Examining the Accrual Accounting Application in The Malaysians Local Government Essay

This paper propose a deepness apprehension and critical rating of the benefits and challanges of accrual accounting versus hard currency accounting aplication for budgeting and coverage in Municipal Council of Kota Kinabalu, a local authorities in Malaysia. Motivation of this paper is drawn on the possible benefits of accrual accounting in budgeting and fiscal coverage of a local authorities as through empirical observation established in other states. However, despite the success narratives of accrual accounting aplication in other states, it has yet to be to the full replicated in Malaysia. The expected part of this paper are ; ( I ) Critical rating of fiscal direction and coverage patterns of local authorities in Malaysia ; ( two ) Empirically analyzing the benefits and restrictions of hard currency versus accrual accounting application in budgeting and accounting dealing of a local authorities, the instance of DBKK ; and ( three ) Lending to enrich the literature and organic structure of cognition of local authorities accounting patterns in Malaysia.

Introduction

Motivation for Research

The authorities manages its fiscal economic activities through public accounting. Public accounting systems aim at authorising and entering hard currency grosss and outgos in regard of an in agreement budget. In most states, it is non systematically regulated. There are two types of attack in public sector ‘s fiscal coverage which are hard currency accounting and accrual accounting. In Malaysia, hard currency and modified hard currency is the current footing adopted by the Malayan authorities. Malayan authorities has besides made a move in implementing the accrual accounting for public sectors ( Abdul Samad, 2001 ) . This is because accrual footing of accounting generates better quality of fiscal information and this information is necessary for the discharge of answerability and better determination devising by internal direction ( Sutcliffe, 2001 ) . Furthermore, the traditional hard currency accounting system adopted in many states is perceived as no longer satisfactory ( Abdul Samad, 2001 ) .

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Many states like Australia, New Zealand and Canada have to the full implemented this accounting reform in their authorities accounting. As for Malaysian context, harmonizing to Abdul Samad ( 2001 ) , by looking at the experiences of the states that had undergone reformation in the populace sector, it could be concluded that the major demand for the push to accrual accounting is the turning demand for a greater transparence and better public presentations of the authorities sector and the companies controlled by the authorities.

The aim of this survey is to look into and critically measure the benefits and challanges of accrual accounting versus hard currency accounting aplication in Municipal Council of Kota Kinabalu ( DBKK ) , a local authorities in Malaysia.

Agreement of research proposal is as follows ; the following subdivision will discourse about the philosophical background related to Public Sector ( PS ) every bit good as accounting criterions employed by them. This is follow by empirical analysis of hard currency vs. accrual budgeting and accounting application in PS. This expected to sheeds a visible radiation on placing the possible research spreads. Following this is the research inquiries and parts which are designed based on the identified research spreads. The concluding portion of this paper summarises the research methodological analysis and construction every bit good as research planning.

PHILOSOPHICAL BACKGROUND

Specifying Public Sector in Malaysia

Public sector is portion of the economic system concerned with supplying basic authorities services whether federal, province or local/municipal council ( Fatimah et. al. , 2008 ) . Components of Public Sector in Malaysia is categorised into three grades of authorities viz. ; federal authorities, province authorities and local authorities ( Fatimah et. al. , 2008 ) . Public sector administrations exhibit a assortment of societal, economic, political and legal features.

The federal authorities s the highest grade of the authorities, which comprises of the minsitries, sections and public endeavors. Ministris are the highest male child in the federal administratives followed by authorities department/agencies which responsibles for implementing authorities policies. While, a public endeavors can be classified eiher as a statutory or non-statutory organic structures.

State authorities is the 2nd grade of the authorities, which comprises of ministries ( for Sabah and Sarawak merely ) , section and public endeavors. The administrative mechniery of the State is headed by the State Secretary.

The local authorities is in the 3rd grade of the authorities hierarchy in Malaysia. The local authorities is governed by the Local Governmen Act 1976. By virtuousness of Section 2 of this Act, local authorization mean any City Council, Municipal Council or District Council. In Malaysia, the power of the determination devising is transferred to the local governments administer their several countries. In regard to the accounting direction, Section 9 ( 2 ) provinces that the local authorization shall supply the State Authority with such returns, histories and other information with regard to the belongings and activities of the local authorization.

