Public Sector Accounting & ReportingConference (ASIAN) – 2015

in Malaysia(14th September 2015)

Anula Harasgama

Director General of State Accounts

Sri Lanka

www.treasury.gov.lk

Transform to Accrual Accounting

Key economic indicators

Background of the Project

Project timeline and current status

Challenges faced/are facing

Lessons Learned – What could have donedifferently

Sri Lanka .......Towards a upper MiddleIncome Economy

Population: 20.7 mn (2014)

Per Capita GDP: US$ 3,625 (2014)

GDP growth (2014): 7.4%

InflationAnnual Average

(2014) – 3.3%

Sectorial Composition in GDPby Industrial Origin – 2014

Agriculture 10.1 %Industry 32.3 %Services 57.6 %

Background of the Project

Benefits expected from Implementing AccrualAccounting - Summary

– Transparency and comparability

– Harmonization and fiscal surveillance

– Long term fiscal view

– Accountability

– Better decision making and improvement of assets andliabilities management

– Cost accounting and performance measurement

– Audit and internal control enhancement

– Reduction of administrative cost and burden

– Better recognition of risks, opportunities, cost awarenessand efficiency

– Improved government finance statistical information

Entities considered to theFinancial Statements of

Democratic SocialistRepublic of Sri Lanka

(199)

Ministries(59)

Departments

(93)

SpecialSpending

Units(22)

DistrictSecretariats

(25)

Entities not considered to theFinancial Statements of

Democratic Socialist Republicof Sri Lanka

(621)

PublicEnterprises

(61)

ProvincialCouncils

(9)

StatutoryBoards

(216)

GovernmentOrganizations

(820)

Financial Statements of the Government of Democratic SocialistRepublic of Sri Lanka

LocalAuthorities

(335)

Background cont….. Current Financial Reporting Landscape in the Public Sector

in Sri Lanka

Financial Year : Calendar year

Budgeting : Cash basis

Accounting : Cash basis

• Financial Reporting - Published only budget and actual

expenditure comparison report until 2004

• Current financial reporting format was introduced in 2005

Financial information reporting system – Computerized

Integrated Government Accounting System(CIGAS)

Background cont……

Legal framework for financial reporting

- Fiscal Management Responsibility Act

“The Minister shall cause to be released to the public, in respect ofeach financial year, a Final Budget Position Report, not later than fivemonths from the end of the financial year”

(Section 13)

The Final Budget Position Report in respect of a financial year shallcontain:

a) a statement of the estimated and actual expenditure for that yearb) a statement of the estimated and actual revenue for that yearc) a statement of the estimated and actual cash flows for that year “

(Section 14)

Background cont……

Presenation of Government Financial StatementsFollowing reports are published annually– at Reporting Entity’s Level

– Appropriation Account(Comparison of budgetary provisions with actual expenditure)

– at National Level– Statement of Financial Position– Statement of Financial Performance– Cash Flow Statement– Statement of Changes in Net Assets/ Equity

• In addition, following are disclosed along with GovernmentFinancial Statements

– Acquisition of movable Assets– Bank Guarantees and comforts– Schedule of Public Investments – Project wise(Financial Statement Chapter10-2014.pdf)

Background cont……

Presenation of Government Financial Statements

Consist of all financial transactions related to 199 reportingagencies (Ministries/ Departments )

A hybrid approach in financial reporting - modified cashaccounting

• Revenue / Expenditure on cash basis• Assets - financial assets - on accrual basis

• Equity contribution to SOEs• On lending• Advances to public officers

• Liabilities - on accrual basis• Government borrowings – Domestic & Foreign• Deposits of third parties

Road Map for Conversion to AccrualAccounting

Proposed ActionTime

Period

1. Perform a detailed gap analysis 2013/2014

Recognition, measurement & disclosure of Assets

2. Verify the completeness and the accuracy of the non moving- assetsvaluations (Land & Buildings)

2014/2016

3. Rectify the issues arising from the above valuations and implement theremedies to complete the process

2016/2017

4. Verify the accuracy and completeness of identification of moving non financialassets

2015/2016

5. Implementation of Proposed Action 2017

6. Draft the accounting policy on Property, Plant & Equipment includingdepreciation and impairment of fixed assets incorporating the requirements ofSLPSAS 7 – Property, Plant & Equipment, SLPSAS 4 – Borrowing Costs

