitative Characteristics of Financial Reporting Are Met.

The Steering Committee members felt that the standards would need to be explicit enough to
provide guidance to preparers of budget reports that will meet the qualitative characteristics
identified in IPSAS 1. These budget reports could be subject to external audit by the auditor if
specified as general purpose financial statements.
Developing a Conceptual Framework.

Substantial input was provided by Steering Committee members to assure that budget
reporting was incorporated into a conceptual framework for IPSASs. Such a framework
would then provide the guidance needed in the development of future standards pertaining
to the extremely critical area of budget reporting.
33
See Appendix L for highlights of the Budgetary Law in Sweden, Appendix M for Budget Preparation
Procedures in Denmark, and Appendix N for Budget Procedures in France.
40
Research Report
Budget Reporting
Appendices
41
APPENDICES
APPENDIX A
TERMS OF REFERENCE
INTERNATIONAL FEDERATION OF ACCOUNTANTS PUBLIC SECTOR
COMMITTEE STEERING COMMITTEE PROJECT BRIEF
Budget Reporting – Stage 1

Background
The Budget
Most, but not all, governments prepare and issue as public documents, or otherwise make
publicly available, their annual financial budgets. For many/most jurisdictions these budgets are
prepared on a cash or near cash basis.
The budget documents are widely distributed and promoted. They reflect the financial
characteristics of the government’s plans for the forthcoming period and are used for analysis of
the consequences of those plans for the economy. Making budget data publicly available is
necessary to enable transparent reporting of the government’s financial intentions. Reporting
period results against the budget for the same period is a necessary component of any
accountability regime. It enables the Government to communicate to its constituents the extent to
which performance and plan coincide and to explain any differences therein.
In many respects, and for many external users, the budget documents are the most important
financial statements issued by governments.
The budget also serves as a key tool for financial management and control, and is the central
component of the process that provides for government and parliamentary (or similar) oversight
of the financial dimensions of operations.
Government budgets are approved by the legislature and compliance is a legal matter. While
administrative arrangements can differ from jurisdiction to jurisdiction, in most cases, spending
units have no authority to commit or spend government funds until the legislation imparting
spending authority (the budget) has been passed by the legislature.
International Public Sector Accounting Standards

International Public Sector Accounting Standards (IPSASs) deal with issues related to the
presentation of annual general purpose financial statements. General purpose financial
statements are those intended to meet the needs of users who are not in a position to demand
reports tailored to meet their specific information needs. Users of general purpose financial
statements include taxpayers and ratepayers, members of the legislature, creditors, suppliers, the
media, and employees. General purpose financial statements include those that are presented
separately or within another public document such as an annual report. The objectives of general
42
APPENDICES
purpose financial statements are to provide information useful for decision-making, and to
demonstrate the accountability of the entity for the resources entrusted to it by:
The Issues
(a) Whether Budget Reporting is an issue that the PSC should deal with
The IPSASs currently on issue do not address the presentation of budgetary/forecast financial
information, nor require the disclosure of information that enables users to determine whether
actual financial results are broadly consistent with previously issued budgets or forecasts.
Given the widespread practice in the public sector of publicly reporting and commenting on
budgetary information, a strong case can be made that government budgets are general purpose
financial statements (see above) and there is a need for an IPSAS to be developed on the
financial reporting of budget information.
While there may be strong support for such an IPSAS, there are different views on:
• Whether the preparation of such an IPSAS is within the mandate of the PSC; and
• If within the PSC’s mandate, the matters that should be dealt with by such an IPSAS and the
nature and extent of its “requirements.”
(b) The nature of any IPSAS that might be developed
As noted below, there are also differing views and arguments on the matters that should be dealt
with by such an IPSAS, and the nature and extent of the requirements of any IPSAS.
Budget Formulation
Some may be of the view that in the interests of better financial management the PSC should
issue an IPSAS, or at least a best practice guide, on matters including:
• Budget formulation, definition and classification; and
• Budget reporting and use as a management tool.
However, others note that such an exercise is unlikely to be practicable given that budget
formulation requirements and practices are developed within a legislative framework and reflect
different administrative arrangements and political, institutional and cultural systems and
processes.
General Purpose Financial Reporting–Presentation

Some are of the view that an IPSAS should not deal with issues of budget formulation or
classification for internal financial management purpose. Rather it would deal only with:
• How budget data should be presented in budget reports that posses the characteristics of
general purpose financial statements as noted above; and
• The relationship between budget reports and historical financial statements and how budget
execution should be reported in historical financial statements.
43
APPENDICES
An IPSAS developed on this basis could include requirements directed at such matters as:
• Ensuring that the principles underlying the preparation of the budget were clearly
communicated to readers, including;
o clear explanations of the scope of the budget including whether, for example, the budget
encompassed all government operations or only those traditionally designated as “general
government” in GFS or similar statistical classifications;
o whether the budget was prepared on a cash, accrual or other basis; and
o whether the principles adopted for recognition, classification and disclosure in the budget
papers reflected those in the cash or accrual IPSASs;
• Enhancing the comparability of budget reports over time and between governments (or in
enabling users to identify the major sources and effects of differences);
• Enhancing the comparability of the budget with historical financial reports encompassing the
budget period.
General Purpose Financial Reporting – Recognition and Measurement Rules
Some are of the view that an IPSAS on presentation of budget reporting should go further and
deal with the application of the recognition and measurement requirements of the existing
IPSASs in the budget context. The budget reporting IPSAS would then:
• Deal only with general purpose budget reports;
• In respect of budgets prepared on the accruals basis, include requirements on the application
of the definition and recognition criteria for assets, liabilities, revenues and expenses in
“forward” budgets, the presentation of such information and related disclosures; and
• In respect of budgets prepared on the cash basis, include requirements on the basis on which
projected cash receipts and payments should be included in the budget report, the
presentation of that report and the additional disclosures that are required and encouraged.
Project Objectives
The Project is to be developed in two stages as follows.
Stage 1
The preparation of a research report to identify:
• Current best practices in budget formulation and reporting under differing budget models and
government administrative arrangements;
matters falls within the PSC’s mandate;
accounting standards setter to deal with budget reporting issues; and
matters which should appropriately be dealt with by that IPSAS.
44
APPENDICES
Stage 2
Based on the results of Stage 1 above, and with the agreement of the PSC, prepare an Exposure
Draft of an IPSAS.
The specific matters to be addressed in Stage 2 will not be developed until the results of Stage 1
emerge.
Steering Committee
A Steering Committee will be established to assist in the progress of this matter.
The stages in the development of the IPSAS, the process to be adopted by the Steering
Committee, the responsibilities of the Steering Committee and its relationship to the PSC are
outlined in PSC Steering Committees: Terms of Reference and Operating Procedures.
The issues identified are intended to serve as a broad guide to the Steering Committee to assist it
in scoping its task. These matters may be varied by the Steering Committee with the agreement
of the PSC. The PSC acknowledges that as the Steering Committee researches the issue in depth
and develops its guidance it may determine that certain matters identified should not be further
progressed at this time and may identify other matters that will need to be dealt with.
It is anticipated that the Steering Committee will not formally meet during stage 1 of the project
but will conduct its business electronically.
Project Timetable
The Project is to be developed in two stages as follows.
Stage 1
2003 Complete Research Report.
Stage 2
2004 Subject to recommendations of the Research Report, commence development of
Exposure Draft. Issue and review responses to Exposure Draft and develop IPSAS.
2005 Issue IPSAS, as appropriate.
Matters to be addressed
Stage 1
The examination of the relationship of budget reporting to the PSC’s mandate will include an
analysis of PSC terms of reference and a review of what other standards setters do in this area:
GASB, FASAB, AASB, NZ-FRSB, IASB, UK Treasury etc. This would include any
initiatives/plans in respect of reporting projected/prospective financial information.
In the first instance, the survey countries will be focused based on advice from appropriate
sources of instances of “best practice.” The first round survey will include the following
countries (a selection of countries from the PSC members: USA, UK, France, Norway, Hong
Kong, Germany or Netherlands, and Australia or New Zealand. Advice from USAID, OECD
etc.) Then one developing country influenced by those models.
45
APPENDICES
APPENDIX B
IMF CODE OF GOOD PRACTICES ON FISCAL

TRANSPARENCY
Extracted from IMF website— http://www.imf.org/external/np/fad/trans/index.htm.
Countries are encouraged to implement the following Code of Good Practices on Fiscal
Transparency. The Code is based around the following key objectives: roles and responsibilities
in government should be clear; information on government activities should be provided to the
public; budget preparation, execution, and reporting should be undertaken in an open manner;
and fiscal information should attain widely accepted standards of data quality and be subject to
independent assurances of integrity.
The Code sets out what governments should do to meet these objectives in terms of principles
and practices. These principles and practices are distilled from the IMF's knowledge of fiscal
management practices in member countries. The Code will facilitate surveillance of economic
policies by country authorities, financial markets, and international institutions. Guidelines to the
implementation of the Code are provided in a supporting manual, which has been revised in line
with the changes in the Code, and updated in a number of areas.
The Code acknowledges diversity across countries in fiscal management systems and in cultural,
constitutional, and legal environments, as well as differences across countries in the technical
and administrative capacity to improve transparency. Most countries have scope for
improvement in some aspects of fiscal transparency covered in the Code. Diversity and
differences across countries, however, inevitably imply that many countries may not be able to
move quickly to implement the Code. Moreover, it is recognized that there may be a need for
technical assistance if existing fiscal management practices are to be changed. The IMF, together
with other international organizations, will give some priority to providing technical assistance to
those countries that need help and are strongly committed to improving fiscal transparency.
46
APPENDICES
Revised Code of Good Practices on Fiscal Transparency

