The Necessity of Applying Accrual Accounting In Establishing performance Budgeting System (An Analytical Study)

Nowadays, governments have considered the novel management approaches, namely modifying their budgeting systems into performance-based ones due to the increasing pressure to enhance responsiveness and performance transparency. Hence, operational budgeting, as the most optimum accepted method of budgeting, has been put under the spotlight of governments. The differentiating character of this system from the traditional systems is its focus on the objectives, consequences and calculating the actual cost of activities, reducing the costs and improving the quality of services provided for people. Planning and successful execution of operational budgeting system has a strong correlation with the characteristics of the governmental accounting system and financial reporting. An important prerequisite for reconciliation of the budgeting system is to modify the accounting system, so that it could calculate the actual price. Development and implementation of the operational budgeting in the governmental agencies requires application of accrual accounting in order to determine the actual costs of programs and activities. In this research, operational budgeting and accrual accounting were addressed with an analytical approach and the necessity of establishing accrual accounting, as a prerequisite for implementation of the budgeting on an operational basis was emphasized