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government accounting in Bangladesh
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4/6/2015
Term paper: NGO Environment in Bangladesh and its Accounting Systems Course name: Accounting for specialized Institutions
Submitted to:
Mohammad Moniruzzaman,ACA Assistant professor Department of Accounting & Information Systems, University of Dhaka
Submitted by: Mohammad Saadman
4th Year, 1st Semester ID: 18052, Sec: A Department of Accounting and Systems Faculty of Business Studies, University of Dhaka
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Contents
Chapter 1: Introduction to the report 3
Chapter 2: Objective 3
Chapter 3: Methodology 3
Chapter 4: Analysis 4
Chapter 5: Findings & Observation 13
Chapter 6: Conclusion 17
Chapter 7: Appendix 18
Chapter 8: Reference 19
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Abstract:
Government accounting is very much important for maintaining the balance of economy
and to maintain the revenue and expenditure to a sufficient level for keeping economic
balance of the country. The government accounting system does not follow the
standards of IPSASB [International Public Sector Accounting Standards Board],which
makes it less compatible to the best practices of this sector. The distribution of
responsibility and accountability is not sufficient enough to eliminate corruption and
waste of important resources. Only cash basis accounting method does not show the
proper picture of the financial condition of the government.Those inefficiency is causing
drawback in the economic development of the nation.Accrual basis of accounting and
the application of the framework prepared by the International Public Sector Accounting
Standards Board is a must for eliminating the inefficiency from the outdated system.
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Chapter 1: Introduction to the report
A government is the system by which a state or community is governed. Governmental
accounting is an umbrella term which refers to the various accounting systems used by
various public sector entities. Public sector accounting refers to the field of accounting
that specifically finds application in the public sector or government. On this report the
key issues related to the accuracy and efficiency of the government accounting is
evaluated by comparing its compatibility with the standards issued by the International
Public Sector Accounting Standards Board.
Chapter 2: Objective
The main objective of the study is to bring light on to the relevant issues of the
government accounting systems of Bangladesh and find its drawbacks and how to get
away from those drawback by making it an efficient system by implementing different
government accounting standards parcticed worldwide. The other objectives are:
assessment of public sector accounting and auditing to help implement more effective Public Financial Management .
To understand the environment of Government accounting in Bangladesh
Comparing with standards
Assessing variances
Finding out ways of improving local standards
To provide a continuing basis for measuring improvements
Chapter 3: Methodology
In order to achieve the objectives of the study mainly secondary data have been used.
The data was mainly collected from the internet. Different research papers,
articles,reports of different regulatory organizations, international bodies and from other
studies have been used in the preparation of the paper.
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Chapter 4: Analysis
ACCOUNTABILITY ISSUES
Agencies for government accountability issues in Bangladesh:
1) Legislative Branch
2) Executive Branch
3) Judiciary
Legislative Bodies:
1) Parliament
2) Public Accounts Committee
3) Public Undertaking Committee
4) Parliamentary Standing Committees
5) Comptroller and Auditor General
6) All the Law Courts
Executives:
1) Prime Minister
2) Ministers
3) Secretaries of The Ministries
4) Executives of The Government Agencies
5) Accounts Offices
The bodies are accountable for:
1) Stewardship of Financial Resources
2) Efficiency and Economy of Operations
3) Faithful Compliance Adherence to Legal Requirements & Administrative Policies
4) Results of Government Activities
5) Reflected in Accomplishments and Effectiveness
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Accountability framework:
Pertinent issues on Accountability:
1) Audit objections so far disposed of by The PA Committee
2) What actions so far taken on PA Committee's recommendations?
3) Have there been improvements?
Government accounting and Bangladesh
The first and foremost purpose of the public sector accounting is to meet the requirements
of the parliament. In meeting the requirements, the practices of accounting should be
clear, precise, objective and timely. It was found that the present practices is not adequate
and appropriate to enhance resource allocation, utilization and financial management,
resource management, and performance management capacity in the parliament and
ministries.
Parliament
President
SAI (CAG) Audit Reports
PA Committee
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Corruption and wastages of resources
In Bangladesh, the economic growth is deterring and the total development and the
distribution of resources from rich to poor is becoming very hard because the level of
corruption and the wastages of resources is high in Bangladesh. The auditing activities
undertaken by the statutory body is also not strong enough. As a result, the whole
scenario of the economic systems is quite poor. The figure below shows the position of
the respondent against the corruption issues and wastages of national resources.
