ICAB-CAPA

INTERNATIONAL CONFERENCE

STRENGTHENING BANGLADESH PUBLIC SECTOR

ACCOUNTING AND AUDITING - GLOBAL REFORMS AND THE

WAY FORWARD

on

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ANWARUDDIN CHOWDHURY

Council member & Past President ICAB

Director CAPA Board

Keynote Paper on

“STRENGTHENING PUBLIC SECTOR ACCOUNTING

AND AUDITING IN BANGLADESH”

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ACCOUNTABILITY ISSUES

Agencies In Democratic System: Legislative Branch

Executive Branch

Judiciary

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LEGISLATIVE BODIES

ParliamentParliament

Public Accounts CommitteePublic Accounts Committee

Public Undertakings CommitteePublic Undertakings Committee

Parliamentary Standing CommitteesParliamentary Standing Committees

Comptroller and Auditor GeneralComptroller and Auditor General

All the Law Courts All the Law Courts

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Prime MinisterPrime Minister

MinistersMinisters

Secretaries of The MinistriesSecretaries of The Ministries

Executives of The Government AgenciesExecutives of The Government Agencies

Accounts OfficesAccounts Offices

EXECUTIVES

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ACCOUNTABLE FOR WHAT?

Accountability for Stewardship of Financial Accountability for Stewardship of Financial

ResourcesResources

Accountability For Efficiency and Economy of Accountability For Efficiency and Economy of

OperationsOperations

Accountable for Faithful Compliance Adherence to Accountable for Faithful Compliance Adherence to

Legal Legal Requirements & Requirements &

Administrative Policies Administrative Policies

Accountability for Results of Government Activities Accountability for Results of Government Activities

Reflected in Reflected in

Accomplishments and EffectivenessAccomplishments and Effectiveness 14

Pertinent issues on Accountability: Pertinent issues on Accountability:

   Audit objections so far disposed off by the PA CommitteeAudit objections so far disposed off by the PA Committee

What actions so far taken on PA Committee'sWhat actions so far taken on PA Committee'srecommendations?recommendations?

Have there been improvements ?Have there been improvements ?

ParliamenParliamen

t t President President

SAI (CAG)SAI (CAG)

PA PA

CommitteeCommittee

Audit Audit

ReportsReports

ACCOUNTABILITY FRAMEWORK

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Government / Public Sector Organisations

Applicable Laws Audit authority/b

yGovernment Ministries Constitution C AGDepartments/Divisions/Directorates

Constitution CAG

Autonomous /Semi Autonomous Bodies

CAG Addl. Functions Act.

CAG CA firms

Local Authorities Relevant laws CAG, CA Firms

State Owned Banks and DFIs CAG Addl. Functions Act.

CAG, CA firms

Government Owned Entities CAG Addl. Func /CA ‘94

CAG, CA Firms

Nationalised Industries Nationalisation Order,1972

CAG, CA Firms

Foreign Aided Projects CAG Addl Func Act-74 Donor

CAG, CA firms

Govt. Educational institutions/ Hospitals etc.

Constitution CAG

LEGAL JURISDICTION OF PUBLIC SECTOR AUDIT

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Bangladesh Constitution (1972)Bangladesh Constitution (1972)

C & AG’s (Additional Functions) Act (1974)C & AG’s (Additional Functions) Act (1974)

MOF Executive Order -CAG Estd. (1985)MOF Executive Order -CAG Estd. (1985)

Nationalization Orders (1972)Nationalization Orders (1972)

Denationalization Orders (1982)Denationalization Orders (1982)

Relevant Enactments/Presidential Orders Relevant Enactments/Presidential Orders

Companies Act (1994)Companies Act (1994)

Bank Companies Act (1991)Bank Companies Act (1991)

LEGAL FRAMEWORK FOR PUBLIC SECTOR

AUDIT

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OCAG ORGANOGRAM

Bangladesh Railway Finance Department

Bangladesh Railway Finance Department

A & R = Accounts and Reports

ADG = Additional Director General

BR = Bangladesh Railway

CGDF = Controller General Defence Finance

DCAG = Deputy Comptroller and Auditor General

DG = Director General

FA & CAO = Financial Adviser & Chief Accounts Officer

FC = Finance Controller

JDG = Joint Director General

SFC = Senior Finance Controller

A & R = Accounts and Reports

ADG = Additional Director General

BR = Bangladesh Railway

CGDF = Controller General Defence Finance

DCAG = Deputy Comptroller and Auditor General

DG = Director General

FA & CAO = Financial Adviser & Chief Accounts Officer

FC = Finance Controller

JDG = Joint Director General

SFC = Senior Finance Controller

Training Academy Training Academy Audit Directorates Audit Directorates Defence Finance Department

