mpsas 1 presentation of financial statements

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Malaysian Public Sector Accounting Standards (MPSAS)

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thepublicsectoraccounting

INTRODUCTION TO PUBLIC SECTOR ACCOUNTING IN MALAYSIA

In this public sector accounting guide, we are going to consider the introduction to public sector accounting in Malaysia.

Summary of Contents

Introduction to Public Sector Accounting in Malaysia

The public sector, which is the part of an economic system that countries and governments use to trade and distribute resources, is generally a section controlled by local, state, or national governments. It also includes national, provincial, territorial, and local governments.

It can refer to the state, province, territorial, or local government (e.g., the government of a city or town and other related entities (e.g., agencies, boards, and commissions, as well as wellasa enterprises).

These sections can be funded entirely by the state for non-profit services or partly by the state for services that are profitable.

Overview of the Malaysian Public Sector Accounting Standards (“MPSAS”)

Malaysian Public Sector Accounting Standards Overview (MPSAS)

Malaysia’s Accountant General’s Department (“AGD”) has issued the Malaysian Public Sector Accounting Standards, or MPSAS, as a financial reporting framework.

Read also: INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS)

We’ll give an overview of MPSAS in this article.

The MPSAS AGD of Malaysia has established two groups to supervise and manage the development, issuance, and implementation of MPSAS: the Government Accounting Standards Advisory Committee (“GASAC”) and the Accrual Accounting Steering Committee (“ACSC”).

Governance structure of MPSAS issuance

(“GASAC”), the Government Accounting Standards Advisory Committee.

The GASAC committee is in charge of deliberating on draft MPSAS standards. The state treasury, ministry of finance, Auditor General’s Office, institutions of higher learning, Malaysian Institute of Accountants (“MIA”), Malaysian Accounting Standards Board (“MASB”), and accounting bodies such as the Association of Chartered Certified Accountants (“ACCA”), Malaysian Institute of Certified Public Accountants (“MICPA”), and CPA Australia are all represented on GASAC.

The Accrual Accounting Steering Committee (ACSC)

ACSC is a committee that is one level above GASAC. The ACSC considers, accepts, and endorses GASAC’s recommendations on proposed MPSAS standards.

Also Find Out: Advantages and Disadvantages of cash basis in public sector accounting

The Chairman is Malaysia’s Accountant General, while the members are the AGD’s senior directors and the Chief Accountants of Federal Ministries.

The MPSAS development process

MASB produces financial reporting frameworks that are based on the Worldwide Accounting Standards Board’s (“IASB”) international financial reporting standards.

1.IFRS (International Financial Reporting Standards) and

2. International Financial Reporting Standards for Small and Medium Enterprises (“IFRS for SMEs”).

Similarly, AGD adapts an international financial reporting framework to create the MPSAS financial reporting framework.

The International Public Sector Accounting Standards (“IPSAS”) are the foundation of MPSAS. IPSAS is issued by the International Public Sector Accounting Standards Board (“IPSASB”), an independent standard-setting organization within IFAC.

IPSASB standards are being considered by GASAC for adoption in Malaysia. MPSAS standards are not identical to or word-for-word equivalents of IPSAS. For local adoption, MPSAS modifies or replaces certain IPSAS requirements.

Nonetheless, unless there is a serious public sector issue or local legislation that warrants a divergence from IPSAS, AGD takes the position of maintaining, to a large extent, the accounting requirements and original text of IPSAS.

Any departure, on the other hand, will only be made after consultation with diverse stakeholders.

The comparison of MPSAS to its IPSAS equivalent is usually included on the last page of the MPSAS standard, along with an explanation or justification for the difference. So that’s how and where you’ll be able to tell the differences apart.

Who are the Users of Malaysian Public Sector Accounting Standards (“MPSAS”)?

We explain that MPSAS is used by public sector firms other than government business enterprises (“GBEs”) in Accounting 101: Financial Reporting Frameworks in Malaysia . In reality, we explained in that post that GBEs are entities that have the following characteristics:

1. a legal entity with the authority to contract in its own name.

