SCHOOL OF ACCOUNTANCYCOLLEGE OF BUSINESS

BKAL3023 PUBLIC SECTOR ACCOUNTING

GROUP: C

GROUP PROJECT

TITLE:FINANCIAL ACCOUNTING

PREPARED FOR:DR MAZRAH BINTI MALEK

PREPARED BY:

AHMAD SHABIRIN BIN BAHRIN221521MUHAMMAD HAZIQ BIN NASIR HAMZAH221831AHMAD ASHRAFF BIN IDRIS222143MUHAMMAD NUR FAIZAN BIN NORDIN222168MUZAKIR HASAN700352

ARTICLE: IMPLEMENTATION OF FULL ACCRUAL BASIS IN GOVERNMENTAL ORGANIZATIONSBy: AHMAD ASHRAFF BIN IDRIS222143IntroductionMost public sector accounting standards developed based on the assumption that the government is engaged in impartial and non-profit activities, and the duty of governmental accounting is limited to government freedom from budget and financial analysis of funds, and there is no need for accurate calculation of performance results and financial position of government. Therefore, that cash basis is sufficient to provide governments financial information, and full accrual basis is not required. But, recently in some countries such as Great Britain, New Zealand and Australia, an approach has been developed to use the full accrual basis in public sector accounting.Issuea) How far the extent of the public sector will exchange the financial accounting from the use of cash basis to accrual basisb) What are the best systems that can be used by the public sector to report on financial accounts?c) What are the difference between cash basis and accrual basis and how it may affect the public sector?FindingActually comprehensive financial statements can identify deficiencies, weaknesses, opportunities and abilities correctly, and remove superficiality, simplicity, self-esteem, false intoxication or extreme disappointment. In the past three decades, a global movement, slow but steady has been started by the majority of governments to make a change from cash basis to full accrual basis in accounting (Boxall, 1998; Carlin, 2003). This change is the result of calls for greater accountability, transparency and sophisticated decision making towards public sectors (Dickinson, 2000). It would therefore be expected that within a few years later all other countries (including developing countries) use accrual basis in their accounting system. Public Services Committee for International Federation of Accountants believes that accrual basis of financial statements in comparison with the cash basis, provides more related, accurate, comparable and useful information for users of financial statements (Public Services Committee, 2002).The best system that can be used by the public sector to report on their financial accounting is accrual basis rather than cash basis. In addition, Public Services Committee encourages all countries at any level of development to move towards accrual basis and to use International Public Sector Accounting Standards. The importance of improving financial reporting of countries has also been recognized by international and local financial institutions like World Bank, International Monetary Fund, Asian Development Bank and United Nations Development Program (Hepworth, 2003). Often financial assistance of these institutions will be accomplished, provided that these countries change their accounting information systems and use accrual basis (Pina et al, 2009). Also, missions of developing accounting standards generally emphasize the use of full accrual basis accounting of public sector institutions non-commercial activities, and have attempted to accomplish this.Government Accounting Standards Advisory Board (2008) states that accrual basis has some advantages including quick access to comprehensive, sophisticated and accurate information of present situation of the organization, access to recognition system of expenses based on accurate information of resources and necessities, identifying the amount of non-received incomes in any financial period and planning to receive them, access to accurate and complete information of incomes and expenses of any period (including cash and noncash), access to making a relationship between expenses and their performance and consequently providing a fair condition to start negotiations on operational budgeting.Government Accounting Standards Advisory Board (2008) believes that the cash basis has some problems and deficiencies, including lack of assessment on performance of organizations management, lack of congruency of mentioned method with accounting standards, lack of comprehensive activity-based budgeting system, lack of requirements for proper registration of barters and non-cash investments, failure to observe the principle of matching revenues and costs, lack of completely registering the liabilities and receivables and etc.As a conclusion, accrual accounting system possesses more power to assess the effectiveness and organization performance results, and management can manage organization costs better. In addition, accrual accounting system reflects organization's long-term commitments and the whole financial situation more accurately.

