HARAR TEACHERS EDUCATION AND BUSINESS COLLEGE

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMEMT OF ACCOUNTING AND FINANCE

Research proposal

Assessment of Accounting and reporting Practice

(Case study: Haramaya University)

Prepared by:

Tigist Bekele

Id No. 276/12

Advisor: Adena.T

Harar,Ethiopia

0
 Declaration

I Tigist Bekele declare that this work titled ‘Assessment of Accounting and Reporting
Practices: case study of Haramaya university’ is my own effort and study and that all sources of
materials used for the study have been duly acknowledged. I have produced it independently
except for the guidance and suggestion of the research advisor.

This study has not been submitted for any degree in this university or any other university. It is
offered for the partial fulfillment of the degree of Bachelor of art in accounting and finance
[BA].

Name Signature

Tigist Bekele __

Place of submission:

harar teachers education and business college

Date of submission;

1
 Acknowledgement
I would like to take this particular opportunity to extend my appreciation and gratitude to my

advisor Adane Tilahun for giving me the theoretical background, technical guidance,

continues follow up and encouragement throughout my research work.

I would like to thank the financial heads of Haramaya University for giving me all the
necessary data and information through filling the interviews I made with department for
investing his energy and time. Indeed, I am grateful to him.

I also thank my family for giving me lots of encouragement, support and love throughout my
study to earn the first degree. I owe them a lot.

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 Acronyms

HU= Haramaya University

FGE= federal government of Ethiopia

GAAP= generally accepted accounting principles

GASB= general accounting standard board

MOFED= ministry of finance and economic development

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Table of contents

Chapter One page

1.1. Back ground of the study---------------------------------------------------------8

1.2. Back ground of the organization------------------------------------------------9

1.3. Statement of the problem---------------------------------------------------------11

1.4. Objectives of the study -----------------------------------------------------------12

1.4.1. General objective-----------------------------------------------------------12

1.4.2. Specific objective-----------------------------------------------------------12

1.5. Significance of the study---------------------------------------------------------12

1.6. Scope of the study-----------------------------------------------------------------13

1.7. Methodology of the study--------------------------------------------------------13

1.7.1. Data type and source------------------------------------------------------13

1.7.2. Data gathering instrument------------------------------------------------14

1.7.3. Sampling design-----------------------------------------------------------14

1.8. Data organization and analysis -------------------------------------------------14

1.9. Organization of paper------------------------------------------------------------14

Chapter Two
2.1. Definition of accounting--------------------------------------------------------15

2.2. Basic principles of governmental accounting and financial report-------15

2.2.1. Accounting reporting capabilities-------------------------------------15

2.2.2. Fund accounting---------------------------------------------------------16

2.2.3. Types of fund------------------------------------------------------------16

2.2.4. Number of fund ---------------------------------------------------------17

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Chapter Three
3. Data analysis and interpretation -----------------------------------------------26

3.1. over view of federal government of Ethiopia (FGE)

accounting system ------------------------------------------------------------------26

3.2. Qualification of interviewed employees ------------------------------27

3.3. Accounting practices at Haramaya University -----------------------28

3.3.1. Accounting and financial reporting principles ----------------29

3.4. Fund groups and their recognition method ----------------------------32

3.5. Plant asset -----------------------------------------------------------------34

3.6. Reporting practices at Haramaya University ------------------------ 35

Chapter Four:
4. Conclusion and recommendation ----------------------------------------------37

4.1. Conclusion ----------------------------------------------------------------37

4.1.1. Regarding accounting principle ---------------------------------37

4.1.2. Regarding practices of financial report -------------------------39

4.2. Recommendation ---------------------------------------------------------40

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 List of Tables

Description
2.1. Table of sample regarding receiving payroll-----------------------------------22

2.2. Table of sample on transfer pension pay roll to ministry of finance

and economic development (MOFED) for actual payment-----------------------22

2.3 Table of format on distribution of salary to employees by cash--------------23

2.4 Table of format on transfer of unpaid salary to MOFED---------------------- 23

2.5 Table of sample on purchase of office supply on credit form

XYZ for capital expenditure-----------------------------------------------------------23

2.6 Table of payment supplies office in cheque--------------------------------------24

2.7 Table of payment of advance for office supplies--------------------------------24

2.8 Table of sample to suppliers in kind of account---------------------------------24

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 ABSTRACT
This study is entitled as ‘Assessment of Accounting and Reporting Practice: case
study of Haramaya University’
To achieve this objective the necessary data was collected from both primary and secondary data
source. The data are collected from the original source were by using interview and the
secondary data were collected from manuals, references, magazines and other related materials.
Further, this research contains literature review that is support of the paper, data analysis and
interpretation; finally, appropriate conclusion and recommendation are made.

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 CHAPTER –ONE

1. Introduction

1.1 BACK GROUND OF THE STUDY

Accounting plays an important role in our economic and social system, sound decisions made by
individuals, business, governments, and other entities are essential for the efficient distribution
and use of the nation’s scare resources. To make such decisions, these groups must have reliable
information provided by the accounting system, the objective of accounting, therefore is to
record, summarize, report, and interpret economic data for use by many groups within our
economic and social system, (FESS WARREN, 1989).

Most government institutions focus on rendering quality services to general public rather than
earning profit. Among these government institutions, colleges and universities have different but
limited resources that should realize that budgeted resources are properly utilized for the
purposes that meet the goals of the university.

In order to know the resources are effectively utilized an institution should prepare reliable
financial reports, these reliable financial reports are the results of practicing accounting and
reporting system as per GAAP and conventions.

