• The performance of the entity during the reporting period in terms of meeting its operational and financial objectives;
• The liquidity and solvency (ability to meet current and long-term obligations) of the entity.
• The sustainability of the entity’s service delivery and other operations over the long term and changes therein as a result of the activities of the entity during the reporting period in terms of financial capacity and operational capacity.
• The capacity of the entity to adapt to changing circumstances such as change in demographic or economic condition that are likely to impact the nature or composition of the activities it undertakes and the services it provides.

(1.25 mark for each point explained = 5 marks)

Historical cost is the consideration given to acquire or develop an asset, which is the cash or cash equivalents or the value of the other consideration given, at the time of its acquisition or development. Historical fairly reflects the:

• Cost of service by providing information on the amount of the resources expended to acquire or develop assets consumed in the provision of services.
• Operational capacity through information on the resources available to provide services in future periods based on their acquisition cost.
• Financial capacity by providing information on the amount of assets that may be used as effective security against borrowing.

Market value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Vehicle is traded in the open, active and orderly markets so obtaining the market value is practicable. Market value fairly reflects the:

• Cost of service by allocating the cost of assets to reflect their consumption in the current reporting period based on current market values of the vehicles.
• Operational capacity by providing information on the market value of assets held to provide services in the future periods.
• Financial capacity by providing information on the amount that would be received on the sale of the assets.

Replacement cost is the measurement basis that fairly reflect the cost of service, operational capacity and financial capacity of the library books. Replacement cost is the most economic cost required for the entity to replace the service potential of an asset at the reporting date. The use of replacement cost fairly reflects the:

• Cost of service to be equivalent to the amount of sacrifice of service potential incurred by that use.
• Operational capacity by the resources available to provide services in future periods, a sit focused on the current value of the assets and its service potential to the entity.
• Financial capacity is not reflected by replacement cost basis as it does not provide information on the amounts that would be received on sale of asset.

GPFR are financial reports prepared primarily to respond to the information of users who do not possess the authority to require a public entity to disclose the information they need for accountability and decision-making purposes. GPFR must be prepared in compliance with the IPSAS. On the other hand SPFR are those reports prepared to respond to the information requirements of the users that have authority to require the preparation of financial reports that disclose the information they need for their particular purpose. SPFR are prepared in compliance with the requirement of the user and need not to comply with IPSAS.

i) Observation
The issue borders on error in presentation and omission of information unknowingly. The case related to faithful representation. Faithful representation is attained when the information about the economic and other phenomena represents what it purports to represent.

The error and omission revealed in the in the financial report undermines the faithful representation of the information contained therein.

ii) Observation
The fact of the case is that a budget information was included in the GPFR. The qualitative characteristics that will be affected is comparability and relevance.
Comparability is the quality of information that enables users to identify simplifies and differences between two sets of phenomena. Relevance is achieved if information provided is capable of making a difference in achieving the objectives of financial reporting and this occurs when the information has confirmatory value and predictive value.

In this case, the disclosure of budget information in comparison with the actual outcomes will enhance comparability of the information thereby increasing its usefulness to the users. In addition, the inclusion of budget information will make the information relevant by enhancing its confirmatory and predictive value.

iii) Observation
Here an asset, investment reported in the financial statement is not support with relevant documents. This will affect the verifiability of the financial information. Verifiability is the quality of information that helps assure users that information in the GPFR faithfully represents the economic and other phenomenon that it purports to represent.

In this case, the absence of supporting document to the investment undermines the verifiability of the information hence decreases the usefulness of the information to the users.

iv) Observation
The 2018 financial report was issued in June 2019, six months after end of year. The 2017 finnacial report was issued in September 2018, 9 months after year end. There is improvement over 2017 but the issue here is about timeliness of the information. Timeliness means having the information available for users before it loses its capacity to be useful for accountability and decision-making purposes. Under the Public Financial Management Act 2016 Act 921, a covered entity is required to issue its report two months after the end of the year, that is, by February every year. In the case reported, the financial report of the entity cannot be said to be timely.
Lack of timeliness can render information less useful.

