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The Accounting Regime in Fiscal Result Statements in Brazil (Nunes et al.)

The Accounting Regime in Fiscal Result Statements in Brazil: A Critical View by Selene Peres Peres Nunes, Ricardo da Costa Nunes, Gileno Fernandez Marcelino published by Journal of Business and Management (1/2024).

Background: This study examines the adoption of cash accounting in Brazil’s fiscal results, highlighting its role in public account imbalances. The neo-institutional theory is utilised to understand resistance to accrual accounting and changes in fiscal results without amendments to the Fiscal Responsibility Law. An accrual accounting methodology is proposed, emphasising techniques for recognising revenue and expenses at the time of occurrence and comparing it to the current cash accounting, demonstrating greater transparency and precision. This method can be integrated into the Brazilian fiscal system, respecting the Fiscal Responsibility Law guidelines, enhancing governance and fiscal management, and contributing to long-term fiscal sustainability. Results: The study presents a critical view of adopting the cash accounting system in fiscal result statements in Brazil, demonstrating that it can contribute to explaining imbalances in public accounts. Extending the full cash regime to states and municipalities proposed by the 8th edition of the FDM applicable to 2018 is particularly concerning. This extension may encourage additional fiscal problems in these entities, which already have a less entrenched culture in monitoring fiscal targets. In public accounting, the sustainability of fiscal policy is one of the most relevant pieces of information, and the statement of primary and nominal results must allow for such accountability. As debt is essentially a balance sheet variable, the only sensible accounting basis is the accrual basis. The impact of fiscal decisions needs to be known when the decisions are made, not much later when the payment of expenses affects the calculation of the primary result. Conclusion: The convergence to international standards revives the foundation of accounting theory in the public sector, allowing for identifying accounting practices that generate inconsistency with the objectives of the FRL. However, it is cautioned that although the accrual basis is the most suitable for determining fiscal results, it does not eliminate the risk of creative accounting and poor management, which cannot be attributed to adopting a particular accounting regime or converging with international standards. Keywords: accrual basis, convergence, fiscal result, creative accounting, Fiscal Responsibility Law.

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