According to Douglas (1995), Governmental financial reporting should provide information to

assist users in assessing accounting and making economic, Social and political decision, a report
show the overall performance of an institution, by means of a financial report government,
donors, creditors and other stock holders communications, with an institution so that they make
their own decision, however, if financial report is not prepared according to the principles and
conventions it misleads users, more ever, it may contribute to the universities should practice a
standard accounting system in accordance with GAAP so as to provide reliable financial report.

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 1.2. BACK GROUND OF THE ORGANIZATION

Haramaya University is among one of the earliest higher education institutions in the country,
located in the east Hararge zone of Oromiya region, the town has latitude and longitude of
9’24’N 42’01’E with an elevation of 2047 meters above sea level.

Haramaya is 10 km west of Harar, on the road to Dire Dawa, Haramaya is the home to Haramaya
university which was originally established as an agricultural technical college.

Based on the figures from Central Statistical Agency in 2005, Haramaya has an estimated total
population of 15,317 people of whom 7,769 are men and 7,521 are women, The 1994 national
census reported this town had a total population of 8,560 of whom 4,228 were males and 4,322
were females. It is the largest of three towns in Haro Maya district.

Haramaya university is, thus, now a government funded higher education institution with an
international reputation for teaching and research and with collaborative understandings with
national and international sister institutions. Since its establishment, it has proved to be one of
the earliest universities in Ethiopia the fundamental elements of the university’s mission are
teaching, research and consultancy. Thus, its ultimate goal is to pursue standards of excellence in
teaching and research for the betterment of the society.

As stated briefly above, although the history of Haramaya University is full of challenges, the
achievements are remarkable. In order to continue developing in aspects of community based
problem solving experiments and other utilities, the university’s vision and strategies that are
robust enough to meet and drive the change and renewal process that the university must undergo
if our country should remain responsive to the society needs and competition.

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 Mission and Vision
 

Vision
Haramaya University strives to be one of the leading African Universities with international reputation by
2025.

Mission
The Mission of Haramaya University is to produce competent graduates in diverse fields of study,
undertake rigorous, problem solving and cutting edge researches, disseminate knowledge and technologies,
and provide demand-driven and transformative community services.

Motto
The motto of Haramaya University is “Building the Basis for Development”

Goal
The goal of Haramaya University is to evolve as an autonomous and independent (academic and
research institution) graduate and research university with a competitive national and international quality and
relevance standards in its academic, research and community services endeavors.

Core Values
Haramaya University is committed to the following core values:

Academic freedom: A strong commitment to a free and democratic academic environment where
individuals inquire, investigate and engage in relevant academic practices and development.
Perseverance: A commitment and dedication to perform assigned duties to the best of one’s knowledge and
abilities.
Good governance: The practice of democratic, transparent, inclusive, responsible and accountable
leadership and management and promotion of the principle of equal opportunity.

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Respect for diversity: A culture of equity and fairness in all forms of practices; a conviction for the respect
of all people without sexual, class, racial, ethnic, religious, and regional discriminations.
Professionalism: A commitment to a high standard of professional integrity and ethics.
Collaborative spirit: Culture of working cooperatively within the University and with other stakeholders;
developing the “we” spirit and joint responsibility.
Fostering creativity/innovation: Develop a culture for generating new ideas, processes, services,
technologies and entrepreneurial skill.
Respect for Nature and Environment:  All endeavors of the university should be environmental
friendly.

1.3. Statement of the problem

The stakeholder of an organization should get reliable information about the organization. In
order to provide the users with necessary information an organization should prepare
different kinds of financial report that show the position, and that the budgets are properly
utilized, in preparing this kind of financial statement adhering to different principles and
conventions are important.

However, midst organizations do not apply those principles and contentions as per the
requirement; they fail to prepare reliable and relevant financial statement. This study is an
attempt to assess the accounting and reporting practices of higher education taking Haramaya
University as a case. In addition, it tries to see different principles and contentions applied for
accounting of higher education, lastly, the financial statements that should be prepared by
higher education are taken in to account.

The accounting and reporting practices problems in Haramaya University are over load
works due to the vast academic and community service coverage areas and poor internal
control specially among areas of inventory and fixed assets management areas are the main
problems in Haramaya University in Accounting and reporting practice.

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 1.4 Objectives of the study

1.4.1 General Objective

The general objective of the study is to examine and evaluate the accounting and reporting
practices in case of Haramaya University.

1.4.2 Specific Objective

The specific objectives of the study are-

 To assess the basic principles of governmental accounting and financial report

 To assess how assets from gifts/donations are recorded and what base of accounting
is applied

 To assess whether all types’ financial statements are prepared by higher education
institutes and accumulated depreciation is recorded for plant assets.

1.5 Significance of the study

This study is expected to benefit higher education in situations, in many aspects, it enables the
management of an organization to realize potency of practicing accounting and reporting system
for decision-making. It also enables the accountant to realize the significance of adhering to
accounting principles and conventions in the quest to prepare reliable financial statement, it
could also serve as a reference regarding the accounting and reporting practices of colleges and
universities. Department of accounting could also benefit from this.

Moreover, it could also be used to guide for other similar institutions to develop the accounting
and reporting system. In addition, it may help other researchers who want to conduct a research
on similar topics or area.

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 1.6 Scope of the study

Accounting and reporting practices in both governmental and non-governmental colleges and
universities are too vast to be converged under this particular study; therefore, this study tries to
access the accounting and reporting practices of some selected issues in one of the governmental
owned universities. That is Haramaya University.

1.7 METHODOLOGY OF THE STUDY

Research in common use refers to a researcher for knowledge. In fact, activity, there are many
motives for doing research of which one is the desire to get a degree with its consequential
benefits, of course, this is the motive of this student.

