Resource Management in Education and Public Sector - Example

Resource Management in Education and Public Sector Student Name: Institution: Date: Introduction Accounting plays an integral role particularly in assuring effective management and exchange of resources. This is simply because the needed accounting information such as financial statements is provided for planning, decision-making as well as controlling the business activities (International Federation of Accountants, 2012). It is important to note that accounting, budgeting and auditing are critical tasks as far as the implementation of the public financial management cycle is concerned. This implies that accounting is a critical function for measuring and communicating the financial information to help in budgeting and auditing. Studies indicate that through the application of accounting techniques of geared to performance, a number of the accounting systems are made available in public institutions in their basic forms as cash accounting and accrual accounting (Biot-Paquerot & Rossignol, 2006). (a) The full accrual, modified accrual and cash budget Accrual and modified accounting techniques are key choices that most business utilizes when making decisions on how to report their transactional and expense information. However, in the broad category of accrual accounting, it is critical for the businesses to decide on whether to use full accrual or modified accrual. Full Accrual accounting provides accurate information concerning the current state of the organization. This type of accounting is a more expensive approach to financial management. Full accrual involves tracking transactions though actual cash flow is not recorded (Clare, 1994). This clearly indicates that in accrual accounting all transactions are recorded without including their actual money transfer. Modified Accrual is a financial management method that involves applying the techniques used in cash method accounting with those of the Full Accrual method. The method involves recording the income earned in the same way as it recorded under the full accrual method. However, expenses can only be recorded if the actual payment is made. For example, a business can purchase an asset but not count the expense until the actual cash is processed. Another important difference between full accrual and modified accrual methods is that the former is significant when a business intends to record all the expenses it incurs as well as the profit it makes, in particular when the actual transaction takes place. Thus, the accrual method proves to be timely and encourages a business to maintain a tighter control over the cash flow. The latter offers a timeliness of accrual technique though it enables the business to become more flexible, creating more opportunities for the business to make the necessary budget adjustments whenever faced with changes. As a result, it becomes easy for the business to report the costs incurred to either executives or directors as they actually occur. Therefore, it should be noted that modified accrual accounting values revenues provided they are made available and measurable. In addition, it recognizes expenditures particularly where liabilities are incurred (Carlin, T.M. (2005). Carlin (2005) argued that gaps exist in relation to how the implications of decisions are perceived concerning the many jurisdictions that are required to transform accounting, financial information reporting and management processes from cash-based to accrual footing. Carlin noted that little has been done to assess the impact of implementing accrual accounting as well as financial reporting in the public sector in regard to other reforms associated with public financial management. Such reforms include, capital charging, preparing and implementing the accrual-based budgeting (Carlin, 2005). It is relevant to argue that the diversity within the reformed financial information systems in the public sector created the need to harmonize international accounting standards. This provides the rationale for elaborating the International Public Sector Accounting Standards (IPSAS), and thus diversity exists on how the process of IPSAS as well as accrual accounting is adopted in the public sector. For example, certain governments still depend on cash-based accounting and just a few apply IPSAS. The shift to business accounting is a fundamental approach to new public management because contemporary governmental management requires valuable financial information. It can be argued that business accounting is important in reporting the needed financial information. However, the successful adoption of IPSAS depends on how its values are emphasized and the necessary conditions to achieving it are highlighted. One major condition is that practitioners need to acknowledge that in public sectors, rules of business accrual accounting cannot be substituted for IPSAS (Wanna, O’Faircheallough & Weller, 1999). Cash budget is also referred to as the forecast cash flows which indicates the receipts recorded at the budget period. It is important for the business to anticipate its cash position because employees need to be paid and effective taxation liability has to be settled on time. This means that those organizations that fail to address the two issues they are subject to irreparable loss of their reputation. Therefore, organizations include weekly and monthly cash forecasts in their budget period in accordance with their business operations. Institutions involved in financial management need to recognize that proper coordination is required between cash budget and the associated functional budgets. Basically, cash budget is prepared from information such as detailed estimates of both cash receipts and cash disbursement, time lag caused by transactions made on credit, items on revenue and expenditures. The main