Canada’s book cooks

In a recent article, The Economist reported that the Canadian budget uses the accrual basis of accounting for its revenues, and the cash basis for reporting its more detailed spending.

Accounting like that provides a government with the opportunity to cook the books, Enron style. The Public Sector Accounting and Auditing Board (PSAAB) of the Canadian Institute of Chartered Accountants provides recommendations for how Canadian governments should account, but has no authority to enforce their recommendations.

In a speech given in 1982 by PSAAB’s first Chairman, N.G. Ross, he posed the following question to a group of legislators – why might governments “cook the books”? The answer – because governments, like any organization, do not like to report bad news. Bad financial news can constrain policy and spending initiatives that a government wants to introduce.

In 2003 a Liberal finance minister changed the budget to full accrual accounting. But the more detailed spending estimates were still accounted for on a cash basis. So, Canada’s anticipated expeditures do not follow the matching concept, one of four founding principles of accounting.

And the government no longer reconciles the figures, the most basic accounting control mechanism.

To forensic accountants these are signs that things are amiss.

And it suggests that one of the world’s leading democracies isn’t.

More at:
Something doesn’t add up
Perspectives on Accrual Accounting