A research process consists of a number of closely related activities; these were normally
followed to come up with this report,

This are-

I, Defining the research problem, ii) Reviewing relevance important literature iii) Formulating
hypothesis, IV) Research design v) Data collection vii) Data analysis, and viii) Interpretation
and report, these logical steps were followed during the entire study.

1.7.1 Data Type and Sources

To meet the general objective of Assessment of Accounting and reporting practices of higher
education with particular reference to Haramaya University and assessing the reliability of
periodic financial reports that the governmental institutions used, both primary as well as
secondary data are used to obtain relevant information for the analysis.

The primary data used were interview, and personal observation, whereas the secondary data,
used were written documents, different books manuals.

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1.7.2 Data gathering Instruments

In order to make an efficient and effective research study, it is clear that data gathering
instruments are very important to collect a good and reliable data for the study. The researcher
uses two types of data gathering instruments. The primary data were collected through interview.
The secondary data were collected from various books, documents, and internet.

1.8 Data organization and analysis

The collected data were edited so as to check the clarity and necessary codes would be used so as
to facilitate the analysis part. The data collected using both primary and secondary are classified
and organized for their proper use and analyzed in detail using descriptive type of data analysis.

1.9 Organizations of the paper

This paper consists of four chapters; the first chapter presents the introduction. The second
chapter describes review of related literature. Chapter 3 discusses about data analysis,
interpretation of collected data. The fourth chapter consists conclusions and recommendations.

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 CHAPTER –TWO

2. REVIEW OF LITERATURE

2.1 Definition of Accounting

According to warren (1999) accountings is the method and procedural for collecting, classifying,
Summarizing and reporting a business Financial and operating information. In addition, it is also
defined as an information system that provides report to stockholders about economic activities
and conditions of business.

The purpose accounting, according to Mielg and F, Mielg (1987) is to provide financial
information about an economic entity. This accounting information, which is called financial
information provided by the accounting system, is required by the activity of the organization.
Accounting information has many users including customers, employees, shareholders, creditors,
suppliers, government, local community and the general public.

2.2 Basic Principles of Governmental Accounting and Financial Reporting

Principles indicated the objective and goal of an organization. Once goal and objectives are set
then, principles describe the way in which this goal and objectives are attained. These principles
are gradually updated by GASB (General Audit Standard Board) so that it enables the profession
to attain the formulated objectives.

There are twelve principles of accounting and reporting for governmental organization. Douglas
(1995) stated the principles as follows.

2.2.1. Accounting Reporting Capabilities

The first principles about accounting and reporting capabilities of government owned
organizations. A governmental accounting system must make it possible both (a) to present fairly
and with full disclosure the financial position and result of financial operation of the fund and
accounting group of the governmental entity in conformity with generally accepted accounting
principles (GAAP) and (b) to determine and demonstrate compliance with financial related legal
and contractual provisions.

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2.2.2 Fund accounting

Governmental accounting system should be organized and operated on a fund basis. A fund is
defined as a fiscal and accounting entity with a self-balancing set of accounts, which are
segregated for the purpose of carrying on specific activities or attaining certain objective in
accordance with special regulations, restrictions and limitations.

2.2.3 Type of Fund

The following types of fund should be used by state and local governmental entities. General
founds, special revenue fund, capital project funds, debit service fund, enterprise fund, internal
service fund, fiduciary funds (expendable trust, non-expendable trust, pension trust and agency
funds), every fund group is not necessarily to be available in all government units. However,
general fund that is permitted by generally accepted accounting principles, capital project found
is open when there is a construction and purchase of several assets.

2.2.4 Number of Funds

Governmental units should establish and maintain those fund required by law and sound
financial administration. Only the minimum number of fund consistent with legal and operation
requirements should be established. However, unnecessary funds result in inflexibility undue
complexity.

2.2.5. Basis of Accounting

Recognizing revenue and expenditure in the accounting system is called of accounting. Revenue
is recognized at period in which they become available and measurable under modified basis of
accounting. The same criteria are applied for expanse under accrual and modified accrual base.
However, for modified base of accounting the term expenditure is used rather than expenses.

The total fund group can be classified in to three broad categories as to simplify discussion of
accounting and reporting, these categories include governmental fund, which contain general,
capital project, special revenue fund and debit service fund as the first group. The second group
is proprietary that includes expendable trust funds, non-expendable trust funds, pension fund and
agency fund.

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2.2.6 Fixed assets

Financial assets and liabilities are reported on a balance sheet because they are funds that have
primary focus on financial resources. Fixed assets that are included under capital are not
financial liabilities. Funds that have an aim of capital maintenance indicate all assets and
liabilities of the fund.

2.2.7 Recording of fixed assets

Fixed asset should be accounted for at cost or if the cost is not particularly determined, at
estimated cost. Donated fixed asset should be recorded at their estimated fair value at the time
received.

2.2.8 Depreciation

Depreciation of general fixed assets should not be recorded in the account of government funds.
Accumulate depreciation may be recorded in general fixed assets account group. Depreciation of
fixed assets account for in a proprietary fund should be recorded in account of fund.

2.2.9 Budgetary accounting

An account budget should be adopted by every unit. The accounting system should provide the
basis for appropriate budget control. Budgetary comparisons should be included in the aspirate
financial statements and schedules for governmental funds for which an annual budget has been
adopted.

2.2.10 Financial report

Appropriate in term financial statements and reports of financial position, operating results and
other pertinent information should be prepared to facilitate management control of financial
operations, legislative over sight and whether necessary or designed for external reporting
purposes. A comprehensive annual financial report covering all funds and account groups should
be prepared and published. General-purpose financial statements may be issued sparely from
comprehensive annual financial reports. Such statements should include the basic financial

17
statements and notes to the financial statements that are essential to fair presentation of financial
position and operating results.

