Accounting for social benefits by the Government of Malta

Abstract

Purpose: The purpose of this study is to gain an insight into the accounting for social benefits. It identifies the various types of social benefits provided by the Government of Malta and how such social benefits are accounted for under the current cash-based budget-oriented system. It also analyses the accounting proposals put forward by ED 63 and their practicality and applicability for the Maltese Government when it implements accrual accounting. Design: The objectives of the study were achieved through a qualitative research approach. Semi-structured interviews were carried out with high-ranking officials from the Department of Social Security, the Treasury Department and the National Statistics Office, as well as with an accounting practitioner from one of the Big Four audit firms. The research methodology also includes documentary analysis of the responses received by the IPSASB on ED 63. Findings: IPSAS 42 Social Benefits may prove to be a temporary standard because there are diverse views as to how governments should account for social benefits. Some support the method where the liability is restricted to the next benefit amount to be paid out; while others support the inclusion of a longer-term liability dependent on the economic substance of the social benefit scheme. Despite this lack of agreement, IPSAS 42 goes for the former method. However, stakeholders recognise the need for governments to report long-term fiscal sustainability information, especially considering the financial challenges of a rapidly ageing society. Conclusions: The study concludes that, although governments tend to be wary of adopting accounting standards that will result in the recognition of significant liabilities, the solution that has been chosen by the IPSASB would not result in this. The recognition, measurement, disclosure and presentation of social benefits on an accrual basis seems reasonable and capable of being applied by the Government of Malta. Value: The study should encourage the Treasury Department to make the necessary preparations to record and report social benefits expenditure on an accrual basis.