FINANCIAL ACCOUNTING AND

REPORTING

CONSOLIDATED FUND

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LEARNING OBJECTIVES

Explain the concept of Stewardship and accountability

Objectives of accounting and reporting
Users of financial reports
Accounting techniques

Define and determine objectives of fund accounting

Identify the characteristics of fund accounting
Discuss the basis & technique of Consolidated Fund
Discuss the relationship between the three types of
Consolidated fund
Discuss the three types of Consolidated Fund, namely;
Consolidated revenue Account, Consolidated Trust
Account and Consolidated loan account
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 Stewardship & Accountability concepts in
Public Sector

What is stewardship?
- hold something in trust for another
Areas public sector need to exercise stewardship
- Stewardship of people
- Stewardship of Product & Services
- Stewardship of the company
- Those from below grant us
Stewardship & Accountability concepts in Public Sector

What is Accountability
- Acceptance of responsibility for
actions/decisions
- require government to answer & justify to citizen
the raising of resources and the purpose used.
- What is a relationship between stewardship and
accountability?
Government Accountability
Features of good accountability
Accountability clearly written & documented through
specific laws, procedures, regulations & directives
Stress on good values of honesty & commitment
Accurate/up-to-date/well maintained record keeping
Maintain sound management costing system to
provide accurate cost information
Apply management audit to independently assess
departmental performance.
Accountability Mechanism in the Government
- Built into laws, regulations & institution controlling
public expenditure
- Ahmad Sarji (1992) related a scenario to reflect the
practice of accountability
Secretary General of a ministry appointed as a
controlling officer of a Ministrys expenditure
Effect is to place responsibility for the financial
management of the ministry concerned
controlling officer through PAC answerable to
parliament
Objective of Government Financial Reporting

Process of Compiling and Organizing Financial Information Into

Meaningful Reports
Financial Reports Should [In General] Include:
Balance Sheet [Not with Cash] {However Can Use Simple Balance Sheet
Recording Assets / Liabilities}
Income Statement
Cash Flow Statement

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Financial Information Should Be
Accurate
Material
Relevant
Reliable
Comparable
Clear and understandable
Accounting & Financial Reporting (Federal
& State Government)
Compliance standards applied
Federal Constitution
Financial Procedures Act 1957
Treasury Instructions (TI)
Audit Act 1957
Treasury circulars (TC)
Financial Reporting Standards (FRS)
Government Accounting Standards (PPK)
Accounting & Financial Reporting (Federal
& State Government)
Responsibility of Financial Management & Accounting
Federal Government & Its Agencies
- Treasury (MOF)
- Accountant Generals Office (AG)
- Office of Management & Budget (OMB)
State Government
- State Financial Officer
Accounting & Financial Reporting
(Federal & State Government)
Features of Government Accounting Systems
Closely related to budget classification
Budget and Accounting are complementary function
in Government FM must be integrated
Budgets are normally classified according to
various responsibility centers
Accounts must be maintained in a manner that will
clearly identify the objects and purposes for which
funds received and used for program execution
 Accounting & Financial Reporting
(Federal & State Government)
Features of Government Accounting Systems
Designed to facilitate audit by external review authorities
furnish information for effective audit
To ensure proper recording Vote Accounting is used
Vote book is used to determine actual spending,
commitment and balance available
Also disclose economic and social results of programs
 Accounting & Financial Reporting
(Federal & State Government)
Features of Government Accounting Systems
Government uses Fund Accounting
Provides a mechanism for accountability and control
over public monies
Fund is the sum of money allocated for specific
purposes
Each Fund is an independent accounting entity
Each Fund have its own set of accounts with
complete double entries and financial statements
Each Fund must be self balancing
 DEFINITION OF FUND ACCOUNTING

Funds are separate fiscal and accounting entities, and include

both cash & non Cash resources; segregated according to the
purposes or activities for which they are to be used ; as well as
related liabilities.
The fund concept involves accounting segregation, not
necessarily the physical separation of resources.

Jones and Pendlebury (2010) define fund accounting as the

accounting for each fund produces its own operating statement
and balance sheet.

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OBJECTIVES OF FUND ACCOUNTING

The objectives of fund accounting are:

- To show the financial condition and its changes in the
organisation,
- To know the results of operations of the organisation
- To check its compliance with legal restrictions.

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 CHARACTERISTICS OF FUND ACCOUNTING

Fund represents the sum of money allocated for specific purposes

There are three types of fund adopted and practised by government
bodies namely Consolidated revenue, Consolidated Trust and
Consolidated Loan Account.

