GOVERNMENT ACCOUNTING AND

FINANCIAL REPORTING

BY
SANI ABDULRAHMAN BALA
DEPARTMENT OF ACCOUNTING
FACULTY OF MANAGEMENT SCIENCES
USMANU DANFODIYO UNIVERSITY, SOKOTO

1.0 INTRODUCTION
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 the
Nation.
Government Accounting can be define as a process of
recording,
analyzing,
summarizing,
reporting,
communicating and interpreting of financial information
about Government in aggregate and in detail, reflecting all
transactions involving receipts, transfer and disbursement of
government funds and property.

1.0 INTRODUCTION CONTD.

Therefore, Government Accounting can be seen to mean all

the financial documents and records of public institutions

that relate to the collection of tax payers money, the analysis,
and control of expenditure, administration of funds,
management of government stores and all the financial
responsibilities and duties of the relevant organs.
Government accounting system is the way of accountability
through which the established institutions of the public
render stewardship on the revenue of the Nation and how it
has been disbursed.
Government accounting and financial reporting are very
important component of the public sector in Nigeria.

1.0 INTRODUCTION CONTD.

This is because government accountings have the dual

purpose of meeting internal management (Executive

arm of government) requirement while providing the
public with a window on government operations.
Financial reporting in the government sector is mostly

based on the cash-based accounting system.

The quality of information provided in financial reports
determines the usefulness and reliance of such reports
to users.
The characteristics by which quality can be measured
are relevance, understandability and comparability.

1.0 INTRODUCTION CONTD.

Financial reporting in the Public sector is regulated by the

International Public Sector Financial Reporting Standards (IPSASs)

issued by the International Public Sector Accounting Standards
Board (IPSASB) of International Federation of Accountants (IFAC).
In Nigeria, there is no body responsible for issuing standards for
public sector financial reporting.
Hence, financial reporting in the public sector is regulated by the
Constitution of the Federal Republic of Nigeria 1999 as amended,
the Finance (Control and Management Act) of 1958, Audit
Ordinance Act of 1956, and Financial Regulations issued from time
to time by the Minister for Finance.
This paper examines Government accounting and financial
reporting-in Nigeria.

2.0 Conceptual Clarification

2.1 Government Accounting
Government accounting includes the process of recording,

analyzing, classifying, summarizing, 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.
The processes of Government Accounting can be examined
as follows:
(a) Recording
Recording involves the process of documenting the
financial transactions and activities in the necessary books
of accounts such as cash book, ledger and vote book.

2.1 Government Accounting Contd.

(b) Analyzing
Analyzing involves the process of separating
transactions according to their distinct nature and
posting them under appropriate heads and sub-heads.
(c) Classifying
Classifying has to do with the grouping of the
transactions into revenue and expense descriptions
and bringing them under major classes as Revenue
Head and Sub-heads, with their relevant code
numbers of accounts.

2.1 Government Accounting Contd.

(d) Summarizing
Summarizing concerns the bringing together of all the
classes of accounts and preparing them into reports
periodically as statutorily or organizationally required.
(e) Communicating
Communicating is about making available financial reports
on all the government financial activities from the necessary
accounting summaries to various interested parties.
The style of communication adopted should be unambiguous, lucid and devoid of jargons as much as possible.

2.1 Government Accounting Contd.

(f) Interpreting
Interpreting ends the process by giving explanations
on what has been reported in the various financial
statements and reports, as regards the overall
operations and performance of the relevant
government organization(s).
This is to enable the necessary parties and users to
take relevant decisions based on their assessments of
the reports.

2.1.2 Financial Reporting

Financial reporting is one of the most important aspects

of the accounting profession either in the government

(public) or in the private sector.
It is the process through which information about

organizational performance and financial position is

presented to the users.
It is often believed to be precise and factual in its

contents and, attested to by external person(s) (Auditor

General in the case of public sector) confirming its
validity.

2.1.2 Financial Reporting Contd.

Financial reporting is that process that creates

stewardship assertions in the form of financial and

non-financial statements reflecting the results of
activities and transactions of an entity for a period of
time.
Furthermore, financial reporting is to a large extent a

studied assessment of the operational performance of

an entity expressed in financial terms to reflect the
economic exercise of fiduciary obligation.

2.1.2 Financial Reporting Contd.

Financial statements are a subset of financial

reporting.
The process of supplying general-purpose financial

information to people outside the organization is

termed financial reporting.

2.2 Nature and Objectives of Government

Accounting
Government Accounting exist mainly to achieve the
following objectives:
To fulfill legal requirement. The law requires that

government accounts are prepared and audited

annually.
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.
To enable Government to plan well the future

activities and programs of the Nation.

2.2 Nature and Objectives of Government

Accounting Contd.
To provide a process of controlling the use of the

financial and other resources.

To

provide the means by which actual

performance may be compared with the target
set.

