Government of Ghana Accounting Policy

GOVERNMENT OF GHANA ACCOUNTING POLICY

FOREWORD

  • Strategic Reforms: Over the years, the Government of Ghana has initiated strategic reforms aimed at enhancing the public financial management (PFM) practices of the country. These reforms were proactively undertaken to address historical inefficiencies, strengthen fiscal governance, and align the nation's financial reporting with international best practices, thereby fostering greater investor confidence and public accountability.

  • Notable Reforms: This includes the implementation of the Ghana Integrated Financial Management Information System (GIFMIS).

  • GIFMIS Purpose: The system was designed to computerize key PFM processes such as budgeting, revenue, expenditure, procurement, payroll, fixed assets, debt, and cash management processes. It aims to improve fiscal discipline, resource allocation, and operational efficiency through real-time financial information. By centralizing financial data and automating processes, GIFMIS significantly reduces manual errors, enhances data integrity, and provides a unified platform for comprehensive financial oversight across all government operations.

  • Accounting and Auditing Reforms: The government prioritized reforms in accounting and auditing, notably adopting the International Public Sector Accounting Standards (IPSAS).

  • IPSAS Purpose: Provides a consistent and transparent framework for reporting financial performance, financial position, and cash flows of Government. It enhances accountability and comparability of financial statements across different public sector entities and jurisdictions. Beyond mere consistency, IPSAS implementation facilitates international benchmarking, attracts foreign direct investment by signaling fiscal transparency, and supports better decision-making by providing a clearer picture of public resources and obligations.

  • Milestones in Reforms:

    • Passage of the Public Financial Management Act, 2016 (Act 921).

    • Introduction of PFM Regulations, 2019 (L.I. 2378).

  • Legal Basis: These legal documents form the foundation for key PFM reform initiatives. Specifically, the PFM Act 2016 outlines the legal framework for managing public funds, while the PFM Regulations 2019 provide detailed operational guidelines for implementing the Act, including budgeting, accounting, auditing, and reporting standards across the public sector.

  • Reporting Responsibilities:

    • The Act (sections 80, 81, and 95) and the Regulations (Regulations 207, 208 & 209) delineate financial reporting responsibilities of Government entities, ensuring clear lines of accountability for financial data accuracy and timeliness.

  • **Controller and Accountant-General

's Authority**: Includes the adoption of accounting standards in consultation with the Auditor-General and prescribing relevant policies for covered entities, adhering to internationally accepted standards. This authority underscores the CAGD's critical role as the principal accounting officer of the Government, responsible for developing and enforcing uniform accounting policies and standards that govern all government entities.

  • **CAGD Accounting Policies:
    ** In alignment with legal provisions, CAGD developed Accounting Policies that guide financial reporting at the National level and various Covered Entities.

  • Covered Entities: Include:

    • Central Government (Ministries, Departments, Agencies)

    • Local Government (Metropolitan, Municipal, District Assemblies)

    • Government Business Entities (State Owned Enterprises)

  • Compliance: Accounting Policies are developed in compliance with the PFM Act, 2016 and the IPSAS Accrual Basis of accounting, ensuring financial statements present a true and fair view of financial performance. This commitment ensures that financial statements accurately reflect the financial performance, position, and cash flows of government operations, presenting a true and fair view to all stakeholders.

  • Implementation: These policies are to be included as NOTE 1 in the General-Purpose Financial Statements and the National Accounts of Ghana, providing a mandatory framework for consistent reporting. The inclusion of these policies as NOTE 1 is crucial, as it serves as the foundational declaration of accounting principles adopted by the government, guiding the interpretation and understanding of the entire financial statements.

  • Anticipation of Commitment: The country anticipates a commitment from Covered Entities to apply these policies for providing relevant, reliable, comparable, and understandable financial information to stakeholders, fostering greater public trust and better decision-making.

ACKNOWLEDGEMENTS

  • Acknowledgement is given to:

    • The Auditor-General and team, the Ministry of Finance for the development of these policies.

