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State and Perspectives of Governmental Accounting Reform in Germany

1.1. Traditional Governmental AccountingTraditional Governmental Accounting2.2. Reform at Federal and State Government Reform at Federal and State Government

LevelLevel• Legal AmendmentsLegal Amendments• State of Reform State of Reform

3.3. Reform at Local Government LevelReform at Local Government Level• Legal AmendmentsLegal Amendments• State of ReformState of Reform

4.4. PerspectivesPerspectives

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Traditional Governmental Accounting

Law based Unified for all levels of government Cash and commitment based budgetary

accounts Compliance orientation of accounts

Most entities of the outer budget sector and the non-budget sector use commercial accounting

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Federal and State Government Accounting- Legal Amendments -

Increased budget flexibility Cost accounting where appropriate Optional accrual accounting (in addition to the

traditional cash and commitment based accounts)

Amendment of the Budgetary Principles Act of 22 December 1997:

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Federal and State Government AccountingFederal and State Government Accounting- State of Reform -- State of Reform -

Federal government and most state governments: Minimal changes of accounting practice, mainly

experimentation with cost accounting Federal Court of Auditors calls for complete balance

sheet

State of Hessen: Government-wide implementation of an accruals based

financial accounting (and budgeting) system to be completed in 2008

Signals that other States (primarily Hamburg and Bremen) might follow the Hessian example

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Local Government AccountingLocal Government Accounting- Legal Amendments -- Legal Amendments -

1998:1998: Sub-Committee of the Standing Conference of the Sub-Committee of the Standing Conference of the Interior Ministers on reforming local government Interior Ministers on reforming local government budgeting and accounting budgeting and accounting

November 2003: Sub-Committee submitted and November 2003: Sub-Committee submitted and Conference passed guidelines for amending state law Conference passed guidelines for amending state law on local government accounting (and budgeting)on local government accounting (and budgeting)

Sub-Committee suggests two alternative accounting Sub-Committee suggests two alternative accounting models: accrual and “extended cameralistics”models: accrual and “extended cameralistics”

From 2004 on: States will amend law. New law will either From 2004 on: States will amend law. New law will either stipulate accrual accounting or provide for an optional stipulate accrual accounting or provide for an optional approach approach

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Local Government AccountingLocal Government Accounting- State of Reform -- State of Reform -

Pilot projects in several States completedPilot projects in several States completed Accrual accounting systems in pilot cities in Accrual accounting systems in pilot cities in

regular operationregular operation New systems includeNew systems include

Double-entry bookkeepingDouble-entry bookkeeping Accruals based financial accounting Accruals based financial accounting Accruals based financial reporting comprising Accruals based financial reporting comprising

individual and consolidated statements of financial individual and consolidated statements of financial position, operating statements and cash flow position, operating statements and cash flow statementsstatements

Accruals and output based budgetsAccruals and output based budgets

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PerspectivesPerspectives

Federal government and state governments: Additional international pressure (IPSAS, EU,

international macro-accounting systems) and Hessian example provide momentum for accrual accounting reform

Local governments: Accrual accounting reform seems irreversible Longer transition period likely Optional approach will not survive

Severe fiscal pressure together with low political priority of accounting reform may stall the process at all government levels

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Study on Current Practice and Reform of Accounting

and Budgeting in National and Local Governments

Lüder/Jones (eds.) (eds.)

„ „Reforming Governmental Accounting Reforming Governmental Accounting and Budgeting in Europe“and Budgeting in Europe“

Frankfurt a. M.: Fachverlag Moderne Wirtschaft (PwC Deutsche Revision), 2003