XN000022-1997-04-16 — Page 42

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(a)

of the amount of revenues derived from land sales in 1996-97 which will be recorded in the accounts of the following fiscal year; and

(b)

Reply:

(a)

(b)

whether consideration will be given to adopting an accrual accounting system for recording revenues, so as to reflect accurately the revenues received in each fiscal year?

The amount of revenue from land sales in 1996-97 which will be accounted for in Hong Kong Government's consolidated accounts in 1997-98 is estimated to be $7.3 billion. The time-lag in the crediting of land revenue into Hong Kong Government's consolidated accounts is due to the need to allow time for the proper sharing of the proceeds from land sales with the Hong Kong Special Administrative Region Government Land Fund in accordance with Annex III to the Sino-British Joint Declaration.

Revenue and

We currently adopt a cash basis of accounting. expenditure are recorded when cash is actually received or paid. While this meets the primary objective of Government's financial reporting, which is to demonstrate that the spending of public funds is for the purposes and within the limits approved by the legislature, we recognise the potential benefits of an accrual accounting system in terms of providing more comprehensive information on Government's financial position and facilitating resource management. In the light of the findings of a 1994 study on the subject and subsequent efforts in producing accrual-based departmental resource accounts for a number of departments, we will continue to explore the wider use of accrual-based accounts and then determine whether we need to make changes to the basis of Government accounting. However, to record land revenue on an accrual basis when all other revenue and expenditure items are accounted for on a cash basis would result in a hybrid system. This would not be a good accounting practice and may result in misleading information.

End