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 PUBLIC SECTOR ACCOUNTING AND FINANCE IN NIGERIA

 PUBLIC SECTOR ACCOUNTING AND FINANCE IN NIGERIA

You are welcome to The public sector accounting guide, here we provide you anything concerning public sector accounting being questions, answers, and topics in public sector accounting and other related topics in Public sector accounting.

This guide or article will consider Public sector accounting in Nigeria or public sector accounting and finance in Nigeria so If you are a student of public sector accounting then your back is covered when it comes to public sector accountint in Nigeria

INTRODUCTION

The student will study about the characteristics of the public sector, the differences between public sector and government business organizations, and the external and internal users of public sector accounting information, as well as their distinct applications of the data, in this unit.

You’ll also learn about the contrasts between public and private sector accounting.

OBJECTIVES

The student should be able to: 

  • Understand the nature of the public sector by the end of the unit.
  • Recognize the distinction between public sector and government business organizations.
  • Understand the external and internal users of public sector accounting data, as well as how they use the data.
  • Recognize the distinctions between public accounting and private accounting.

INTRODUCTION TO PUBLIC SECTOR ACCOUNTING IN NIGERIA

This course is about accounting in the public sector in Nigeria. Two key themes emerge from the course’s title: “public sector” and “accounting.” Simply said, the public sector encompasses any organizations that are not owned or run by private individuals or businesses.

Related Study: Introduction to public sector accounting in ghana

In other words, the public sector includes all organizations that the government owns, operates, and finances on behalf of the people. The federal government, the 36 states, the 774 local government councils, and all government enterprises, commissions, and institutions are all considered part of the public sector in Nigeria.

Accounting, on the other hand, is the process of recognizing, measuring, and conveying an organization’s economic information to users who require it for decision-making. It identifies a specific entity’s transactions and events.

We can see that public sector accounting is a component of accounting when the two concepts are merged. It includes accounting in federal and state government ministries and extraministerial departments, municipal governments, government parastatals, government committees, task groups, and commissions, and more.

Public sector accounting encompasses all financial documents and records maintained by public institutions that pertain to the collection of tax payers’ money, as well as the analysis, control, and administration of trust funds, management of government stores, and all financial responsibilities and duties of the relevant organs.

It is a system of accountability in which established governmental entities are responsible for overseeing the nation’s revenue and how it is spent.

It entails documenting, analyzing, classifying, summarizing, presenting, and interpreting financial data concerning the public sector in aggregate and detail, as well as recording all transactions involving the receipt, transfer, and disposition of public funds and property. Thus, the following are the processes of public sector accounting:

(a) Recording: This is the process of recording financial transactions and occurrences in applicable books of accounts such as the cash book, ledger, and vote book.

(b) Analyzing: This is the process of categorizing transactions based on preset criteria and assigning them to the proper heads and subheads.

(c) Classifying: This entails organizing transactions into revenue and cost descriptions and assigning them to significant classes such as “Revenue Head and Sub-heads” with their associated account code numbers.

(d) Summarizing: This refers to putting all of the different types of accounts together and arranging them into reports on a regular basis, as required by law or by the organization.

(e) Communicating: This refers to making financial reports on all government financial activities available to various interested parties, including the relevant accounting summaries. As much as feasible, the communication style used should be unambiguous, straightforward, and free of jargon.

(f) Interpretation: This step completes the process by explaining what has been reported in the various financial statements and reports in terms of the relevant government organization’s overall operations and performance (s).

This will allow the appropriate parties and users to make informed decisions based on their evaluations of the reports.

Self- Assessment Exercise.

  1. What is Public Sector Accounting?

THE NATURE OF THE PUBLIC SECTOR IN NIGERIA

The federal, state, and local governments, as well as their ministries, parastatals, and extra ministerial departments, are referred to as the public sector. Other government (public sector) organizations and 66 government business companies are included in the phrase (GBEs). The terms “government accounting” and “public sector accounting” are frequently used interchangeably.

Although they are similar in many ways, they are not identical. The fundamental distinction is in the scope.

Public sector accounting, on the other hand, includes both government accounting and accounting in other public sector organizations. Government accounting only covers accounting in ministries, extra-ministerial divisions of government, and local government.

Accounting in government commercial enterprises, on the other hand, is not included. To demonstrate the contrasts between public sector organizations and government business entities, we will expand on the ideas of public sector organizations and government business entities.

Public Sector Organizations

Entities established by the separate tiers of government to fulfill specific duties outside of government ministries and extra-ministerial agencies are known as public sector organizations.

Two characteristics of public sector organizations were highlighted by Omolehinwa and Naiyeju (2015):

  1. They are not in business to make money.
  2. They do not disperse their earnings or assets to the advantage of their organization’s members or officers. According to Omolehinwa and Naiyeju, even when such organizations are dissolved, the proceeds are returned to the government rather than being distributed to individuals.

