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Most US federal retirement plans are now fully funded, but since plan assets must legally be invested in federal securities, fund surpluses are used to reduce overall federal budget deficits. As a result, current taxpayers are not charged with the cost of future federal retirement obligations. Nevertheless, federal rules do require the employing federal agency to budget for current personnel’s accruing liability of retirement promises. Therefore, policy decisions regarding the number of federal civilian and military personnel and the design of their retirement benefits may be made with a better understanding of the costs.

The objective is to reflect on the merits of accrual accounting in light of its various imperfections, and to provide some explanation for why we still have only a limited understanding of accruals. The argument presented is based on a two-period model and attempts to demonstrate the problem of the ‘impatient manager’ to show how accruals can help solve this problem. The goal is to lay out the basic rationalization for using both accruals and the underlying assumptions and relationships as clearly and simply as possible. This rationale is then used as the basis for an examination of the question of which direction we might use to develop new models that propose the advantages of using accruals. The chapter is organized as follows: Section 1 introduces; Section 2 shows the substantial assumptions for the analysis of accruals – and cash-flow-based incentive systems in investment decisions; Section 3 discusses accruals as optimal performance measures, clarifying the connections between compensation functions and performance measures, and showing how performance measures can be designed to induce efficient investment decisions in a two-period model; Section 4 summarizes the results, thereby taking a more general look at the connections between incentive contracts, performance measures, and information structures; Section 5 discusses the problems of analytical research in showing the advantage of using accruals instead of cash flows as a performance measure to control investment decisions; Section 6 concludes.

This chapter begins by presenting general definitions of taxable period and accounting period. It then discusses accounting methods (cash model vs. accrual model) and the extent to which a taxpayer can offset net operating profits utilizing the net operating losses.

This chapter highlights the common issues that eased the process of adopting accrual accounting in New Zealand, Australia, the UK, and Sweden. First, government departments have certain assets not found in the private sector and therefore, have to be treated differently. Second, transition to accruals requires decisions on how these assets should be valued. Third, there are issues about the accounting standards to be adopted. Fourth, the question arises as to who should set the accounting standards. And fifth, there are a number of implementation issues such as change management and sequencing of the reforms.

Most government accounts are on a cash basis. It means that money is brought to account when they are paid or received. Such an accounting regime is consistent with the arrangements whereby the legislature votes the government's request for funds. This chapter begins by evaluating the government accounting system in terms of compliance and stewardship, state of finances, performance, and economic impact. It then considers the pros and cons of the cash basis as an accounting system. This is followed by a discussion of the advantages and disadvantages of introducing accrual accounting in government departments.

This chapter analyses the experience of the Australian government in converting to accrual accounting. The adoption of accrual reporting by governments in Australia represents an important step in Australia's reform initiative to develop a more businesslike reporting model for the government departments—a model that accounts for the full cost of service delivery. Accrual accounting has provided a more comprehensive measure, over cash accounting, of the total activity of the government and the long-term effects of current policy, thereby enhancing governments' fiscal transparency and accountability. Accrual accounting has also been responsible for bringing about sustainability and sound fiscal management, and providing policymakers with information about the financial effects of current policies on future generations.

This chapter analyses the experience of the Swedish government in converting to accrual accounting. The transition to accrual accounting in the Swedish government was achieved rather smoothly. One reason for this was that no organizational changes were called for, due to the fact that the Swedish administrative structure already had a comprehensive network of agencies functioning autonomously and this was compatible with the adoption of accrual accounting. The other reason for smooth transition was that accrual accounting was implemented only in the agencies and in the whole of government financial statements, but not in the budgetary process. As a result, only minor changes were necessary so far as the budgetary process and the involvement of parliament was concerned.

This chapter discusses the gains offered by accrual accounting based on the experiences of the four countries. The gains are in the areas of: (a) devolution of authority and increased accountability; (b) provision of government services; (c) resource management; and (d) assessment of long-term effects of government policies.

The experiences of the four countries and the Indian municipal bodies in the adoption of accrual accounting show that there should be adequate preparation before embarking on the actual conversion. This chapter draws roadmap of how the process of conversion to accrual accounting in the ministries and departments of the Indian government should be conceptualized, designed, organized, and implemented.

While institutional reforms would certainly lead results-orientation, they would also give rise to a new structure of accountabilities. What is needed is an accounting system that would reflect these accountabilities and is based on the way performance is designed. Such an accounting system must meet certain requirements, such as the ability to assess performance in relation to output production, or to provide information to the legislature concerning the effectiveness and efficiency of resource utilization. The cash accounting system used by most governments, including OECD member states, does not meet these requirements. Thus, majority of OECD member countries have shifted to accrual accounting and budgeting. Although accrual accounting does not automatically ensure the implementation of comprehensive public management reforms, it enables countries to more easily realize a wider reform agenda. This chapter looks at accounting reforms in New Zealand, Australia, the United Kingdom, Sweden, and India.

