7 Financial Reporting Procedures

Table of Contents

7.1 Introduction 7.3

7.2 General Policies 7.4

7.2.1 Overview 7.4

7.2.2 Production of Monthly Accounts 7.5

7.2.3 Production of Consolidated Monthly Accounts 7.6

7.2.4 Production of Annual Accounts 7.6

7.2.5 Production of Combined Annual Accounts of the Federation 7.7

7.2.6 Production of Annual Appropriation Accounts 7.7

7.2.7 Production of other financial reports 7.8

7.3 Year-end accounting policies 7.9

7.3.1 Closure of accounts 7.9

7.3.2 Rectification of errors 7.10

7.4 Detailed Procedure 7.11

7.4.1 Introduction 7.11

7.4.2 Production of Monthly Accounts 7.13

7.4.3 Year-end adjustments 7.15

7.4.4 Production of Annual Accounts 7.15

7.4.5 Production of Combined Annual Accounts of the Federation 7.16

7.4.6 Production of Annual Appropriation Accounts 7.16

7.2 General Policies

7.2.1 Overview

7.2.1.1 The following diagram represents the consolidation and reporting process undertaken by the various accounting offices, including AG, AGPR and DAOs.

*Note: This would include reporting (as an appendix) by Exempt Entities as stated in 7.1

7.2.1.2 The previous diagram represents the overall reporting framework, in which source transactions recorded at DAOs/AG/AGPR level are consolidated to produce:

· Monthly, Quarterly and Half-yearly Accounts - used to provide balances of receipts and payments for the Federal and each of the Provincial Governments

· Annual Accounts - used to provide annual statements of receipts and payments, assets and liabilities of the Federal and each of the Provincial Governments

· Combined Annual Accounts - used to provide consolidated statements of receipts and payments, assets and liabilities for the Federation as a whole, incorporating the Federal Government and each of the Provincial Government’s figures.

7.2.2 Production of Monthly Accounts

7.2.2.1 A separate Monthly Account shall be produced by the DAO for the Consolidated Fund and the Public Account for both the Federal and Provincial Governments.

7.2.2.2 The Monthly Accounts submitted by DAOs and self-accounting entities shall be a statement of receipts and payments by entity and object, recorded in that month, according to the chart of accounts classifications. The format for the Monthly Accounts is shown in Section 2.3 of the Financial Reporting Manual.

7.2.2.3 The timetable for the submission of the Monthly Accounts will be determined by the Accountant General/AGPR. Any delays should be reported to the Accountant General as soon as possible with valid reasons, in writing, of such delays and the date on which the accounts are expected to be submitted.

7.2.2.4 Where the due date for submitting the Monthly Accounts falls on a public holiday, the accounts are to be submitted on the following working day.

7.2.2.5 The submission of Monthly Accounts by DAOs and self-accounting entities by the prescribed date shall not be achieved by early closure of the books in that office prior the last working day of the month.

7.2.2.6 Certain General Ledger accounts are required to be cleared on a monthly basis, including suspense accounts, settlement accounts, and exchange accounts. This is referred to in chapter 16 of this Manual, ‘General Accounting Procedures’ and chapter 12, ‘Transactions between Government Entities’.

7.2.3 Production of Consolidated Monthly Accounts

7.2.3.1 The Accountant General’s offices (including AGPR) are responsible for consolidating the accounts submitted by DAOs and self-accounting entities, into the ‘Consolidated Monthly Accounts’. These accounts shall be submitted to the Auditor-General and to the respective Finance Division/ Department by 15th of the following month.

7.2.3.2 The format for the Consolidated Monthly Accounts is shown in Section 2.2 of the Financial Reporting Manual.

7.2.4 Production of Annual Accounts

7.2.4.1 Under Article 9 (4) of the Audit and Accounts Order 1973, the Annual Accounts of the Federal Government and each of the Provincial Government shall be produced by the Auditor-General (through the respective Accountant General’s offices).

7.2.4.2 The Accountant Generals offices shall produce the Annual Accounts by consolidating the Monthly Accounts submitted by DAOs and self-accounting entities and its own accounts and incorporating adjustments and other financial information as required by the AG.

