GOVERNMENT

ACCOUNTING
PRINCIPLES
John John
 INTRODUCTION

• Government accounting principles are the

rules and standards that govern how
governments record, summarize, and report
their financial transactions to ensure
accountability and transparency to the
public.
• In Tanzania all public entities are required to
prepare and present their financial statement
in accordance with the International Public
Sector Accounting Standards (IPSASs).
 GOVERNMENT
FINANCIAL REPORTING
• According to the NBAA technical pronouncement no
3 of 2020 in Tanzania IPSASs shall apply to public
sector entities with all of the following
characteristics:
• Are responsible for delivery of services to benefit the
public/or to redistribute income and wealth.
• Mainly finance their activities, directly or indirectly by
means of taxes or transfer from other level of government,
social contribution, debt or fees.
• Do not have capital providers that are seeking a return on
their investment or a return of their investment; and
• Do not have a primary objective to profit.
 GOVERNMENT
FINANCIAL REPORTING
• It should be noted that IPSAS applies to all public
sector entities other than Government Business
Enterprises (GBEs).
• Government Business Entities (GBEs) are
organizations that are wholly or partially owned
by the government and engage in commercial
activities.
• Unlike government departments or agencies that
mainly provide public services, GBEs operate more
like private sector businesses with the aim of
generating profit or at least covering their costs
while providing goods or services.
 GOVERNMENT
FINANCIAL REPORTING
• For an entity to be considered as a GBE it
shall have all of the following
characteristics:
i. Has the power to contract in its own name;
ii. Has been assigned the financial and
operational authority to carry on a business;
iii. Sells goods and services, in the normal
course of its business, to other entities at a
profit or full cost recovery;
 GOVERNMENT
FINANCIAL REPORTING
• For an entity to be considered as a
GBE it shall have all of the following
characteristics:
iv. Is not reliant on continuing
government funding to be a going
concern (other than purchases of
outputs at arm’s length); and
v. Is controlled by a public sector entity.
 GOVERNMENT
FINANCIAL REPORTING
• Thus GBEs differ from other types of government
organizations in their;
1. Relationships to the government;- GBEs are
relatively autonomous in their operations and
decision-making, even though they are owned or
controlled by the government.
2. Objectives;- GBEs has business-oriented
objectives, i.e. making profits or full cost recovery.
3. Operations:- GBEs are financially self-sufficient,
primarily funded by revenue from external
customers, rather than relying on government
budget allocations.
 GOVERNMENT
FINANCIAL REPORTING
• GBEs (Government Business
Enterprises) are mainly run to make a
profit, but some may have to provide
goods or services to certain people
(individuals) or groups in the community
for free or at a much lower price as part
of their community service obligations.
• GBEs report their financial results in
accordance with the relevant IFRSs.
 ACCOUNTING BASES

• The basis of accounting refers to when

and how financial transactions are
recognized (recorded) in the accounting
records and financial statements.
• There are two main types:
1. Cash Basis of Accounting
2. Accrual Basis of Accounting
 CASH BASIS

• The cash basis of accounting recognizes

transactions and events when cash is
received or paid.
• It measures the overall financial result for a
period as the difference between cash
received and cash paid.
• It provides readers with information about
the sources of cash raised during the period,
the uses to which those funds were applied
and the cash balance at the reporting date.
 CASH BASIS

