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INTRODUCTION TO PUBLIC SECTOR ACCOUNTING

INTRODUCTION TO PUBLIC SECTOR ACCOUNTING. PREPARED BY: Ms. Narimah Hashim Jabatan Perakaunan & Kewangan Fakulti Ekonomi & Pengurusan, UPM. What is Public Sector?. Abdul Rauf et.al quotes from the Longman Dictionary of Contemporary English as:

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INTRODUCTION TO PUBLIC SECTOR ACCOUNTING

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  1. INTRODUCTION TO PUBLIC SECTOR ACCOUNTING PREPARED BY: Ms. Narimah Hashim Jabatan Perakaunan & Kewangan Fakulti Ekonomi & Pengurusan, UPM NHashim....5.7.2006

  2. What is Public Sector? • Abdul Rauf et.al quotes from the Longman Dictionary of Contemporary English as: • “…as those industries and services in a country that are owned and run by the state” • In many countries, the education & health services and the railways NHashim....5.7.2006

  3. STATE DEFINED • A political community organized under a government, a commonwealth, a nation, the body politic OR • Such a community forming part of a federal government OR • A civil government – civil pertaining to citizens, domestic not foreign,municipal, commercial & legislative • Source:Cassell Concise English Dictionary NHashim....5.7.2006

  4. GOVERNMENT DEFINED • To govern means to direct & control or to rule with authority • Government means an authoritative administration of public affairs OR • The body of persons in charge of the control, direction, regulation & exercise of authority of a state at any particular time NHashim....5.7.2006

  5. MUNICIPAL DEFINED • Pertaining to the government of a town or city or to local self-government in general OR • Pertaining to the Internal government of a state, kingdom or nation. • Source: Cassell Concise English Dictionary NHashim....5.7.2006

  6. Other definition for Public Sector • “ ….as a device for regulating human services so that men and women can live together in reasonable harmony”. • Source: Derbyshire 1987 NHashim....5.7.2006

  7. Malaysian definition • “…as any entities owned by the central, state or local government and any entity established under any Act of Parliament, which requires the presentation of the annual financial statements to the Parliament”. • Source: MICPA as per Public sector Guideline No.1 1990 NHashim....5.7.2006

  8. Any different from Private Sector’s organizations? • Not concerned with profit-seeking nor profit-making • Most concerned with providing continuity & improvement of services for public consumptions or usage NHashim....5.7.2006

  9. Obvious characteristics • Exhibit a variety of social, economic, political and legal characteristics • Have different powers and responsibilities • Display different patterns of accountability • Have different objectives NHashim....5.7.2006

  10. Other obvious characteristics • Are financed in different ways • Have different organizational structures Note: These differences reflect how public sector development has responded to changing pressures over time and also to historical background & sources NHashim....5.7.2006

  11. Definition- Accounting • “….is the art of recording, classifying & summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the result thereof” • Source:AICPA 1961 NHashim....5.7.2006

  12. Other Definition for Accounting • “..as the process of identifying, measuring, recording and communicating economic information to permit informed judgments & economic decisions by users of the information” • Source: Hoggett, J., Edwards, L. & Medlin J., 1983 NHashim....5.7.2006

  13. Most recent definition • “…. As the provision of information about the reporting entity’s financial performance and financial position that is useful to a wide range of users for assessing the stewardship of management and for making economic decisions”. • Source: ASB 1999 NHashim....5.7.2006

  14. What is Public Sector Accounting (PSA)? • “…as a process of studying the accounting practices of public sector organizations in ensuring accountability in providing services to the public at large”. • Source: Abdul Rauf et.al.2005 NHashim....5.7.2006

  15. Accounting Practices • In Malaysian Public Sector comprises of 3 major components: • Maintenance of books & records • Compliance with rules & regulations • Preparation of reports & statements NHashim....5.7.2006

  16. Maintenance of books & records • Used to account for all their financial activities • Example the VOTE BOOK: • Purpose – for recording daily operating expenditure of the public sector organizations NHashim....5.7.2006

  17. Definition –Vote Book • “….as a financial record that must be kept by the government agencies for recording expenditure, liabilities and changes in the budget”. • Source: Provision in the Treasury Instructions No. 95 NHashim....5.7.2006

  18. Justifications for its use • To control & to ensure that expenditure & liabilities DO NOT EXCEED/more than what has been approved in the budget • To act as a medium (source) of information to produce reports regarding governmental agencies’ expenditure, liabilities & budget balances. NHashim....5.7.2006

