17 January 2005	Monday	06 Zilhaj 1425

Everywhere, government accounting as a discipline has always been seen as distinct and separate from commercial accounting.

Government Accounting System (GAS) is a budget-based accounting system, which is dominated by centralized input control, established through treasury instructions and public services manual.

All public money is required to be paid into consolidated fund account in accordance with the treasury instructions and in some kind of accounts department submit vouchers for payment to district accounts offices/Accountant General's Offices, which then organize the payment and report on the transactions in the Public Account.

In the year 2001, the structure and function of audit and accounts were modified. An Ordinance (No. XXIV-2001) was issued to define accounting functions and provide for the appointment of Controller General of Pakistan (CGA).

The ordinance laid down the functions of CGA which includes responsibilities in respect of accounting matter, internal control and technical advices.

A changing political and economic scenario in Pakistan and globalization of commerce and services makes its imperative to adopt best practices, standards and procedures for the good governance specially in financial descriptions like preparation of reliable accounts and its presentation on time.

The recent collapse of corporate fraud around the world brought serious issues about accounting and its governance. Similar concerns and reservations are there about the government sectors accounting.

Joseph Stiglitz, Professor of Economics and Finance at the Columbia University and the winner of 2001 Nobel Prize in Economics has alleged that public accounting rules have been bent so as to provide a misleading picture of what is really happening in national economics.

In Pakistan, there is also reservations by international agencies and some independent institutions that the government accounting is neither authenticate nor reliable.

This is not true in all respect because the accounts are prepared on cash basis system and there is a system of complete reconciliation with the Bank and Accounts offices. Misclassification or wrong booking may be possible as happens as a routine matter in commercial organisations as well.

Yes, there are few things missing specially in Provincial Accounting like data in respect of gross domestic product. It is not possible to develop a relationship between revenue and expenditure and to analyse the reasons for differences: government accounting is a complex system; it is not so easy or generally understand.

The facts, figures and financial information currently arranged and reported are not sufficient to make analysis or to arrive at reasonable conclusion. And many changes are taking place in respect of govt. accounting, which is basically re-shaping it.

In the second half of the 20th century, particularly in the last two decades, the basic presumptions of government accounting have been challenged not only in terms of its conceptual underpinnings, but also in terms of economic relevance.

Preparation and presentation of government accounting with good reporting standard are essential for public accountability, efficient and effective functioning of a democratic system.

All endeavours should be made to establish and impose acceptable standards for federal, provincial and local government accounting and financial reporting that will result in useful information for users of financial reports.

To maximize transparency and to meet the requirements of good governance, the government through the department of the Auditor General and Controller General has initiated a project for the improvement of financial reporting and auditing (PIFRA) with the assistance of international donor agencies.

PIFRA is designed to create good governance in accounting, auditing and internal control and to develop human resources. And the federal, provincial as well as district governments are required to produce the commercial style financial statements.

The financial accounting (Federal, Provincial and District Governments) system is changing from cash basis to modified cash basis to overcome the limitations of cash accounting system.

The United Kingdom Green Paper on Resource Accounting noted that one of the main limitation of cash accounting is the lack of information it provides on capital (assets).

International Federation of Accountants (IFAC) in its IFAC public sector committee study (May 11,20000 on governmental financial reporting ) observed that cash accounting limits the ability of the electorate to hold the government accountable for its use of resources.

The provision of information only on cash flows means that governments can be held accountable for their use of cash, but there is no corresponding information available with which to hold the government accountable for its management of assets and liabilities.

In the light of these limitations, it is mandatory for the government to switch over from cash basis of accounting to modified cash system or semi- double entry accounting system.

Implementation of double entry accounting system is not possible at the initial stage due to the reason that accounting offices are not supported by proper infrastructure and presently the human resources are not so professionally qualified at the minimum desired level or groomed to understand the mechanism of double entry accounting system.

The WTO rules for trade, goods and services also necessitate adoption of the internationally recognized statements for the financial reports. The IMF in the documents relating to classification of Government Financial Statistics Manual 1986 (GFSM-1986) states that the governments have kept their accounts on a cash basis.

