The Move to Accruals: Experiences from Denmark

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The Move to Accruals Experiences from Denmark

• Head of Division,
• Jonas Fallov

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A little bit of context

• Purpose Efficiency and effectiveness and better
  management at the agency/department level
• Delimitation
• Operating expenditures that can be influenced by
  managers are included.
• Special assets (infrastructure, defense and
  heritage assets), social obligations and
  transfers are excluded
• Both accrual accounting and accrual budgeting!
• The Danish budgeting system was not purely cash
  based to start with and there have been some
  experiences with treating certain activities on
  an accrual basis

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The Process of Moving to Accruals
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Preparing for Accrual Accounting

• A fairly short reform period but gradual approach
• Report writing, committees with line ministries
• Visits to countries that had implemented accruals
• Establishing pilot projects
• New accounting rules, standards and processes
• Focus on information and personal contact
• Working groups for each pilot with
  representatives from both the MOF, pilots and
  line ministries

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Implementing Accrual Accounting in 2005
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Preparing for Accrual Budgeting in 2007

• Conversion of the budget
• Prepare opening balance for 2006 as if accrual
  budgeting would be introduced in 2006
• Prepare investment budgets
• Budget balance and operating statements for 2007
  (fiscal year) and 2008-2010
• Conversion of accumulated savings into deferred
  earnings and surplus
• Prepare accrual based appropriations and ceilings
  for internal government loans
• Working groups for each pilot with
  representatives from the MOF, line ministries and
  pilots
• New budget rules

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Systems Redesign Accrual Accounting

• Implementing accrual accounting has only involved
  minor redesigns of systems
• Local ERP-systems were already in place. It only
  took minor corrections to prepare these systems
  for accrual accounting.
• Some changes to existing local accounting plans
  and redesign of local management accounting
  procedures
• Only minor changes to central accounting systems
  since central accounting plan was basically
  unchanged

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Systems Redesign Accrual Budgeting

• Accrual budgeting means that most financial
  statements and reports have to be changed
• Central and local accounting plans are to be
  completely redesigned From 2007 there will be
  only one accrual based accounting plan to be used
  for both local and central registration and
  reporting purposes
• To accommodate this, the central accounting
  system has to undergo some changes and all
  departments and agencies have to redesign their
  internal management accounting systems
• The switch to a new accounting plan is a change
  of the skeleton of government accounting, but
  given time having only one accounting plan
  instead of two will be a major advantage.

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Lessons and Conclusions

• Clarity of purpose and delimitation of the reform
  is a major advantage
• Using a salami method of delimitation can
  smooth the way
• Learning by doing through pilot projects may be a
  big help to get the concept the right
• Involve the National Audit Office and line
  ministries at an early stage
• Having a long implementation period is not
  necessarily an advantage
• Managing the implementation process is a major
  task in itself