ETHIOPIA (MoFED) Regional Workshop On Financial Reporting - Moving Towards Accrual Basis. Arusha, Tanzania. April 11-14,2011

Full text

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ETHIOPIA

(MoFED)

Regional Workshop

On

F

inancial Reporting - Moving Towards Accrual Basis

April 11-14,2011

Arusha, Tanzania

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Overview on Basis

of Accounting

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BASIS OF ACCOUNTING

Cash basis of accounting are applied except

the following

Revenue is recognized when:

Aid in kind is received.

Payroll is processed (income tax and employee

fines)

Salary advance is made to an employee

(interest on salary advances)

Withholding tax is deducted from the amount

due to a supplier

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Basis … Cont

Expenditure is recognized when:

Payroll is processed (salary and pension

expenses)

Aid in kind is deliver

Goods are received or services are

rendered

At the end of the year, a grace period

payable is accounted for.

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Basis … Cont

Intergovernmental

transfers are recognized

without actual cash

movement

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A

CCOUNTING

P

OLICIES

REVENUE

Revenues are recognized on receipt of amounts except as stated above.

FINANCE COSTS

Finance costs are recognized as an expense in

the period in which they are paid.

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Acct…Cont

TRANSLATION OF FOREIGN CURRENCIES

Transactions denominated in foreign currencies are translated into Ethiopian Birr at the rates of

exchange ruling at the date of the transaction.

Cash and bank balances that are denominated in foreign currencies are translated at the rates of

exchange ruling at the year end and the exchange gains/loss arising from such translation are

recognized as revenue/expenditure respectively.

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Some Fact

Program Budget will be launched in

2004/2012 budget year.

IBEX version 2 has been develop and

launched soon

IFMIS has been under implementation

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Thank You

አመሰግናለሁ

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THE BASIS OF ACCOUNTING AND

MAIN ACCOUNTING POLICIES

USED BY KENYA

A PAPER PRESENTED BY COUNTRY TEAM AT EAST AFRITAC REGIONAL WORKSHOP ON FINANCIAL REPORTING - MOVING TOWARDS THE ACCRUAL BASIS

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1.0 Cash Basis of Accounting and Main

Policies

• Kenya uses cash basis of accounting in its financial reporting framework – where only receipts and payments and balances of the entity are compared with budgetary estimates.

• The variances between budgetary estimates and actual figures are reported in the appropriation accounts to obtain variances which are then explained in the footnotes to the accounts.

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• Pending bills and revenue receivable are disclosed in the notes to the accounts but are not accrued for.

• Contingent liabilities are not accounted for whether likelihood of occurrence is certain.

• Accounting reports are produced for audit at the end of 3 months (or by 30th September) of the year of reporting.

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• The auditing accounts are consolidated and placed before Parliament within 6 months of the financial year end.

• Comparative information is disclosed in

respect of the previous year’s (period’s)

transactions (figures). Where comparative

information

requires

narration

to

comprehensive

provide

a

clear

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the same is disclosed in the notes to the current period’s financial statements.

1.1 Funds Including Trust Funds

• Kenya uses modified accrual basis of accounting to account for funds.

• Generally, the annual fund accounts and statements are prepared to show receipts, earnings and accruals of funds and monies expended for the purposes for which the funds were established.

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• This involves the preparation of the

income and expenditure account and the

balance sheet as at the close of the

accounting period.

• Usually when preparing the annual fund

accounts the accounting system is partly

observed by incorporating non-cash

adjustments such as reserves, provisions,

accruals and prepayments.

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• A fixed asset such as Investments are

accounted for at cost while others such as

Equipment, vehicles and land and buildings and associated amortizations are reported at cost

and not market value.

• Any officer administering a fund established under the Financial Management act shall prepare, sign and transmit to the Auditor

General within three months after the close of the period to which they relate. The period of the account may be prescribed by the law

establishing the fund and in the absence of such law the Treasury will prescribe.

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• Similarly, any officer administering any trust or other fund or account not provided for in Acts shall if so directed by the Treasury, prepare, sign and transmit to the Auditor General an account in such a form as the Treasury may form time to determine.

