Welcome to The Public Sector Accounting Guide, where we give you everything you need to know about public sector accounting, including questions, answers, and themes in public sector accounting, as well as other related topics.
This guide or article will cover public sector accounting in Nigeria, as well as public sector accounting and finance in Nigeria, so if you’re a student of public sector accounting, you’re covered.
INTRODUCTION TO PUBLIC SECTOR ACCOUNTING IN NIGERIA
In this unit, the student will learn about the features of the public sector, the differences between public sector and government business organizations, and the external and internal users of public sector accounting data, as well as their different data applications.
You’ll also discover the differences between public and private accounting.
The learner should be able to do the following:
- By the end of the unit, you should have a good understanding of the public sector.
- Recognize the differences between the public sector and government-owned businesses.
- Recognize the external and internal users of accounting data in the public sector, as well as how they use the data.
- Understand the differences between public and private accounting.
INTRODUCTION TO NIGERIA’S PUBLIC SECTOR ACCOUNTING
This course is about accounting in the Nigerian public sector. “Public sector” and “accounting” are two significant topics that arise from the course’s title. Simply said, the public sector refers to any institution that is not owned or operated by a private individual or corporation.
To put it another way, the public sector consists of all entities that the government owns, operates and finances on behalf of the people. Nigeria’s public sector includes the federal government, 36 states, 774 local government councils, as well as all government enterprises, commissions, and organizations.
Accounting, on the other hand, is the process of identifying, measuring, and communicating an organization’s economic data to users who need it to make decisions. It identifies the transactions and occurrences of a specific entity.
When the two concepts are combined, we can see that public sector accounting is a component of accounting. Accounting in federal and state government ministries and extra ministerial agencies, municipal governments, government parastatals, government committees, task groups, and commissions, among other places, is covered.
All financial documents and records kept by public institutions that pertain to the collection of taxpayers’ 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, are included in public sector accounting.
It’s a system of accountability in which established governmental institutions are in charge of overseeing the country’s revenue and spending.
It comprises recording all transactions involving the receipt, transfer, and disposition of public cash and property, as well as documenting, analyzing, classifying, summarizing, presenting, and interpreting financial data about the public sector in aggregate and detail. The processes of public sector accounting are as follows:
(a) Recording: This is the process of entering financial transactions and events into the appropriate books of accounts, such as the cash book, ledger, and vote book.
(a) Analyzing: This is the process of categorizing transactions and assigning them to the appropriate heads and subheads based on predetermined criteria.
(c) Classifying: This requires categorizing transactions into revenue and expense descriptions and allocating them to significant classes such as “Revenue Head and Sub-heads” with account code numbers.
(d) Summarizing: This is the process of gathering all of the various types of accounts and arranging them into reports on a regular basis, as required by law or by the organization.
(e) Communicating: This relates to making financial reports on all government financial actions, including pertinent accounting summaries, available to various interested parties. The communication style employed should be as clear, plain, and jargon-free as possible.
(f) Interpretation: The final phase in the process is to explain what has been reported in the various financial statements and reports in terms of the relevant government organization’s overall operations and performance (s).
As a result, the appropriate parties and users will be able to make informed decisions based on their assessments of the reports.
Exercise in self-evaluation.
- What is Accounting in the Public Sector?
THE NATURE OF THE PUBLIC SECTOR IN NIGERIA
The public sector includes the federal, state, and local governments, as well as their ministries, parastatals, and extra ministerial departments.
The word also includes 66 government business corporations and other government (public sector) organizations (GBEs). Frequently, the phrases “government accounting” and “public sector accounting” are interchanged.
They are not identical, despite the fact that they are similar in many aspects. The main distinction is in the scope of the project.
Government accounting and accounting in other public sector enterprises are both included in public sector accounting. Only accounting in ministries, extra ministerial divisions of government, and local government is covered under government accounting.
Accounting is not included in government commercial companies, on the other hand. We shall build on the ideas of public sector organizations and government commercial entities to highlight the differences between them.
PUBLIC SECTOR ORGANIZATIONS
Public sector organizations are entities created by different levels of government to perform specific tasks outside of government ministries and extra-ministerial bodies.
Omolehinwa and Naiyeju (2015) identified two characteristics of public sector organizations:
- They are not in it for the money.
- They do not distribute their earnings or assets to the benefit of the members or officers of their organization. Even when such groups are disbanded, the proceeds are returned to the government rather than being dispersed to people, according to Omolehinwa and Naiyeju.
Organizations in the public sector exist in a wide range of shapes and sizes.
Omolehinwa and Naiyeju categorized them into two types: Type A and Type B. According to them, Type A organizations are those in the public sector whose primary source of revenue is the selling of products and services.
Organizations that derive funding from sources other than the sale of products and services are classified as Type B. For such groups, government money is the principal source of income. Type B public sector entities in Nigeria include the Nigerian Armed Forces, the Nigerian Police Force, and public colleges.
These organizations are subject to the public sector accounting system.
Government business enterprises are commercially operated government-owned firms.
During Nigeria’s privatization and commercialization process, some statutory agencies and government institutions were reconstituted as profit-making entities.
After then, they were nicknamed “government business entities” (GBEs). Their CEO and board of directors have extensive management autonomy, which allows them to set strategic goals and make resource management decisions.
Nonetheless, the government had complete control over them, and the relevant government minister was practically the only investor.
They are subject to a high level of accountability to the government minister, parliament, and the general public while operating as fully competitive profit-generating enterprises.
GBEs are thus regulated by a framework that holds them accountable to the minister, parliament, and the general public while placing high expectations on their capacity to operate in a competitive market by providing regular dividends to the government.
Government Business Enterprises include both trading and financial enterprises, such as utilities and banking organizations (GBEs).
For accounting reasons, GBEs 1are treated as private-sector entities because they normally operate to generate a profit.
The following aspects should be considered when defining a GBE, according to the International Public Sector Accounting Standard (IPSAS) 1:
- The entity must have the ability to enter into contracts on its own behalf.
- It must be able to manage a company’s finances and operations.
- In the regular course of business, it sells goods and services to other businesses for a profit or at full cost recovery.
- It does not rely on continued government assistance to keep afloat (apart from arm’s length product purchases); and
- It is owned by a government-owned corporation.
OBJECTIVES OR PUBLIC SECTOR ACCOUNTING IN NIGERIA
Some of the objectives of government accounting are as follows:
(1) In order to fulfil a legal responsibility. According to the law, government accounts must be created and audited once a year. As a result, the purpose of public sector accounting is to ensure that transactions are genuine and that they follow all applicable rules and regulations.
(2) To demonstrate that you are a responsible steward. The government makes use of societal resources on behalf of the people. The government will have to account for how this money were utilized.
(3) To allow the government to plan future actions and plans for the country. To put it another way, public sector accounting aids in the planning and oversight of government activities.
(4) Create a system for tracking and managing the usage of financial and non-financial resources.
(5) To provide a means of comparing actual performance to a set of objectives. (6) To evaluate the governing process’s economy, efficiency, and effectiveness.
(7) To provide objective and timely reporting.
(8) To call attention to the government’s various revenue sources and their performance.
(9) Ascertain that costs are acceptable in relation to benefits.
10) To detail the government’s immediate and long-term commitments.
(11) Identifying capital project finance sources.
- Make a list of ten (10) public sector accounting objectives.