Accounting for long-term contracts in the Maltese public sector and the implications of IPSAS 11

Abstract

Purpose: The purpose of this study is to identify the types of contracts undertaken by the Government of Malta as a contractor; to understand the current accounting treatment of construction contracts by the Government; and to examine how this will be affected once accrual accounting is adopted and IPSAS11 becomes pertinent. The study investigates any costs, problems, challenges and benefits related with the application of IPSAS11. Design: The objectives of the study were achieved by collecting primary data using a qualitative research approach whereby face to face interviews of a semi structured format with seven Government officials and heads of departments were conducted. Findings: Contrary to initial expectations, the Government is rarely involved in construction projects as a contractor. Due to New Public Management ideology, the Government has gradually divested itself of the resources to carry out construction contracts and its activity in this area is minimal. The majority of infrastructural construction projects undertaken in Malta are mainly carried out by private sector contractors who successfully bid for tenders issued by the Government leading to the Government being the client and not the contractor. As a result IPSAS11 would not be applicable for Government accounting. Adopting accrual accounting with regards to construction contracts, even though minimal, will lead to improvements in the quality of information and enhance the transparency and accountability of Government reporting system. However administrative costs, including intensive training, are inevitably anticipated. Conclusion: This study concludes that the Government of Malta is gradually leaning towards an accrual basis of accounting by means of a 'modified accrual system', however, this method is not an ideal way to record construction contract transactions. Improvements need to be made in various areas until the full completion of the transition is in place so as to enjoy the full benefits of accrual accounting. It has also transpired that IPSAS11 needs to provide further guidance in order to cater for public sector requirements. Value: It is anticipated that this study will become practical to Government officials and heads of departments when realising improvements accrual accounting can involve in the areas of Government accounting.