1.2 Foreign Currency Cash Receipts, Payments and Balances

• Cash receipts and payments in foreign currency are recorded in the Ministry or departmental reports at the

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• Exchange differences arising in reconciling items between opening and closing cash balances for the period are disclosed in the notes for the accounts.

2.0 Planned Changes

Cash balances for foreign debts are reported using the closing rate of exchange.

• An accounting Standards Committee was appointed to assess the possibility of moving to accrual basis of accounting

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• The Committee is current working on planned change to modified and/or full accrual accounting bases.

2.1 Foreseeable Challenges (Issues yet to be resolved)

• It will be costly to completely compile, locate, reconcile and accurately value the detailed information on the fixed assets and liabilities.

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• It is expected that when Kenya Government first start to compile assets register, there may be insufficient information to determine ownership of some assets.

• It is noteworthy that complete information on assets and liabilities, including that relating to ownership and control, is a precursor to proper management of assets and liabilities.

• It will be difficult to determine the most efficient way of managing the assets, assessing the

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• contingent liabilities and reporting on their stewardship.

• How to measure values, the time and the costs thereof of assets such as roads, water masses, forests and amortize or re-value them for accounting purposes.

• The management of public assets requires sufficient records to identify the existence of assets and the costs of holding and operating these assets.

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• The recognition of assets in a Statements of Financial Position requires that government undergo a rigorous process of identifying all assets, verifying ownership and professionally placing a value on assets . While the adoption of accrual accounting is not a necessary prerequisite for this to occur, it is often the driving factor.

• Financial reporting deadlines require that this process be completed within a given timeframe and the review of this information by an external auditor provides assurance as to its reliability.

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• The Country should adopt full accrual for the National and Country Governments of Modified Accrual and full accrual for the national and county governments respectively.

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 Cash Basis of Accounting.

The current basis of accounting in Malawi is Cash

based where transactions are recognised when cash is paid or received

Characteristics

Capital expenses are expensed when purchased. Commitments are not accounted for.

No accounting for capital repayments of debt.

No transfers between financial years for recurrent

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 Authority

The Accountant General has delegated authority from the Secretary to the Treasury to prepare

Consolidated Annual Financial Statements.  Bases for Preparation

The basis for preparation are:

the Constitution of the Republic of Malawi, the Public Finance Management Act,

the Public Audit Act,

Treasury Instructions, and

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 Section 13(o) Public Trust and Governance states that

the Government shall “introduce measures which will guarantee accountability, transparency, personal

integrity and financial probity and by virtue of their effectiveness and transparency will strengthen

confidence in public”.

 Section 184(1) and (2), states that there shall be an

office of the Auditor General and ‘he/she’ shall report on the public accounts of Malawi and shall submit

reports at least once a year to the National Assembly, through the Ministry of Finance, not later than the

first meeting of the National Assembly after the completion of the report.

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 Section 13 of the PFMA 2003 requires that all

financial reports, associated information and accounting procedures be in accordance with Generally Accepted Accounting Principles

(GAAP).

 GAAP is defined by the Act as:

 Standards and practices promulgated by the

International Federation of Accountants as applicable to Governments and Statutory Bodies; or

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 If no standard or practice exists, then

accounting principles or practices which have the authoritative support of the accounting profession in Malawi or in countries that

maintain accounts and records and prepare financial statements similar to the

Government of Malawi and its statutory bodies.

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 Treasury Instruction Part 9 provide for

financial reporting of government accounts and therefore the financial reports need to provide sufficient information to:

 Assess the Government’s overall financial position and condition.

 Evaluate the Government’s performance and it’s

ongoing ability to deliver the existing level of services.  Predict the timing and volume of cashflows and future

cash and borrowing requirements.

 Assess the government’s ability to meeting its short and long term financial obligations

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 Instituted the Asset Management Division. ◦ Issues: Assets classifications Valuations Identification of assets Asset Registers

Capitalize or expense as usual

Where to start, and what to include in the financial

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 Accounting for Capital Repayment of Public

Debt.

 Commitments to be brought as notes to the

accounts.

