Training, Teaching and Learning Materials

ACCOUNTS AND BUDGET serviceLEVEL IV

Learning Guide
Unit of Competence:-Make Decisions in a Legal Context
Module Title:-Making Decisions in a Legal Context
LG Code: BUF ACB4 01 0812

TTLM Code: BUF ACB4 M01 0812

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INTRODUCTION

Welcome to the module “Make Decisions in a Legal Context”. This

learner’s guide was prepared to help you achieve the required competence in
“Accounts and Budget Support Level IV”. This will be the source of information for
you to acquire knowledge attitude and skills in this particular occupation with
minimum supervision or help from your trainer.

Summary of Learning Outcomes

After completing this learning guide, you should be able to:

Lo1:- . Evaluate legal context for financial services work
Lo2:- . Identify compliance requirements
Lo3:- Develop procedures to ensure compliance
How to Use this TTLM

o Read through the Learning Guide carefully. It is divided into sections

that cover all the knowledge, skills and attitude that you need.
o Read Information Sheets and complete the Self-Check at the end of
each section to check your progress
o Read and make sure to Practice the activities in the Operation Sheets.
Ask your trainer to show you the correct way to do things or talk to
more experienced person for guidance.
o When you are ready, ask your trainer for institutional assessment and
provide you with feedback from your performance.

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Lo1:- . Evaluate legal context for financial services work

Organization policy, guidelines, and procedures

Duties of an Accountant/Finance Officer

An Accountant/Finance Officer must not in any circumstance mix Utility's and
private money. He must not apply Utility's money to any purpose not duly
authorized, nor must he lend, advance or exchange any sum for which he is
accountable. He must see that all Utility monies or other assets entrusted to him are
kept in a safe place.

It is the duty of any officer having financial responsibilities in connection with

his/her official duties, to observe the following requirements in so far as they may
be applicable to his/her particular duties –

 to fully acquaint himself with the Financial Regulations and accounting

instructions, and to take care that all are duly observed;

 correctly to assess revenue in accordance with the relevant tariffs, and to

secure its punctual collection;

 promptly to bring to account under the proper headings of the Budget and
accounts all monies collected

 to ensure that proper provision is made for the safe-keeping of Utility

money, stamps, official receipts, requisitions, cheque books, Local Purchase
Order Books, and all other accountable documents, and assets under his/her
charge;

 to exercise supervision over all officers under his/her authority entrusted

with the receipt and expenditure of Utility money and to take precautions, by
the maintenance of efficient and regular checks, against the occurrence of
misappropriation or negligence;

 to ensure that no payment is made without proper authority being obtained

and where applicable, quoted on the payment voucher;

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 to check daily all cash in his/her charge and to verify the amounts with the
balances shown in his/her records;

 promptly to bring to account as revenue, any cash found in his/her charge in

excess of the balances shown in his/her records, and report this to the
Finance Manager

 promptly to make good any deficiency in cash, or other Utility assets for
which he is responsible not caused by misappropriation and to report all
other losses and deficiencies in writing to the relevant Area Manager (if
applicable), Manager Finance and Accounts, and Chief Internal Auditor
.
 to charge promptly in his/her accounts under the proper heading and sub-
heading all disbursements of Utility money in accordance with the current
budget;

 to submit any financial statements required by Management;

 to see that all books of account, registers, records etc, are maintained in
accordance with Accounting Instructions and Financial Regulations and are
posted and kept up-to-date and when not in use, are kept in safe custody;

 to report to the Area manager (if applicable) and Manager Finance and
Accounts any apparent defect in the system of revenue collection or any
apparent waste or extravagance in expenditure which comes to his/her
notice;

 to produce when required all cash, stamps, assets, securities, books of

account, vouchers, or other documents in his/her charge for inspection by
the FAM, his/her authorized assistants, the Chief Internal Auditor or his/her
officers, or any other duly authorized personnel;
 to reply promptly and fully to all financial and other queries raised by
management, giving the particulars or information required; and

 to acquaint himself with such laws, regulations, Board & Management

decisions and circulars as relate to his/her financial duties.