I. Clarity of Roles and Responsibilities
1.1 The government sector should be distinguished from the rest of the public sector and
from the rest of the economy, and policy and management roles within the public sector
should be clear and publicly disclosed.
1.1.1 The structure and functions of government should be clearly specified.
1.1.2 The responsibilities of different levels of government, and of the executive branch, the
legislative branch, and the judiciary, should be well defined.
1.1.3 Clear mechanisms for the coordination and management of budgetary and extrabudgetary
activities should be established.
1.1.4 Relations between the government and nongovernment public sector agencies (i.e., the
central bank, public financial institutions, and nonfinancial public enterprises) should be based
on clear arrangements.
1.1.5 Government involvement in the private sector (e.g., through regulation and equity
ownership) should be conducted in an open and public manner, and on the basis of clear rules
and procedures that are applied in a nondiscriminatory way.
1.2 There should be a clear legal and administrative framework for fiscal management.
1.2.1 Any commitment or expenditure of public funds should be governed by comprehensive
budget laws and openly available administrative rules.
1.2.2 Taxes, duties, fees, and charges should have an explicit legal basis. Tax laws and
regulations should be easily accessible and understandable, and clear criteria should guide any
administrative discretion in their application.
1.2.3 Ethical standards of behavior for public servants should be clear and well publicized.
II. Public Availability of Information

2.1 The public should be provided with full information on the past, current, and projected
fiscal activity of government.
2.1.1 The budget documentation, final accounts, and other fiscal reports for the public should
cover all budgetary and extra-budgetary activities of the central government, and the
consolidated fiscal position of the central government should be published.
2.1.2 Information comparable to that in the annual budget should be provided for the outturns of
the two preceding fiscal years, together with forecasts of the main budget aggregates for two
years following the budget.
2.1.3 Statements describing the nature and fiscal significance of central government contingent
liabilities and tax expenditures, and of quasi-fiscal activities, should be part of the budget
documentation.
2.1.4 The central government should publish full information on the level and composition of its
debt and financial assets.
47
APPENDICES
2.1.5 Where sub-national levels of government are significant, their combined fiscal position and
the consolidated fiscal position of the general government should be published.
2.2 A commitment should be made to the timely publication of fiscal information.
2.2.1 The publication of fiscal information should be a legal obligation of government.
2.2.2 Advance release date calendars for fiscal information should be announced.
III. Open Budget Preparation, Execution, and Reporting

3.1 The budget documentation should specify fiscal policy objectives, the macroeconomic
framework, the policy basis for the budget, and identifiable major fiscal risks.
3.1.1 A statement of fiscal policy objectives and an assessment of fiscal sustainability should
provide the framework for the annual budget.
3.1.2 Any fiscal rules that have been adopted (e.g., a balanced budget requirement or borrowing
limits for sub-national levels of government) should be clearly specified.
3.1.3 The annual budget should be prepared and presented within a comprehensive and
consistent quantitative macroeconomic framework, and the main assumptions underlying the
budget should be provided.
3.1.4 New policies being introduced in the annual budget should be clearly described.
3.1.5 Major fiscal risks should be identified and quantified where possible, including variations
in economic assumptions and the uncertain costs of specific expenditure commitments (e.g.,
financial restructuring).
3.2 Budget information should be presented in a way that facilitates policy analysis and
promotes accountability.
3.2.1 Budget data should be reported on a gross basis, distinguishing revenue, expenditure, and
financing, with expenditure classified by economic, functional, and administrative category. Data
on extra-budgetary activities should be reported on the same basis.
3.2.2 A statement of objectives to be achieved by major budget programs (e.g., improvement in
relevant social indicators) should be provided.
3.2.3 The overall balance of the general government should be a standard summary indicator of
the government's fiscal position. It should be supplemented where appropriate by other fiscal
indicators for the general government (e.g., the operational balance, the structural balance, or the
primary balance).
3.2.4 The public sector balance should be reported when non-government public sector agencies
undertake significant quasi-fiscal activities.
3.3 Procedures for the execution and monitoring of approved expenditure and for collecting
revenue should be clearly specified.
3.3.1 There should be a comprehensive, integrated accounting system which provides a reliable
basis for assessing payment arrears.
48
APPENDICES
3.3.2 Procurement and employment regulations should be standardized and accessible to all
interested parties.
3.3.3 Budget execution should be internally audited, and audit procedures should be open to
review.
3.3.4 The national tax administration should be legally protected from political direction and
should report regularly to the public on its activities.
3.4 There should be regular fiscal reporting to the legislature and the public.
3.4.1 A mid-year report on budget developments should be presented to the legislature. More
frequent (at least quarterly) reports should also be published.
3.4.2 Final accounts should be presented to the legislature within a year of the end of the fiscal
year.
3.4.3 Results achieved relative to the objectives of major budget programs should be presented to
the legislature annually.
IV. Assurances of Integrity

4.1 Fiscal data should meet accepted data quality standards.
4.1.1 Budget data should reflect recent revenue and expenditure trends, underlying
macroeconomic developments, and well-defined policy commitments.
4.1.2 The annual budget and final accounts should indicate the accounting basis (e.g., cash or
accrual) and standards used in the compilation and presentation of budget data.
4.1.3 Specific assurances should be provided as to the quality of fiscal data. In particular, it
should be indicated whether data in fiscal reports are internally consistent and have been
reconciled with relevant data from other sources.
4.2 Fiscal information should be subjected to independent scrutiny.
4.2.1 A national audit body or equivalent organization, which is independent of the executive,
should provide timely reports for the legislature and public on the financial integrity of
government accounts.
4.2.2 Independent experts should be invited to assess fiscal forecasts, the macroeconomic
forecasts on which they are based, and all underlying assumptions.
4.2.3 A national statistics agency should be provided with the institutional independence to
verify the quality of fiscal data.
49
APPENDICES
APPENDIX C
BEST PRACTICES IN PUBLIC BUDGETING

Extracted from Government Finance Officers’ Association website
http://www.gfoa.org/services/nacslb/.
Principle I—Establish Broad Goals to Guide Government Decision Making

• Element 1—Assess Community Needs, Priorities, Challenges and Opportunities
o Practice 1.1—Identify Stakeholder Concerns, Needs, and Priorities
o Practice 1.2—Evaluate Community Condition, External Factors, Opportunities, and
Challenges
• Element 2—Identify Opportunities and Challenges for Government Services, Capital
Assets, and Management
o Practice 2.1—Assess Services and Programs, and Identify Issues, Opportunities, and
Challenges
o Practice 2.2—Assess Capital Assets, and Identify Issues, Opportunities, and
Challenges
o Practice 2.3—Assess Governmental Management Systems, and Identify Issues,
Opportunities, and Challenges
• Element 3—Develop and Disseminate Broad Goals
o Practice 3.1—Identify Broad Goals
o Practice 3.2—Disseminate Goals and Review with Stakeholders
Principle II—Develop Approaches to Achieve Goals
• Element 4—Adopt Financial Policies
o Practice 4.1—Develop Policy on Stabilization Funds
o Practice 4.2—Develop Policy on Fees and Charges
o Practice 4.3—Develop Policy on Debt Issuance and Management
o Practice 4.3a—Develop Policy on Debt Level and Capacity
o Practice 4.4—Develop Policy on Use of One-Time Revenues
o Practice 4.4a—Evaluate the Use of Unpredictable Revenues
o Practice 4.5—Develop Policy on Balancing the Operating Budget
o Practice 4.6—Develop Policy on Revenue Diversification
o Practice 4.7—Develop Policy on Contingency Planning
• Element 5—Develop Programmatic, Operating and Capital Policies and Plans
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APPENDICES
o Practice 5.1—Prepare Policies and Plans to Guide the Design of Programs and
Services
o Practice 5.2—Prepare Policies and Plans for Capital Asset Acquisition, Maintenance,
Replacement, & Retirement
• Element 6—Develop Programs and Services That are Consistent with Policies and Plans
o Practice 6.1—Develop Programs and Evaluate Delivery Mechanisms
o Practice 6.2—Develop Options for Meeting Capital Needs & Evaluate Acquisition
Alternatives
o Practice 6.3—Identify Functions, Programs, and/or Activities of Organizational Units
o Practice 6.4—Develop Performance Measures
o Practice 6.4a—Develop Performance Benchmarks
• Element 7—Develop Management Strategies
o Practice 7.1—Develop Strategies to Facilitate Attainment of Program and Financial
Goals
o Practice 7.2—Develop Mechanisms for Budgetary Compliance
o Practice 7.3—Develop the Type, Presentation, and Time Period of the Budget
Principle III—Develop a Budget Consistent with Approaches to Achieve
Goals
• Element 8—Develop a Process for Preparing and Adopting a Budget
o Practice 8.1—Develop a Budget Calendar
o Practice 8.2—Develop Budget Guidelines and Instructions
o Practice 8.3—Develop Mechanisms for Coordinating Budget Preparation and
Review
o Practice 8.4—Develop Procedures to Facilitate Budget Review, Discussion,
Modification, and Adoption
o Practice 8.5—Identify Opportunities for Stakeholder Input
• Element 9—Develop and Evaluate Financial Options
o Practice 9.1—Conduct Long-Range Financial Planning
o Practice 9.2—Prepare Revenue Projections
o Practice 9.2a—Analyze Major Revenues
o Practice 9.2b—Evaluate the Effect of Changes to Revenue Source Rates and Bases
o Practice 9.2c—Analyze Tax and Fee Exemptions
o Practice 9.2d—Achieve Consensus on a Revenue Forecast
o Practice 9.3—Document Revenue Sources in a Revenue Manual
51
APPENDICES
o Practice 9.4—Prepare Expenditure Projections