 Adoption of Cash Basis IPSAS as a starting

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 Capacity

 Change management  Technical know-how

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THE UNITED REPUBLIC OF TANZANIA

MINISTRY OF FINANCE

ACCOUNTANT GENERAL’S DEPARTMENT

East AFRITAC Regional Workshop Financial Reporting-Towards Accrual Accounting,Ngurdoto – Arusha, Tanzania

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TABLE OF CONTENTS

INTRODUCTION/BACKGROUND

INFORMATION

BASIS OF ACCOUNTING

MAIN ACCOUNTING POLICIES WAY FORWARD

CONCLUSION

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INTRODUCTION/BACKGROUND INFORMATION

The Accountant General (ACGEN) Office in

Tanzania is responsible for ensuring that

entities in the public sector keep proper books of accounts that comply with general

accepted accounting principles.

In 2006, the International Public Sector

Accounting Standards (IPSAS) were adopted to provide a record of the Government of

United Republic of Tanzania’s financial performance.

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INTRODUCTION/BACKGROUND INFORMATION….

The IPSASs are designed to apply to the

general purpose financial statements of all public sector entities. Public sector entities include National Governments, regional

Governments (for example, state, provincial, territorial), local governments (for example, city, town) and their component entities (for example, departments, agencies,

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INTRODUCTION/BACKGROUND INFORMATION….

At the moment, the Central Government

is using cash-basis accounting whereas

the Local Government is using the

accrual-basis of accounting.

It is expected that the Central

Government will move to accrual-basis

of accounting in the near future

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BASIS OF ACCOUNTING

The Consolidated financial Statements have

been prepared in accordance with Public Finance Act of 2001(revised 2004), and

Comply with the requirements of Cash Basis International Public Sector Accounting

Standards (IPSAS) Financial Reporting under the cash Basis of Accounting.

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MAIN ACCOUNTING POLICIES

These are the specific principles, bases,

conventions, rules and practices adopted by the Government of United Republic of

Tanzania in preparing and presenting the financial statements.

These policies have been consistently

applied to all years presented, unless other wise stated:

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MAIN ACCOUNTING POLICIES……..

a) Reporting Period

b)Reporting currency and translation of foreign currencies

c)Unspent cash balances d) Employee Benefits

Employee Benefits include salaries, pensions

and other related employment costs.

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MAIN ACCOUNTING POLICIES …… e) Revenue

Revenue represents cash received by the

entity during the financial year, and

comprises tax, non-tax revenue, financing income and external assistance.

Revenue not yet received is disclosed in

the Consolidated Statement of Revenue in Arrears.

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MAIN ACCOUNTING POLICIES …… Revenue comprises of

Taxation, Non-Tax Revenue, Financing Income and

External Assistance

External assistance received by Government is in form of loans and grants. External assistance received by all Government entities is

accounted for centrally by the Ministry

responsible for finance which is the principal

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MAIN ACCOUNTING POLICIES ……

Grants are recognized as income when received. Where the accounting entity receives non monetary grants, a dummy exchequer is issued and the amount is

recorded as ‘Payment by third parties’ and disclosed on the face of the Statement of Cash Receipts and Payments, payment by function and notes to the financial statements

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MAIN ACCOUNTING POLICIES …… f) Transfers

These are funds received or transferred to or from the other Government entities, agencies or other third parties.

g) Expenses

In general, expenditure is recognized when cash is paid.

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MAIN ACCOUNTING POLICIES …… h) Receivables

Receivables are disclosed in the financial statements at original historical cost. Bad debts are written off with the approval of

Parliament, when identified and are reflected in the Statement of Losses of Public Money, stores written off and claims abandoned.

i) Inventories

Consumable supplies are expensed in the period in which they are paid for.

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MAIN ACCOUNTING POLICIES ……

j) Property, Plant and Equipment

Property, plant and equipment principally comprise land, buildings, plant, machinery, motor vehicles, furniture and fixtures,

computer equipment, intangible assets, biological assets and other civil works.

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MAIN ACCOUNTING POLICIES ……

Property, plant and equipment purchased, are expensed fully in the year of purchase. However, a memorandum record is

maintained in the Fixed Asset Registers at

historical cost or valuation of non-current and intangible assets of the respective entity.

