Management & Professional Development DepartmentPRINCIPLES OF ACCOUNTING IN NEW ACCOUNTING MODEL 23rd December, 2015 LEGACY SYSTEM OF ACCOUNTING LEGACY ACCOUNTING SYSTEM The legacy accounting system was introduced under the Government of India Act, 1935. The accounting system was adopted by the Government of Pakistan and all Provincial Governments The said system was based on the principle of single entry system of accounts The accounting system was based on cash basis i.e. it recognized and recorded the entry of cash received and disbursed Receivables / payables (liabilities) were not recorded in accounts LEGACY ACCOUNTING SYSTEM The accounting system was based on accounting chart, under which the expenditure was represented by the numeric numbers and receipts were also represented by the numeric numbers but written in roman language Detailed expenditure was recorded as; Pay of Officers Pay of other staff Allowances and TA POL and Other contingent expend LEGACY ACCOUNTING SYSTEM The accounting system was not reviewed / revised vis-à-vis International Standards till 1980 During 1981 the chart was replaced with chart of classification comprising two elements vis; Function and Object, as the previous chart was not compactible with computerized environment The new chart of classification too could not produced results as per international standards Considering the room for improvement and dire needs, during early ninety's the Federal Government, with the technical assistance of the World Bank, launched a project known as Project to Improve Financial Reporting & Auditing (PIFRA) LEGACY ACCOUNTING SYSTEM The Project hired international accounting firms as consultants to review the existing system of accounting and to suggest improvements / changes where necessary The Consultants proposed entirely a new system of accounting and consequently budgeting, known as New Accounting Model (NAM) The NAM was reviewed by a committee of experts, comprising members from each province and federal government As a pilot the NAM was introduced in Abbotabad district during FY 2003-04 and in KP, AGPR during FY 2005-06. it was introduced in Punjab and other provinces during FY 2005-06 NEW ACCOUNTING MODEL IMPLEMENTATION OF NAM Article 170 of the Constitution empowers the Auditor General of Pakistan to prescribe the form and manner for keeping the accounts of the Federation, Provinces and District Governments. Accordingly, New Accounting Model (NAM) has been prescribed and implemented with the approval of the President of Pakistan As the accounts follow the budgetary allocations, therefore, from the FY 2005-06 the Punjab adopted the NAM for Budget, both for the Provincial and District Governments NEW ACCOUNTING MODEL OBJECTIVES: The NAM envisages to ensure good governance and accountability through; Accuracy Completeness Reliability, and Timelines in Government’s financial reports at Federal, Provincial, District and Sub-district levels. The information generated in computerized environment under NAM would provide direct support to Public Financial Management, Accountability and Legislation oversight NEW ACCOUNTING MODEL SALIENT FEATURES Modified Cash Basis of Accounting Double Entry Book Keeping Commitment Accounting Fixed Assets Accounting Assets Register New Chart of Accounts Modified Cash Basis of Accounting • Receipts will continued to be recorded on cash basis Payments will also be recorded on Cash Basis, however, certain payments will be recorded on commitment basis Commitment is defined as an obligation to make future payments, and are recorded when an entity issues a legally binding purchase order or enters into contract for provision of goods and services. Commitments are booked against funds available in relevant object. The recording of commitments is termed as modified basis of accounting Commitments shall have a threshold value in terms of Rupee or percentage of allocation before these are recognized Modified Cash Basis of Accounting COMMITMENT ACCOUNTING Commitments honoured during a financial year shall stand finalized Outstanding commitments at the end of a financial year shall lapse but after due scrutiny by AD / AG and FD, valid commitments would be reinstated through budgetary allocations during the next financial year. Commitment