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GENERAL CONCEPT OF FINANCIALREPORTING
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Financial Management Lifecycle
Financial
Accounting
FinancialReporting
FinancialDecisions
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What is the objective of Financial
Statements of an organization?
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Users
Who are the users of the financial statements
of public sector organizations?
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Needs of the Users
What are the needs of different users of the
financial statement of public sector
organizations?
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Whose needs are being addressed by
the financial statements?
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Bottom line
Financial reporting is a link between
Financial accounting
Financial management
The output of the financial reporting process
is the General Purpose Financial Statement.
It serves the general needs of an array of
users.
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THE NATURE OF PUBLIC SECTORORGANIZATIONS
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Public Sector V Private Sector
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Public Sector Organizations
General Government
City Provincial Federal
PublicCorporations
FinancialNon-
financial
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Managing Complete Family
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The Transition
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Basis of Reporting Frameworks
Cash
BasisMixed
Accrual
Basis
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Reporting Framework
IPSAS
Cash
Basis
ModifiedCash
Basis
Accrual
Basis
IFRS
Accrual
Basis
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Cash Versus Accrual Basis
Description Cash Basis Accrual Basis
Revenue
recognition
When cash is received When earned
Expenses When cash is paid When resource is
consumed
Elements of
FS
Receipts & Payments Equity, Assets, Liabilities,
revenue & Expenses
Componentsof FS
Only one component Five components
Focus More focused on
Accountability and
governance
More focused on
profitability
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Which is better ?
AccrualBasis
Cash Basis
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ACCRUAL BASED FINANCIALREPORTING FRAMEWORK
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Accrual Basis
A basis of accounting under which
transactions and other events are recognized
when they occur (and not only when cash or
its equivalent is received or paid).
Therefore, the transactions and events are
recorded in the accounting records and
recognized in the financial statements of theperiods to which they relate.
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Example 1
Purchase of a computer system:
Price PKR 5 million
Price paid in year 1
Useful life is 5 years
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Example 2
Payment of operating lease rental
Rent is PKR 24 million
For this year and the next year
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Example 3
Electricity expense
Amount is 1 million
Paid in year 2
Electricity consumed in year 1
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Qualitative Aspects of Framework
Understand
-ability
Relevance
Constraints
Reliability
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AccountingPrinciples
Going
concern
Consistency
Materiality
Undue
offsetting
Comparative
information
Retrospective
& prospective
changes
Substanceover form
Prudence
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Measurement
Disclosure
Recognition
How
IPSAS
Function !
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COMPONENTS OF FINANCIALSTATEMENTS OF PUBLIC SECTOR ENTITY
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Components of Financial Statements
What are the components of financial
statements?
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Statement of Financial Position
It should include the following (IPSAS 1.88):
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Statement of Financial Performance
It should include the following (IPSAS 1.102and IPSAS 1.103):
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Statement of Cash-flow
It should include the following :
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Notes to the Accounts
It should include the following:
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Bottom line!
Public sector organizations need to prepare General PurposeFinancial Statements
The accounting and reporting depends on the nature of theorganization
Reporting framework may be cash based, accrual based or a hybrid
one Best practice reporting frameworks (IPSAS and IFRS) are based on
Accrual Concept
IPSAS, the public sector reporting framework, prescribes principlesfor recognition, measurement and disclosure
There are five components of financial statements under accrualbasis and only one component under cash basis
The qualitative characteristics and accounting principles of accrualbased reporting framework are universally accepted by thestakeholders of public sector organizations
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Thank you !