Accounting Government and Non-Profit Organization

Week 1
GOVERNMENT ACCOUNTING SYSTEM AND IPSAS:
AN OVERVIEW
 Overview on Government
Accounting System
 The Government and NFP Environment
 Both need Accounting Principles
 Reporting mechanism different from the Businesses
 Based on Their Budgets rather than competitive market places
 Significant accounting and Reporting Implication
 Distinction between internal and external accounting is often
blurred
 The main user of G&NFP Financial Reporting are governing
boards, investors, creditors, citizens, organizational members,
donors, grantors, regulatory, oversight agencies and other
constituents
 Overview on Government
Accounting System
 Fund Accounting
 G & NFP organized their accounting systems on the basis of
FUNDs.
 Funds are independent fiscal and accounting entries, each with a
self balancing set of accounts.
 FUND Accounting is an effective means of establishing control
and accountability over restricted resources
 The Fund Structure of G&NFP is typically based on the nature of
restrictions, not on the entity’s organization chart
 Government classify FUNDs into three broad categories: (1).
Governmental funds; (2). Proprietary funds; (3)Fiduciary funds
 Overview on Government
Accounting System
 Issues of Reporting, Disclosure and Financial Analysis
 The most significant component of the Comprehensive Annual
Financial Report (CAFR) is a state of government address and
reports on the overall fiscal health of the entity.
 Based on Statement No. 34 all information include in the CAFR be
incorporated in the Management Discussion and Analysis
(MD&A)
 The financial section of the CAFR consist of the auditor’s report;
the MD&A; the basic financial statements; supplementary
information; and combining statements (the individual
statements and schedules)
 Overview on Government
Accounting System
 Issues of Reporting, Disclosure and Financial Analysis
 The MD&A is the one of the most important elements of the
CAFR which it disclosure the basic financial statements, provide
an analysis of key transactions and events, and present
information relevant to government financial health that is
beyond the scope of the basic financial statements
 The Basic financial statements consist of the two government-
wide statements (the statement of net assets and the statement
of activities); and the fund statements for each of the three types
of fund; also include the Notes to the financial statements
 Overview on Government
Accounting System
 Colleges & Universities (C&Us)
 Both subject to the same reporting requirements as other special
purpose governments.
 Most Universities will satisfy with the criteria of Statement No. 34
that allow them to be accounted for as entities that engage
exclusively in business type activities.
 C&Us need prepare only a statement of net assets, statement of
activities (both in accrual basis), and statement of cash flow.
C&Us not need to prepare the funds statements required of
general purpose government
 Overview on Government
Accounting System
 Government have the power to tax and the obligation to provide
services. Therefore, the financial wherewithal of a government is
tied directly to that of the citizens and business within its
jurisdiction.
 The wealth of the community is a key determinant of the
resources that can be commanded by government as well as the
services that are expected of it.
 Consequently, a comprehensive financial analysis of a
government involves examining the government in the context of
its economic, social, political environment
 Overview on Government
Accounting System
Financial Statement Analysis
• Need to consider the current environment in which a government
operates and try to identify the critical change that will effect the
government
• Reviewing the government’s accounting and budgeting practices,
looking especially for those that might have been used to obscure
fiscal weaknesses
• Financial statement analysis is basically an analysis conducted on
various kinds of information presented in the financial statements.
 Overview on Government
Accounting System
Financial Statement Analysis (cont.)
• The difference in the analysis of financial statements of business
and the public sector lies in its object.
• Some analysis of Financial Statements of business is not suitable /
applicable to the public sector
• Using some techniques of analysis can indicate the relationships
not only between items reported on the basic financial
statements but also between financial statements values and
economic and demographic measures.
 Analysis Technique
• Comparative Analysis
- Vertical
- Horizontal
• Proportion Analysis
• Growth Analysis
• Ratio Analysis
• Analysis of Compliance to Rules
• Analysis of Source and Use of funds
 OVERVIEW ON IPSAS
(INTERNATIONAL PUBLIC SECTOR
ACCOUNTING STANDARDS)
 Background of IPSAS
• Mission
• Establish and promote adherence to high quality
professional standards
• Further the international convergence of such standards
• With the intention of the public organizations of the
whole world
• In the optics of the financial statements of general use
• Speak out on public interest issues where the
profession’s voice is most relevant
• Rationale of Accounting Reforms
• Accounting = Basis of decisions
• Development decisions in particular
» Infrastructure
» Networks
» Public services
• Judgment by decision makers requires identical standards
• Credibility increase
• Education facilitated
• Value added of Cash based IPSAS
• 1 Standard Cash Basis

