The traditional purpose

Introduction
The traditional purpose of public sector accounting is to provide traceability to the budget and to ensure that accountable government bodies have used their budget money lawfully and in accordance with the mandatory budget. This is why budget accounting is the main area of ​​public sector accounting. The primary budgetary statement is the budget execution statement. This report can be disclosed for the entire budget and then separately for the operating and capital budgets and, moreover, for various sectoral functional areas within the budget. There are large differences from country to country in how budgets are structured and presented. Essentially, this method of budgeting and presenting the budget defines the chart of accounts for budgetary accounting and reporting of results.
Another important point is that public sector entities publish (or should publish) their budgets, as well as reports on their implementation. The principle of a public budget serves the public as well as the legislature with sovereign decision-making power. Thus, the main users of budget accounting information in the public sector are budget decision makers (parliament, local councils, etc.), and their elected members, representing in a democratic society the main leaders, voters and resource providers (taxpayers) for the budget.
Compliance information is much more important than in the private business sector. In the case of public sector entities, accountability focuses primarily on the use of budget allocations, as well as on the goods and services provided, and on the effects achieved in terms of “value for tax money”. The performance of such reporting is assessed on the basis of budget execution reports and performance reports. This activity-based performance reporting also uses non-financial information in addition to financial information, such as data on the quality and volume of services provided and the cost-effectiveness of operations. Consequently, the performance of accountability cannot be assessed solely on the basis of general purpose financial statements (statements of income and financial position), even if they contain useful information about the economy of the public sector entity, such as surplus or deficit for the period and its assets and liabilities (or debt). Accountability of public sector entities includes both financial and non-financial objectives and responsibilities. Overall performance can only be assessed by considering these two parameters simultaneously.

1 The character and modes of public sector financial accountingThere are three main characteristics that distinguish public sector entities from business entities, namely:
1) They do not have owners who need profit for their capital investments.
2) They have no real process of generating income in the market, but they mainly rely on tax financing.
3) Their goals are linked to public goals that cannot be separated from financial accounting (Falkman 1997).
Budgetary accounting has historically developed in German-speaking countries within the framework of the office accounting concept. The main simple version of cameral accounting uses the single entry method in accounting, while accrual accounting in accordance with the theory of essences or private theory, as well as the theory of fund accounting, uses all double entry methods. Office accounting was developed for the main administrative public sector and over time it was developed on the basis of recording only realized income and expenses (cash accounting) to also include future income and expenses caused by payment obligations (current accounting is a modified cash method) (Monsen 2002).
Fund accounting theory has also brought some features to government accounting. Fund theory focuses on the service potential of assets rather than their ability to generate income. Assets are acquired to help increase the production of services from which users benefit. This means that assets are not acquired for profit, neither profit is considered as belonging to the owner (theory of ownership), nor the organization itself (theory of essence). Based on these starting points, fund accounting theory is more applicable in the public sector than ownership and organization theories. Fund theory expresses an equation for asset balance = asset constraints that fits well with fiscal government accounting, in which budget decisions represent authority to use and receive money as well as asset constraints. Local governments usually use a general fund and several special funds. In the Anglo-American tradition of public sector accounting, accounting was used especially in the US and UK (Monsen 2014.)
This different context and difference in the definition of the main users of information means that financial accounting in the public sector has evolved differently than in the private sector. Accountability in the use of budget money means that accounting has long been cash or modified cash accounting, showing how permits for the use of budget money were followed.
However, since budget accounting follows the rules for distributing income and expenses in the budget, the more budgeting is in line with accrual accounting rules, the more budget accounting is at the same time double-entry accrual accounting. It is a common misconception that government fiscal accounting is cash-based, when in fact it often ranges from pure cash accounting to modified cash accounting or modified accrual accounting.
