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In recent years, beginning to use of the accrual basis accounting system provides more informative, reliable and comparable balance sheets of governments. Consolidated financial statements of EU countries as well as the financial statements of Greece and Turkey were examined and analyzed. Financial tables of a government are greatly helpful to its users for providing analogical information in time series.
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Originaltitel
Financial Analysis in Public Sector Accounting_An Example of EU, Greece and Turkey
In recent years, beginning to use of the accrual basis accounting system provides more informative, reliable and comparable balance sheets of governments. Consolidated financial statements of EU countries as well as the financial statements of Greece and Turkey were examined and analyzed. Financial tables of a government are greatly helpful to its users for providing analogical information in time series.
In recent years, beginning to use of the accrual basis accounting system provides more informative, reliable and comparable balance sheets of governments. Consolidated financial statements of EU countries as well as the financial statements of Greece and Turkey were examined and analyzed. Financial tables of a government are greatly helpful to its users for providing analogical information in time series.
EuroJournals Publishing, Inc. 2012 http://www.europeanjournalofscientificresearch.com
Financial Analysis in Public Sector Accounting: An Example of EU, Greece and Turkey
Ekrem Kara Faculty of Economics and Administrative Sciences Gaziantep University, Department of Business Administration E-mail: ekremkara40@gmail.com
Abstract
Recent financial crisis, which have an impact on the US and European markets, has been one of the most significant subjects to be researched for the academicians. However, those studies are generally related with the context of economy, not with the understanding of accounting, especially not with the financial tables of the governments. Financial tables are some of the best instruments that show the financial situation of a government. Various methods which help to analyze a business have not been used for the public sector accounting. In recent years, beginning to use of the accrual basis accounting system provides more informative, reliable and comparable balance sheets of governments. Reliable, informative, transparent and comparable financial tables will help government to making plans, deciding and predicting the financial crisis. In this study consolidated financial statements of EU countries as well as the financial statements of Greece and Turkey were examined and analyzed.
Keywords: Public Sector Accounting, Financial Analysis, Accrual Basis Accounting System JEL Classification Codes: M41, M48
1. Introduction Financial tables of a government are greatly helpful to its users for providing analogical information in time series and for its use to make interpretations regarding the governments financial situation. As a result of globalization, the developments of capital market transactions and their internationalisation and the increasing role of government in these markets make government accounting significant. Thus, governments as active players of these markets raised the importance of public sector accounting. International Public Sector Accounting Standards are the most significant progress of public sector accounting. With the help of these standards, financial tables of the governments gained the status of more informative, comparable and standardized situation. Liquidity shortage has been the major reason for the recent financial crises that emerged in Western Countries and continued to affect the other countries. Liquidity shortage and ability to pay debts or solvency of a government is best understood with the analysis of its financial tables. A well systemized financial reporting will help governments to make better plans and decisions and to predict any financial crises. Financial Analysis in Public Sector Accounting: An Example of Eu, Greece and Turkey 82
In this study, initially, public sector accounting system and financial analyses that can be used in public sector accounting have been researched, and then, financial analysis of consolidated tables of EU countries as well as the financial tables of Greece and Turkey have been examined.
2. Public Sector Accounting Public Sector Accounting can be described as a system which gathers, records, classifies and summarizes as reports the financial events existing in the public sector and as required by accountability and financial transparency provides information to information users associated to public institutions (Karaarslan, 2002, s. 60). There are two options in public sector accounting system: cash basis accounting recording system and accrual accounting recording system.
2.1. Cash Basis Accounting System In cash basis accounting recording system, what is important is not the occurrence time of financial events, but when the money is collected and cash payment is done after these kind of financial event. Accounting entries are recorded when cash inflow and outflow are made (Dayar & Esenkar, 2008, s. 271). This method is only related to cash flows and budget movements. The changes on government liabilities, accrued expenses and incomes of government and tangible assets of government are not considered in this recording method ( (Hoek, 2005)
2.2. Accrual Basis Accounting System Accrual basis accounting system is a system in which operations and transactions are recorded immediately when they occur regardless of payment or purchase of cash or cash equivalent assets. In this system, an economic value is accounted when it occurred, when it is transformed into another form, and when the owner changed or when it disappeared. Also in accrual basis accounting system, assets, liabilities, incomes and expenses are accounted on accrual basis. (al, 2005, s. 110).