To

evaluate the economy, efficiency and

effectiveness with which governance is carried
out.

2.3 Legal Basis of Government Accounting In

Nigeria

Public sector accounting in Nigeria is governed by:

The constitution of the federal republic of Nigeria
1999
Tue finance (control and management) Act 1958 as

amended and now referred to as CAP F 26 LFN 2004

The annual Appropriation Acts as provided by

section 59 of the 1999 constitution.

The public procurement Act 2007 as amended
The fiscal responsibility Act 2007

2.3 Legal Basis of Government Accounting In

Nigeria Contd.
The Nigerian sovereign investment Authority Act

2011
The treasury/ Finance circulars
The treasury Accounting manual
International Public sector Accounting standards

Board (IPSASB).
Standardized reporting format approved by the

Federation Accounts Allocation Committee in 2002

to be operational with effect from 2004 financial
year.

2.4 The Benefits of Financial Reporting

Financial reporting is a building block of any economy.

This is because it creates confidence among the citizens

been govern (in the case of Government) and confidence
among investors and shareholders in the case of private
sector.
Financial reporting allows the public at large to
confidently and objectively assess government
performance, thus influencing their behavior and
decisions.
When good and sound financial reporting are observed
in both private and Government sector, the country stand
to gain the following:

2.4 The Benefits of Financial Reporting

Contd.
Enhancement of local and foreign Direct and portfolio

Investment as investors are better able to evaluate corporate

prospects, government prospects and make informed
decisions resulting in access to capital at lower costs.
Facilitating integration into global financial and capital
markets
Improvement of public sector fiscal discipline and
enhancement of value for money; and generation of
employment opportunities.
High quality financial reporting will also contribute to
national public finance by improving the assessment and
collection of taxes on corporate profits.

2.5 Final Accounts and Financial Statements

in public sector of Nigeria
Final accounts are drawn up in order to convey financial

report and position of who government at a particular

period in time to those that have the right to be informed.
The purpose of preparing and presenting financial report in
the form of final accounts is to set out the monies received
and Spent during the year under suitable Heads and
description and to Show the State, of affairs of various
funds held at the financial year end.
Without the final accounts no audit could be completed and
therefore, users of accounting information would lack the
assurance concerning the legitimacy of government
transaction.

2.5 Final Accounts and Financial Statements

in public sector of Nigeria Contd.
The Accountant General of the federation prepares and

publishes the various Statements on behalf of the

federal Government not later than six months
following the end of financial year as provided by
section 49 of the Fiscal Responsibility Act.
Section 85(2) of the Constitution of the Federation

Republic of Nigeria 1999, provides that the Public

accounts of the Federation and of all Offices and Courts
of the federation shall be audited and reported on by
the Auditor-General who shall submit his report to the
National Assembly.

2.5 Final Accounts and Financial Statements

in public sector of Nigeria Contd.
In the past, the federal Government has been using

about 11 Statements to presents financial report. But as

from 2002 the federal Accounts allocation committee
agreed to have uniform financial statements for the
three tiers of government.
The main components of the financial statements now

in use to presents financial statement are:

Cash flow statement
Statements of Assets and Liabilities

2.5 Final Accounts and Financial Statements

in public sector of Nigeria Contd.
Statement of consolidated Revenue Fund
Statement of capital Development Fund
These four Statements are to be supported with: Claim

of responsibility for the financial Statement by the

Accountant General, statement of opinion of the
Auditor General and also notes to the financial
statements to Shed more light on government financial
Statement.

2.6 Bases of Government Accounting In

Nigeria
These refer to how the transaction of government are

recognized and recorded in the accounting books. In

Nigeria cash basis is adopted in recording government
transactions.
Cash Basis
The cash basis of accounting embraces the movement of
cash as the basis of recognizing income and expenses.
Once money is received, income is recognized, whether the
goods or services have been supplied or not.
On the other hand, an expense is recognized as having been
made once payment is made, whether benefit has been
received or not.

2.6 Bases of Government Accounting In

Nigeria Contd.
In other words, income is recognized as it is received in

the form of cash and expenditure is recognized as

money is paid. No difference is shown in the treatment
of capital and revenue expenditure.
Fixed assets are not treated as capital expenditure
items. They are written off as revenue expenditure in
the years of purchase.
Main Characteristics of Cash Basis of Accounting:
It is very simple to develop an accounting system based
on the mere recording of cash receipts and payments.

2.6 Bases of Government Accounting In

Nigeria Contd.
Financial statements generated with this technique

are not complicated; they are very understandable

and the accounting does not require the making of
estimates for depreciation or doubtful debts, or
adjustments for accruals and prepayments.
It facilitates fiscal stewardship in that in public sector
where the concept of cash limit is used in budgeting
the use of resources, compliance can be determined
easily.
The concept does not make for proper measurement
of performance.

