Chua believes that the impetus for the accelerated change comes from increasing pressure to provide more and better public services, demanded by a better-educated population. There is also an expectation that as the Singapore economy matures, growth is expected to slow.
‘Our government will increasingly have to balance the need to provide quality public services at developed country levels, while keeping taxes at internationally competitive rates,’ says Chua.

‘Over the last couple of years we have put in place several initiatives that will enable our public service agencies to make better economic decisions by providing them better financial information and tools.’
One such initiative has been the introduction of resource management in the Singapore public sector. Chua explains that resource management in the Singapore public sector is made up of three key elements: resource accounting, resource budgeting and net economic value.
Chua says: ‘Resource accounting is the application of accrual accounting principles and other cost adjustments to reflect the full cost of operations and the full resources of an entity.

‘Non-cash costs such as the cost of using land and buildings, depreciation of assets and cost of capital are brought into the resource accounts. Resource accounting allows ministries to have a fuller picture of the total costs required in providing services or implementing new programs.’

The resource budgeting system involves ministries being given budgets on a total resource basis, instead of only a cash basis, explains Chua.
‘The total resource budget includes both cash and non-cash budgets provided to ministries based on the full costs of their services. The cash budget would include costs like manpower costs and other operating expenditure, while the non-cash budget would include costs like depreciation,’ she says.

Chua adds that resource budgeting will mean that Singapore’s ministries will be expected to manage both the cash and non-cash budgets. ‘To allow ministries to actively manage their budget, they will be given the flexibility to convert their non-cash budget to cash budget and vice versa. This will help them optimize their returns in the deployment of resources by weighing benefits against full costs,’ says Chua.
The third element of Singapore’s resource management reform is the net economic value (NEV) framework. This is related to the concept of economic value added (EVA).

‘NEV is a measure of an agency’s performance after accounting for cost of capital,’ says Chua. ‘The introduction of NEV is to instill awareness in public officers that there is a cost associated with government’s capital. We recognize that there is a social and developmental role of public agencies and using the traditional way of measuring absolute NEV will not be reflective of the operating environment of the agencies. We therefore measure delta NEV, which is the improvement made from year to year. Our focus is on improvement.’

Although Singapore has implemented resource accounting, its statutory accounts are still prepared on a cash basis. Chua explains that in Singapore: ‘We believe that the cash basis of accounting, with its objectivity and transparency, offers our parliament the most direct form of control over public spending.

‘Our approach is to run the cash basis of accounting alongside the accrual basis. The transition from cash to accrual basis of accounting has been an exciting and challenging one as we have needed to address issues of policy, systems and people,’ adds Chua.

In moving from a cash basis to accrual basis of accounting, appropriate accounting policies to support the new accrual accounting environment had to be developed.

‘We developed a resource accounting manual comprising the accounting standards for preparing the resource accounts. The standards are based on the generally accepted accounting principles to the extent that they are meaningful and appropriate in the civil service.’

Due to the central accounting system being designed to cater for a cash basis of accounting prior to the introduction of resource accounting, ‘we had to upgrade our system to allow support for both cash and full-fledged accrual accounting processes,’ says Chua.

‘This was a challenging transition as accounting systems were traditionally built to support either cash or accrual but not both concurrently, with a single entry. We were able to get our system to function and cater for the dual basis of accounting.’

Of course one of the most critical elements of any reform program is key personnel, as Chua highlights. ‘We also needed to realign the mindset of financial officers and get them to think in terms of the accrual basis of accounting. This is a major departure from the relatively straightforward cash basis of preparing accounts.

‘We had to retrain these officers and upgrade them to equip them with the necessary accounting knowledge to perform their jobs. We also embarked on publicity efforts to communicate to them about the need for making the transition from cash to accrual accounting through many forums and briefings.

‘Our greatest challenge, however, was to ensure the completeness and accuracy of fixed assets records. As our ministries have not been keeping fixed asset registers diligently over the years, the identification, recognition and valuation of assets had been an uphill task.’
This reform program has seen an increase in the demand for qualified accounting professionals, according to Chua.

‘Unlike the cash basis of accounting, the preparation of resource accounts requires people with qualified accountancy training. One of the first few immediate issues that we identified was the need to have a core group of qualified financial staff to support our agencies to implement accrual accounting. We had to recruit and provide our agencies with qualified accountants.’

Chua says that accountants in the public sector used to claim that they did not practice what they learnt when they were working in the public sector because government accounting and reporting was on a cash basis. ‘But now it is different, the full range of private sector practices can be found in the public sector, and more,’ she points out.

Chua emphasizes that through these financial management reforms, the public sector will be able to derive a more effective management, deployment and use of resources to provide better services to the public. ‘As our fiscal position becomes tighter, our public officers will have to learn to deliver more without asking for additional budgets.

If no cause-and-effect relationship exists (e.g., a sale is impossible), costs are recognized as expenses in the accounting period they expired: i.e., when have been used up or consumed (e.g., of spoiled, dated, or substandard goods, or not demanded services). Prepaid expenses are not recognized as expenses, but as assets until one of the qualifying conditions is met resulting in a recognition as expenses. Lastly, if no connection with revenues can be established, costs are recognized immediately as expenses (e.g., general administrative and research and development costs).