    • Input from the Institute of Chartered Accountants-Ghana (ICAG) and various Covered Entities engaged in the development.

    • CAGD Staff: Thanks to my Deputy Controllers and Directorates for their support.

    • Appreciation for the Director of National Accounts and team in leading the process for enhancing Ghana

's financial reporting standards.

KEY SECTIONS

  1. Accounting Policies Overview

    • General Statement and Purpose

    • These policies encompass the operations of different reporting entities in the Public Sector in Ghana.

    • Developed to accommodate users not seeking tailored reports but a comprehensive understanding of financial states. They provide standardized principles and practices for all government units, from ministries to local assemblies and state-owned enterprises, accommodating diverse users, including citizens, international organizations, and potential investors, by offering a comprehensive understanding of Ghana's financial states.

  2. Public Sector Reporting Mandate and Scope

    • Financial statements prepared considering the 1992 Constitution and approved budget as per the Appropriation Act.

    • Inclusion of consolidated data from various public funds such as:

      • Consolidated fund

      • Statutory Funds

      • Internally Generated Fund

      • Donor Funds

    • This ensures a holistic view of government finances, reflecting all sources and uses of public resources, thereby enhancing transparency and enabling better scrutiny over public expenditure and revenue generation.

  3. Basis of Preparation

    • IPSAS Compliance: Guided by international accrual-basis accounting standards for financial reporting, ensuring high-quality, transparent, and comparable financial information that accurately reflects assets, liabilities, revenues, and expenses as they occur, regardless of cash movements.

    • Going Concern: Financial statements are prepared on the assumption that the entity will continue in operation for the foreseeable future, generally 12 months from the reporting date, and has no intention or necessity of liquidation or significantly curtailing the scale of its operations.

    • Requires preparation based on legislative mandates like the Public Financial Management Act.

  4. Measurement Workings

    • Functional Currency: Transactions primarily reported and translated in terms of the Ghana Cedi (GH¢). Detailed guidelines are provided for identifying the functional currency and handling foreign currency transactions and exchanges, including initial recognition at the spot rate on the date of transaction, subsequent measurement of monetary items at the closing rate, and reporting of exchange differences through the statement of financial performance throughout the financial statements.

  5. Revenue Recognition (IPSAS 9 & 23)

    • Distinction between non-exchange and exchange transactions. Non-exchange revenues (like taxes, non-reciprocal transfers such as grants and donations without direct equivalent value) are recognized when collected or when the right to receive them arises, meeting specific criteria that an inflow of resources is probable and can be reliably measured. Exchange revenues (like sales of goods or services, fees for licenses etc.) are recognized when goods or services are delivered, and significant risks and rewards of ownership are transferred to the buyer. This section covers recognition timelines for various tax revenues, grants, and conditional inflow policies.

  6. Expenditure Recognition

    • Determines how governmental expenditures are reported based on incurred aspects regardless of payments. Expenditures are recognized on an accrual basis when an obligation arises or an economic benefit is consumed, irrespective of when cash is paid. This includes several categories such as employee compensation (including salaries, wages, and social contributions), interest expenses on borrowings, grants and subsidies, and operating costs (e.g., supplies, utilities, maintenance), all accounted for on an accrual basis to reflect the full cost of government operations.

  7. Property, Plant, and Equipment

    • Classification: Various asset categories reflect their utility and lifespan management methodologies including land, buildings, infrastructure, and machinery. Understanding about depreciation (e.g., straight-line method, declining balance method based on asset type and useful life, often using component depreciation for significant parts) and accounting for disposals (e.g., removal of depreciated cost and accumulated depreciation from the books, recognition of any gain or loss in the statement of financial performance) is included, ensuring assets are recorded at cost and systematically reduced over their useful lives.

  8. Heritage Assets

    • Defines and explains the significance, classification, and accounting methods concerning heritage assets within the governmental domain, such as historical buildings, monuments, and cultural sites. These assets, due to their cultural, environmental, or historical significance, are often recognized at fair value or deemed cost if no active market exists, with specific disclosure requirements regarding their nature, physical condition, and management policies due to their unique nature and preservation focus.