2.6 Bases of Government Accounting In

Nigeria Contd.
It is not easy to measure the physical work produced

and the assets consumed in doing that within a period

of time.
The technique does not recognize the time when
resources are used.
Performance under this approach is poorly measured
since recognition is given to the use of limited cash in
any service delivery.
The cash basis stresses the economy of a service very
much, and does not consider the efficiency and
effectiveness in service delivery.

2.6 Bases of Government Accounting In

Nigeria Contd.
In

accounting for the existing resources of

government, only cash and near cash items are shown
on the balance sheet.

No fixed assets such as buildings and vehicles are

shown.

2.7 Differences
between
Government
Accounting and Private Sector Accounting
In Government Accounting, tangible and fixed assets as

buildings and motor vehicles are not shown in the Statement

of Assets and liabilities. They are written off immediately in
the year of purchase.
Private Sector Accounting reflects fixed assets in the balance
sheet, displaying the historical cost, accumulated
depreciation and written down value of each.
Government Accounting does not record stocks, debtors in
the balance sheet (Statement of Assets and liabilities), unlike
Private Sector Accounting which displays those items such as
sales, cost of goods sold and carriage outward expenses
(in the trading and profit and loss accounts).

2.7 Differences between Government Accounting

and Private Sector Accounting Contd.
Private Sector Accounting is peculiar to commercial

undertakings which have the maximization of profit as

their main objective. Government Accounting focuses
on the provision of adequate welfare to the people with
probity, accountability, legal and wise spending in
mind.
Government Accounting adopts cash basis of
accounting, as against accrual basis of Private Sector
Accounting.
Government Accounting mostly uses the budgetary
approach, recording and classifying items of revenue
and expenditure under various heads and sub-heads.

2.7 Differences between Government Accounting

and Private Sector Accounting Contd.
Although

Private Sector Accounting equally does

budgeting and budgetary control, revenue and
expenditure matters are, recorded by their natural
description, such as stationary and discount allowed etc.

Government Accounting operates predominantly fund

accounting method in collating its data and information.

Private Sector Accounting uses the proprietary (or

ownership) style which discloses the nature and sources

of the enterprises finance or capital structure, such as
ordinary share capital or capital structure, such as
ordinary share capital and preference share capital.

2.7 Differences between Government Accounting

and Private Sector Accounting Contd.
The legal basis of Government Accounting is the Nations

Constitution and Act of Parliament, unlike Private Sector

Accounting which draws its existence and strength from
Companies Acts.

2. 8 Existing Gap in Federal Government

Financial Reporting
The word bank in collaboration with the office of the

Accountant General of the federation conducted a

study to identify the mandatory requirements of
International Public Sector Accounting Standards
(IPSAS) which are not satisfied in the current
Federal Government Accounting System. The 2010
report identified the following gaps:
No records in the Consolidated Account Showing

external assistance such as aids and grants.

2. 8 Existing Gap in Federal Government

Financial Reporting Contd.
No complete disclosure of financial activities of

controlling entities like NNPC, CBN and NPA.

Unrealized gains losses due to foreign exchange are

not reported.
No accounts of undrawn assistance
Inadequate disclosures of cash out of control for

example under litigation.

3.0 Summary, Conclusions and

Recommendations
From our discussion above, government accounting was

discussed as a process which involved the documentation

of financial records.
The process involves the recording, analyzing, classifying
and summarizing, communicating and interpreting
governments financial transactions. Moreover, the
concept of financial reporting was also looked at.
We were able to see to importance of Government
Accounting and the role played by financial reporting in
providing Useful information to both internal and
external users of the information to permit informed
judgment.

3.0 Summary, Conclusions and

Recommendations Contd.
However, despite the importance of Government

accounting and the role of financial reporting in

Nigeria, there are still some gaps that need to be
bridge for Government Accounting and financial
reporting to serve the purpose for which they are
meant for. Such gaps include those that were
identified by the World Bank study group of 2010
and the inherent deficiencies in the cash basis of
accounting currently in used by the government in
Nigeria.

3.0 Summary, Conclusions and

Recommendations Contd.
Hence, the gaps identified by the World Bank study

Group in collaboration with the office of the

accountant general of the federation should be
incorporated into the revised financial reporting that
came into effect in year 2004.
This would go a long way at paving the way for

Nigeria to fully adopt the Standards of IPSASB. It

would also add to the credibility and meaning of
financial report been presented.

3.0 Summary, Conclusions and

Recommendations Contd.
Similarly, to do away with the problems associated

with cash basis of accounting; modified cash basis

should be adopted.
The modified cash accounting technique is
appropriated where the accounting books of the
government institutions are not closed at the end of a
year, but are open for some period into the beginning
of the following year.
Receipts made during the current year which relate
to the past period are recorded and accounted for as
revenue of the previous period.