Defence Finance Department

CAG Office CAG Office

DCAG (Senior) Gr. II DCAG (Senior) Gr. II CGDF Gr. IICGDF Gr. II DG Financial Management Academy, Gr. II

DG Financial Management Academy, Gr. II

DCAG (A&R) Gr. III DCAG (A&R) Gr. III

DCAG (Procedure) Gr. III

DCAG (Procedure) Gr. III

JDG (Finance), (BR) Gr. III

JDG (Finance), (BR) Gr. III

FA & CAO (East), BR Gr. IIIFA & CAO (East), BR Gr. III

FA & CAO (West), BR Gr. IIIFA & CAO (West), BR Gr. III

FA & CAO (Project), BR Gr. III

FA & CAO (Project), BR Gr. III

Addl. FA & CAO BR-3 Gr. IV

Addl. FA & CAO BR-3 Gr. IV

SFC (Army) Gr. III

SFC (Army) Gr. III

SFC (Navy) Gr. III

SFC (Navy) Gr. III

SFC (Air Force) Gr. III

SFC (Air Force) Gr. III

SFC (Defence Works) Gr. III

SFC (Defence Works) Gr. III

SFC (Defence Purchase) Gr. III

SFC (Defence Purchase) Gr. III

DG Post, Telegraph & Telephone Audit

Directorate, Gr. III

DG Post, Telegraph & Telephone Audit

Directorate, Gr. III

DG

Local and Revenue Audit Directorate, Gr. III

DG

Local and Revenue Audit Directorate, Gr. III

DG

Commercial Audit Directorate, Gr. III

DG

Commercial Audit Directorate, Gr. III

DG Works Audit Directorate

Gr. III

DG Works Audit Directorate

Gr. III

DG Railway Audit Directorate

Gr. III

DG Railway Audit Directorate

Gr. III

DG Civil Audit Directorate

Gr. III

DG Civil Audit Directorate

Gr. III

DG Foreign Aided Projects Audit

Directorate, Gr. III

DG Foreign Aided Projects Audit

Directorate, Gr. III

DG Defence Audit Directorate,

Gr. III

DG Defence Audit Directorate,

Gr. III

DG Mission Audit Directorate,

Gr. III

DG Mission Audit Directorate,

Gr. III

DG Performance Audit Directorate,

Gr. III

DG Performance Audit Directorate,

Gr. III

ADG (Finance) Bangladesh Railway (BR) Gr. II

ADG (Finance) Bangladesh Railway (BR) Gr. II

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GOVT / PUBLIC SECTOR FINANCIAL ACCOUNANTABILITY

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FINANCIAL ACCOUNANTABILITY OF

LOCAL GOVERNMENT AUTHORITIES

StakeholdeStakeholdersrs

Municipal Municipal BodiesBodiesOrdinancesOrdinances

C&AG AuditorC&AG Auditor

OwnershipOwnership ManagementManagement

MLGRDCMLGRDC

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PUBLIC SECTOR PURVIEW

IPSASB FrameworkIPSASB Framework

““Public sector refers to Governments, Regional Government, Public sector refers to Governments, Regional Government, Local Governments & Related Government entities including Local Governments & Related Government entities including Agencies, Boards, Commissions & Enterprises”Agencies, Boards, Commissions & Enterprises”

Public Sector Covers all Arena of Public Services Provided Public Sector Covers all Arena of Public Services Provided by the Following Agencies:by the Following Agencies: Government MinistriesGovernment Ministries Divisions /Directorates / DepartmentsDivisions /Directorates / Departments Government Sub-Ordinate Offices Government Sub-Ordinate Offices Local Government AuthoritiesLocal Government Authorities Autonomous/Semi-Autonomous BodiesAutonomous/Semi-Autonomous Bodies Public Sector CorporationsPublic Sector Corporations Foreign Aided Projects (SCOPE/SPEMP B)Foreign Aided Projects (SCOPE/SPEMP B) State Owned Enterprises (SOEs)State Owned Enterprises (SOEs) State Owned Bank (SOB)State Owned Bank (SOB) Hospitals/Educational Institutions etc.Hospitals/Educational Institutions etc.

