Budget and Accounting Classification System (BACS)
Budget and Accounting Classification System (BACS) is a logical accounting structure through which financial transactions, including budgets, are posted, stored, maintained, and reported upon.
It is a core element in the financial management system as it enables transactions with similar characteristics to be grouped together for budget planning, accounting, control, and reporting purposes. BACS will support the uniform introduction of double-entry accounting.
Whilst, initially, the BACS will be used to report government finances on a modified cash-basis, it has been formulated to enable the future transition to full accrual accounting.
The BACS will support better public financial management in Bangladesh by providing additional and better quality information to decision-makers regarding public finances.
The scope of the information available will expand, for example by enabling the gathering of information for a broader set of government entities, reporting of both financial assets and liabilities and the ability to report on the location of spending. The quality of information will improve due to the improvements in the coding structure and introduction of double-entry accounting.
The use of a structured classification system facilitates financial management, policy analysis, and planning. Detailed budgeting and the recording of actual performance against the budget aid transparency of income and expenditure, allowing judgments to be formed as to the financial performance of an organization.
The BACS has been upgraded to improve its functionality and to accommodate reporting financial information both internally and externally, including:
- Classification of Functions of Government (COFOG): this was developed by the United Nations Statistics Division and analyses government expenditure into ten main categories including defense, health, and education;
- Government Financial Statistics (GFS): this was developed by the International Monetary Fund and classifies transactions of government into standardized groupings; and
- International Public Sector Accounting Standards (IPSAS): The International Federation of
Accountants’ (IFAC) International Public Sector Accounting Standards Board (IPSASB) develops accounting standards for public sector entities. Most countries have adopted IPSAS; either adopted an equivalent national standard or announced an intention to adopt IPSAS.
The task of any classification system is to identify the core similarities in government operations and organize individual transactions into homogeneous categories. These categories (or code segments) can provide useful information on the nature, composition, and impact of government revenues and expenditures. The categorization, thus, facilitates the analysis of government operations and activities.
A sound budget classification system follows three fundamental principles of classification:
- Homogeneity: Each of the classification segments should have a unique set of defining characters to which every transaction must comply:
- Independence: Each segment has to define characteristics that are different from and independent of, the others; and,
- Comprehensiveness: The definitions of each segment’s dimensions are complete and comprehensive.
The new BACS framework has been designed incorporating these fundamental principles. On the basis of these principles, it will be possible to classify transactions in a variety of ways and unambiguously, without duplication, overlap or repetition.