CHAPTER 5: Accounting Standards and System in Public Sector

Introduction
Was refers to accounting method that is applied by government. It was to establish a good
public governance structure which is regarded as a mechanism to enables user, state to
make informed decisions.
The government accounting standard serve as guidelines for financial statement
presentations in the public sector. There are two sets of standards adopted by government
IPSAS and MPSAS.
Accountants and Public Sector
Financial report of federal government Malaysia prepared by the Accountant General of
Malaysia (financial position, cash flow, financial performance). Before being table at
parliament the financial report need to audit by Auditor General.

Accounting Concepts Explain on public sector

Entity Applies to government as a separate entity.

Transaction need to recorded separately
from those of its owner or other business

Going Concern The budget last for one year only. Any
budget excess is not carrier forward for the
Consolidated Revenue Account.

Periodicity Relates to the flow of funds during the

budgetary period and budget comparison
until 31 January 1, 2023 of the following
year.

Accrual Basis Provides a comprehensive view of a

government asset and liabilities and of its
financial performance and cash flow for the
period under review.

Matching Allocation received for the year is

compared with accrual expenditures.
IPSAS
Develops accounting standard and guidance for use by public sector entities. It receives
support from the World Bank, the Asian Development Bank. IPSAS are principle based
accrual accounting standard that provide broad accounting concepts that underpin the
development of accounting treatment for public sector entities.
MPSAS
Aimed to facilitating the public sector entities to report their financial performance, financial
position and cash flow more accurately towards enhancing accountability and transparency
in the public sector financial management.
ACCOUNTABILITY IN THE PUBLIC SECTOR
1- To fulfil the legal requirements
2- To provide information that can help the users in making decisions.
Basis of Accounting
There was two basis accounting that been used cash accounting and accrual accounting.
Many sector organization (government) still using the traditional cash based accounting
practices while accrual accounting been used by the private sector.
Cash accounting refers to revenue are recorded on the date cash is received and expenses
are recorded on the date cash is paid.
Accrual accounting refers to revenues and expenses are recorded on the date that they
occurred whether exchange of cash is or not.

CASH BASIS
- Only reports on cash balances and cash flows. It measures cash flows at the time
accounting transactions actually take place. This basis doesn’t follow the matching
concept (the same time the revenue is reported, the expenses must be also
reported.) Because of that, depreciation will not be accounted in this basis and asset
will written off in the year of purchase. Government also unable to disclose any
liability related provision, long term project and investment more than a year. Cash
basis walaubagaimanapun easier to administer and understand.
Modified Cash Basis
- Hybrid cash and accrual accounting. All payment are accounted when the payments
are made and receipt are received. Shor term item will be under cash basis and long
term will under accrual basis.
Accrual Accounting.
- Helps to focus greater attention on the part of the public on acquisition, disposal and
management of government asset, liabilities, and contingent liabilities. In this
accrual accounting revenues and expenses are recorded when they are earned,
regardless of when the money is actually received or paid.

DIFFERENCE BETWEEN CASH AND ACCRUAL ACCOUNTING

DIFFERENCE CASH ACCRUAL EXPLAINATION

Nature Simple Complex

Method Not recognized Recognize Under Cash basis is not
under the Companies Act 2016 used because based
companies act 2016 on companies act
2016 cash basis
doesn’t follow the
matching concept

Revenue Reported in income Reported in income

statement when statement before
received the cash received
Expenses When the expense When occur or
paid out when they expire

ACCOUNTING SYSTEM IN THE MALAYSIAN PUBLIC SECTOR

Integrated Government Financial and Accounting Management System (iGFMAS)
- This system was an accounting system that was used by the Accountant General
Department since 2006. From 1 June 2018 the system was migrated to Igfmas to
further develop accrual accounting at national level. It was developed for further
strengthen the government payment process and also to account for government
revenue collection more efficient
- It was capable of facilitating financial planning, budget control and government
accounting. It combines all accounting functions that cover payment, receipts, salary
management, unclaimed money, government loans and advanced loan.
- IGFMAS function include following
o Provide accurate data and relevant information for decision making in federal
government
o Enhance skills and productivity by incorporating industry best practices
o Meet new challenges and demands as well as future requirements
o Enhance financial transparency and accountability in public sector
 CHAPTER 6:
FINANCIAL REPORTING IN MALAYSIAN PUBLIC SECTOR
Financial reporting in the public sector involves reporting on a government financial position
and financial performance. Essentially, it concerns a process of communicating the financial
information, whereby elected official make informed choices about how to use the
government limited resources to bet serve the interests of taxpayers.

