PART 2: FINANCIAL ACCOUNTING

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PART 2 FINANCIAL ACCOUNTING REPORTING

• Financial Accounting and Reporting Theory

2
Stewardship

• the duty to provide an account on the uses of
  the resources and not the effect of the uses or
  the purposes of entrusting the resources to the
  steward (Gray, et.al, 1991)

3
Accountability

• the giving and demand for reasons for
  conduct (Roberts Scapens, 1985)
• the duty to provide an account (by no means
  necessarily an account) or reckoning those action
  for which one is held responsible (Gray, et.
  al, 1996)
• government accountability as the duty of
  public officials to report their actions to the
  citizens and the rights of the citizens to take
  action against those officials, whose conduct the
  citizen unsatisfactory. (Tocqueville,
  2000)

4
Questions to ponder?

• Why is public sector accountable to the public?
• How to achieve public accountability?
• Why there is an increase concern on Public Sector
  accountability?
• Accountability from the perspective of Islam?

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Framework of Accountability

• ACCOUNTABILITY

Accounting
Budgeting
Auditing
(Source Rauf, et al, 2003)
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How to achieve public accountability?

• The creation of an effective control in the
  management of public moneys
• The establishment of effective system for public
  officials to execute responsibilities entrusted
  to them
• The utilization of public moneys in accordance to
  authorized purposes and relevant activities
  without any wastage

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Types of Accountability

• Financial Accountability
• The responsibility of government to comply with
  all laws, rules and regulations in performing all
  their functions
• Programme Accountability
• The responsibility of government personnel to
  ensure that the objectives of the individual
  programme and activity of government
  organizations are achieved
• Management Accountability
• The responsibility of the management of govt
  organization to ensure the is effective,
  efficient and economic utilization of government
  resources under their control

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Accountability in Government Operations

• Levels of Government Accountability Entities
• Parliament
• Treasury
• Ministries, Government Departments agencies
• Office of the Auditor General
• Public Account Committee (PAC)

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Why accountability is not fully achieved in
public sectors?

• No real directive or guideline on the new system
  introduced
• Inadequate number of qualified accounting staffs
• Failure of internal control system
• Resistance to change
• Failure to recognize relationship between
  business processes and records
• Lack of top management support

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Recommendations to Improve Accountability in
Public Sector

• Disciplinary actions to staffs who failed to
  perform tasks
• Offer better fringe benefits and promotions to
  staffs
• Set up audit committee
• Cooperation from other parties
• Continuous revision of policies and circulars
• Effective recording system

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The Objectives of Public Sector Accounting
Reporting

• To provide
• Financial information useful for making economic,
  political and social decisions, and demonstrating
  accountability and stewardship
• Information useful for evaluating managerial and
  organisational performance
• (National Council on Governmental
  Accounting (NCGA), p.126)

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Users of PSA

• Taxpayers
• Grantors
• Investors
• Fee-paying service recipients
• Employers
• Vendors (suppliers)
• Legislative bodies
• Management
• Voters
• Oversight bodies

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PSA Policy-Making

• United Kingdom
• central govt the responsibility of the Treasury
• Local authorities related laws e.g Local
  Government and Housing Act 1989
• Regulated industries non-ministerial-government
  departments e.g Office of telecommunications
  (OFTEL) for telecommunication industries
• United States
• Many standard setting bodies for the state and
  local governments
• National Council on Governmental Accounting
  (NCGA), Council of State Governments, General
  Accounting office of the Federal Government etc.
• Finally established Governmental Accounting
  Standard Board (GASB) local and state
  governments

14
PSA Policy-Making

• International Level
• Several international standard setters
• 1977 International Federation of Accountants
  (IFAC)
• It works with its 158 member organizations in 118
  countries
• 1998 The Public Sector Committee was set up to
  deal with issues of public sector organizations
• International Organisation of Supreme Audit
  Institutions reports on issues of the
  development of international accounting standards
  for governments

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The Public Sector Committee of IFAC

• Objective
• to develop programs aimed at improving public
  sector financial management and accountability,
  including developing accounting standards and
  promoting their acceptance
• Authorized to issue International Public Sector
  Accounting Standards (IPSASs)
• IPSASs adapt IASs (by IASC) wherever possible
  unless there a certain public sector issue that
  warrants a departure
• Website http//ifac.org/PublicSector/
• Due Process
• Exposure Drafts to the relevant parties (4
  months)
• Issuance of IPSAS upon approval by PSC

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IPSASs

• Scope of the standards
• applicable to all public sector entities
  including national governments, local governments
  and their component governments
• Not applicable to Government Business entities
• At present, 20 IPSASs have been issued by PSC
  (IPSAS 1 to IPSAS 20)

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IPSASs

• IPSAS 1 - Presentation of Financial Statements
  IPSAS 2 - Cash Flow Statements IPSAS 3 - Net
  Surplus or Deficit for the Period, Fundamental
  Errors and Changes in Accounting Policies IPSAS
  4 - The Effects of Changes in Foreign Exchange
  Rates IPSAS 5 - Borrowing Costs IPSAS 6 -
  Consolidated Financial Statements and Accounting
  for Controlled Entities IPSAS 7 - Accounting for
  Investments in Associates IPSAS 8 - Financial
  Reporting of Interests in Joint Ventures

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IPSASs

• IPSAS 9 - Revenue from Exchange Transactions
• IPSAS 10 - Financial Reporting in
  Hyperinflationary Economies
• IPSAS 11 - Construction Contracts
• IPSAS 12 - Inventories
• IPSAS 13 - Leases
• IPSAS 14 - Events After the Reporting Date
• IPSAS 15 - Financial Instruments Disclosure and
  Presentation
• IPSAS 16 - Investment Property
• IPSAS 17 - Property, Plant and Equipment
• IPSAS 18, Segment Reporting
• Glossary of Defined Terms, IPSASs 1-18
• IPSAS 19 - Provisions, Contingent Liabilities and
  Contingent Assets
• IPSAS 20 - Related Party Disclosures