ARTICLE: A REVIEW OF THE DOUBLE-ENTRY ACCOUNTING SYSTEM AND ACCRUAL ACCOUNTING IN THE PUBLIC SECTORBy: MUZAKIR HASAN700352IntroductionIn the discussions surrounding todays public sector accounting reforms, the prevailing view advocates a complete transition from business accounting like methods, by which existing data is rearranged to generate supplemental financial statements, to double-entry bookkeeping and other business accounting methods. For example, the adoption of business accounting practices for public sector accounting and this switchover will require substantial modications to the current framework. One problem pointed out with the current system, however, is that such comparisons have entailed nothing more than listing those elements present in business accounting but not in public sector accounting, though the two dier in their objectives. Therefore, this paper will examine the nature of public sector accounting as it was and business accounting as it is, and will review the adoption of business accounting practices in public sector accounting just getting underway.Issuesa) What are the fundamental role of business accounting to permit informed judgments and decisions making in public sector accounting ?b) What are the different between single-entry bookkeeping and double-entry bookkeeping?c) Why the accrual accounting are needed into adopted double-entry bookkeeping?

FindingBusiness accounting has long used a double entry bookkeeping and a pair of nancial statements derived from this system, and eorts continue to be made to reect accounting information useful in decision making as far as possible within the conventional framework. Not having adopted double entry bookkeeping, public sector accounting is likely unable to determine what kind of accounting information is useful for decision making. Given the requirement stipulated in the above denition of meeting the needs of a variety of users of the information, there is no reason to limit disclosure solely to the general purpose nancial statements. Non nancial information and other statistical data may fall within the scope of accounting if they are useful for the decision making. In stressing the intrinsic character of accounting, therefore, it could also be dened as recording on a continual basis the cause and eect of changes in the resources belonging to an economic unit, and clearly establishing how many these resources have changed during given periods and for what reasons and how many resources are presently held.Single-entry bookkeeping maintains records based entirely on quantitative data (including monetary amounts) and does not oer a means of verication through cross-checking of records because the units of measure dier by the type of resources. double-entry bookkeeping uses dual aspect recording based on monetary amounts and enables verification of ledgers via the principle of equilibrium. If double-entry bookkeeping is regarded formally as bookkeeping by double entry literally, then the accounting treatment of general fixed assets account group and general long-term debt account group in the US local governments qualies as double-entry bookkeeping in the public sector accounting area.Because accrual accounting attempts to record the financial effects on an entity of transactions and other events and circumstances that have cash consequences for the entity in the periods in which those transactions, events, and circumstances occur rather than only in the periods in which cash is received or paid by the entity. Accrual accounting is concerned with an entitys acquiring of goods and services and using them to produce and distribute other goods or services. It is concerned with the process by which cash expended on resources and activities is returned as more or perhaps less cash to the entity, not just with the beginning and end of that process.ConclusionThis article has examined the significance of introducing double-entry bookkeeping and accrual accounting into public sector accounting, that is today taken for granted. The article has also shown that, while superficial introduction of these methods might be possible, the significance of such a switchover is by no means clear. Of course, even if double-entry bookkeeping and accrual accounting are introduced, double-entry bookkeeping (in subsidiary books) and accrual accounting (in cash ow statement) will include the system used thus far and, aside from the costs of introducing, operating and auditing a new system, there is no reason to reject the introduction of these approaches.

ARTICLE: CASH VERSUS ACCRUAL ACCOUNTING IN PUBLIC SECTORBy : AHMAD SHABIRIN BIN BAHRIN221521

IntroductionIn public sector the cash basis of accounting has been traditionally used, but in the last period there have been discussions over the benefits of a change to the accrual basis. Many organizations like SIGMA and the DFID which work in transitional and developing countries, question the priority, for these countries at least, of moving from the cash to the accrual basis of accounting. So, the move to the accrual basis for public sector financial reporting has not gained universal acceptance. In Europe, there are a lot of countries who refuse to make the exchange, or who have increased doubts. In this confuse international context Romania starting with 2006 implement the accrual accounting for public sector. In our research, we intend to analyze the evolution of movement from cash to accrual accounting in public sector, the factors that influenced the movement in the case of Romanian accounting public sector.Issuea) What is cash basis and accrual basis in public sector?b) How to move the accounting system from cash to accrual accounting in public sector?c) What is the background of Romanian public sector in the implementation of accrual accounting?

