Accrual Accounting (Doppik) – Definition, Legal Foundations, and Systematics
Accrual accounting, officially termed “Doppelte Buchführung in Konten” (double-entry bookkeeping by accounts), is an accounting method particularly used in public sector budget and accounting systems. In comparison to the traditional cameralistics, which focus on the recording of revenues and expenditures, accrual accounting aims to record all business transactions in accordance with the principle of double-entry bookkeeping. The following explains in detail the legal foundations, systematics, and manifestations of accrual accounting in the public sector.
Legal foundations of accrual accounting
Application at the federal, state, and municipal levels
The legal basis for the introduction and application of accrual accounting in the public sector can be found across various levels of German law. While budget management at the federal level is still predominantly cameralistic, nearly all federal states have progressively transitioned state and municipal budgets to accrual accounting.
Key regulations include:
- Municipal budget laws of the federal states, for example the municipal budget ordinances (GemHVO) or municipal budget regulations in conjunction with the respective municipal codes.
- State budget regulations (LHO), some of which have been converted to accrual accounting, such as the LHO of North Rhine-Westphalia.
- Model recommendations und Model budget ordinances by the Conference of Interior Ministers, which provide the framework for standardized implementation.
A prominent example is the New Municipal Financial Management (NKF) in North Rhine-Westphalia, which requires a complete transition to accrual accounting.
EU legal requirements
As part of harmonizing public financial statistics within the European Union, accrual accounting is gaining increasing importance. The adoption of the European Public Sector Accounting Standards (EPSAS) stipulates the introduction of uniform public sector accounting rules in EU member states.
Other key regulations
- Commercial Code (HGB): The principles of proper accounting according to Sections 238-263 HGB form the methodological basis for accrual accounting.
- Administrative regulations of the federal states, which govern the specific structure and implementation of accrual accounting in budgeting and accounting.
Systematics of accrual accounting
Basic principles
The central principle of accrual accounting is that every transaction simultaneously affects two accounts—the debit (Soll) and the credit (Haben) account. This principle ensures complete traceability of all changes in assets, results, and liquidity.
- Obligation to prepare balance sheets: All assets and liabilities (assets and liabilities) are represented in the balance sheet.
- Accrual-based performance measurement: Recording of income and expenses regardless of cash flows (accrual principle).
- Cost and performance accounting: Supplementary accounting methods for economic efficiency control and management of public administration.
Structure of accrual accounting
The accrual-based budget and accounting system typically consists of three interrelated sub-accounts:
- Balance sheet: Statement of assets and liabilities as of the reporting date.
- Statement of income and expenses: Comparison of income and expenses, analogous to the income statement.
- Cash flow statement: Presentation of cash flows (receipts and disbursements).
In addition, annual financial statements and management reports provide comprehensive accountability regarding asset, income, and financial positions.
Accrual accounting in the public sector – Legal particularities
Legal obligation to accrual accounting
The federal states’ specific legal frameworks have, in some cases, led to a mandatory introduction of accrual accounting, while in other areas the transition has remained voluntary. Exceptions and transitional regulations are regularly specified in the respective implementation laws and ordinances.
Standardization of the chart of accounts
Unlike in the private sector, standardized charts of accounts such as the “Kommunale Kontenrahmen” (municipal chart of accounts, KoKR) are often used in the public sector, the structure and application of which can be strictly governed by administrative regulations.
Audit and review requirements
The correctness of double-entry bookkeeping is monitored by audit offices as well as external bodies such as state audit courts. The legal basis here includes municipal audit regulations and relevant provisions of state budget regulations.
Accrual accounting vs. cameralistics – Legal and professional comparison
Legal systematics
- Cameralistics: Revenue and expenditure accounting, purely cash-based. Provided for historically as the standard system in most state budget regulations and municipal codes.
- Accrual accounting: Resource-oriented, also recording assets and liabilities. The obligation to introduce and apply accrual accounting arises from the applicable budget regulations and relevant amendments.
Legal advantages and disadvantages
Accrual accounting:
- Improved transparency regarding assets, liabilities, and resource consumption (mandate under budget law).
- Support for budgetary management and intergenerational equity.
- Increased administrative effort due to more complex legal provisions.
Cameralistics:
- Clear management, but no comprehensive mapping of asset positions.
- Simpler application, but increasingly seen as outdated from the perspective of modern management requirements.
Development and outlook
With the continuous evolution of legal requirements—also driven by European harmonization—it is expected that accrual accounting will continue to gain importance. The legal provisions are being continually adjusted to modernize financial reporting in public budgets, increase transparency, and improve management.
References and web links
- Federal Ministry of the Interior: Manual on accrual-based budget management
- Resolutions and recommendations of the Conference of Interior Ministers: imk.de
- Legal texts: e.g., Section 75 Municipal Code of North Rhine-Westphalia (GO NRW), Hessen State Budget Code (Sections 70 ff LHO HE)
- EPSAS: europa.eu
With accrual accounting, public administration has a modern, legally comprehensively regulated accounting instrument at its disposal that fulfills the requirements for transparency, efficiency, and accountability and is precisely codified by numerous state and federal regulations.
Frequently asked questions
What legal foundations govern the introduction of accrual accounting in Germany?