Bangladesh Public Sector Coverage

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Essential for Increased Accountability and Transparency in Use of Public Funds

Developing Public Sector Awareness of Govt. Spending

Credibility of Financial Information for Public Trust

Timeliness of Financial Information for Good Governance and Decisions

Increased Credibility for Attracting FDI

Assurance to Development Partners

Improved Sovereign Rating Awards

Efficient Financial Reporting System for Economic Development and Public Welfare.

IMPORTANCE OF FINANCIAL REPORTING SYSTEM FOR IMPORTANCE OF FINANCIAL REPORTING SYSTEM FOR GOVERNMENTS / PUBLIC SECTORGOVERNMENTS / PUBLIC SECTOR

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PUBLIC SECTOR AUDITOR’S ROLE:PUBLIC SECTOR AUDITOR’S ROLE:

Determining Oversight Determining Oversight

Facilitating ForesightFacilitating Foresight

Increasing InsightIncreasing Insight

Conducting Objective Independent Financial AuditConducting Objective Independent Financial Audit

Conducting Performance/VMA Environment and IT Conducting Performance/VMA Environment and IT Audit Audit

Enhancing Economy, Efficiency and Effectiveness of Enhancing Economy, Efficiency and Effectiveness of Resources Utilization of Audit Entities Resources Utilization of Audit Entities

Meet Expectations or Development Partners/Fund Meet Expectations or Development Partners/Fund Provider’sProvider’s

Ensuring Transparency of Financial InformationEnsuring Transparency of Financial Information

Assuring Accountability of Management DecisionsAssuring Accountability of Management Decisions

Combating Corruption, Misuse & Wastage Combating Corruption, Misuse & Wastage 23

PUBLIC SECTOR AUDIT FOCUSPUBLIC SECTOR AUDIT FOCUS

Emphasis on Expenditure Emphasis on Expenditure

Availability of BudgetAvailability of Budget

Authorisation By Competent AuthorityAuthorisation By Competent Authority

Payment Acknowledged By Right PersonPayment Acknowledged By Right Person

Government Rules And Procedures CompliedGovernment Rules And Procedures Complied

Expenditures Properly ClassifiedExpenditures Properly Classified

Justification Of ExpendituresJustification Of Expenditures

Emphasis on Cash Expenditures And Cash Income Emphasis on Cash Expenditures And Cash Income

-- Not on Accruals (Cash Basis IPSAS)Not on Accruals (Cash Basis IPSAS)

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FINANCIAL STATEMENTS UNDER CASH/ACCRUAL FINANCIAL STATEMENTS UNDER CASH/ACCRUAL

REPORTING SYSTEMS REPORTING SYSTEMS

Cash Basis of Accounting

Cash Flow Statement Statement of Accounting Policies and Explanatory Notes

Accrual-basis Accounting

Statement of Financial Position Statement of Financial Performance Cash Flow Statement Statement of Changes in Net Assets/ Equity Accounting Policies and Explanatory Notes to FS

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Objectives

Cash Accrual

Cash BasisModifications to the Cash

Basis

Modifications to the Accrual

BasisAccrual Basis

Compliance with legally adopted budgets

Yes Yes Yes Yes

Compliance with legal and contractual requirements, including spending limits.

Relating to cash requirement and limits.

Cash and near cash requirements and limits.

Cash and financial resources requirements and limits.

Cash and economic resources requirements and limits.

Sources, allocation and uses of financial requirements.

Cash resources

Cash and near cash resources.

Cash and financial resources.

Cash and financial resources.

Financing and cash requirements.

Cash resources

Cash and near cash resources.

Cash and other financial requirements.

Cash and other financial requirements.

Ability to finance activities and to meet liabilities and commitments.

From cash From cash and near cash

From financial resources

From economic resources.

Financial condition and changes therein.

Cash position

Cash and near cash position

Financial resources.

Financial and economic resources.

Financial performance in terms of service costs.

Information not reported

Information not reported

Limited information reported.

Provides information necessary to assess performance.

Source: Government Financial Reporting, Study 11, issued by IFAC Public Sector Committee.

