Debunking the accrual-basis accounting

Abstract

This paper presents accrual basis accounting in a straight and objective way, and how it can be applied to the Brazilian public sector. The State of Minas Gerais has been preparing itself to adopt the accrual accounting since 2001. This process has been improved since 2009 as a consequence of the joint work between the Brazilian Treasury and the National Institute of Chartered Accountants that aim to converge the Brazilian public sector accounting standards to the International Public Sector Accounting Standards. The analysis presents the incentives to the adoption of the accrual accounting, even before it becomes mandatory, and the potential effects of that adoption on decision making. The Minas Gerais public reform was a consequence of public deficits and the need to cut expenses. It drove the State to establish performance contracts that demand performance information. Although accrual accounting might provide benefits for decision making and accountability, the public sector will need to face some issues, as training, technological barriers and uncertainties related to the thresholds of the public finance legislation.