ACCRUAL ACCOUNTING

TOPIC 5
 INTRODUCTION

Malaysian government has adopted and developed

various accounting systems in the past years by focusing
on efforts to strengthen efficient planning, utilisation
and control of public financial resources and assets.
 ACCOUNTING PRACTICES IN PUBLIC
SECTOR
► THE DEVELOPMENT OF GOVERNMENT
ACTIVITIES OVER THE YEARS IN TERM OF SIZE
AND COMPLEXITY RAISED THE CONCERNS OVER
WHETHER THE TRADITIONAL USED OF CASH
ACCOUNTING IS SUFFICIENT FOR GOVERNMENT
ACCOUNTING AND REPORTING
► DEBATE OVER THE USE OF CASH VS ACCRUAL
ACCOUNTING
► AUSTRALIA, NZ & UK – ACCRUAL ACCOUNTING
BASIS
► MALAYSIAN GOVERNMENT HAS ALSO TAKEN
VARIOUS ACCOUNTING INITIATIVES, INCLUDING
ACCRUAL ACCOUNTING IN AN ATTEMPT TO
IMPROVE FURTHER ITS FINANCIAL ACCOUNTING
PROCEDURES
 BASIS OF PUBLIC SECTOR
ACCOUNTING
Point of Basis of accounting
recognition
Cash basis Modified cash Accrual basis Modified
basis accrual basis
Revenue When cash is When cash is When revenue When
received received is earned measurable and
available

Expenditure When cash is When When expenses When

paid expenditure is is incurred expenditure is
incurred incurred
 CASH VS. ACCRUAL ACCOUNTING :
OTHER AREAS OF DIFFERENCES
Areas Cash Basis Accrual Basis

Financial Statement FS reflects revenue & expenses based Match revenues to the expenses
on when transactions were entered incurred in earning them, and more
rather than when revenues were accurately reflect the result of
earned or expenses incurred operations
Receivables No receivables are recorded A receivable is recorded when payment
is not received at the point of sale

Payables No Payable are recorded Payables are recorded when payment is

not made at the time of purchase

Payments No method of tracking partial payments Revenues and expenses are recorded
is available in full, even though partial payments
may be made over extended time
periods
Assets Recorded when payment for assets is Recorded as asset and depreciation is
made charged over the expected useful life

Liabilities Recorded when payment for liabilities Recorded as liabilities until full
is made settlements of debt incurred
 MALAYSIAN PUBLIC SECTOR:
PRIOR TO 2015

Basis of Accounting Accounting

Accounting Standards Systems

Federal Modified Cash IPSAS cash basis GFMAS

Government Basis Government
Accounting
State Government Standards SPEKS

Local Authority Modified accrual IFRS SAGA

accounting PERS
MASB
PKPA Bil 1/2011
Statutory Body Accrual Accounting
 LIMITATION OF MODIFIED CASH
ACCOUNTING BASIS

► MAY RESULT THE GOAL OF ACCOUNTABILITY AND GOOD

GOVERNANCE NON ACHIEVABLE
► SUCH INFORMATION MAY NOT BE USEFUL, THE DISCLOSURE COULD
BE POTENTIALLY MISLEADING FROM THE FINANCIAL REPORTING
PERSPECTIVE.
► ALL EXPENDITURE ARE EXPENSED DURING THE FINANCIAL YEAR
WHEN PAYMENT ARE MADE, WITHOUT TAKING INTO REGARD THE
TIMING AND MANNER
► THE FINANCIAL POSITION OF FEDERAL CONSOLIDATED FUND ARE
TOO NARROW TO FAITHFULLY REPRESENT THE RESOURCES
CONTROLLED BY AS WELL AS THE PRESENT OBLIGATION OF, THE
GOVERNMENT
► LIMITED BASIS FOR DETERMINING FISCAL STRATEGY, HAS LIMITED
PRODUCT OR SERVICE PRICING AND HAS LIMITED DISINCENTIVES
FOR FRAUD AND CORRUPTION
 ACCRUAL ACCOUNTING

► ESSENTIAL TO SYSTEMATICALLY DETERMINE THE FULL

COSTS OF GOVERNMENT ACTIVITIES
► FULL COST- INCLUDING NON CASH COSTS IS ESSENTIAL
FOR ASSESSING THE EFFICIENCY OF GOVERNMENT
SERVICES
► FINANCIAL REPORTS PREPARED ON ACCRUAL BASIS
ALLOW USERS TO ASSESS THE ACCOUNTABILITY FOR
ALL RESOURCES THE ENTITY CONTROLS AND THE
DEPLOYMENT OF THOSE RESOURCES
► MAY HELP GENERATE BEHAVIORAL CHANGES ON THE
PART OF BUDGET DECISION MAKERS AND MANAGERS
► MAY ALSO PROMPT THE LEGISLATORS TO ASK PUBLIC
SECTOR OFFICERS QUESTIONS THAT THEY OTHERWISE
WOULD NOT ASK
 ADOPTION OF ACCRUAL ACCOUNTING IN
PUBLIC SECTOR