ALTERNATIVE BASES OF ACCOUNTINGALTERNATIVE BASES OF ACCOUNTING

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Cash Flows

Budget

GOVERNMENT PUBLIC SECTOR REPORTING GOVERNMENT PUBLIC SECTOR REPORTING - CASH / ACCRUAL ACCOUNTING- CASH / ACCRUAL ACCOUNTING

Revenues,

Expenses Budget

Assets, Liabilities

Estimate

Revenues,

Expenses Actuals

Assets, Liabilities

Actuals

Cash Flows Actuals

Cash Accounting

(SE)

Accrual Accountin

g(DE)

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CASH-BASIS IPSAS: TRANSITION STEP TO ACCRUAL CASH-BASIS IPSAS: TRANSITION STEP TO ACCRUAL IPSAS IPSAS

(OCAG BANGLADESH)(OCAG BANGLADESH)Accrual

Accounting IPSAS 1-

32(Accrual

DE)Cash-Basis IPSAS

(Transition Step)

Current policies

(Cash SE )

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ACCRUAL AND CASH ACCOUNTING : AN INTEGRATIVE APPORACH

Accrual and Cash

Accounting are Fully

Integrated Adoption of Cash-

Basis IPSAS is

Facilitated Requiring Direct

Method Cash Flow

Statement

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IFAC

IPSAS Board = IPSAS

IAAS Board = ISA

IASB = IFRS

INTOSAI = ISSAI

(MOSAIC - INTOSAI / IFAC )

International Public Sector Accounting Standards -

IPSAS 2011 (Appendix I)

Cash Basis IPSAS-Financial Reporting Under Cash Basis Accg.

Accrual Basis IPSAS-32 Standards

ROLE OF INTERNATIONAL STANDARDS SETTING BODIES

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Advocacy for Awareness Development

Collaboration with CAG & Development Partners

Impart Skills Development Training for Accrual Accounting,

Preparation Double Entry Financial Statements

Implementation of IPSAS, ISSAI, IFRS, ISA

Organize Seminars/Workshops on Relevant Issues

Provide Relevant Inputs to Standards Setters

Devise Sustainable Strategies for Future Development Public Sector Financial Management.

ROLE OF ACCOUNTANCY PROFESSION (ICAB)

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INDIA Central & Provincial Government – Cash Accounting Local bodies moving to Accrual-Based Accounting ICAI Technical Support for Accrual-Based Accounting Government Accounting Standards Advisory Board

(GASAB) Developing Accrual-Based Accounting Standards

PAKISTAN

Federal & Provincial Government – Cash Accounting Local Bodies Moving to Modified Cash Accounting New Accounting Model Implemented for Accrual

Accounting CGA & AG cognizant of IPSAS

STATUS OF IMPLEMENTATION OF ACCRUAL-BASED STATUS OF IMPLEMENTATION OF ACCRUAL-BASED ACCOUNTING IN SOUTH ASIAN COUNTRIESACCOUNTING IN SOUTH ASIAN COUNTRIES

Contd.32

BANGLADESH

Government Agencies – Cash Accounting Moving to Cash IPSAS

Local Bodies - Cash Accounting ICAB Committee on Government Accounting ICAB Members Cognizant of IPSAS

SRI LANKA Central Government & Provincial Councils – Cash

Accounting Local Bodies using Accrual-Based Accounting partially. ICASL’s Developing Accrual-Based Accounting Standards.

NEPAL Cash-Based Government Accounting System IPSAS are Included in the Curriculum of ICAN Plans for Accrual-Based Accounting System

STATUS OF IMPLEMENTATION OF ACCRUAL-BASED ACCOUNTING IN SOUTH ASIAN COUNTRIES

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Inducing Political Will/Commitment and Mindset Changes

Encouraging Parliamentary Scrutiny

Strengthening Public Sector Financial Management

High Quality Financial Reporting & Credible Auditing

Enhancing Accountability & Transparency in Govt. Decisions

Increasing Public Credibility of Govt. Performance

Meeting Donor Expectations

Capacity Building & Institutional Development (Training)

Implementation of Accrual Accounting.

Implementation of Accounting/ Auditing Standards

OCAG Organization Reforms

Technology Orientation

NEED FOR REFORMS

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Political Will /Commitment of Government.

Mindset Changes in Civil Administration

OCAG Capacity Building & Institutional Development

Professional Skills Development

Financial Resources Availability

Support of Development Partners

Implementation of Accrual Accounting System.