As mentioned, the link between budgeting and accounting is a core feature of government accounting. The more new ideas of public administration were introduced into public sector financial management, the more popular accrual accounting became in the public sector. However, in some countries, accrual accounting was introduced in addition to traditional budgetary accounting, which remained largely on a modified cash basis. In these countries, public sector entities use a dual system of government accounting: separate budget accounting for presenting budget execution calculations and separate accrual accounting for reporting general purpose financial statements (income statements and full balance sheets). ... Recording to both financial and budget accounts can occur simultaneously in one unified information system. Information technology with sophisticated software makes it possible to integrate these two subsystems. Budget organizations can also reconcile between accrual and budgetary accounting (Brusca, Caperchione, Cohen and Rossi 2015).
If budget accounting and financial accounting are maintained on the same basis, the two accounting systems can be combined into one serving both budget reporting and financial reporting. For example, if the budget is accrual based, the entries made during the year in the ledger form a double entry system that generates both budget execution reports and financial disclosure.
Since tax-funded public sector entities do not exist for profit-oriented purposes, the income statement can be called a statement of income and expenses incurred, in which the bottom line shows a monetary result indicating either the need to finance the deficit or surplus that can be used for investment and / or for loan repayment.
Governments (central, regional, or local governments) can also maintain consolidated accounts, which combine the accounts of controlled entities with the parent in the same way as commercial entities that consolidate in financial statements. In these cases, government agencies also present consolidated income statements, balance sheets and cash flow statements.
Government financial and budgetary accounts create microdata for the national accounting system. This is the third most important public accounting system, but this article does not consider it further (Table 1).
Table 1. Accounting systems for different purposes in the public sector
Financial accounting (commercial accounting) Budgetary accounting System of national accounts - IMF’s GFS
Purpose General purpose financial statements for decision-making and accountability Budgetary follow-up and budget outturn calculations for accountability and decision-making Public sector financial statistics forming a basis for macroeconomic analysis and policy formulation
Accounting approach Accrual-based1)
Budget-based2) Statistical principles – accrual basis
Use of accruals in commercial accounting may be more or less strong and be based on different theoretical accounting approaches.
Budgets may be cash-based, modified cash-based, modified accruals-based or accruals-based.

2 Accounting principles and conceptsA Conceptual Framework (CF) is a codification of selected accounting principles that are illustrated by ways of defining accounting concepts. Principles can be derived primarily from observable current practice. In this pragmatic method, the principles are less based on accounting theory. Accounting theory, which is more than a rationalization of practice, begins by establishing the accounting environment and objectives, and then the logical structure of accounting definitions, assumptions, practices and procedures is derived from these basic accounting objectives.
Although accounting is an old institution rooted in ancient times, the codification of accounting principles, including the conventions, rules and procedures required to explain the generally accepted accounting practice of the day, began as early as the 1900th century. In the United States, the American Accounting Association published its publication in 1936 entitled "A Preliminary Statement of the Accounting Principles Underlying Corporate Financial Reporting" (McCullers & Schroeder 1982, 2). These principles have evolved into Generally Accepted Accounting Principles (GAAP). This term refers to the consensus in the accounting profession that a given principle is generally accepted as appropriate to the circumstances in which it is used ”(McCullers & Schroeder 1982, 26).
While there are several possible sources for statements of accounting principles, the most authoritative are national and international accounting standards councils. Currently, influential standards makers such as the FASB in the United States (Financial Accounting Standards Board) and the IASB in the United Kingdom (International Accounting Standards Board) are having an impact around the world, with national standards makers increasingly aligning with the standards. designed for international use.
Accounting principles can be divided in different ways, one of them is to divide them into a three-tier structure consisting of general principles, general operating principles and detailed principles. In theory, the principles of each level should be interrelated with the principles of the other two levels. However, many accounting practices were not based on higher principles, but simply developed from experience (McCullers & Schroeder 1982, 27). If accounting rules are principle-based, CF and its principles can define individual accounting standards, so they don't have to be very detailed (rule-based). Alternatively, standards can be rule-based, which means that the standards are written in great detail to broadly cover all practical situations.
