Accounting for investment property by the government of Malta

Abstract

Purpose: This study identifies the different types of Investment Property owned by the Government of Malta; and describes the current accounting treatment used to record investment Property, together with how Investment Property would be accounted for under the accrual accounting method in accordance to IPSAS 16. This study also highlights potential problems that may arise during the transition process.

Design: The research objectives of this study were achieved through a qualitative approach. Semi-structured interviews were carried out with high-ranking officials from the Lands Authority, Treasury Department, NAO and Grant Thornton.

Findings: The Government of Malta owns a list of different types of investment Property which are rented out to the public or sold with the purpose of increasing revenue from rental receipts and Sale of Government Lands. The current method of accounting for Investment property held by the Government of Malta is known as cash based, and thus only cash payments and cash receipts which have already been done, are recorded. With the introduction of accrual accounting in the General Government, rental receipts and sale of Government lands will have to be recorded in relation to the correct financial period, together with providing a measurement for each investment property that the Government owns and recognise it as an Asset in the balance sheet. The adoption of accrual accounting will truly improve the quality of information provided to the public as the balance sheet will present an element of transparency. However, the transition from cash based accounting to accrual accounting may rise to potential problems.

Conclusion: This study concludes that although Investment Property represents only a small portion of the total revenue generated by the Government, it is still important for the government to account for such revenue. The process towards adopting IPSAS 16 in Malta is in progress. The adoption of IPSAS 16 is essential since IPSAS 16 shall lead to more informative financial statements, including the value of each Investment Property owned by the Government.

Value: This study is expected to provide a practical value for Government officials during the implementation process of adopting accrual accounting within the General Government. Moreover, this study identifies the potential challenges that may be faced during the implementation process. By doing so, Government officials would be aware of such problems and in turn work to mitigate their effects.