7.2.4.3 The Annual Accounts is an annual summary of the overall financial position of each Government as at the end of the financial year. This shall include, for each Government:

· a statement of assets and liabilities. This will include comparison with last years actuals.

· a statement of receipts and payments for each fund (ie. consolidated fund, public account)

· a statement of cashflows

· a statement of receipts and payments for each of the trust accounts included under the Public Account

· notes to the Accounts.

7.2.4.4 Each year, the Accountant General will issue instructions which set out the detailed arrangements for closure of the accounts for the year. These instructions will include cut-off times for lodgement of final accounts, adjustments and other information required to compile the Annual Accounts.

7.2.4.5 The Accountant General will issue instructions to the banks (NBP/SBP) to ensure that all receipts collected and payments made in the current financial year are promptly reported to the concerned accounting offices by the prescribed date, prior to the closure of the accounts.

7.2.4.6 The Annual Accounts shall be submitted by the Auditor- General to the National Assembly, with a copy to Finance Division by 20^th August following the close of the financial year. In the case of Provincial Government, Annual Accounts are submitted to the Provincial Assembly, with a copy to the respective Finance Department, as prescribed in the GFR regulations.

7.2.4.7 The formats required for the Annual Accounts is shown in Chapter 3 of the Financial Reporting Manual.

7.2.5 Production of Combined Annual Accounts of the Federation

7.2.5.1 Under Article 10 of the Audit and Accounts Order 1973, the Auditor-General shall produce a General Financial Statement, consisting of a summary of the information from the Annual Accounts of the Federal Government and each of the Provincial Governments. This statement is referred to the Combined Annual Accounts of the Federation.

7.2.5.2 The formats required for the Combined Annual Accounts of the Federation is shown in Chapter 3 of the Financial Reporting Manual.

7.2.5.3 The Combined Annual Accounts of the Federation shall be submitted by the Auditor-General to the President, with a copy to Finance Division by 30^th September following the close of the financial year.

7.2.6 Production of Annual Appropriation Accounts

7.2.6.1 Under Article 9 (4) of the Audit and Accounts Order 1973, the Annual Appropriation Accounts of the Federal Government and each of the Provincial Governments shall be produced by the Auditor-General (through the respective Accountant Generals/AGPR).

7.2.6.2 The Annual Appropriation Accounts is a comparative summary of annual expenditures against budget for each grant as specified in the Schedule of Authorised Expenditure. For detail format and contents of the annual accounts refer to chapter 3 of the FRM.

7.2.6.3 The Annual Appropriation Accounts shall identify significant variations from budget and include explanations for these variances, given by the concerned spending entities.

7.2.6.4 The Annual Appropriation Accounts shall be submitted by the Auditor-General to the President, with a copy to Finance Division by 30^th September following the close of the financial year. In the case of Provincial Government, Appropriation Accounts are submitted to the Governor, with a copy to the respective Finance Department.

7.2.6.5 Self-accounting entities shall prepare their own Annual Appropriation Accounts, however their summarised balances shall be included in the Annual Appropriation Accounts produced by the AG/AGPR.

7.2.6.6 The format for the Annual Appropriation Accounts is shown in Chapter 3 of the Financial Reporting Manual.

7.2.7 Production of other financial reports

7.2.7.1 Other reports are required to be produced by the accounting offices (AG/AGPR/DAOs) at various intervals. These reports are specified in the Financial Reporting Manual and include the following:

· revenue confirmation statement

· disbursement confirmation statement

· division/department statement

· exchange and settlement control account

· debt report

· losses report.

7.3 Year-end accounting policies

7.3.1 Closure of accounts

7.3.1.1 The accounts of each year will be formally closed at the close of business on 30th June. No adjustments for a prior financial year will be permitted unless they are for:

· receipts collected at the bank prior to 30 June, but not received on the bank scrolls until after 30 June

· payments made prior to 30 June but not entered into the accounts

· inter-entity adjustments between departments and Governments relating to the previous year, as indicated in Chapter 12 of this Manual ‘Transactions between Government Entities’

· adjustments to asset and liabilities amounts, relating to the previous year

· any other adjustments so authorised by the Accountant General.