o Practice 9.5—Evaluate Revenue and Expenditure Options
o Practice 9.6—Develop a Capital Improvement Plan
• Element 10—Make Choices Necessary to Adopt a Budget
o Practice 10.1—Prepare and Present a Recommended Budget
o Practice 10.1a—Describe Key Policies, Plans and Goals
o Practice 10.1b—Identify Key Issues
o Practice 10.1c—Provide a Financial Overview
o Practice 10.1d—Provide a Guide to Operations
o Practice 10.1e—Explain the Budgetary Basis of Accounting
o Practice 10.1f—Prepare a Budget Summary
o Practice 10.1g—Present the Budget in a Clear, Easy-to-Use Format
o Practice 10.2—Adopt the Budget
Principle IV—Evaluate Performance and Make Adjustments
• Element 11—Monitor, Measure, and Evaluate Performance
o Practice 11.1—Monitor, Measure, and Evaluate Program Performance
o Practice 11.1a—Monitor, Measure, and Evaluate Stakeholder Satisfaction
o Practice 11.2—Monitor, Measure, and Evaluate Budgetary Performance
o Practice 11.3—Monitor, Measure, and Evaluate Financial Condition
o Practice 11.4—Monitor, Measure, and Evaluate External Factors
o Practice 11.5—Monitor, Measure, and Evaluate Capital Program Implementation
• Element 12—Make Adjustments as Needed
o Practice 12.1—Adjust the Budget
o Practice 12.2—Adjust Policies, Plans, Programs and Management Strategies
o Practice 12.3—Adjust Broad Goals, If Appropriate
52
APPENDICES
APPENDIX D
SECTIONS FROM EXISTING IPSASs PERTAINING TO

BUDGETS OR BUDGET REPORTING
IPSAS 1, Presentation of Financial Statements (May 2000), prescribes the following:
2. General purpose financial statements are those intended to meet the needs of users who are not
in a position to demand reports tailored to meet their specific information needs. Users of general
purpose financial statements include taxpayers and ratepayers, members of the legislature,
creditors, suppliers, the media, and employees. General purpose financial statements include
those that are presented separately or within another public document such as an annual report.
This Standard does not apply to condensed interim financial information.
13. The objectives of general purpose financial statements are to provide information about the
financial position, performance and cash flows of an entity that is useful to a wide range of users
in making and evaluating decisions about the allocation of resources. Specifically, the objectives
of general purpose financial reporting in the public sector should be to provide information
useful for decision-making, and to demonstrate the accountability of the entity for the resources
entrusted to it by:
(a) Providing information about the sources, allocation and uses of financial resources;
(b) Providing information about how the entity financed its activities and met its cash
requirements;
(c) Providing information that is useful in evaluating the entity’s ability to finance its activities
and to meet its liabilities and commitments;
(d) Providing information about the financial condition of the entity and changes in it; and
(e) Providing aggregate information useful in evaluating the entity’s performance in terms of
service costs, efficiency and accomplishments.
14. General purpose financial statements can also have a predictive or prospective role,
providing information useful in predicting the level of resources required for continued
operations, the resources that may be generated by continued operations, and the associated risks
and uncertainties. Financial reporting may also provide users with information:
(a) indicating whether resources were obtained and used in accordance with the legally
adopted budget; and
(b) indicating whether resources were obtained and used in accordance with legal and
contractual requirements, including financial limits established by appropriate legislative
authorities.
22. Public sector entities are typically subject to budgetary limits in the form of appropriations or
budget authorizations (or equivalent), which may be given effect through authorizing legislation.
General purpose financial reporting by public sector entities may provide information on whether
53
APPENDICES
resources were obtained and used in accordance with the legally adopted budget. Where the
financial statements and the budget are on the same basis of accounting, this Standard
encourages the inclusion in the financial statements of a comparison with the budgeted
amounts for the reporting period. (Emphasis added). Reporting against budgets may be
presented in various different ways, including:
(a) The use of a columnar format for the financial statements, with separate columns for
budgeted amounts and actual amounts. A column showing any variances from the budget
or appropriation may also be presented, for completeness; and
(b) A statement by the individual(s) responsible for the preparation of the financial statements
that the budgeted amounts have not been exceeded. If any budgeted amounts or
appropriations have been exceeded, or expenses incurred without appropriation or other
form of authority, then details may be disclosed by way of footnote to the relevant item in
the financial statements.
IPSAS 2, Cash Flow Statements (May 2000), prescribes the following:
29. Entities reporting cash flows from operating activities using the direct method are also
encouraged to provide a reconciliation of the surplus/deficit from ordinary activities with the net
cash flow from operating activities. This reconciliation may be provided as part of the cash flow
statement or in the notes to the financial statement.
64. Where appropriations or budget authorizations are prepared on a cash basis, the cash flow
statement may assist users in understanding the relationship between the entity’s activities or
programs and the government’s budgetary information. Refer to IPSAS 1 for a brief discussion
of the comparison of actual and budgeted figures. (Emphasis added.)
CASH BASIS IPSAS, Financial Reporting Under the Cash Basis of Accounting (January
2003), prescribes the following:
1.3.11. Entities preparing general purpose financial statements in accordance with this Standard
may disclose such information in the notes to the financial statements where that information is
likely to be useful to users. Where such disclosures are made they should be clearly described
and readily understandable. If not disclosed in the financial statements themselves, comparisons
with budget may also be included in the notes. Part 2 of this Standard encourages inclusion of
information about non-cash assets and liabilities and a comparison with budget in general
purpose financial statements.
2.1.33. An entity is encouraged to disclose in the notes to the financial statements:

(a) Information about the assets and liabilities of the entity; and
(b) A comparison with budgets.
2.1.36. Public sector entities are typically subject to budgetary limits in the form of
appropriations or other budgetary authority which may be given effect through authorizing
legislation. One of the objectives of financial reporting by public sector entities is to report on
whether cash was obtained and used in accordance with the legally adopted budget. In some
jurisdictions, this requirement is reflected in legislature. This Standard encourages the disclosure
54
APPENDICES
of a comparison of actual with the budgeted amounts for the reporting period. Reporting against
budgets may be presented in different ways, including:
(a) The preparation of a note with separate columns for budgeted amounts and actual amounts.
A column showing any variances from the budget or appropriation may also be presented
for completeness; and
(b) A statement by the individual(s) responsible for the preparation of the financial statements
that the budgeted amounts have not been exceeded. If any budgeted amounts or
appropriations have been exceeded, or payments made without appropriation or other form
of authority, then details may be disclosed by way of note to the relevant item in the
financial statements.
55
APPENDICES
Appendix 2, p. 78, Comparison with budgets (paragraph 2.1.33(b)), Cash Basis IPSAS
(in thousands of currency units Actual Budgeted Variance
RECEIPTS
Taxation
Income tax X X X
Value-added tax X X X
Property tax X X X
Other tax X X X
X X X
Aid Agreements
International agencies X X X
Other Grants and Aid X X X
X X X
Borrowings
Proceeds from borrowings X X X
Capital Receipts
Proceeds from disposal of plant and equipment X X X
Trading Activities
Receipts from trading activities X X X
Other receipts X X X
Total receipts X X X
PAYMENTS
Operations
Wages, salaries and employee benefits (X) (X) (X)
Supplies and consumables (X) (X) (X)
(X) (X) (X)
Transfers
Grants (X) (X) (X)
Other transfers (X) (X) (X)
(X) (X) (X)
Capital Expenditures
Purchase/construction of plant and equipment (X) (X) (X)
Purchase of financial instruments (X) (X) (X)
(X) (X) (X)
Loan and Interest Repayments
Repayment of borrowings (X) (X) (X)
Interest payments (X) (X) (X)
Other payments (X) (X) (X)
Total payments (X) (X) (X)
NET RECEIPTS/(PAYMENTS) (X) (X) (X)
56
APPENDICES
APPENDIX E
BUDGET PREPARATION PROCESS - KEY FACTORS

