Government Accounting Practice in Bangladesh PDF

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Government Accounting Practice in Bangladesh...

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Introduction Government A government is a group of people elected by the community to make decisions on behalf of the people in the community interest. When the government makes decisions, they are called laws. The laws are contained in books called legislation and each book is called an Act of Parliament. Without governments, people would be unclear about their rights and responsibilities to other people. There would be no road rules; no parks and libraries; factories could be built next to houses; cars could park anywhere; and shops could sell food which might make you sick. A government is a body that has the authority to make and the power to enforce laws within a civil, corporate, religious, academic, or other organization or group.

Accounting It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm's assets, liabilities and owners' equity. Accounting can be described as a way to communicate the financial health of a business or an organization to any and all interested parties. It is a way of assessing the assets, liabilities and cash flow, or the future of an entity for all current and future investors. It is the lifeblood of a business and all types of business have basic information that is recorded to get that job done.

Governmental accounting Governmental accounting is an umbrella term which refers to the various accounting systems used by various public sector entities. Public sector accounting refers to the field of accounting that specifically finds application in the public sector or government. A special field of accounting exists because: The objectives to which accounting reports to differ significantly from that for which generally accepted accounting practice has been developed for in the private (business) sector; and - The usage of the results of accounting processes of government differs significantly from the use thereof in the private sector. Page | 1

Methodology The Qualitative Method investigates the why and how of decision making, not just what, where, when. Hence, smaller but focused samples are more often used than large samples.

Quantitative Method refers to the systematic empirical investigation of social phenomena via statistical, mathematical or computational techniques. Quantitative data is any data that is in numerical form such as statistics, percentages, etc.

In this term paper, we use Qualitative Method.

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Government Accounting Practices Generally, the basis of accounting used by governments is the modified accrual basis which falls between the cash and accrual bases. Transactions are generally recognized when they occur (similar to the accrual basis), but the timing of the ultimate cash receipt or cash disbursement may have an impact on when the transaction is recorded (similar to the cash basis). Under the modified accrual basis, revenues are recognized when they are measurable and available (Ripple, 2004). Revenues are measurable when they are reasonably estimated and available means that the revenue is collectible within the current period or soon enough thereafter to pay liabilities of the current period (60 days of the end of the current period). The measurement focus refers to what the government entities are trying to measure when they prepare the financial statements. The economic resources measurement focus is based on whether the entity is economically better off or worse off as a result of the events and transactions that occurred during the fiscal period being reported. It is used by funds that undertake business-type activities. The current financial resources measurement focus is used only by governmental funds. In the governmental units and governmental type funds the focus is on the resources available for spending and the liabilities that are to be paid during the current period. Financial statements prepared using the current financial resources measurement focus reflects changes in the financial resources available in the near future as a result of transactions and events of the fiscal period being reported. Increases in revenues are reported as revenues or other financing sources and decreases in spendable resources are reported as expenditures or other financing uses. The use of fund is an important tool for governments to demonstrate their legal compliance with the lawfully permitted use of resources. Fund accounting for governments was developed in response to the need for governments to be fully accountable for their collection and use of public resources (Hay, 1989; Rupple, 2004). The financial statements of a government are prepared in accordance with generally accepted accounting principles (GAAP) and Governmental Accounting Standards Board (GASB) requirements. They include information reported on a governmentwide basis. Chow (2004) introduced Whole of Government Accounting (WGA) as a means to improve government ability to manage the economy and that (WGA) style reporting strengthens accountability to Parliament, government, planners, taxpayers and managers as a result of improved accounting information disclosure. (Ramadhan, 2009) The government generally used accrual basis accounting in their accounting system. They also used cash basis accounting. When transaction is occurred, the timing of the ultimate cash receipt or cash disbursement may have an impact on when the transaction is recorded. Under the modified accrual basis, revenues are recognized when they are measurable and available. Revenues are measurable when they are logically estimated and available means that the revenue is collectible within the current period or soon enough thereafter to pay liabilities of the current period. The activity focus refers to what the govt. entities are attempting to live once they prepare the money statements. The economic resources activity focus is predicated on whether or not the entity is economically comfortable or worse off as a results of the events and transactions that occurred throughout the financial amount being rumored. It’s employed by funds that undertake business-type activities. This money resources activity focus is employed solely by governmental funds. Within the governmental units and governmental sort funds the main target is on the resources obtainable for defrayment and also the liabilities that square measure to be paid throughout this amount. Money statements ready mistreatment this money resources activity focus reflects changes within the money resources obtainable within the close to future as a Page | 3

result of transactions and events of the financial amount being rumored. The financial statements of a government are prepared in agreement with generally accepted accounting principles (GAAP) and Governmental Accounting Standards Board (GASB) requirements. They include information reported on a government-wide basis. Introduced Whole of Government Accounting (WGA) as a means to improve government ability to manage the economy and that (WGA) style reporting strengthens accountability to Parliament, government, planners, taxpayers and managers as a result of improved accounting information disclosure.