Government / Public Sector Financial Accountability:
Constitution
SAI -C & AG BD,
CAG Funct act-1974
Govt. Agencies
Citizens
Ownership
Stakeholder
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Financial Accountability of Local Government Authorities:
Adequacy and reliability of the overall systems:
All the above stated figure and pictures shows that the overall accounting system in
Bangladesh Government is quite strong. Nevertheless, some difficulties, corruption,
wastages of resources, non-compliance with the requirements of accounting practices
etc. makes it inadequate in comparison with the other countries. The accounts
maintained and disclosed by the Government serves as the key indicator of the
countrys economic growth. All the evaluations, forecast and analysis are done based
on those accounts and informations. As a result, all the accounts are needed to be
maintained accurately in accordance with the accounting standards to foster the
decision making and policy making activities.
IPSASB Framework:
Public sector refers to Governments, Regional Government, Local Government s &
Related Government entities including Agencies, Boards, Commissions &Enterprises
Ordinances
C&AG Auditor
MLGRDC
Municipal bodies
ownership
management
shareholders
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Public Sector Covers all Arena of Public Services Provided by the Following
Agencies:
1) ons /Directorates / Departments
2) Government Sub-Ordinate Offices
3) -Autonomous Bodies
4) Public Sector Corporations
5) Foreign Aided Projects (SCOPE/SPEMP B)
6)
7) Hospitals/Educational Institutions etc.
Bangladesh Public Sector Coverage:
1) Essential for Increased Accountability and Transparency in Use of Public Funds
2) Developing Public Sector Awareness of Gov. Spending
3) Credibility of Financial Information for Public Trust
4) Timeliness of Financial Information for Good Governance and Decisions
5) Increased Credibility for Attracting FDI
6) Assurance to Development Partners
7) Improved Sovereign Rating Awards
8) Efficient Financial Reporting System for Economic Development and Public
Welfare.
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Cash-Basis Ipsas: Transition Step to Accrual Ipsas (Ocag Bangladesh):
Current policies (Cash SE )
Cash-Basis IPSAS (Transition Step)
Accrual Accounting IPSAS 1-32 (Accrual DE)
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Alternative basis of accounting:
Measurement Focus & Basis of Accounting Summary:
Measurement Focus Basis of Accounting
Government-wide
statements
Economic resources Accrual
Governmental fund
statements
Current financial resources Modified accrual
Proprietary fund
statements
Economic resources Accrual
Fiduciary fund statements Economic resources Accrual
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Accrual And Cash Accounting: An Integrative approach:
1) Requiring direct method of cash flow statement
2) Adoption of cash basis ipsas is adopted
3) Accrual and cash basis are fully integrated
CASH-BASIS ACCOUNTING SYSTEM:
Government budgets & appropriations are cash based.
Monitoring of receipts and spending are easier.
Cash-based financial reports are budget compliant.
Principles underlying the cash basis are easy to understand and easy to explain.
Compilation of cash-based information is easier.
Operating costs are lower.
No need to exercise any judgment in determining the
Amount of cash flows for the period.
Limitations:
Information on assets and liabilities is not available.
Impact of consumption assets held by government is not known.
Cash accounting focuses only on the cash flows of current period.
Accountability of government for use of its resources becomes difficult.
Detailed reporting of receipts and payments lead to problems in understanding the information.
There is no system of reporting of contingent liabilities which may have significant impact on future revenues.
Matching of costs with benefits is not possible.
ACCRUAL-BASED ACCOUNTING:
Revenues Earned During the Year are Recorded in the same year no Matter Cash is Collected or not.
Expenses Incurred During the year are Recorded in the same year if Benefit Received no Matter Cash is Paid or not.
Assets & Liabilities are Recognized & Reflected on the tatement of Financial Position (Balance Sheet).
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Benefits:
The Quality of Government Financial Reporting is Improved Manifold.
Comparable Financial Information is Available.
Harmonization of Financial Reporting within the Government Entities.
Reliability of Financial Information Increases Performance Evaluation Becomes Easier.
Compliance Reporting is Possible with Reference to Principles and Standards.
Accountability is Ensured.
Efficient and Standardized Financial Reporting System Results into Better Decision-Making.
Information on Assets and Liabilities are Readily Available.
Matching Costs are Recorded Against the Revenues.
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Chapter 5: Findings & Observation including Backdrops with Way
Forward:
There are a lot of differences in the accounting system of government and an ordinary
business organization. They are described below.
1. Meaning
The accounting system maintained by the government offices is known as government
accounting. The accounting system maintained by business organizations is known
as commercial accounting.
2. Objective
Government accounting is maintained by the government offices to know the position of
public fund.Commercial accounting is maintained by business organizations to know the
profit or loss and the financial position of the business.
3. Budget
Government accounting strictly follows the government budgeting
system. commercial accounting does not follow the government budgeting system.
4. Basis
Government accounting is prepared on cash basis. Commercial accounting is prepared
on cash as well as accrual basis.