Based on The United Nations Development Program, Appendix 3, The Draft Country Assessment
in Accountability & Transparency Report, at http://magnet.undp.org/Docs/efa/CONTAC~1.htm,
February 1997.
Some of the key factors, which contribute to making the budget process effective in
practice, are outlined in this Appendix.
Transparency The budget documents should provide a clear link between objectives and
expenditures;
All participants in the budget process should be clear about their roles and
responsibilities;
Simple well documented procedures;
Well defined basis of budgeting e.g., incremental, zero based etc.
Departmental targets and resources allocated, clearly indicated and
explained.
Management Effective budgeting involves more than simply preparing annual budgets;
the management and monitoring of the budget is equally important.
Decentralisation It is potentially inefficient and may undermine the budget system for all
decisions to be made at the center.
Co-ordination Between all those involved in the budget process is required to ensure links
and Co-operation between recurrent and development budgets and the remainder of the
processes of the financial management system.
Integration Of recurrent and development budgets: the recurrent costs arising from
development projects need to be built into recurrent expenditure planning
and the trade-offs between recurrent and development expenditure
considered.
Flexibility The system should allow responses to changing circumstances: these
responses should be built into the system, so that implications of any
changes are sufficiently analysed and still fit within government’s overall
objectives and priorities.
Discipline Although the system should provide flexibility, there should also be
effective control over expenditures;
Any changes to the budget should be carefully analysed and justified;
Only limited use of Supplementary Estimates;
Penalties for breach of rules and regulations.
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APPENDICES
Link to Medium- Link between the resource framework of the National Development Plan
term Framework and the annual budget;
(National Link between the policies and priorities of the National Development Plan
Development and budget allocations.
Plan)
Accountability Political involvement: good links between politicians and civil servants;
and Credibility Involvement and accountability of senior managers in all stages of the
process;
If ministries do not believe that they will be held to their ceilings, or if they
can easily bypass normal procedures, the whole process of budgeting can be
undermined;
Budgets should be reliably close to the actual out-turn.
Comprehensive The budget process and documents need to include all revenues and
expenditures, including all aid funds;
The budget should also contain information on previous year’s and current
year’s expenditures;
Measuring the impact of the budget through output performance indicators
for recurrent and development expenditures.
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APPENDICES
APPENDIX F
WORLD BANK COUNTRY FINANCIAL

ACCOUNTABILITY ASSESSMENT (CFAA)
Explained on World Bank website— http://www1.worldbank.org/publicsector/cfaa.htm
Annex B. Key Issues to Examine

(i) External Fiscal Reporting and Transparency
Do the central budget office and spending ministries receive timely and accurate information to
enable them to monitor budget implementation? Do they act on this information?
Is this information provided according to the same classification as the budget construction?
Is there regular external reporting on budget implementation?
What is the quality and timeliness of the government’s annual external fiscal statements? Do they
reflect budgets results, extra-budgetary operations, information on assets and liabilities? Do they
exclude or not identify any significant parts of government activity?
What standards are used in their preparation – GFS, IPSAS or modifications of either? Are they
applied consistently?
Are the statements used for any accountability or decision-making purposes?
How reliable is the published information? Are the statements audited? Are any suspense
accounts reconciled/closed before end of the year? Is there a reconciliation between fiscal and
monetary data?
59
APPENDICES
APPENDIX G
GOVERNMENT FISCAL MANAGEMENT PROCESSES

AND INFORMATION SYSTEMS
Pages 6-7, Information Systems for Government Fiscal Management by Ali Hashim and Bill
Allan, The World Bank, 1999
Government Fiscal Management Information Systems Support

Processes
Macro Economic Forecasting Information Systems to Support Macro
Economic Forecasting
This process assists expenditure and resource
planning by developing a macroeconomic This group of systems assists the MOF with
framework linking the growth of national macro fiscal forecasting and development of the
income, savings, investment and balance of macroeconomic framework. This is in turn used
payments to public expenditures and by the MOF to advise cabinet on aggregate
revenues. The process helps in the budget parameters and guidelines for budget
development of: aggregates of the agencies to submit budget estimates. These
government budget. notably revenues, systems require data from external economic
expenditures, and the overall fiscal deficit databases, and the assumptions regarding GNP,
and its financing; the balance between the inflation rates, and the central government
capital and recurrent components of the deficit. In addition they require information on
budget: composition of expenditures by the programs and projects the government intends
main sector spending agencies; revenue to implement over the period of the MTEF, data
forecasts consistent with macro-economic on estimates of tax and non-tax revenues, data
assumptions; forecasts of non-tax revenues on domestic and external borrowings, for
based on macroeconomic projections; example, manpower component, the
estimates of resources available from maintenance and other operating expenses
domestic and external borrowings; maintained by other components of the GFM
projections of current expenditure. systems network.
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APPENDICES

Processes
Budget Preparation Information Systems to Assist in Budget

The process of budget preparation starts with Preparation and Approval
the development of a budget circular The Budget preparation systems receive
indicating economic prospects, broad policy details of ongoing and planned programs and
objectives, how the budget is expected to projects from the various line agencies,
attain them, and sectoral allocations/ceilings consolidate them, and produce from them the
consistent with the macroeconomic documents that form the basis of the
framework. The next step is the preparation negotiations between the line agencies and
and analysis of line agency expenditure central agencies (MOF). After finalization of
proposals and revenue forecasts and their the budget by cabinet, the systems produce the
consolidation into an annual budget document approved budget estimates. The systems
after a series of discussions at cabinet level, record and maintain the budgetary proposals
between line ministries, the MOF, the and income estimates of all government
budgetary committees of parliament and agencies and record any changes during the
approval by the legislature. These discussions budget preparation, approval and amendment
focus on how the budget proposals would processes. To assist in the evaluation of the
meet the policy objectives outlined in the budget proposals the system should be able to
budget circular, on inter-se priorities of the access and generate the baseline data on the
various proposals, the validity of the resource manpower component, the maintenance, and
requirements contained in these proposals and other operating expenses from the relevant
how they can best be accommodated in the past-year databases. Examination of the
overall budgetary envelope. capital expenditures requires data on the status
(physical and financial) of government-
approved projects, (both locally and foreign-
funded). The budget preparation systems need
to be supplemented with tools (such as those
for cost-benefit analysis, evaluation, and
performance measurement) that assist the
sector and core agencies in deciding between
alternative program proposals.
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APPENDICES

Processes
Budget Execution, Accounting, and Fiscal Information Systems for Budget Execution,
Reporting Accounting and Fiscal Reporting
This set of processes covers the functions These systems are the centerpiece of the GFM
associated with implementing the budget, systems network, the primary repository of
including the procurement of goods and financial data, and serve as the basis of the
services in accordance with budget estimates, governments Financial Management
the recording and accounting of all Information System (FMIS). These systems
government transactions, and development of are used to perform the processes associated
periodic reports to monitor the overall flow of with budget execution, monitoring and control
spending or use of appropriations over the to obtain the status of actual expenditures on
course of the year, highlighting major ongoing projects. These systems also monitor
deviations from the planned budget and and evaluate the overall budget
suggesting corrective measures. implementation processes and produce the
necessary fiscal reports. In addition, these
systems would provide useful financial
information to the line ministries, and
spending units (in their respective areas) to
enable them to better manage their work
programs.
Systems support is focused on four main
systems (1) budget and warrant control; (2)
accounts payable; (3) accounts receivable; and
(4) the treasury general ledger system (TLS).
Together they constitute the government’s Core
Accounting System. The first of these is
concerned with maintaining data on spending
authority. These systems maintain data on
approved budgeted appropriations (both capital
and recurrent), sources of financing for
programs and projects, budget transfers, and
supplementary allocations, fund releases
(warrants) against budgetary allocations over
the course of the year. The second and third
group of systems is used to process
transactions electronically as they occur, and
record data on commitments and actual
expenditures against budgeted allocations. The
TLS is used for compilation of summary
records for control and analysis.
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APPENDICES

Processes
Cash Management Cash Management System
This includes the processes of developing The cash management system assists
agency and central cash flow forecasts, the Government to maintain an up-to-date picture
release of funds to spending agencies, the of the government’s liquidity position and
monitoring of cash flows and expected cash cash requirements. It obtains information on
requirements, the issue and redemption of actual agency expenditures and cash balances
government securities for financing in government (including agency) accounts
government programs. from the general ledger. Revenue inflows,
borrowing, loan disbursements, treasury bills,
government bonds, and cash deposit
maturities are obtained either from the general
ledger or from the specific systems for these
areas, for example, the debt management
system. Using this information, the
government can decide on (a) budget ceilings
and fund releases to line agencies; and (b) the
timing of the issues and redemptions of
government securities to provide short-term
financing for shortfalls.
Debt Management Debt Management System

