The Direction of Public Accounting Reform

ABSTRACT

Governmental Accounting in Japan is single entry- bookkeeping and cash basis. This causesthe following problems: (1) there is a tendency to delay expenditures and take 'superficial'efficient measures; (2) there is no linkage between cash flows and stocks in accounting; (3)accounting does not show a 'full picture' of fiscal condition in a jurisdiction due to a lack ofconsolidation; (4) financial reporting is seen less important than budget, and little feedback fromfinancial reporting to budgeting; and (5) it is difficult to calculate full costs of public services,and also life-cycle cost of a policy decision.

Although there have been many rigorous studies and analyses regarding governmentalaccounting reform in Japanese central and local governments, it seems that there are few studieswhich have put governmental accounting reform in a wider framework of public managementreform.

It is very suggestive to analyze and examine governmental accounting reform in New Zealand,the United Kingdom, and the United States to consider this issue.

Based upon advanced examples in the three countries and lessons from their experiences, thefollowing policy recommendations are made regarding Japanese governmental accountingreform: (1) introduction of accrual accounting should be put within a framework of 'results-oriented public management system'; (2) focusing on output-based management (i.e. accrualoutput-based budgeting and reporting, and output-based performance management); (3)introduction of Activity-Based Costing; (4) valuation of fixed assets on a current cost basis inprinciple; (5) even to a limited extent, introduction of capital charging regime; and (6)clarification of accountability relationship and incentive schemes