Finding There are two basic accounting methods used to determine when and how to report income and expenses in the books: cash method and accrual method. Under the cash method, income is not counted until cash is actually received, and expenses are not counted until actually paid which means revenues and expenses are recognized when payment is made or received. Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when are received the goods or services.In the field of the public sector accounting, there were two thinking trends, a traditional one based on cash accounting, and a modern one based on accrual accounting. Under the traditional model, of public administration cash accounting or budget accounting, cash based system initially considered as being more appropriate for the public sector, the emphasis was on compliance with rules and regulations. One of the results of this system is the budget out-turn report looked upon as a basic part of the usual financial statements in the public sector. According to the modern model the emphasis is on efficiency, so it is recommended that the public sector should introduce the set of financial statements applied in the private sector, which is made according to accrual accounting. Through accrual accounting we can maximize the effects of the process of competition enabling and public management efficiency so that this should be achieved with minimal costs for the society.Nowadays Financial Statements must show the true and fair value of equity financial situation and profit and losses. Commission for Public Sector Accounting Principles and Standards has established a new conceptual framework. The developing of it brings us two kinds of Profit or lost. Firstly, is the variation in equity as a result of its budgetary and non-budgetary transactions. And the secondly, the differentiation between all the budgetary revenues and expenses realized during the accounting year, excluding those derived from financial liabilities.In the public sector literature, has been investigated the process of change by identifying and defining the relevant environmental variables that represent its important dimensions. Other studies have researched the introduction of accrual reporting for governments and their agencies. Chile was the first state that introduced accrual accounting for the public sector in early 70's, followed by New Zealand in 1990. However, unlike New Zealand where the change was comprehensive, other countries have made gradual changes. For example, in the USA the generally accepted accounting principles (accrual accounting) have been adopted only by some states. In USA and Australia the passing to accrual accounting occurred in 1997 but only in central governmental administration, in local administration the change being implemented just now. Starting with 2000, out of the 30 of the most developed OECD members only 22 adopted accrual accounting for all the fields of the public sector. Since 2000 Malaysia and Tanzania were the only non-OECD-members, which have planned to adopt accrual accounting for central administrations1, but later they gave up. Accounting has traditionally served the function of budgetary control in the sense of comparing spending against the budget (budgetary accounting). So that, we can conclude accrual accounting reform comes first and budgeting follows. Until 2000 the accounting system for the public sector applied in Romania was characterized as being an accounting system based on cash. The harmonization process of Romanian local public sector accounting supposes some main adjustments regarding with 4 terms which are:1)Accrual systems, for inventories, receivables and payables2)Recognition of full depreciation of fixed assets3)Assessment of normal profits as "costs of capital"4)Revaluation of fixed assets to allow for inflationBesides that, Romania also have their own financial statement. A complete set of financial statements includes the following components: (a) Statement of financial position; balance sheet or statement of assets and liabilities (b) Statement of financial performance (c) Statement of changes in net assets/equity; (d) Cash flow statement; and (e) Accounting policies and notes to the financial statements. In order to make the Romanian accounting specialists know the best international accounting practices for the public sector The Chartered Accountants Body from Romania translated into Romanian in April 2005 the International Accounting Standards for the Public Sector, issued by the International Federation of Accountants, edition January 2005.