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Organization philosophy, values and objectives

DEVELOPING AN ORGANISATIONAL PHILOSOPHY

If you are reading this, you will probably already have identified the business
mission and critical success factors (CSFs) for your organisation. The purpose of
that exercise was to find a way of communicating the fundamental purpose of the
organisation and a vision of where you wish to be in the market. The CSFs indicate
the key issues of strategic importance if the mission is to be achieved. From these
can be drawn specific organisational, divisional, departmental and individual
objectives. The mission and CSFs enable all employees at whatever level to
confirm the relevance of the objectives within their control.

However, the mission and CSFs only tell us what is to be done, they do not tell us
how. The purpose of establishing a corporate philosophy or value set is to ensure
that the way in which the mission is being pursued is compatible with the
organisation's fundamental beliefs. For example, a salesman may have an objective
of doubling his sales; he could do this by making false promises or concentrating
on new business at the expense of after sales support. The value statement should
guide everyone on the behaviours and beliefs for which the company wishes to be
recognised.

Another example may be a mission to climb Mount Everest. The mission is to get
to the top; the values should state that the safety of the Sherpas overrides that
mission and controls how it is to be achieved. (Thanks to Dave Wood of Leonard
Stace for this illustration).

Peters and Waterman, in 'In Search of Excellence', describe the few basic values
that seemed to be common to successful companies:-
1. A belief in being the best
2. A belief in the importance of the details of execution, the nuts and bolts of
doing a job well
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3. A belief in the importance of people as individuals

4. A belief in superior quality and service
5. A belief that most members of the organization should be innovators, and
its corollary, the willingness to support failure
6. A belief in informality to enhance communication
7. Explicit belief in and recognition of the importance of economic growth
and profit
Depending on your organisation's market, traditions and strategic objectives,
specific values should be defined for some or all of the following areas:-
􀀋 Customers
􀀋 Employees
􀀋 Shareholders
􀀋 Business dealing ethics and standards
􀀋 Suppliers
􀀋 The local community
􀀋 The environment
􀀋 Internal colleagues as ‘customers’
􀀋 Other parts of the 'group'
􀀋 Other specific important relationships
As with the mission and CSFs, the values should be simple, communicable,
believable and capable of being demonstrated through the actions and behavior of
the organization’s leaders.
EXAMPLES OF ORGANISATIONAL VALUES

Corporate/Business

AMERICAN EXPRESS 'BLUE BOX' VALUES

All activities and decisions must be based on, and guided by, these values:-
 placing the interests of clients and customers first
 a continuous quest for quality in everything we do
 treating our people with respect and dignity
 conduct that reflects the highest standard of integrity
 teamwork - from the smallest unit to the enterprise as a whole
 being good citizens in the communities in which we work

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BRITISH TELECOM CORPORATE VALUES

 We put our customers first
 We are professional
 We respect each other
 We work as one team
 We are committed to continuous improvement

KWIK-FIT VISION
"Our aim is 100% customer satisfaction" through

 Obsession with superior customer service

 Respect for individual employees and their needs
 High value placed on operations staff
 Employees to be told how they are doing
Accountability and legal obligation
A. Accountability
If the “bottom line” is not a very useful in evaluation a NOT-FOR-PROFIT, what
are the objectives of financial reporting? The objective is accountability. The
guiding principle is that the tax paying or giving public, who provide the resources
to the NOT-FOR-PROFIT have a right to know how their money is being spent. It
follows then that NOT-FOR-PROFIT has a responsibility to produce good
financial information, by which they may be held accountable.
The financial reports, therefore, should at a minimum provide: information useful
in making resources allocations, information useful in assessing services and
ability to provide services, information useful in as serving management
stewardship and performance and information about economic resources,
obligation, net resources and change in them.
In terms of practical aims, government financial reports ought to help answer the
following questions:
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1. How should we spend our money?

