sailendra pattanayak, fad international monetary fund
TRANSCRIPT
Sailendra Pattanayak, FADInternational Monetary Fund
Government Accounting Framework
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Key Elements of an Accounting Framework
Accounting basis – cash or accrualBudget classification and chart of accountsGeneral Ledger and subsidiary recordsAccounting process (manual or computerized)
and outputsAccounting policies Reporting entity Financial statements/reports
Skilled personnel is important resource to implement the above
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Accounting Framework in a Typical LIC – Main Issues
Manual book keepingNo ledger-based double entry systemLack of a comprehensive chart of accounts (or
a detailed coding system with various segments)
Substantial delay in annual accounts preparation
Lack of clarity on the ‘reporting entity’ concept for consolidation of annual accounts
Lack of clear methodology and accounting policies/standards for financial statements/reports
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Cash Basis Accounting
Transactions are recognized only when the related cash receipts and payments occur
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Accrual Basis AccountingFlows are recorded at the time economic values are
created, transformed, exchanged, transferred, or extinguished – GFSM 2001
A basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid) - IFAC Public Sector Committee
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Basis of Recording Government Financial Operations
Cash based accounts: Revenue / expenditure transactions are recognized only
when cash flow results Ignores liabilities until due for payment Ignores non-cash operations altering stock of
government assets and/or liabilities Needs to be supplemented by memoranda items to bring
to light economic flows escaping the accounts Accrual based accounts:
Economic flows are recorded at the time economic value is created, transformed, exchanged, transferred, or extinguished.
All economic flows (not just cash flows) are recorded. At the heart of accrual based accounts are the criteria
adopted for recognizing an economic flow. Imprecise and non-transparent recognition criteria will
compromise the integrity of accrual based accounts
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Basis of Recording Government Financial Operations
Modified Accrual based Accounts:
The term modified accrual basis, no longer defined as a formal, distinct accounting basis, is generally used to imply relaxed standards for recognition of economic flows.
Modified accrual basis is commonly employed: To enhance cash based accounting by accounting for
certain operations like expenditure commitments before cash flow results
To provide a migration path from cash-based to accrual based accounting systems
Modified Cash based Accounts:
This term is used to describe accounting systems under which cash-based accounts are “kept open” for some days/months beyond the close of the year to take on board transactions in pipeline at the time of year-end
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Accounts Keeping Process and Outputs
STEPS RECORDS
PostGeneralLedger
PostSubsidiaryLedgers
Prepare Trial Balance
Prepare Financial Statements
Prepare Correction Entrees
Collect Source Documents-- Vouchers-- Bank Statements-- Transfer entrees
Record in JournalsGeneral / Special Journals
General LedgerSubsidiary Ledgers
Trial Balance
Daily bank statementsRegister of checksPayment vouchersRevenue receiptsTransfer entrees
Consolidated Financial Statements
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Government Financial StatementsAnnual Government Financial Statements
Final Government accounts duly certified by the independent Supreme Audit Institution (SAI), together with a comprehensive audit report on the regularity, integrity, and propriety of government fiscal operations
Government accounts should, at the minimum consist of : Under cash based accounting:
Statement on sources, allocations, and use of cash resources – Finance Accounts
Statement on approved budget estimates and actuals – Budget Execution Accounts/Appropriation Accounts
Under accrual based accounting: Statement of Government Operations Statement of Other Economic Flows Balance sheet Statement of Sources and Uses of Cash Budget Execution/Appropriation Accounts
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Chart of Accounts
Countries do not always have a chart of accountsThat means that they do not have a proper general
ledger systemOccasionally, some transactions are recorded in one
system, and other transactions are recorded in another system
Without a COA and ledger system, the accounting framework can be considered to be lacking in basic accounting discipline and controls
The reliability and accuracy of the accounting system can be in doubt
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Chart Of Accounts – what it is
Logical framework for recording and reporting financial information
Modern systems include budget classification fully in COA
COA can accommodate progressive move to accrual accounting
Asset and liability accounts in addition to revenue and expense accounts
The Chart of Accounts needs to meet the business requirement of the Government
COA forms core of the information to be generated and tracked in a GFMIS
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Budget Classification and Chart of Accounts
BC = revenue, expenditure & borrowings COA = BC + asset, liability and equity accountsCOA also includes any internal management
classification such as departments, cost centers, regions.GFSM 2001 should be followed when developing budget
classificationUniform budget classification system, at all levels of
government (e.g. Brazil, India) – helps in general government reporting.