The IMF has revised its GFSM in the year 2001 with the remarks that the development in governments accounting and fiscal analysis over the past decade or so have placed emphasis on accrual accounting.

It has provided comprehensive conceptual accounting framework standards of disclosures. Important development in the international public sector accounting field have also influenced the process of standard setting for the government accounting.

IFAC set out the requirements of financial reporting by the government. International Public Sector Accounting Standard-1 describes that financial statements are structured representation of the financial position and the transactions undertaken by an entity.

The objectives of general purpose financial statements are to provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users in making and evaluating decisions about the allocation of resources.

There are many integral parts of the government accounting, which requires specific attention to the government. It is very important that government must have the clear accounting polices and practices that confirm to the international standards of accounting and indeed the disclosure policies in the similar line as adopted in appropriate manner in the private and public commercial and non-commercial organisations, which also includes government owned commercial enterprizes.

IPSAS-1 specifies that the entity should select and apply accounting policies so that the financial statements comply with all the requirements of each applicable international Public Sector Accounting Standards (IPSAS). Where there is no specific requirement, management should develop policies to ensure that the financial statements provide information that is:

* relevant to the decision making needs of users; and

* reliable in that they;

* represent faithfully the results and financial position of the enterprize;

* reflect the economic substance of events and transactions and not merely the legal form;

* are neutral, that is free from bias;

In the manual of Accounting Principles prepared by PIFRA, the accounting policies are defined, as the specific principles, bases, conventions, rules and practices adopted by federal and provincial governments in preparing and presenting financial statements.

However, without having the clear-cut accounting polices and disclosures, it cannot fulfil the requirements of good governance and of course the executives, donors, parliamentarians and public cannot see the whole financial statements from the lens of accountability and transparency.

By doing this, a comprehensive and more meaning full government audit of the accounts may be possible. The department of Auditor General of Pakistan is making all endeavour to switch over from traditional audit system to the system base audit to make the audit reports more meaningful and transparent but it may be realized that system base audit always depends on system base accounting.

In the phase of the implementation of accrual accounting and double entry accounting system, government has to face some challenges, one of them is opening balance sheet-a major concern.

The most practical advice is to carry out the stock taking and ensure that the list comprise all assets under control of the major problem is that millions of rupees are stuck in suspense account in the various departments of federal and provincial governments.

In order to be more transparent, a drastic action may be taken to write-off substantial amount appearing in the book of accounts of the departments after adopting all measures under the rules and regulations.

Any immature action may result in bringing the fictitious figures in the financial statements without its physical substance. Another challenging issue may be acquiring the title of properties and the transfer of properties to the federal, provincial and district governments in proper legal manner, without which a major portion of the capital employed and fixed assets presented in the financial statements, may not reflect the true picture.

For the purpose of preparation and presentation of accounts, the government may borrow the concept and ideas of the International Accounting Standards issued by International Federation of Accountants Committee (IFAC) and it is the high time for the government to establish the National Accounting Board to frame their own rules of accounting in conformity with the provision of the constitution and prevailing law/rules and regulations and in keeping with international norms in this regard.

India has already started the process for developing their own National Accounting Board. The basic aim of the National Accounting Board should be to improve the usefulness of the governments financial reports based on the need of the users but also to keep these standards current so as to reflect changes in the economics environment.

By adopting the mechanism of the good governance in government financial reporting, it would be possible for the government to provide the following important information to the users:

* How much revenues are raised by the govt., from what sources and how much from each source?

* How much does the govt. spend, what sub-units are responsible for making their expenditures and what are the expenditure for?

* What expenditures are made for capital purposes?

* At a given point in time, what financial claims does the govt. have on others and others have on the government;

* How are the financial claims on the government changing over time?

* Analysis of revenue and expenditure in per capita term;

* Analysis of development and non-development expenditure in various sectors;

* Details of debts to make the analysis possible from various angles;

* Aggregate information useful in evaluating the entities performance in terms of service cost, efficiently and accomplishment.