The Malaysian ‘s Public Sector Accounting Theory and Practices

Accounting has been by and large defined as the system of identifying, sorting, entering, summarizing, analyzing and coverage of fiscal informations and information of an administration in conformity with the recognized rules, constructs, conventions, criterions, and ordinance ( Fatimah et. al. , 2008 ) . Public sector accounting is different from private sector accounting. Accounting and fiscal coverage for public sector are based on typical constructs, criterions and processs designed to accomondate their environment and demands of their accounting information users ( Fatimah et. al. , 2008 ) . In Malaysia, the populace sector accounting system is designed to follow with the Federal Constitution, statutory and other legal demands.

In general, the populace sector uses fund accounting where seperate histories are maintained for each fund so that restrictions and resrictions placed on usage of the resources allocated can be decently monitored. The authorities fiscal system and processs can be devided into two classs viz. fiscal processs and non-financial processs. The fiscal processs related to the finance and accounting of public financess. While, the non-financial processs on the facets including finance and accounting.

The authorities fiscal system and procesures are based on ; ( I ) Federal Constitution, ( two ) Financial Procedure Act 1957, ( three ) Treasury instructions, ( four ) Treasury handbills, ( V ) Government Accounting Standards, and ( six ) International Public Sector Accounting Standards ( IPSASs ) .

The Government Accounting Standards ( PPK ) has been set P by the Accountant General Department since 2002. Its aim is to order the criterions and the footing for readying of authorities fiscal statements in accordabce with the demands of the Federal Constitution and the Financial Procedures Act 1957 ( Revised 1972 ) .

Local Government Accounting Principles ad Practices

Local Government Revenues

Harmonizing to Section 39, Part V of the Local Government Act 1976, the gross of local authorization shall dwell of:

All revenue enhancements, rates, rent, licence fees, dues and other amounts or charges collectible to the local authorization ;

All charges of net incomes originating from any trade, services or set abouting carried on by the local authorization ;

All involvement o any monies invested by the local authorization and all income originating from or out of the belongings of the local authorization ;

All other gross accruing to the local authorization from the Federal or State authorities, statutory organic structure, other local authorization or other beginnings.

Problem Statements

Malayan authorities has besides made a move in implementing the accrual accounting for

public sectors ( Abdul Samad, 2001 ) . This is because accrual footing of accounting generates better quality of fiscal information and this information is necessary for the discharge of answerability and better determination devising by internal direction ( Sutcliffe, 2001 ) . Furthermore, the traditional hard currency accounting system adopted in many states is perceived as no longer satisfactory ( Abdul Samad, 2001 ) . Lots of researches on accrual accounting have been carried out in western states such as New Zealand, Australia, Finland, Greece, Denmark, Sweden and United States but few researches have been done in Malaya on this country. Therefore, this research is carried out to find whether local governments to the full adopt the accrual accounting in entering the income and outgos.

Research Questions

The chief research inquiry of this survey is whether the local governments of Kedah Darul

Aman to the full adopt the accrual accounting attack in entering income and outgos.

Therefore, the following specific inquiries are related:

1 ) What is the current pattern among local governments in Kedah Darul Aman?

2 ) What are the jobs faced by local governments in following accrual accounting

attack?

RQ_1:

Understanding of accounting prnciples and patterns of DBKK

RQ_2:

Probe of current accounting systems used by DBKK

RQ_3:

Application of hard currency vs. accrual budgeting and accounting in DBKK

RQ_4:

Will accrual accounting improves the fiscal public presentation of DBKK?

Research Contributions

Critical rating of fiscal direction and coverage patterns of local authorities in Malaysia.

Empirically analyzing the benefits and restrictions of hard currency versus accrual accounting application in budgeting and accounting coverage of a local authorities.

Lending to enrich the literature and organic structure of cognition of local authorities accounting patterns in Malaysia.

LITERATURE REVIEW

This subdivision will discourse the empirical findings of old documents related to the application of Accrual Budgeting and Accounting in Government Sector all over the universe. Specific attending will be focused on fiscal coverage in local authorities of Malaysia.

