TOPIC 1

INTRODUCTION TO PUBLIC SECTOR ACCOUNTING

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TOPIC OUTLINES

Introduction Definition of terminology The differences between Public Sector accounting and Private Sector accounting Roles and importance of public sector Objectives of Public Sector Accounting Characteristic of Public Sector Accounting Components of public sector Management mechanism of the Malaysian government Roles of public sector accountants The users and uses of Financial Report
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Introduction
Coverage of PSFM

-Budgeting -Accounting -Reporting -Auditing

PSA deal with the financial management activities that requires and outlines by the Federal Constitution 1957. The financial activities comprise of Budgeting, Financial accounting, reporting and auditing All these aspect will discuss thoroughly in the specific topic of this course.
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Public Sector A political organization set up with power to direct, regulate and control mens activities to enable them to live together harmoniously and constructively and to solve their common problems.

Definition of Terminology
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Public Sector Federal Government State Government Local Government Federal Statutory Bodies State Statutory Bodies Government Link Companies Fund Accounting Vot Accounting Budgetary Accounting Commitment basis Cash basis Accrual basis Modified cash basis

Also Known as a government sector Federal Government Government that operate at federal level and consists of Ministries, Departments & Public enterprises State Government: Government that have a limited autonomy power and operate at state level and consist of Departments & public enterprises Local Government: Government that have a limited autonomy power and consist of departments only Federal Statutory Bodies The organization that set up through their own act and under the responsibilities of ministries State Statutory Bodies Government Link Companies (GLCs)

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Public Sector Accounting

Main differences with CA: -Requirements -Accounting standard -Purposes -Operationalize -Reports/statements -Users of information

a system of identifying, classifying, recording, summarizing, analyzing & reporting of financial data & information of organization in accordance with accepted principles, concepts, conventions, standards & regulations. Thus PSA is not different with private sector accounting except for the compliance of the regulation.
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Features of Public Sector

5 main features of PSFM: -Ownership - Operational Framework -Objectives -Contributors interest -Plurality in principles & practized

No individual shares of ownership Operate within a framework of public authorization and control Plurality of objectives Contributors of resources receive no direct interest Varying accounting principles and practices
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The roles of Public Sector

4 mains roles: -Provide conducive economic -Facilitate growth -Supports manpower -Enhance quality life

To enable a conducive and vibrant economic environment To facilitate growth and competitiveness of the industry and the Private Sector To support the country manpower needs; and To enhance the quality of life of Malaysian citizens.
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Purposes of PSA

To fulfill the legal requirement

exmples. Article 97 104 FC, FPA, AA, etc.

2 mains purposes: -Legality -Accountability

To achieve public Financial management accountability

Financial (fiscal), management & programmed

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Objectives of Public Sector Accounting

To provide information necessary for

efficient, effective and economical management

Relation with the purpose No. 2: Accountability

an operation and of the resources entrusted to it

To provide information to enable managers

- to report on the discharge of their responsibilities

- to permit all public officials to report on the on the result of government operations and the use of public funds (accountability)
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Characteristic of Public Sector Accounting

6 Main Characteristics: 1. Compliance with the requirements 2. Budgetary Accounting 3. Fund Accounting 4. Vot accounting 5. Accounting basis 6. Coding system

PSA will emphasis on: Maintenance of books and all

records properly. Compliance with the related laws, rules and regulations. Provides a comprehensive and accurate reports

Thus, accounting in public sector look at both the money and public property to account for as required by the Section 3, Financial Procedure Act 1957.
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 Budgetary Accounting
Characteristic of Public Sector Accounting .. cont
5 characteristic: Budgetary accounting Fund Accounting Vot accounting Standardize and specific coding Accounting basis

The budget serves as a master blueprint for planning, control, and evaluation of governmental, proprietary, and fiduciary fund financial positions. Method The approved amount will be credited to an appropriation account and after actual expenditures, the account will be debited. The balance in the accounts will show the approved amount which not yet spend
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 Fund Accounting
Characteristic of Public Sector Accounting .. cont
Fund accounting equation: Asset = Liabilities + Fund balance Equity accounting equation:

Fund Accounting- is an accounting system in which an entitys resources are divided among two or more accounting entities known as funds (Granof, 1998) .

Assets = Liabilities + Equities

Fund- a fiscal and accounting entity with self-balancing set of account for resources, and claim against them, that are segregated in accord with legal or contractual restrictions or to carry out specific activities.
Fund accounting equation:

Asset = Liabilities + Fund balance

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Characteristic of Public Sector Accounting .. cont

Vot accounting -Part of the budgeting -Link between budget & accounting activities -Applied commitment accounting basis Coding system - Standard and comprehensive Code developed by the treasury and compulsory for all level of the government agencies

Vot accounting All the expenditure and allocation need to be recorded in the vot book before payment has been made. Coding system All the government entities need to practised the standardised coding system provides by the Treasury
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Characteristic of Public Sector Accounting .. cont

Basis in recognized the transactions; -Cash -Accruals -Modified cash -Commitment

Accounting basis Government entities practiced 4 types of accounting basis depend on the nature of that entity:
Commitment Accrual Cash

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Components of public sector

4 main components: -Federal government -States government -Local government -Federal statutory bodies

Federal Government: - Ministries, Departments & Public enterprises State Government: - Departments & public enterprises Local Government: - Departments Federal Statutory Bodies Off-Budget Agencies (OBA)
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Components of public sector ..cont

GOVERNMENT AGENCIES statistic:

AGENCY

NO. OF DEPTS
126 256

%
18% 36%

Federal Public Service State Public Service

Federal Statutory Body

State Statutory Body Local Government

88
93 146

12%
13% 20%

TOTAL

709

100.00

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Management mechanism of the Malaysian government

Level of mechanisms: -Policy maker -Implementation -Watchdog

Divide into various level: Policy maker

Parliament, ministries

Implementation
Department, agencies

Watchdog agencies
Auditor general, MACC, IIT, etc

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Main Activities
Main activities in Malaysian public sector Financial management are: Budget
Estimates revenue and expenditure for that year

Accounting
Recording the allocation and actual revenues and expenditure based on the code and object

Reporting
Prepare a reporting that consist of BS, I&S statement, notes to the accounts and memorandum statement

Auditing
Audit all the financial report and record together with the performance audit
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Roles of public sector accountants

Play and important role in enhancing:
Accountability Integrity Efficiency of both public money and property

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The users and uses of Financial Report

External users:
Citizens/voters, tax payers, assembly man, analyst and mass media.

2 categories of users; Internal External

Internal users:
Government (executives), legislation bodies and auditors.

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Conclusion
Main activities for PSA are budget, accounting, reporting and auditing. Main Purposes to achieve accountability and fulfill the legality Basic procedure and requirement need to refer and follow the Law requirement before accounting standard The users of information include policy maker, parliament members and citizens.
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Tutorial Questions
1.Discuss why public sector accounting is one of the legal requirement in Malaysia. 2. Explain what you understand about the following; - Ministries and departments - Accountability and stewardship - Off-budget agencies 3. Discuss FOUR (4) main roles of public sector in
supporting the government aspirations

4. Q 5 & 6 text book pg.26

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