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Standards Board is a must for eliminating the inefficiency from the outdated system.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