Public accounts are the basis for state activities. The introduction of market-oriented public sector accounting standards in Europe marks a shift towards an increasing influence of capital markets. European Public Sector Accounting Standards (EPSAS) are currently being implemented and privilege the information needs of investors and capital providers. This provides a challenge to democratic accountability and is likely to intensify pressure for austerity politics. By now, market-oriented public sector accounting is established at almost all political levels and is likely to intensify strict budgetary control in Europe, effectively establishing an ‘austerity infrastructure’. The main actors engaged in bringing about this new regime are state bureaucrats and statisticians as well as accounting practitioners from large auditing firms.

This chapter focuses on the incentives for retirement by considering the distribution of Social Security wealth accrual at different ages for participants in the Health and Retirement Survey. Section 10.1 begins with background on the relevant institutional features of the Social Security system and the previous literature in this area. Section 10.2 describes the data and empirical strategy. Section 10.3 presents the basic results for the accrual of Social Security wealth with additional work and the associated tax/subsidy relative to potential earnings, both on average and across the distribution. Section 10.4 highlights the fundamental weakness of simple one-year accrual measures of this type: many Social Security wealth trajectories are nonmonotonic, suggesting that the appropriate measure must look across all years to find the optimal retirement date. It then presents calculations for “peak value,” an incentive measure that provides a middle ground between accrual and the utility-based option value metric of Stock and Wise (1990), by comparing retirement wealth at the current retirement date to retirement wealth at its global maximum. The results are also extended to incorporate private pensions. Section 10.5 discusses the implications of the findings and directions for future research. A commentary is also included at the end of the chapter.

The general AutoRegressive Integrated Moving Average (ARIMA) model can be written as the sum of noise and exogenous components. If an exogenous impact is trivially small, the noise component can be identified with the conventional modeling strategy. If the impact is nontrivial or unknown, the sample AutoCorrelation Function (ACF) will be distorted in unknown ways. Although this problem can be solved most simply when the outcome of interest time series is long and well-behaved, these time series are unfortunately uncommon. The preferred alternative requires that the structure of the intervention is known, allowing the noise function to be identified from the residualized time series. Although few substantive theories specify the “true” structure of the intervention, most specify the dichotomous onset and duration of an impact. Chapter 5 describes this strategy for building an ARIMA intervention model and demonstrates its application to example interventions with abrupt and permanent, gradually accruing, gradually decaying, and complex impacts.

This chapter discusses the role of accrual bonds in the collateralized mortgage obligation (CMO) market. The accrual bond is a long-dated bond which is structured in such a way that it does not pay its coupon interest until it begins to pay principal. Rather, the principal balance accrues by the stated coupon amount on each payment date while the actual interest payments are redirected as principal payments to those bonds having a higher principal payment priority—the target bonds. Structurally speaking, the presence of an accrual bond serves two purposes: to manage the average life profile of the target bonds, and “clean-up” tail cash flows. The chapter examines the mechanics of the traditional Z bond as well as Z bonds issued with agency planned amortization class (PAC), and highlights the behavior of these structures under different prepayment scenarios.

The Netherlands currently taxes capital income on the basis of a presumptive rate of return and leaves the actual returns on capital untaxed. This means that the Netherlands effectively levies a wealth tax instead of a capital-income tax. A tax on actual returns is more equitable and more efficient than the current tax. It would, moreover, be better for macro-economic stability. Thus, the Dutch government would be wise to move from a tax on presumptive returns to a tax on actual returns. Contrary to current policy, such a tax should ideally be levied on the returns on all forms of private wealth, including housing and pension wealth. Finally, it should, again ideally, tax capital gains on an accrual basis and tax above-normal returns at a higher rate than normal returns.

To put the topic into context, this chapter provides an introduction to the pension fund industry in the UK. Statistics are presented regarding the risks that face UK defined benefit pension funds (DB PF) based on the 2013 Purple Book that covers around 99% of pension funds: amount of liabilities, assets, deficit, funding ratio based on various liability valuations. The chapter shows what impact a variation of a few bassis points in gilts, equity markets, inflation, and a few years in terms of longevity has on the UK DB PF and the trends in terms of asset allocations. As a general introduction the chapter provides definitions regarding what a DB PF is, some important key words, and how simple cash flows are calculated. It introduces the governance of a DB scheme and provides a comprehensive overview of the parties involved in the management process.

Many abuse cases became public years after the sex act, so law limiting “stale” suits often barred recovery. Lobbying for reopening cases worked in some states, despite the churches‘ efforts to block reopener laws. Proving an older case with facts even after reopener laws has been difficult. The chapter discusses when the action accrues for purposes of the limitation period, which may be when the potential accuser has notice that he or she has suffered from clergy sexual abuse. However, state statutes may calculate limitations in different ways to account for the fact that child victims may not feel comfortable in coming forward until they become adults.

There are situations where people have multiple reasons to do a certain action, a, that are individually worse than a reason to do another incompatible act. But in some of these cases, the reasons to do a taken together (which can be called the accrual of the reasons to do a) make it so that you ought to do a. This chapter explores how the weight of individual reasons determines how strongly an accrual of reasons supports an act. It argues that a key to understanding how individual reasons determine how strongly an accrual supports an act is to distinguish sharply between derivative and non-derivative reasons.