Below are some observations made after an assessment of the General-Purpose Financial Report (GPFR) prepared by a public sector entity in 2018:
i) Not only transactions were not treated in accordance with the IPSAS some were omitted unknowingly.
ii) In presenting the financial performance, position and cash flow for the current financial year, 2018, the accountant has also provided information on the current year’s budget.
iii) Investment amounting to GH¢1,000,000 in short term security report in the financial position lacks supporting document even though the investment may exist.
iv) The financial report was dated 30 June 2019, which is an improvement over the previous years, which was signed in September 2018.
Required:
In line with the Conceptual Framework for GPFR by public sector entity:
Explain the qualitative characteristics of GPFR for each observation in (i) to (iv) above and explain how each of the observations affect the usefulness of the GPFRs to the Users. (5 marks)
View Solution
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)