  9. Inventories

    • Definition and Valuation: Methods for recognizing and reporting inventories in public financial statements, typically valued at the lower of cost and net realizable value (NRV)

— where NRV is the estimated selling price in the ordinary course of operations less estimated costs of completion and selling expenses. Common cost methods include FIFO (First-In, First-Out) or weighted-average cost, ensuring that the valuation reflects the most prudent estimate.

  1. Intangible Assets

    • Identifies how intangible assets (e.g., software, licenses, patents, copyrights) are accounted for, including recognition criteria (separability or arising from contractual/legal rights, and probable future economic benefits or service potential), initial measurement at cost, and subsequent measurement involving amortization over their finite useful lives or impairment treatments if their recoverable amount falls below carrying value.

  2. Cash Flow Statement

    • Covers types of activities (operating, investing, financing), presentation methods (direct or indirect method for operating activities), and additional disclosures required in financial statements to provide detailed information about the changes in cash and cash equivalents during the reporting period, helping users assess the government's ability to generate cash and meet its financial obligations.

  3. Financial Instruments (IPSAS 28, 30, 41)

    • Definitions, classifications (e.g., financial assets, financial liabilities, equity instruments), initial and subsequent measurements (e.g., amortized cost, fair value through surplus or deficit), and treatment of financial instruments such as cash, receivables, payables, and loans in accounting practices. This section ensures consistent reporting of financial risks and exposures, including credit risk, liquidity risk, and market risk, and covers the initial and subsequent recognition of derivatives, hedges, and various investments held by the government.

  4. Leases (IPSAS 13)

    • Differentiation between finance and operating leases, based on the transfer of substantially all the risks and rewards incidental to ownership. Reporting obligations for lessees (recognizing a right-of-use asset and a corresponding lease liability on the statement of financial position for finance leases) and lessors (accounting for finance leases as receivables and operating leases as assets subject to depreciation, with lease income recognized over the lease term) are detailed.

  5. Provisions and Contingent Liabilities (IPSAS 19)

    • Definitions, recognition criteria (a present obligation stemming from a past event, a probable outflow of resources embodying economic benefits or service potential, and a reliable estimate of the amount), and accounting methods for provisions (e.g., litigation settlements, environmental restoration costs, restructuring costs) and contingent liabilities, including disclosure requirements for their nature, estimated financial effects, and uncertainties.

  6. Related Party Disclosures (IPSAS 20)

    • Identifications (e.g., key management personnel, government entities under common control, close family members of key management), reporting practices of related parties present in government accounting practices to ensure transparency, especially concerning transactions that are not at arm's length, thus preventing potential conflicts of interest and ensuring accountability.

  7. Impairment

    • Discussion regarding recognition and accounting treatment of impairment as it pertains to non-cash generating assets (e.g., public infrastructure like roads, bridges, and hospitals, where service potential rather than cash flows is assessed) versus cash-generating assets (e.g., assets of state-owned enterprises that generate commercial returns), ensuring that assets are not carried at more than their recoverable amount, which is the higher of their fair value less costs to sell and their value in use.

  8. Agriculture (IPSAS 27)

    • Definition and treatment of agricultural activities and assets (e.g., biological assets like livestock and crops undergoing biological transformation) under public financial management standards, including initial recognition at fair value less costs to sell both at initial recognition and at the point of harvest, reflecting the unique nature of these assets and their valuation challenges.

  9. Glossary of Terms

    • Comprehensive definitions of relevant accounting terms within the context of the public financial management framework, aiding understanding and consistent application of these policies.

CLOSING REMARKS

  • The progressive implementation of these accounting policies will significantly enhance the transparency and efficiency of financial reporting across Ghana's governmental entities. Therefore, all covered entities are urged to fully adopt these policies to achieve the intended outcomes efficiently and effectively.