(Each well explained point @ 1.25 marks each = 5 marks)

• Statutory/ Legal Requirement: The conduct of financial business by public organizations is governed by laws, rules and regulations, example The 1992 Constitution, Financial Administration Act etc. This legal framework entreats officers to keep proper records of all transactions and produce them for inspection at the instance of the appropriate authorities, for example the Minister of Finance. This is to assure the public that they are complying with the law and meeting the objectives for which they were set up.
• Compliance and Stewardship: It is the objective of public sector accounting to provide the responsible authorities and users of such information with the assurance that there has been conformity with legal and other mandatory requirements in the organization’s use of resources.
• Viability: Another objective of financial reporting of public sector organizations is to enable the authorities to monitor and evaluate the performance of such organizations, as well as to predict the economic conditions of such organizations. Similarly, it affords readers to judge whether the organization can continue to provide Goods & Services in the future (going concern).
• Planning and Authorization Information: Public sector accounting has the objective of providing financial information which serves as the basis for planning future policies and activities and to provide support.
• Full disclosure of the financial results of department and agency activities.
• Production of adequate financial information needed for department and agency management purposes.
• Effective control over and accountability for all funds, property, and other assets for which each department and agency is responsible.
• Reliable accounting reports to serve as the basis for preparation and support of department and agency budget required to control the execution of the budget and to provide financial information.
• Suitable integration of department and agency accounting with the central accounting and reporting operation of the Treasury Department.

Primary users of GPFRs are service recipients and their representatives and resource providers and their representatives.

• To provide financial information useful for determining and predicting the flows, balance and requirements of short-term financial resources of government;
• To provide financial information useful for determining and predicting the economic condition of the government unit and changes therein;
• To provide financial information useful for monitoring performance under terms of legal, contractual and fiduciary requirements;
• To provide information useful for evaluating managerial and organizational performances;
• Determining the costs of programme, functions and activities in a manner which facilitates analysis and valid comparison, with established criteria among time periods and with other sector ministers;

Qualitative characteristics are the attributes that make the information provided in financial statements useful to users. They are applicable to financial statements, regardless of the basis of accounting used to prepare the financial statements. The four principal qualitative characteristics are understandability, relevance, faithful representation and comparability.

• Understandability
  Information is understandable when users might reasonably be expected to comprehend its meaning. For this purpose, users are assumed to have a reasonable knowledge of the entity’s activities and the environment in which it operates, and to be willing to study the information .Information about complex matters should not be too difficult for certain users to understand.
• Relevance
  Information is relevant to users if it can be used to assist in evaluating past, present or future events or in confirming, or correcting, past evaluations. In order to be relevant, information must also be timely.
• Materiality
  The relevance of information is affected by its nature and materiality. Information is material if its omission or misstatement could influence the decisions of users or assessments made on the basis of the financial statement. Materiality depends on the nature or size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful.
• Faithful Representation
  For information to represent faithfully transactions and other events, it should be presented in accordance with the substance of the transaction and other events, and not merely their legal form.
• Substance Over Form
  If information is to represent faithfully the transactions and other events that it purports to represent, it is necessary that they are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. The substance of transaction or other events is not always consistent with their legal form.
• Neutrality
  Information is neutral if it is free from bias. Financial statements are not neutral if the information they contain has been selected or presented in a manner designed to influence the making of a decision or judgment in order to achieve a predetermined result or outcome.
• Prudence
  Prudence is the inclusion of a degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or revenue are not overstated and liabilities or expenses are not understated.
• Completeness
  The information in financial statements should be complete within the bounds of materiality and cost.
• Comparability
  Information in financial statements is comparable when users are able to identify similarities and differences between that information and information in other reports. Comparability applies to the: Comparison of financial statements of different entities; and Comparison of the financial statements of the same entity over periods of time. An important implication of the characteristic of comparability is that users need to be informed of the policies employed in the preparation of financial statements, changes to those policies and the effects of those changes.

• Comparability since no comparable results were provided in the financial statement. The usefulness would have been enhanced if the budget information was presented alongside the respective actual or previous year’s corresponding figures used.
• Timeliness is also absent since the financial statement relates to 2014 while the accounts are prepared in 2016. The time affect the value of information and the laws of Ghana requires that the accounts should be prepared and submitted not later than six months into 2015.
• Understandability. For the financial statement to be understandable it should contain notes including the disclosure of accounting policies. However, the financial statement prepared does not contain any notes or disclosure in accounting policies therefore it lacks understandability.