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IPSAS 1 Presentation of Financial Statements identifies a complete set of financial statements (under the accrual basis) as a statement of financial position, statement of financial performance, statement of changes in net assets/equity, cash flow statement, and accounting policies and notes to the financial statement.Required:
Identify four major disclosures that must be made in respect of the general government sector in the preparation of financial statements. (4 marks)
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Financial Reporting is not an end in itself. Its usefulness is by reference to the users of General-Purpose Financial Reports (GPFR) and their information needs. Until the information provided meets the information needs of the users, that information is worthless. Thus, accountants must be knowledgeable of the class of users of the information and the need for such information. The Conceptual Framework identifies the primary users whose information needs should be paramount in the preparation of GPFR.
Required:
Discuss FOUR (4) matters that the information provided in a GPFR helps primary users to assess an entity. (5 marks)
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You are the Head of Finance of Public Sector Reform Secretariat, Office of the President. You have received the following e-mail from the Chief Executive Officer.
Email:
“Dear Head of Finance,
I have been invited by the Office of Head of Civil Service to attend a seminar on the theme ‘Fundamentals of Public Financial Reporting’. Among the topics listed for discussion are the following:
I am aware of your expertise in public financial management and will greatly appreciate it if you could prepare some briefing notes for me to bridge my knowledge gap prior to the conference.”
Required:
As Head of Finance and a recipient of the e-mail, provide your response in a memo to the Chief Executive Officer.
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According to the Conceptual Framework for General Purpose Financial Reports (GPFR), the objective of measurement in financial reporting in public sector entities is to select those measurement bases that most fairly reflect the cost of services, operational capacity, and financial capacity of the entity in a manner that is useful for accountability and decision-making purposes.
Required: Explain the under listed bases and discuss the extent to which each measurement reflects the cost of service, operational capacity, and financial capacity of an entity.
i) Historical cost
ii) Market Value
iii) Replacement cost
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In line with the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities issued by the International Public Sector Accounting Standards Board (IPSASB), explain the difference, if any, between a General-Purpose Financial Report and a Special-Purpose Financial Report.
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Public sector entities are required to present financial reports in compliance with the International Public Sector Accounting Standards (IPSAS). However, Government Business Enterprises (GBEs) are to present the financial reports using IFRS due to their peculiar characteristics that separate them from other public sector entities.
In determining whether an entity is a GBE for financial report purposes, one must examine their nature and characteristic rather than the legal form. In the entity you work for, there is controversy among top management about whether to use IPSAS or IFRS.
Required: Identify FOUR characteristics of GBEs in accordance with IPSAS 1, Presentation of Financial Statements. (4 marks)
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The following revelations were made about the financial reporting process of a covered entity:
i) The users of the financial statements of the entity is less interested in the financial information because it does not provide information that enables the users to either confirm their expectation or make predictions.
ii) Equipment purchased during the year was recognized as an expense in the statement of financial performance, even though the entity applies the accrual principles.
iii) A revenue transaction of a significant value was completely omitted from the financial statement of the entity unintentionally.
iv) The financial statements showed the budget amounts alongside the actual amounts of the year in the Statement of Financial Performance.
v) The Accountant confirmed that some records relating to expenses were done based on WhatsApp messages (online texting app) from the Principal Spending Officer.
Required: Explain how each of the transactions (i) to (v) would affect a specific qualitative characteristic of the financial statements of the entity. (10 marks)
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| Revenue | GH₵ | GH₵ | |
|---|---|---|---|
| GOG Subvention | 152,000 | ||
| Internally Generated Fund (IGF) | 1 | 187,000 | |
| Donations | 4 | 45,000 | 384,000 |
| Description | GH₵ | GH₵ | |
|---|---|---|---|
| Compensation | 2 | 68,000 | |
| Use of Goods & Services | 3 & 5 | 35,000 | |
| Consumption of Fixed Asset | 13,000 | (116,000) | |
| Surplus | 268,000 |
Additional Information:
Required:
i) Redraft the financial statement under Cash Accounting Basis for the year ended 31 December 2022, showing the necessary adjustments. (7 marks)
ii) Justify THREE (3) reasons management would want to prepare the financial statement under Cash Accounting Basis. (3 marks)
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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:
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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