Lecture one/two: INTRODUCTION TO PUBLIC SECTOR ACCOUNTING

Objectives
After going through this lecture, you will be able to:
1. Explain the scope of the subject
2. Discuss the objectives of public sector accounting
3. Explain the information produced in the public sector accounting sector
4. State the users of public sector information and their need

Definition of Terms
Public Sector Accounting
 The simplest definition of ‘Public Sector’ is all organisations which are not privately owned and
operated, but which are established, run and financed by Government on behalf of the public.”
 Government refers to the collection of public institutions established and given the authority to run the
affairs of a country. It is a system of governance and includes the body of individuals who are authorized
to administer the laws of a Nation.
 Government Accounting refers to all the financial documents and records of public institutions that
relate to the collection of tax payers‟ money, and the analysis, control of expenditure, administration
of trust funds, management of government stores and all the financial responsibilities and duties of the
relevant organs.
 Government accounting includes the process of recording, analysing, classifying, summarising,
communicating and interpreting financial information about Government in aggregate and in details,
recording all transactions involving the receipt, transfer and disposition of public funds and property.

Nature and Objectives of Government Accounting

The objectives of Government accounting include the following:
1. To fulfil legal requirement: The law requires that government accounts are prepared and audited
annually.
2. To perform the stewardship function: The ruling government is the steward of the resources and
finances of the Nation. Government has to give account of how these finances are used.
3. To enable Government to plan well the future activities and programmes of the Nation.
4. To provide a process of controlling the use of the financial and other resources.
5. To provide the means by which actual performance may be compared with the target set.
6. To evaluate the economy, efficiency and effectiveness with which governance is carried out.

Purpose of Public Sector Accounting

The purposes of Public Sector Accounting include:
1. Demonstrating the proprietary of transactions and their conformity with the law, established rules and
regulations.
2. Measuring current performance.
3. Providing useful information for the efficient control and effective management of government
operations.
4. Facilitating audit exercise to be carried out.
5. Planning future operations.
6. Appraising those in the authority, in efficiency and effectiveness

Types of Public Sector Organizations

Public sector organizations may exist at any of four levels:
1. International (multi-state entities or partnerships)
2. National (an independent state)
3. Regional (a province/state within a national state)

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4. Local (a municipal-level body such as a metropolis, municipality or district)

At any of these levels, the public sector generally consists of at least three types of organizations:
1. Central government consists of a governing body with a defined territorial authority.
Central government includes all departments, ministries, and agencies of the government that are
integral parts of the structure, and are accountable to and report directly to the central authority — the
legislature, council, cabinet, or executive head.
2. Boards, Authorities, Parastatals, Public schools, colleges and universities, Public hospitals and
health facilities, Commissions etc.: consist of public organizations that are clearly part of the
government and deliver public programs, goods, or services, but that exist as separate organizations in
their own right — possibly as legal entities — and operate with a partial degree of operational
independence. They often, but not necessarily, are headed by a board of directors, commission, or other
appointed body. Examples are Electoral commission, etc.
3. Local government: This is made up of the local authorities such as Cities, Metropolitan councils,
Municipal councils and District councils, etc.

Public Sector Organisations exist for the following reasons

1. To provide public goods and services to individuals and institutional consumers regardless of their
ability to pay
2. To provide good and services whose investment capital is quite high and hence cannot be provided by
the private sector or whose returns are low and therefore unattractive to the private sector, though
necessary
3. To achieve a net social benefit rather than net profit so as to enhance equity of access to meeting needs
of water, electricity, food, shelter, transport, health and communication, etc.
4. To correct inequalities which exist among various social classes and communities
5. To influence future social, political, economic or financial environment for optimal growth of the
economy.

Ways by Which Government Control Public Companies

1. Government powers can be exercised through the appointment of Chief Executives and members of
Boards of management
2. Government can exercise control by giving specific directions concerning prices production costs and
social goals.

Government uses the submission of annual reports as an opportunity to evaluate the performance of
enterprises
1. Public companies need to obtain government approvals and guarantees for long term loans
2. Public companies need to obtain government approval for their annual budgets.
3. Government may specify the economic roles of state enterprises and the target rates of their return.