2.3. The Difference between Accrual Basis Recording System and Cash Basis Recording System The differences between accrual basis accounting system and cash basis accounting system are demonstrated on the table below:
Table 1: The comparison of accrual basis accounting system and cash basis accounting system
Accrual Basis Accounting System Cash Basis Accounting System Cheques Received It is recorded to received cheques account. It is recorded to cash account. Marketable Securities It is separately recorded as public and private sector. Both public and private are followed in off balance accounts. Accounts Payable and Accounts Receivable It is recorded according to debts and credits payment term. Debts and credits payment terms are not distinguished. Advances Account Advances are recorded to the periods when they are accrued. Advances are not recorded to the periods when they are accrued. Short Term Deferred Income/Expense Accounts Prepaid payment/collection is followed in for recording on their own terms in this account. Term separator accounts are not used. Stock Count Delivery Surpluses and Shortages Count surpluses and shortages accounts are used. Count surpluses and shortages accounts are not used. Surpluses are shown in income account; shortages are shown in expense account. Unpaid Debts Because of Funds Shortage Even if there is no fund, it is followed in debts account. There are no records related to unpaid debts because of funds shortage. 83 Ekrem Kara
Table 1: The comparison of accrual basis accounting system and cash basis accounting system - continued
Tangible Fix Assets Tangible fix assets are followed with their cost values. Depreciation is calculated according to their useful lives. Tangible fix assets are shown as expenses from that years budget. Income Accounts Although there is no collection, it is shown in income accounts in the related term. It is shown in income accounts when collection is done. Expense Accounts Although there is no payment, it is shown in expense accounts in the related term. It is shown in income accounts when payment is made. End of Period Transactions At the end of each period, accounts needing to be closed are closed and activity results are calculated. Turnover sheets are prepared at the end of the period. Some accounts turn over and some do not. There are no activity results at the end of the period.
3. The Definition and Importance of the Financial Analysis in Public Sector Accounting The financial statement analysis is the examination of the relationship between the accounts in the financial statements and trend that they demonstrates during time for evaluating the state's financial operation results and development on finance and making predictions for the future. Financial statements have great importance for investors, creditors and other users of financial statements. To bring some results in the financial statements and to become informed about the state's financial structure, these statements must be analyzed correctly. Financial analysis has great importance in measuring state activity and the degree of success in achieving the targets set by the state. The information obtained through the financial analysis on all aspects of state management as the basis of the decisions taken, are necessary for a healthy planning. Without evaluation of the financial conditions of the state and results of operation, there is no possibility of making a consistent planning. For this reason, financial analysis is also important for the public sector in terms of fulfillment of the planning function. Financial analysis serves as a vehicle for financial development of the state. It helps ensuring confidence, making prediction, initiation and positioning of all of them and decision process of the limitation of uncertain areas.(amilolu, 2001, s. 92)
3.1. Financial Analysis for the Public Sector Accounting Analysis of financial statements in the public sector is the field of study that covers the overall analysis of a governments financial situation and results of its operations. Moreover, it is also useful to make predictions about the financial situation for the years ahead (Akdoan & Tenker, 2001, s. 25). Financial statements have a great significance for a government, investors, creditors and other users (Akdoan & Tenker, 2001, s. 25). In order to find out any results about the financial statements and understand the financial structure of the government, it is essential to make correct analysis of these statements. Financial analysis has a considerable importance for a government in terms of measuring its effectiveness and success degree as well as its performance for achieving its targets.
3.2. Types of Financial Analysis Analysis which will be done to financial statements can be classified in various ways. This classification is made according to the purpose of analysis, content or form of construction of analysis and to the person who will do the analysis. (TSPAKB, 2008).
Financial Analysis in Public Sector Accounting: An Example of Eu, Greece and Turkey 84
3.3. Financial Analysis Techniques Financial statements which are designed to contain specific properties are analyzed by using various indicators, measurements or making comparisons. By benefitting various analyzing techniques, the changes that state financial structure demonstrates in time is analyzed by trying to confirm the state's ability to pay the dept or not, both short- or long-term depts will be paid in time or not (Akdoan & Tenker, 2001, s. 518). Although there are a lot of analyzing techniques, in this study- as this would give more accurate information in the analysis of the financial statements of the state - trend analysis and ratio analysis techniques were used.
3.3.1. Trend Analysis Trend analysis is the analysis that is made for examining and determining the trends of items in financial statements over time. Trend analysis provides making a dynamic analysis by introducing decrease and increase of certain items of financial statements and subjective importance of this change (Akg, 2008, s. 397). While implementing of trend analysis, there are two kinds of approaches which are the base year calculation of the trend and the trend over the previous year (abuk & Lazol, 2000, s. 155). Calculation of trend according to the base year, the base amount for each account for the year were assumed to be 100, in handling the account of other years, it always is a percentage of the amounts (Bakr & ahin, 2009, s. 160).