Based on the findings, certain accounting reforms for development and improvement are highlighted in the previous section. In this regard, it is recommended that the accrual basis should be introduced. During the last 10 years, accrual based accounting and financial reporting have been introduced in many countries’ governments (e.g. UK, Sweden, New Zealand and Finland). Further, the use of performance and program budgeting in line with line-item budgets is worthwhile for effective control on government expenditure and accountability. This is in addition to the establishment and maintaining of a contingency reserve fund. (Ramadhan, 2009) In light of the discoveries, certain bookkeeping changes for improvement and change are highlighted in the past segment. In this respect, it is suggested that the gathering support ought to be presented. Throughout the most recent 10 years, accrual based bookkeeping and monetary reporting have been presented in numerous nations' governments (e.g. UK, Sweden, New Zealand and Finland). Further, the utilization of execution and customize rationing in accordance with line-thing plans is beneficial for viable control on government consumption and responsibility. This is notwithstanding the stronghold and supporting of a possibility store fund.

The political-economic model developed in this study from existing economic and political theories provides a plausible explanation for state government accounting disclosure choices based on the standard goodness-of-fit criteria for structural equation models with latent variables. Relationships are consistent across models and years for the causal effect of socioeconomic development (DIV) on interest-group strength (IGS); the causal effect of interest-group strength (IGS) on governor strength (GOV) and bureaucratic accounting/auditing ability (ABIL); the causal effect of political competition (PC) on governor strength (GOV); and the causal effect of bureaucratic accounting/auditing ability (ABIL) and the press (PR) on state government financial reporting choice (QUAL12). The model developed to explain 1986 financial disclosure practices is also significant for 1978. In 1978, governor strength (GOV), debt market influence (DC), and bureaucracy size/complexity and financial ability (BIA) are also significantly related to extent and quality of financial disclosure. Perhaps the most significant feature of this study is that it applies the study of political markets to accounting choice. Our understanding of the incentives of “nonmarket decision makers” (Mueller 1979, p. 3) in an accounting context is limited. A more complete analysis of the political environment is accomplished in my study through the use of the LISREL simultaneous estimation of a system of structural equations. Applying such an analysis, similar to that applied in other public-choice studies, is important to our Page | 4

increased understanding of this political process. Important principal agent relationships in the political setting not previously addressed in an accounting context are identified as well. In addition to exploring the political process in more depth than prior accounting studies, my paper has built on Ingram’s (1984, p. 134) work by updating an inventory of accounting practices by state government and by sorting out the multi co linearity of the political and economic variables. Many of the LISREL findings are consistent with regression results of prior accounting research. The models are also able to represent the complex relationships between the theoretical constructs and indicators in much more detail than previous research. The additional relationships studied will contribute toward our understanding of state government accounting choice. (Cheng. 1992)

The political-budgetary model improved in this study from existing monetary and political hypotheses gives a conceivable clarification for state government bookkeeping divulgence decisions dependent upon the standard goodness-of-fit criteria for structural mathematical statement models with inactive variables. Relationships are predictable crosswise over models and years for the causal impact of socioeconomic improvement on vested party quality; the causal impact of vested party quality on representative quality and bureaucratic accounting/auditing capability, the causal impact of political rivalry on senator quality and the causal impact of bureaucratic accounting/auditing capacity and the press on state government money related reporting decision. Maybe the most critical characteristic of this study is that it applies the investigation of political markets to bookkeeping decision. A more finish examination of the political environment is proficient in my study through the utilization of the LISREL synchronous estimation of an arrangement of structural mathematical statements. Applying such an investigation, comparable to, to the point that connected in other open decision studies, is essential to our expanded comprehension of this political procedure. Critical chief operator relationships in the political setting not formerly tended to in a bookkeeping connection are distinguished simultaneously. Notwithstanding investigating the political process in more profundity than earlier bookkeeping studies, my paper has based Ingram's work by upgrading a stock of accounting practices by state government and by sorting out the multi co linearity of the political and budgetary variables. Large portions of the LISREL discoveries are reliable with relapse comes about of former bookkeeping exploration. The models are likewise fit to speak to the intricate relationships between the hypothetical develops and pointers in significantly more detail than past examination. The extra relationships considered will commit to our comprehension of state government accounting choice.

Education is the pillar for modern complex accounting systems. It has been established that there is a positive relationship between education level and the competence of professional accountants (Gernon, Meek, & Mueller, 1987). The adoption of IAS is a very strategic and critical decision; it requires a high level of education, competence, and expertise to be able to understand, interpret, and then make use of these standards. Highly qualified accountants and well-trained users must exercise professional judgment and process complex information (Doupnik and Salter, 1995; Street, 2002). In fact, it is expected that, in countries where the education level is low and expertise is weak, there is a real barrier to the adoption of IAS.