Own accounting theory emphasizes that financial accounting should be structured in such a way as to satisfy, first of all, most of the interests of the owners. All principles and concepts of accounting are determined taking into account the interests of the owner. The goal of owners is to increase their wealth, income is to increase property, and expenses are to decrease property. The most common international financial reporting framework is the IASB's Conceptual Framework (CF), which issues International Financial Reporting Standards (IAS / IFRS Standards). The CF IASB assumes that financial accounting information that meets the needs of shareholders and creditors also meets the information needs of other users of financial statements, such as government and its tax authorities, employees, suppliers, customers and the general public. Over the past two decades, CF has been increasingly based on fair value measurement based on market value. This development was driven primarily from the point of view of assessing the market value of financial instruments, many of which are complex and difficult to account for. The strong trend towards fair value measurement has sparked a lot of discussion about sophisticated methods for measuring fair value in the absence of active and liquid markets for some assets and liabilities. The suitability of the fair value measurement is questionable, especially in the public sector.
Regardless of the accounting context, be it the private or the public sector, we need some guidance on principles of good accounting practice. The general list of accounting principles in financial reporting (Glautier & Underdown, 1994, 42-55) is as follows.
1.object
2.Money measurement
3. operating enterprise
4. cost
5.implementation
6. charges
7.conformity
8.periodicity
9.sequence
10. prudence
The purpose of the object concept is to make a clear distinction between the affairs of the accounting object and other objects, as in accounting. The difficulty lies in determining what constitutes a subject of state accounting and which extra-budgetary entities should be attached to it. Several criteria can be used, such as state ownership and control of the organization, the organization's dependence on government transfers, and the legal form of the organization. In addition, central, regional and local governments are made up of many sub-organizations, and there are many variations on the criteria that determine which of these sub-organizations also form accounting sub-groups that close the books themselves, even if they are not their own legal entities.
The need for consolidation becomes more and more important when the public sector decentralizes and outsourced activities outside of its main organizations, to extrabudgetary entities and public companies, etc. The political decision-maker needs both financial and non-financial information the whole group persons who are entrusted with state functions and state money. Determining the demarcation lines between accounting entities and the extent to which consolidation should take place determines the scope of the annual financial statements.
It is accepted to keep financial records in monetary terms. This is problematic in public sector financial reporting. There are assets such as human resources that cannot be measured in monetary terms. Moreover, it is difficult to recoup the money for public sector activities aimed at protecting the environment or improving social well-being. Therefore, non-financial reporting is as important as financial reporting. The more budgets are in the form of performance-based budgets, the more accountable public sector entities are responsible for disclosing annual performance reports that combine financial and non-financial information needed to demonstrate the efficiency and cost-effectiveness of public money use by the accountable entities.
The going concern principle is based on the assumption that the business will continue at least in the near future, and not on the verge of termination and bankruptcy. Many assets in a firm derive their value from employment in the process of generating profit. If the firm ceases to operate, the value that can be obtained for these assets at the close of the sale will be much less than their carrying amount.
The same arguments in favor of asset pricing do not apply to the public sector, where assets derive their value primarily from their ability to provide services rather than their ability to generate cash flows. Moreover, the central government and governments at other administrative levels have a good basis for continuity due to tax financing and due to statutory functions that cannot be abruptly terminated in a situation like bankruptcy. On the other hand, many types of accounting units within government can be terminated by administrative and political decisions, in which case the principle of going concern is not guaranteed forever. Only aggregates of sovereign states are capable of living forever in practice (with some historical exceptions, of course).
Cost estimates are usually based on historical costs rather than current public sector accounting costs. Historical cost is based on attribution to the acquisition cost of the assets. While the concept of historical cost can cause many problems for an enterprise accountant, it is less problematic for a public sector accountant. The historical cost of acquiring assets does not take into account changes in the purchasing power of money. Certain assets typically face inflation and price increases, which means, among other things, that depreciation based on historical asset values ​​does not fund replacement investments and may distort the income statement in terms of funding.
Historical costs without revaluation are more reliable and less ambiguous than changes in the present monetary value of assets. However, this historical cost approach is not always consistently applied, because in some cases revaluation is also possible in government accounting traditions, for example, in relation to real estate, if the revaluation is considered to be sufficiently constant.