2.2.11 Classification

A). Inter fund transfers and proceeds of general long- term debt issue should be classified
separately from fund revenues and expenditures or expense.

B). Governmental found revenue should be classified by fund, function or program, organization
unit, activity, characteristics, and principle of classes of objectives.

C). Proprietary fund revenue and expense could be classified essentially in the same manner as
those of similar business organization, or activities.

2.2.12 Terminology

A common terminology and classification should be use constituently through at the budget, the
accounts, and the financial reports of each fund.

2.3 Special Accounting Convention for college and universities

Colleges and universities use certain accounting practices that cannot be described strictly as
accrual accounting.

2.3.1 Revenue and expenditure recognition

Douglas (1995) explained the resources and expenditures are recognized only in current fund.
Earnings from other non-current funds are debited or credited to fund balance.

2.3.2 Valuation and recording of fixed assets

Fixed assets of colleges and universities should be recorded at cost. If not, it should be recorded
by fair valuation of assets. Assets that are under construction can be debited in construction in
progress until that is completed.

Construction in progress ------------------------------------xxx

Cash---------------------------------------------------------- xxx
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Debits that are issued for constriction purpose should be transferred to the net investment in plant
account.

2.3.3 Depreciation of fixed assets

Patricia (1995) stated that depreciation is not accounted for governmental owned colleges and
universities. However, it may sometimes be calculated and used for managerial decisions. This
kind of depreciation is not reported on the financial statements.

2.4 Definition, goal, uses and objectives of Financial report

When all transactions are recorded and put in a summarized from, financial report is prepared for
the users. According to warren (1999), the accountings report that gives this information is called
financial statement. Financial report is a report that provides the financial position of an entity. It
may be annual or in term report. Annual report is a main communication and accountability
methods by which agencies report on the status of their service delivery and degree of their
compliance with different legislative and government policy requirement. Any report should be
consistent and understandable.

Governments financial reporting should provide information to assist user in assessing

accountability, it should have the ability to be publicly responsible or accountable, and it should
enable the users of financial report to see the accountability of the institutions. It should also help
users in evaluating the operating result of government entity at the end of every year. Moreover,
financial reporting should help users in looking at the level of the service that can be provided by
the government entity.

2.5 University financial statements

According to Lynn and Freeman (1983) there are three financial statements that are
recommended for higher education. These are i) balance sheet; ii) statements of charge in fund
balance and, iii) statements of current funds revenue, expenditure and other charges.

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2.5.1 Balance Sheet

According to warren (1999) balance sheet report the amount of assets, liabilities and owner’s
equity periodically. The assets part of the balance sheet present in the order that is converted to
cash or used in operation.

2.5.2 Statement of Charge in the balance sheet

Hay and Wilson (1995) revealed that statement of charge in fund balance shows on a change in
fund balance account of all except Agency, Revenues are reported on unrestricted current funds
and expenditure is reported on both un restricted current funds.

2.5.3 Statement of current funds, revenue expenditure and other charges

According to Hay and Wilson (1995), this statement shows the revenue of current funds,
expenditure and mandatory transfer, other transfer and others. It summarizes the net increase in
fund balance.

2.6. Accounting system and reporting in government organizations

2.6.1 Basic accounting concepts

Chart of Accounting:-

The federal Government of Ethiopia (FGE) manual (2002) indicates that has of account is system
of coding used by financial management to identify and classify financial entities and events.
The current chart of accounts of FGE has detailed code as temporary accounts which begin each
year with Zero balance it also has permanent account whose balance at the end of the year
becomes the beginning if the next year balance, Revenue and expenditure are temporary account.
However, asset, liability and equity are permanent accounts.

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Basic of Accounting

According to FGE manual (2002) the basis of accounting is the principles and rules employed by
accounting system to determine when and how to record transaction. The FGE accounting
system employees modified cash basis of accounting. Modified cash base accounting means cash
base are applied for recognition of the following transactions.

 Revenue and expenditure are recognized when aid in kind is received

 Expenditure is recognized when payroll is processed, at the end of the year when grace
period payable is recognized, if payment to goods or services was rendered in advance
and when cash moves from unrestricted to restricted bank account.

 Inter-governmental transfer

 Transaction resulting from salary with holding

Book keeping method:-

The FGE accounting system uses double entry book keeping. According to FGE double entry
accounting system means that both aspect of each transaction is recorded at least with one debit
and one credit.

2.6.2 FGE Accounting System

The FGE accounting system is arranged in two sub systems: - accounting for transaction using
modified cash of accounting and accounting for assets and liabilities using a cost method of
valuation. Accounting for transaction means accounting for daily economic activities. Most
transactions of FGE involve domestic currency.

Over view of accounts for transaction

Transaction must be authorized by appropriate person, captured when they occur; recorded in the
accounting system; summarized by accounts; and reported to the appropriate authority.

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 2.6.3 Transaction

The FGE manual as (2002) described different types of transactions same of these are discussed
below.

 Salary; Book of public body

A public body receives the payroll from MOFED with gross salary structure on payroll for
its capital expenditure.

Table 2.1 sample regarding receiving payroll

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Salary - Xxx
Contribution - Xxx
pension
Pension - Xxx
payable
Income tax - Xxx
Salary - Xxx
payable

Table 2.2 sample on transfer pension payable to MEDFED for actual payment

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Pension - Xxx
Transfer to - Xxx
MDFRD

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Table 2.3 Format on distribution of salary to employees by cash

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Salary - xxx xxx
distribution
in cash to
staff

Table 2.4 format on transfer of unpaid salary to MOFED

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Unpaid - xxx Xxx
salary
transfer to
MOFED

B). Payables

Table 2.5 sample on purchase of office supply on credit from XY2 for capital expenditure

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Office - xxx
supplies
Sundry - Xxx
Creditor

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2.6 Payment to supplier of office items by cheque

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Sundry - xxx Xxx
creditor xyz

C). Receivables

Table 2.7 Payment of advance for office supplies to supplies

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Advance to - Xxx Xxx
supply xyz

Aid in kind; Aid in kind is received, for example, motor vehicle at cost from xyz
under capital expenditure budget for projects in the following manner.