7.3.1.2 At the close of the financial year, the balances contained in the General Ledger accounts for revenue expenditures and revenue receipts of the Consolidated Fund shall be closed to the revenue surplus/deficit account. Any subsequent adjustments made to these accounts of that year shall also require a closing journal entry.

7.3.1.3 Public Account balances are carried forward into the following, financial year, however any adjustments relating to a previous financial year shall be made through journal entry.

7.3.1.4 The Accountant General will formally advise Ministries and Departments of the cut-off date for the lodgement of claim vouchers for payment processing at the DAO/AG/AGPR in the current financial year. No claim voucher submitted after this date will be admitted unless approved by the Accountant General.

7.3.1.5 Should a claim voucher be received at the DAO/AG/AGPR in which payment is not due until the new financial year (ie. after 1 July), the payment will not be issued, and therefore recognised in the accounts, until the new financial year.

7.3.1.6 As provided for in Chapter 4 of this Manual, all outstanding commitments made during that year shall be duly scrutinised by the MoF/AG, and provision made in next year’s appropriation to allow for the reinstatement of valid commitments in the next financial year (Direction 4.3.3.8).

7.3.1.7 The unspent balance of all advances, with the exception of the following advances, as advised by the MoF, must be repaid before 30 June each year:

· petty cash advances (these must be reimbursed as at 30 June)

· advances of salary, travelling allowances etc.

· mobilisation advances

· secured advances

· contractual advances.

7.3.2 Rectification of errors

7.3.2.1 Errors or omissions found prior to the cut-off date for production of the Annual Accounts may be made by way of journal entry, submitted to the respective AG/AGPR offices for approval. Such errors or omissions typically include:

· mis-classification of accounts, usually requiring an adjustment between heads

· failure to record a receipt, payment or adjustment in the accounts during the year, as identified in the bank reconciliation

7.3.2.2 In interpreting the above Direction, an error or omission is considered to be material if:

· it exceeds 10% of the reported expenditure or revenue reported against a particular head

· it affects the opening cash balance of the entity/government.

7.3.2.3 Where the error affects the opening cash balance of the entity/government, the opening cash balance in the new financial year will be adjusted and the following information disclosed in the Annual Accounts and the Combined Annual Accounts of the Federation (as the case may be) of the new financial year in which the adjustment was made:

· a description of each material error and the financial effect of the error

· description of the accounts which has been adjusted due to that errors

· opening cash balance before (as reported in last year’s accounts) and after the adjustment

· a statement that the error was found after last year’s accounts were closed and published.

7.4 Detailed Procedure

7.4.1 Introduction

7.4.1.1 This section describes the procedures to be followed for producing monthly and annual reports in the AG/AGPR offices.

7.4.1.2 Procedures for consolidation of financial information laid out in this section are largely based on manual operations. In a fully computerised environment the consolidation process is facilitated by computer generated reporting.

7.4.1.3 The recording of accounting transactions, such as receipts, payments and inter-entity adjustments is covered in the respective chapters of this Manual.

7.4.1.4 The key controls to be followed in the production of financial reports are as follows:

· accounts must be submitted to the AG/AGPR in the prescribed format, by the date set by the Accountant General.

· proper review of financial information at DAO level must take place prior to the consolidation and reporting of monthly accounts. This includes reconciliation of accounting records with other sources (eg. banks, DDOs) and internal verification of accounting records and totals.

· the Consolidated Monthly Accounts, Annual Accounts and the Combined Annual Accounts shall maintain a proper audit trail, in which summarised balances can be traced to general ledger and source transaction details.

7.4.1.5 The following diagram shows how the elements of the chart of accounts are summarised through the monthly consolidation and reporting process.

7.4.2 Production of Monthly Accounts

7.4.2.1 DAO level - Each DAO shall produce Monthly Accounts in accordance with Section 7.2.1.2 of this Chapter. This also applies to accounting offices at Federal and Provincial head quarter level (i.e. AGPR and AG own offices).

7.4.2.2 The Monthly Accounts prepared by DAO/AG/AGPR is a summarised entity-cum-object classification of expenditures and receipts, by minor heads of accounts, recorded during the month in that office, in accordance with the format set out in the Financial Reporting Manual.

