Summary of Contents
PURPOSE OF PUBLIC SECTOR ACCOUNTING
The purposes of Public Sector Accounting include:
- Demonstrating the proprietary of transactions and their conformity with the law, established rules and regulations.
Measuring current performance.
- Providing useful information for the efficient control and effective management of government operations.
Facilitating audit exercise to be carried out.
- Planning future operations.
- Appraising those in the authority, in efficiency and effectiveness
DEFINITION OF TERMS
Public Sector Accounting (ACC 310), introduced the simplest definition of ‘Public Sector’ is “all organisations which are not privately owned and operated, but which are established, run and financed by Government on behalf of the public.”
Government refers to the collection of public institutions established and given the authority to run the affairs of a country. It is a system of governance and includes the body of individuals who are authorised to administer the laws of a Nation.
Government Accounting refers to all the financial documents and records of public institutions that relate to the collection of tax payers‟ money, and the analysis, control of expenditure, administration of trust funds, management of government stores and all the financial responsibilities and duties of the relevant organs.
Government accounting includes the process of recording, analysing, classifying, summarising, communicating and interpreting financial information about Government in aggregate and in details, recording all transactions involving the receipt, transfer and disposition of public funds and property.
NATURE AND OBJECTIVES OF GOVERNMENT ACCOUNTING
The objectives of Government accounting include the following:
(a) To fulfil legal requirement: The law requires that government accounts are prepared and audited annually.
(b) To perform the stewardship function: The ruling government is the steward of the resources and finances of the Nation. Government has to give account of how these finances are used.
(c) To enable Government to plan well the future activities and programmes of the Nation.
(d) To provide a process of controlling the use of the financial and other resources.
(e) To provide the means by which actual performance may be compared with the target set.
(f) To evaluate the economy, efficiency and effectiveness with which governance is carried out.
OBJECTIVES OF PUBLIC SECTOR ACCOUNTING
The main purposes of Public Sector Accounting are:
(a) Ascertaining the legitimacy of transactions and their compliance with the established norms, regulations and statutes.
(b) Providing evidence of stewardship.
(c) Assisting planning and control.
(d) Assisting objective and timely reporting.
(e) Providing the basis for decision-making.
(f) Enhancing the appraisal of the efficiency of management.
(g) Highlighting the various sources of revenue receivable and the expenditure to be incurred.
(h) Identifying the sources of funding capital projects.
(i) Evaluating the economy, efficiency and effectiveness with which Public Sector Organisations pursue their goals and objectives.
(j) Ensuring that costs are matched by at least equivalent benefits accruing therefrom.
(k) Providing the details of outstanding long-term commitments and financial obligations.
(I) Providing the means by which actual performance may be compared with the target set.
(m) Proffering solutions to the various bottlenecks and/or problems identified.
Types of Public Sector Organizations
Public sector organizations may exist at any of four levels:
International (multistate entities or partnerships)
National (an independent state)
Regional (a province/state within a national state)
Local (a municipal-level body such as a metropolis, municipality or district)
At any of these levels, the public sector generally consists of at least three types of organizations:
Central government consists of a governing body with a defined territorial authority.
Central government includes all departments, ministries, and agencies of the government that are integral parts of the structure, and are accountable to and report directly to the central authority — the legislature, council, cabinet, or executive head.
Boards, Authorities, & Commissions consist of public organizations that are clearly part of the government and deliver public programs, goods, or services, but that exist as separate organizations in their own right — possibly as legal entities — and operate with a partial degree of operational independence. They often, but not necessarily, are headed by a board of directors, commission, or other appointed body. Examples are Electoral commission, Mineral commission, Ghana Atomic Agency Commission, etc.
Local government: This is made up of the local authorities such as Metropolitan assemblies, Municipal Assemblies and District Assemblies.
Public Sector Organisations exist for the following reasons:
(i) To provide public goods and services to individuals and institutional consumers regardless of their ability to pay
(ii) To provide good and services whose investment capital is quite high and hence cannot be provided by the private sector or whose returns are low and therefore unattractive to the private sector, though necessary
(iii) To achieve a net social benefit rather than net profit so as to enhance equity of access to meeting needs of water, electricity, food, shelter, transport, health and communication, etc.
(iv) To correct inequalities which exist among various social classes and communities
(v) To influence future social, political, economic or financial environment for optimal growth of the economy.
WAYS BY WHICH GOVERNMENT CONTROL PUBLIC COMPANIES
Government powers can be exercised through the appointment of Chief Executives and members of Boards of management
Government can exercise control by giving specific directions concerning prices production costs and social goals.
Government uses the submission of annual reports as an opportunity to evaluate the performance of enterprises
Public companies need to obtain government approvals and guarantees for long term loans
Public companies need to obtain government approval for their annual budgets.
Government may specify the economic roles of state enterprises and the target rates of their return.
TYPES OF INFORMATION PRODUCED BY PUBLIC SECTOR ORGANIZATIONS
The information produced by public sector organizations is by no means static. The information has been limited only to the needs of the user. In general, we may categorize the different types of information generated by public sector organizations as:
Statutory information: These are mandatory information that public sector organizations are required to produce by virtue of laws the established them.
The Financial Administration Regulations (FAR) compels Ministries, Departments, and
Agencies (MDAs) to produce monthly, quarterly and annual report of their finances and operations.
