None of the literature on moving to accrual accounting
appears to note the experience in the British war ministry in the early
1920s. The accrual basis of
accounting was introduced, but this reform was reversed a few years later as
the benefits were seen as being less than the significant costs.
During the First World War numerous accountants were
recruited from the private sector into war related departments. Some of these accountants were critical
of the differences between public and private sector accounting. As a result, in 1918, parliament was
recommended to adopt the basis of income and expenditure (accrual basis) for
both annual estimates and the accounts of individual departments. These changes were only actually adopted
by the War Office from 1st April 1919.[i] “However, the already existing cash
accounts… were continued pending further experience.”[ii] The advocates of the new scheme hoped
that the new accounts “would show the Unit Commanders the money cost of
achieving efficiency in their units” and, with de-centralisation, these
Commanders would be encouraged to “attain economic control of the units under
their command.”[iii]
Accrual based financial statements were actually produced
for six years. But in 1925, the
Army Council, with the support of the parliamentary Public Accounts Committee, decided that
this approach required additional costs of at least £200,000 a year (and twice
that amount for the first year), but that
“the experiment had not led to commensurate economies in administration
and seemed unlikely ever to do so”[iv]. So the experiment was terminated and
the accrual based accounts were no longer produced.
In 1950 a Parliamentary Committee also carefully reviewed
the evidence for the general adoption of accrual accounting and decided that:
“We
agree with the principle that the main Exchequer Accounts and the framework of
both Estimates and Appropriation Accounts must remain on a cash basis.”[v]
This Committee also concluded that the adoption of the
accrual basis would:
“necessitate
the valuation of all existing assets and an estimate of the probable remaining
useful life of each – a gigantic task requiring the listing of figures many of
which could be no more than guess work.”[vi]
[i] HMSO (1950) Final Report of the Committee on the Form of
Government Accounts, London: HMSO: page 69, paragraph 2
http://discovery.nationalarchives.gov.uk/SearchUI/Details?uri=C2961686
[ii] Op cit:
page 70, paragraph 2
[iii] Op cit:
page 70, paragraph 2
[iv] Op cit:
page 70, paragraph 5
[v] Op cit: page
13, paragraph 26
[vi] Op cit:
page 20, paragraph 46.
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