This process defines the tasks associated with These systems maintain information on public
maintenance of records on all contracted domestic and external borrowings. This
public debt on an individual loan basis and includes information contained in loan
classified according to source and type of documents and transactions and issues of
loan. This process also assists economic and government securities. In addition to
policy analysis by determining, for example, accounting information, these systems also
the debt implications of different fiscal and provide important information required in the
deficit financing policies by preparing formulation of fiscal policy such as forecasts
projections of debt service commitments of drawdown and debt-servicing liabilities,
under existing and anticipated contracts. and debt implications of various fiscal and
deficit financing policies. Payments related to
government borrowings are carried out by the
central system based on the data in the debt
management system. Loan receipts recorded
in government accounts are processed by the
central accounting system and then used to
update the debt database maintained by the
debt management system.
63
APPENDICES

Processes
Revenue Administration Systems for Revenue Administration
The process deals with formulation and This group of systems assists the government
administration of tax policies and covers the in the processes associated with formulating
actual levy and collection of revenues tax and tariff policies and the subsequent
including taxes and duties as laid down in collection of tax and non tax revenue. A
these policies, and the valuation and collection number of separate systems are involved in
of non tax revenues, such as stamp duties, this group: for example, those supporting the
user fees, charges for services etc. administration and collection of income taxes,
customs duties or VAT, and those supporting
the collection of various types of non-tax
revenues, such as stamp duties. The revenue
administration systems provide summary
information on revenue collections to the Core
Accounting Systems as shown in the diagram.
Revenues collected by the tax and customs
administration departments would be recorded
at an aggregate level in the TLS, and would be
reconciled with deposits made in the banking
system.
Systems to Assist in Fiscal Aspects of

Personnel Administration Personnel Management
This covers the activities associated with the The aspects of personnel management which
development and maintenance of are relevant from the point of view of GFM
government’s human resource policies are the processes associated with post
including manpower planning, complement management and complement control and
control, civil service pay and pension policies, with payroll and pension payments. The
the fiscal impact of these policies and their corresponding systems modules therefore
administration. form important elements in the GFM network
of information systems as shown in the
diagram. The payroll, pensions and employee
advances systems periodically post summaries
to the central system.
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APPENDICES

Processes
Auditing Systems to Support Auditing
The process deals with the analysis and Auditing takes place at two levels: internal
scrutiny of public, financial, and other audit at line ministries during the course of the
transactions to ensure the compliance with FY and external audit by the auditor general
government policies and procedures and to through random checks and on the final
ensure cost-effective use of public funds in accounts for the FY. These systems assist the
accordance with overall government priorities. internal and external audit agencies in their
functions
65
APPENDICES
APPENDIX H
COMMITMENT ACCOUNTING PROCEDURES

Page 123, Government Financial Reporting, Study 11, May 2000, IFAC Public Sector Committee
490. A commitment is generally acknowledged as the government’s responsibility for a future

liability based on an existing contractual agreement. Although there may be a contractual
agreement, the contract does not yet give rise to a present obligation. This is because no
exchange has yet taken place or, in the case of a non-reciprocal transaction, the payment is not
yet due. The obligation, and therefore the liability, normally arises on delivery of the goods and
services. For example, when an entity enters into a commitment to purchase or construct a
capital asset in the future, an obligation normally arises only when the asset is delivered or the
entity enters into an irrevocable agreement to acquire the asset. The difference between
commitments and liabilities is usually clear for contractual obligations. Classification may be
more difficult when obligations are embodied in legislation and some judgment may be required.
491. Commitments differ from contingent liabilities in that there is generally certainty that the
liability will occur, but the present obligation will not occur until a future reporting period. The
obligation is not dependent upon the outcome of an uncertain future event. At the point at which
the present obligation does occur, the item ceases to be a commitment and is recognized as a
liability.
492. Commitments may be disclosed in the notes or in a separate schedule. They are not
accrued as liabilities in the financial statements. Various international accounting standards
require the disclosure of commitments. IAS 1, Presentation of Financial Statements requires
business enterprises to disclose amounts committed for future capital expenditure. IAS 17,
Leases is an example of a standard that expands on the general disclosure requirement in IAS 1.
It requires the disclosure of commitments for minimum lease payments under finance leases and
under non-cancelable operating leases with a term of more than one year in summary form,
showing the amounts and periods in which the payments will become due.
493. Governments can readily report the types of commitments that businesses report such as
those related to purchase of goods and services to be provided as set out in existing contracts,
agreements or legislation.
494. An argument can be made that a government’s entire budget, once approved, can be
considered an expenditure commitment by the government. But disclosure of that “commitment”
would be of little use in the government’s financial statements. The amounts allowed for in a
government’s annual budget would be recognized as expenses by the end of the annual reporting
period.
495. Generally obligations arising from ongoing social programs would not be disclosed as
commitments as there is no legal obligation to make the payments in the future (although this
may vary between jurisdictions). Information on the government’s future obligations under
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APPENDICES
ongoing social programs is needed to assess future borrowing requirements and taxation levels
and the resulting impact on the economy; the long-term viability of social programs; and policy
options available to control or reduce spending or deficit levels. This information may be
disclosed in budget documents and/or financial statements.
496. Another alternative is to disclose information about only those commitments that are
abnormal in relation to the government’s financial position or normal course of “business,” or
that will have a significant effect on the need for revenue in the future.
497. Information about employment agreements is not disclosed as a commitment because

such agreements are in the normal course of business. Similarly, it could be argued that ongoing
social programs are in the normal course of the government’s business and need not be
highlighted unless there is a new program commitment or a significant change to expand existing
programs.
498. Some governments (e.g., the U.S. federal government) are required by law to project
future expenditure levels on the basis of existing policy and disclose this information.
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APPENDICES
APPENDIX I
COMMON DIFFERENCES BETWEEN GAAP AND

BUDGETARY BASIS OF ACCOUNTING
Extracted from “Relationship Between Budgetary and Financial Statement Information (1999)”
published by the Government Finance Officers Association of America on their website,
http://www.gfoa.org
The timing of revenue and expenditures may be different under the GAAP basis of accounting
than under the budgetary basis of accounting. For example, in GAAP accounting revenues are
recognized in governmental funds as soon as they are both “measurable” and “available”
whereas revenue recognition under the budgetary basis of accounting may be deferred until
amounts are actually received in cash.
Encumbered amounts are commonly treated as expenditures under the budgetary basis of
accounting while encumbrances are never classified as expenditures under the GAAP basis of
accounting.
Budgetary revenues and expenditures may include items classified as “other financing sources”
and “other financing uses” under the GAAP basis of accounting.
Under the GAAP basis of accounting, changes in the fair value of investments generally are
treated as adjustments to revenue, which commonly is not the case under the budgetary basis of
accounting.
Under the GAAP basis of accounting, expenditure is recognized for the net present value of
minimum lease payments at the time a government enters into a capital lease involving a
governmental fund. No such expenditure typically is recognized under the budgetary basis of
accounting.
There may be differences between the fiscal year used for financial reporting and the budget
period (e.g., the use of lapse periods in connection with encumbrances, project-length budgets,
grant budgets tied to the grantor’s fiscal year).
The fund balance used in GAAP financial statements may differ from the fund structure used for
budgetary purposes (e.g., debt service payments may be accounted for in the general fund for
budgetary purpose, but reported in a debt service fund in the GAAP financial statements).
The government’s budget document may not include all of the component units and funds
incorporated into the GAAP financial statements (e.g., a school district included in the GAAP
financial statements may not be incorporated into the budget).
Under the GAAP basis of accounting used in proprietary funds, the receipt of long-term debt
proceeds, capital outlays and debt service principal payments are not reported in operations, but
allocations for depreciation and amortization expense are recorded. Often the opposite is true
under the budgetary basis of accounting.
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APPENDICES
APPENDIX J
ILLUSTRATIVE BUDGETARY COMPARISON

STATEMENTS FOR THE UNITED STATES
Extracted from p. 267-273, GASB 34 Basic Financial Statements—and Management’s
Discussion and Analysis—for State and Local Governments, June 1999
Budgetary comparison schedules should be presented as required supplementary information

(RSI) for the general fund and for each major special revenue fund that has a legally adopted
annual budget. The budgetary comparison schedule should present both (a) the original and (b)
the final appropriated budgets for the reporting period as well as (c) actual inflows, outflows, and
balances, stated on the government’s budgetary basis. A separate column to report the variance
between the final budget and actual amounts is encouraged, but not required. Governments also
may report the variance between original and final budget amounts. Governments may elect to
report the budgetary comparison information in a budgetary comparison statement as part of the
basic financial statements, rather than RSI.
Sample City
Budgetary Comparison Schedule for the General Fund
For the Year Ended December 31, 2002
Budgeted Amounts Actual Amounts Variance with Final Budget

