Consolidated financial statements in public sector of Slovakia

1. Consolidatedfinancialstatements in publicsectorof Slovakia Peter Ivanek Ministry of Finance of the Slovak Republic Luxembourg, 19-20 November 2018,Working Group EPSAS

2. BasicFramework Project of PublicSectorAccounting Reform2005 – 2012 • New accounting and reporting standards preparation2005 - 2006 • Education of publicaccountants2006– 2007, 2008-2010 • New accountingstandards in use1.1.2008 • Setting of IT system for consolidation2007- 2009 • FirstConsolidated Financial Statements 2010(withcomparableperiod) • External Audit of CFS 2010 • FirstAnnual Report 2012 (fortheyear 2011)

3. Legislationframeworkforconsolidation MoF, as theonlyonelegislationauthority, has set legislationframeworkforconsolidationprocess, termsand conditionsforpreparing of ConsolidatedFinancial Statements: • Act on Accounting (specialsectionforpublicsectorentities) • Measure/Decreelayingdowndetails of consolidationprocedures, methods and thestructure and content of Consolidated Financial Statements • ConsolidationPackage and Manualforpreparation of ConsolidationPackage (forselectedentities).

4. Act on accounting In linewithAct on Accounting, consolidationis a multi-level process. Itisstipulated, whoisobliged to prepareConsolidatedfinancialstatements: BudgetChapter / HigherTerritorialUnits / Municipality (1. level): • Allbudgetorganizations and contributoryorganizationsundercontrol of budgetchapteror localgovernment, • and government business enterpriseundercontrol of budgetchapter or localgovernment. MoF (2. level) • Thecentralgovernment (allbudgetorganizations, contributoryorganizations and government business enterpriseundercontrolbudgetchapters), MoF (3. level) • Thecentralgovernment + HigherTerritorialUnits + Municipalities + Otherunits

5. ConsolidationFieldVs. General GovernmentSector Consolidationfield General GovernmentSector (ESA2010) LocalGovernment 6 798 HigherTerritorialUnits 862 Municipalities 5 936 CentralGovernment 903 Budgetorganizations 694 Semi-budg.organizations 135 GBE 74 Otherunits483 Total 8 184 LocalGovernment 6 321 HigherTerritorialUnits 850 Municipalities 5 471 CentralGovernment 862 Budgetorganizations 694 Semi-budg.organizations 135 GBE 33 Otherunits483 Total 7 666

6. Consolidationfield Summary FS (total 8 184 units) III. level CFSforCentralGovernment (prepared by MoF) II. level Municipalities • withoutsubordinatedorganization OtherUnits • withseparetedFS BudgetChapterwithoutsubordinatedorganization CFS forMunicipality/HTU CFS forBudgetChapter I. level I. level BO BO SBO Businessenterprise SBO GBE

7. Measure/Decreelayingdowndetails of consolidationprocedures • Twomethodsforconsolidation (fullconsolidation and equitymethod), • Fourareas of elimination (revenues/expenses; receivables/liabilities; equity; intratransactionsconnectedwithsale and purchase of assets • GBE have to prepareConsolidationpackage by usingtransmissionbridgebetween FS/accountingproceduresforbudgetaryorg. and their FS, • Workflow of consolidation: preparationdata – agregation on thesamebasis – elimination of balances and transactions – checks – reportsafterconsolidation, • Amount are reported and eliminated in eurocents (no thresholds), • Differences are balancedbeforeelimination of intragrouptransactions, • Structure of CFS isverysimilar to Separate FS, foranalyzing and comparingdatabefore and afterconsolidation

8. Consolidationpackage ConsolidationPackage (CP) is set of reportswich are necessaryfor: • Identification of intrabalances and transactions, revenues and expensesbetweenentitieswithintheeconomic entity • Separated financialstatement to checkdetails and analyticaldivision • Furtherinformation and analyticalspecificationfortableswich are part of Annex to Notes to theConsolidatedfinancialstatements. CP isbindingforallentitieswhich are registered in CentralConsolidationSystem (aprox. 1900 entities) and voluntaryforothersin publicsector.

9. CentralConsolidationSystem CCS isbased on SAP (ERP) solutionwithconsolidation modul whichisregularlyused in privatesector, butwithsomemodificationforpublicsectorrequirements. CCS consists of: • Portal(interface forusersforrecordingdatafiles (CP), controls, results of controls) • Consolidation monitor (forelimination, controls and access to recordedaccountingdata) • BW on SAP HANA (DB and presentationtierforusers, access to reportsand table with detail informationsaboutstatementsbefore/afterconsolidation, informationfor Notes) • ERP / MSD • SAP Business Objects

10. Centralconsolidationsystem (forcentralgovernmentunits and part of Localgovernmentunits) User User File – consolidationpackage (.CSV format) User has access to BW, he canread or download files to PC checks BW/BoBj ERP/Consolidation monitor checks Validation of databeforeconsolidation, basic and advancedchecks Portal of CCS CFS in definedstructureforthe 1. level (f.e. ministries) and 2. level (centralgovernment. File File File User User User Summary FS forwholepublicsector CFS forcentralgovernment Other FS/CFS preparedoutside CCS + = ECIS ECIS ECIS

11. Timetableforconsolidationprocess Confirmation of intragrouptransactions and preparation of Balancesheet and PnL Annual Report submited to Government and Parliament Preparation of Consolidation Financial Statementfor1. level (f.e. ministries and higherterritorialunits) WGA and Annual Report Preparation of ConsolidationPackagewith „closed“ Balancesheet and PnL Preparation of ConsolidationFinancial Statementfor2. level = CentralGovernment 31.12. 20.11. 30.9. 30.10. 15.4. 31.3. 16.2. 5.2. 31.8. 2.1 31.5. Users are workingwithconsolidation monitor CCS. Theyexecuteelimination, corrections of failuresthatarrivesfromseparated FS, butwithoutimpact on this FS. Thesecond level of consolidationiscompiled by MoFstaff Users are workingwithPortal CCS, theycanadjustdata in package and change somedetials (f.e. ID of Partner organizations) Users are workingwith BW CCS. They download consolidatedBalancesheet and consolidatedPnL. Theyhave to prepare Noteswithreports. Audit of 1. and 2. level All CFS withAnnual Report mustbesent to Register forpubslishing

12. Mainoutcomesfromconsolidationprocess Process of consolidationmightbring more benefitsand new opportunity to analyseaccountigdataunderconditions of ,,oneeconomic entity“. In case of Slovakia, wehavefoundoutthesemainbenefits: • Betterprocess of year-end stocktaking, • More correctaccountingthanks to confirmationbalances and intragrouptransactions, • Audit findingsforthoseentitieswhichhave no legalobligation to haveauditedseparatefinancialstatements, • Opportunity to show figuresfor state or wholegovernment in one ,,report“ to publicand externalusers.

13. Audit of Consolidated Financial Statements Problems identified during audit of consolidated financial statements: • Depreciation policy does not reflect actual useful life of state property • State property not reviewed annually for impairment • Assets useful life and depreciation methods not reviewed annually • Transactions connected with disposals and purchases not recorded in a timely manner • Lack of supporting documentation • The recoverable amount of receivables not reviewed annually • Inventory not reviewed annually for impairment

14. Information and contacts Ministry of Finance of the Slovak Republic www.finance.gov.sk Section: Finance / State Reporting / Annual Report...or...Financial Statements of MoF

15. Peter IvanekDirector | Department of State Reportingpeter.ivanek@mfsr.sk | www.mfsr.sk