The Public Sector Accounting Principles and Practices: The World Views

Budgeting and Accounting Reporting in Government Sector

Cash Vs. Accrual Budgeting and Accounting Principles: Identifying The Research Gaps

Traditionally, hard currency accounting in public sector focused on the control of outgo. The reform of the populace sector has changed the traditional function of accounting to one that is focused on answerability and the efficient allotment of resources. This implies that accounting should concentrate upon end products, public presentation measuring, efficiency, cost

economy, productiveness and public presentation measuring ( Hoque and Moll, 2001 ; Broadbent and Guthrie, 1992 ) . This in bend requires that new accounting engineerings be employed such as be aftering plan budgeting, accrual accounting, public presentation indexs and one-year coverage mechanism ( Hoque and Moll, 2001 ) . Accrual accounting if being adopted in public sector, provides a better quality of information and a better manner of dispatching answerability among the public sector directors.

Many states like Australia, New Zealand and Canada have to the full implemented this accounting reform in their authorities accounting. As for Malaysian context, harmonizing

to Abdul Samad ( 2001 ) , by looking at the experiences of the states that had undergone reformation in the populace sector, it could be concluded that the major demand for the push to accrual accounting is the turning demand for a greater transparence and better public presentations of the authorities sector and the companies controlled by the authorities.

Accrual V Cash

Cash accounting requires the record of influxs and escapes of hard currency. Accrual accounting

as defined by Federal Accounting Standards Advisory Board, the acknowledgment of the fiscal effects of minutess, events and fortunes in the period ( s ) when ( they ) occur, irrespective of when hard currency is received or paid. It besides requires gross to be recognized in the period in which economic benefits can be measured faithfully. Like wise, disbursals are recognized when the ingestion of goods is capable of dependable measuring ( Hoque and Moll, 2001 ) .

The chief advantage of the hard currency system is simpleness, objectiveness and the demand to measure the conformity with hard currency budgets. However there are restrictions like the system does non disclosed a true fiscal and economic place of the entity, no public presentation index and information on cost of services provided available for public presentation rating and control intent ( Montesinos and Bargues, 1996 ) . In add-on, the cashbased system besides does non supply sufficient information to measure the authorities fiscal demands like hard currency and gross demand to pay for past debts every bit good as future services, besides fail to supply the authorities complete information on all that they owe ( Hillier, 1996 ) .

Advantages of accrual accounting in authorities

A figure of research workers argue that hard currency based fiscal system and accrual accounting is both utile, nevertheless fiscal studies based on accrual accounting has its ain advantages and significance to the modern authorities. Accrual accounting in authorities provides better quality fiscal information and more comprehensive. This allows a better manner of dispatching answerability ( Abdul Samad, 2001 ; Sutcliffe, 2001 ; Hoque and Moll, 2001 ) by widening the appraisal of fiscal public presentation beyond the application of hard currency ( OECD, 1993 ) and supports a better determination devising by internal direction ( OECD, 1993 ; Sutcliffe, 2001 ) by supplying information on the full cost of operations and the resources used to present services to the populace ( Hoque and Moll, 2001 ) .

RESEARCH METHODOLOGY

This research will necessitate to use a combination of qualitative and quantitative research techniques to investigates and clarifies the identified research inquiries. Summary of the research probes and methodological analysiss are as tabulated below:

No.

Research Questions

Methodology

Instruments

RQ_1

Understanding of accounting prnciples and patterns of DBKK

Qualitative Technique

Structured interview and reviews of records/policies/circulars

RQ_2

Probe of current accounting systems used by DBKK

Qualitative Technique

Structured interview and reviews of records/policies/circulars

RQ_3

Application of hard currency vs. accrual budgeting and accounting in DBKK

Qualitative Technique

Structured interview and reviews of records/policies/circulars

RQ_4

Will accrual accounting improves the fiscal public presentation of DBKK?

Quantitative Technique

Accounting Experiments – comparing the effects of hard currency versus accrual accounting on 10 old ages historical fiscal public presentation. Is at that place any different?

Research STRUCTURE

Research Planning

The Gantt-Chart

The Milestones