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European Journal of Scientific Research

ISSN 1450-216X Vol.69 No.1 (2012), pp.81-89

EuroJournals Publishing, Inc. 2012

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


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
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.
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
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
Prepaid payment/collection is followed in
for recording on their own terms in this
Term separator accounts are not used.
Stock Count Delivery
Surpluses and
Count surpluses and shortages accounts are
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
Even if there is no fund, it is followed in
debts account.
There are no records related to unpaid debts
because of funds shortage.
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Table 1: The comparison of accrual basis accounting system and cash basis accounting system - continued

Tangible Fix
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.
Although there is no collection, it is shown
in income accounts in the related term.
It is shown in income accounts when collection is
Although there is no payment, it is shown in
expense accounts in the related term.
It is shown in income accounts when payment is
End of Period
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
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
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
2008 2009 2010 % 2009 % 2010
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
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
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
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
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
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
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
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
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.

Liquid assets ratios: Cash and cash equivalents / Short-term liabilities
2008 2009 2010
EU 0.55 0.5 0.29
Greece 2.02 0.85 1.28
Turkey 0.62 0.31 0.18

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
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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