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Maldives: Public Sector Accounting

Maldives: Public Sector Accounting and Auditing
Maldives: Public Sector Accounting and Auditing

Report Summary:

(November 19, 2007) The application of International standards of accounting and reporting would give a big boost to reforms already underway in the Maldives.


- A modern financial reporting framework is required for better accountability.
- Better opportunities for educating and training government accountants are needed.
- The Ministry of Finance and Treasury need to develop training plans for relevant personnel.

Executive Summary

This Report on public sector accounting and auditing in Maldives situates local practice in international context, seeks to assess and reduce any variance relative to international standards, and lays the foundations for the ongoing measurement of progress. The standards applied speak pertinently to management practices, reform prospects, and the transition to accrual-based reporting; the methodology, and relevant legislation are included in the Annexes. Report recommendations include the charting of a path to Accrual Basis accounting; attention to summary Tables of Standards and Gaps; the adoption of international auditing standards as per recent Maldives legislation; a focus on the public financial management system and the functions of the chief financial officer and related personnel; capacity-building in accounting and auditing, possibly through distance education; and a survey of relevant indicators to monitor the progress of an Institutional Development Plan for the office of the Auditor General.

Chapter 1: Introduction

This review addresses the implementation of Public Financial Management and the efficiency of government spending; it seeks to set local accounting and audit practices in international perspective, assess and reduce variances, and develop a basis for continuous assessment. Questionnaires (cf. Annex A) incorporated international principles of public sector accounting and auditing, and were used to collect data from the government budget and state-owned enterprise sectors; a Bank team and national authorities then reviewed the findings further. This assessment is underpinned by ongoing reforms, including the 2005 Public Finance Act, the National Audit Act, and the Institutional Development Plan for the Office of the Auditor General. Relevant international standards, country legislation, and the accrual basis of accounting are summarized in Annexes B, C and D, and E respectively; a Table of Standards and Gaps highlights desirable improvements.

Chapter 2: Public Sector Accounting

Chapter 2 reports on two broad areas of public sector accounting.

-The institutional framework: existing laws and regulations must accord with international standards, and accrual-based accounts and a more accountable reporting framework are desirable. Better educational and training opportunities are needed by public sector accountants and auditors, and the Ministry of Finance and Treasury must develop a training plan. A code of ethics is central to building professionalism and financial compliance, and any training should thus include an ethics component. Finally, the preparation of financial statements requires internal controls.

-Current accounting standards: public sector accounting standards, including in the presentation of financial statements, should be set by the Auditor General and must speak to international norms including eventual full accrual-based reporting. Government bodies must ensure that audited accounts are indeed publicly available, and a national professional accountancy body must be established.

Chapter 3: Public Sector Auditing

Chapter 3 also addresses institutional frameworks and current standards, with regard to public sector auditing.

-The institutional framework is the Audit Act and its provisions. The Act delimits the powers of the Auditor General, mandates him or her to set auditing standards, and provides necessary independence; the Auditor General needs to adopt a relevant code of ethics, oversee the implementation of the Institutional Development Plan, and foster transparent reporting. Through distance learning as well as in-house training for government auditors, international competency benchmarks must be internalized. Maldives also needs systems of quality assurance and of computerized accounting and auditing.

-Current auditing standards stand to benefit from the updated Audit Manual, which also supports a review of internal controls. The working paper system must be applied, and the compliance type of audit work maintained; ministry and government financial statements must be certified as per the Public Finance Act.

Chapter 4: Action Plans

Chapter 4 highlights outstanding accounting and auditing standards issues, their current status, and the relevant remedial actions. Accounting issues include the legal adoption of relevant international standards, and conformity to them in matters of financial statements, cash receipts, explanatory notes and disclosures, and the training of accountants; the need for a Code of Ethics for public sector accountants and for an official statement of accounting standards; and the desirability of a government-issued consolidated financial statement. Auditing issues to be addressed include the adoption of a code of ethics; closer conformity to international standards with regard to accountability, legal frameworks, training of auditors, audit methods, and quality assurance; the analysis of financial statements and certification of accounts; the publication of the Auditor General’s reports; and the execution of audit recommendations.

Relevant international standards, country legislation, and the accrual basis of accounting are summarized in Annexes B, C and D, and E respectively; a Table of Standards and Gaps highlights desirable improvements.

Annex A: Methodology of the Assessment

Annex A explains that the assessment uses a set of questionnaires that compare country standards and practices in accounting and auditing with those recommended by the International Federation of Accountants (IFAC) and the International Organization of Supreme Audit Institutions (INTOSAI).

Annex B: Accounting and Auditing Standards

Annex B provides lists of the accounting and auditing standards set by the IFAC and summarizes the Code of Ethics and the Auditing Standards published by the INTOSAI.

Annex C: Accounting Legislation

Annex C provides extracts from the Constitution of the Maldives and the Public Finance Bill 2002 that are relevant to the matters discussed in the Report.

AAnnex D: National Audit Legislation

Annex D provides extracts from the Constitution of the Maldives and the Public Finance Bill 2002 that are relevant to the matters discussed in the Report. It also shows the text of the Audit Act 2007

Annex E: Benefits of Accrual Accounting

Annex E provides an extract from an IFAC publication to summarize some of the more important benefits of accrual accounting in giving information about the Government of the Maldives’ financial position and current stock of assets and liabilities, and to improve decision making and accountability for public services and resources.

Maldives Public Sector Accounting and Auditing: Supplemental Table of Standards and Gaps

The table explains the detail of each of the substantial number of international standards that have been assessed in the Report, sets out the present position in the Maldives and proposes the steps that may be taken to move towards the international standard.

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