2017-2018

Road Map for Conversion to AccrualAccounting

Proposed ActionTime

Period

7. Recognition and measurement of inventories 2018

8. Drafting the accounting policy on inventories assets incorporating therequirements of SLPSAS 9 - Inventories

2018

9. Streamline the process of identifying and recognition of receivables andprepayments

2016 -2018

Recognition, measurement & disclosure of Liabilities

10. Streamline the process of identifying, recognition of obligation andcommitments

2016 -2018

11. Rectify any issues arising from recognition and measurement of commitmentsand obligations and verify the completeness of the process

2018-2019

12. Streamline the process of identifying and recognition of payables and dues 2016-2018

Road Map for Conversion to AccrualAccounting

Proposed ActionTime

Period

Recognition, measurement & disclosure of Revenue and Expenses

13. Recognition, measurement & relevant disclosures of tax revenue and nontax revenue

2016 – 2018

14. Recognition, measurement and relevant disclosures of expenses(commencing from recognizing commitments within the budgetaryprovisions)

2016 – 2019

Rectify other issues relating to the presented financial statements

15. Reconsider the accounting implications of capital contributions to StateOwned Enterprises

2018

16. Re- assessment of the measurement aspect of all recorded assets andliabilities.

2017 - 2020

System Development

17 System development for both in-house developed (CIGAS) and outsourced(ITMIS) systems enabling Accrual Accounting

2015 -2017

Where we are now Recognition, measurement & disclosure of Assets

– Valuation of non moving assets (Land & Buildings)commenced in 2014 and around 60% completed

– Valuation of moving non financial assetscommenced – Assets registries updated

– System modifications completed enablingrecording of Assets – 2015

– New coding system for Non financial assets wasintroduced in line with the GFS classifications

Where we are now cont……

Initiatives taken to adopt Accrual Accounting• Reporting entities prepare Accrual Accounts in addition to

Annual Appropriation Account on pilot basis - Circularissued in 2013

• Capacity building programmes commenced in 2014– CASL in collaboration with CIPFA London to provide professional

qualification to public sector Accountants

• ITMIS to be developed facilitating financial reporting onCash to Accrual basis

• Localizing and adoption of IPSAS in the Sri Lankan Contest– SLPSAS 1,2,3 – Presentation of Financial Statements

– SLPSAS 4 – Borrowing Costs

Sector Classification

Land &

Building

Movable

fixed assetsInventories

Receivables/

Prepayments

Loans and

obligations

Payables/

Accruals

Law Enforcement &

Natioanal Security (20)

Public Services (60)

Finance (22)

Social Security (5)

Real Economy (40)

Environment (6)

Human Resources (31)

Infrastructure (15)

Readiness Index

0% - 25%

26% - 50%

51% - 75%

76% - 100%

Presented

Not Presented

Sector

Readiness towards accrual accounting

Valuation of

Non-movable

fixed assets

(Land&

Building)

Preparation of financial statements on accrual basis

Submission of

accual basis

financial

statements

From the entities which have submitted accrual basis financial statements

Challenges faced/are facing

• Changes in policy decisions / obtaining consent

• Lack of integrated chart of accounts

• Complexity in identification /measurement of assets andliabilities

• Recognition and measurement of contractual and legalobligations

• Resistance to disclose some financial information due tochange in already published data

• Resistance to disclose controlled and administered items

• Lack of commitment / Technical knowledge / capacity issues

Challenges faced/are facing

• Adoption/taking ownership issues - ChangeManagement

• Systems issues / readiness of financial informationmanagement system application

• Consolidation issues

• Knowledge sharing weaknesses/ employees aretransferable

• No incentives for implementing - lack of support

• Difficulties in Implementation of two systems parallel

Lessons learned : What would havedone differently

• Start with a proper Road Map

• Have a strong project management team

• Obtain professional support

• Phase out implementation process

• Encourage stakeholders direct participation

• Focus two way dialog in the system developmentprocess (prototype techniques)

Lessons learned : What would havedone differently

• Revisit all processes and make necessarychanges

• Conduct awareness programmes

• Conduct Knowledge sharing sessions withcountries who implemented AccrualAccounting successfully

• Apply 80/20 Rule

Thank you