Accounting for financial instruments by the government of Malta

Abstract

Purpose: The purpose of this study is to identify the types of financial instruments used by the Government of Malta and how such instruments are accounted for and reported under the current cash-based system. Furthermore, it analyses how the treatment of financial instruments will change in order to fulfill the requirements of IPSAS 28, IPSAS 29 and IPSAS 30 once accrual accounting is implemented. The study also identifies improvements as well as costs and challenges resulting from the transition to accrual accounting. Design: The objectives of this study were met through a qualitative research methodology involving semi-structured interviews with officials from the Treasury Department, the NAO and the Central Bank. The interviews were complemented with secondary data collected from prior literature. Findings: The study finds that the main types of financial instruments used by the Maltese Government constitute MGSs, Treasury Bills, foreign loans and investments which are managed by the Treasury Department. Additionally, the study finds that the transition to accrual accounting and the adoption of IPSAS 28, 29 and 30 are expected to lead to an enhancement in both the treatment of financial instruments and the quality of financial information. Nonetheless, implementation of IPSAS is likely to be costly in terms of both human resources and infrastructure. Conclusion: The study concludes that there is political commitment from the Government of Malta to fully convert to accrual accounting and adopt IPSAS. At the moment there is uncertainty with regards to the treatment of financial instruments under these standards but the situation is expected to clarify once the policy on these instruments is established. In order to fully benefit from the conversion, the government has to tackle underlying problems carefully. Value: It is expected that this study will become useful to government officials dealing with the accounting and reporting of financial instruments under accrual accounting. Moreover, such study promotes improvements in this area of government accounting.