Advantages:
• Full coverage of all cash transactions
• Consolidation

– Disadvantages:
• Too basic for countries which are on modified accrual
• Scope of consolidation is controversial
• Value added of Accrual based IPSAS
• 26 Standards Accrual Basis

Advantages:
• Economic situation and flows
• Resource allocation
• Similar to GFS
• Risks

Disadvantage:
• Leap for many countries
• Structure of IPSAS
• Recognition

• Measurement

• Disclosure
• Organization of the IPSAS-Board
• 18 members
• President M. Mike Hathorne (Scottish/GB)
• 3 meetings of 4 days per year, English language
• At least one phase of consultation („Exposure Draft“)
• Qualified majorities required (2/3, 3/4)
 Two ways to implement
IPSAS
– Direct or indirect implementation
IPSAS

Legislation National
referring to accounting
IPSAS standards

Legislation
referring to
national
accounting
Accounting standards
Manual

Implementati
on
 Summary of IPSAS
IPSAS Current Standards
• Accrual Accounting Standards (2007)
• IPSAS 1 – Presentation of Financial Statements
• IPSAS 2 – Cash Flow Statements
• IPSAS 3 – Accounting Policies, Changes in Accounting Estimates and Errors
• IPSAS 4 – The Effects of Changes in Foreign Exchange Rates
• IPSAS 5 – Borrowing Costs
• IPSAS 6 – Consolidated and Separate Financial Statements
 Summary of IPSAS
IPSAS Current Standards
Accrual Accounting Standards (2007)
• IPSAS 7 – Investments in Associates
• IPSAS 8 – Interests in Joint Ventures
• 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
 Summary of IPSAS
IPSAS Current Standards
Accrual Accounting Standards (2007)
• IPSAS 16 – Investment Property
• IPSAS 17 – Property, Plant and Equipment
• IPSAS 18 – Segment Reporting
• IPSAS 19 – Provisions, Contingent Liabilities and Contingent Assets
• IPSAS 20 – Related Party Disclosures
• IPSAS 21 – Impairment of Non-Cash Generating Assets
• IPSAS 22 – Disclosure of Information About the General Government Sector
• IPSAS 23 – Revenue from Non-Exchange Transactions
(Taxes and Transfers)
• IPSAS 24 – Presentation of Budget Information in Financial Statements
• IPSAS 25 - Employee Benefits
• IPSAS 26 - Impairment of Cash-generating assets
 References
• Prof Andreas Bergmann and Robin Braun (2008). The Value Added of
IPSAS, PEMPAL Workshop Istanbul; February 25
• Caroline Aggestam Pontoppi and Isabelle Andernack (2016).
Intrepretation and Application of IPSAS. Wiley.
• Michael H. Granof, Saleha B. Khumawala. (2016). Government and Not-
for-Profit Accounting. 07. John Wiley & Sons. New Jersey. ISBN: 978-1-
118-98327-0.
•  Direktorat Penyusunan APBN, Direktorat Jenderal Anggaran,
Kementerian Keuangan. (2014). Pokok-Pokok Siklus APBN Di Indonesia
Penyusunan Konsep Kebijakan dan Kapasitas Fiskal Sebagai Langkah
Awal. 01. Kementerian Keuangan. Jakarta. ISBN: 978-602-17675-2-8.
Thank You