Types of Information Produced by Public Sector Organizations

The information produced by public sector organizations is by no means static. The information has been
limited only to the needs of the user. In general, we may categorize the different types of information
generated by public sector organizations as:
1. Statutory information: These are mandatory information that public sector organizations are required
to produce by virtue of laws the established them.
The Financial Administration Regulations (FAR) compels Ministries, Departments, and
Agencies (MDAs) to produce monthly, quarterly and annual report of their finances and operations.
2. Financing information: These are information demanded by donors and other funding agencies to be
produced by public sector organization according to a stipulated format.

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 This information focuses accountability, performance evaluation, and objectivity on public interest of
the programmes.
3. Planning information: Planning by spending agencies in Uganda is based on a medium term
expenditure framework (MTEF) which operates on cash basis normally for a period of three years. All
spending agencies are expected to prepare their budgets on this planning model and report on the
progress of their planning, programming and budgeting schemes.
4. Budgetary information: Budgetary information relates to the utilization of budgets as instruments of
national economic management, communicating the resource constraints to spending departments,
reducing gaps between planned and actual expenditures and achieving better control of public
expenditures.
5. Control information: Central control and monitoring of expenditure during a year is done by the
treasury which provides regular reports on what has been spent and the estimated outturn of the year.
Information for monitoring comes each month from the records of receipts and payments to
Consolidated Fund maintained by the treasury. Control is exercised through cash limits that provide a
system of government control of expenditure during the financial year.

Users of Public Sector Financial Information

Users Information Needs

Donor Community Whether organizational objects are pursued, and plans and
targets are attainable
Media How Government financial information impacts on all aspects
of society
Economic Planners Whether Government financial information are adequate and
received timely for planning purposes
The consequences of Government spending, whether they will
Taxpayers
result in improvements in their living standards and/or increase
taxation or inflation
The financial position of government especially its ability to pay
Bankers and Lenders to Government
loans and interest thereon and Governments ability to borrow
money.
Regulatory bodies Whether Government spending meets legal requirements and
whether financial controls are adhered to by spending agencies
Governments Economic Monitoring Whether there is deficit or surplus on current accounts the
Authorities quantum, and whether to borrow or mop up liquidity in the
economy
Budget Analysts, Managerial The trends of current monthly accounts and historical costs to
Accountants and Investors help predict the future financial and economic position of the
economy.
Revenue and other Finance related Monitor financial position of government as a basis for
Agencies of Government structuring managerial and employees rewards system, such as
bonuses for staff
Uses financial reports to develop and maintain a management
Controller and Accountant-General information system, capturing real time, the past, present and
emerging development and behaviour patterns of various
Government organizations.

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Auditor-General Whether Government accounts have been properly kept and
records properly reported on
The Government Trade Unions Require financial information to be used in salary negotiations.

Contractors and suppliers of goods Are there enough money to pay for Government contracts?

Non-Governmental Organisations Want to know key areas of the state that require social or
economic intervention
Wants to know the financial and economic performance of the
The World bank, IMF, Multilateral and country, where to assist, where to advice. They want to assess
Bilateral Agencies and Foreign the effectiveness of spending on HIPC and Poverty Alleviation,
Governments the sustainability of Fiscal Policies, net debt, net wealth,
contingent claims against the Government and obligations for
government pensions.
Whether Government borrowing from the commercial banks
Private Sector Business would affect their business, and whether they can do business
with the Government?

Comparison between Government Accounting and Private Sector Accounting

1. The main objective of a commercial enterprise is to maximize profit while that of Government is to
provide adequate welfare to the people at the reasonable costs.
2. Government revenue is derived from the public in the form of taxation, fines, fees etc. whereas business
concerns obtain their income principally from the sales of goods and services.
3. In Government, financial transactions are recorded on ‘cash basis’ while in commercial organizations,
it is on accrual basis.
4. In Public Sector Accounting, tangible fixed assets such as land and building, plant and machinery are
not shown in the balance sheet, whereas in private sector accounting these are reflected, showing the
historical cost, accumulated depreciation and the net book value of each.
5. In Public Sector Accounting, current assets such as stocks and debtors are not shown in the balance
sheet. Debtors and creditors are not reckoned with until money is received or paid. The current assets
and current liabilities are shown in private sector accounting system.
6. In Government there is no Annual General Meeting of stakeholders/ shareholders, unlike the situation
with commercial enterprises. What Government does is to hold public briefing on specific issues.
7. In Public Sector Accounting, what operates substantially is fund accounting. However, in private sector
accounting, the proprietary approach is adopted.
8. Public Sector Accounting thrives rigidly on the budgetary approach, whereas in private sector
accounting budgeting is embraced as a very potent control instrument.