2. It has also been given financial and operational authorization to operate a firm.

3. It sells goods and services to other entities at a profit or at full cost recovery in the normal course of business.

4. It is not dependant on ongoing government assistance to remain a going concern (other than arm’s length purchases of outputs). 5. Finally, it is governed by a government agency. The above features are based on a previous GBE definition. IPSAS, on the other hand, takes the place of the GBE term. Instead, the term “public sector entities” is defined and used by IPSAS.

According to IPSAS , public sector entities are defined as those that meet all of the following criteria:

1. For starters, public-sector entities are in charge of providing services to the general public and/or redistributing income and wealth.

2. Second, public sector entities fund their activities primarily through taxes and/or transfers from other levels of government, social contributions, debt, or fees, either directly or indirectly.

Finally, the basic goal of public-sector organizations is not to produce money.

As a result, entities that do not meet the above conditions are not permitted to use IPSAS. However, MPSAS has not yet taken up this modification.

The following is a list of MPSAS standards that have been published to date.

The AGD has issued 35 MPSAS standards as of the writing of this article. Three of the 35 standards have been replaced by the more modern MPSAS standards. As a result, the following MPSAS standards are still in effect, except the obsolete standards:

1. Malaysian Public Sector Accounting Standard (MPSAS) 1 Presentation Of Financial Statements 2. Malaysian Public Sector Accounting Standard (MPSAS) 2 Cash Flow Statements 3. Malaysian Public Sector Accounting Standard (MPSAS) 3 Accounting Policies, Changes In Accounting Estimates And Errors 4. Malaysian Public Sector Accounting Standard (MPSAS) 4 The Effect Of Changes In Foreign Exchange Rates 5. Malaysian Public Sector Accounting Standard (MPSAS) 5 Borrowing Costs 6. Malaysian Public Sector Accounting Standard (MPSAS) 9 Revenue From Exchange Transactions 7. Malaysian Public Sector Accounting Standard (MPSAS) 11 Construction Contracts 8. Malaysian Public Sector Accounting Standard (MPSAS) 12 Inventories 9. Malaysian Public Sector Accounting Standard (MPSAS) 13 Leases 10. Malaysian Public Sector Accounting Standard (MPSAS) 14 Events After The Reporting Date 11. Malaysian Public Sector Accounting Standard (MPSAS) 16 Investment Property 12. Malaysian Public Sector Accounting Standard (MPSAS) 17 Property, Plant And Equipment 13. Malaysian Public Sector Accounting Standard (MPSAS) 19 Provisions, Contingent Liabilities And Contingent Assets 14. Malaysian Public Sector Accounting Standard (MPSAS) 20 Related Party Disclosures 15. Malaysian Public Sector Accounting Standard (MPSAS) 21 Impairment Of Non-Cash-Generating Assets 16. Malaysian Public Sector Accounting Standard (MPSAS) 22 Disclosure Of Financial Information 17. Malaysian Public Sector Accounting Standard (MPSAS) 23 Revenue From Non-Exchange Transactions (Taxes & Transfers) 18. Malaysian Public Sector Accounting Standard (MPSAS) 24 Presentation Of Budget Information In Financial Statements 19. Malaysian Public Sector Accounting Standard (MPSAS) 25 Employee Benefits 20. Malaysian Public Sector Accounting Standard (MPSAS) 26 Impairment Of Cash-Generating Assets 21. Malaysian Public Sector Accounting Standard (MPSAS) 27 Agriculture 22. Malaysian Public Sector Accounting Standard (MPSAS) 28 Financial Instruments: Presentation 23. Malaysian Public Sector Accounting Standard (MPSAS) 29 Financial Instruments: Recognition And Measurement 24. Malaysian Public Sector Accounting Standard (MPSAS) 30 Financial Instruments: Disclosure 25. Malaysian Public Sector Accounting Standard (MPSAS) 31 Intangible Assets 26. Malaysian Public Sector Accounting Standard (MPSAS) 32 Service Concession Arrangements: Grantor 27. Malaysian Public Sector Accounting Standard (MPSAS) 33 First-Time Adoption Of Accrual Basis Malaysian Public Sector Accounting Standard (MPSAS)S 28. Malaysian Public Sector Accounting Standard (MPSAS) 34 Separate Financial Statements 29. Malaysian Public Sector Accounting Standard (MPSAS) 35 Consolidated Financial Statements 30. Malaysian Public Sector Accounting Standard (MPSAS) 36 Investments In Associates And Joint Ventures 31. Malaysian Public Sector Accounting Standard (MPSAS) 37 Joint Arrangements 32. Malaysian Public Sector Accounting Standard (MPSAS) 38 Disclosure Of Interest In Other Entities

