B.C.'s auditor general say the province is understating the budget surplus presented Thursday by $5.7 billion.

In an opinion paper released Friday, Carol Bellringer says the true surplus should have been recorded as $7.2 billion rather than $1.5 billion reported by Finance Minister Carole James.

"What we're saying is that the financial health of the province is actually better than reported and that the accumulation of [the surplus] is quite significant," said Bellringer.

Bellringer said the discrepancy is a result of the government choosing not to adhere to generally accepted accounting principles, specifically in the way it accounts for "restrictive contributions," including funds received from the federal government for capital projects.

"... government records the revenues over a much longer period than the standards allow, meaning these revenues have been under-reported and cloud the province's true financial position," wrote Bellringer.

In an emailed statement, the Ministry of Finance said other jurisdictions do the same thing.

B.C. Finance Minister Carole James. (Evan Mitsui/CBC)

"This disagreement in accounting application does not mean there is additional surplus available for spending. Those transfers are already being used to invest in the services and infrastructure that British Columbians count on."

The ministry sent an example.

"If the federal government provided contributions to build a school, the expectation would be that the B.C. government would build the school and use it as a school, it said.

Accounting requires us to amortize the school over 40 years, reporting an expense in each of those 40 years as the school is used to deliver education. From a fiscal perspective, it makes sense to recognize the federal contributions as revenue on that same basis, not as a one-time lump sum of revenue."

But Bellringer said the majority of provinces and territories in Canada — with a few exceptions — adhere to the public sector accounting standard her office is promoting.

She said it's important to stick to that standard to create consistency in reporting and allow for B.C.'s financial statements to be more easily compared with other Canadian jurisdictions.

In 2010 the government changed the Budget Transparency and Accountability Act, allowing for modifications to how restrictive contributions were accounted for.