  19. Compliance with rules & regulations • To ensure A TRUE & FAIR VIEW of any prepared PUBLIC ACCOUNTS • Rules & regulations are set by: • The FEDERAL CONSTITUTION, • The FINANCIAL PROCEDURE ACT 1957 • The AUDIT ACT 1957 • TREASURY INSTRUCTIONS & • TREASURY CIRCULARS NHashim....5.7.2006

  20. Preparation of Reports & Statements • Most Public Sectors’ reports & statements must be presented in Parliament for approval • Examples: • Article 99 of the Federal Constitution requires the submission of STATEMENTS OF ASSETS & LIABILITIES to Parliament for approval, at the end of a complete financial year NHashim....5.7.2006

  21. Other examples • Section 16 of the Financial Procedure Act 1957 requires all government agencies to prepare ANNUAL STATEMENTS to be presented to the Legislative Assembly (Parliament) NHashim....5.7.2006

  22. Annual Accounts comprises mainly of: • Consolidated Revenue Accounts • Consolidated Loan Account • Consolidated Trust Account • Statement of Assets & Liabilities NHashim....5.7.2006

  23. Basic Accounting Practices In Malaysia • FINANCIAL SYSTEMS REGULATORY BODY & PROCEDURES Federal Constitution AUDITING Parliament Financial Procedures Act Treasury ACCOUNTING Audit Act Accountant General Treasury Instructions BUDGETING Auditor General Treasury Circulars NHashim....5.7.2006

  24. Basic Accounting Practices In Malaysia • The diagram illustrates the involvement & relationships of the various relevant authorities towards enhancing accountability in public sector organizations in Malaysia NHashim....5.7.2006

  25. COMPONENTS OF PUBLIC SECTOR • The administration & management of our country is distributed into 3 tiers: • Federal Government • State Governments • Local Governments NHashim....5.7.2006

  26. THE FEDERAL GOVERNMENT • The highest tier of the Government • Comprises of ministries, departments & public enterprises • Has authority over external affairs, defense, internal security, justice (except civil cases among the Malays & other indigenous people adjudicated under the Islamic and traditional law), federal citizenship, finance, commerce, industry, communications, transportation, & other matters. NHashim....5.7.2006

  27. The Ministries • The Ministries formed the highest body authoritative bodies in the Federal Administrative Machinery. • Its objective – is to carry out the responsibilities entrusted to the government • Each Ministry is headed by a MINISTER NHashim....5.7.2006

  28. Roles of the Ministry • Planning • Directing • Coordinating & • Implementing • Government policies & all matters under the portfolio of the Minister heading it. NHashim....5.7.2006

  29. Positions In the Ministry • The Secretary General is the most senior administrative officer in each Ministry • The Director General heads the departments in a Ministry • The departments are responsible to carry out the functions of the Ministry NHashim....5.7.2006

  30. RELATIONSHIP BETWEEN DEPARTMENTS & THE MINISTRY • MINISTRY DEPARTMENT • Ministry of National Space Agency Science, (ANGKASA) • Technology & Dept.of Chemistry • Inovasi Malaysia (JKM) • Malaysia Institute For • Nuclear Technology • Research (MINT) NHashim....5.7.2006

  31. RELATIONSHIP BETWEEN DEPARTMENTS & THE MINISTRY • MINISTRY DEPARTMENTS • Atomic Energy Licensing • Board (LPTA) • Malaysian Meteorological Service (MMS) • Department Standard Malaysia (DSM) NHashim....5.7.2006

  32. Relationship between Departments & Ministry • MINISTRY DEPARTMENT • Kementerian Jabatan Pengurusan • Pengajian IPT (JPIPT) • Tinggi Jabatan Pengurusan • Politeknik & Kolej • Komuniti NHashim....5.7.2006

  33. PUBLIC ENTERPRISE • Can be a statutory or non-statutory body • Statutory bodies are formed by Act of Parliament • Established to achieve some specific objectives of the Government • Examples MARA University of Tecknology, Majlis Amanah Rakyat (MARA) & Urban Development Authority (UDA) • These bodies are governed by laws & placed under different government agencies headed by various ministries. NHashim....5.7.2006