For reference, the Malaysian Public Sector Accounting Standards (MPSAS) are published on AGD’s website at Malaysian Public Sector Accounting Standards (MPSAS).

Some of the standards listed above, such as MPSAS 21, MPSAS 23, and MPSAS 24, are only applicable to the public sector.

This is because the public sector’s unique nature necessitates specific standards to handle issues that aren’t applicable or available in the private sector.

The following is a list of IPSAS standards that have yet to be adopted.

If you’re asking if there are any more IPSASB standards that have yet to be approved by AGD, the answer is yes. The IPSAS standards that have yet to be implemented are listed below:

• IPSAS 18  Segment Reporting
• IPSAS 39  Employee Benefits
• IPSAS 40  Public Sector Combinations
• IPSAS 41  Financial Instruments
• IPSAS 42  Social Benefits

We hope you now have a good understanding of MPSAS. In forthcoming installments, we’ll go over the differences between MPSAS, MPERS, and MFRS in more detail.

Meanwhile, take a look at the other articles in the Financial Accounting department.

A professional with six (8) years’ experience in finance and accounting. Demonstrating expertise in accounting procedures, computerized accounting system management and financial operations. Financially astute with excellent analytical, problem solving, management, people supervision, organizational, business administration, operation and commercial management and teaching skills.

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CPD technical article

01 April 2019

How to present budget information for the public sector in MPSAS 24

Multiple-choice questions

Ramesh Ruben Louis

Ramesh ruben louis looks at the presentation of budget information for the public sector in mpsas 24, which was issued in june 2013.

Studying this technical article and answering the related questions can count towards your verifiable CPD if you are following the unit route to CPD and the content is relevant to your learning and development needs. One hour of learning equates to one unit of CPD. We'd suggest that you use this as a guide when allocating yourself CPD units.

This article was first published in the April 2019 Malaysia edition of Accounting and Business magazine.

Even though the Malaysian Public Sector Accounting Standards (MPSAS) are very similar to their MFRS/IFRS counterparts, there a few standards in the MPSAS framework that are unique to the public sector. One such standard or area of financial reporting is the presentation of budget information for public sector entities, as set out in MPSAS 24, Presentation of Budget Information in Financial Statements , issued by the Accountant General’s Department in June 2013.

The spirit behind requiring public sector entities to present budget information is to ensure that they discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating (a) compliance with the approved budget(s) for which they are held publicly accountable; and (b), where the budget(s) and the financial statements are prepared on the same basis, their financial performance in achieving the budgeted results.

Scope and applicability

MPSAS 24 applies to public sector entities, other than government business enterprises, which are required or elect to make their approved budget(s) publicly available. It is imperative to note that the requirement to present budget information in a public sector entity’s set of financial statements is not mandatory for all public sector entities. This standard does not require approved budgets to be made publicly available, nor does it require that the financial statements disclose information about, or make comparisons with, approved budgets that are not made publicly available.

An approved budget in the MPSAS context reflects the anticipated revenues or receipts expected to arise in the annual or multiyear budget period, based on current plans and the anticipated economic conditions during that budget period, and expenses or expenditures approved by a legislative body (the legislature or other relevant authority). It is not a forward estimate or a projection based on assumptions about future events and possible management actions that are not necessarily expected to take place.