2. Can and are we giving our client what they need?
3. Are we administering our funds well?
4. How much do we have? How much do we owe? And are we able to pay
what we owe?
B. Legal Obligation
The second objective, which is arguable more important from a practical point of
view, is legal standards. Since the profit motive, which controls the activities of
FOR-PROFITs is lacking in NOT-FOR-PROFIT activities, a number of legal
standards have been enacted to control both governmental activities and NGO’s for
government reporting, the ministry of finance and Economic Development has set
down certain standards. For most NGO’s the legal standards weight heavily in the
design of accounting systems for NOT-FOR-PROFIT’s.
Legal standards are of great important in both the activities and report of NOT-

FOR-PROFIT’s, even though they may or may not contribute to good resources

management. However, failure to adhere to the legal standards can result in loss of

job, confiscation of assets, payment of fines, and even time in jail. Managers of

NOT-FOR-PROFIT’s resources are usually very careful to follow the legal

standards first and for most.

Objectives of Financial Reporting by Government Entity

The objectives of financial reporting by governmental entities are as follows:
1. To compare actual financial results with the legally budget.

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2. To assist in determining compliance with finance related rulers and

reputations
3. To assess financial condition and results of operations
4. To assist in evaluating efficiency and effectiveness.
- The first two-emphasis accountability. How much was spent in relation to
the approved amount? Were the operations in compliance with laws and
regulations? The last two enables users to evaluate inter period equity as
well as an entity’s current performance
- There are also three objectives of finance reporting for state and local units.
These are:
A. Financial reporting should assist in fulfilling government duty to be
publicly accountable and should enable users to assess that
accountability.
B. Financial reporting should assist users in evaluating the operation
results of the government entity for the year.
C. Financial reporting should assist the users in assessing the level of
services that can be provided by the governmental entity and its
ability to meet its obligations as they become due.
Objectives of financial reporting by other NOT-FOR-PROFIT entities
The objectives of financial reporting by NOT-FOR-PROFIT entities are as follows
A. Provide information useful in making assessing managers stewardship
and performance, etc.
B. Provide information for resources allocation decision.
C. Assessing service and ability to provide services.
D. Provide information about economic resources, obligations, and net
resources and changes in them.
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Lo2:- . Identify compliance requirements

Duties of Financial reporting of government entity
Generally accepted Accounting Principle of Governmental Entities
(GAAPs)
GAAP’s in general
Generally Accepted Accounting Principles are the guidelines, procedures, and
practices that a company is required to use in recording and reporting the
accounting information in its Audited financial statements.
Generally Accepted Accounting Principles (GAAPs) define as accepted
accounting practice at a particular time and provide a standard by which to
report financial results. They are like laws and are the rules that must be
followed in financial reporting.
Governmental Accounting Standards Board (GASB) and Financial
Accounting Standard Board (FASB)
Accounting and Financial reporting standard for state and local governmental

units are established by the Governmental Accounting Standard Board

(GASB). Accounting and financial reporting standards for profit – seeking

business are established by the Financial Accounting Standards Board (FASB)

. The GASB and the FASB are parallel bodies under the oversight of the

Financial Accounting Foundation.

The council of the American Institute of Certifies Public Accounting (AICPA) has
formally designated the GASB and the FASB of the authorization bodies to
establish accounting principles for state and local governments and for business

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organizations, respectively. “Authority to establish accounting principles” is

interpreted impractical to mean “authority to establish financial
reportingstandards” federal states assign responsibility for establishing and
maintaining a sound financial structure for the federal government to three
officials: the controller general, the director of management and budget, and the
secretary of the treasury. These three officials have created the Federal
Accounting Standards Advisory Board (FASAB) to recommend accounting
principles and standards for the federal government and its agencies. It is
understood that, to the maximum extent possible, federal accounting and financial
reporting standards will be consistent with those established by the GASB and,
where applicable, by the FASB.
Authority to Establish accounting principles (Financial reporting standards) for not
– for profit organizations is split between the GASB and the FASB because a
sizable number of not – for – profit organizations (particularly colleges and
universities, and hospitals) are governmentally related, but many others are
independent of governmental units. Accordingly, the GASB has the responsible
for establishing accounting and financial reporting standards for not-for-profit
organizations, which are considered to be governmentally related. The FASB has
the responsibility for establishing accounting and financial reporting standards for
non governmental and not – for profit organization.
Generally, Governmental Accounting Standards (GASB) is the current
authoritative body for the development of accounting principles for state and
municipal governments. And Financial Accounting Standards Board (FASB) is
the current authoritative body for the development of accounting principles for all
entities except state and municipal governments.