  34. Non-Statutory Bodies • Are formed & governed by the Companies Act 1965 • Purely business ventures & formed for socio-political objectives • Examples: Perbadanan National Berhad (PERNAS), Malaysian Airlines (MAS), Telekom & Tenaga Nasional NHashim....5.7.2006

  35. Non-statutory Bodies • Government policies on corporatisation & privatisation have transformed some of these bodies such as MAS, Telekom & Tenaga Nasional into commercial companies. NHashim....5.7.2006

  36. Non-statutory bodies • These companies have to derive their own source of financing and have their own budget • The Government , however, will continue to monitor those agencies as part of the overall exercise to strengthen their financial performance NHashim....5.7.2006

  37. STATE GOVERNMENT • Represent the second tier of the Government hierarchy • Which also comprises of ministries (for Sabah & Sarawak only), departments & public enterprises. • The executive authority in the State Government is vested in the Ruler (Sultans) or the Yang Pertuan Negeri NHashim....5.7.2006

  38. STATE GOVERNMENT • They, are assisted by the State Executive Council • The Head of the State Executive Council are called the Chief Minister (for Sabah & Sarawak only) or the Menteri Besar • The administrative machinery of the State Government is headed by the State Secretary NHashim....5.7.2006

  39. Examples of State Departments • PAHANG State Government • State Road Department • State Forestry Department • State Veterinary Services Dept. • State Agriculture Department • State’s Department of Irrigation & Drainage NHashim....5.7.2006

  40. PAHANG STATE DEPARTMENTS • State Urban & Rural Planning Department • Pahang Religious Department • Social Welfare Department Office • State Mufti department • Waterworks Department NHashim....5.7.2006

  41. Examples of State Statutory Bodies • Pahang Development Corporation/Perbadanan Kemajuan Negeri Pahang (PKNP) • State Economic Development Corporation/ Perbadanan Kemajuan Negeri Perak (PKNP) • Selangor State Development Corporation (SEDC) NHashim....5.7.2006

  42. LOCAL GOVERNMENT • Represent the third tier in the hierarchy of the Malaysian Government • Subjected to the Local Government Act 1976 • According to Section 2 of the Local Government Act, local authority means any City Council, Municipal Council or District Council NHashim....5.7.2006

  43. LOCAL GOVERNMENT • In the Federal Territory, it means the Commissioner of the City of Kuala Lumpur • Whose appointment is under Section 3 of the Federal Capital Act 1960 NHashim....5.7.2006

  44. LOCAL GOVERNMENT • In Malaysia; • The power of decision-making is transferred to the local authorities to administer their respective areas. NHashim....5.7.2006

  45. Examples of Local Government • City councils • Johore Bahru City Council • Municipal Councils • Kuantan Municipal Council • Petaling Jaya Municipal Council • District Councils • Kuala Kangsar District Council • Alor Gajar District Council NHashim....5.7.2006

  46. FEATURES OF PUBLIC SECTOR • No individual ownership of shares • Shares of ownership is public & cannot be traded or sold like the private sector • No shares can be issued to the public at large for individual ownership NHashim....5.7.2006

  47. FEATURES OF PUBLIC SECTOR • Operates within a framework of public authorization & control • Their specific powers are derived ultimately from the Parliament • Through which a variety of formal & informal networks will develop to have an impact on the operations of public organizations • Networks include ministers, local councils,pressure groups etc. NHashim....5.7.2006

  48. FEATURES OF PUBLIC SECTOR • Plurality of objectives • Politic,economic, social,regulatory, technical & performance of services often occurs on the basis of perceived needs rather than in response to strict market-related demands. • In Malaysia, the plurality of objectives of the Government is clearly reflected in the setting up of different ministries with a variety of portfolio. NHashim....5.7.2006

  49. FEATURES OF PUBLIC SECTOR • Plurality of objectives • Politic, economic, social, regulatory, technical & performance of services occurs on the basis of perceived needs rather than in response to strict market-related demand • In Malaysia plurality of objectives of the Government is clearly observed through the setting up of different ministries with variety of portfolios. NHashim....5.7.2006

  50. FEATURES OF PUBLIC SECTOR • Contributors of resources do not received direct financial interest or benefits. • For example,Tax payers in Malaysia will not received direct benefits from the Lembaga Hasil Dalam Negeri • Instead the indirect benefits that tax payers do received include provision of education to all citizens of Malaysia, provision of health services & a promise of continuous clean water supply etc. NHashim....5.7.2006

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