A critical feature of approved budgets is that the authority to withdraw funds from the government treasury or similar body for agreed and identified purposes is provided by a higher legislative body (such as the Parliament or State Legislative Assembly) or other appropriate authority (such as a council). The approved budget establishes the expenditure authority for the specified items. The expenditure authority is generally considered the legal limit within which an entity must operate. In some jurisdictions, the approved budget for which the entity will be held accountable may be the original budget, and in others it may be the final budget.

Comparisons

A public sector entity shall present a comparison of the budget amounts for which it is held publicly accountable and actual amounts, either as a separate additional financial statement or as additional budget columns in the financial statements currently presented in accordance with MPSASs, though presenting it as a separate additional statement is a more common approach.

The comparison of budget and actual amounts sets out separately for each level of legislative oversight:

a) the original and final budget amounts

b) the actual amounts on a comparable basis

c) by way of note disclosure, an explanation of material differences between the budget for which the entity is held publicly accountable and actual amounts.

Original and final budget

The original budget is the initial approved budget for the budget period. Supplemental appropriations may be necessary where the original budget did not adequately envisage expenditure requirements arising from, for example, war or natural disasters. In addition, there may be a shortfall in budgeted revenues during the period, and internal transfers between budget heads or line items may be necessary to accommodate changes in funding priorities during the fiscal period. Consequently, the funds allotted to an entity or activity may need to be cut back from the amount originally appropriated for the period in order to maintain fiscal discipline. The final budget includes all such authorised changes or amendments. MPSAS 24 also uses the term ‘actual’ or ‘actual amount’ to describe the amounts that result from execution of the budget.

Material differences

The final budget includes all changes approved by legislative actions or other designated authority to revise the original budget. A public sector entity is required to include in the notes to the financial statements, or in a separate report issued before, in conjunction with, or at the same time as the financial statements, an explanation of changes between the original and final budget.

The explanation will include whether, for example, changes arise as a consequence of reallocations within the original budget parameters or as a consequence of other factors, such as changes in the overall budget parameters due to revised government policy. Such disclosures are often made in a management discussion and analysis or similar report on operations issued in conjunction with, but not as part of, the financial statements. Where disclosures are made in separate reports rather than in the financial statements, the notes to the financial statements will include a cross reference to the report.

Besides the differences in the budgets, explanation of material differences between actual and budget amounts must also be included in notes to the financial statements, unless included in other public reports or documents issued in conjunction with the financial statements and the notes to the financial statements identify the reports or documents in which the explanation can be found.

Comparable basis

All comparisons of budget and actual amounts must be presented on a comparable basis to the budget. An entity presents the comparison as additional budget columns in the primary financial statements only where the financial statements and the budget are prepared on a comparable basis. As such, if the budget is prepared on the cash basis and the financial statements are prepared on the accrual basis, no comparison as additional budget columns is necessary. If the financial statements and the budget were prepared on a comparable basis, additional columns can be added to the existing primary financial statements presented in accordance with MPSAS, denoting original and final budget amounts and, if the entity so chooses, differences between the budget and actual amounts, as depicted in Figure 1 (statement of financial performance for the year ended 31 December 20xx) .

When the budget and financial statements are not prepared on a comparable basis, a separate statement of comparison of budget and actual amounts is presented. In this circumstance, the financial statements should clarify that the budget and the accounting bases differ, and the statement of comparison of budget and actual amounts is prepared on the budget basis, as shown in Figure 2 (statement of comparison of budget and actual amounts for the year ended 31 December 20xx. Note: The budget and the accounting basis are different. This statement is prepared on the budget basis) .

Reconciliation

Where the financial statements and budget are not prepared on a comparable basis, the actual amounts presented on a comparable basis to the budget must be reconciled to the amounts presented in the financial statements. Reconciliation must be made for the following:

a) if the accrual basis is adopted for the budget, total revenues, total expenses and net cashflows from operating activities, investing activities and financing activities; or

b) if a basis other than the accrual basis is adopted for the budget, net cashflows from operating activities, investing activities and financing activities.