Proceeds from disposal of property, plant and equipment are received by the Treasury.

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MAIN ACCOUNTING POLICIES ……

All items of property, plant and equipment are

owned by the respective entities.

k) Losses

Losses are disclosed in the statement of

Losses of Public Money, stores written off and claims abandoned

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MAIN ACCOUNTING POLICIES …… j) Provisions

Provisions are disclosed in the Statement of Liabilities when the Government has a

present obligation (Legal or Constructive) as a result of past event, it is probable that an outflow of resources embodying economic

benefit will be required to settle the obligation and reliable estimates can be made of the

amount of the obligation. Where Government expects some or all of a provision to be

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MAIN ACCOUNTING POLICIES ……

m) Project Expenditure

Government Projects are series of

undertakings by the entity with specific

objectives and a defined period and could be either:

o Fully funded by the Government; o Jointly funded by Government and

development partner; or

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MAIN ACCOUNTING POLICIES ……

n) Contingencies

Contingent liabilities are disclosed in the

Consolidated Statement of Contingent, when contingency become evident. Contingent

assets are neither recognized nor disclosed.

o) Commitments

p) Value Added Tax

Expenses and liabilities are recognized at amount inclusive of Value Added Tax (VAT). Payables are stated with amounts of Value Added Tax.

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REPORTING ENTITIES

 Reporting Entities in the national Financial

Statement to date are

 23 Ministries

 9 Commission

 25 Independent Department

 21 Regional Administrative Secretary

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WAY FORWARD…...

ACGEN set up a task force/project comprising of exemplary Chief Accountants and/or deputies to provide support in driving the IPSAS agenda to the next level

Develop work stream identifying critical & conventional paths

Enabling key decision makers including the presidency, cabinet, PAC, RAC to support such an agenda

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WAY FORWARD…...

Strengthening of standards & regulatory

Training Needs Assessment & coming up with an effective training programme

Recruit qualified accountant & intensify training.

Development of IPSAS compliant accounting manual Learning from other countries: Countries such as

Ghana, South Africa, Switzerland, New Zealand,

have been successful in adoption of IPSAS & taping experience & lessons from these countries will be of help to Tanzania to fast track the adoption of IPSAS.

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CONCLUSION

The adoption & implementation of IPSAS in Tanzania will enhanced transparency; good governance and accountability in public sector;

Goes extra mile in providing more relevant, sufficient and reliable information for policy and other decision making

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Financial Reporting-

Specific case of The Government of

Uganda

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Background

 Financial reporting for the Government has

undergone significant improvements over the last 8 years – Since 2003

 Government moved from pure cash basis reporting

to modified cash basis to better report on its operations

 The reporting templates are undergoing further

review to be a report using the new budgeting basis – Output Based Budgeting

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Financial Reporting Policies

 Key GoU Accounting policies that impact on

financial statement presentation include:

 Modified cash basis of accounting: Revenue recognised

when cash is received/collected while expenditure is recognised when incurred (not necessarily when paid)

 Expenditure on property (inc. infrastructure), plant

and equipment is fully expensed in period its incurred

 Liabilities are recognised when crystallised –

Contingent liabilities not recognised in financial statements but are disclosed

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Reporting Entities Consolidated

 Government Ministries  Government Agencies  Statutory Commissions  Uganda Missions Abroad

 Local Governments ( To the extent of Transfers)  Tertiary Institutions ( To the extent of

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Other Entities Not Consolidated

 The Government Business entities. These include

both trading and statutory enterprises which are

either fully Government owned or Government has a stake. These entities operate commercially and are not reliant on continuing Government funding to be a going concern.

Government Business Entities are excluded from the consolidated Government Accounts. Dividends from these entities are treated as Non tax revenue.

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Other Entities Not Consolidated

 Direct Donor Disbursements to projects is not

included in consolidation. Development partner

funded projects that disburse through Treasury are accounted for as inflows and fully expensed.