Table 2.8 Sample on Aid in kind Account

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Motor - Xxx
vehicles
Assistance - xxx
donor

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 2.6.4 Financial report and financial statements

The FGE manual states that information in the form of financial report is produced to assist
management with decision-making. Information in the form of financial statement is produced
for external purpose.

The FGE accounting system provides financial report in budgeted revenue and expenditure
annually. In a future financial statement, change in cash position and balance sheet is produced.

25
 CHAPTER THREE

3. DATA ANALYSIS AND INTERPRITATION

This study focuses on selected accounting and reporting practices of higher education, with
particular reference to Haramaya University. The results and discussion are presented below
under appropriate headings and sub- headings.

3.1. over view of federal government of Ethiopia accounting system

The federal government of Ethiopia (FGE) accounting system used in 1994 E.C. (2001/2002) has
been in service for more than half century. The system has been revised at various times and the
revisions through time have brought major changes in recording, summarizing and reporting of
the government financial institution. The federal government of Ethiopia accounting system
achieves three goals: budget control, cash control, and accountability. This study also partly tries
to capture and discuss some of the issues pertaining to federal government of Ethiopia
accounting system as they are adopted by the university under consideration. Haramaya
University uses (IBEX). Integration budget expenditure software system to help the organization
employees. Because of its timely, reliability, easy to use and to guide for their accounting
records. Ibex is modern accounting recording software.

As described in the federal government of Ethiopia accounting system, budget control is

achieved by the ability of accounting system. To report expenditure consistent with budgetary
principles similarly, cash control is achieved, among many others, by applying double entry book
keeping techniques. Using of double entry book keeping system is the most advantageous than
using single entry book keeping system. Because it protects complexity of accounting recording
system. This creates a set of self-balancing account ledgers or a general ledger, because the
accounting ledgers are self-balancing, accounting records are controlled. Thus, cash is also
controlled by double-entry book keeping. To this effect, now Haramaya University is applying
double-entry book keeping by doing so the university achieves one of the three: the cash control,
employing a modified cash basis of accounting is also another way of cash control; as it allows

26
the accounting system to recognize revenue and expenditure consistent with the budgetary
process and financial law.

The modified cash basis of accounting is consistent with the budgeting process and produces
information useful for comparing budgeted and actual revenue and expenditure.

The modified cash basis accounting system requires the same temporary accounts as the cash
basis of accounting plus permanent accounts namely, cash and cash equivalents, receivables and
payables. The federal government of Ethiopia accounting system employs a combination of
temporary and permanent accounts. As per discussion with the personnel in charge of the
accounting section, the university, upon offering the concerned employees with adequate training
on the federal government of Ethiopia accounting system by experts from the federal
government, it is being applied by the university.

The federal government of Ethiopia accounting system is organized in two sub systems:
accounting for transactions using a modified cash basis of accounting, and accounting for other
assets and liabilities using a cost method of valuation. Whereas gifted or donated assets are
recognized (valued) at market price or current fair value. This is if the donated assets are not
indicated their amounts. All account units’ account for transactions, accounting for other assets
and liabilities is a goal for all accounting units. Accounting for transactions means accounting for
daily economic activities. Transactions cause increases and decreases to revenue, receipts from
external assistance, expenditures, transfers, cash and cash equivalents, receivables, payables and
letters of credit. Haramaya University has to strictly follow the federal government of Ethiopia
accounting system and evaluate the existing activities to see if they are in perfect tune with the
system mentioned here above.

3.2. QUALIFICATION OF INTERVIEWED EMPLOYEES

The qualifications of accountants have its own significance in the quest to practice and apply
accounting principles and to prepare accounting reports used by the concerned authorities for
decision making and to see the performance of the institution regarding proper budget utilization.
Asset ownership and others that are associated to it, in this research, I have used interview from

27
primary source of data, this interview were held of finance and purchase department of
Haramaya University. The minimum requirements to join the department is BSC in accounting
and finance related field of studies and also the employees in the organization that; they are
capable of processing and applying the accounting system that the university is following.
However, the fact that most of the accountants of the organizations are matured enough to
achieve the goal. Adherence GAAP and convention results from well trained and experienced
employees. Accordingly, for Haramaya University to get the desired results, continues skill
upgrading trainings including on the job training are quite important specially in the aspects of
the currently on going changes towards accounting reporting system reforms of newly upcoming
IFRS (International Financial Reporting Standard).

3.3. ACCOUNTING PRACTICES AT HARAMAYA UNIVERSITY

As the members of finance and purchase department of Haramaya University responded that
almost all are participating in recording and analysis of the financial transaction that take place in
the university. This implies that the different accounting practice accomplished by most of the
accountants.

The other interview question forwarded to the respondent, was whether double entry book
keeping system is practiced in Haramaya university, one major different between the double
entry and single entry book keeping system is that the former necessitates for all the transactions
to be balanced immediately as the investigator gathered, Haramaya university is applying double
entry book keeping system. The double entry book keeping is a more efficient and modern
system as compared to the single entry.