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Lo3:- Develop procedures to ensure compliance

Factor that Influence Accounting

a. Legal system
 Tax and pension laws
 Overtime proclamations
 Commercial code etc.
b. Socio - Political culture
 Political situation of one country affects accounting. For example In Ethiopia in
the current situation land is not an asset for an individual etc.
c. Business economy
d. Users of accounting information
e. Professional Accounting Association
Qualitative Characteristics of Accounting Information
After identifying the type of information required in financial reporting, the second phase of
the conceptual framework dealt with what characteristics those information should fulfill in
order to be useful.
These qualitative characteristics assist information user in choosing among financial
information and distinguish more useful information from less useful one for decision-
making purpose.

The following figure presents the hierarchy of qualitative characteristics of accounting

information.

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Hierarchy of Accounting Qualities

Decision Makers
User of Accounting and their characteristics
Information (for example, understanding
or prior knowledge)

Pervasive constraints Benefits > Costs

User specific Qualities Understandability

Decision usefulness

Primary decision Relevance Reliability

Specific qualities

Ingredients of
Primary
Qualities
Productive Timeliness Verifiability Representation
Value of faithfulness

Feed back value Neutrality

Secondary and Interactive Comparability

Qualities (including consistency)

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Threshold for Materiality

Recognition

The characteristics of information that make it a desirable commodity can be viewed as hierarchy
of qualities for which usefulness for decision making being the most important one. As indicated
in the hierarchy, the qualitative characteristics are divided into four major components.
I. User specific qualities
II. Primary qualities
III. Secondary qualities; and
IV. Constraints to qualitative characteristics; cost benefit and materiality.
I. User specific qualities- understandability and usefulness for decision-making.

User specific qualities include understandability and usefulness for decision making that are not
inherent in the information.
Understandability
Understandability is the quality of information that enables user to perceive its significance
accounting information should be understandable to user who have a reasonable knowledge of
business and economic activities and are willing to study the information with reasonable
diligence
Understandability of information is related to the characteristics of the decision maker as well as
the characteristics of the information itself and, therefore, understandability cannot be evaluated
in overall terms but must be judge in relation to a specific class of decision makers.
The quality of understandability is necessary for decision usefulness; as information cannot be
useful for decision making unless it is understood, though the information is relevant and
reliable.

Usefulness for decision-making

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The central quality of the hierarchy is decision usefulness. It is considered as overall quality of
pervasive criterion. All other characteristics are viewed in terms of their contribution to the
usefulness of information for decision-making.

II. Primary decision specific qualities:-FASB identified relevance and reliability as the
primary qualities inherent in useful accounting information. Primary qualities of
information (relevance and reliability) distinguish "better" information from
"inferior" information with some other characteristics that those qualities imply.
a. Relevance
Accounting information is relevant if it can make a difference in decision by helping users
predict the out come of past, present, and future event, or confirm or correct prior
expectations.
For information to be relevant it must be timely and it must have predictive value of feedback
value, or both.
b. Reliability
Reliability is another primary quality identified involving the degree to which accounting
information is free from error and bias, and its faithful representation of facts. However,
reliability doesn't mean absolute accuracy.

For accounting information to be reliable, it should incorporate ingredients of verifiability,

Validity (representational faithfulness) and neutrality.

If either of relevance of reliability is completely missing, the information will not be useful.
Theoretically the choice of an accounting alternative should produce information that is both
more reliable and more relevant.