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Budget Classifications
GFSM requires Economic and Functional ClassificationsSalary, goods and services, grants, subsidies
are economic classificationsEducation, health, defense, are functions
Other ClassificationsCountries usually also have administrative
classification — ministries and departmentsOther classifications may include: programs,
fund, geographic location, etc.
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Account Type
Revenue and expense typeAsset, liability typeNet-worth/Equity typeRevenue and expense accounts are netted off
at year-end and the surplus/deficit is transferred to Net-worth/equity
Asset liability account balances are carried forward to next year
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Year-end Processes
First step is to extract a trial balance (TB)Modern computerized systems produce TB automatically
A trial balance is a list of all account balances in the general ledger
Once the TB is obtained, the balances should be reviewed to ensure that there are no obvious mistakes, etc.
If double-entry has been followed, the trial balance must be in balance, i.e., total debits must equal total credits
All revenue and expense type accounts are then written off to the net-worth/equity accounts, etc.
The remaining account balances relate to assets and liabilities and constitute the closing balance sheet for this yearThis is also the opening balance sheet for next year
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Cash Basis: Cash Flow Statement Part 1
Cash flows from operating activities
Receipts
Taxes ... ... ...Social contributions ... ... ...Grants ... ... ...Other revenues... ... ...
Total Receipts
Continued...
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Cash Basis: Cash Flow Statement Part 1
Cash flows from operating activitiesPayments
Wages and allowances ... ... ...Goods and Services ... ... ...Interest paymentsSubsidies ... ... ...Grants… … …Social benefits ... ... ... Other expenditures ... ... ...
Total Payments
Net cash flows from operating activities
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Cash Basis: Cash Flow Statement Part 2
Cash flows from investment activities
Acquisition of fixed assets Buildings and structures ... Inventories Strategic stocks ... Valuables Non-productive assets Land
... Less proceeds from sale of assets
Net cash flows from investment activities
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Cash basis: Cash flow statement-Part 3
Cash flows from financing activities
Proceeds from domestic borrowing ... Proceeds from foreign borrowing ... Less repayment of borrowing
Net cash flows from financing activities
Net increase / decrease in cash Opening cash balance Closing cash balance
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Accrual Basis - the Analytic Framework
Net operating balance = Revenue – expense Net lending/borrowing = Net operating
balance –net acquisition of non-financial assets
Net worth =Asset- liabilityClosing net worth = Opening net worth +
Net operating balance + other economic flows
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OPENINGBALANCE
SHEET
Nonfinancial Assets
Financial Assets
Liabilities
Net WorthChanges in Net
Worth
F L O W S
CLOSINGBALANCE
SHEET
Net Worth
Nonfinancial Assets
Financial Assets
Liabilities
TRANSACTIONS
Revenue
Expense
= NET OPERATING BALANCE
minus
Nonfinancial Assets
= NET LENDING/ BORROWING
minus
Liabilities
FinancialAssets• cash
• other financial assets
minus
OTHER ECONOMIC FLOWS
Holding Gains & Losses
Other Changes inthe Volume of Assets
Nonfinancial Assets
Financial Assets
Liabilities
Nonfinancial Assets
Financial Assets
Liabilities
GFSM 2001 ANALYTIC
FRAMEWORK
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GFSM 2001 Statements
Statement of Government OperationsStatement of Sources and Uses of CashStatement of Other Economic FlowsBalance Sheet
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GFSM 2001 Analytical BalancesStatement of Government Operations shows the
following measures of government performance:Net/gross operating balanceNet lending/borrowing
Statement of Sources and Uses of Cash shows the following measures of government performance:Cash flows from operating activitiesCash surplus/deficitCash flows from financing activities other than cashNet change in the stock of cash
Statement of Other Economic Flows shows:Total change in net worth due to holding gains/ losses and
other changes in volume of assetsBalance Sheet shows:
Net worth
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