► EARLIER, THE PUBLIC SECTOR FINANCIAL REPORTING

WAS MEANT TO SHOW COMPLIANCE TO LEGAL
PROVISIONS WHICH DO NOT REQUIRE DETERMINATION
OF PROFIT
► THE ABOVE WAS DUE TO NO SPECIFIC PROVISION
AVAILABLE
► DUE TO THE GROWING OF ‘BUSINESS TYPE’
GOVERNMENT AGENCIES, THERE IS A NEED FOR
IMPROVEMENT IN THE ACCOUNTING AND REPORTING
► THE SHIFT TOWARDS ACCRUAL ACCOUNTING BEGAN
IN THE LATE 1980S (NZ, AUSTRALIA, UK & CANADA)
9
 ADOPTION OF ACCRUAL
ACCOUNTING IN PUBLIC SECTOR
• RECENT DEVELOPMENT IN MALAYSIA-IMPROVEMENT IN
GOVERNMENTAL BUDGETING AND FINANCIAL
MANAGEMENT.
• VARIOUS RE-ENGINEERING EFFORTS HAVE BEEN TAKEN
(GFMAS)
• IDEA- NEW ECONOMIC MODEL (NEM) REPORT-
STRATEGIC REFORM INITIATIVES FOR PUBLIC FINANCE
MANAGEMENT
• TREASURY CIRCULAR NO.4 –IMPLEMENTATION OF
10
ACCRUAL ACCOUNTING IN THE FEDERAL GOVERNMENT
RELEVANT CHANGES TO MALAYSIAN
PSA

Prior to 2006 Prior to 2015 Current

Basis of Modified Cash Modified Cash Accrual basis

accounting Basis Basis

Accounting Branch GFMAS/ iGFMAS/

Systems Accounting SPEKS SPEKS
system (Accrual)
Accounting IPSAS Cash IPSAS Cash MPSAS
Standard (revised) accrual
 1GFMAS/ IGFMAS
integrated Government Financial & Management System
(iGFMAS).http://www.anm.gov.my/index.php/en/

IGFMAS CONSISTS OF 15 MODULES THAT PERFORM THE MAIN FUNCTIONS OF

RECORDING, PROCESSING, ACCOUNTING AND REPORTING ALL TRANSACTIONS RELATED
TO PAYMENT, RECEIPT, SALARY MANAGEMENT, UNCLAIMED MONEY MANAGEMENT,
LOAN MANAGEMENT, ASSET ACCOUNTING, CASH MANAGEMENT AND FUND
MANAGEMENT TO PREPARE THE FEDERAL GOVERNMENT FINANCIAL STATEMENTS THAT
ARE BASED ON MODIFIED CASH AND ACCRUAL ACCOUNTING.

AS OF 15 JULY 2020, IGFMAS HAS REACHED 100% OF ITS DEVELOPMENT PROGRESS AND
OBTAINED INFORMATION SECURITY MANAGEMENT SYSTEM (ISMS) CERTIFICATION, MS
ISO / IEC 27001: 2013 ON 24 JUNE 2020. IGFMAS HAS BEEN GOING LIVE FROM 1 JANUARY
2018 AND IS USED BY 27 MINISTRIES, 55 CONTROLLING OFFICERS, 6,643 RESPONSIBILITY
CENTERS AND 800,000 USERS THROUGHOUT MALAYSIA.

IGFMAS IS PUT INTO USE TO REPLACE THE 3 EXISTING SYSTEMS, NAMELY GFMAS, ESPKB
AND ETERIMAAN. TO DATE, IGFMAS HAS OPERATED WELL AND INTEGRATED WITH 98
AGENCIES INCLUDING EPEROLEHAN, EBANTUAN, BANK, SALARY DEDUCTION AGENCIES,
BULK AGENCIES, COLLECTION AGENCIES AND OTHERS. IGFMAS IS ALSO IN THE PROCESS
OF INTEGRATING WITH HRMIS IN THE NEAR FUTURE.
FEATURES OF IGFMAS

1) HEADQUARTERS-BASED SYSTEM USING ONE

DATABASE AND ONE DATA CENTER.

2) INTEGRATED SYSTEM - ACCOUNTING OFFICE

FUNCTIONS (GFMAS) AND RESPONSIBILITY CENTERS
(ESPKB AND ETERIMAAN).

3) THE UPGRADING OF EXISTING GFMAS VERSION 4.7 TO

IMPROVISED SAP ECC6 VERSION.

4) BASED ON CASH AND ACCRUAL ACCOUNTING.