Original Final Budgetary Basis Positive (Negative)
Budgetary Fund
Balance, January 1
Resources (inflows)
Charges to appropriations
(outflows)
Budgetary Fund
Balance, December 31
Sample City
Statement of Revenues, Expenditures, and
Changes in Fund Balances—Budget and Actual for the General Fund
For the Year Ended December 31, 2002
Budgeted Amounts Actual Amounts Budget to GAAP Actual Amts

Original Final Budgetary Basis Over(Under) GAAP Basis
Revenues
Expenditures
Other Financing
Sources (Uses)
Special Item
Beginning Fund Balances
Ending Fund Balances
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APPENDICES
APPENDIX K
GOVERNMENT BUDGET CHARACTERISTICS

Prepared by Michael Parry (International Management Consultants) in an initial effort to
develop a conceptual framework.
Characteristic Consequent features Relevance for budget

standards
1 Constitutional 1.1 Generally, there is a constitutional/legal Budget reporting standards

and legal status requirement for an annual budget, and should set out model legal
frequently the format is to some extent requirements for budget
specified by law. documents as presented to the
legislature and made available
1.2 Budgets are laws, and must be passed
to the public.
through the legislature in accordance
with prescribed procedures.
1.3 Budgets provide legal authority for the

executive to incur expenditure within
specified ceilings and according to laid
down procedures.
1.4 Budgets provide legal authority to raise

revenues.
2 Political 2.1 Budgets define the fiscal stance of Budget reporting standards
significance government, borrowing and taxation should require transparent
policies, and spending priorities. These information that enables
decisions are the essence of politics. A informed political discussion.
government budget is not just a
management tool; it is also a political
statement.
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APPENDICES

standards
3 Multiple 3.1 Budgets are fiscal tools used for Budget reports need to reflect
purposes economic management. This is linked the multiple purposes of
to, but separate from the government’s budgets. Comments are linked
need to manage its own revenues and to the points in the preceding
expenditures. Fiscal policy often column:
conflicts with operational and social
3.1 Budget documents that
objectives.
provide transparent
3.2 Budgets are the tool by which policies information on fiscal
and plans are translated into operational impact of budget
activities.
3.2 Budget documents in a
3.3 Budgets are the management tool for format suitable for
allocating resources in accordance with translation into activities,
such plans, policies and the ongoing e.g. provide expenditure
requirements to fund a substantial information in a format that
government machine. accords with government
structures and
3.4 Budgets are a management tool to
responsibilities
achieve operational efficiency and value
for money in the execution of 3.3 Budget documents to
government activities. transparently identify
resource allocation
3.5 These multiple purposes are reflected in
decisions, for example to
the need to develop budget classification
programmes, geographic
methodologies that meet multiple
regions, by gender or
analytic requirements.
social group
3.4 Budget documents

particularly to facilitate ex-
post evaluation of value
for money
3.5 A published budget

classification document
that enables multi
dimensional analysis.
Budget information
available in formats
(spreadsheets, XBRL),
that facilitates analysis
71
APPENDICES

standards
4 Budget as driver 4.1 Because of the legal, political and multi This has a number of
of the financial dimensional nature of the government implications:
management budget, it drives the whole financial
Financial reports must
process management process. This contrasts
compare incurred to budgeted
with commercial budgets, which are little
expenditure.
more than forecasts, and where reported
results tend to be the driver. Need to be able to track
budgets as they change, e.g.
4.2 This, the structure of the accounting through virements or
system and especially the chart of supplementary budgets. What
accounts, is driven by the budget should be comparator in
classification. financial reports, original or
4.3 Budgets drive the business activities of modified (flexed) budget?
governments - the term “budget Chart of accounts must be
execution” describes the process. Hence based on budget classification.
the difficulty of achieving a demand
driven customer focus in government
activities.
5 Unrequited 5.1 There is no automatic link between Budgets need to clearly identify
revenues and revenues raised and funds expended - separate revenue raising and
expenditures these are separate policy decisions, i.e. expenditure decisions - these
they are unrequited. should not be “netted off”
because this obscures the
5.2 Hence the budget/accounting model is
separate decisions involved.
not an input-output model in the way it is
for commercial entities - this is a primary There is an issue of the extent
reason why financial management has to which performance measures
not historically had the significance in should be linked to, or
government that it has in commerce. incorporated in, the budget
process and reports.
5.3 The public sector has sought to address
this issue through the development of
non-financial performance measures.
6 Budget time 6.1 For most countries the legal budget Reporting standards need to
periods process is linked to the government recognise possible alternative
fiscal year. scenarios for relationships
between, and legal status of,
6.2 The recent recognition to move to a
annual and medium term
medium term budget framework is
budget documents.
typically not recognised in law. The issue
arises of the legal status of medium term Might recommend alternative
budget reports. approaches or just allow
alternatives.
72
APPENDICES

standards
7 Cash based 7.1 Cash budgets directly measure the fiscal This is a very fundamental
budget most impact of the budget, and can be directly issue, which is at the heart of
easily linked to translated into cash ceilings for budget much of the debate about the
fiscal impact execution and expenditure use of cash accounting for
and budget management. government. Indeed, it is
execution difficult to see how for any
7.2 This in part explains why cash budgeting
process country this can be adequately
has persisted despite the clear
addressed without starting from
inadequacies of cash accounting as a
the budget perspective.
financial management tool, and even in
some cases budgets continue to be For budget standards there are
cash based when accounting has moved a number of issues:
to an accrual basis.
Will the standards accept a
7.3 Hence an important need for standard different basis (cash or
setting is to address how accrual accrual) for budget from
budgeting can meet the requirement for accounting?
cash based information. If accrual based, what
7.4 Cash based budgets make meaningful additional reports are required
balance sheets impossible, but to (i) measure fiscal impact,
nevertheless much of the balance sheet and (ii) translate budgets into
information on assets and liabilities is expenditure ceilings?
essential for effective financial If cash based, what budget
management. How can this discrepancy reports are required on assets
be addressed? and liabilities (and contingent
liabilities)?
8 Multiple 8.1 The concept of stakeholders for The concept of transparency
stakeholders government financial information can be means the legitimate
seen as a multi-dimensional matrix. information needs of all
stakeholders needs to be
8.2 Levels of stakeholders can be seen in
recognised and information
terms of proximity to information - the
provided in a manner that
executive, legislature, government
facilitates their ability to interpret
officials, citizens with direct fiduciary
and analyse financial
relationships with government
transactions.
(taxpayers, suppliers), voters, all citizens
of the country.
8.3 External stakeholders, e.g. international
organisations (European Commission
for EU countries, IMF, etc).
8.4 Specific interest groups, e.g., poor
people, women, disabled.
73
APPENDICES
APPENDIX L
SWEDISH STANDARDS REGARDING ACTUAL TO

BUDGET REPORTING
Provided by Claes-Goran Gustavsson, a member of the Budget Reporting Steering Committee.
The Swedish standard setting procedures are very much linked to the legal framework. Basically
there has to be stipulations in law. There are no stipulations regarding accounting in the
constitution. For central government there are basic stipulations in the State Budget Act. These
concern the governments reporting obligations. GAAP shall be the basis for the accounts. As
regards agencies there are stipulations in a government ordinance. The Financial Management
Authority has issued supplementary regulations to the ordinances. Thus, the standards have the
form of regulations and are bound to specific formats.
With regards to regional and local governments, there is a basic law (Local Governments
Accounting Act) where GAAP is prescribed to be followed. The law also states that in case the
accounts diverge from standards given by a standard setting body for the local government sector
that shall be stated as well as the reasons for the divergence. As a consequence there is a standard
setting body established called the Local Governments’ Accounting Standards Council.
Local Governments Accounting Act

The law states: “The report of the directors will contain a statement of the outcome related to the
budget established for the running activities.” There are no further standards issued by the
council.
State Budget Act

Follow-up, forecasts and outcome
38 §
On at least two occasions in the course of the fiscal year, the Government shall submit forecasts
to Parliament concerning the outcome of state budget revenue and appropriations, and state debt.
The Government shall explain significant discrepancies between budget amounts and estimated
outcome.
39 §
At the latest four months after the end of the fiscal year, the Government shall submit a report to
Parliament on the preliminary outcome of state budget revenue and appropriations. The
Government shall explain significant discrepancies between budgeted amounts and the
preliminary outcome.
40 §
As soon as possible, but no later than nine months after the concluded fiscal year, the
Government shall have an annual report presented to Parliament. The annual report shall contain
74
APPENDICES
a statement of financial performance, a statement of financial position and a cash flow statement.
It shall also contain the final outcome of state budget revenue and appropriations.
Ordinance concerning the Annual Reports and Budget Documentation

Section 2. General provisions relating to the annual report
Art 1. The agency shall submit an annual report to the Government for the preceding financial
year no later than February 22 each year.
Art 4. The annual report shall consist of

• A performance report;
• A statement of financial performance;
• A statement of financial position;
• An appropriation report;
• A cash flow statement; and
• Notes.
The agency’s annual report shall also contain a summary of important information from the
statement of financial performance, the statement of financial position and the appropriation
report. The summary shall also contain information on the loan limit, appropriation credit and
certain key indicators. In its annual report the agency shall also provide information on other
circumstances of significance for the Government’s follow-up and appraisal of operations.
Section 6 Appropriation report and cash flow statement

