4.1 Financial statements should represent the financial position, performance and cash flows of a public entity fairly. This means that the representation of the effects of transactions and other events should be transparent. Briefly discuss these key terms pertaining to financial statements and provide one example of each:

• Net assets;
• Revenue; and
• Liabilities

4.2 Accrual accounting is the accepted method of accounting worldwide for the private sector. The public sector has also adopted this method of accounting, as it assists governments in obtaining better pictures of the performance of their policies. It facilitates better planning, decision-making and management and provides the means to assess financial resilience (IAS, 2007).

Describe the accrual method of accounting and identify the elements that are recognized under this method.