Global govt accounting standards

1. Global govt accounting standards By CA Rajkumar S Adukia, mumbai B.Com.,FCA, ACS,ACMA,MBA,LLB Chairman committee on govt accounting ICAI 098200 61049 rajkumarradukia@caaa.in

2. Session Agenda • Session approach – dialogue and NOT monologue • Quick Overview of basic concepts • Accounting Standards for local bodies • Q & A

3. ATTITUDE “He is able ,who thinks he is able.”-Buddha JESSICA COX

4. Book keeping and accounting • Book keeping is simply recording the transactions • Accounting includes book keeping and goes to advance level of making financial statements and other management information systems

5. What is Accounting? It is the systematic • recording, • reporting, and • analysis of financial transactions of an entity. Accounting allows an enterprise to analyze the financial performance of the enterprise, and look at statistics such as net profit/objectives achieved.

6. Accounting Standards • Accounting Standards aim at standardizing different accounting policies and practices.eg packing & forwarding exp, depreciation etc. • GAAP is a term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as Accounting Standards.

7. Accounting Standards • Country based GAAPs • Commercial GAAPs - AS issued by ICAI • Non Commercial GAAPs - ASLB, IPSAS, GASAB • International GAAP

8. Various Indian Accounting Standards • Accounting Standards issued by ICAI • Companies (Accounting Standard) Rules, 2006 • Accounting Standards for Local Bodies issued by ICAI • Standards issued under Sec 145 of the Income Tax Act 1961 • GASAB standards

9. GASAB www.gasab.gov.in • (CAG) constituted the Government Accounting Standards Advisory Board (GASAB) in 2002 for central and state govt. • The standards being developed to make existing cash system of accounting more transparent are called Indian Government Accounting Standards (IGAS). • The standards being developed for accrual system of accounting in the Government are called Indian Government Financial Reporting Standards (IGFRS).

10. GASAB Standards • IGAS Notified by Government of India • Guarantees given by Governments: Disclosure Requirements (IGAS1) • Accounting and Classification of Grants-in-aid (IGAS2) • Loans and Advances made by Governments (IGAS 3) • IGAS under Consideration • Foreign Currency transactions and loss or gain by Exchange Rate variations (IGAS 7) • Public Debt and Other Liabilities of Governments: Disclosure Requirements (IGAS 10)

11. GASAB Standards • Indian Government Financial Reporting Standards - Under Consideration of Ministry of Finance, Government of India • IGFRS 2: Property, Plant & Equipment • IGFRS 3: Revenue From Government Exchange Transactions • IGFRS 4: Inventories • IGFRS 5: Contingent Liabilities (other than guarantees) and Contingent Assets: Disclosure Requirements

12. GASAB Standards • Accrual Exposure Drafts • (AED) 1 (Presentation of Financial Statements) • (AED) 6 (Accounting Policies, Changes in Accounting   Estimates and Errors) • Exposure Draft (ED) 4 (General Purpose Financial Statements of Government) • GASAB issues Exposure Draft-9: Government Investments in Equity

13. Private Sector Accounting & Government Accounting • Private sector accounting mainly focuses on profit/loss & it is from shareholder’s perspective • Govt accounting is for • Proprietary accounting • accountability purposes • Decision-making purposes

14. Uniqueness of Government Accounting • Fund Accounting- consolidated fund • Not for Profit Motive • Constitutional Requirements • Diversified list of activities • Government • Business or Proprietary • Fiduciary

15. Government Reporting – Aims at • Public Accountability • Operating Results and their Evaluation • Range of Services • Capacity to meet Governmental Obligations

16. What are Local Bodies? • Panchayati Raj Institutions (PRIs) • Urban Local Bodies (ULBs) • The term ‘Local Body’ may be defined as a local self-government at the third tier of governance in an administrative and geographical vicinity, e.g., a municipal corporation, \a municipality or a panchayat

17. Significance of Local Bodies • The 73rd and 74th Constitutional Amendment Acts envisage a key role for the • Panchayati Raj Institutions (PRIs) and • the Urban Local Bodies (ULBs) in respect of various functions such as education, health, rural housing and drinking water.