The sales principle refers to the moment a firm disposes of an asset by selling or disposing of it in some other way. The selling price compared to the carrying amount reflects the profit received from the sale. The private sector accounting practice has been criticized, and business sector accounting standards also allow for holding gains and holding losses to be included in the profit accounts. However, in the public sector, holding gains and holding losses are less useful concepts because assets are retained to provide services and goods to citizens, and it is more appropriate to only account for transactions that have been made that have monetary and budgetary effects.
Frequency means that for reporting purposes, the life of an accounting object should be divided into constant periods. Matching is a fundamental accounting principle which means that all costs are matched against the revenues to which they relate to calculate profit. This makes it possible to compare revenue and expenses for the reporting period. There are many practical difficulties on the road to perfect alignment. Depreciation is one of the most important means of allocating costs across accounting periods. This means that the costs of the asset are allocated to those accounting periods during which the asset is used.
However, public sector comparison is not appropriate for non-exchange transactions that make up the bulk of government transactions. In these transactions (for example, transfers to businesses and households or tax revenues), you cannot find a causal relationship between spending and income, as in the private sector. When services are provided to residents free of charge, it is impossible to compare expenses and income. In the public sector, depreciation can be interpreted as comparing costs using factors of production in services and goods processing.
Materiality is also a widespread concept associated with quality characteristics, especially relevance. Substantial (both quantitatively and qualitatively) amounts are important because they matter to the decision maker. The decision not to disclose certain information may be made, for example, because investors do not need such information (it is not relevant) or because the amounts involved are too small to matter (they are immaterial) ((McCullers & Schroeder 1982, 22). In the public sector, material thresholds for, for example, fraud can be interpreted as very low, as government agencies use tax money received from taxpayers.
Consistency is important for making appropriate comparisons between reporting periods. If there is no consistency in accounting methods and rules, the use of information becomes difficult. Comparability between accounting entities and the uniformity of accounting practices increase the value of accounting information over time. The advantage of this principle is that accounting standards do not change constantly, causing constant and costly training and changes in accounting technology.
Public sector prudence promotes caution in estimating budget revenues so that they are not overstated, and careful in estimating budget expenditures so that they are not underestimated. Discretion is also a general guideline for financial reporting. Prudence means, among other things, that all costs must be recognized in full and that only realized gains are recognized in the income statement.
Standards should be clear. In the context of the public sector, which especially in developing and poor countries has limited resources for accounting, clear and understandable standards are needed rather than complex and difficult to read standards.
In addition, from this point of view, it is wise in the public sector not to drive charges too far into speculative areas. This implies prudence in assessing assets and income. It also means being careful about liabilities. For example, post-employment benefits and social policy cash transfers are recognized based on a legal obligation for payments due. Assets are measured at the underestimated portion of the acquisition cost. If revaluation is allowed, it only affects the balance sheet. A transactions-based approach means that only realized gains and losses can have an impact on the income statement.
One example of such diligence and historical cost estimation in public accounting is the accounting rules of the central government of Finland. The principles of prudence and historical valuation are set out in sections 66 c and d of the Finnish Budget Ordinance (600/1997) regarding the valuation of non-current and current assets:
(1) Final reports include the following entries:
1) accounts receivable at par, but not higher than its probable value;
2) securities and other similar financial assets included in financial assets at their initial cost or at their estimated market value at the end of the financial period, if it is lower than their cost;
3) liabilities at par, adjusted for a positive or negative emission premium arising from the receipt of a loan, or, if the debt is linked to an index or other similar standard of comparison, at a higher value as a result of its changes. (1175/2002).