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Thus the second hypothesis: Hypothesis no. 2. The probability that a developing country will adopt IAS is positively tied to its education level. (Zeghal et al, 2006) I agree with it. Education is playing a vital role in accounting system. It makes positive relation between education level and the competence of professional accountants. he adoption of IAS is a very strategic and critical decision; it needs a high grade of learning, competence, and know-how to be able to realize, interpret, and then make use of these measures. Highly qualified accountants and well-trained users should workout professional judgment and method complex data. In fact, it is anticipated that, in countries where the learning level is reduced and know-how is weak, there is a genuine barrier to the adoption of IAS. The probability that a developing homeland will adopt IAS is positively joined to its learning level.

The existence of a capital market is considered one of the key factors in a country's economic development because of its role in the optimal allocation of resources among the different economic sectors and among firms within each sector. Quality accounting information is a major ingredient in the development and efficient functioning of a capital market. According to Gray, McSwenney, and Shaw (1984), the pressures exerted by investors are important; investors require quality financial information in order to be able to make optimal choices when they analyze investment opportunities. In some cases, they can lead a country's accounting-standards-setting body to reform its accounting system and eventually adopt IAS. In countries with a capital market, the standards-setting bodies tend to establish sophisticated accounting systems in order to guarantee the production and disclosure of quality financial information that will be potentially useful for investors in making their decisions (Adhikari & Tondkar, 1992). More specifically, Chamisa (2000) analyzed the role of IAS in improving the quality of financial information produced for the capital markets in developing countries. Accounting information, and particularly financial statements, remains a major resource for capital-market investors in developing countries because of the scarcity and, in many cases, the absence of other reliable sources of information. (Zeghal et al, 2006)

The existence of a capital market is advised one of the key factors in a country's financial development because of its function in the optimal share of assets amidst the different financial parts and amidst firms within each sector. Quality accounting data is a major component in the development and effective functioning of a capital market. According to Gray, McSwenney, and Shaw, the stresses used by investors are important; investors need value economic data in alignment to be able to make optimal alternatives when they investigate buying into possibilities. In some cases, they can lead a country's accountingstandards-setting body to restructure its accounting scheme and finally adopt IAS. In nations with a capital market, the standards-setting bodies are inclined to establish sophisticated accounting schemes in alignment to guarantee the production and disclosure of value economic data that will be potentially useful for investors in making their conclusions. More specifically, Chamisa investigated the function of IAS in improving the quality of economic data produced for the capital markets in developing nations. Accounting data, and especially economic declarations, remains a foremost asset for capital-market investors in developing countries because of the shortage and, in numerous cases, the absence of other dependable sources of data. Page | 6

Government Accounting Practices in Bangladesh The Public Sector emerged as the driver of economic growth consequent to the industrial revolution in Europe. With the advent of globalization, the public sector faced new challenges in the developed economies. Public sector management is one of the basic elements of Bangladesh’s governance structure with the aim at achieving greater efficiencies in governmental operations, reduce corruption and system losses. However in practice, the public sector has encountered governance issues to prevent rampant corruption, causing significant wastage of national resources. Public financial management is an integral component of the overall management process in the country. It plays a significant role in the economic, efficient and effective use of public resources. Therefore, high quality public sector financial management, incorporating high quality accounting and auditing practices are indispensable for national economic growth. Public Sector Accounting and Auditing are necessary for proper procurement of Government resources; supply of goods and services through formation of budgets; recording and reporting of assets and liabilities; and Keeping proper records for preparation of accounts and presentation of financial information for decision making purposes.

Maintaining Government Accounts The Comptroller & Auditor General’s (Additional Functions) Act, 1974 and Comptroller & Auditor General’s (Additional Functions) (Amendment) Act, 1975 provide CAG with the responsibility of keeping accounts of the Government. The Act was promulgated under clause (3) of Article 128 of the Constitution, which states that the Parliament may require the CAG to exercise such functions, in addition to auditing responsibility given under clause (1) of Article 128, as such the law may prescribe. As part of the responsibility of Comptrollership and the authority provided under the Additional Functions Act 1974 and amendment Act 1975, the CAG is empowered to authorize payments from the treasury and incorporate all valid transactions into the Accounts of the Republic (Government Accounts) after conducting pre auditing functions. The Civil, Defense and Railway Accounts Departments under the CAG consolidate the Accounts of the Republic, after these are reconciled with the executives who maintain their own accounts following the General Financial Rules (GFR).

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The Accounts of the Republic consists of the Appropriation Accounts and the Financial Accounts. Appropriation Accou...