Accrual Reform in the Public Sector in China

Since the 1990s, the move to the accrual basis for government accounting and budgeting has been one of the main pillars of the on-going reform in international public finance. Analysis of the existing budget accounting system in China shows that transition to the accrual basis is essential to deepen current and future fiscal management reform. Cost-benefit analysis indicates that introducing the accrual basis can make government accounting information more comprehensive, transparent, consistent and sustainable, and thus reduce the financing costs of the government. The author suggests that conversion of the public accounts should follow a gradual, well-planned path, be harmonized with fiscal management reform, and take full account of the demand for information from within and outside of the government. A realistic option would be to apply a modified accrual basis to government accounting and a cash basis to the government budget. The sequence of reform would deal with financial assets and liabilities first, followed by real assets, then contingent liabilities and political promises. The scope for applying the accrual basis should reflect the principles of feasibility and ease of measurement. Simultaneously restructuring the government accounting system and developing accounting standards and a system for financial reporting are fundamental steps for the transition. Staff training, software development and legislative revisions are also necessary to the reform.