Differences can stem from the accounting basis, timing differences between the budget and the financial statements, and entity differences in the consolidated group. The reconciliation must be presented either in the comparison of budget and actual amounts or in the notes to the financial statements.

Ramesh Ruben Louis is a professional trainer and consultant in audit and assurance, risk management and corporate governance, corporate finance and public practice advisory.

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The International Accounting Standards Board (IASB) today completed its work to improve the usefulness of information presented and disclosed in financial statements. The new Standard, IFRS 18 Presentation and Disclosure in Financial Statements , will give investors more transparent and comparable information about companies’ financial performance, thereby enabling better investment decisions. It will affect all companies using IFRS Accounting Standards.

IFRS 18 introduces three sets of new requirements to improve companies’ reporting of financial performance and give investors a better basis for analysing and comparing companies:

Improved comparability in the statement of profit or loss (income statement)

Currently there is no specified structure for the income statement. Companies choose their own subtotals to include. Often companies report an operating profit but the way operating profit is calculated varies from company to company, reducing comparability. 1

IFRS 18 introduces three defined categories for income and expenses—operating, investing and financing—to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit. The improved structure and new subtotals will give investors a consistent starting point for analysing companies’ performance and make it easier to compare companies.

Enhanced transparency of management-defined performance measures

Many companies provide company-specific measures, often referred to as alternative performance measures. Investors find this information useful. However, most companies don’t currently provide enough information to enable investors to understand how these measures are calculated and how they relate to the required measures in the income statement.

IFRS 18 therefore requires companies to disclose explanations of those company-specific measures that are related to the income statement, referred to as management-defined performance measures. The new requirements will improve the discipline and transparency of management-defined performance measures, and make them subject to audit.

More useful grouping of information in the financial statements

Investor analysis of companies’ performance is hampered if the information provided by companies is too summarised or too detailed. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements 2 or in the notes. The changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.

Andreas Barckow, IASB Chair, said:

IFRS 18 represents the most significant change to companies’ presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago. It will give investors better information about companies’ financial performance and consistent anchor points for their analysis.

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier. Changes in companies’ reporting resulting from IFRS 18 will depend on their current reporting practices and IT systems.

IFRS 18 replaces IAS 1 Presentation of Financial Statements . It carries forward many requirements from IAS 1 unchanged. IFRS 18 is the culmination of the IASB’s Primary Financial Statements project. 

Access the Standard

IFRS 18, the Illustrative Examples and the Basis for Conclusions are available to IFRS Digital subscribers. You can purchase an IFRS Digital Subscription or a PDF version of the Standard from our web shop.

• IFRS 18  Presentation and Disclosure in Financial Statements
• Basis for Conclusions —explanation of the IASB’s considerations in developing the requirements in IFRS 18
• Illustrative Examples —worked examples for aspects of IFRS 18, including flowcharts relating to key requirements in IFRS 18

Access the supporting materials

Support to implement IFRS 18 will be available via the IFRS 18 implementation webpage .

The following documents, along with IFRS 18, are available from the completed project page :

• Short video of IASB Chair Andreas Barckow summarising the new requirements
• One-page quick view of IFRS 18
• Project Summary —overview of the project in non-technical language
• Effects Analysis —description of the likely benefits and costs of IFRS 18
• Feedback Statement —summary of feedback on proposals and the IASB’s response to feedback
• Reference materials —comparison table of requirements in IAS 1 and IFRS 18 showing changes to each paragraph of IAS 1

Watch Andreas Barckow explain the new requirements to improve companies’ financial performance reporting.

1 An IASB study of 100 companies showed that over 60 reported a figure for operating profit, using at least nine different ways to calculate it.

