Government accounting has three purposes. Its basic purpose is to safeguard the public treasury by preventing and detecting graft and corruption. The intermediate purpose of government accounting is to facilitate sound financial management. Financial management includes activities such as collecting taxes and other revenues, paying bills, borrowing and repaying debts. In a well-run government, these activities are budgeted or otherwise planned. Their execution through duly authorized transactions is recorded in the financial accounting system. The advanced purpose of government accounting is to help government discharge its public accountability. Public accountability exists in three levels of principal-agent relationship: accountability of the bureaucracy to the chief executive, of the executive to the legislature, and of the government to the people. In order to achieve the three identified purposes, financial accounting and management accounting cannot be so neatly compartmentalized in the public sector, where management accounting refers to budgeting and control, rather than accounting solely in the service of managers. The budge is an expression of public policy and political preferences. It is an instrument of fiscal policy on revenue and spending to achieve macroeconomic objectives. Given their close relationship, it is often difficult to tell where budgeting ends and accounting begins. They reinforce each other in demonstrating and discharging fiscal accountability to the government’s stakeholders, who are more numerous and diverse than the owners of a firm. The absence of ownership in government makes it problematic to apply the accounting equation (assets= liabilities + owners’ equity) and its corollary (profit = revenues – expenses) to the public sector. Unfortunately, the assets and liabilities of the national government of a sovereign state are difficult to identify and harder still to measure in financial terms.
Traditionally, the objectives of accounting in the public sector are:
· to provide a financial summary
· to enable detailed comparisons of spending to be made with the budget
· to allow the identification of spending to ensure it complies with the law and other legal authorities
· to provide the basis for the next budget
Over the years, the objectives of accounting in the public sector have evolved and now it is used to accomplish the following:
· to inform the stakeholders bout the financial situation of the government
· to provide possible investors with information about credit worthiness
· to aid management decision making
· to identify assets and liabilities
· to facilitate democratic transparency
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