accounting provide financial managers with a tool to measure and forecast spending performance against budgetary allocations & avoid overbooking of expenditure in a particular period. Modified Cash Basis of Accounting Double Entry Book Keeping – vis-à-vis Single Entry Single Entry Book Double Entry Book Keeping Keeping Single Entry System is a Under this system the system of book-keeping recording of transactions which does not record or having two fundamental give effect to the two fold aspects – One involving aspect of each and every the receiving of the transaction. benefit and the other to giving the benefit - in the same set of books Modified Cash Basis of Accounting Double Entry Book Keeping – vis-à-vis Single Entry Single Entry Book Double Entry Book Keeping Keeping In this system generally Cash Book and books to record personal accounts are only maintained, it is not really a system because under this method there may not be recorded some of the transactions and partially record some others The accounts which receive the benefit are debited and the account which gives the benefit is credited. It is the ultimate result of this system that every debit must have a corresponding credit and vice versa. On a particular day the total of the debit entries and the credit entries of various accounts must be equal FIXED ASSET ACCOUNTING Fixed assets are physical in nature such as buildings, plants and equipment etc., they have strategic long term value Control of fixed assets is an important feature of efficient financial management. It involves accurate reporting of; Asset purchase Disposal & transfers Losses through misuse/theft Government departments are required to maintain a fixed asset register containing details of cost, location, date of purchase etc. A fixed Asset Register is maintained by the SAP/R-3 CHART OF ACCOUNTS The “Chart of Accounts” provides a “framework” for organizing accounting transaction and to provide a number of views of a particular transaction. The various views are indicated with elements comprising of alpha and numeric characters. The chart of accounts applies to all accounting entities and contains following five elements 1. Entity 2. Function 3. Object 4. Fund 5. Project ENTITY ELEMENT The entity means the organizational structure or unit which create the transactions. The organizational highest level is Government & lowest level is Drawing & Disbursing Officer (DDO)/ Collecting Officer (CO) ENTITY ELEMENT CODES P 50 Agriculture Deptt. 5001 Agriculture 5002 DG Agri. (Extension) 5003 DG Agri. (Field) 5004 DG Agri. (Research) 5005 P 51 CM Secretariat 5025 DG Agri. (Water Management) CM Secretariat P 52 CM Inspection Team P 53 Colonies Deptt. 5050 CM Inspection Team 5075 Colonies Deptt. ENTITY ELEMENT CODES P 54 Communication & Works Deptt. 5100 Communication & Works 5101 Chief Architect, Punjab 5102 Chief Engineer Building (North) 5103 Chief Engineer Building (South) 5104 Chief Engineer Highways (North) 5105 Chief Engineer Highways (South) FUNCTION ELEMENT The economic function, relating to the provision of a particular service, activity or Government program. The function code have been designed conforming requirements to IMF public sector reporting FUNCTION ELEMENT - CODES 01 General Public Service 02 Public Order and Safety Affairs 03 Defense Affairs 04 Economic Affairs 05 Environment Protection 06 Housing and Community Amenities 07 Health 08 Recreation, Culture and Religion 09 Education Affairs and Services 10 Social Protection FUNCTION ELEMENT HIERARCHY The Function Element is further divided into following components; Major Function Minor Function Detailed Function Sub-Detailed Function Programme FUNCTION ELEMENT - EXAMPLE An example of the Function Element is shown as under; Major Function 01 General Public Services Minor Function 011 Financial & Fiscal Affairs Detail Function 0112 Sub Detail Function 011204 Financial Affairs Financial & Fiscal Affairs Administration of OBJECT ELEMENT The accounting classification, describing the item of expenditure, receipt, asset or liability. Each accounting classification is further sub-divided into a hierarchy, down to the level of detailed object head. OBJECT ELEMENT - CODES Expenditure A 01 Employee Related Expenses A 02 Project Pre-investment Analysis