Government financial reporting : providing relevant information to its users

Abstract

The scope of a financial report is to provide its users with financial information about the reporting entity. The information provided in that report must be useful, accurate and complete in order to guide users to arrive to a rational economic decision. The Maltese Government is obliged to prepare a financial report and financial estimates to Parliament in accordance with Chapter IX of the Constitution and the Financial Administration and Audit Act of 1962. Currently, information provided in the Government financial reports can, at best, be described as incomplete. The primary reason for this state of affairs is that the financial statements and estimates are prepared on a cash basis with income and expenditure being included in government accounts on receipt and payment. No account is taken for assets, liabilities or unrealised gains and losses that may arise. Under this method of accounting, users are only provided with the cash flows of government throughout the year and in so doing are exposed to making some very wrong interpretations about Government's financial performance and position. The aim of this study is to establish, in broad terms, the sort of financial reporting that Government needs to adopt in order to provide meaningful information to its users. This has been done by investigating the shortcomings of the present financial report and identifying the necessary changes that need to take place in Government's accounting practices that will have a significant positive effect on the relevance of accounting information provided.