GTZ Report on Accrual Accounting Status Quo - LGCDP

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Findings and observations in the Nepalese municipalities 15 • In December 1999 the government of Nepal passed the Local Self Governance Act. The separately annexed financial administration specification of this act 3 leaves the municipalities the choice between the usage of cash accounting and accrual accounting (Nepal Legislation, 1999c, p.16). However, in the same paragraph of this act an added statement, called “1a”, rejects this option of choice by stressing that all municipalities have to introduce accrual based accounting within five years time and thereby making accrual accounting obligatory for all municipal governments. Hence, it provides the necessary legal base for further udle activities. • After that regulation was conceded, udle concentrated its following efforts firstly on the development of an accrual accounting system combined with appropriate software and secondly on an accrual accounting implementation project plan: 1) The proposed accrual accounting system recognized accounting heads for cash, bank, receivables (including taxes, fees etc.), payables, fixed assets (vehicles, fire engines, furniture, electric equipment, office apparatus etc.), floating assets (consumers goods, logistics, fuel etc.), revenues, expenses, loans, funds and reserves. However, it did not include depreciations at that time. The valuation of land usually was based on reports, prepared by the Land Revenue Office as well as suitable market price schemes. The valuation of buildings was undertaken by engineers of the municipality or their wards4. Movable assets were valued according to available documents provided by the municipalities or their wards. Problems appeared in the valuation of receivables since usually no systematic records of taxes and fees existed back then. The same holds true for assets. All in all the system was beyond modified accrual accounting but not a full fledged accrual accounting system. 2) The proposed implementation project plan stretched over six months and was implemented parallel with the existing cash accounting system. It included: o a system study on the existing accounting system, o a system conversion phase with experimental balances (focusing mainly on cash) and the identification and valuation of assets as well as the identification of unrecorded liabilities and revenues, o a system running phase, o a system reporting phase that included the creation of financial statements like a balance statement and cash flow statement by udle, o a full implementation phase supervised by udle for manual accrual accounting practice and reporting handled by the municipal staff, and finally o the computerization of the accrual accounting system with the udle self developed DOS based accrual accounting software. In the first fiscal year after implementation accrual accounting was to be done both manually and computerized. If the computerized booking was correct only computer based accrual accounting was to be continued. 3 The second edition as of 2005 was used for this report. 4 A ward in Nepal is a local political division. Nine wards make up a Village Development Committee (VDC).
Findings and observations in the Nepalese municipalities 16 • Udle then started to assist eight municipalities in the implementation of the described accrual based accounting system (Dharan, Butwal, Dhangadhi, Nepalgunj, Pokhara, Hetauda, Banepa and Kathmandu) (Chhetri, 2002; udle, 2006). • The first attempts of implementation on a piloting basis were made from January 1st of 2000 onwards in Dharan and after this in Butwal starting the implementation on February 12th of 2000 onwards. • The accrual accounting system combined with the then newly developed software, supported by udle, was fully introduced in the fiscal year of 2001 in Dharan, Butwal, Dhangadhi, Nepalgunj and Kathmandu. In the following year Pokhara, Hetauda and Banepa followed. However, in the post implementation phase different problems and obstacles led to the fact that only Dharan, Butwal and Kathmandu managed to continue accrual accounting. Although udle assisted in the long term implementation of accrual accounting in three municipalities and achieved a general sensitization towards accrual accounting at municipal level, the first attempts to introduce accrual accounting in selected municipalities had only limited success. After this, udle reduced its efforts and support in accrual accounting until 2007. However since one year udle restarted major efforts in accrual accounting implementation and is preparing a comprehensive implementation scenario. This report is part of this process. Analysis and lessons learnt It is obvious that only those municipalities which received either strong technical support from udle (Dharan and Butwal) or had accrual accounting on the agenda since a relatively long time (Kathmandu Metropolitan City) succeeded to continue accrual accounting practice. Only KMC had enough resources to organize and finance extra accrual accounting training for their staff when udle support was not sufficient anymore, especially in the post implementation phase. Major reported obstacles for the successful implementation in the municipalities were: • Lack of sufficient training on manual as well as computerized accrual accounting practise. A proper general training before the implementation which would have made sure that the accounting staff both knows and understands the concept of manual and computerized accrual accounting was missing. The same holds true for the post implementation phase, where a long term, individual needs based refresher training as well as general technical back up and support on demand for all municipalities was missing. • Lack of conceptual clarity by the municipalities and other important stakeholders what accrual accounting actually is. This again indicates insufficient theoretical and practical information.
Page 1 and 2: Urban Development through Local Eff
Page 3 and 4: Contents 01. Executive Summary (p.1
Page 5 and 6: Cash Accounting vs. Accrual Account
Page 17: Findings and observations in the Ne
Page 21 and 22: Findings and observations in the Ne
Page 23 and 24: Findings and observations in the Ne
Page 25 and 26: How to implement Accrual Accounting
Page 33 and 34: Annex 30 05. Annex Annex 1 IPSAS Li
Page 35 and 36: References 32 06. References ADB (2
Page 37: References 34 Schiavo-Campo, S. & T

GTZ Report on Accrual Accounting Status Quo - LGCDP

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