objective of planning and maintaining the cash budget is to keep the liquid position of an organization in a sounder manner to sustain it day-to-day obligations (Rabin, 1992). This implies that cash budgets are not necessarily prepared for performance evaluation. In case of droppings within the forecast for a period, appropriate adjustments can be made in the subsequent period. (b) Explanation of the issue of transparency International Public Sector Accounting Standards (IPSAS) if carefully implemented, they enhance transparency and accountability within the public financial management sectors. This is because government debt and liabilities can be effectively monitored to assess their true economic implications. Therefore, it is important for the governments and private sectors to adopt the most appropriate institutional arrangements that can promote transparency and accountability in the public and private sector financial management (Transparency International, 2003). Accrual-based accounting can be implemented through the use of International Public Sector Accounting Standards and should be at the center of such institutional arrangements. In addressing the issue of public interest, it becomes necessary to point out that governments are entrusted with the responsibility of enacting legislations, formulating as well as implementing relevant policies so as to effectively meet the needs of their citizens. This clearly suggests that all the decisions made and policies implemented in fulfilling these objectives must be directed towards the public interest. For example, governments possess coercive powers to collect and regulate tax, and thus money obtained through taxation should be allocated to national spending such as on paying wages to those employees who work in the public sectors, while capital is spent on construction of major infrastructures, for instance, roads and social amenities as a benefit to both the country and its citizens (Kopits & Craig, 1998). It is arguable that such a responsibility requires the governments to efficiently and effectively discharge their transparency and accountability by practically showing how they have utilized the national resources at their time disposal. It is important to note that unless robust, transparent and accountable efforts are made to ensure a consistent financial reporting and management is implemented, it becomes difficult to reliably determine whether the decisions made by the governments are to promote public interest. Therefore, public sectors are required to widely report as well as disclose financial information that proves to be of high quality. In doing so, the public sectors will adequately fulfill their accountability in order to provide the relevant information needed by investors. Poterba and von Hagen (1999) defined the process of transparent budget as one which offers clear information concerning the entire aspects that describe the government fiscal policy. They pointed out that budgets that include different special accounts without incorporating all the fiscal activities in a one bottom-line economic measure are considered not to be transparent. On the other hand, those budgets that are freely made accessible to both the public and other stakeholders involved in the policy-making process to report consolidated information, should be perceived as transparent. Based on the macroeconomic level and the rationale for ensuring fiscal transparency, it can be noted that a number of economic theorists support the idea that fiscal transparency results into positive effects particularly in terms of fiscal performance. Therefore, transparency within the government sectors is an integral requirement for the overall macroeconomic fiscal rectitude and sustainability as well as good governance (Kopits & Craig, 1998). Budget transparency plays an important role in strengthening the government institutions that offer public services to function more effectively. This implies that weak institutions are associated with poor governance that seems to be a complex task. However, it is quite apparent that transparency enables institutions to perform well and become publicly accountable. It cannot be doubted that accountability enhances service delivery in institutions that focus on the issue of transparency. This is because practicing transparency and accountability will encourage the functional independence of public institutions such as those involved in revenue administration and procurement services. Therefore, institutions that deal with financial information reporting and management should recognize that transparency helps them to create broad coalitions with their governments and civil society in order to support their mandates (Sekwat, 1997). To sum up the benefits of transparency based on stakeholder analysis, it becomes necessary to mention that civil society will focus on transparency so as require the government account for how it uses its revenues. Similarly, a government can only build good relations with its citizens as well as reduce borrowing rates within the global financial markets particularly for domestic and emerging markets if it can operate in a transparent manner. This clearly explains the rationale for contemporary companies acknowledging the significance of transparency in creating attractive environments for maintaining their credibility with local communities, consumers or investors. For the case of public sectors, it can be noted that ensuring that a proper governance structure is put in place to monitor the management of public resources is critical to channeling the resources in a more effective and transparent manner. This can be observed in those areas of the economy that focus growth and stimulate as well as broaden economic activities in a simultaneous manner (Transparency International, 2003). (c) Examples of reporting