Ethiopian Government Accounting System Pdf
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Accounting is mainly governed by conventional concepts and principles. These conceptual backgrounds are very important to study the structure and operations in accounting system. As information processing system of an organization accounting is affected by various factors such as its environment and characteristics. This is what is to be explained in the first unit of this course.
Accounting provides critical information for good financial administration system of organizations. Government money is a public resource which the government has to spend as per clear directives and procedures. The accounting system has to control this resource through a budget control. Thus, this course also deals with financial administration in FGE accounting system in the assumed administrative structure and the roles and responsibilities of different units of the government. The course also describes procedures in accounting for transaction and budget control in FGE accounting system. It focuses on accounting for daily economic activities and budget control that is the broad goal of the FGE accounting system and hence employs mechanisms for budget control.
The overall objective of this course is therefore to capacitate students on understanding basic concepts and principles of FGE accounting and reporting system, budget preparation financial reporting and control mechanisms. In general, you are expected to apply appropriate accounting and financial treatments capture government activities with financial effect as occurred, prepare financial reports and ensuring control and transparency in using public financial resources, under the statutory framework and applicable accounting principles.
The Accounting and financial management system reforms under this package resulted a change on the FGE accounting system that had been in service for more than half a century. The reform improved of accounting and reporting, and financial management process at federal, regional and local government bodies.
The FGE accounting system, as explained in the budget manual which is prepared by ministry of Finance and Economic Development and in the financial law of Ethiopia, is applicable in all Public bodies (PB). Public Bodies are those government institutions which have got legal responsibilities (mandates), receive their partial or full budget from the government to discharge their responsibilities. These Public Bodies are also required to submit their reports to ministry of Finance and Economic Development and respective Finance or Planning both at Federal and Regional states.
Assets: Assets are resources controlled by an entity as a result of past events and from which future economic benefits or service potential are expected to flow to the entity. The categories of assets in the FGE accounting system are: cash and cash equivalents, receivables, goods in transit, stocks, fixed assets, loans receivable, investments, liabilities, letters of credit, and net assets/equity.
Liabilities: Liabilities are formally defined by the Institute of Public Sector Accounting standards as "present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits or service potential." Liabilities are better defined by example. The categories of liabilities in the improved and expanded accounting system are:
The basis of accounting is the basic set of principles and rules employed by the accounting system to determine when and how to record transactions. The cash basis of accounting is a basis of accounting that recognizes transactions and other events when cash is received or paid.
The FGE accounting system employs a modified cash basis of accounting. Modified cash basis of accounting is a compromising basis of accounting between the two extreme bases of accounting. It adopts features from both bases of accounting. Most transactions are recorded using cash basis of accounting and some transactions are recorded using accrual basis of accounting.
The modified cash basis of accounting is consistent with the budgeting process and produces information useful for comparing budgeted and actual revenue and expenditure. The modified cash basis accounting system requires the same temporary accounts as the cash basis of accounting plus the following permanent accounts: cash and cash equivalents, receivables and payables.
The FGE accounting system employs a combination of temporary and permanent accounts. All account balances at the end of the year may not have a zero balance. So, a process is necessary that distinguishes temporary accounts and sets them to zero. The process of setting the balance in temporary accounts to zero is called closing the accounts, and the process is performed by a closing entry. The closing entry is an accounting activity that takes place at the end of each budget year. This process requires a net assets/equity account.
All assets and liabilities are not recognized in the modified cash basis accounting system. Only those receivables and payables included in the chart of accounts are included in the system. The modified cash basis accounting system produces financial information that is reported in a Statement of Changes in Cash Position and a Statement of Budgeted versus Actual Expenditure.
The FGE accounting system uses double-entry bookkeeping. Double-entry bookkeeping means that both aspects of each transaction are recorded in the accounting records with at least one debit and one credit so that the total amount of debits and the total amount of credits are equal to each other.
In a double-entry bookkeeping system, the book of original entry is the register. A register is a chronological listing of transactions and serves as the book of original entry into the accounting system. Information regarding transactions is taken from various documents (invoices, receiving reports, etc.) and recorded in the accounting system for the first time on the register. The transactions in the register are in chronological order.
To describe the FGE accounting system, its operations, and roles and duties within the system, the structure of financial administration and authority in the federal and regional governments must be understood to the extent that it impacts the accounting system. Although the structure of financial administration is not standard across all units in the Regional and Federal governments, a general pattern exists. Throughout this unit the structure of financial administration under MOFED is assumed, because the structures differ at Regions due to decentralization. Furthermore, this unit will also present an issue of Public Bodies with Branch Bank Accounts.
For cash management, another entity is created: the Bank Account (BA). The BA is not coded in the chart of accounts and does not receive a budget. However, it is important for cash Management and control. The FGE accounting system includes the BA in the accounting system.
In the FGE accounting system of cash control, the cashier's function and the accountant's function are distinct. Cash consists of currency and checks. The cashier's function is to maintain and control cash in the safe. The accountant's function is to maintain and control cash at the bank.
The Federal Government of Ethiopia accounting system used up to GC 2002 was in servicefor more than half a century. Government decided that there was a need to reform theaccounting processes as an integral part of the Civil Service Reform to achieve the followingset of objectives: Simplify the accounting system by changing it from the single entry bookkeeping system to the double entry bookkeeping system, Improve disclosure of information to stakeholders by revising the chart of accounts and enhancing the reports generated by the system to meet the information needs of Government and its development partners. Expand the current accounting system by changing the basis of accounting from cash basis to a modified cash basis of accounting to include the recording and reporting of select current assets and current liabilities. Improve internal controls by reviewing the roles and responsibilities of staff working in the accounts department and introducing enhanced procedures to capture and approve transactions as well manage and control cash in safe and cash at bank. Improve cash and financial management practices by rationalizing the number of bank accounts and minimizing the amount of idle funds. Improve budget control by introducing procedures to record and monitor commitments (Amount of budgeted funds that are reserved for a specific future expenditure) against the available budget prior to the approving expenditure. Produce accurate, timely and complete information and improve the quality of information provided to Government and its development partners to create a platform that allows for better decision making based on timely, accurate and comprehensive information. Enhance transparency by implementing a system that is understandable to key stakeholders and meets international standards in terms of the accounting principles and policies employed and the automation of the accounting system.
Budget ModuleThis module executes all the budget preparation activities performed by government financialoffices.AccountsThis module executes all the budget execution activities of government budgetary institutions.More specifically, the accounts module records the financial transactions of the budgetaryinstitutions, records the aggregated monthly accounting reports and provides accounting reportsfor ledgers, financial statements, management reports, transactions, expenditures and revenues.
The objective of IFMIS implementation include Standardizing the processes across all Ministries on the financial accounting and reporting Enables all Federal Public Bodies and Regions to use a single system with extensive reporting facility from the same physical source Facilitate fast and quality reporting procedures within and across the ministries Enable quick consolidation mechanism Pave a platform to prepare the current budgeting system to output based budgeting methods Provides interfaces with other systems in Banks, Customs and Revenue, Debt and Aid Management, or other available systems at Pilot Sites Provide orientation and facilitation to the other Ministries which are not under pilot sites to become part of Future IFMIS. 2b1af7f3a8
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