In the short term as we proceed to develop

guidelines for project accounting and reporting we intend to capture the bank balances in the statement of financial position and thereafter the net

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Other Entities Not Consolidated

The above are not consolidated;

 Different accounting policies and reporting

requirements (IFRSs)

 Donor have differing agreements and Reporting

formats.

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Financial Statements produced by Entities

 Annual accounts are prepared in accordance with the Third

Schedule of the PFAA and include:

 Statement of Financial Performance

 Statement of Financial Position (Balance Sheet)  Statement of Changes in Equity

 Cash flow Statement (Direct method)

 Statement of Appropriation by Nature and Service.

 Statement of losses of public moneys and stores written off  Statement of outstanding commitments

 Statement of arrears of revenue

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Financial Statements for Consolidation

 Statement of Outstanding Debt

 Statement of Outstanding Advances and loans issues by Government

 Statement of losses of public moneys and stores written off

 Statement of outstanding commitments  Statement of arrears of revenue

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Financial Assets and Liabilities

Cash and Cash Equivalents are carried in the

Statement of Financial Position at cost. This for purposes of cash flow comprise cash on hand, deposits held at call with banks, other short-term Highly liquid investments and bank overdrafts. In accordance with the requirement of the Public Finance and Accountability Act 2003,

unspent cash balances at the end of the financial year are returned to the Consolidated Fund in the course of the following financial year.

Receivables are carried at original historical cost.

Outstanding letters of credit at period end are treated as deposits receivable and expensed in the following year when performance has been enhanced.

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Financial Assets and Liabilities

Investments: All purchases and sales of investments are recognized at

the date when payments are effected or when proceeds are received. All investments in the balance sheet are carried at historical cost. For

investments quoted in foreign currency, the historical cost is translated at the closing rate.

Borrowings: Borrowings are initially recorded in the Statement of

Financial Position [the balance sheet] at cost net of any transaction costs paid.

Interest expense or income on borrowings is recognized in the Statement of Financial Performance only when paid or received.

Payables –Accrued expenditure at the end of Financial year at cost

Liabilities

Public Debt

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Fixed Assets

 Property plant and equipment comprises land,

buildings, plant, vehicles, equipments, highways, specialist military equipment and any other

infrastructure assets but does not include regenerative natural resources such as forests and mineral resources.

 Purchase of the Fixed Assets are expensed fully in the

year of purchase. Fixed asset register is kept at historical cost of non-current assets of government.

 No recognition of gains or losses from changes in values

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Contingent Liabilities

 Contingent liabilities are recorded in the Statement

of Contingent Liabilities (Memorandum Statement) Contingent liabilities are recorded in the Statement

of Contingencies Liabilities when the contingency becomes evident. Contingent assets are neither recognised nor disclosed.

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Current Situation

 The new format of accounts is more informative and

comprehensive.

 Better tracking of payables and arrears say pensions

which were previously maintained off-balance sheet

 Reduced incidence of excess expenditure.

 Improvement in accounting for assets thus setting the

basis for updating of assets registers.

 Guidelines for accounts preparation

 Re-engineering current government processes (payment

systems, payroll systems)

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Challenges

 The cost and timescale that should be allowed to achieve

the necessary changes to the underlying accounting system cannot be underestimated.

 In the public sector the budget is the starting point for

accounting and reporting and is often seen as the key document. The budget determines the allocation of

resources, determines fiscal policy and the distribution of the taxation burden, allocates public resources between the different expenditure programmes and provides the legal authority for expenditure. It is therefore imperative that budgeting must also adopt accrual.

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Challenges-Cont.

 Transitional arrangements are a big challenge (Asset

Valuation)

 The differing reporting requirements of certain

projects and Business agencies.

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Ongoing and future improvements

 Gradually moving towards full accrual accounting.

This will necessitate joint effort to move towards accrual budgeting so that budgeting and reporting bases remain consistent.

 Testing of Donor funded projects solutions on IFMS

so that projects can be consolidated in the national accounts is being undertaken.

 Reviewing of the PFAA to streamline reporting

arrangements and consider having the Local Governments’ Accounts consolidated as well.

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Conclusion

 Government’s financial reporting has continued to

steadly improve and this is evidenced by more timely production of financial statements as well as a

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Figure

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References

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