• Cash basis does not distinguish

transactions between Assets, Liabilities,
Equity (Net assets), Revenue, and
Expenses.
• Distinguishes only between:
• Cash inflows (receipts)
• Cash outflows (payments)
• This is because everything is treated as
cash movement, regardless of its nature.
 CASH BASIS
• Cash Receipts
• Under the cash basis of accounting all cash receipts,
regardless of type, are recognized when cash is
received.
• These can be:
• Receipts from reciprocal (exchange) transactions such as
Sale of goods and services & Cash proceeds from sale of
assets or investments;
• Receipts from non-reciprocal transactions such as Taxation
receipts & Grants contributions and donations
• Financing inflows such as interest receipts and borrowings
 CASH BASIS
• Cash Payments
• Under the cash basis of accounting all cash outflows,
regardless of type, are recognized when cash is paid.
• Similarly these can be:
• Payment relating to reciprocal (exchange) transactions
such as Sale of goods and services and acquisition or
construction of assets;
• Payment relating to non-reciprocal transactions such as
government transfers, grants, contributions and donations;
• Financing outflows such as interest payments and
repayment of borrowings
 CASH BASIS
• Transactions and events not recognized in cash basis
• Non-cash transactions or events not recognized include:
• Unrealized gains or losses (e.g., increases or decreases in the
value of assets due to interest rate movements);
• Unrealized gains and losses on cash balances held in foreign
currencies and on debts denominated in foreign currencies.
• The purchase of goods and services or long-term assets on credit
or where the method of payment includes a non-cash exchange;
• The consumption of goods or services which have been paid for in
previous accounting periods; and
• The consumption of service potential of long-term assets;
 CASH BASIS -
REPORTING
• For a public entity that uses cash accounting the
entity shall prepare the following financial
statements.
1. A statement of cash receipts and payments
which recognizes all cash receipts, cash
payments and cash balances controlled by the
entity;
2. Accounting policies and explanatory notes; and
3. When the entity makes publicly available it’s
approved budget, a comparison of budget and
actual amounts.
CASH BASIS – BENEFITS
AND LIMITATIONS

Benefits Limitations
• Simplicity and Ease of Use: • Cash accounting provides
information limited on cash
• Does not require any
flows.
detailed accounting
knowledge hence, requires • Easy to manipulate:
fewer trained staff. Preparers has the ability to
manage the timing of the
• Less subjective: Reduce cashflows.
dependence on professional
judgement. • Limits the ability of the
people to hold the
• Improved Cash Flow government accountable for
Awareness its use of resources.
 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 the periods to which they
relate.
 ACCRUAL BASIS – ELEMENTS
OF FINANCIAL STATEMENTS

• The elements recognized under accrual

accounting are assets, liabilities, net
assets/equity, revenue and expenses.
• Assets are resources controlled by an
entity as a result of past events and
from which future economic benefits or
service potential are expected to flow
to the entity.
 ACCRUAL BASIS – ELEMENTS
OF FINANCIAL STATEMENTS

• Liabilities are present obligations of the

entity arising from past events, the settlement
of which is expected to result in an outflow
from the entity of resources embodying
economic benefits or service potential.
• Revenue is the gross inflow of economic
benefits or service potential during the
reporting period when those inflows result in
an increase in net assets/equity, other than
increases relating to contributions from
owners.
 ACCRUAL BASIS – ELEMENTS
OF FINANCIAL STATEMENTS

• Expenses are decreases in economic benefits or

service potential during the reporting period in
the form of outflows or consumption of assets or
incurrences of liabilities that result in decreases in
net assets/equity, other than those relating to
distributions to owners.
• Ownership contributions are: Inflows of
resources to an entity, contributed by external
parties in their capacity as owners, which
establish or increase an interest in the net
financial position of the entity.
 ACCRUAL BASIS – ELEMENTS
OF FINANCIAL STATEMENTS

• Ownership distributions are: Outflows

of resources from the entity, distributed
to external parties in their capacity as
owners, which return or reduce an
interest in the net financial position of
the entity.
 ACCRUAL BASIS – ELEMENTS
OF FINANCIAL STATEMENTS

• Service potential
• Service potential is the capability of a
resource to provide services that
contribute to achieving the entity’s
objectives.
• Service potential enables an entity to
achieve its objectives without
necessarily generating net cash inflows.
 ACCRUAL BASIS – ELEMENTS
OF FINANCIAL STATEMENTS

• Service potential
• Thus, Service potential can be referred to as
the capacity of an asset to provide
economic, social, or environmental
benefits over its useful life.
• Public sector assets that embody service
potential may include recreational, heritage,
community, defense and other assets that
are held by governments and other public
sector entities which are used to provide
public goods or service.
 ACCRUAL BASIS – BENEFITS
AND LIMITATIONS

Benefits Limitations
• Reflects True Financial • More Complex and Time-
Performance and position. Consuming.
• Matches Income with • Requires More Accounting
Related Expenses (Matching Knowledge and trained
Principle). staff.
• Provides More Useful to the • Although it reduces the risk
users of financial of manipulation, some
statements. loopholes still allow it.
• Relatively harder to • Accrual accounting involves
manipulate financial results. estimates, so it can be
subjective and less exact.
 FUND ACCOUNTING

