Accounting for revenue by the government of Malta

Abstract

Purpose: This study identifies the various types of government revenue; and describes the accounting treatment of revenue under the current cash-based accounting system as well as how this revenue is going to be accounted for once accrual accounting is fully implemented and thus IPSAS 9 and IPSAS 23 become applicable. It also highlights the problems that may occur during the transition process and examines whether the use of IPSAS 9 and IPSAS 23 will affect the quality of information. Design: The objectives of the study were achieved through a qualitative research approach. Semi-structured interviews were carried out with high-ranking government officials from the NAO, Treasury Department and from three revenue departments being VAT, Inland Revenue and Customs. Findings: Whereas under cash accounting, Ministries and government departments record revenue when cash is received, under accrual accounting, revenue will be recorded in the financial period to which it relates. With the introduction of IPSAS 9 and IPSAS 23, both revenue generation and revenue collectability will be given equal importance. Moreover, the correct allocation of revenue under exchange or non-exchange transactions is vital in that if revenue is wrongly allocated, consequently, even the recognition and measurement methods adopted will be incorrect. Apart from enhancing the overall quality of information and the transparency and accountability of government reporting, the implementation of these two IPSASs will bring various challenges and costs. Conclusion: This study concludes that even though at present, the Government goes into great detail when reporting revenue the fact that no rules exist regarding revenue categorisation results in lack of consistency and uniformity. In order to pave the way for IPSASs, the Treasury Department issues accrual-based circulars. Notwithstanding the fact that the adoption of IPSAS 9 and IPSAS 23 will enhance government reporting, there is a lot that needs to be done before these are actually implemented. Value: It is expected that this study will have a practical value for government officials once they realise the improvements the implementation of accrual accounting can have on the accounting of government revenue.