1.0 Objectives of Financial Reporting

- Provide financial information useful for making economic, political, and social
decision, and demonstrating accountability and stewardship and information useful
for evaluating managerial and organizational performance
- Assess compliance of legal and other statutory requirements regarding how
resources are obtained and spent.
- To ensure relevant authorities in government make rational decisions about
allocation, distribution and utilization of resources for various sectors of the
economy.
2.0 Legal Requirement for Financial Reporting in the Malaysian Public Sector
- Article 99(4) of the Federal Constitutuion
- Section 16(1) of the Financial Procedure Act 1957
- Treasury Circular No.5/1994
- Treasury Circular NO.4/2007
- IPSAS
- MPSAS
Transition to the Malaysian Public Sector Accounting Standard (MPSAS)

Characteristics Description
Reliability Information of financial reporting is reliable
if there is no material error and it is fair
Completeness Information of financial statement should
be complete in terms of materiality and
cost
Materialitiy The form of information and its materiality
determines the importance of information

3.0 Government Operating Activities

When financial statement was prepared, the main things to highlight is receipts and
payments from operating activities.
Cash flow from operating activities:
- Cash receipts from taxes, levies and fines
 - Cash receipts from charges for goods and services provided by entity
- Cash receipts from royalties, fees, commission and other revenue.

4.0 Exchange and non-exchange transactions (revenues)

4.1 Exchange – Which one entity receives asset or services or has liabilities
extinguished, and directly gives approximately equal value to another entity in
exchange. This was under MPSAS- 9
Example – Good produced by entity for the purpose of sales. Goods purchased for
resale such as merchandise or land
4.2 Non exchange – MPSAS -23 as an entity that either receives value from the other
entity without directly giving approximately equal in exchange.
Example – Tax revenues, gifts donations, sponsor.

5.0 Recognition of revenues

Are applied separately to each transaction
5.1 Revenue form exchange transaction
Amount of revenue usually determined by agreement between the entity and the
purchaser of the asset or services.
- Rendering of services. -
- Sales of goods
- Interest, royalties and dividends
5.2 Revenue from non-exchange transaction
An asset were measured at fair value at the date of acquisition.
 CHAPTER 7: Accountability and Auditing in the Public Sector
PUBLIC SECTOR ACCOUNTABILITY
- An obligation of an individual or organization to account for its activities, accept
responsibility and disclose the result
- ‘Who is accountable to whom for what” and that civil servant
Concepts and Principles
Establishing a relationship based in the obligation to demonstrate and take
responsibility for performance in like of agreed expectation.
Common concept of accountability
- Discuss specific answering standards for different types of responsibilities concerning
different groups of people.
General Concept of accountability
- Provides adequate public accountability to ensure fairness in government
performance
Concept of Accountability
- Discloses whatever the government has done by publishing its financial reports to
the public
-
TYPES OF PUBLIC SECTOR AUDITING
FINANCIAL AUDIT (ATTESTATION AUDIT)
Also known as attestation audit, is conducted annually to determine whether the
annually prepared financial statement show a true and fair view of FP and whether the
government entities have complied with all legal and regulatory requirements.
It’s also obtaining and evaluating the evidence the entities financial position. To
ensure that accounting system are proper and efficient.
Affirms to the preciseness and fairness of financial information in terms of whether it
has been prepared in accordance financial reporting framework requirements.
Financial Audit entails investigation on annual accounts of departments and agencies
while providing advisory services related to financial issue and control.
COMPLIANCE AUDIT
Cyclical audit conducted to guarantee that all financial records of ministries,
departments or agencies are consistent with the rules and regulations. It’s to initiate audit
process in conjunction with statutory, regulatory, and administrative needs. Activities that
are audited for compliance are:
 - Management Control
- Revenue Control
- Expenditure Control
- Management of trust fund
- Management of asset
PERFORMANCES AUDIT (VALUE-FOR-MONEY-AUDIT)
Studies and evaluation of certain programmers and activities in reaching their goals and
objectives, determining whether the entity is using it resources in the most effective and
economical manner.
Contributes to providing accountability by supplying an independent view on the extent to
which government officials faithfully, efficiently and effectively.

ROLES AND RESPONSIBALTIES OF AUDIT

1) Oversight – Describes government are discharging their responsibilities’
appropriately, particularly in term of spending funds
2) Detection – How auditors find any party that performs illegal acts and then provide
proof to support their decision to take legal action’
3) Auditors Provide insight to their clients by differentiating the workability of
programmers and polices set.
4) Auditors foresee the future to identifying threatening risk.
 CHAPTER 8: PERFORMANCES MANAGEMENT IN PUBLIC SECTOR
Performances management is the process by which organizations set strategy and devise
governance, values, processes and controls to direct people and money to deliver their
strategic objective in a cost efficient way.
Bring an insight into the main services of an organization and also shows how much a
particular part of activity contributes to organization output.
Can be defined as process involves observing and evaluating staff member’s performance in
workplace with relation preset standards.
Most commonly used performances measures include:
- Input
- Workload or activity levels
- Outputs
- Outcomes of product or services
Performance measures and 3Es
Economy – Refers to the lowest possible expenditure of funds within the appropriate
standard by using certain evaluation criteria based on the principle of doing things
inexpensively.
Efficiency – The effort made to maximize outputs
Effectiveness – Entities achievements of its objectives or providing better alternatives and
strategies
TYPES OF PERFORMANCE MEASUREMENT
1) Pe