3.3.2. Ratio Analysis Ratio analysis is that the pointing and evaluation between two requested accounts in financial statements in mathematical relationship. By the ratio analysis, the issues of the effectiveness of the state's assets, financial structure, liquidity situation and being able to pay debts are provided (Bakr & ahin, 2009, s. 132). Analysis by using ratio analysis can be grouped under the following headings; (Karapnar & Zaif, 2009, s. 151): Liquidity analysis Cash analysis Operating status analysis Financial structure analysis Profitability analysis Market efficiency analysis
4. Financial Report Analysis of Eu, Greece and Turkey States 4.1. The Aim of the Study For a business, the financial reports are very important so the State's accounting after the publication of the International Accounting Standards, at the accounting of the States, Financial Statements prepared by the states get the standards. Financial Statements comparability published within a certain standard have become clearer. The aim of the research in this context is to analyze the financial statements published by Turkey, Greece by comparing and the EU countries consolidated financial statements.
4.2. The Method of Research First of all, the consolidated statements of EU countries and the financial statements of Greece and Turkey's converted into a unique format. Then, these statements were examined by trend analysis and ratio analysis. Studies and results of this analysis are summarized below.
85 Ekrem Kara
Table 2: EU Countries Total Income/Expenditure (million euros)
Government revenue and expenditure 2008 2009 2010 % 2009 % 2010 Revenue Taxes 3,326,058 3,001,717 3,148,177 -9,7 -5,3 Social contributions 1,703,908 1,660,963 1,705,664 -2,5 1 Sales 0 0 0 Capital revenue 18,884 15,705 25,498 -16,8 35 Other current revenue 234,903 218,733 219,145 -6,8 6,1 Total Revenue 5,283,753 4,897,118 5,098,484 -7,3 3,5 Expenditure Intermediate consumption 807,849 813,380 841,698 1 4 Compensation of employees 1,311,541 1,318,366 1,350,680 1 2,9 Interest 344,872 308,802 333,066 -10,4 -0,3 Subsidies 142,849 151,854 158,890 6,3 11 Capital transfers payable 180,594 175,279 184,392 -2,9 2 Capital investments 333,124 343,372 323,533 3 -0,2 Social benefits 1,823,868 1,938,080 2,040,230 6,2 11 Other current expenditure 632,912 649,952 841,698 2,6 32 Total expenditure 5,577,609 5,699,085 5,038,900 2,1 -9,6 Government deficit -293,856 -801,967 -782,114 172 166 Resource: (Eurostat, 2011)
Trend analysis of the EU countries income and expenses are shown in Table 2. In this analysis, the year 2008 is base year. All income terms of the EU countries in 2009 decreased compared to 2008. In the expenditures, Interest expense and Capital transfers decreased instead of other expenditures increasing. The budget deficit increased by %172 in 2009 compared to 2008. 2010 is better than 2009 at financial situation. In 2010, only the income tax has been decreased but other revenue items increased. At the same time, Spending of 2010 has been decreased by 9.6%. The budged deficit increased by 166% in 2010 compared to 2008.
Table 3: Greece State Total Income/ Expenditure (million euros)
Government revenue and expenditure 2008 2009 2010 % 2009 % 2010 Revenue Taxes 48,105 45,745 46,275 -5 -3 Social contributions 30,749 29,458 29,663 -4 -3 Sales 5,289 4,803 4,636 -9 -12 Capital revenue 4,636 2,713 4,357 -41 -0,6 Other current revenue 5,680 4,848 5,002 -14 -11 Total Revenue 94,459 87,567 89,933 -7 -4 Expenditure Intermediate consumption 15,283 17,228 13,333 12 -12 Compensation of employees 27,668 30,559 27,183 10 -1 Interest 11,750 12,328 12,594 5 7 Subsidies 43 76 93 8 116 Capital transfers payable 4,121 4,084 2,802 -0,8 -32 Capital investments 8,891 7,463 6,367 16 -28 Social benefits 45,765 48,844 47,400 7 4 Other current expenditure 4,113 3,669 3,905 -10 -5 Total expenditure 117,634 124,251 113,667 6 -3 Government deficit -23,175 -36,684 -23,734 58 2 Resource: (Eurostat, 2011)
Trend analysis of Greece's income and expenses are shown in Table 3. In this analysis, the year 2008 is base year. Greece's all revenue items has decreased in 2009 compared to 2008. In Financial Analysis in Public Sector Accounting: An Example of Eu, Greece and Turkey 86
expenditures, other expenses and capital transfers decreased but other expenditures increased. The budget deficit increased by 58% in 2009 compared to 2008. Both revenues and expenditures decreased in 2010 compared to 2008. The budget deficit increased by 2% in 2010 compared to 2008.