A 03 Operating Expenses A 04 Employees Retirement Benefits A 05 Grants, Subsidies and Write off of Loans / Advances / Others A 06 Transfers A 07 Interest Payment A 08 Loans and Advances A 09 Expenditure on Acquiring of Physical Assets OBJECT ELEMENT - CODES Expenditure A 10 A 11 A 12 Principal Repayments of Loans Investments Civil Works A 13 A 14 Repairs and Maintenance Suspense and Clearing OBJECT ELEMENT - CODES Receipts Tax-Receipts B 01 B 02 Direct Taxes Indirect Taxes B 03 Other Indirect Taxes Non Tax-Receipts C 01 Income from Property and Enterprise C 02 Receipts from Civil Administration and Other Functions C 03 Miscellaneous Receipts OBJECT ELEMENT - CODES Receipts Capital Receipts E 01 E 02 E 03 Recoveries of Investment Recoveries of Loans and Advances Debt Assets F 01 Cash and Bank Balances F 02 Receivables F 03 F 04 F 05 Physical Assets Investments Other Assets OBJECT ELEMENT - CODES Liabilities G 01 Current Liabilities G 02 Loans G 03 Deferred Liabilities G 04 Other Liabilities G 05 Control Accounts G 06 Trust Account-Fund G 07 Trust Account-Post Office G 08 Trust Account-Railways G 09 Trust Account-T&T G 10 Trust Account-Other G 11 Special Deposit Investment OBJECT ELEMENT - CODES Liabilities G 12 Special Deposit Fund G 13 Special Deposit Grant G 14 Mint Account Equity H 01 Equities OBJECT ELEMENT-- EXAMPLE Accounting Element A – Expenditure Major Object A01-Employee related expenses Minor Object A011 -Pay Detailed Object A01101- Basic Pay of Officers FUND ELEMENT The pool of money from which budgetary allocation is made (e.g. Consolidated Fund), and is further sub-divided into grants (in the case of Consolidated Fund) or Public Account detailed heads. FUND ELEMENT FUND Fun d could be either consolidated or Public Account (C & P) SOURCE This indicates the source of Fund from where the expenditure is being met. This could be Capital or Revenue, denoted by 1or 2 SUB-FUND This indicates whether the expenditure is voted / charged. This also indicates whether the expenditure is Current, Development or Capital in nature FUND ELEMENT C Consolidated Capital Fund Voted Current Expenditure Voted Development Expenditure Voted Capital Expenditure Revenue Charged Current Expenditure Charged Development Expenditure Charged Capital Expenditure P Public Account FUND ELEMENT - COMPONENTS The Fund Element is further divided into following components; Funddenoted by alpha character Sourcedenoted by one numeric character Sub-Funddenoted by one numeric character Grant Nodenoted by three numeric character SUB–FUND & SUB-ELEMENT The different Sub–Fund / Sub–Elements of Consolidated Fund are as follows: 1 Voted Current Expenditure 2 Voted Development Expenditure 3 Voted Capital Expenditure 4 Charged Current Expenditure 5 Charged Development Expenditure 6 Charged Capital Expenditure FUND ELEMENT - EXAMPLE Fund Source Sub Fund Grant Number C - Consolidated Fund 2– Revenue, 1-Capital 1 - Voted current expenditure 018 - Agriculture Fund No. PC 21018- Agriculture. (PROVINCIAL) GRANT NUMBER It is indicated by 3 Numeric Characters for Provincial Government and 2 Numeric characters for District Governments PROJECT ELEMENT Project is indicated by 4 Numeric characters, allotted to each Development Project. The project element enables transactions to be aggregated and reported at a project level. Each project will have a unique project number GRANT NUMBER – DEVELOPMENT REVENUE EXPENITURE The entire provision shown on ‘Revenue Account’ is accounted, under the appropriate minor / detailed function / objects under the Grant No. ‘PC22036 - Development’. This grant is common for all departments GRANT NUMBERS FOR DEVELOPMENT CAPITAL EXPENDITURE Capital Account is, accommodated under the relevant minor/detailed function under the following grants: PC 12037-Irrigation Works. PC 12038-Agricultural Improvement and Research. PC 12039-Industrial Development. PC 12040-Town Development. PC 12041-Roads and Bridges. PC 12042-Government Buildings. PC 12043- Loans to Municipalities. FUNCTIONAL ARRANGEMENT 01 GENERAL PUBLIC SERVICE 011 EXECUTIVE & LEGISLATIVE ORGANS, FINANCAL 0112 FINANCIAL AND FISCAL AFFAIRS 011205 TAX MANAGEMENT (CUSTOMS. I TAX. EXCISE) AND TAXATION DEPARMENT LQ4016 Superintendence Thank You
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