18. Urban Reforms Incentive Fund (URIF) • 28 States/Union Territories agreed to adopt the double entry system of accounting. • Through the National Urban Renewal - Government requires Local Self Governments to adopt modern, accrual-based double entry system of accounting.

19. Method of accounting • Cash system of accounting • Accrual method of accounting • Eg rent paid 36 lakhs for 36 months on 1st july 2013 cash method whole 36 lakhs is expenditure • In accrual method only 9 lakhs is expenditure 24 lakhs is assets.

20. Method of accounting - contd • Interest recd on 30th may 2013 loan given for 1st april 2014 to 31st march 2015 50 lakhs • Cash system whole amt will be recorded as income in current accounting period • In accrual method it is recorded as liability

21. Types of accounting • Single entry method • Double entry method

22. Single entry method • Collection of information • Receipts • Payments • Receivables • Payables • Assets • liabilities

23. Golden Rules in Double entry Accounting Luca pacioli italian mathematician 1494 To identify the effect of a transaction on a account there are rules: For Personal Account: Debit: the receiver Credit: the giver For Real Account: Debit: what comes in Credit: what goes out For Nominal Account: Debit: all expenses and losse Credit: all incomes and gains

24. Double entry method-types • Cash system of accounting • Double entry method

25. Few concepts • GAAP – generally accepted accounting principles • Elements of financial statements • A. Assets, • B. liabilities, • C. fund or capital, • D. income & • E. expenses

26. Framework for preparation of financial statements The elements of financial statements Financial position – assets, liabilities and fund Performance – income, expense Income – Revenue and gains Revenue - sales, fees, interest, dividends, royalties and rent Gains – disposal of non current assets, revaluation of marketable securities, unrealised gains

27. Assets An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity .

28. Liability A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

29. Income Income is increases in economic benefits during the accounting period in the form of inflows or enhancement of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants.

30. Expenses Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

31. Elements of Financial Position Fund or Equity is the residual interest in the assets of the entity after deducting all the liabilities There is no standard on fund or equity

32. Financial statements- • 1. balance sheet, • 2. income & expenditure account or profit and loss account • 3. cash flow statement • 4. notes to accounts

33. What is IPSAS • International Public Sector Accounting Standards are independently-developed financial reporting standards widely considered best practice for public sector organizations • They are used by over 50 governments and other organisations like NATO, UN, OECD etc. • They impose clarity and transparency • They are based on full accrual accounting • Their adoption was mandated by the UN General Assembly in 2006, to replace the current United Nations System Accounting Standards (UNSAS)

34. Benefits of adopting IPSAS? • Better accountability and transparency in financial and donor reporting; hence greater credibility • Support for results-based management • Better prediction of future asset and cash-flow needs • Improved skills among finance staff • Greater comparability with financial statements of governments • Simplified purchase order management

35. Some IPSAS key concepts Substance over form • Accounting policies should reflect the economic substance of events and transactions and not merely their legal form – the definition of accounting policies requires the exercise of judgment • Examples: • From a risk and rewards perspective leasing an asset may in substance be equivalent to owning it • Control (and the obligation of consolidating another entity) refers to an entity’s power to govern the financial and operating policies of another entity and does not necessarily require an entity to hold a majority shareholding or other equity interest in the other entity.

36. Some IPSAS key concepts Carrying value • Carrying value = the amount for which an asset or a liability are recognised in the financial statements • Implies an initial measurement (e.g. the cost of acquisition of an asset) then subsequent measurements (e.g. the recognition of the value consumption of an asset through depreciation) Fair value Fair value = the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction • Several standards require that assets or liabilities be measured at their fair value (rather than at historical cost or cost of acquisition): e.g. items of property, plant and equipment gifted; financial assets held for trading

37. ACCRUAL METHOD List of IPSAS TOTAL 31 • IPSAS 1– Presentation of Financial Statements • IPSAS 2- Cash Flow Statements • IPSAS 3- Accounting Policies, Changes in Accounting Estimates and Errors • IPSAS 4– The Effects of Changes in Foreign Exchange Rates • IPSAS 5 – Borrowing Costs • IPSAS 6 – Consolidated and Separate Financial Statements • IPSAS 7– Investments in Associates • IPSAS 8 – Interest in Joint Ventures • IPSAS 9 – Revenue from Exchange Transactions