Characteristics:
1. Each fund is an independent accounting entity
2. Each fund has its own set of accounts with a complete double
entry and financial statements
3. Each fund must be self-balancing and autonomous.
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 BASIS OF GOVERNMENT ACCOUNTING

Most government use cash basis or modified cash basis.

Cash basis recognises income & expenditure when actual
cash is received and when actual cash payment is made
Under this basis, payables and receivables are not taken into
account.

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REGULATORY FRAMEWORK OF
CONSLIDATED FUND
Article 97(1) of the Federal Constitution, states that all revenues
and monies raised or received by the Federation are to be
accounted in the Federal Consolidated Fund.

While for the state government, Article 97(2) of the Federal

Constitution states that all revenues and money raised or received
by a state shall be accounted for into the Consolidated Fund of that
particular state.

Article 97(3) indicates that Islamic-related revenues (zakat, fitrah,

baitul-mal) are to be paid into separate fund and shall not be paid
out except under the authority of state or federal law.

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REGULATORY FRAMEWORK OF
CONSLIDATED FUND
Section 16(1) of the Financial Procedure Act 1957
(Revised 1972) states that at the end of every
financial year, the authorised financial authority
have to prepare:
(a) A full and particular statement of the
Consolidated Revenue account
(b) A full and particular statement of the
Consolidated Loan account and
(c) A statement of receipts and expenditure of
Consolidated trust account

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GOVERNMENT ACCOUNTING STANDARDS
(PPK)
Government accounting standards (Piawaian
Perakaunan Kerajaan-PPK) had been set up by the
Accountant General since the year 2002.
Its objective is to prescribe the standards and the
basis for preparation of government financial
statements in accordance with the requirements of
federal constitution and the Financial Procedure Act
1957 (Revised 1972).

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RELATIONSHIP BETWEEN CONSOLIDATED FUND ACCOUNTS
** Note: This graphic only available in Malay version.
CONSOLIDATED REVENUE ACCOUNT

Section 7 (a) of the financial Procedure Act 1957, states that all
types of money or revenue except for loans and trust are the
sources to the Consolidated Revenue Account.

These monies will be used to maintain operating expenditures

which include charged expenditure as stated in Article 98 and
supply/operating expenditure as stated in Article 100 of the
federal constitution

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CONSOLIDATED TRUST ACCOUNT
It is established to account for all receipts and payments of rust funds
and monies received by the government for specific purposes.
It comprises of:
- Government trust fund
- Public trust fund
- Deposits
GOVERNMENT TRUST ACCOUNT

Government trust Account is set up under which all

receipts and payments of both government and public
trust funds and monies received by the government
for specific purposes are accounted for.

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 Government trust account
Government trust fund can be categories as follows:
Development fund
Housing loan fund
Miscellaneous government Trust Fund (for specific trust)

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DEVELOPMENT FUND

This fund is set up in accordance with the

Development Fund Act 1965 for the economic
Development of the nation.

Receipts for this fund consist of loans for the

purpose of development, contribution from
consolidated Revenue Account and repayment of
loans given out from this fund

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HOUSING LOAN FUND

The Government Housing Loan Fund Scheme is financed

by the housing loan fund in accordance with the
provisions of the Housing Loan Fund Act No. 4 of 1971.

It provides housing loan facilities to members of the

Federal Administration, members of Parliament, Members
of State Administration and Members of Legislative,
judges of Federal Court/High Court, Government
employees from the Civil service and Armed Forces.

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 PUBLIC TRUST FUND
This fund consists of Special Trusts incorporated under the
relevant acts and General Trusts established under Section 9
of Financial Procedure Act 1957 (Act 61).

Financial sources of this funds are receipts from

organisations/public for specific purposes.

e.g. Private Finance Initiative Trust Account (used for

development expenditure)

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 DEPOSITS
Deposits consists of monies received by the Federal
Government for a specific purpose Under any law or
contractual agreement and are refundable when the
specific purpose has been achieved.

1. General deposit
2. Adjustment deposit

e.g. Unclaimed monies and unallocated

receipt/collection
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 CONSOLIDATED LOAN ACCOUNT
According to Section 7(b) of the Financial Procedure
Act 1957, the Consolidated loan account is established
by the Federal or the State government to keep all
monies by way of loan.