ConclusionWe can conclude that it is better for Romanian public sector accounting the movement from cash to accrual accounting, knowing the general advantages of accrual accounting for internal and external information users. Since a financial analysis is always wider than a simple budgetary analysis, nowadays its necessary to provide a detailed disclosure of the execution of the budget as well as financial information. There is a need of developing the necessary skills and providing training for both the preparers and users of financial information. At the communes level there are few, if any, skilled accountants employed and where financial management is seen as of lesser importance than legal compliance.ARTICLE: PATH TO ACCRUAL ACCOUNTINGBy : MUHAMMAD HAZIQ BIN NASIR HAMZAH221831This article had been written by Ramesh Ruben Louis who is principal trainer of My Learning Training Resources. Important aspect that had been the major issue of this article is path for the full adoption of accrual basis accounting for public sector accounting in Malaysia. Increasing number of governments throughout world had been employ accrual-based accounting while New Zealand, UK and Australia had been adopting this accounting more comprehensively than others. The implementation of accrual-based accounting across all levels in the Malaysian public sector is expected to be completed by 2015 which those financial statements been produced for the first time in the financial year beginning on or after 1 January 2015. For those currently reporting under the modified cash basis of accounting, this transition will be carried out in two phases which the first one are will be applied in the recognition of revenue and expenses, resulting in the recognition of corresponding receivables and payables. Second phase are adoption of accrual-basis accounting policies for all other assets and liabilities which is due completed by 2015. The adoption is a new set of accrual-based public sector accounting standards, to be issued by a new standard-setter known as the Government Accounting Standards Advisory Board (GASAB) and expected to be modelled on International Public Sector Accounting Standards (IPSASs).This transition is essential for systematically determine the full costs of government activities in Malaysia. This is important for assessing efficiency and performance management of government services. Besides that, it will allow users to assess the accountability for all resources the entity controls and the deployment of those resources.Accrual-based reports also will encourage more accurate financial planning that will ensure that the government is able to meet its liabilities as they fall due. Accrual accounting generally assist government to produce behavioural changes on the part of budget decision-makers and managers. There are challenges had been an issue for completion of the accrual basis accounting. Some of them are no jurisdiction had entirely adopted IPSASs. Besides that, the cost involved in accounting reform, low awareness of this accounting, and lack of implementation experience.A case study on implementation of accrual basis accounting in Australia had been imposed that this country had applied accrual basis by early 1990s. This adoption of accrual basis is mainly for desire to implement output-based budgeting as a means to increase government efficiency.The legislature makes appropriations based on the aggregate accrual cost of each output and this approach had accurately reflect many of the future liabilities ignored under cash budgeting. Leading observers of Australias public sectors pleased with this accrual basis implementation and proposed that evaluation of accrual accounting reforms must be made in the context of their connection to broader reforms in the public sector.Conclusion made by Ramesh Ruben is governments would benefit from a more comprehensive measure of fiscal sustainability than accrual accounting can provide; information about the full resource implications, and not just the cash expenditure, of government programs; and the enhanced transparency, and the resulting focus on better management of assets and liabilities. However, key challenges surrounding awareness, infrastructure, training and political will, must be addressed before the benefits will be apparent to the users.

ARTICLE : Accounting Aspects of New Public Management :Accrual Accounting in the Public SectorBy : MUHAMMAD NUR FAIZAN BIN NORDIN222168Introduction Following the footsteps of the New Zealand government in adopting accrual accounting in year 1990 were a few countries such as Australia, Canada, the UK and the USA. This is encouraged by the public sector committee of the International Federation of Accountants (IFAC) to adopt the accruals accounting system. IFAC is also the body responsible for developing international public sector accounting standards. Accruals accounting focuses on the resources consumed in each accounting period that have been provided services, rather than simply the cash paid and therefore, reflect the full cost of service provision. It is argued that the accounting system leads to improved performance measurement, accountability and control and therefore, encourages the efficiency of resources usage.Previously, accruals accounting was considered to be compatible with the private sector because it is assumed that the users of financial statements need relevant information which provides a periodic measure of an entitys financial performance (income statement) and financial position (balance sheet) that can only be satisfied by the use of accruals accounting. However, it is the opposite case for the public sector, where most of their services are not evaluated in terms of profits earned and losses incurred. The publication of financial statements itself is not in the public interest because the public has no interest (Jones, 1992). Not only that, the problem lies in classifying and valuing the wide range of assets that exist in the public sector, for example, cultural and heritage such as art and museum collections, public monuments, national parks and also including infrastructure assets such as roads