distortions or discrepancies whilst using specific accounting tools such as accrual versus cash Accounting techniques such as budgeting and financial reporting are expected to control business failures by enabling managers to develop realistic plans as guides to their managerial actions and provide them with feedback concerning their progress. This provides the view that financial records need to be of high quality, detailed and organized in financial statements as well as be utilized within the management process. However, this is not the case with all the accounting tools such as accrual-based and cash-based accounting various distortions occur during the organization of financial statements. This means that firm managers or public accountants are required to address reporting discrepancies associated with the use of accrual or cash accounting so as create different financial documents that can be used for accurate evaluation of the health status of their businesses (Commonwealth Department of Finance, 1994). Accrual-based accounting has been considered as the best method for accounting purposes. This is because cash-based accounting can cause distortions to the normal functioning of the business operations, and thus provide incorrect income reflections. For example, the interventions made by governments to control financial crisis and the associated economic recession, clearly reflects the effects that cash-based and accrual-based accounting will result into. This implies that cash deficits increases when the government decides to buy securities, spends on construction projects or makes loan. However, such transactions do not create any impact in cases where an accrued deficit is involved because they create other assets that can be used to offset cash payments. It becomes relevant to argue that accrual accounting effectively recognizes the contingent liabilities particularly when the government extends loan guarantees and insurance cover so as promote confidence as well as stabilize the financial markets. On the other hand, cash-based accounting pays no attention to such liabilities (Carlin, 2005). Based on the above discussion on how the governments may decide to control financial crisis and the associated economic recession, it is quite clear that cash-based accounting is not a method because it cannot offer the full information. However, if all the accrual transactions are reported in the accounting, a holistic picture of how the business operates would be reflected on the accounting reports. Cash-based accounting is only useful in providing liquidity information about an organization. Corbett (1992) examined that cases occur where revenues are reflected in a one period, but expenses are incurred in a different period. This means that documentation and calculation related to accrual accounting are not done immediately until appropriate adjustments have to be made. It can be argued that assessing the cash flow for either public or private sectors is difficult when using accrual accounting because there are complexities associated with calculations made in this method. For example, there might be an issue on deciding where to report a given item when using accrual accounting. Although cash accounting is helpful in managing taxes, being a general managerial tool implies that it cannot be used for accurate measurement of income, performance nor to calculate the accrual financial ratios based on cash income and the available expense information. It is arguable that recording transactions on the basis of the accrual accounting rather than the cash-based accounting would put at risk the capability of the business to focus on cash-based to report information about income tax (Sekwat, 1997). Conclusion Based on the above discussions on accounting techniques such as full, modified and cash budget accounting, it can be concluded that accounting and the associated reporting systems are important aspects. Such techniques must be given careful attention when preparing the budget and during decision-making to ensure stability and effective business operations. Full accrual and modified accrual accounting not only offer helpful information concerning how efficient are finances received, but also necessary in evaluating the operational efficiency the organization. Therefore, accounting is an important function for measuring and communicating the financial information to help in budgeting and auditing. References Biot-Paquerot, G & Rossignol, J-L., (2006). ‘Performance Management within the Public Sector: Introduction of the Process-oriented Performance Measurement scheme in French Universities’, 94 Dublin, Ireland. Carlin, T.M. (2005). Debating the impact of accrual accounting and reporting within the public sector. Financial Accountability & Management, 21(3). Clare, R. (1994). Accrual Accounting: fad or necessity? Directions in Government, 8(4), 30-32. Commonwealth Department of Finance. (1994). The new financial reports of agencies. Canberra: AGPS. Corbett, D. (1992). Public sector management in Australia (Chapter 5). Allen and Unwin. International Federation of Accountants (IFAC), (2012), IFAC Policy Position 4 March 2012. IFAC. Kopits, G & Craig, J, 1998, “Transparency in Government Operations,” IMF Occasional Paper 158. Poterba, J & von Hagen, J, (1999). Fiscal Institutions and Fiscal Performance, University of Chicago Press. Rabin, J. (Ed.). (1992). Handbook of public budgeting. New York: Marcel Dekker. Sekwat, A., (1997). “Public Budgeting Deficiencies in Sub Saharan Africa,” Journal of Public Budgeting, Accounting and Financial Management 9, pp. 143-161. Transparency International, (2003), available at Wanna, J., O'Faircheallough, C., & Weller, P. (1999). Reform of budgeting and financial management (Chapter 8, pp. 126-144). Public Sector Management in Australia (2nd ed.). South Yarra: Macmillan. Read More