38. IPSAS 10– Financial Reporting in Hyperinflationary Economies • IPSAS 11 - Construction Contracts • IPSAS 12 – Inventories • IPSAS 13 – Leases • IPSAS 14 – Events After the Reporting Date • IPSAS 15 - DELETED- NEW 28 & 30 • IPSAS 16 – Investment Property • IPSAS 17 - Property, Plant and Equipment

39. List of IPSAS • IPSAS 18– Segment Reporting • IPSAS 19 – Provisions, Contingent Liabilities and Contingent Assets • IPSAS 20 – Related Party Disclosures • IPSAS 21 – Impairment of Non – Cash – Generating Assets IPSAS 22 - Disclosure of Financial Information about the General Government Sector • IPSAS 23 - Revenue from Non – Exchange Transactions (Taxes and Transfers) • IPSAS 24 - Presentation of Budget Information in Financial Statements • IPSAS 25 - Employee Benefits • :

40. IPSAS 26 - Impairment of Cash Generating Assets • IPSAS 27 – Agriculture • IPSAS 28– Financial Instruments: Presentation • IPSAS 29 – Financial Instruments: Recognition and Measurement • IPSAS 30 – Financial Instruments : Disclosures • IPSAS 31 -- Intangible Assets • IPSAS 32 – Service Concession Arrangement

41. CASH METHOD • THERE ARE THREE UNNUMBERED STANDARD WHICH COVERS ACCOUNTING OF ALL TRANSACTIONS • 1. introduction to ipsas under cash basis of accounting • 2. financial reporting under cash basis of accounting • 3. cash basis system – encouraged additional disclosures

42. There is no concept of accrual • Prepaid • advance

43. Quick method of understanding standards • Group the standards as per elements of FS • Assets • Liabilities • Expenses • Income • Disclosure • On any transaction if there is no standard framework will apply

44. Presentation Standards • IPSAS 1 – Presentation of Financial Statements • IPSAS 2 – Cash Flow Statements • IPSAS 10 – Financial Reporting in Hyperinflationary Economies • IPSAS 24—Presentation of Budget Information in Financial Statements

45. Disclosure Standards • IPSAS 3—Accounting Policies, Changes in Accounting Estimates and Errors • IPSAS 14 – Events After the Reporting Date • IPSAS 18 – Segment Reporting • IPSAS 20 – Related Party Disclosures • IPSAS 22—Disclosure of Information about the General Government Sector

46. Standards Dealing with Assets • IPSAS 12- Inventories • IPSAS 13- Leases • IPSAS 16 - Investment Property • IPSAS 17 - Property, Plant and Equipment • IPSAS 21—Impairment of Non-Cash- Generating Assets • IPSAS 26—Impairment of Cash-Generating Assets • IPSAS 27—Agriculture • IPSAS 31—Intangible Assets

47. IPSAS - Standards Dealing with Liabilities • IPSAS 19—Provisions, Contingent Liabilities and Contingent Assets

48. IPSAS - Standards dealing with Financial Instruments • IPSAS 28—Financial Instruments: Presentation • IPSAS 29—Financial Instruments: Recognition and Measurement • IPSAS 30—Financial Instruments: Disclosures

49. Standards Dealing with Revenue and Expenses • IPSAS 4—The Effects of Changes in Foreign Exchange Rates • IPSAS 5—Borrowing Costs • IPSAS 9 – Revenue from exchange transactions • IPSAS 23 - Revenue from non-exchange transactions • IPSAS 11 – Construction Contracts • IPSAS 25—Employee Benefits • IPSAS 32 – Service Concession Arrangements: Grantor

50. Standards Dealing with Group Accounting • IPSAS 6 – Consolidated Financial Statements • IPSAS 7 Accounting for Interests in Associates • IPSAS 8 Accounting for Interests in Joint Ventures