The introduction of accrual accounting (double-entry bookkeeping by accounts) in the German public sector is governed primarily by federal and state legal provisions. Central here are the Budgetary Principles Act (HGrG) and the local budget regulations (GemHVO) of the individual federal states. The HGrG contains basic rules for budgeting, accounting, and reporting, while the state-specific rules provide details on the structure and implementation of accrual accounting. Additionally, municipal administrative regulations for budget and economic management become relevant, especially during the transition from cameralistics to accrual accounting. In some federal states, the application of accrual accounting has been made mandatory, while others provide transition periods or options. Specific accounting standards, such as municipal balance sheet guidelines, must also be observed as binding. Implementation of accrual accounting is thus closely linked to the respective legal position of each state and requires compliance with the relevant statutory regulations.
How is the legal handling of accrued provisions governed under accrual accounting?
Provisions in accrual accounting represent obligations that will arise in the future and are uncertain in terms of amount or existence. Legally, the creation and dissolution of provisions is influenced by the provisions of the Commercial Code (HGB), in particular Sections 249 et seq. HGB, which are referenced or adopted analogously into municipal regulations. The specific state law, usually in the form of a municipal budget ordinance or specific accrual accounting regulations (e.g. municipal accrual accounting handbooks), determines which circumstances (e.g. phased retirement, pension obligations, impending compensation claims) must be recognized as provisions on the balance sheet. The creation, valuation, and documentation must regularly be substantiated and supported with evidence, while valuations must be reviewed annually for accuracy. Unlawful provisions may result in balance sheet and corresponding legal objections, potentially by the municipal supervisory authority.
What legal requirements exist for the adoption and approval of the accrual-based annual financial statement?
The legal framework for the accrual-based annual financial statement is established in the municipal budget ordinances and supplemented by the Budgetary Principles Act. An annual financial statement must be prepared regularly after the end of the fiscal year, presented by the administration, and adopted by the appropriate municipal representative body (e.g. municipal council). The legal requirement calls for a detailed review by the designated bodies, such as audit committees or external audit offices (local or higher municipal audit offices). The audited report must be formally adopted by the assembly; deadlines often apply (for example, by June 30 of the following year at the latest). Errors or omissions in the approval process can have liability and supervisory consequences. Additionally, the principles of transparency, completeness, and verifiability—supported by accrual accounting’s disclosure requirements—must be observed.
How are assets recognized and depreciated under accrual accounting?
Public accrual-based budget law requires the complete, period-appropriate recognition of all assets. The criteria for capitalization are—allowing for minor local variations—modeled on the principles of the Commercial Code (Sections 246-253 HGB) and further specified in municipal budget ordinances. Accordingly, assets must be individually measured and recognized in the balance sheet as assets, provided that independent measurability and future economic benefit are clearly established. Scheduled depreciation must be made according to useful life (straight-line or, where applicable, declining balance) and is legally required; additionally, unscheduled depreciation is mandatory if a permanent decline in value is anticipated (Section 253 para. 3 HGB by analogy). The legal requirements demand full documentation for valuation and depreciation, which is tracked during the auditing process (financial audit and municipal supervision).
What legal requirements must be fulfilled for proper bookkeeping under accrual accounting?
Proper bookkeeping under accrual accounting is legally governed by the municipal budget ordinances, the Budgetary Principles Act, and by reference to commercial accounting principles. It requires timely, complete, accurate, and orderly recording of all business transactions. Legal auditability must be secured by adequate documentation, traceability of every entry, and compliance with statutory booking deadlines. Special attention is given to the principles of proper bookkeeping (GoB), such as the voucher principle, clarity, and comprehensibility. Violations may result in supervisory actions, objections, or personal liability for those responsible. Adherence to these requirements is regularly the subject of audits and reviews.
To what extent do municipal committees have legal participation and supervisory rights regarding the preparation and execution of the accrual-based budget?
Municipal representative bodies (such as city, municipal, or district councils) have extensive legal participation and supervisory rights in all phases of the budget process under municipal budget law. These rights are expressly laid down in municipal codes, municipal constitutions, and budget law, and include the right to initiate the budget, submit amendments, deliberate, and formally adopt the budget plan. Accrual accounting has introduced particularly enhanced supervisory obligations in budget execution, as profit and loss accounting and asset accounting enable more in-depth budget monitoring. Committees must adopt the annual financial statement, grant discharges, and monitor compliance with budgetary provisions. In the event of irregularities, they have audit and inspection rights, supported by municipal audit offices. Failure to exercise these rights can have not only political but also legal consequences, potentially up to the objection of the entire budget execution by the municipal supervisory authority.
How is data protection legally secured in connection with the introduction and application of accrual accounting?
The introduction and operation of accrual accounting entails extensive electronic processing of personal and business-related data. Legally, the requirements of the General Data Protection Regulation (DSGVO), the Federal Data Protection Act (BDSG), and the relevant state data protection laws must be strictly observed. Special demands apply to access rights, the logging of access and changes, as well as data security and retention obligations. The implementation of new accrual accounting software solutions must be accompanied by data protection measures, such as conducting data protection impact assessments, adjusting user rights, and raising employee awareness. Missing or inadequate implementation may result in supervisory measures, fines, and recourse claims. Inspections by data protection authorities are also possible and are part of the legal environment for the implementation of accrual accounting.