Public sector organizations come in a wide variety of shapes and sizes.

They were divided into two types by Omolehinwa and Naiyeju: Type A and Type B. Type A organizations, according to them, are those in the public sector whose financial resources are primarily derived from the sale of goods and services.

Type B organizations, on the other hand, are those that receive funding from sources other than the sale of goods and services. Government funding is the primary source of funding for such organizations. The Nigerian Armed Forces, the Nigerian Police Force, and public colleges are all examples of Type B public sector entities in Nigeria.

The public sector accounting system applies to these organizations.

Government Business Enterprises

Government business enterprises are government-owned businesses that operate on a commercial basis.

Some statutory agencies and government organizations were re-constituted into profit-making organizations during Nigeria’s privatization and commercialization process.

They were dubbed “government business entities” after that (GBEs). Their Chief executive officer and board of directors have significant management autonomy, allowing them to define strategic directions and make resource management decisions.

Nonetheless, they were still entirely controlled by the government, and the relevant government minister effectively remained its sole stakeholder.

While operating as fully competitive profit-generating businesses, they are held to a high level of accountability to the government minister, parliament, and the general public. GBEs are thus governed by a system that lays high expectations on their ability to operate in a competitive market by paying regular dividends to the government while also holding them accountable to the minister, parliament, and the general public.

Trading enterprises, such as utilities, and financial enterprises, such as banking institutions, are examples of Government Business Enterprises (GBEs). GBEs 1are considered like private-sector entities for accounting purposes since they generally operate to make a profit.

 The International Public Sector Accounting Standard (IPSAS) 1 outlined the factors that should be considered when defining a GBE:

  1. The entity must be able to contract on its own behalf;
  2. It must have the financial and operational authority to run a company;
  3. It sells goods and services to other entities at a profit or at full cost recovery in the normal course of business.
  4. It is not reliant on ongoing government support to stay afloat (other than arm’s length purchases of products); and
  5. It is controlled by a public sector company.

OBJECTIVES OF PUBLIC SECTOR ACCOUNTING

The following are some of the goals of government accounting:

(1) To meet a legal obligation. Government accounts must be compiled and audited annually, according to the legislation. As a result, the goal of public sector accounting is to verify the authenticity of transactions as well as their adherence to norms and regulations.

(2) To show that you are a good steward. On behalf of the people, the government makes use of societal resources. The government must answer for how these funds were spent.

(3) To enable the government to plan the nation’s future actions and programs. To put it another way, public sector accounting helps the government plan and supervise its operations.

(4) To establish a system for monitoring and managing the use of financial and other resources.

(5) To give a mechanism of comparing actual performance to the set of targets. (6) To assess the economy, efficiency, and effectiveness of the governing process.

(7) To report objectively and in a timely manner.

(8) To draw attention to the government’s numerous sources of revenue and their respective performance.

(9) To guarantee that costs are reasonable in comparison to benefits.

(10) To provide specifics on the government’s short and long-term commitments.

(11) Locating funding sources for capital projects.

Exercise in Self-Assessment

  1. List ten (10) objectives of Public sector accounting.

USERS OF GOVERNMENT ACCOUNTING INFORMATION 

In the public sector, there are two types of accounting data users. Internal and external users are mentioned briefly, along with their features and areas of interest:

Internal Users:

This user group consists of the following individuals:

  1. The Executive: This is the government’s executive branch.
  2. The President, governors, and local government chairmen are all included.
  3. They are concerned with guaranteeing integrity and responsibility through effective accounting bookkeeping and performance control, both of which are accomplished through accounting data.
  4. Federal ministers, state commissioners, and city council members.
  5. Senior officials from government ministries and non-ministerial departments. Permanent Secretaries and Directors of various Ministries are included.
  6. Chief Executive Officers and General Managers of Public Sector Organizations.
  7. A public-sector labor union that will fight for better working conditions and job security for its members.

External Users and also the uses of Interest

The following are examples of external consumers:

 (i) The Legislature: They are the major users of government financial reports. They rely on financial reports for information to analyze the government’s resource management, compliance with legislation and other authorities, financial state, and performance.

(ii) The General Public: The general public is the recipient of government services.) They also have beneficial ownership of public funds and assets. Members of the public are both tax payers and recipients of government goods and services.

They want to know how well the government managed the country’s finances and resources, as well as the overall economic impact of government actions.

(iii) Investors and Creditors: Investors in government securities, as well as corporate and other creditors, supply governments with financial resources. It is in the interests of governments to provide information to investors and creditors that may be used to assess the efficiency and effectiveness of government institutions.

 In addition to the broad objective of financial reporting, investors and creditors may request specialized information.