In addition, the results of the interview conducted with the concerned authorities shows that
previously they were applying single entry book keeping system in both recurrent and project
finance section of the university. However, the recurrent budget accounts section entered in to
double entry book keeping system beginning from the 2000 budget year (2007/8) whereas this
double entry was launched in the 2001 budget year (2008/9) in the project finance accounts
section also, according to federal government of Ethiopia manual (2002) the federal government
of Ethiopia accounting system employees modified cash basis of accounting. Here cash basis is
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applied except for recognition of transactions such as that revenue and expenditure are
recognized when aid in kind is received: expenditure is recognized when payroll is processed,
and when cash moves from unrestricted to restricted bank account; and transaction resulting
from salary with holding.

It is also observed that the voucher previously used and the present voucher show both debit and
credit sides. Even though applying double entry book keeping system is a good practice.
Adherence to acceptable principles and conventions are also important. Unless these are put into
effect it may not be possible to get the desired out comes from adopting the double entry book
keeping system, for the decision making process to be proper, more efficient and fruitful strict
adherence are quite vital, this is in conformity with the principle of accounting and reporting for
governmental organizations stated by Douglas(1995), according to him, a governmental
accounting system must make it possible to present fairly and with full disclosure the financial
position and result of financial operation of the fund and accounting group of the government
entity in line with GAAP.

3.3.1 ACCOUNTING AND FINANCIAL REPORTING PRINCIPLES

According to statement no.34 of GASB (governmental accounting standard board) there are
around 12 principles of accounting and financial system. Those principles stated under GASB
are:

 accounting and reporting capabilities

 types of funds

 number of funds

 reporting capital assets

 valuation of capital asset

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  depreciation of capital asset

 reporting long term liabilities

 measurement focus and basis of accounting in the basic financial statements

 budgetary control and budgetary reporting

 transfer revenue expenditure and expense account classification

 common terminology and classification

From the above listed GASB principles the following principles are followed by Haramaya
University, these principles are:

1. TYPES OF FUNDS

As per the interview made with financial manager, there are three types of governmental funds
applied used by Haramaya University, these are

 General fund

 Special revenue fund

 Capital project fund

As the information obtained from accounting records of Haramaya University the above three
types of governmental funds are really applied.

 General fund: that accounts for all financial resources except those required to be
accounted for in another fund such as; government treasury, other miscellaneous revenue
like rent house, i.e. from cafeteria, barberry, beauty salon, shop, gymnasium, revenue from
dairy farming.

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  Special revenue fund: to account for the proceeds of specific revenue sources (other than
private purpose trust or for major capital projects) that are legally restricted to use for
specified purposes.

Example of special revenue fund: donation from charities to purchase different library books
(reference).

 Capital project fund: to account for financial resources to be used for the acquisition or
construction of major capital facilities (other than those financed by proprietary fund and
trust funds)

Example of capital projects are like:

 A fund obtained for the set of construction building

 A fund for stadium construction

 A fund obtained for coble stone road

 A fund obtained for asphalt

2. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING

As the researcher interviewed with finance manager of Haramaya University the measurement
focus used is a financial measurement focus. This measure is due to the principles out lined by
the federal government of Ethiopia, to the higher educational institutions. Basis of accounting
which is used by Haramaya University are both cash basis and accrual basis (modified
accounting system). The accrual basis of accounting is applied when there is a budget adopted
by federal government in adherence. Example unearned rent from cafe, barberry, shop, beauty
salon, and diary farming. The cash basis accounting system is used when the organization is
collected its revenue in the form of cash. Examples of cash basis are:

 Tuition from extension

 Fines from students who are students to register

 Cash from photo copy service

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3. VALUATION OF CAPITAL ASSETS

Capital assets should be reported at historical cost. The cost of a capital asset should include
capitalized interest and ancillary changes necessary to place the asset in to its intended
location and condition for uses.

As the investigator gathered from the respondent capital assets are valued at their initial
costs. The donated capital assets are valued at their fair market value.

4. Transfer revenue expenditure and expense account classification

The investigation gathered from the respondents of Haramaya University purchase and
finance directorate; The transfers of the revenue in this institution are sharing of revenue
among Haramaya University and its branches which is located at Harar. The transfers of
expenditure are the expenditure incurried by Haramaya University to purchase materials for
both main and Harar compuses.

5. Fund Accounting System

As interviewed with purchase and finance head of Haramaya University, the investigator
gathered that accounting system, are organized and operated on a fund basis. The principles
that applied by finance of Haramaya university for various fund types that are used as a
needed by federal government, for both general purpose and special purpose funds.

3.4 Fund Groups and their recognition methods

Principles of accounting and reporting in governmental organizations state that governmental

resources should be organized and operated in a fund basis; it may result in flexibility and
undue complexity. The operation of governmental organizations on a fund basis is also taken
as one of the twelve principles stated by Douglas (1995). Thus, it should be strictly followed
by government institutions like Haramaya University.As per the principles, in order to have a
fund groups that account for operation of the institution; The University should have current
fund. Classification of current fund of higher education in to restricted and unrestricted
enables the institution to know what amount of fund is designed for some pre-determined
specific purpose and what amount of the total resources we used without any restriction. To

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know the situation of such important categorization; Respondent were again asked whether
the current fund is classified under restricted and unrestricted fund. The opinions of the
respondents were categorized as restricted and unrestricted fund.

According to the interview and personal observation there is classification of restricted and
unrestricted fund of current funds.

The revenue collected from extension, summer and distance education by Haramaya
University is expended only for the activities that are related to it. However, the revenue that
is collected from renting buildings for cafeteria, shop, barber, beauty salon, photocopy and
the like is not restricted by the management of the university. In addition, the federal
government provides budget for restricted purposes that are used for current activities of the
institution so as to meet its short –term and long term objectives. Therefore, it is observed
that the budget allocated by the government to the institute is classified under restricted
current fund on the other hand, the revenue that is collected from different activities in the
university is considered under unrestricted current fund. Besides, even though there is no
clear distinction as required by GAAP, there is an activity that leads to the classification of
current budgeted activities.