Preparation of FS on Double Entry Principles

Implementation of IPSAS - Cash and Accrual

Application of Auditing Standards - ISSAI/ ISA

Valuation of Govt. Assets / Determination of Liabilities

Effective Implementation of TA Projects (SCOPE,SPEMP B)

CHALLENGES

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Composition of High Powered Task Force

Legislative Changes : Audit Act Enactment

Effective Parliamentary Scrutiny Process

Independent and Effective SAI (CAG)

Separation of Accounting & Auditing Functions

Capacity Building and Institutional Development of OCAG

Adequate Appropriate Application of IPSAS & ISSAI

Customization of International Standards - Adaptation

Conversion to Accrual Accounting – Pilot Projects

Timeframe Fixation for Double Entry & Accruals IPSAS

Dedicated Training Program/ IT Orientation of OCAG

Strategic Partnership Between SAI(CAG) & Profession (ICAB)

Proactive Role by Accountancy Profession (ICAB)

POLICY ISSUES AND RECOMMENDATION

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Policy Decisions at Legislative LevelPolicy Decisions at Legislative Level Enabling Environment For CooperationEnabling Environment For Cooperation

-- Formation of Task ForceFormation of Task Force

Capacity Building /Strengthening InstitutionsCapacity Building /Strengthening Institutions Development of Action PlanDevelopment of Action Plan

-- Main Directions -Responsibility - Time FrameMain Directions -Responsibility - Time Frame

Progress Towards Accrual AccountingProgress Towards Accrual Accounting

Develop Standards, Methods and Practices Develop Standards, Methods and Practices

Synergize Strategic Partnership Between CAG and ICAB

THE WAY FORWARDTHE WAY FORWARD

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Develop Awareness for Mindset Changes

Stimulate Political Will &

Commitment for Implementation of

Reforms Agenda

Establish Strategic Sense of Direction

Catalyze Leadership Decisions for

Strengthening Public Sector Accounting

and Auditing With Global Best Practices

MESSAGEMESSAGE

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INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS) 2011

IPSAS 1—Presentation of Financial Statements

IPSAS 2—Cash Flow Statements

IPSAS 3—Accounting Policies, Changes in Accounting Estimates and Errors

IPSAS 4—The Effects of Changes in Foreign Exchange Rates

IPSAS 5—Borrowing Costs

IPSAS 6—Consolidated and Separate Financial Statements

IPSAS 7—Investments in Associates

IPSAS 8—Interests in Joint Ventures

IPSAS 9—Revenue from Exchange Transactions

IPSAS 10—Financial Reporting in Hyperinflationary Economies

IPSAS 11—Construction Contracts IPSAS 12—Inventories IPSAS 13—Leases IPSAS 14—Events after the Reporting Date

IPSAS 15—Financial Instruments: Disclosure and Presentation Contd.

APPENDIX

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IPSAS 16—Investment Property IPSAS 17—Property, Plant, and Equipment IPSAS 18—Segment Reporting IPSAS 19—Provisions, Contingent Liabilities and Contingent Assets IPSAS 20—Related Party Disclosures IPSAS 21—Impairment of Non-Cash-Generating Assets IPSAS 22—Disclosure of Financial Information in Government Sector IPSAS 23—Revenue from Non-Exchange Transactions (Taxes and Transfers) IPSAS 24—Presentation of Budget Information in Financial Statements IPSAS 25—Employee Benefits IPSAS 26—Impairment of Cash-Generating Assets IPSAS 27—Agriculture IPSAS 28—Financial Instruments: Presentation IPSAS 29—Financial Instruments: Recognition and Measurement IPSAS 30—Financial Instruments: Disclosures IPSAS 31—Intangible Assets IPSAS 32—Service Concession Arrangements - Guarantor 40

HAPPY PUBLIC SECTOR FINANCIAL HAPPY PUBLIC SECTOR FINANCIAL

MANAGEMENT MANAGEMENT

LET’S GO AHEAD LET’S GO AHEAD ANDAND

DEVISE SUSTAINABLE STRATEGIES FOR DEVISE SUSTAINABLE STRATEGIES FOR

STRENGTHENING PUBLIC SECTOR STRENGTHENING PUBLIC SECTOR

ACCOUNTING AND AUDITING IN ACCOUNTING AND AUDITING IN

BANGLADESHBANGLADESH

THANK YOUTHANK YOU

VERY MUCH INDEEDVERY MUCH INDEED41