The implications of changing the presentation of financial statements for the Maltese government

Abstract

Purpose: This study analyses how the Government financial statements are presented under the current cash basis, identifying the limitations. It further explores and analyses how the financial statements shall be presented according to IPSAS, identifying any problems that may arise during the transition process and ways in which such problems may be mitigated. Design: Semi-structured interviews were conducted with top officials from Government Ministries and Departments. Other interviewees were a lecturer from the University of Malta, a partner from a Big 4 Audit Firm, and two managers from the professional firm that is implementing the new accrual accounting system. Findings: The current financial statements are deemed to be very simple and hence, more understandable, however, they lack essential information. But is this really the case? Moreover, the Government Financial Report (GFR) lacks users, and the needs of the few users are not being met. Implementing IPSAS 1 will result in the inclusion of a number of new items in the financial statements – enhancing accountability, transparency and decision-making, but further diminishing understandability. However, IPSAS 24 will not be implemented thereby limiting improvement. The suitability of IPSAS for the public sector is additionally put into question due to various reasons. Moreover, challenges are expected to arise, mostly from data collection, and not IPSAS 1 itself. Conclusion: The study concludes that the current presentation is not as simple as it is made out to be, and presenting the financial statements according to IPSAS 1 will indeed improve presentation; nonetheless, the extent of the benefits shall be limited due to IPSAS 24 not being implemented. An existing problem is the seeming lack of interest in the current GFR since it is not understood. The Government is doing well in assessing every IPSAS as they are not as tailored for the public sector as originally thought. Value: This study should be valuable to users of the GFR and also Government officials and employees who contribute to the preparation of the GFR.