The loan amount is transferred into the Development

Fund, Housing loan fund or other funds authorised by
Parliament, depending on the purpose the loan was
raised.

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INSTRUMENTS FOR INTERNAL BORROWING

Domestics loan are obtained with limits of

borrowing based on the Loan (Local) Act 1959.

Currently the ceiling under the Act is not more

than 40 per cent of total Gross Domestic
product

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MALAYSIAN GOVERNMENT SECURITIES

Malaysian Government Securities (MGS) are bonds

issued on a long-term basis to finance federal
government expenditure.

They are registered stocks made available to the

market by tender and managed by Bank Negara.
The maturity period is between 5 to 20 years.

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 INSTRUMENTS FOR EXTERNAL BORROWING

External borrowing is raised by the Federal government from sources

outside the country.

The World Bank defines external loans as those loans which have
original or extended maturity of more than one year owed to non-
residents and which are repayable in foreign currency, goods and
services'.

Currently, the ceiling under the Act is RM30 billion. External loan
consists of market Loans and Project Loans

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MARKET LOANS

Market loans are loans obtained from

international financial institutions, which
are negotiated at common market rates
raised for general purposes.

The duration time is between 14 and 20

years.

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PROJECT LOANS
Project loans are borrowings in terms of
money, services and technical studies,
which are secured for specific
development projects.

It is regulated under External Loan Act

1963, Loans Act (Islamic Development
Bank) 1977, and other relevant acts.

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 Accounting techniques

1. Fund accounting
2. Cash accounting
3. Modified cash
4. Accrual
5. Commitment
6. Budgetary

@HH 36
Accounting Treatments:
Cash:
Simplest of All Accounting Procedures
Records How Much is Received
Records How Much is Paid Out
Records How Much is in the Bank
Simplest to Implement
However, May not Provide for Adequate Controls on LGU Transactions

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Cash Accounting: Not Recommended By GAAP
Cash Received as Loan Illustrated as Revenue on Operating Statement not as Liability on Balance
Sheet
To Correct: Most Cash Accounting Systems Recognize not only Cash, But Other Assets and Liabilities
Arising Through Prior Cash Transactions.
Does Not Alter Fact that Outstanding Obligations In the Form of Contract or Purchase Orders are Not
Immediately Reflected In Accounting Records records.
Available Balance May Be Overstated
Can Lead to Unwise LGU Expenditures and Potential Overspending
LGUs Operating on A Cash Basis May Ignore Obligations to Vendors For Services Received [But Not Yet
Paid]
This Type of Action Creates A Floating Debt Outside the Normal Financial Management System
Cash Basis Accounting Does Not Adequately Record Liabilities Either to Provide Future Services or In
Recognition of Services or Goods Received For Which the Bill Has Not Been Paid.

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Accrual Accounting
Relates Revenues and Expenditures Not to the Time in Which the Cash is
Received or Disbursement Made, But To the Period For Whose Benefit The
Transaction Occurs
Involves Shifting Existing Financial Features of Current LGU Financial Operations
Shifting the Recording Basis From Cash To Commitment
Separation of Financial Activities into Current and Capital
Include Full Depreciation Allowances that Permit Allocation of Costs over the Life of The
Asset Rather Than Recording Expenses When they are Incurred
Preparation of Financial Statements in Conformity with International Accounting Standards
(IAS) or Generally Accepted Accounting Principles (GAAP)

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Modified Accrual
Most Transactions are Accrued in the Period in Which Benefit Received
Other Transactions Especially Revenue are Accrued on a Cash Basis
General Rule:
Expenses are Accrued
Income From Taxes, Fees, and Other Sources are Recorded only When Collected (Cash
Basis)
Net Effect:
1. Bring Income in Line With Actual Cash Available to Pay Bills
2. Ensuring the Recording of Expenses cannot be Manipulated by Delaying Until the Bill is Paid

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Deciding On An Accounting System
Moving From Cash to Modified, Accrual Systems Requires Changes in
the Organization Flow of Local Government Institutions and Increase
in LGU Capacity
Primary Importance of LGU Accounting System is that Financial
Information Should be Timely, Transparent and Complete

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Universal Features of Accounting Systems
Common Denominator:
All Systems Should Track Appropriations
Supplementary Estimates
Use of Appropriations
Release of Funds
Commitments
Expenditures at Verification Stage
Payments
May be More Effective to Assist LGUs in Improving Cash Basis
Accounting First Rather than Shifting to Other Accounting Systems

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