- 5 Marks
Question
Below are some observations made after an assessment of the General-Purpose Financial Report (GPFR) prepared by a public sector entity in 2018:
i) Not only were transactions not treated in accordance with the IPSAS, some were omitted unknowingly.
ii) In presenting the financial performance, position, and cash flow for the current financial year, 2018, the accountant has also provided information on the current year’s budget.
iii) Investment amounting to GH¢1,000,000 in short-term security reported in the financial position lacks supporting documents even though the investment may exist.
iv) The financial report was dated 30 June 2019, which is an improvement over the previous years, which was signed in September 2018.
Required:
In line with the Conceptual Framework for GPFR by public sector entity:
Explain the qualitative characteristics of GPFR for each observation in (i) to (iv) above and explain how each of the observations affects the usefulness of the GPFRs to the users.
(5 marks)
Answer
i) Observation: Transactions not treated in accordance with IPSAS and some omitted unknowingly
- Qualitative Characteristic: Faithful Representation
Faithful representation means that the financial information accurately reflects the transactions and events it purports to represent. The error in treatment and omission of transactions undermines the faithful representation of the financial statements, which decreases the reliability of the information for users.
ii) Observation: Presentation of financial performance, position, and cash flow along with budget information
- Qualitative Characteristic: Comparability and Relevance
Comparability allows users to identify similarities and differences between two sets of phenomena. Relevance ensures that the information provided is capable of making a difference in decision-making. By including budget information, the financial report enhances both comparability and relevance, allowing users to assess performance against the budget and make informed decisions.
iii) Observation: Investment in short-term security lacks supporting documents
- Qualitative Characteristic: Verifiability
Verifiability assures users that the information in the GPFR faithfully represents the economic phenomena it purports to represent. The lack of supporting documents for the investment undermines the verifiability of the information, which could lead users to question the accuracy and completeness of the financial statements.
iv) Observation: Financial report dated 30 June 2019, an improvement over the previous year
- Qualitative Characteristic: Timeliness
Timeliness means having the information available for users before it loses its capacity to be useful for accountability and decision-making purposes. Although the report’s timeliness has improved, issuing it six months after the year-end (30 June) still diminishes its usefulness. Information provided late may lose its relevance, reducing its effectiveness for users who need timely data for decision-making.
- Tags: GPFR, IPSAS, Public Sector Accounting, Qualitative Characteristics
- Level: Level 2
- Topic: General purpose financial reporting framework
- Series: MAY 2020
- Uploader: Theophilus