• What is a fund?
• Fund is defined as a sum of money or
other resources segregated for the
purpose of carrying out specific
activities or ascertaining certain
objectives in accordance with the specific
establishments such as Constitutions,
Statute or Ordinance or by appropriate
action by legislature or administrative
branch of the government.
 FUND ACCOUNTING

• Fund accounting
• Fund accounting is a method of accounting
that separates financial resources into
funds, where each fund has its own self-
balancing set of accounts to track revenues
and expenses to achieve specific purposes
or to perform certain activities.
• In fund accounting each fund has its own
sources of revenues and expenditures.
 FUND ACCOUNTING
• Types of Government Funds
1. General Fund:
• Main operating fund. Used for all general activities
not required to be in another fund.
• General funds are set up to account for all revenues
collected by government and the expenditure for
activities that are not accounted for in other special
funds.
• General fund exists throughout the government life. It
is characterized by the necessity of meeting current
and recurrent expenditures.
 FUND ACCOUNTING
• Types of Government Funds
2. Special Revenue Fund
• Tracks money legally restricted for specific
purposes (e.g., road maintenance, school
lunches).
• This is set up in order to account for revenue
from sources that are to be used for specified
purpose according to the provisions of the law.
• Normally, the fund resources are used to provide
services instead of capital projects.
 FUND ACCOUNTING

• Types of Government Funds

3. Capital Projects Fund
• For large-scale capital projects like building
roads, schools, hospitals.
• Capital Project Funds are set up in order to
account for resources that are allocated for
developing projects.
• Resources that are accounted for by this fund are
mainly received from development partners in
the form of grants.
 FUND ACCOUNTING
• Types of Government Funds
4. Debt Service Fund
• Used to pay interest and principal on government
debt.
• Debt service funds are set up in order to
accumulate resources that will be used to repay
long term debts and related interests.
• Usually separate debt service funds are
established because each debt has separate
repayment terms and interests.
 FUND ACCOUNTING

• Types of Government Funds

5. Permanent Fund
• For resources that must remain intact (e.g.,
endowments), but earnings can be used for
public purposes.
• Thus, the permanent funds are legally
restricted that the principal (original amount)
must be kept intact (cannot be spent), but the
earnings (like interest or investment income)
can be used to support government programs
 FUND ACCOUNTING

• Consolidated Fund
• The consolidated fund is a central
government account where all revenues
and other moneys raised or received for
governmental purposes are deposited,
with exceptions for specific funds or
those retained by authorities for their
expenses.
 FUND ACCOUNTING
• Withdrawal of funds from the Consolidated
Fund
• Funds can be withdrawn from the consolidated
fund only when the Paymaster-General has
officially signed a document (called a warrant) and
sent it to the Accountant General to allow the
withdrawal.
• But before the Paymaster-General can issue that
warrant:
• The CAG must first approve that enough funds are
available for the spending.
 FUND ACCOUNTING
• Withdrawal of funds from the Consolidated
Fund
• Additionally, before the paymaster-general issues a
warrant the spending he/she should ensure that
either of the following is the case;
A. The spending is approved for the current financial
year either by:
• An Appropriation Act (normal budget law), or
• A Supplementary Appropriation Act (additional budget
law), or
• A special warrant under issued by the Accountant general.
 FUND ACCOUNTING

• Withdrawal of funds from the

Consolidated Fund
B. The spending is automatically allowed by
the Constitution or another law (this is
called statutory expenditure).
C. The money is being used to repay something
that was paid into the Fund by mistake.
D. The money is for a refund, rebate, or
advance that is allowed by law.
 FUND ACCOUNTING

• Appropriation Act means any Act to apply a

sum out of the Consolidated Fund to the
service of a financial year.
• Thus the Appropriation Act is a law passed by
the Parliament of Tanzania that gives the
government the legal authority to:
• Withdraw funds from the Consolidated Fund, and
• Spend those funds for specific programs, ministries,
or activities as outlined in the annual government
budget.
 FUND ACCOUNTING

• Supplementary appropriation Act

means any Act, the purpose of which is
to supplement the appropriation already
granted by an Appropriation Act.
• Thus a Supplementary Appropriation
Act is a law passed by Parliament to
approve government spending that was
not included in the original annual
budget.