Table 4: Turkey State Total Income/ Expenditure (million TL)
Government revenue and expenditure 2008 2009 2010 % 2009 % 2010 Revenue Taxes 173,780 179,008 220,996 3 27 Social contributions 32,799 40,629 45,979 23 40 Capital revenue 13 101 73 676 461 Interest, Shares and Fines 27,916 25,770 36,866 -7 32 Revenues from value and volume changes 46,152 28,584 31,499 -38 -32 Other current revenue 1,632 2,219 2,583 35 58 Total Revenue 282,292 276,311 337,996 -2 20 Expenditure Intermediate consumption 38,907 41,984 44,370 8 14 Compensation of employees 56,883, 65,007 73,008 14 28 Interest 59,610 51,652 46,971 -13 21 Subsidies 8,199 10,476 11,136 27 36 Capital transfers payable 4,713 5,578 8,877 18 88 Capital investments 67,955 28,001 32,909 -58 -51 Social benefits 61,431 91,920 99,125 49 61 Receivables from the deleted spending 93,764 272 367, -99 99 Other current expenditure 14,634 12,118 7,994 -17 -45 Total expenditure 349,213 307,008 324,390 -12 -7 Government deficit - 66,921 - 30,697 +10,606 -54 -115 Resource: (Ministry of Finance General Directorate of Public Accounts, 2011)
Trend analysis of Turkey's income and expenditure are shown in Table4. In this analysis, the year 2008 is base year. In 2009 compared to 2008, Turkey's revenues decreased by 2% but expenditures also decreased by 12% the budget deficit decreased by 54% in 2009 compared to 2008. In 2010 compared to 2008, revenues increased by 20% and expenditures decreased by 7%. In 2010 compared to 2008, budget surplus was given. For trend analysis of income and expenditure, EU countries, Greece and Turkey's analysis results summary is given below. At revenues of 2010 compared to 2008's, revenue of the EU countries increased by 3,5%, Greece's decreased by 4% and Turkey's increased by 20%. At total expenditures in 2010 compared to 2008, the EU countries expenditures decreased by 9.6%, Greece's decreased by 3% and Turkey's decreased by 7%. Budget differences in 2010 compared to 2008, the budget deficit was 166% in the EU countries and 2% in Greece but the budget surplus was 115% in Turkey.
Table 5: EU Countries Balance Sheet (million euro)
2008 2009 2010 % 2009 % 2010 CURRENT ASSETS 3,728,637 4,075,539 4,383,650 109 117 Liquid Assets 720,985 743,564 747,960 103 103 Marketable Securities 1,877,844 2,122,881 2,321,554 113 123 Receivables 418,783 444,191 530,549 106 126 Other Current Assets 711,026 764,903 783,587 107 110 LIABILITIES 8,258,786 9,294,382 10,355,989 112 125 Short Term Liabilities 1,294,858 1,483,821 1,607,691 114 124 Short Financial Liabilities 699,239 875,040 820,650 125 117 Short Trade Payables 177,112 165,764 341,941 93 193 Other Short Term Liabilities 418,507 443,017 445,100 105 106 Long Term Liabilities 6,963,928 7,810,561 8,748,298 112 125 87 Ekrem Kara
Table 5: EU Countries Balance Sheet (million euro) - continued
Long Financial Liabilities 5,506,798 6,241,929 6,993,471 113 126 Long Trade Payables 1,017,809 1,093,100 1,253,536 107 123 Other Long Term Liabilities 439,321 475,532 501,291 108 114 Resource: (Eurostat, 2011)
The trend analysis was applied to consolidated balance sheet of the EU countries. In this analysis, the year 2008 is base year. According to this result, it is noteworthy that the short-term activity debt increased by approximately 2 fold.
