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October 19, 2011

The Chart of Accounts is a Critical Element of the Public Financial Management Framework – A New FAD Technical Note and Manual

Posted by Sailendra Pattanayak and Julie Cooper

The term “chart of accounts” is one of those references commonly used when one talks about accounting and reporting systems. Although the term is well known in the private sector, governments have only relatively recently started to comprehensively define it, particularly in the context of developing and implementing financial management information systems.

The concept of “chart of accounts” is still considered—in particular, by non-accountants—obscure, if not esoteric. Searching dictionaries or even accounting texts does not yield meaningful information. A search on the Internet for its definition results in thousands of matches and leaves the reader confused. The results from an internet search mostly include samples of charts of accounts from various industries, companies or organizations and accounting systems, but not much information on a chart of accounts for government purposes. These sample charts of accounts usually only provide information on the economic classification which is only one of the many classifications needed for effective financial management in government.

In a recent Technical Note and Manual of the IMF Fiscal Affairs Department (FAD), we have attempted to demystify the chart of accounts for government systems. We define the concept of chart of accounts and shed light on its role in the public financial management framework, including budget preparation, execution and reporting, and the key principles and factors that need to be taken into consideration in designing a chart of accounts for government. The note also discusses the specific issues associated with budgetary and financial accounting in governments and their impact on the chart of accounts. The note stresses that the chart of accounts, although it appears to be just concerned with classifying and recording financial transactions, is critical for effective budget management. The note concludes by drawing some considerations on developing and implementing a chart of accounts and its relations with a government financial management information system.

Given its critical role, the development of a chart of accounts should receive adequate attention and be a central element of any public financial management reform agenda. At the same time, it should address the specificities and various stakeholder needs in a given public financial management framework.

Download TNM_2011-03_web

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