1. 4.4. The accounting principle
4. Toward a better understanding of the links between the UOE and the National Account
4.4. The accounting principle
Workshop on Development of Education Expenditure Data – Luxembourg – April 2018

2. Accounting principles
In cash accounting, expenditure is recorded when cash is paid and revenue is recorded when cash is received e.g. purchases made in the reference year (year t) but paid for in the following reference year (years t+1) are reported in data covering reference year t+1.
Under the accrual basis of accounting, "flows are recorded when the economic value is created, transformed or extinguished, or when claims and obligations arise, are transformed or are cancelled e.g. output is recorded when produced (and not when paid by a purchaser), the sale of an asset is recorded when the asset change hands and not when the corresponding payment is made"
Workshop on Development of Education Expenditure Data – Luxembourg – April

3. UOE– Main characteristics
The UOE educational expenditure data are compiled on a cash accounting rather than an accrual accounting basis. That is to say that expenditure (both capital and current) is recorded in the year in which the payments occurred:
Capital acquisitions are counted fully in the year in which the expenditure occurs;
Depreciation of capital assets is not recorded as expenditure, though repairs and maintenance expenditure is recorded in the year it occurs.
Exceptions:
Retirement costs of educational personnel in completely unfunded retirement systems and in partially funded systems;
Students loans: the fact that no repayment of loans should be reported during the reference years is an exception to the cash basis accounting;
Some countries report some data according to a mixed approach
Workshop on Development of Education Expenditure Data – Luxembourg – April

4. ESA2010 – Main characteristics
Recording flows on an accrual basis is a fundamental principle of the National Accounts methodology;
The ESA2010 acknowledges that the accrual basis principle might not be used for certain flows and especially those concerning the general government as noted in §1.103: “It may be necessary to relax this approach for taxes and other flows concerning general government, which are often recorded on a cash basis in govern­ment accounts. It may be difficult to carry out an exact transformation of such flows from cash basis to accrual basis, and so an approximate method may be used”.
Workshop on Development of Education Expenditure Data – Luxembourg – April

5. UOE vs. ESA2010: what can we learn?
UOE and the National Accounts frameworks clearly differ in terms of accounting principle but:
For expenditure derived from government accounts, both may be based on the cash basis;
For various types of expenditure, like salaries and intermediate expenditure on goods and services (rental, electricity bill), the difference in timing between cash and accrual basis per year might be considered as negligible;
The UOE adheres mostly to cash accounting, but it is not clear whether any corrections will be made when the source data are on accrual basis;
The National Accounts adhere to accrual accounting, but it is often not clear whether any corrections will be made when the source data are on cash basis;
Workshop on Development of Education Expenditure Data – Luxembourg – April

6. UOE vs. ESA2010: what can we learn?
Difference in accounting principle will mainly be relevant:
For some specific transactions. For example, fixed capital formation, like purchase of a school building, or transfers from international sources;
When both cash and accrual data exist for these transactions, so UOE compilers can use easily cash data and National Accounts compilers can easily use accrual data;
When specific corrections are made by National Accountants to translate cash data into accrual data or when specific corrections are made by UOE compilers to translate accrual data into cash data.
Workshop on Development of Education Expenditure Data – Luxembourg – April

7. Main items for discussion
Workshop on Development of Education Expenditure Data – Luxembourg – April 2018

8. What is the relevant accounting principle (cash or accrual) for what the UOE wants to measure? (L? M? H?)
When countries use national accounts accrual data for UOE purposes, what are the reasons to do so and what is the data treatment processed to ensure the compliance with the UOE accounting principle? (L? M? H?)
Should common guidelines to correct from accrual data to cash data be developed? (L? M? H?)
Is the cash accounting principle adopted by the UOE an issue at national level? (L? M? H?)
Workshop on Development of Education Expenditure Data – Luxembourg – April