Accounting & Tax

Accrual Accounting Raises U.S. Deficit

Sooner or later the government, just like public companies, has to account for pensions and other benefits.
Stephen TaubMarch 2, 2004

The nation’s budget deficit would rise dramatically if the U.S. government used the accrual method of accounting favored by Federal Reserve Board chairman Alan Greenspan.

The 2003 budget deficit came in at $374.8 billion — an amount figured using cash accounting, in which transactions are booked when funds are received or paid. According to a report issued Friday by the Department of the Treasury and the Office of Management and Budget, that figure would be $665 billion under the accrual method.

Greenspan has gone on record to support accrual accounting — in which transactions are reported when they are incurred — as a more accurate measure than cash accounting. Indeed, the $665 billion figure includes post-employment actuarial costs for veterans’ benefits, as well as civilian and military retirees’ pensions and health care. These future expenses are responsible for most of the difference between the two results.

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The report also pointed out that the General Accounting Office issued a disclaimer of opinion on the report and cited some material weaknesses in data and processes. According to Dow Jones, this is the seventh straight fiscal year that the GAO said it couldn’t sign off on the reliability of the government’s financial statements.

According to the Associated Press, the $665 billion deficit for 2003 compares with a $364.9 billion deficit for 2002 using the same accrual method. In the government’s financial report, Treasury Secretary John Snow said that the increase “is primarily attributable to the increased cost of the global war on terrorism, increases in the government’s post-retirement liabilities and a decline in tax revenues caused by the sluggish economy.”