7.4.2.3 Where the DAO is operating computerised accounts, the Monthly Accounts shall be obtained from a computer generated report of General Ledger balances for the relevant month. These reports will then be submitted to AG/AGPR via electronic media.

7.4.2.4 Where the DAO operates a manual system, the Monthly Accounts shall be obtained from consolidation of the records contained in the General Ledger of the DAO. The date-wise account totals in the General Ledger shall be consolidated into monthly totals and then summarised by entity and object code, as prescribed in section 2.3 of the Financial Reporting Manual.

7.4.2.5 Where the AG/AGPR office requires multiple element views (i.e. power to request additional information) of the monthly financial information from DAOs, in addition to the entity by object view identified in Direction 7.4.2.2, the manually operated DAOs/SAEs shall prepare a detailed abstract of account balances by entity, object, fund and function at the required level, and submit this to the AG/AGPR.

7.4.2.6 The DAO shall not submit their Monthly Accounts to the respective AG/AGPR office unless it has first undertaken the following checks:

· entity-wise receipts and expenditure records in the Payments summary (consolidated from the General Ledger) agrees with DDO -expenditure records signed-off with the respective spending departments/DDOs

· daily balances of receipts and expenditures for the month (as recorded in the Sub-ledger) reconciles with the monthly main branch statement received from the bank branch dealing with the DAO

· the totals produced from consolidation have been independently checked with the General Ledger and source records

· the debits and credits in the General Ledger of the DAO are in balance, and agree with the Sub-ledger.

7.4.2.7 AG/AGPR level - Each AG office and AGPR shall produce a Consolidated Monthly Account in accordance with Section 7.2.3 of this Chapter. The AG/AGPR shall consolidate the following:

· Monthly Accounts submitted by DAOs (in the case of AGPR, via the AGPR sub-offices), either in manual or computer-generated format. Those Monthly Accounts received from manual DAO sites shall be keyed into the AG/AGPR computer system to ensure complete consolidation of balances.

· Monthly Accounts relating to the AG/AGPR own office

· Monthly Accounts submitted by self-accounting entities

· inter-Government adjustments

7.4.2.8 The AG/AGPR shall consolidate the entity information from district level to Province/Federal level. For example the consolidated report will provide object-wise analysis for a particular Ministry or Department, and a similar analysis for each of the attached Departments of a Ministry. The Consolidated Monthly Accounts shall include year to date analysis of actual receipts and expenditures. The consolidation shall occur at two levels, initially at sub office level (AGPR Islamabad / Pre audit is treated as a sub office) and subsequently at AGPR level.

7.4.2.9 The AG/AGPR office shall perform the following checks when producing Consolidated Monthly Accounts:

· the Monthly Accounts submitted by DAOs and equivalent offices are accompanied by a signed DAO Monthly Reconciliation Statement (as provided in Chapter 6 of this Manual, ‘Bank Reconciliation’) plus any other supporting documents required by the AG/AGPR

· the AG/AGPR must produce the AG Monthly Reconciliation Statement (as provided in Chapter 6 of this Manual, ‘Bank Reconciliation’) prior to the production of Monthly Consolidated Accounts

· the amounts consolidated by the AG/AGPR are independently verified with the Monthly Accounts submitted to that office

· all Monthly Accounts submitted by DAOs and self-accounting entities are in the required format and at the required level of detail, as laid down in the Financial Reporting Manual

· independent confirmation of balances is obtained from those Divisions whose accounts have been consolidated

· independent confirmation of revenues has been obtained from Central Board of Revenue (CBR)

7.4.2.10 Where the consolidation of Monthly Accounts in AG/AGPR is computerised, the information submitted by DAOs and self-accounting entities into the computer system by an authorised officer in the AG/AGPR. This data entry shall be checked by a independent officer. Where the DAO is also computerised, the Monthly Accounts information may be transferred electronically.

7.4.3 Year-end adjustments

7.4.3.1 Year end adjustments will be made in accordance with the policy laid down in Section 7.3 of this chapter ‘Year-end accounting policies’.

