Accounting for grants as revenue by the Government of Malta

Abstract

Purpose: The rationale for carrying out this qualitative study was to identify the current accounting treatment applicable to capital grants received by public sector entities in accordance with IPSAS 23, to analyse the suggested changes issued by the IPSASB in the consultation paper entitled ‘Accounting for Revenue and Non-Exchange Expenses’ and to analyse the international responses received by the IPSASB and compare these with the local interviewees’ perceptions and reactions. Furthermore, the Maltese Government is in the process of implementing an accrual-based system based on IPSAS, making the study even more relevant.

Design: The research was carried out using documentary analysis and semi-structured interviews. The documentary analysis was carried out in relation to responses received by the IPSASB for its consultation paper, that related to the subject of this study. A total of fourteen responses to the consultation paper were analysed, which responses emanated from various public international committees, the big four audit firms and also a ministerial department. Additionally, a total of ten local interviews were conducted with interviewees ranging high-ranking officials emanating from various ministry departments, the treasury, the National Audit Office and accounting professionals employed by a local accounting firm. The interview questions were based on the preliminary views issued by the IPSASB, in order to achieve comparability between local and international perspectives. Findings: Following an examination of the research topic, it transpired that it is not such a straight-forward task to distinguish between an exchange and a non-exchange transaction. Furthermore, there appears to be a lack of consensus on the timing of revenue and accounting recognition, including the manner in which return obligations should be tackled where the grant includes a condition that is not strictly adhered to. The IPSASB’s consultation paper proposes that the new Public Sector Performance Obligation Approach should prevail for Category B transactions having performance obligations attached thereto, despite the general perception that capital grants warrant a specific standard. In this respect, further guidance issued by IPSASB should eliminate confusion and enhance harmonization. Conclusion: The study concludes by recommending that the suggestions made by IPSASB should be further examined and evaluated. Furthermore, additional guidelines are warranted to be issued by IPSASB, especially within the local context where these concepts are yet to be introduced. Value: This study will have pragmatic value for Maltese Government officials, since the IPSAS are still in the process of being implemented and the IPSASB have recently suggested some changes that the government officials themselves may benefit from.