 BENEFITS – ADOPTION OF IPSAS FULL
ACCRUAL ACCOUNTING TO PUBLIC
SECTOR
► THE QUALITY OF FINANCIAL MANAGEMENT CAN BE
GREATLY IMPROVED
► MORE COMPREHENSIVE INFORMATION ABOUT
COSTS THAT WILL BETTER SUPPORT RESULTS-BASED
MANAGEMENT
► MORE EFFICIENT AND EFFECTIVE USE OF
RESOURCES
► PROVIDES GOVERNMENT WITH THE OPPORTUNITY
TO DEMONSTRATE SUCCESSFUL MANAGEMENT OF
ITS RESOURCES
► USEFUL IN EVALUATING A GOVERNMENT’S
PERFORMANCE IN TERMS OF ITS SERVICE COSTS,
EFFICIENCY AND ACCOMPLISHMENTS
 ADVANTAGES OF ACCRUAL
ACCOUNTING
• IT PRECISELY PROVIDE THE TRUE FINANCIAL POSITION
OF THE PUBLIC SECTOR AGENCIES
• TO MAKE THE TRUE COST OF GOVERNMENT MORE
TRANSPARENT
• IT HAS BEEN USED AS A STANDARD TO MEASURE
PERFORMANCE AS IN PRIVATE SECTOR
• PRESENTATION OF BOTH OPERATING STATEMENT &
FINANCIAL POSITION STATEMENT WILL ALLOW
CALCULATIONS OF ‘PERFORMANCE INDICATORS’
• ALLOW DISTINCTION TO BE MADE BETWEEN CAPITAL
AND OPERATING EXPENDITURE
• PROVIDE A MORE COMPREHENSIVE ACCOUNTABILITY
FRAMEWORK THAN CASH BASED SYSTEM AS IT
FOCUSES ON THE IMPACT OF GOVERNMENT DECISIONS
16
 ACCRUAL ACCOUNTING
DISADVANTAGES CHALLENGES
► BRING MORE SUBJECTIVITY ► CHANGES REQUIRE ADDITIONAL
INTO ACCOUNTS WORKS AND DEVELOPMENT OF
► DURING INFLATION, ACCRUAL NEW SKILLS ON ACCOUNTING
CONCEPT RELEVANCE IS OFFICERS
LIMITED ► TIME FACTOR AND LACK OF
► SWITCHING COST TO SKILL PERSONNEL –
ACCRUAL ACCOUNTING WILL CONTRIBUTE TO RESISTANCE TO
BE HIGH AS IT INCURS MORE THE CHANGES
ADMIN AND ACCOUNTING ► DIFFICULTIES IN PROVIDING
COST DEPRECIATION FOR ASSETS
► ALLOW MANIPULATION TO BE
17
ATTEMPTED
 CHALLENGES IN IMPLEMENTING ACCRUAL
ACCOUNTING
NEED TO DEALS WITH THE FOLLOWING ISSUES/ SUCCESS
FACTOR:
► REDESIGNING THE CHART OF ACCOUNTS
► COLLECTION ACCURATE INFORMATION ON CAPITAL
ASSETS AND THEIR VALUE
► ESTABLISHING LONG-TERM LIABILITIES
► RECOGNISING AND ACCOUNTING FOR GOVERNMENT’S
RECEIVABLES
► DRAFTING NEW LEGISLATION & STANDARDS FOR THE
ACCRUAL BUDGETING SYSTEM
► REPORTING DEBT AND DEBT MANAGEMENT 18
PRESENTATION OF FINANCIAL STATEMENTS
UNDER ACCRUAL ACCOUNTING

► FORMAT OF FINANCIAL STATEMENTS –

MPSAS 1
► PPE – SAME AS MFRS 116
► THREE YEARS TRANSITIONAL PERIOD TO
MOVE TO ACCRUAL ACCOUNTING
HTTPS://WWW.ACCAGLOBAL.COM/MY/EN/MEMBER/
DISCOVER/CPD-ARTICLES/CORPORATE-REPORTIN
G/MPSAS-AACPD.HTML
 ACCOUNTING FOR SPECIAL ASSETS OF THE
GOVERNMENT
▪ MPSAS 17 – PROPERTY, PLANT AND EQUIPMENT (MFRS116)

► HERITAGE ASSETS
EXAMPLES OF HERITAGE ASSETS INCLUDE HISTORICAL BUILDINGS AND
MONUMENTS, ARCHAEOLOGICAL SITES, CONSERVATION/PROTECTED AREAS
AND NATURE RESERVES, AND WORKS OF ART. – NO DEPRECIATION

NATIONAL HERITAGE – VALUE OF ASSETS DETERMINE BY JABATAN

WARISAN….

WORLD HERITAGE – VALUE OF THE ASSETS DETERMINED BY UNITED NATION.

► INFRASTRUCTURE
EXAMPLES OF INFRASTRUCTURE ASSETS INCLUDE ROAD NETWORKS, SEWER
SYSTEMS, WATER AND POWER SUPPLY SYSTEMS, AND COMMUNICATION
NETWORKS.

JKR NEEDS TO IDENTIFY AND DETERMINE THE COSTS OF FEDERAL

 ACCOUNTING FOR SPECIAL
ASSETS OF THE GOVERNMENT

► MILITARY EQUIPMENT
IN US, MILITARY EQUIPMENT ASSET (E.G., SHIP, PLANE,
TANK) RECLASSIFIED AS GENERAL PPE, WHICH MEANT
THAT MILITARY EQUIPMENT MUST BE VALUED AND
DEPRECIATED LIKE ALL OTHER PPE.
EXPENDABLE MILITARY ITEMS SUCH AS BULLETS OR
BOMBS SHOULD BE TREATED AS MATERIALS AND SUPPLIES
INVENTORIES.