Art 1. In the appropriation report the agency shall report on the outcome of the appropriations
that the agency has at its disposal and the income headings that the agency shall report on in
accordance with the breakdown made in the Government approval document or other decisions
of the Government, or the agency that has delegated the right of disposal. The outcome shall be
compared with the amount allocated or delegated per appropriation or appropriation item and
with the estimated amount for each income heading. An analysis shall be made of discrepancies.
The appropriation report shall also show the extent to which the agency, on the basis of special
authority granted to it, has ordered goods or services or approved grants, compensation, loans or
the like that will entail expenditure in following financial years but which are not covered by
appropriations at the disposal of the agency. The appropriation report shall also show how the
agency has complied with other financial conditions laid down by the Government.
75
APPENDICES
In supplementary regulations from the National Financial Management Authority, the

format of the Appropriation Report is prescribed:
Appro- Starting Budget To others From Used part With- Total Expend Revenue Final
priation carry allocation allocated government of drawals disposable -itures carry
over amounts reallocated admitted amount over
amount amounts exceeding amount
(Notice a carry over system greatly influences the format. Notice also that revenues are rare.
They normally are not accounted for against appropriations but in the statement of financial
performance.)
76
APPENDICES
APPENDIX M
BUDGET PREPARATION IN DENMARK

Provided by Christian Iver Svane, member of the Budget Reporting Steering Committee.
The Budget cycle

Institutions in the Budget Process
Establishing Budget preconditions
Setting up overall Budget targets
1. The Budget cycle

The Budget Preparation Process in Denmark follows generally the same pattern every year. In
the following this is illustrated through the Preparation of the Budget for the year 2004.
The Preparation of the Budget for 2004 began in early 2003, shortly after the Parliament in
December 2002 approved of the Budget for 2003, and while the spending ministries are putting
their final hand to the fiscal accounts for 2002.
This indicates that from the first preparations of the Budget Proposal it takes about 1 year before
the Parliament decides on the Budget and about 2½ years before the fiscal accounts can be
presented to Parliament.
In addition to this multi-year Budget, estimates for the fiscal year have been presented in the
appendixes to the previous three years Budgets.
The overall schedule is illustrated in the following table:
January Ministry of Finance examines Budget preconditions and proposes overall

Budget targets
Early February Break down of overall Budget targets to ceilings for consumption and
income transfers for each ministry
Early May Line ministries give their draft Budget Proposals to The Ministry of
Finance
May - June Ministry of Finance performs technical scrutiny of the Budget Proposal
and holds discussions with line ministries on the financing of new
initiatives etc.
August Last minute estimates of the economic situation and the influence on the
Budget Proposal
End of August Presentation of the Budget Proposal
Early September First Parliamentary discussion on the Budget Proposal
Early November End to political negotiations on the Budget Proposal
77
APPENDICES
Mid November Minister of Finance proposes the Governments amendments and changes
to the Budget Proposal (including the result of the political negotiations).
End of November Minister of Finance presents amendments due to a final estimate of the
economic situation and the influence on the Budget Proposal
Mid December Third and final Parliamentary discussion on the Budget Proposal
2. Institutions in the Budget Process

The Preparation of the central Government Budget in Denmark is done in co-operation between
several levels of Government. The different authorities play their own special role - not only in
the preparation of the Budget Proposal, but also in implementing the Budget, and controlling the
outcome.
• The authorities and the functions they perform can be found in every country. A closer
study will however show differences with regard to Procedures used in the Budget
preparation and appropriation Process, and during Budget implementation, follow-up and
control.
• Actual influence that the different authorities have at different occasions during the
Process.
This presentation will give an introduction to the authorities and their role in the Danish Budget
and appropriation system.
Parliament
The Parliament is the central appropriation authority. According to the Danish constitution no
expenditure may be paid without a prior appropriation from the Parliament, and no tax may be
collected if it is not decided in a law.
As for the Budget procedures the Danish constitution states that the Budget Proposal must be
presented to Parliament at the latest four month prior to the beginning of the fiscal year.
The Parliament cannot make its own Budget Proposal, but it is entitled to decide changes to the
Governments Budget Proposal before finally adopting the Budget.
The Parliaments Finance Committee functions as the appropriation authority during the fiscal
year. It is also in the Finance Committee discussions on the detailed contents of the Governments
Budget Proposal are taken. Usually the Parliamentary debate on the Budget Proposal follows a
broader perspective on the economic policy.
When the Budget Proposal has been adopted by Parliament and the fiscal year has begun,
changes to the appropriations in the Budget can be implemented through applications to the
Parliaments Finance Committee. Such applications must contain a full explanation to why a
change is necessary, how it will be financed e.g. through cuts in other appropriations or reserves.
Furthermore an application must bee approved by the Ministry of Finance before it can be sent to
the Finance Committee.
78
APPENDICES
This procedure makes the Danish appropriation system very flexible because most applications
to the Finance Committee are passed within 1-2 weeks. As a special Danish practice all
applications passed by the Finance Committee during the fiscal year are combined in one
supplementary appropriation-act by the end of the fiscal year.
Government
At Cabinet-level only a few general economic discussions are taken during the year. Generally
most economic discussions in the Government including Finance Policy and Economic
Programmes are taken in the Cabinets Economic Committee (a group of 6 ministers where the
Minister for Finance presides). In specific matters this Committee can call on other ministers.
In January the Cabinets Economic Committee decides on ceilings for the coming year (i.e.
spending limits for each ministry). This discussion also includes a broader economic discussion
on the global economic targets.
In June the Cabinet discusses the result of the Budget Preparation Process and decides on the
Budget Proposal for presentation to Parliament.
Ministry of Finance
The Ministry of Finance are coordination the Budget Process. It is the Minister of Finance who
presents the Budget Proposal to Parliament on behalf of all cabinet ministers.
Under the Danish system no cabinet minister can contact the Parliament or its Budget committee
in appropriation issues without a prior acceptance from the Minister of Finance.
The functions of the Ministry of Finance in the Budget Process can be divided into four major
tasks.
• To make Guidelines and Directions to be used by the spending ministries when drafting the
Budget.
• To collect draft Budget Proposals from the ministries and combine these to the final
Government Budget Proposal.
• To follow-up on Government revenue and spending and make economic forecasts and
calculations as preparation for Government decisions on economic policy.
• Through the Agency for Economic Management to ensure the accounting in the agencies
and to present the fiscal accounts after the end of the fiscal year.
The first three functions are necessary to ensure that the Minister of Finance has the background
to present a coherent economic policy based on actual projections of the Fiscal Balance for the
Central Government.
Due to practical considerations the functions of accounting are placed with the Agency for
Economic Management. This is to ensure the best possible use of computer technology, but also
due to financing considerations. In Denmark the Ministry of Finance does not make money
transfers to spending agencies. The agencies have access to draw directly on the Central Bank.
The accounting and payment systems gives the agencies regularly updated reports on how much
have been spent of the appropriation. These reports are also sent to the relevant ministry.
79
APPENDICES
Spending ministries
All Government administration in Denmark is based on the law of responsibility of each cabinet
minister. The law determines that the minister are politically responsible for all decisions taken
within his area, but does not prohibit a delegation of decision-power to lower levels within the
ministry.
This implies that all appropriations decided by Parliament are given to a minister. From this also
follows that every spending decision in the agencies are taken on the Ministers responsibility.
The spending ministries therefore have two major functions in the Budget Process.
• They have to present a draft Budget Proposal for the ministry and all its agencies to the
Ministry of Finance.
• They have to follow-up on the actual Budget and take action if an agency has difficulties to
keep the given appropriations.
If a spending ministry during the Budget follow-up finds it necessary to apply for a change to an
appropriation, the application and the financing must be approved by the Ministry of Finance
before it can be submitted to Parliament.
Spending agencies
The spending agencies are where the actual spending of the appropriations decided by
Parliament is done. In the Danish Budget system they are involved in several parts of the Budget
Process.
As mentioned above they operate on behalf of the relevant minister and on his responsibility. The
amount of decision-power delegated from the minister to the agencies can differ from ministry to
ministry. This also applies to spending decisions.
In most cases the Budget Process with in a ministry starts with the minister asking the different
agencies for draft Proposals to the Budget for their operations. Later in the Budget Process
agencies usually are asked to help in the Process of giving priority to marginal spending
reductions or expansions.
During the fiscal year the spending agencies have to control spending and follow-up on the
allocated appropriations. If this follow-up shows that the given appropriations are about to be
exceeded the agency must either take actions to reduce spending or apply for a raise of the
appropriation. Such an application cannot be sent directly to the Parliament Finance Committee,
but must go through the relevant minister and approved by the Ministry of Finance.
3. Establishing Budget preconditions