3 Qualitative characteristics of accounting informationThe conceptual framework, consisting of the basic principles of accounting, describes the qualitative characteristics of accounting information. Qualitative characteristics can be hierarchical or non-hierarchical. The FASB used to create a hierarchy in which the starting points are user-specific qualities of decision utility and clarity. The qualities that distinguish better or more useful information from inferior or less useful information are the main qualities of relevance and reliability for specific decisions. To be useful, information must be reliable and relevant to the users of the information. These two qualities include timeliness, verifiability, predictive value, neutrality, representative confidence and feedback value. Secondary qualities are comparability and consistency, as well as materiality as a threshold of recognition. One of the important qualitative characteristics of financial reporting information is that the cost of this information does not exceed its benefits. So the ubiquitous limitation is that the benefits of accounting rules must be greater than their costs. (McCullers & Schroeder 1982, 18-19).
The hierarchy in terms of the public sector can be represented as follows. Since the usefulness of decisions for investors and equity holders is not relevant in the public sector, financed by taxes, the guiding criterion of usefulness is information on accountability, that is, information for political decision makers about the effectiveness of accountable governance.
Hierarchy of quality criteria
1) useful information, especially for reporting purposes
2) relevance, reliability, sufficiency
• comprehensibility, timeliness,
3) comparability and consistency of accounting methods
4) cost restrictions
In order for the heads of state structures to receive the targeted and effective information they need, the information must be up-to-date, as well as in sufficient volume and, moreover, reliable. It is also important that the report is understandable, and not so complex that only experts can determine the content of the information. An incomprehensible way of presenting information, even if it is relevant and reliable, makes the message meaningless and useless. This also applies to the timeliness criterion, because decision-makers representing citizens must receive reporting information within a reasonable time frame after the budget and reporting period for observation purposes.

4 Dynamic and static accounting theories
The income and expense (income statement) approach is dynamic in that it focuses as a starting point for workflows that generate costs and income during the reporting period. The income-expense model and income statement are transaction-based and use historical costs rather than revaluation at fair value. The assets and liabilities (balance sheet) approach is more static in that it focuses on the measurement of stocks of assets and liabilities.
Financial statements focus on assessing the value of assets and liabilities on the balance sheet and assessing net income in the income statement. Currently, the Anglo-American approach to accounting favors the asset and liability (balance sheet) approach, while the continental European approach has long been dominated by the dynamic income-expense and income statement. International Listed Company Standards, IAS / IFRS Standards and FASB Standards follow the asset and liability model and balance sheet approach. These standards are largely based on concepts and estimates derived from fair value accounting.
This approach poses problems in identifying, measuring and evaluating assets and liabilities in the public sector. Issues of concern relate to the characteristics of public goods, public monuments, heritage assets, infrastructure assets and public assets, which rarely have liquid markets and regulated market value and benefit the society as a whole, rather than the owner (government entity). Income and expense theory and the income statement approach take into account the public sector and information needs better than the balance sheet and liabilities approach.
Theories of ownership and legal entities provide different views on the balance sheets of firms and the roles of owners and others financing invested assets. Proprietary accounting theory focuses on keeping records for owners and shareholders. Entity theory shifts the basis of accounting from the balance sheet, which is understood from the point of view of the owners, towards the flow basis of accounting, in which transactions concerning income and costs constitute an essential core of production cycles. For an accounting view, a firm's business cycle is more important than its valuation. (Biondi 2012.) This reasoning also applies to public sector accounting, with an important amendment that tax-funded entities seek to generate revenue not for profit, but to provide essential services in a cost-effective manner.

ConclusionsPublic sector accounting principles should be based on the specific circumstances prevailing in the public sector and on the primary users of public accounting information. These starting points mean that public sector accounting cannot be the same as commercial sector financial accounting. Different starting points lead to different concepts in terms of accounting objectives, key users, recognition and measurement of elements of financial statements, disclosures and reporting of activities.
International private sector standards such as IFRS / IFRS are based more on the Anglo-American approach to assets-liabilities and the balance sheet than on income and expense theory and the income statement approach, which is strong in many European countries. public sectors using an accrual basis. Many European countries still use cash or modified cash accounting. If the European Union decides to base its possible future EPSAS standards on a reasonable charge, it means less drastic changes for countries that already use moderate charges. Obviously, the changes are greater in those EU Member States whose accounting traditions are based on a cash basis or a modified cash basis.

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