Accrual Basis Accounting Flashcards
accrual basis accounting
The full accrual basis of accounting requires the recognition of transactions and events when they occur (and not only when cash or its equivalent is received or paid) and their reporting in the financial statements for the fiscal periods to which they relate.
Benefits
Improved quality, comparability and consistency, reliability -increase in confidence and recognition in the international community
-credibility to align United Nations Systems with internationally recognized best practices through the application of credible, independent accounting
standards on a full accrual basis.
•
enhanced oversight and internal control – The increased reporting
requirements calls for improved tracking and oversight of assets as well as stewardship of resources, which can provide an opportunity to enhance the operational delivery.
- Increased transparency with respect to assets and liabilities- better knowledge and disclosure that will support better management of assets and liabilities.
- More comprehensive information about costs -
- Better quality financial reporting-
stakeholders:
stakeholders:
• Donors and Member States - a basis for higher confidence in the financial reports and
increased assurance of efficient resource utilization, accountability and financial
management.
• Beneficiaries - improved efficiencies in resource management and effectiveness of
operational delivery can expedite response to beneficiaries’ needs.
• Management - better insight in terms of resources needs and uses as well as liabilities,
leading to a basis for improved financial and operational decision making.
• Programme Managers - enhanced knowledge of existing resources, including
equipment and inventories, which supports better oversight and accountability.
• Staff – will be exposed to best international practises in financial reporting
A complete set of financial statements includes the following
Statement of financial position -current and non-current classifications for assets and liabilities
Statement of financial performance -revenue and expense recognized in a financial period
Statement of changes in net assets/equity - changes in net assets during that financial period
Statement of cash flows - ability of the United Nations to generate cash and cash equivalents from operating, investing and financing activities
Statement of comparison of budget and actual amounts-Since the budget and the financial statements are prepared on different bases, the United Nations will include, as a separate additional financial statement, a comparison schedule between budgeted amounts and actual amounts prepared on the budgetary basis,
Notes to the financial statements, comprising a summary of significant accounting policies and other explanatory notes.
statement of cash flows
prepared using indirect method
cash flows direct method uses actual cash inflows
The indirect method uses increases and decreases in balance sheet line items to modify the operating section of the cash flow statement from the accrual method to cash method of accounting.
cash flows during the financial period, classified by operating, investing and financing activities.
Investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from the statement of cash flows
Operating activities
Under the indirect method, the net cash flow from operating activities is determined by adjusting surplus or deficit from ordinary activities for the effects of:
(a) Changes during the period in inventories and receivables and payables;
(b) Non-cash items such as depreciation and amortization, provisions, unrealized foreign currency gains and losses; and
(c) All other items for which the cash effects are investing or financing cash flows.
Investing activities
Policy guidance
2.4.1 The statement of cash flows will be prepared using the indirect method. The net surplus or deficit of the United Nations is adjusted for the effects of non cash transactions (i.e., accruals, provisions, amortization and depreciation, etc.); cash flows relating to and items of revenue or expense associated with investing or financing activities are presented directly.
Presentation of budget information in financial statements
comparison of budget amounts and the actual amounts
Comparable basis
(a) The original and final budget amounts;
(b) The actual amounts on a comparable basis; and
(c) By way of note disclosure, an explanation of material differences between the budget and actual amounts
Financial statements for the United Nations are prepared on the full accrual basis of accounting, whereas the budget is prepared on the budgetary basis, which is the modified cash basis.
Modified accrual accounting -combines accrual-basis accounting with cash-basis accounting. It recognizes revenues when they become available and measurable and, with a few exceptions, records expenditures when liabilities are incurred
For the regular budget of the United Nations, the annual original and final budgets will be derived as follows:
Year 1
initial budget =portion of the initial appropriation for the biennium approved by the General Assembly that is anticipated to be committed during the first year
The final budget is the initial budget amounts of year 1 + the adjustments included in the revised appropriation.
Year 2
The initial budget =portion of the revised appropriation not included in the final budget of year 1.
The final budget = initial budget of year 2 + the adjustments included in the final appropriation for the biennium less the amount reported in the year 1 financial statements as the year 1 final budget.
changes in accounting policies
(a) Change from expense recognition at the time of commitment to the receipt of the good or service;
(b) Change from expensing of property plant and equipment to capitalization and depreciation; and
(c) Change from expensing inventory when purchased to capitalizing and expensing only when distributed