As mentioned in the first section the Budget Process begins approximately one year prior to the
beginning of the fiscal year.
80
APPENDICES
Before the actual drafting of the Budget Proposal can be set in work, several preconditions have
to be determined. These preconditions are all based on an economic analysis of the Danish
economy.
This analysis is first of all used to see what will happen if no policy-actions are taken. In other
words the analysis determines the statistical basis for the Budget preparation.
As an appendix to the Budget for the current year, multi-year budget estimates are presented to
Parliament.
In the multi-year budget estimates activity-based factors have already been implemented. Among
these are factors are demographic developments such as the number of old-age pensioners and
the number of students at higher education’s, but also other factors e.g. results of political
agreements on the number of police officers and the level of expenditure to foreign aid
programmes are implemented.
Furthermore the results of the latest economic analysis regarding cyclical expenditure i.e.
unemployment benefits and some social welfare programmes also are included in the multi-year
budget estimates.
What the new economic analysis provides are new estimates with regard to cyclical expenditure
and forecasts of the inflation.
As the multi-year Budget estimates are provided in the same price-level as the Budget for the
current fiscal year. It is important to have an estimate of the inflation to determine the price-level
for the coming fiscal year. Furthermore it is important that the same forecast of the inflation is
used in all ministries and agencies during the Budget preparation to ensure the consistency of the
Budget Proposal.
The economic analysis is the basis for forecasts of the inflation on

• Salaries and wages
• Working expenses
• Construction expenditure
• Entitlement expenditures (income transfers)
• Tax basis (for collecting income-tax, VAT etc.)
• Revenues (other than taxes)
The Ministry of Finance distributes these forecasts to all Government agencies from the
beginning of the Budget Process. Later on these Budget preconditions are only changed if an
economic analysis shows large and important deviations.
4. Setting up overall Budget targets

Since the mid-eighties the Budgetary Process in Denmark has been under reform and the
expenditure control strengthened. The general framework of the Budget Process is the setting of
81
APPENDICES
ceilings for each spending ministry, within which they have to present their Budget Proposal to
the Ministry of Finance.
The system of ceilings consists of two spending limits. One for consumption and one for income
transfers. Beneath the spending limit for consumption there is a special limit for salaries, and
beneath the limit for income transfers is a sub-limit for discretionary expenditure programmes.
An important part of the system with ceilings is that the allocation of the spending limit lies with
the spending ministries. The Ministry of Finance controls the overall spending limits and
whether the spending ministries keep their ceilings.
The Budget Process starts in the beginning of January with an evaluation of the latest economic
of the Danish economy with the purpose of establishing an acceptable overall expenditure level.
In the beginning of February the ceilings for the individual spending ministries are decided by
the Cabinets Economic Committee.
During the 1980s the main fiscal objective was to reduce and eliminate the deficit and at the
same time hold the non-cyclical expenditure at the same level in real terms. Due to demographic
changes this implied a strong fiscal policy. Since 1993 the fiscal objective has been re-evaluated.
Growth in non-cyclical expenditures must be beneath the growth in the economy and priority has
been given to deficit reduction and in the latest years with surplus to debt reduction.
It is to ensure that these fiscal objectives are in line with the proposed overall spending limit, that
the economic analysis are evaluated by the Ministry of Finance before the ceilings are prepared
and proposed to cabinet.
But apart from the economic analysis of the economy the Ministry of Finance also evaluates the
Budget for the current year with respect to technical aspects as:
• Expected change in expenditure due to demographic conditions
• Actual spending in the preceding year
• New estimates for income transfers
In this Evaluation Process the Ministry of Finance also takes into account the expected
expenditure development in the different spending programmes as presented in the multi-year
Budget estimates.
Furthermore the Budget for the spending ministries is evaluated aiming at finding spending
programmes, where cuts can be proposed. Targeted cuts proposed by the Ministry of Finance
will however only become effective if the relevant spending ministry adopts them.
However the Ministry of Finance does incorporate the Proposals in the ceilings presented to the
Cabinets Economic Committee. This commits the spending ministries to incorporate the cuts,
come up with other Proposals or negotiate a raise to their ceilings.
82
APPENDICES
Finally an important part of the evaluation Process is to find the level of total expenditure that
can be accepted with the overall target of a growth in Government expenditure that is below the
growths in the economy in mind.
Based on the above-mentioned considerations and evaluations The Ministry of Finance prepares
a decision paper for the discussion in the Cabinets Economic Committee with Proposals of
ceilings for the different spending ministries.
A part of this decision paper is the allocation of possible targeted spending reductions or
proposed analysis of spending programmes.
The Cabinets Economic Committee decides to the decision paper in the beginning of February.
After deciding on the ceilings the spending ministries are given approximately three month to
prepare their draft Budget Proposal within the decided ceilings.
Upon receiving the draft Budget Proposals from the ministries the Ministry of Finance will make
analysis and technical scrutiny of the requests. A part of this Process is to make sure that Budgets
are kept within the ceilings.
83
APPENDICES
APPENDIX N
INFORMATION ABOUT THE FRENCH BUDGET

Provided by Sophie Mahieux, member of the Budget Reporting Steering Committee.
In France, like in other jurisdictions, the Government’s budget is primarily a document issuing
financial authorizations (revenue authorization, expenditure authorization), with corresponding
estimated amounts on the revenue side, or maximum amounts on the expenditure side.
Therefore, that legal document cannot be only considered as a prevision document, presenting
projections of revenue and expenses in the future, as it can be the case for a public or private
company.
The French budget’s structure is supported by two major presentations of the authorized
expenditures:
• Expenditures are presented by functions (defence, culture, foreign affairs, etc.),
• Expenditures are also presented by nature (personal, equipment, etc.)
The French budget covers the whole of central government. Other levels of government, and the
social security system, present their own budgets, based on different legal rules. In the French
case, central government means central administration and local branches of the central
administration. That also means that the budget is a “general budget,” melting all the
government’s revenue and all the government’s expenditure in the same document, with some
minor exceptions.
The French budget is based both on the cash basis and on the commitments basis (formulation
and execution stages). For reporting purposes, the financial statements are based on the accrual
basis, and present a reconciliation chart between budgetary cash execution and general purpose
financial statements, and between these elements and national income accounting charts.
The French budget is adopted on an annual basis, but a special report presents a multi-year
projection of expenditures and revenues. Changes in the budgetary scope are explicitly presented
each year.
During the year, the Supplementary Budget presents details on all the changes in appropriations
since the initial Budget Act.
Finally, the Budget Review Act shows the final outturn of the budget, compared with the initial
budget.
Performance indicators are to be in the budget step by step from now on to 2006.
84

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Public Sector Research Report

Committee May 2004

International Federation of Accountants

For more information, contact [email protected].

Government budgets are generally approved by the legislature. While administrative

Name Country Position

BUDGET EXECUTION AND CONTROL ................................................................................. 27

Issues Raised by Steering Committee Members

4. A decision to include ex-post budget comparative statements as part of general

Research Report on Budget Reporting

This study addresses the following:

The qualitative characteristics of financial reporting previously identified in IPSAS 12 will be

Management accounting and reporting of financial information in internal or special purpose

Exhibit 1. Budget Reporting Model

Exhibit 2: Matters to be Considered in the Budgetary Process

Stage Possible areas for consideration and guidance

• Classification of items –as defined in the chart of accounts

• Presentation and aggregation of data - linked to concepts of transparency

• Incorporation of non-financial performance targets

• Consistency of definitions between accounting and budget figures

• Incorporation of non-financial information

• Achieving transparency and accountability

Organization Original Budget Adjustments Modified Budget Actual Variance

Types of Budget Local State National

Types of Budget Reports Cash Modified Accrual

Consistency in Reporting Between Accounting and Budget Systems

Current Budget and Accounting Practices

Exhibit 3: Financial Management Goals and Criteria

format that facilitates understanding

public resources made accountable

legal and regulatory requirements

Those accountable for the use of

for their actions and stewardship

Proper use of public resources

Avoidance of corrupt practices

¾ Optimal resource allocation

In some jurisdictions, budget formulation and execution is a centralized function. In others, it is ¾

OECD/World Bank Survey of Current Budgetary Practices

Algeria Argentina Australia Austria

Budgeting, Accounting, and Financial Reporting

Number with a unified accounting and budget classification system 35

Assets not capitalized and depreciated:

Types of Data Reported in Budget Documents4

Budgeting and Reporting

Common standard for budgeting by national and sub-national governments:

Summary of Five African Countries

Summary of Nine European Countries and the European Commission (EC)

PSC Mandate on Budget Reporting and/or Other Budget Related Matters

International Public Sector Accounting Standards10

Budget Formulation and Ex-Ante Reporting

Prospective Financial Information and Medium Term Fiscal Framework (MTFF)—also

Annual or Biennial Budget Formulation

• Extra-budgetary spending should be brought onto budget. If this is difficult, comprehensive

Inter-Relationship between Accounting and Budgeting Systems

• The Bank’s development objectives, by facilitating a common understanding by the

Ex-Post Budget Reports

Part of General Purpose Financial Statements

• Assess the financial performance of the government or entity in its use of

Recommendation #6: Ex-post budget reports reflecting budget to actual comparisons