2 The primary financial statements consist of the statement of profit or loss (income statement); statement presenting comprehensive income; statement of financial position (balance sheet); statement of changes in equity; and statement of cash flows.

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A more structured income statement

MPMs – Disclosed and subject to audit

Greater disaggregation of information

• Next steps  

The way companies communicate their financial performance is set to change.  

Responding to investor calls for more relevant information, IFRS 18 Presentation and Disclosure in Financial Statements 1 will enable companies to tell their story better through their financial statements. Investors will also benefit from greater consistency of presentation in the income and cash flow statements, and more disaggregated information.  

So what does this mean for companies’ financial reporting? Essentially, companies’ net profit will not change. What will change is how they present their results on the face of the income statement and disclose information in the notes to the financial statements. This includes disclosure of certain ‘non-GAAP’ measures – management performance measures (MPMs) – which will now form part of the audited financial statements.  

IFRS 18 marks a step towards more connected reporting. Financial statements that include relevant and consistent information will afford users better information on companies’ financial performance. 

IFRS 18 brings three categories of income and expenses, two income statement subtotals and one single note on management performance measures. These, combined with enhanced disaggregation guidance, set the stage for better and more consistent information for users – and will affect all companies.

Gabriela Kegalj KPMG global IFRS presentation leader

Under current IFRS ® Accounting Standards, companies use different formats to present their results, making it difficult for investors to compare financial performance across companies. 

IFRS 18 promotes a more structured income statement, as set out below. In particular, it introduces a newly defined ‘operating profit’ subtotal and a requirement for all income and expenses to be allocated between three new distinct categories based on a company’s main business activities.

All companies are required to report the newly defined ‘operating profit’ subtotal – an important measure for investors’ understanding of a company’s operating results – i.e. investing and financing activities are specifically excluded. This means that the results of equity-accounted investees are no longer part of operating profit and are presented in the ‘investing’ category. 

IFRS 18 also requires companies to analyse their operating expenses directly on the face of the income statement – either by nature, by function or using a mixed presentation. Under the new standard, this presentation provides a ‘useful structured summary’ of those expenses. If any items are presented by function on the face of the income statement (e.g. cost of sales), then a company provides more detailed disclosures about their nature.    

Companies often use ‘non-GAAP’ information to explain their financial performance because it allows them to tell their own story and provides investors with useful insight into a company’s performance.  

IFRS 18 now requires some of these ‘non-GAAP’ measures to be reported in the financial statements. It introduces a narrow definition for MPMs 2 , requiring them to be: 

• a subtotal of income and expenses; 
• used in public communications outside the financial statements; and 
• reflective of management’s view of financial performance. 

For each MPM presented, companies will need to explain in a single note to the financial statements why the measure provides useful information, how it is calculated and reconcile it to an amount determined under IFRS Accounting Standards.

To provide investors with better insight into financial performance, the new standard includes enhanced guidance on how companies group information in the financial statements. This includes guidance on whether information is included in the primary financial statements or is further disaggregated in the notes. 

Companies are discouraged from labelling items as ‘other’ and will now be required to disclose more information if they continue to do so. 

Now is the time to get ready to report under the new standard, which is effective from 1 January 2027 and applies retrospectively. It is available for early adoption. 

• Assess the impacts on your financial statements. 
• Communicate the impacts with investors.  
• Consider how the new requirements impact financial reporting systems and processes. 
• Monitor any changes in the local reporting landscape.  

Our high-level guide, available shortly, will help you understand the new accounting standard and assess the impacts for your company. And look out for our First Impressions publication, which will provide more information on the new standard, including our detailed insight and illustrative examples. 

1 IFRS 18 replaces IAS 1 Presentation of Financial Statements .

2  IFRS 18 defines management performance measures (MPMs); these measures are currently commonly known as non-GAAP measures, alternative performance measures (APMs) or key performance indicators (KPIs).

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MPSAS 24 Budget Information: Transparency on how public sector utilised budget

As many Malaysian are in the budget spirit following the Malaysia 2021 Budget announcement made by the Finance Minister on Friday, 6 th November 2020, this article discusses MPSAS 24 Presentation of Budget Information in Financial Statements .

