*********************************************************

The Government today (January 5) published its accrual-based consolidated accounts for the financial year 2002-03 to enhance the Government's financial transparency.

The accrual-based accounts, which present more comprehensive information on the Government's financial position, are in addition to the cash-based accounts published annually.

The Director of Accounting Services, Mrs Lucia Li, said that the accrual-based accounts differed from the existing cash-based accounts in the purposes they served.

"The cash-based accounts, which concentrate on cash revenue and expenditure items, serve mainly to demonstrate compliance with the cash-based budget. The accounts cover the General Revenue Account and the Funds established under section 29 of the Public Finance Ordinance. On the other hand, the accrual-based consolidated accounts focus on the overall financial performance and position of the Government and Government-owned entities.

"In other words, the accrual-based accounts include not only all the Funds covered by the existing cash-based accounts, but also other Government funds such as the Exchange Fund, the Quality Education Fund, the Hong Kong Housing Authority, and Government business enterprises such as MTR Corporation Limited and Kowloon-Canton Railway Corporation.

"Under the accrual accounting convention, more disclosure of the Government's assets and liabilities, eg, pension liabilities, is made," she said.

According to the accrual-based Consolidated Statement of Financial Position as at March 31, 2003, the Government's net assets were worth $660.5 billion and were represented by three reserves: General Reserve ($217.5 billion), Exchange Fund Reserve ($330.4 billion) and Capital Expenditure Reserve ($112.6 billion).

"The purpose of representing the Government's net assets by three types of reserve is to avoid possible confusion as to the resources available for disposal. Capital Expenditure Reserve is money already spent on fixed assets, whereas Exchange Fund Reserve refers to the net assets of the Exchange Fund the use of which is governed by the Exchange Fund Ordinance. General Reserve represents the net assets of Government excluding its own fixed assets and the net assets of the Exchange Fund," Mrs Li explained.

The Government's General Reserve as at March 31, 2003 was $93.9 billion less than the Fiscal Reserves of $311.4 billion reported in the cash-based accounts. The difference is due to the inclusion of the Government's liabilities such as pensions, offset partly by financial assets such as investments not recognised in the cash-based accounts.

However, the cash assets available for the Government's disposal at March 31, 2003 were the Fiscal Reserves of $311.4 billion.

The accrual-based consolidated accounts also recorded a deficit smaller than that shown in the cash-based accounts. At $43.4 billion, the accrual-based deficit was $18.3 billion less than the $61.7 billion reported in the cash-based accounts. This is due partly to the consolidation of the surpluses made by Government-owned entities including the Exchange Fund.

The publication of the accrual-based consolidated accounts followed the recommendations of the report entitled "Review of Government Financial Reporting Policy" published by the Government in June 2002 after public consultation. Mrs Li pointed out that this was the Government's first attempt at consolidating the accounts of the Government and the entities it owned on the accrual basis.

"Our plan is to adopt an incremental approach to refine the accrual-based accounts for subsequent years by presenting further financial and non-financial information in the accounts. We are working on the format and contents of the accrual-based cost statements of individual bureaus and departments, and we will add a stewardship statement showing in terms of physical measurements the major resources used by the Government such as land, buildings, roads and drains with effect from 2004-05.

"We will also conduct a post-implementation review in 2006-07 to take stock of the results achieved and to identify areas for further improvement," she said.

Ends/Monday, January 5, 2004

NNNN