Study Of Government Accounting Reform In View Of Fiscal Risk Management

Fiscal risk management is intensively connected with government accounting in many ways. Firstly, the accounting information about the government assets and debts is an important source of information for fiscal risk management. Secondly, financialpressure is one of the governments’ incentives to reform accounting in various countries. From the perspective of government accounting reform, the worse the financial pressure the country faces, the greater the motivation of the reform of government accounting. Thirdly, the government may adjust the volume and structure of its debts by issuing bonds, to match the scale and structure of government assets in order to reduce financial risk. The balance sheet of the government is the main file showing the overall government financial condition, operating results and cash flow, illustrating the status of government credit. A perfect government bond market cannot function properly without the government financial reports. The quality of government financial reports depend on the accounting standards that the government developed. Finally, with internal and external budget constraints, the fiscal opportunist behavior tends to be embodied in the various types of government contingent liabilities and implicit debts. The cash basis of government accounting provided the access and existence of hidden debts, covering up the financial risks to some extent. Therefore, a well-designed government accounting system can reflect and predict the financial risk profile, which is a basic method for fiscal risk management.Compared with western countries, our government accounting system is relatively backward, though playing a fundamental role in fiscal risk management at the time. Fiscal risk is managed in two aspects, as of debt and asset. Yet we can not provide realor reliable accounting information of assets and debts. The reasons are that the government accounting subject setting is not scientific, the government’s target of accounting position is not clear, as well as using cash for accounting basis, besides lack of unified government accounting standards. Government accounting should be reformed in the following directions:to introduce double-subject mode of government accounting entity with the subjects of "funds" and "organization" coexisting; to separate government fiscal budget accounting from government financial accounting, with the budget accounting and government financial accounting in a parallel mode of government accounting; to introduce accrual basis step by step, such as from government accounting to government budget, from local governments to the central government, from the modified accrual basis to the complete accrual basis. On that basis, we might set the budget accounting elements as budgetary fiscal revenues, public expenditures, and the budget surplus; and set the government financial accounting elements to assets, liabilities, net assets, revenues, and expenses. With the government balance sheet, operation table and the cash flow statement as the core, we may reconstruct government financial reporting system in our country.Based on existing research results of others, the text extends the study of the subject from the following aspects.First, the theoretical basis of the financial risks and government accounting. Government debt is objective, concentrating government financial risks. But the government debt itself doesn’t explain the financial risk status, while the key is whether it can match the government assets. Balance sheet approach of fiscal risk is the link of fiscal risk management to the government accounting. The government accounting reform means the process of model selection. The choices of accounting entity consists of two kinds,"organization" and "fund". The accounting goal determination deals with relationship of fiscal budget and accounting. Different model provides information with different emphasis under different accounting foundation.Second, evaluation of the role that the current accounting system has played in fiscal risk management. The cash basis led budget units to provide inaccurate information on assets and debts. Technically, the units with different accounting basis cannot provide a consolidated financial report. Since public finance, budgetary accounting in essence is especially for funds, physical assets are not counted. Those impedes government accounting from providing useful information in financial risk management. Those problems are caused by A) the unclear orientation of the government’s accounting target, B) unreasonable government accounting subject setting, C) use of cash basis.Third, illustrating we should choose "double-subject" mode of government accounting entity, i.e. fiscal budget accounting and government financial accounting parallel "double-track", with accrual accounting basis. When choosing mode of government accounting, we should learn from foreign advanced experience, but more important is the consideration of the specific national environment. By "double-entity", I mean both "fund" and "organization" model. To be specific, for those qualified for fund entity, use fund accounting mode, with fund as the accounting subject and as a reporting entity; for other government economic activities, use organization mode, unit as the accounting entity, with the unit as the subject in the accounting and reporting, while government as the report entity."Double track" government budget accounting model refers to a parallel type of fiscal budget accounting and public financial accounting. Budget accounting deal with the whole process of the government budget, reflecting both budget and its implementation, following the budget timing. Budget accounting, as cash accounting, counts cash only, not any physical assets. Government financial accounting counts all the economic activities, including the activities relevant or irrelevant to the annual budget, providing information about the yearly income and expenses, and information of assets, liabilities and net worth. Such information is very important for analysis of financial risk condition.Only under the accrual basis of accounting, government accounting information is the most reliable of assets and liabilities. However, the introduction of accrual accounting will bring a series of increased costs. By combining with the national accounting environment can we make the maximum benefit. The introduction of accrual accounting should be adopted step by step. The local governments need more information for public financial risk management than the central government. The accrual basis should be introduced in local governments’ debt accounting and assets accounting. Cash accounting for budget is the necessity at present in our country, we should introduce accrual basis in government accounting system. The accrual basis in government budget may delay, but the difference between government budget and government accounting should not be a long-standing.Fourth, reconstructing our country’s government financial reporting system. The government financial report consists of government financial statements and the notes to financial statements, produced by the government financial and accounting system. The government financial statements including balance sheet, operation table and the cash flow statement. The balance sheet elements include assets, liabilities and net worth, with operating table elements including revenues and expenses. The cash flow statement elements include the cash receipts, cash disbursements, and cash balances. Among them, the balance sheet and operating table are based on the same basis, accrual basis accounting, while the cash flow statement is based on cash basis. Government budget implementation is provided by the budget accounting system. Budget accounting elements are the fiscal revenues, public expenditures, and budget balance. It reflects the implementation of budgetary revenues and expenditures in cash basis. Information on budget implementation is a part of the government financial report.Fifth, fiscal risk can be divided into the generalized sense and the narrow sense. General fiscal risk stands for public risk, when narrow sense of fiscal risk for the financial risk of the government organization. Narrow sense of the fiscal risk can be embodied as short-term and long-term financial risks. Consolidated national balance sheet of each department of nation reflects the status of public risk. The public sector balance sheet is an important part of national balance sheets. Public sector balance sheet is divided into three levels:A) balance sheet on the basis of government accounting standards, B) including the government financial report notes of disclosure contents, C) including all the government assets and liabilities. Public sector balance sheet illustrates the status of narrow sense fiscal risk, among which balance sheet on the basis of government accounting standards lays more emphasis on government short-term financial risk.The thesis combined the problems of government budget accounting entity, separation of budget accounting and financial accounting, and accrual basis in government budget and government accounting, enabling the design more feasible. Meanwhile, matching the levels of financial risks with the government financial reports, it provides a better thought of financial risk management, combining with the concrete financial index design and utilization, improving the practical value of the policy.