(iv) Other governments, international organizations, and other sources of resources. IMF, ADB, OAU, and ECOWAS are examples of such organizations.

Other governments, international organizations, and resource providers, such investors and creditors, are interested in a government’s or unit’s financial situation. They are also interested in the strategies and priorities of such government units. Analysts

 (v) Economic and financial analysts, as well as the financial media, examine, analyze, and disseminate data to other users such as legislators and the general public. They assess and evaluate financial and economic issues using the information presented.

(vi) Trade unions: These are unions that represent employees who do not work for government agencies. They require information in order to understand the government’s and economy’s performance.

They may utilize this information in minimum wage talks, for example. In recent years, Nigerian labor unions have used government data to negotiate rates for basic commodities such as petroleum goods.

DIFFERENCES BETWEEN PUBLIC SECTOR ACCOUNTING AND PRIVATE SECTOR ACCOUNTING

  1. Every private sector company in Nigeria is required by law to register with the Corporate Affairs Commission in Abuja before it may begin operations. Government firms in Nigeria are not required to register with the Corporate Affairs Commission.

Acts of Parliament establish them, and as a result, no public funds can be spent on any government institution that has not been constituted by law.

  1. Revenue is derived from the general public in the form of taxes, penalties, and fees in the public sector, whereas revenue is derived from the sale of goods and services in the private sector.
  2. The primary goal of a profit-oriented company is to make money. The amount of profit earned in relation to the assets of such an organization can be used to gauge its success to some extent.
  3. An investor with an interest in such a company can examine its financial accounts for information on the extent to which the company’s profit goal has been met. The primary goal of a non-profit public sector organization, on the other hand, is to provide a socially desired specified service to society at a reasonable cost.
  4. While profit is a good indicator of performance for a profit-oriented company, the same cannot be true for a non-profit organization, especially for Type A organizations that primarily raise funds via the sale of goods and services. Because it is less exposed to market forces than a profit-oriented organization in a competitive business, a large surplus of revenue over expenses in a non-profit organization is insufficient evidence that it is doing well. This means that, although a profit-oriented company must manufacture goods and sell them at prices that reflect what the market is ready to pay or risk going out of business, a non-profit organization does not face the same risk due to the unique conditions surrounding the services’ pricing.
  5. Government accounting primarily employs a budgetary approach, in which revenue and spending items are recorded and classified under numerous heads and subheads. Although revenue and expenditure matters are recorded by their natural descriptions, such as stationary and discount allowed, Private Sector Accounting also handles budgeting and budgetary monitoring.
  6. Government Accounting collects data and information mostly using the “fund accounting” method. The proprietary (or ownership) style of accounting is used in the private sector, and it shows the nature and sources of the enterprise’s financing or capital structure, such as ordinary share capital and preference share capital.
  7. Unlike Private Sector Accounting, which derives its existence and power from Companies Acts, Government Accounting is based on the Constitution and Acts of Parliament.
  8. Current assets, like stocks and debtors, are not included in a government’s balance sheet since debtors are not counted until money is received. These must be included in a commercial accounting system, along with a debtors analysis.
  • Financial transactions in the public sector are documented on a cash basis, but in commercial organizations, they are recorded on an accrual basis. This distinction may vanish with the implementation of the accrual based International Public Sector Accounting Standards (IPSAS) into Nigerian accounting.
  • For public sector accounting, tangible fixed assets like land, buildings, plants, and machines are not included in the balance sheet, although in commercial accounting, they must be included along with the total depreciation to date.
  • Unlike private firms, which are required by law to have annual general meetings of stakeholders, the government does not hold such meetings. Rather, whenever such communication is required in the public sector, the government will hold public or press briefings to address the issues at hand.

SUMMARY

You learned about government accounting in this chapter, which is a procedure that involves the compilation of financial records. The process entails recording, analyzing, classifying, and summarizing government financial activities, as well as communicating and interpreting them.

In addition, the goals of government accounting were established. There was a discussion about the disparities between public and private sector accounting.

External and internal users of government accounting data, as well as areas of interest, were highlighted.

CONCLUSION

This unit has exposed you to public-sector accounting operations, which differ from private-sector accounting operations. While private-sector organizations focus on increasing wealth, public-sector organizations focus on reducing poverty.

Organizations in the public sector care about people’s well-being. The following units will go into the functioning of public sector organizations in further detail.

Self-Assessment

  1. Distinguish between public sector accounting and accounting in the private sector.
  2. Identify the internal users of public sector accounting information and their information needs.
Eric Adjei

Eric Adjei

A professional with six (8) years’ experience in finance and accounting. Demonstrating expertise in accounting procedures, computerized accounting system management and financial operations. Financially astute with excellent analytical, problem solving, management, people supervision, organizational, business administration, operation and commercial management and teaching skills.

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