Financial Reporting under the Cash Basis of Accounting
Comments from the Association of Chartered Certified
Accountants
November 2000
ACCA supports IFAC's proposal of developing an accounting standard for financial reporting under the cash basis of accounting for improving public sector accountability. We agree, in the main, with the proposals set out in the draft standard, although we have reservations concerning the following issues.
- Defining control in a public sector context is
a complex issue and we believe that the approach taken in International
Public Sector Standard (IPSAS) 6 is too simplistic for the public
sector, particularly as this issue is still being deliberated by
standard setters in a number of jurisdictions throughout the world.
Paragraph 146 of the draft concerning proportional consolidation of
jointly controlled entities is inconsistent with paragraph 147; the
former paragraph requires proportional consolidation of cash payments
and receipts whereas the latter suggests a single line of net cash flow.
ACCA does not support proportional consolidation of profits or assets
generally and we find the idea of jointly controlled cash (see paragraph
144(b) of the study) difficult to comprehend.
- We believe that the concept of "financial
standing" as used in relation to UK local government entities is more
relevant to public sector entities than the "going concern" concept.
- ACCA believes that additional information
concerning an entity's current assets and liabilities, such as movements
between the opening and closing balances, should be required as a note
to the accounts. We also believe that disaggregated information should
also be provided as a note to each line of the cash flow statement, such
as, for separating out cash flows in relation to operating activities
from cash flows relating to the administration of government.
- It is not clear from the draft whether capital grants should be shown as cash flows from operating activities or financing activities. Paragraph 34(c) implies that capital grant receipts should be classed as operating activities and grants are not mentioned at all at paragraph 37 which discusses investing activities. Paragraph 36 is unhelpful in that it says that where no clear distinction is made then all grants should be treated as operating, but does not say how things should be treated where this distinction is made. The examples in Appendix 1 & 2 both refer to operating grants, without any mention of capital grants.