Table 6: Greece Government Balance Sheet (million euro)
2008 2009 2010 % 2009 % 2010 CURRENT ASSETS 64,431 72,908 76,185 113 118 Liquid Assets 13,204 11,841 16,592 90 126 Marketable Securities 29,958 40,498 38,272 135 128 Receivables 1,591 1,262 1,213 79 76 Other Current Assets 19,678 19,307 20,108 98 102 LIABILITIES 275,514 313,573 343,686 114 125 Short Term Liabilities 6,516 13,841 12,882 212 198 Short Financial Liabilities 5,496 10,820 9,121 197 166 Short Trade Payables 292 1,513 2,756 518 944 Other Short Term Liabilities 728 1,508 1,005 207 138 Long Term Liabilities 268,998 299,732 330,804 111 123 Long Financial Liabilities 210,828 242,103 243,352 115 115 Long Trade Payables 44,974 42,793 72,354 95 161 Other Long Term Liabilities 13,196 14,836 15,098 112 114 Resource: (Eurostat, 2011)
Trend analysis was applied to Greece State Balance sheet. In this analysis, the year-2008 was based. According to this result, it is noteworthy that the short-term debts in 2009 and 2010 were increased by approximately 2 fold.
Table 7: Turkey Government Balance Sheet (million TL)
2008 2009 2010 % 2009% % 2010 CURRENT ASSETS 134,334 142,176 190,744 106 142 Liquid Assets 56,295 43,778 20,457 78 36 Marketable Securities 25,605 24,068 30,089 94 118 Receivables 49,010 59,322 85,756 121 175 Other Current Assets 13,424 15,008 Ara,66 112 182 LIABILITIES 281,953 341,869 370,227 121 131 Short Term Liabilities 89,592 140,798 110,890 157 124 Short Financial Liabilities 81,811 128,967 95,199 158 116 Short Trade Payables 7,714 11,753 15,622 152 203 Other Short Term Liabilities 67 78 69 116 103 Long Term Liabilities 192,361 201,071 259,337 105 135 Long Financial Liabilities 192,287 200,991 259,265 105 135 Long Trade Payables 7 2 3 29 43 Other Long Term Liabilities 67 78 69 116 103 Resource: (Ministry of Finance General Directorate of Public Accounts, 2011)
Financial Analysis in Public Sector Accounting: An Example of Eu, Greece and Turkey 88
Trend Analysis was applied to Turkey's government sheet. In this analysis, the year-2008 was based. According to this result, it is noteworthy that the short-term debts in 2009 and 2010 were increased by approximately 2 fold.
Ratio Analysis
Current ratio: Current assets/Short-term liabilities 2008 2009 2010 EU 2.9 2.7 2.7 Greece 9.8 5.3 5.9 Turkey 1.5 1.02 1.7
Current ratio shows the relationship between current assents and short-term liabilities. It is seen that EU countries and Turkey have a balanced course of current ratio but Greece's current rates are really high, due to an imbalance between Greeces short-term debts and long-term foreign sources.
Default value ratio indicates the presence of short-term debt of pounds for the government in the hands of a few pounds each in cash and cash-value. Although default value of EU countries for the years 2008 and 2009 was equal, it decreases in 2010.While Greece's default ratios of the year 2008 was really high, in the years 2009 and 2010 it decreases. In Turkey, this rate was high for the year 2008 based on 2009 and 2010 and especially in 2010 this rate fell 0.18 .Turkey has an urgent need to find a solution to short-term foreign sources. Otherwise it will be faced with the challenges of the coming years to pay.
5. Conclusion In recent years, financial crisis especially in western states cause economical and social problems. For the prevention of financial crisis and minimizing negative impact of it, states take some precautions. Re-arrangements of the financial structure of the states come at the beginning of these precautions. While the financial structures of states are rearranging, public sector accounting system should be more informative. And to be more informative financial reports should be prepared according to International Accounting Standards. Greece is one the most affected countries from this financial crisis. This state's financial crisis has begun to influence other European countries. Financial crisis that will take place in the European Union will affect Turkey as well. Turkey should take measures if they don't want to be affected by the crisis. In this study, the consolidated financial statements of the EU countries and, Greece and Turkey's financial statements were analyzed by comparing the financial analysis. According to the results of this analysis, it occurs that in the years 2008, 2009 and 2010, EU countries have budget deficit. This was the highest level of budget deficits in 2009. Year 2009 has been financially a bad year for the EU, Greece and Turkey. In 2010, the EU countries decreased the budget deficit by increasing revenues and reducing spending. In 2010, it was established that the revenues of Turkey increased and the expenditures decreased. It was established that the biggest increase in income was tax revenues. The reason for this increase is the collection of overdue taxes by the tax peace in Turkey in 2010. According to the ratio analysis applied to the balance sheets of Turkey in the years 2008, 2009 and 89 Ekrem Kara
2010, the most important problem was the liquidity problem. The solution of this problem is the continuance of increasing revenues and increasing of internal saving.
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