Research On The Recognition, Measurement And Reporting Of The Local Government Debt

Since the implementation of the fiscal and taxation system reform, the fiscal powerand administrative authority of the local government became unbalanced. Coupled withthe imperfection of the transfer payment system between the central and localgovernment, the expenditure of the local government is increasing. In2008, in responseto the global financial crisis, the central government implemented a proactive fiscalpolicy and launched the4-trillion-yuan investment plan. Though the local governmentdebt accumulated in history had not been fully paid off, the local government borroweda large number of government debt as matching funds, resulting in the rapid expansionof the government debt. According to the National Audit Office, at the end of June2013,the local government debt was up to17.9trillion yuan. In recent years, the scale of thelocal government debt is continually expanding. The huge local government debt thatformed in a short period of time has great pressure on the sustainability of China’sfinance. The problem of local government debt has become increasingly serious and hasbecome the focus of the public attention.However, Chinese budget law clearly defines that the local government shallnot borrow debt, which lead to a large part of the local government debt is not includedin the public finance budgetary accounting. At present, Chinese budget accountingsystem does not reflect all the liabilities of the local government, only reveals part of thedirect dominance debt and does not reflect the implicit debt and the contingent liabilities,which has significant impact on local fiscal risks. At the same time, cash basis ofaccounting and existing financial reporting system can not meet the needs of the localgovernment debt management. It is urgent to reform the recognition, measurement andreporting of the local government debt. Local government debt managementand government accounting are closely linked; the two complement each other andinfluence each other. The recognition, measurement and reporting of thelocal government debt is the premise and basis of the local government debtmanagement, providing real, comprehensive information for local government debtmanagement, which is the reliable basis for government decision-making. At the sametime, the local government debt management also put forward new requirements on therecognition, measurement and reporting of the local government debt, providing the direction for the reform of government accounting, which will make Chinesegovernment accounting system can adapt to the trend of the development ofinternational environment.This paper analysis the status quo, problem and reason for the recognition,measurement and reporting of the local government debt at length and put forward someideas in the process of the reform of government accounting, which using literatureresearch, normative analysis, qualitative analysis, quantitative analysis, comparativeanalysis and other analytic methods. These ideas have important theoretical andpractical implications. This paper innovatively proposes that the government accountingreform should adopt a gradual approach. Based on the existing budget accountingsystem, the financial accounting system should be introduced gradually, to make sureboth the budget accounting system and the financial accounting system can make acontribution to the local government debt management. This paper also points out thataccounting for the local government debt shall adopt the accrual basis of accounting,fully reflect the direct dominant debt, direct recessive liabilities, contingent explicitliabilities and contingent implicit liabilities of the local government and set upcorresponding accounting entries. Besides, the government shall prepare consolidatedbalance sheet and prepare government accrual basis consolidated financial report inorder to reflect the local government debt truthfully, comprehensively and completelyand to regulate the behavior of local government and reduce financial risks.