MPSAS 24 is an interesting standard because it helps users to understand how public sector entities utilised the allocated budget. The standard, however, is applicable only for entities that are either:

• required to make publicly available their approved budgets that they are publicly accountable; or
• elect to make publicly available their approved budget.

So, you may not be able to see this information in all public sector entities’ financial statements.

In Malaysia, the Accountant General’s Department of Malaysia issued MPSAS 24 in June 2013. The standard adopts the financial reporting requirements in IPSAS 24 issued by the International Public Sector Accounting Standards Board (“IPSASB”).

The objective of the standard is to inform the users on how entities discharge their accountability on the allocated budget. Additionally, the standard also allows entities to being transparent in demonstrating compliance with the approved budgets. Take note that there is no MPSAS 24 equivalent for the private sector applying the Malaysian Financial Reporting Standards (“MFRS”) or Malaysian Private Entities Reporting Standard (“MPERS”).

Presentation of Budget Information in Financial Statements – the requirements of MPSAS 24

MPSAS 24 requires public sector entities to present a comparison of budget amount and the actual amount spent. This comparison comes together with an explanation of the reasons for material differences between the two.

Entities determine material differences either by focusing on performance against the original budget or on compliance with the final budget. Entities present the comparison either as:

• a separate additional financial statement; or
• an additional budget column in the MPSAS financial statements.

In addition, where the approved budgets are publicly available for some activities, public sector entities present the budget information only for those activities.

Changes to the original budget

It is common in public sector to have changes to the original budget allocated. How should entities report this in their financial statements?

The nature of the changes

MPSAS 24 requires entities to explain any changes from the original budget to the final budget. The final budget includes supplemental appropriations where the original budget did not envisage certain expenditure requirements. For example additional or supplemental budget following natural disasters. The final budget may also include budget cuts from the original amount appropriated. For instance, significant shortfall from budgeted revenues or reallocation of budget arising from the re-prioritisation of funding.

Entities may present an explanation of the changes in the notes to the financial statements or in a report issued before, at the same time, or in conjunction with the financial statements. Entities need to make an appropriate cross-reference in the financial statements.

Budget information versus financial statements

MPSAS 24 requires public sector entities to present a comparison of budget and actual amounts on the same comparable basis – i.e. accounting, classification, entities, and period – as the approved budget.

The challenge is when entities prepare the budgets on a different basis from the actual amounts presented in the financial statements. For instance, entities may prepare budgets based on cash basis while present the actual amounts in the financial statements on an accrual basis.

Where entities did not prepare the budget on a comparable basis as to the financial statements, MPSAS 24 further requires entities to prepare a reconciliation to the actual amount. The reconciliation must identifying the basis, timing, and entity differences in either the face of the statement of comparison or in the notes to the financial statements.

Other presentation and disclosure requirements

In addition to the above, MPSAS 24 requires public sector entities to disclose, in the notes to the financial statements:

• the period of the approved budget;
• the entities included in the approved budget which may not be the same as entities included in the preparation of financial statements;
• budgetary basis and classification basis adopted in the approved budget.

MPSAS 24 however, does not require public sector entities to present comparative information for the previous period in accordance with the requirements of the standard.

Essentially, the comparison between budget and actual amount in the prior period together with the related explanations of differences between the actuals and budget of the previous period are not required to be presented or disclosed in the financial statements of the current period.

Examples of disclosure of budget in the financial statements are as follows:

• 2017 financial statements of the Malaysian Investment Development Authority (“MIDA”)

• 2017 financial statements for Majlis Daerah Pontian

Illustrative examples of how the comparison of budget and actual amounts are also included in the full version of the standard. The full version of MPSAS 24 Presentation of Budget Information in Financial Statements is available on the website of Jabatan Akauntan Negara.

Editorial Team @THEACCSENSE More by THEACCSENSE

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