7.4.3.2 Where a year end adjustment is identified, after the close of the financial year, but prior to the production of Annual Accounts, this shall be communicated formally to the AG/AGPR by the relevant DAO or self-accounting entity requesting the adjustment.

7.4.3.3 The journal entry associated with each year end adjustment shall be prepared using Form 4F by the requesting officer in the DAO/self-accounting entity. This form will indicate the double entry journal required to recognise the adjustment in the accounts. The completed journal entry form shall be sent to the respective AG/AGPR prior to the cut-off date set by the Accountant General.

7.4.3.4 All year-end adjustments must be approved by the Accountant General prior to entry into the books of account or computerised system (as the case may be). The requesting officer shall be advised by the AG/AGPR office when the journal entry has been approved and entered, (or rejected, with reasons for refusal).

7.4.3.5 The AG/AGPR shall maintain a register of year end adjustments performed, with each adjustment represented by a unique sequential journal entry number for that office.

7.4.4 Production of Annual Accounts

7.4.4.1 Each AG office and AGPR shall produce the Annual Accounts for the respective Provincial and Federal Governments in accordance with the policy laid down in Section 7.2.4 of this Chapter.

7.4.4.2 The Annual Accounts shall not be produced until the accounts have been closed for the financial year, all end-of-year adjustments have been made and all Monthly Accounts received by DAOs and self-accounting entities. The AG/AGPR must also produce the Consolidated Monthly Accounts for June before producing the Annual Accounts.

7.4.4.3 The general procedure for each of the main components of the Annual Accounts is provided below:

7.4.4.4 Statement of Receipts and Payments - The information required for this statement shall be obtained from the year-to-date information provided in the Consolidated Monthly Accounts, and then classified according to the format set down in the Financial Reporting Manual.

7.4.4.5 Statement of Assets and Liabilities - This report shall be produced by consolidating the cumulative balances held in the various assets and liabilities accounts into the required classification and format, as set down in the Financial Reporting Manual.

7.4.4.6 Separate statements of Assets and Liabilities will be produced for Government of Pakistan (or Provincial Government as the case may be), and the various trust heads and special deposit accounts held in the Public Account of each Government.

7.4.4.7 A trial balance report shall be produced, indicating the closing balances of all asset and liability accounts, at detail level for the Federal or Provincial Government (as the case may be).

7.4.4.8 The trial balance report shall be reviewed by the Accountant General, and if satisfied that no further adjustments are required, shall authorise the consolidated statement of assets and liabilities to be produced.

7.4.4.9 Cashflow Statement - this report shall be derived from the Statement of Receipts and Payments, and presented in the format prescribed in Chapter 3 of the Financial Reporting Manual.

7.4.5 Production of Combined Annual Accounts of the Federation

7.4.5.1 The Auditor-General’s office shall prepare this report by consolidating the financial information contained in each of the Annual Accounts prepared for the Federal Government and each of the Provincial Governments.

7.4.5.2 This report shall include a consolidated statement of receipts and payments and a consolidated statement of assets and liabilities, both in the required classification and format, as set down in the Financial Reporting Manual. These statements shall show, for each line item, the balances for each Government individually as well as the total.

7.4.6 Production of Annual Appropriation Accounts

7.4.6.1 The AGPR and each AG office shall produce Annual Appropriation Accounts in accordance with the policy laid down in Section 7.2.6 of this Chapter.

7.4.6.2 The Annual Appropriation Accounts shall show separately:

· the Schedule of Authorised Expenditure for the year (both Original and Supplementary)

· a summarised statement showing for each grant, the original, supplementary and final budgets, the annual expenditure and variance against final budget

· an appropriation statement for voted expenditures

7.4.6.3 The AG/AGPR shall only prepare the Appropriation Accounts once the Annual Accounts have been finalised. The figures used for actual expenditures shall be drawn from the Annual Accounts. The budget figures used shall be confirmed by the respective Finance Division/ Department

7.4.6.4 The Annual Appropriation Accounts shall be signed-off by the Auditor-General, once satisfied that proper audit has been carried out on these Accounts.

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Wednesday, January 9, 2013

Accounting Policies & Procedures Mannual Chap 7