GTZ Report on Accrual Accounting Status Quo - LGCDP
GTZ Report on Accrual Accounting Status Quo - LGCDP GTZ Report on Accrual Accounting Status Quo - LGCDP
How to implement Accrual Accounting 23 Accrual Accounting Implementation Plan • A detailed implementation plan with major project milestones from a macro (national) as well as micro (municipal) perspective is needed to clarify the different assignments of the relevant stakeholders. • The micro level implementation plan needs to be flexible enough to be adjusted to the different situations and needs in the municipalities (especially with regard to the components of the accrual accounting). • The macro level accrual accounting implementation plan displays the overall national perspective of accrual accounting implementation. • Both types need to include specified inputs, activities, milestones, project phases, timelines, objectives and outcomes. • These plans must be available for interested stakeholders in written and digital version to enhance the transparency of the process. Obtaining information (databases, past records and documentation) • Central government agencies (e.g. Land revenue office) and the municipalities have to integrate their information on assets, receivables (e.g. tax), payables etc. into one database. This has to be done before accrual accounting software implementation. Otherwise a comprehensive asset, debt and tax management will not be possible. • If these information are not available, the municipalities should start the valuation of capital and floating assets according to the guidelines well in advance. • In the end the obtained information and databases should be integrated into a ready available accrual accounting software. Chart of Accounts • Before accrual accounting implementation, a new standardized chart of accounts for public accrual accounting needs to be developed. • A chart of accounts organizes the different accounting heads based on specific number digits. That makes the classification and coding of transactions and events possible, so that they can be tracked down to specific cost centres (e.g. a bus park or individuals). • The digits should be similar to the private sector chart of accounts. That would facilitate the knowledge and staff exchange between the public and private sector. • The chart of accounts should allow the integration of current tax reform programs in Nepal (i.e. adding PAN to four to six digit account numbers to track tax payments). Inventory Who is supporting Udle (MLD-
How to implement Accrual Accounting 24 • The inventory is a major component when preparing the first opening balance sheet since it identifies the movable and immovable assets which will later on be valuated, maintained and perhaps are subject to reinvestments. • The first inventory should not be too extensive and be more focused on very valuable, crucial assets or assets at risk (e.g. transport facilities, health care, emergency facilities and other infrastructure) Valuation of assets • The valuation of assets is a major component of accrual accounting that should be treated carefully. • There are various valuation methods according to the type of asset. Land should be valuated according to an average standard price per square meter. The valuation of municipal buildings, streets etc. should be carried out in a very conservative way, focussing mainly on replacement values since the municipality usually does not want to sell their office buildings or streets. Movable assets like cars and trucks can be valued according to their purchase price or to their current market value. • In the past the Land Revenue Office was responsible for land inventory and valuation. However, municipalities should take over these functions in the future since it is their property. • All in all valuation of assets should be conservative and not to high since it is very crucial to set appropriate depreciations, reserve allocations and reinvestment amounts. • In addition, it should not be allowed to revaluate assets every year and thereby manipulating the equity capital. Revaluation should only happen in defined timeframes according to an accrual accounting regulation. Depreciations • Depreciations are essential for asset management and are displaying the wear and tear of assets or net resource consumption. • The reason for the devaluation of an asset can be the simple usage or a change in current market prices. • In order to depreciate, one needs to estimate how long an asset can be used. In order to keep it simple, one should then depreciate on a linear basis per fiscal period. This should be done very realistically. It is of no use to set the usage time unrealistically high in order to be able to book a lower depreciation per fiscal period. This will only lead to the fact that e.g. a street will be already completely devalued before the planned usage time is achieved. Therefore the street will be in a very bad condition and the municipality has no available reserves to cover these unplanned cots. However the usage time of an asset can be reviewed after some time to adjust the estimation, if required. Udle (MLD-
