Budgeting and Accounting Relationship: Tricks of Trade

1. GOVERNMENT OF THE REPUBLIC OF CROATIAMinistry of Finance TRICKS OF TRADE OR ACCOUNTING AND BUDGETING RELATIONSHIP Ivana Jakir-Bajo Bucharest, 9-10 April, 2008

2. THEORY OF BUDGETING AND ACCOUNTING RELATIONSHIP • Fiscal systems or processes that involve planning, allocating and disbursing of monetary resources • Interrelationship and the need for coordination • Budgeting is regarded more in terms of planning and enacting a fiscal plan • dependent on pastyear’s accounting and currentyear’s expenditures/revenues • Accounting focuses on recording, classifying and interpreting the financial transactions • dependent on the budgeting of expenditure authorizations (appropriations) being enacted by the legislative branch

3. HISTORY OF DEVELOPMENT OF BUDGETING AND ACCOUNTING RELATIONSHIP IN CROATIA • Up to 2002 - no linkage between accounting and budgeting • Cash basis accounting • Financial statements have not been used • Semi-annual and annual reports on the state budget execution were the only valid statements • Invoices kept in drawers until they are paid • Large stock of arrears

4. ACCOUNTING TODAY • From 2002 - new budget accounting concept • Based on a modified accrual accounting principle: • revenues are recognized in the reporting period in which they are received, provided that they are measurable • expenditures are recognized when they incur in the reporting period, regardless of whether they are actually paid • depreciation of non-financial long-term assets – not recognized as an expense; recorded as an adjustment of the value of assets in the balance sheet

5. CROATIAN GENERAL LEDGER

7. BUDGETINGTODAY • Still on cash basis • Uses information from accounting and financial reports • No carry-over procedure for invoices falling due for payment in the subsequent fiscal year • Possibilities for budget users (linked to the TSA) to carry-over their earmarked revenues, donations, grants • The semi-annual and annual reports on the state budget execution – the only reports submitted to the Government and to the Parliament

8. RECONCILIATION? • Budget users are still confused: • Why the data from the financial statements is not comparable with the data from the budget execution reports? • Should these be reconciled? • Simple example: In 2008 an invoice was received for a good which has been delivered in that fiscal year. Invoice has not been paid in 2008, but in the next fiscal year. In the general ledger both the expense and the liability should be recorded in 2008. This expense/appropriation will be budgeted in 2009.

9. PROBLEM IS ALWAYS IN ACCOUNTING OR PROBLEM IS NEVER IN ACCOUNTING • GUARANTEES • Accounting treatment – memorandum item – each guarantee must be separately recorded and tracked • Budgeting- based on the activated guarantees estimatedamount of payments – treated as a transaction on financial liabilities (repayment of loan) • LOANS • Accounting treatment – double entry accrual accounting system required – keep debtstock for balance sheet purpose • Budgeting – important future payments schedule and drawings – requires an accounting system in place but good debt management as well • FINANCIAL LEASING • PPP’s

10. MANAGING COMMITMENTS AND LIABILITIES • Liability categories: (1) accounts payable; (2) other accrued liabilities; (3) debt outstanding • Role of accounting and reporting • A need to manage payables and take into account unfunded liabilities and contingent liabilities in the budget • Important for cash-flow planning and forecasting • Commitment control • Goodtechnical support is becoming a precondition for the successful management of commitments and liabilities

11. CURRENT INFORMATION SYSTEM OVERVIEW

12. EDEG PROJECT

13. FMIS REFERENCE MODEL PROJECT

14. FUTURE INFORMATION SYSTEM OVERVIEW