5. Level Of Accounting
Government accounting has the system of central level and operating level
accounting. Commercialaccounting has no provision of central level and operating level
accounting.
6. Rules And Provisions
Government accounting is strictly maintained by following the financial rules and
provisions of government. Commercial accounting is maintained by following the rules
and principles of 'Generally Accepted Accounting Principles'.
7. Information
Government accounting provides information to the government about the receipts,
transfer and deposition of public funds. Commercial accounting provides information to
the concerned parties about the operating result and financial position of the business.
8. Auditing
An Auditor General Office audits the book of accounts kept under government
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accounting. A professional auditor can audit the books of accounts kept
under commercial accounting.
According to the assessment there are some Deficiencies in the current government
accounting systems. They are described below in the tabular form with some
recommendations to improve.
REQUIRED STEPS FOR ADOPTING CASH BASIS IPSAS:
Requirements
Current Deficiencies Activity required to adopt Cash Basis
IPSAS
General Considerations:
Reporting period
Adequacy of information
Presentation of
Comparative information
FS are not available within 6
months
Cash balances available for
use, subject to restrictions,
undrawn borrowing facilities
not disclosed
Lack of transparency
Urgent reduction of reporting lag.
Disclose further information.
Correction of Errors disclosed
Nature of error
Amount of correction
Nature of error
Amount of correction
Comparative information
restated
not disclosed
Training and Supervision of accounts
officer
Disclosure of errors
Restatement of comparative
information where practicable.
Accounting policies and explanatory notes
Statements of accounting policy are not provided
State the accounting policy and the basis of accounts
Financial Statements presented in the IPSAS
Bangladesh reporting structure focuses on consolidated fund and public accounts but the cash basis IPSAS for financial statements is not followed.
A Statement of cash receipt and payment as per Cash Basis IPSAS be prepared.
An additional statement on Cash Basis IPSAS be prepared.
Restructuring of the CGA computerized reporting formats.
Statement of cash receipts and payments
All this information is available on the govt reporting system, but is in formats inconsistent with IPSAS.
Restructuring of the CGA computerized reporting formats.
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Code of Ethics:
Requirements
Current Deficiencies Activity required to adopt Cash Basis
IPSAS
should follow IFAC or
INTOSAI codes of ethics
The Bangladesh government
account use INTOSAI code
(2002) rarely penalized for
infringe
IFAC is needed for public
sector accountant
Enforce a code of conduct, based on
IFAC or ICAB codes.
CFO is responsible for
internal financial controls,
and preparing regular
financial accounts for each
government entity.
The CFO should use
appropriate technological for
training and education needs
for supporting financial
management
The CFO concept is not
correctly applied, Without an
effective CFO function internal
controls and fi functions will not
be well managed, nor will
expenditures and budgets be
properly executed.
Current plans are to physically relocate
the CAOs from the CGA offices to the
ministries to spearhead the
establishment of new financial
management accounting units. This
may provide an opportunity to enhance
the CAO functions to CFO level.
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Those data can be summarised as:
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Chapter 6: Conclusion
To lead the economy of the country in a proper way Government Accounting has
engaged. Though it has some inadequecies but if the government proceed with its
good features it will contribute in the overall development of Bangladesh.International
standards should be adopted and applied properly to make it efficient enough to run the
entire system properly.Proper measure for accountability also needs to be implemented.
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Chapter 7: Appendix
ABBREVIATIONS AND ACRONYMS CAG Comptroller and Auditor General CAO Chief Accounts Officer CGA Controller General of Accounts CFO Chief Financial Offi cer FRC Financial Reporting Council FY Fiscal Year GOB Government of Bangladesh IAASB International Auditing and Assurance Standards Board IAS International Accounting Standards ICAB Institute of Chartered Accountants of Bangladesh ICMA Institute of Cost and Management Accountants IES International Education Standards for Professional Accountants IFAC International Federation of Accountants IFAC-PSC International Federation of Accountants Public Sector Committee IFRS International Financial Reporting Standards INTOSAI International Organization of Supreme Audit Institutions IPSASB International Public Sector Accounting Standards Board (of IFAC) IPSAS International Public Sector Accounting Standards (of IFAC) ISA International Standard on Auditing MOF Ministry of Finance PAC Public Accounts Committee PEFA Public Expenditure and Financial Accountability PFM Public Financial Management SAFE Special Account Foreign Exchange SAI Supreme Audit Institution SOE State-Owned Enterprise UNDP United Nations Development Program
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Chapter 8: Reference
1. Wikipedia Governmental accounting -
[http://en.wikipedia.org/wiki/Governmental_accounting]
2. world bank report on bangladesh govt. Accounting, page 18-22
3. AnwarChowdhury ,ICAB-CAPA_PSAconf_KeynoteSpeech,page 11-33
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