- 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 7 and 8: Cash Accounting vs. Accrual Account
- Page 9 and 10: Cash Accounting vs. Accrual Account
- Page 11 and 12: Cash Accounting vs. Accrual Account
- Page 13 and 14: Cash Accounting vs. Accrual Account
- Page 15 and 16: Cash Accounting vs. Accrual Account
- Page 17 and 18: Findings and observations in the Ne
- Page 19 and 20: 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: How to implement Accrual Accounting
- Page 29 and 30: How to implement Accrual Accounting
- Page 31 and 32: 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
How to implement <strong>Accrual</strong> <strong>Accounting</strong> 24<br />
• The inventory is a major comp<strong>on</strong>ent when preparing the first opening balance sheet since it identifies the movable and immovable assets which<br />
will later <strong>on</strong> be valuated, maintained and perhaps are subject to reinvestments.<br />
• The first inventory should not be too extensive and be more focused <strong>on</strong> very valuable, crucial assets or assets at risk (e.g. transport facilities,<br />
health care, emergency facilities and other infrastructure)<br />
Valuati<strong>on</strong> of assets<br />
• The valuati<strong>on</strong> of assets is a major comp<strong>on</strong>ent of accrual accounting that should be treated carefully.<br />
• There are various valuati<strong>on</strong> methods according to the type of asset. Land should be valuated according to an average standard price per square<br />
meter. The valuati<strong>on</strong> of municipal buildings, streets etc. should be carried out in a very c<strong>on</strong>servative way, focussing mainly <strong>on</strong> replacement<br />
values since the municipality usually does not want to sell their office buildings or streets. Movable assets like cars and trucks can be valued<br />
according to their purchase price or to their current market value.<br />
• In the past the Land Revenue Office was resp<strong>on</strong>sible for land inventory and valuati<strong>on</strong>. However, municipalities should take over these functi<strong>on</strong>s<br />
in the future since it is their property.<br />
• All in all valuati<strong>on</strong> of assets should be c<strong>on</strong>servative and not to high since it is very crucial to set appropriate depreciati<strong>on</strong>s, reserve allocati<strong>on</strong>s<br />
and reinvestment amounts.<br />
• In additi<strong>on</strong>, it should not be allowed to revaluate assets every year and thereby manipulating the equity capital. Revaluati<strong>on</strong> should <strong>on</strong>ly happen<br />
in defined timeframes according to an accrual accounting regulati<strong>on</strong>.<br />
Depreciati<strong>on</strong>s<br />
• Depreciati<strong>on</strong>s are essential for asset management and are displaying the wear and tear of assets or net resource c<strong>on</strong>sumpti<strong>on</strong>.<br />
• The reas<strong>on</strong> for the devaluati<strong>on</strong> of an asset can be the simple usage or a change in current market prices.<br />
• In order to depreciate, <strong>on</strong>e needs to estimate how l<strong>on</strong>g an asset can be used. In order to keep it simple, <strong>on</strong>e should then depreciate <strong>on</strong> a linear<br />
basis per fiscal period. This should be d<strong>on</strong>e very realistically. It is of no use to set the usage time unrealistically high in order to be able to book a<br />
lower depreciati<strong>on</strong> per fiscal period. This will <strong>on</strong>ly lead to the fact that e.g. a street will be already completely devalued before the planned usage<br />
time is achieved. Therefore the street will be in a very bad c<strong>on</strong>diti<strong>on</strong> and the municipality has no available reserves to cover these unplanned<br />
cots. However the usage time of an asset can be reviewed after some time to adjust the estimati<strong>on</strong>, if required.<br />
Udle (MLD-<str<strong>on</strong>g>GTZ</str<strong>on</strong>g>), all<br />
municipalities,<br />
c<strong>on</strong>sultants<br />
Who is supporting<br />
Udle (MLD-<str<strong>on</strong>g>GTZ</str<strong>on</strong>g>), all<br />
municipalities,<br />
c<strong>on</strong>sultants<br />
Who is supporting<br />
Udle (MLD-<str<strong>on</strong>g>GTZ</str<strong>on</strong>g>), all<br />
municipalities,<br />
c<strong>on</strong>sultants
Change language