Financing information: These are information demanded by donors and other funding agencies to be produced by public sector organization according to a stipulated format.
This information focuses accountability, performance evaluation, and objectivity on public interest of the programmes.
Planning information: Planning by spending agencies in Ghana is based on a medium term expenditure framework (MTEF) which operates on cash basis normally for a period of three years. All spending agencies are expected to prepare their budgets on this planning model and report on the progress of their planning, programming and budgeting schemes.
Budgetary information: Budgetary information relates to the utilization of budgets as instruments of national economic management, communicating the resource constraints to spending departments, reducing gaps between planned and actual expenditures and achieving better control of public expenditures.
Control information: Central control and monitoring of expenditure during a year is done by the treasury which provides regular reports on what has been spent and the estimated outturn of the year. Information for monitoring comes each month from the records of receipts and payments to the Consolidated Fund maintained by the treasury.
Control is exercised through cash limits that provide a system of government control of expenditure during the financial year.
Comparison between Government Accounting and Private Sector Accounting
(a) The main objective of a commercial enterprise is to maximize profit while that of Government is to provide adequate welfare to the people at the reasonable costs.
(b) Government revenue is derived from the public in the form of taxation, fines, fees etc. whereas business concerns obtain their income principally from the sales of goods and services.
(c) In Government, financial transactions are recorded on ‘cash basis’ while in commercial organizations, it is on accrual basis.
(d) In Public Sector Accounting, tangible fixed assets such as land and building, plant and machinery are not shown in the balance sheet, whereas in private sector accounting these are reflected, showing the historical cost, accumulated depreciation and the net book value of each.
(e) In Public Sector Accounting, current assets such as stocks and debtors are not shown in the balance sheet. Debtors and creditors are not reckoned with until money is received or paid. The current assets and current liabilities are shown in private sector accounting system.
(f) In Government there is no Annual General Meeting of stakeholders/ shareholders, unlike the situation with commercial enterprises. What Government does is to hold public briefing on specific issues.
(g) In Public Sector Accounting, what operates substantially is fund accounting. However, in private sector accounting, the proprietary approach is adopted.
(h) Public Sector Accounting thrives rigidly on the budgetary approach, whereas in private sector accounting budgeting is embraced as a very potent control instrument.
PUBLIC SECTOR ORGANIZATIONS PRODUCE MANY TYPES OF INFORMATION
Public-sector information is dynamic, to say the least. Only the information required by the user has been provided. Generally speaking, public sector companies generate three categories of information:
Public sector organizations are required by law to produce mandatory information, such as statutory information.
Ministers, departments, and agencies are required by the Financial Administration Regulations
Monthly, quarterly, and annual financial and operational reports must be produced by agencies (MDAs).
Donors and other funding agencies often want certain types of information from public sector organizations, and those organizations must provide it in a specific format.
This data emphasizes responsibility, evaluation of performance, and objectivity in serving the public interest through the programs.
This planning is based on a three-year medium-term expenditure framework (MTEF), which is generally funded by the spending agencies using cash. Everyone who spends money is supposed to use this planning model when putting together their budgets, and to report on how well they’re doing in those areas.
Using budgets as tools of national economic management, conveying resource restrictions to spending departments, minimizing gaps between planned and actual expenditures, and improving control over public expenditures are all part of budgetary information. Budgetary information.
Finance: The treasury controls and monitors expenditures at a central level by issuing regular reports on what has been spent and an estimate of what the year will bring in. Monitoring information is gleaned from the treasury’s receipts and payments records to the Consolidated Fund, which are updated once a month.
Cash limitations give a mechanism of government control over expenditure within the financial year, which is how control is exercised.
Governmental accounting versus private sector accounting comparison
(a) The primary goal of a business is to maximize profit, but the primary goal of government is to provide appropriate welfare for the people at affordable prices.
To put it another way: (b) Government revenue comes mostly from the sale of products and services, while businesses rely on taxation, fines, and other levies to make a profit.
Government financial transactions are documented on a “cash basis,” whereas private entities use a “accounts payable” accounting basis.
(d) Unlike in the private sector, where tangible fixed assets like land, buildings, plants, and machinery are included in the balance sheet and indicated as historical costs, accumulated depreciation, and net book value, in public sector accounting they are not.
Stocks and debtors are not included in the balance sheet in Public Sector Accounting. Until money is received or paid, there are no debtors or creditors. In the private sector accounting system, current assets and current liabilities are shown.
(f) Unlike commercial firms, the government does not have an annual general meeting of stakeholders/shareholders. The government holds briefings for the general public on a variety of topics.
(g) Fund accounting is the main operation in Public Sector Accounting. Private sector accounting, on the other hand, utilizes a proprietary approach.
(h) Public sector accounting relies heavily on the budgetary method, but private sector accounting views budgeting as a powerful management tool.
LIMITATIONS OF GOVERNMENT ACCOUNTING
As such, government accounting has no bounds. It is a subset of accounting known as f 0sund accounting, which is based on the concept of accounting with a function and finances that function within the confines of an established budgetary limit.
Each function of the entity is supported by a budget, and if funds are required, they are borrowed from another function that has the funds available via a due to/due from account.
Jimmy Carter implemented a zero-based budgeting procedure in which all government activities began at zero and resources were allocated as needed. No, we spent this much last year, so a 10% increase sounds appropriate.
A budgeting process was permitted, but each function received its own budget based on the best estimations of its cost.