ETHIOPIA (MoFED)

ETHIOPIA
(MoFED)
Regional Workshop
On
Financial Reporting - Moving Towards Accrual Basis
April 11-14,2011
Arusha, Tanzania
1
Overview on Basis
of Accounting
2
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
3
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.
4
Basis … Cont
 Intergovernmental
transfers are recognized
without actual cash
movement
5
ACCOUNTING POLICIES
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.
6
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.
7
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
8
Thank You
አመሰግናለሁ
9
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
ARUSHA, TANZANIA, 10TH TO 15TH APRIL, 2011
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.
• 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.
• 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
understanding of the statements,
the same is disclosed in the notes to the current
period’s financial statements.
1.1
Funds Including Trust Funds
• Kenya uses modified accrual
accounting to account for funds.
basis
of
• 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.
• 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.
• 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.
• 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
Currency
Cash
Foreign
Payments and Balances
Receipts,
• Cash receipts and payments in foreign currency
are recorded in the Ministry or departmental
reports at the
• 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
• 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.
• 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
• 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.
• 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.
• 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.
Malawi Presentation

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
expenditures.


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
the Malawi Growth and Development Strategy


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.



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

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.

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

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
statements.



Accounting for Capital Repayment of Public
Debt.
Commitments to be brought as notes to the
accounts.
Adoption of Cash Basis IPSAS as a starting
point.




Capacity
Change management
Technical know-how
Implementation processes
THANK
YOU
THE UNITED REPUBLIC OF TANZANIA
MINISTRY OF FINANCE
ACCOUNTANT GENERAL’S DEPARTMENT
East AFRITAC Regional Workshop Financial ReportingTowards Accrual Accounting,Ngurdoto – Arusha, Tanzania
TABLE OF CONTENTS
INTRODUCTION/BACKGROUND
INFORMATION
BASIS OF ACCOUNTING
MAIN ACCOUNTING POLICIES
WAY FORWARD
CONCLUSION
2
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.
3
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,
commissions), unless otherwise stated.
4
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
5
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.
6
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:
7
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.
Employee benefits are recognizes when paid.
8
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.
9
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
recipient on behalf of the Government.
10
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
11
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.
12
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.
13
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.
14
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.
15
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
16
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
reimbursed,
17
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
o Fully funded by development partner
18
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.
19
REPORTING ENTITIES
 Reporting Entities in the national Financial
Statement to date are
 23 Ministries
 9 Commission
 25 Independent Department
 21 Regional Administrative Secretary
 32 Embassies
20
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
Implementation of Asset Management Model
21
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.
22
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
Involvement of all key stakeholders effectively
23
THANK YOU
Financial ReportingSpecific case of The Government of
Uganda
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
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

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
Disbursements)
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.
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
movement.
Other Entities Not Consolidated
The above are not consolidated;
 Different accounting policies and reporting
requirements (IFRSs)
 Donor have differing agreements and Reporting
formats.
 Different calendars .
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
Plus other notes and supplementary schedules
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
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.
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
Arrears
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
and disposal proceeds treated as Non Tax Revenue
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.
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)
Massive professional training, Restructuring.
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.
Challenges-Cont.
 Transitional arrangements are a big challenge (Asset
Valuation)
 The differing reporting requirements of certain
projects and Business agencies.
 Different Calendars for reporting purposes
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.
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
reduction in queries and qualified audit opinions.
THANK YOU.