The interview made with the concerned personnel reveals that the resources of the university
are classified as project finance and recurrent budget finance. In project finance there are two
major sources of fund internal revenue collected from different activities and donation
derived from external sources. The donation may be allocated for restricted or unrestricted
purposes. The donation that is given for unrestricted purposes could be used for any law full
purpose as and when the university managements convinced of committing such resources to
satisfy the university needs. However, the domination that is granted for restricted needs.
However, the donation that is granted for restricted purpose could be used only for activities
that are specified and restricted by donors.

The project financing wing of the university’s finance department is also concerned with
collection of internal revenue as mentioned above. Revenues may include revenue from mini
shops, Cafeteria and barberry available in the university. The money that is collected from
these kinds of activities mostly is not restricted only for some specific purpose.

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Meanwhile, recurrent finance is concerned with the budget that is appropriated by
government. The budget request by the university every fiscal year contains details of
expenditure objectives that are required for the coming academic year. Based on this the
federal government approves budget.

The budget should be used only for the purpose indicated in the document for budget request.
But if there is deficit in one activity; The university may request for budget transfer from one
code to another code where there is shortage of earning marked budget, firstly, management
of the university announces to the senate then the senate sends to the board and lastly the
board requests the MOFED, which has the ultimate power to approve or reject the budget
transfer request, once the budget transfer is approved then the transferred amount is used for
the newly justified purpose.

The results show that even though the resources of the university are not classified as per
requirements in GAAP. There is classification of budget.

Recognition of revenue when it is earned as well as expenditure when it is incurred can

enable the institution to adhere to principles. Review is recognized in accounting period in
which they become available and measurable under modified universities to recognize
revenue and expenditure accounting to modified cash basis of accounting.

3.5 Plant Assets

Some of the major issues raised during the interview where whether there is a fund balance
that accounts for the acquisition of long –term asset and treatment of accumulated
depreciation in the existing accounting system exercised by the university. As a result, the
most lived asset that is acquired have fund balance accounts, however, in Haramaya are not
recorded, while it is very important in the preparation of different statement are used as
inputs for various decisions by management.

It is further observed that since there is more cored of fixed assets in the university, the
accountants do not record any kind of accumulated depreciation that is required in the
principle of accounting and reporting practices of governmental organizations.

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The experience of the university is totally different from the convention that states that
depreciation of fixed assesses of any governmental organization should be properly recorded.
There is no balance that shows the accumulated depreciation on the financial statement of the
university prepared annually. There is no balance that sows accumulated reports to the
MOFED in all the periodic reports. However, treatment of accumulated depreciation is
supported by Douglas (1995) in the sense that accumulated depreciation may be recorded in
general fixed assets account group.

An attempt was also made to see the underlying resounds for not recording accumulated
depreciation the fixed assets of the university. Indeed recording accumulated depreciation is
very important to know the asset and capital positions of the university. It enables decision
makers to compare and know the ratio of the total student population enrolled and research
conducted versus the net asset value of the organization.

In any government owned organizations acquisition of various kinds of assets in the form of
gift or donation is usual practice as they are often supported by domestic and or international
donors.

Accounting and reporting principles state that donated assets should be recorded at their
estimated fair value. In addition, conventions also require universities to record any assets
granted by their fair value. Most government organizations record any assets granted by their
fair value and also most government organizations could record gifted assets at its cost or
they may not record at all. But recording those kinds of assets at their estimated fair value is
more preferable in order to produce more reliable financial statements.

3.6 Reporting practices at Haramaya University

In order to have comprehensive information about one organization assertion of financial

reports is very important. Mostly government owned organizations prepare annual; as well as
in term financial reports to be utilized for various decisions. The in term reports that are
prepared mostly by government organization are used for internal purpose.

However, annual reports are used for external users such as higher governmental bodies like
MOFED, international and domestic donor agencies.

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According to the interview made the purchase and finance heads, one of the annual financial
statements that are prepared by Haramaya University is budgeted revenue and expenditure.
The budget request statement is prepared by the university and sent to MOFED together with
the above statement. Haramaya University also prepares in term or periodic financial reports.
These include revenue report, expenditure, transfer and payable report. It is them
summarized in a trial balance and attached with the above report and sent to MOFED every
quarter, letter of credit report is also available in trial of it is nil. In many cases international
and domestic.

Donor agencies may require narrative financial reports some of them send their own forgets
for financial reports; That have to be adopted by the university for their own purpose on until
all granted amount is settled and then audited. Based on the format the activity that is
accomplished is listed and sent to them with adequate explanations.

As per the FGE manual every governmental organization must prepare statement of budgeted
revenue and expenditure, it is mentioned that balance sheet and other types of financial
statements should be prepared. The statements’ prepared annually include statement of
budget revenue and expenditure and budget request from.

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 CHAPTER –FOUR

4. CONCLUSION AND RECOMMENDATION

4.1 CONCLUSION

Based on the findings of the study, the following conclusions are made:

● Accounting practices

 Application of double entry book keeping system

 Classification of resources in to different fund groups

 Recognition of unrestricted fund on actual base of accounting

 Recording of gifted assets of estimated fair value

 Using IBEX software system

 Recording of modified cash basis of accounting.

Financial reporting practices.

 Types of financial statement

4.1.1 Regarding accounting principle

Now days accounting system has become more sophisticated because of creation of different
types of book keeping system. Principle appreciates the application of double entry book keeping
system than single entry that is very difficult to balance it. Haramaya University also applied
double entry book keeping system that enables the University to balance the account easily; This
has to be appreciated.

