Posted by Michel Lazare
In December 2006, the United States Government Accountability Office published a report on "Understanding Similarities and Differences between Accrual and Cash Deficits": Download gao07117sp_accrual_and_cash_deficits.pdf.
This report constitutes a good introduction to the differences about these two notions of fiscal balance. In addition, it explains in a clear way how some of the categories of expenditures are accounted for in cash and in accrual terms. It is also candid about the weaknesses in some of the data reported in accrual terms and the need for a "plug" (i.e., unaccounted for differnces) to fully reconcile the two deficit numbers.
While the reconciliation is in the report based on FY05 fiscal numbers, the GAO has published in January 2008 an update for FY07:
Download gao08410sp_accrual_and_cash_deficits__update_for_fiscal_year_2007.pdf
Here is an exerpt from the preface to the December 2006 initial report.
"While cash and accrual measures each serve different purposes, they present complementary information and can be used together to provide a more comprehensive picture of the government’s fiscal condition today and over time. The goal of this primer is to improve understanding of the accrual deficit by describing (1) how it is similar and different from the more commonly reported cash budget deficit, (2) the key drivers behind changes in accrual deficits relative to cash budget deficits, and (3) how the two measures complement each other and give a fuller picture of the government’s overall fiscal condition.
Throughout this report, we primarily used data from the Financial Report of the United States Government, referred to in this report as the Financial Report, which is prepared by the Department of the Treasury, in coordination with the Office of Management and Budget. However, the reader is cautioned not to focus on the precise amount of the accrual deficit, its components, or their change from year to year because significant issues regarding the reliability and presentation of the federal government’s financial information still need to be addressed. GAO is responsible for auditing the consolidated financial statements of the U.S. government, but we have been unable to express an opinion on them because the government could not demonstrate the reliability of significant portions of the financial statements or that the reconciling differences between accrual and cash deficits were complete. The primary reasons for this disclaimed opinion are described in this primer."