III. Secondary qualities

The usefulness of information enhance when the secondary qualities are achieved in addition
to the primary qualities indicated. The secondary qualities compose comparability and
consistency.
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A. Comparability
This involves the quality of information being compared with similar information about
another enterprise. This is inter-company comparison that enables user to identify and
explain similarities and differences between enterprises. It also enable to identify favorable
and unfavorable trends happening in a given enterprise over periods.

In general, comparability deals with the measurement and reporting of financial statements in
similar manner as different entities. However, this may be difficult to achieve as enterprises
may use different accounting methods and estimation.

B. Consistency
This is the feature of information being compared across periods about the same enterprise.
This deals with inter-company comparison. Accounting information will be consistent if
accounting policies and procedures remain unchanged and confirm from period to period.
However, change in accounting methods may be desirable due to change in the economic
condition or issuance of new preferable accounting methods.
Comparability and consistency are very much independent each other as consistency are an
important condition that enhances comparability across periods. That is financial information
to be comparable; accounting methods should be applied consistently from period to period.

IV. Constraints to qualitative characteristics identified

All the qualitative characteristics identified are affected by two constraints: Cost
effectiveness and materiality.

Cost-effectiveness-pervasive constraints
This is a pervasive constraint affecting all informational qualities. For information to be
considered, It should be ensured that the benefits to be achieved from using the information
should exceed the cost of obtaining the information given if the information meets all the
qualitative characters tics mentioned.
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Materiality - Threshold for recognition

Materiality is a constraint mainly related to the primary qualities of relevance and reliability.
It determines the threshold for recognition of accounting items; addressing the issue of "is a
given item material enough to be recognized and reported even if it is relevant and reliable?"
Relevant information (useful for decision making) may not disclosed in financial report if the
amount involved is too small to make a difference in the decision of user. Reporting of items
in financial statements or disclosure in notes to the financial statements is required only for
material items.

Elements of Financial Statements of Business Enterprises

The financial accounting standard Board (FASB) identified tea interrelated elements (building
blocks) of financial statements: Assets, Liabilities Equity, Investments by owners, Distributions
to owners, Comprehensive income, Revenue, Expenses, Gains, and Loses. These elements were
defined by the (FASB) as follows:-

Assets:- Are probable future economic benefits obtained or controlled by a particular entity as a
result of past transactions or events.

Liabilities:- are probable future sacrifices of economic benefits arising from present obligations
of a particular entity to transfer assets or provide services to other entities in the future as a result
of past transaction of events.

Equity:-is the residual interest in the assets of an entity that remains after deducting its abilities.
In business enterprises, the equity is the ownership interest.

Investment by owners:- are increase in net assets of a particular enterprise resulting from
transfers to it from other entities of something of value to obtain of increase ownership interests

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(equity) in it Assets are most commonly received as investments by owners, but that which is
received may also include services or satisfaction or Conversation of liabilities of the enterprise.

Distribution to Owners:-are decreases in net assets of a particular enterprise resulting from

transferring assets, rendering services, or incurring liabilities by the enterprise to owners.
Distributions to owner decrease ownership interests (or equity) in an enterprise.

Comprehensive income:-is the change inequity (net assets) of an entity during a period from
transactions and other events and circumstances from non owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and distribution to
owners.

Revenues:-are inflows or other enhancements of assets of an entity or settlements of its

liabilities (or a combination of both) during a period from delivering or producing goods,
rendering services, or other activities that constitute the entity's ongoing major or central
operations.

Expenses:- are outflows or other using up of assets of incurrence or liabilities (or a combination
of both) during a period from delivering or producing goods rendering services, or carrying out
other activities that constitute the entity's on going major or central operations.

Gains:-are increases in equity (net assets from peripheral or incidental transactions of an entity
and from all other transactions and other events and circumstances affecting the entity during
period except those that result from revenues or investments by owners.

Losses:-are decreases in equity (net assets) from peripheral of incidental transactions and other
events and circumstances affecting the entity during a period except those that result from
expenses or distribution to owners.

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