- 10 Marks
PSAF – Apr 2022 – L2 – Q1a – General purpose financial reporting framework
Assess the merit of including budget amounts in public financial statements and evaluate the quality of financial statements using a conceptual framework.
Question
The Financial Statements below were submitted on 15 February 2021, to the Finance and Administration Committee of Makambi District Assembly for consideration. Some members of the committee condemned the quality of the financial statements on two grounds:
- That, it is unacceptable to disclose the budget amounts in the financial statement for external publication.
- That, the financial statements lack quality and therefore should be rejected outright by the Committee.
Makambi District Assembly Statement of Financial Performance for the year ended 31 December 2020
| Revenues | Actual (GH¢’000) | Budget (GH¢’000) |
|---|---|---|
| Decentralised transfers | 341,000 | 304,100 |
| Internally Generated Fund | 117,000 | 187,300 |
| Donations and grants | 34,000 | 25,000 |
| Total Revenues | 492,000 | 516,400 |
| Expenses | Actual (GH¢’000) | Budget (GH¢’000) |
|---|---|---|
| Compensation for employees | 318,900 | 300,000 |
| Use of goods and services | 114,000 | 145,000 |
| Consumption of fixed assets | 12,000 | – |
| Interest | 9,000 | 9,400 |
| Subsidies | 500 | 800 |
| Other expenses | 8,600 | 6,600 |
| Total Expenses | 463,000 | 461,800 |
Net operating result: 29,000 (Actual) vs 54,600 (Budget)
Statement of Financial Position as at 31 December 2020
| Assets | GH¢’000 |
|---|---|
| Non-Current Assets | |
| Property, plant and equipment | 1,200,000 |
| Investment | 300,000 |
| Total Non-Current Assets | 1,500,000 |
| Current Assets | |
| Receivables | 23,000 |
| Loans | 50,000 |
| Cash and Bank | 160,000 |
| Total Current Assets | 233,000 |
| Total Assets | 1,733,000 |
Liabilities and Funds
| Liabilities and Funds | GH¢’000 |
|---|---|
| Liabilities | |
| Loans | 900,000 |
| Payables | 106,000 |
| Total Liabilities | 1,006,000 |
| Funds | |
| Accumulated fund | 727,000 |
| Total Liabilities and Funds | 1,733,000 |
Required:
i) Discuss the merit or otherwise on the first ground of condemnation of the financial statements presented to the Finance and Administration Committee. (2 marks)
ii) Using an appropriate framework of assessing the quality of a general-purpose financial statement under the Conceptual Framework, assess the quality of the financial statements presented to the Finance and Administration Committee to the extent that the information available allows. (8 marks)
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