Issue a) Why adopting Accrual Accounting instead Cash Basis Accounting in Public Sector Accounting?b) Cost-Benefit gaining from Accrual Accounting in Public Sector Accounting?c) How Accrual Accounting assessing in Public Sector Financial Accounting. Performances?Finding a) Accrual accounting was adopted in the private sector as a result of the changing needs of external users. It is also need to have better overall picture of the organisation. This is to ensure the organisation is managed efficiently and effectively. Even the needs of stakeholders from private and public sector look similar concept, in government, they are more far-reaching, also creating the environment for business entitles. Government can create money from public, in example like tax, government service fee, summon and others. Government goals, aims and objectives are not only the financially driven, hence government cannot go bankrupt. Government will has to address social problems. In examples poverty, public education, public safety, health and others. The introduction of accrual accounting also has support from international bodies, the IFAC which has been releasing the IPSAS (International Public Sector Accounting Standards).

b) In the cost-benefit issues always be stated in Accrual Accounting. Accrual accounting means better accounting information. Better accounting information also means more costly to produce. This is justified because it leads to better decisions which will make more effective and efficient use of resources. But it also believed that borrowing costs for public entities will be lower. This cost can be reduced if government endorse private sector style n reporting practices. The accrual accounting regime both policy makers and public sector managers are far better aware of the impact of using fixed assets to deliver public services, and what the possible cost savings are that can be achieved in pursuance of efficiency and effectiveness. In cash accounting countries, the introduction of new legislation is usually perceived as cost-free, because the infrastructure is already there, such as civil service in place and others.

c) As the introduction of accrual basis accounting requires the financial statements include a statement of the financial position, cash flow statement, financial performance statement and statement of changes in new assets/equity, this mean the longer view is possible as assets and liabilities are given the same attention as debt in terms of targets and risk analysis. While the cash basis accounting, the fiscal strategy focused on short-term revenues and expenditures. Accrual accounting show positive impact on the better management at the department level as well. It will provides better information to both owners and lenders. It is better than cash basis-basis accounting as it provides more information for decision-making purpose and accountability, hence in ensuring that resources are used in a more efficient manner, as the information on asset and liabilities is included. Different with cash accounting basis, which are excludes the information on assets and liabilities and focuses only on cash flows. The focus on cash receipts and payments may result in the reduction in asset base that remains unnoticed for some time. In the cash accounting concept, a number of elements of resource usage are not fully recognised (depreciation being the most obvious example). If incomplete costing information is available, this will require cross-subsidisation, and probably in the long-run, the accumulation of losses that will eventually have to be picked up by the tax payers. Accrual accounting provides a better overview of the governments financial activities and the financial position. Government operating statements prepared under the accrual basis provide information on total costs of resources used in discharging government services (Mellor, 1996). The full or modified adoption of accrual accounting forces public sector managers to pay attention to assets and take a longer-view than otherwise. The experience of the two most advanced countries in the implementation of accrual accounting, Australia and New Zealand, has shown that the use of accrual accounting in budgeting has led to a better recognition of future unfunded liabilities, better infrastructure management and a more efficient reallocation process.

ConclusionAccounting has been used to strengthen decision-making that provided more effective and efficient use of resources. But the focus was not predominantly on reporting aspects. The article show that accrual accounting have many advantage compared to older method, cash accounting basis. Organisation will better in decision-making and also will have better budgeting for government in future. Even the cost in implementing the accrual basis will be high, but in the same time accrual basis also will reduce the other cost. The countries which has use accrual accounting in their public sector also show successful in managing their government or public sector such as Australia and New Zealand.

References

HARA, T. (2006). A Review of the Double-Entry Accounting System and Accrual Accounting in the Public Sector.Louis, R. R. (2011, September). PATH TO ACCRUAL ACCOUNTING. Retrieved from ACCA Think Ahead: http://www.accaglobal.com/zm/en/discover/ab-articles/corporate-reporting/accrual-accounting.htmlMohammadi, S. (2012). Implementation of full accrual basis in governmental organizations. INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS.TUDOR, A. T. (2006). CASH VERSUS ACCRUAL ACCOUNTING IN PUBLIC SECTOR.1) eljko evi (2011). Accounting Aspects of New Public Management: Accrual Accounting in the Public Sector. University of Greenwich