GAAP classifies fund groups of Universities as current fund, which contain restricted and
unrestricted sub-fund group and non-current fund. However, the fund groups of Haramaya
University are not classified in this way even they do not use the word “fund”, instead they use
“budget”. Its activities are classified in to recurrent and project financing. The recurrent finance

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is concerned with the budget allocated by the government while the project finance is concerned
with internal revenue and donations.

According to different principles, the revenue and expenditure of unrestricted current fund of
universities should be recognized when earned and expenditure when incurred.

However, Haramaya University does not recognize any revenue collected from rental services
(shops, cafeteria, and other buildings) when earned. It records only when cash is collected from
them. In addition, any expenditure that is related with these activities is not recorded when
incurred. Therefore, this may result in misstatement of financial statement.

Principle requires universities to record allowance for uncollectible that makes the statement to
be reliable. However, since revenue that is connected with unrestricted activity of the University
is not recorded based on accrual base of accounting Haramaya University does not record any
kind of allowance for uncollectible. Failing to record allowance for uncollectible may result in
over statement of balance sheet.

Accounting and reporting principles of governmental organization requires any governmental

organization to record accumulated depreciation. In addition, convention also confirms to the
above facts. However, Haramaya University does not have any experience of recording
accumulated depreciation for its different types of fixed assets that are available in the form of
building, computer, furniture, etc.

Any gifted assets should be recorded at its estimated value as per principles and convention.
However, any recognized (value) at their market price or current fair value. This is if the donated
assets are not indicated them among.

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4.1.2 Regarding Practices of Financial Reports

Universities should prepare a financial statement that show the fund balance, assets, liability,
expenditure and revenue, that is balance sheet, statement of change in fund balance and
statement of current fund revenue, expenditures and other changes. However, HU prepares only
statement that shows budget, expenditure, and its difference. This statement is somehow similar
with statement of current fund revenue, expenditure and other changes. But balance sheet that
contains all the necessary entries is not prepared in the University.

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 4.2 Recommendation

Based on the discussions and conclusion presented above, the following recommendations are
given.

 Application of double entry bookkeeping system Haramaya University has to be encouraged

further because this is the only way that makes way that makes the University practice the most
acceptable method of accounting system. This would have its own positive influence on availing
different accurate reports for decision-making. It would also pave an easier way for performance
auditing.

 Classifying activities in to different fund group enable the University to act easily. Therefore, it
is recommended that the University should classify each and every activity on a fund base.

 In order to provide reliable financial statements using accrual base of accounting for restricted
fund is important as it records revenue when earned and expenditure when incurred. Therefore,
the University must record any activities that are related with unrestricted fund using accruals
base of accounting.

 Any revenue that may be collected in a future time should have allowance for uncollectible as it
helps to prepare reliable financial statement. Therefore, the University has to record allowance
for uncollectible or revenue that is collected from activities related with unrestricted current
funds so as to provide reliable balance sheet in the future.

 If accumulated depreciation is not recorded, the assets of the University will be overstated
resulting in over statement of the financial statement. Hence, the University must record
accumulated depreciation in order to produce reliable financial statement.

 According to GASB principle there are around twelve principles. However, HU applies five of
the principles. Therefore, the university tries to use the remaining principles like reporting long
term liability. In order to report the liability which exceeds a year to repay, long term liability
reporting is necessary.

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 HARAR TEACHERS EDUCATION AND BUSINESS COLLEGE
FACULTY OF BUSINESS AND ECONOMICS

DEPARTMEMT OF ACCOUNTING AND FINANCE

This Interview is designed to gather information about Assessment of Accounting and
Reporting practices: case study of Haramaya university; the study is being
conducted as part of the undersigned researcher’s study for the degree of Bachelor of art in
Accounting and finance.

The information you provide in response to the interview will be used as part of the
data needed to see whether your organization is adhering to GAAP and the conventions
that are put into effect. It is purely meant for academic exercise and the data and
information you provide will remain confidential.

Kind regards.

1. What is the accounting base that your organization practicing now? What is the reason for
using this base of accounting?

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2. what are the advantages and disadvantages of using double entry bookkeeping system
compared to the previous single entry bookkeeping?

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3. Is there any concept of accrual base of accounting in your organization? If no, what is the
reason?

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4. What problem, if any, hinders the application of accrual base of accounting for unrestricted
current assets?
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5. What are the reasons for not having the experience of recording accumulated depreciation in
your institution? What is its effect on the annual financial report?

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6. Why allowance for is uncollectible is not recorded?

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7. Principal requires any government – owned university to record a gifted asset by its fair
value or market value. But your organization is recording the gifted asset by its cost. What is
the reason/s?

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8. Do all types of financial statements required by principal are prepared in your institution? If
no, why not?

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9. What do you think is the effect of not preparing balance sheet in your institution and what
about other financial statements?

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10. Do you think the financial statement that your institution is preparing is reliable? If no, what
is/ are the reasons?

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11. Do you have anything to suggest?

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 Bibliography

1. B, mielg and f. mielg (1987). Accounting base for business decision. 7th ed. Chogmor.
Singapore.

2. Douglas Patricia (1995). Governmental and non profit accounting. 2 nd Ed Harcourt

Branch College

3. Hay and Wilson (1995). Accounting for governmental and non profit entities. 10 th ed.
Jiwin. USA

4. Lynn and freeman (1983(fund accounting theory and practice. 2nd ed. Hill inc. new jersey.
USA

5. MOFED (2002). Accounting for modified cash basis transactions. FGE accounting
system, volume 1. Civil service reform account design team of MOFED. Addis Ababa

6. MOFED (2002). Manual 3 for FGE accounting system: FGE chart of accounts, volume 2.
Civil service reform account design team of MOFED. Addis Ababa

7. Warren, rev and fess (1999). Accounting 19th ed. south western. USA.

8. www.haramaya.edu.et

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