Cash-based accounting and accrual accounting Essay

Laws and Regulations Involved

The passage from the cash-based accounting to accrual accounting involves the amendments on several current statute laws which amendments would be sent to treasury legal advisor. In Malaysia, the amended statute laws include the Financial Procedure Act 1957, Unclaimed Money Act 1965, Housing Loan Fund Act 1971 and the National Trust Fund Act 1988. Besides, Governmental Accounting Standards Advisory Council ( GASAC ) assists authorities in placing and suggesting the amendments the relevant statute laws for Malayan public sector in the Financial Procedure Act 1957. ( Malaysia edition of Accounting and Business, 2013 ) On the other manus, while avoiding the usage of statute law to modulate elaborate administrative procedures, the State Sector Act 1988 and Public Finance Act 1989 of New Zealand provided powerful signals as to the Government’s earnestness of purpose, and hence the likely permanency of the reforms. This removed any inducement to set about alterations easy or in a mode that would ease easy reversion to the old system. ( Implementing Accrual Accounting in Government: The New Zealand Experience, 1994 )

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Aid and Support

In 2011, the coaction between a squad of professional comptrollers and Government Accounting Standards Advisory Council ( GASAC ) were to develop the appropriate accounting policies to the local populace sector that are advisable in the context of Malaysian. As the execution of the accrual accounting will impact the manner authorities in fixing fiscal statements, therefore, the authorities should supply preparation to the staff who is involved in fixing the fiscal statements. In Malaysia, there is the Malayan Institute of Accountants ( MIA ) that governs the policies of accounting and besides from private sectors such as Ernst and Young ( E & A ; Y ) , PricewaterhouseCoopers ( PwC ) , KPMG and others. ( Azhari, 2013 ) While on the other side, New Zealand gets support from the Society of Accountants in making the environment and status that are appropriate for the execution of the accrual accounting system in public sector. Apart from the function drama by Society of Accountant, Public Sector Accounting Committee ( PSAC ) was developed to supply professional guidelines for public sector comptrollers to better governmental fiscal coverage. ( Miah, 1991 )

Conversion is Time Devouring

Based on old experiences from states that have implemented accrual accounting in their public sector, it takes a longer period of clip to to the full follow the accrual accounting into their system. For illustration, in New Zealand, the procedure has reportedly taken ten old ages. On the other manus, the United Kingdom and Sweden are reported to take seven and eight old ages severally ( Irvine, 2011 ) . For Malaysia, it is expected to take five old ages for the execution of accrual accounting ( Accrual Accounting Project Team of AGD, 2011 ) . So far the authorities in Malaysia merely gives a period of non more than 4 old ages, which is, in 2015 to to the full implement accumulations accounting in the populace sector. This poses an interesting inquiry of whether the period given by the Malayan authorities is sufficient for the comptrollers of fiscal coverage to be prepared in implementing accumulations accounting. Fortunately for Malaysia, says MIA president Datuk Mohd Nasir Ahmad, it can larn from the experiences of other states. ‘In the instance of the Slovak Republic for illustration, by set abouting awareness preparation, understanding the criterions and with the parallel running of accounting systems, they were able to migrate within their stipulated timeframe, ’ he says.

Lack of Trained Staff and Information Technology ( IT ) System Requirements

Meanwhile, harmonizing to Tickell ( 2010 ) , low-skilled employees and deficient substructure will impair the execution of accumulations accounting system compared to extremely skilled employees. He besides said that for a underdeveloped state, forces preparation is required more instead than altering the accounting package due to miss of extremely skilled human resources. Due to miss of qualified comptrollers runing the authorities histories, employees with no accounting background might happen it hard to understand the process of accumulations accounting construct ( United Nations, 1984 ) . Forces with advanced cognition in the authorities accounting are scarce, particularly in developing states ( Ouda, 2004 ) . This is supported by a survey conducted by Saleh and Pendlebury ( 2006 ) and they found that for developing states, such as Malaysia, a deficit of professionally qualified comptrollers in the populace sector requires extended preparation programme to educate the employees. However, they believe that the bulk of the qualified comptrollers are attracted to greater inducements given by the private sector. Tickell ( 2010 ) added that even after the employees have been good trained and informed in accumulations accounting, there is a opportunity that he or she will go forth the populace sector and travel to the private sector for larger wages, therefore lead to shortage of staff in the populace sector.

Cost of Conversion

Nur Jazlan Mohamed, the president of Public Accounts Committee ( PAC ) said that the execution of the accrual accounting to replace the cash-based system in Malaysia will be bing RM 260 million, which will set a value to the assets and liabilities and cut down wastage from Jan 1 following twelvemonth. Nur Jazlan said the RM260 million would include upgrading the system and developing the users. He said the sum would be worth it because wastage amounting to one million millions could be avoided. The most often given ground was the cost of accounting reform.

Overall, the journey towards accrual accounting has been disputing. However, we are committed to it and believe the benefits it will convey us in footings of fiscal direction will be worth the important attempt required. To accomplish the full acceptance of accrual accounting in the populace sector, the authorities needs to look into the readiness of the comptrollers in implementing the accumulations accounting. The authorities should put up a strategic execution program in order for the execution procedure to run swimmingly. One of the stairss is to supply preparation to the comptrollers of fiscal coverage. Whether comptrollers are willing to take part in the preparation depends on the motive from the top direction to promote their staff to larn about accumulations accounting and the comptrollers ‘ attitude in accepting the execution of accrual accounting in public sector.

In add-on, the authorities needs to supply comprehensive direction preparation towards the departmental directors. Accrual accounting preparation programme should supply information such as the basic fiscal constructs underlying accrual based accounting, how accrual based accounting allows suites for betterment, and general apprehension of the accounting information system ( Wynne, 2004 ) . Each preparation faculty and the information provided should be equal to develop the populace sector employees to be extremely skilled workers. Besides, as mentioned by Salleh and Pendlebury ( 2006 ) , the Malayan authorities provides inducements for its accounting employees to obtain professional makings. This can be a motive for the comptrollers to better their cognition. The non-accounting staff should be provided with other inducements because they are besides portion of the accounting squad in the governmental fiscal coverage. Example of inducement is such as directing them to undergo a preparation programme on basic of accumulations accounting.