Chapter 9 Solutions: System of Government Accounting in Nepal
Answers to the Chapter 9 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.
Group A: Very Short Answer Questions (1 Mark Each)
1. When was the New Accounting System formally approved in Nepal?
The New Accounting System was formally approved by King Mahendra on 2018 Chaitra 2 B.S. (1962 March 15 A.D.) and implemented from Fiscal Year 2019/20 B.S.
2. Give any two examples of government offices that use Central Level Accounting.
Two examples are the Ministry of Finance and the Ministry of Education, Science and Technology; departments and constitutional bodies also keep central level accounts.
3. Who approves the accounting forms (AGF) used in government offices of Nepal?
The Office of the Auditor General (OAG) approves all the AGF forms used in government offices of Nepal, and the Financial Comptroller General Office (FCGO) implements them.
4. On which basis of accounting is the Government Accounting System of Nepal primarily based?
It is primarily based on the Cash Basis of Accounting, in practice a modified cash basis, under which revenue and expenditure are recorded only when cash is actually received or paid.
Group B: Short Answer Questions (5 Marks Each)
1. What is Government Accounting? Explain any four main features of the Government Accounting System of Nepal.
Government Accounting is the scientific and systematic process of recording, classifying, summarizing, reporting and auditing the financial transactions of government offices at the Federal, Provincial and Local levels. It covers the collection of public revenue, the release of budget, the expenditure of public funds, store management and retention (trust) accounts, and it is kept in accordance with the Constitution, the Financial Procedures and Fiscal Accountability Act, and the formats approved by the Office of the Auditor General (OAG).
Four main features of the Government Accounting System of Nepal are:
- Based on the double-entry principle: Every financial transaction has an equal debit and credit effect. Transactions are journalized in vouchers such as the Revenue Journal Voucher (AGF 103) and the Journal Voucher (AGF 203), which keeps the accounts complete and arithmetically accurate.
- Budgetary control: No expenditure can exceed the approved budget limit under each specific 5-digit budget sub-head. Spending is recorded against its sub-head in the Budget Sheet (AGF 208), so an office always knows how much of its budget remains.
- Banking transactions and the Treasury Single Account: All receipts and payments are routed through commercial banks and the Treasury Single Account (TSA) rather than physical cash. This reduces the handling of cash and the risk of theft and misuse, and every transaction leaves a bank record.
- Uniform prescribed forms: Every government office must use the exact AGF forms prescribed by the OAG and implemented by the FCGO. Since Fiscal Year 2076/77 B.S., these forms have been organized into an 8-series (100 to 800 series) system used across Federal, Provincial and Local governments, so the accounts of all offices are uniform and easy to consolidate and audit.
The other features are the classification into Central Level and Operating Level Accounting and the mandatory internal and final audit, carried out by the DTCO/PTCO and the Office of the Auditor General respectively.
2. Differentiate between Government Accounting and Business Accounting in five points.
Government Accounting records public revenue and expenditure for public service, while Business Accounting records the transactions of an enterprise run for profit. They differ as follows:
| Basis of Difference | Government Accounting | Business Accounting |
|---|---|---|
| Main objective | To record public revenue and expenditure transparently and keep spending within the budget for public welfare (service motive) | To find the operating profit or loss and show the financial position of the enterprise (profit motive) |
| Governing rules and format | Strictly governed by the Financial Procedures and Fiscal Accountability Act and the AGF forms approved by the Auditor General | Governed by GAAP, the Companies Act, NAS and NFRS |
| Basis of accounting | Mainly the cash basis, now moving toward the Nepal Public Sector Accounting Standards (NPSAS) | Mainly the accrual basis |
| Classification of accounts | Divided into Central Level Accounting and Operating Level Accounting (Revenue, Appropriation, Deposit and Store) | Divided into Financial Accounting, Cost Accounting and Management Accounting |
| Auditing authority | Internal audit by the DTCO/PTCO and final constitutional audit only by the Office of the Auditor General (OAG) | Audit by independent Chartered Accountants or Registered Auditors licensed by ICAN |
3. Distinguish between Central Level Accounting and Operating Level Accounting with suitable examples.
Nepal’s government accounting system divides offices, and the accounts they keep, into two levels:
- Central Level Accounting is kept by ministries, departments and constitutional bodies. These offices receive budget authorization, pass it on to the offices under them, oversee those offices and compile their accounts.
- Operating Level Accounting is kept by district and field offices that carry out programs, spend the budget and collect revenue.
| Basis of Difference | Central Level Accounting | Operating Level Accounting |
|---|---|---|
| Offices that keep it | Ministries, departments and constitutional bodies, such as the Ministry of Finance and the Ministry of Education, Science and Technology | District and field offices, such as the District Administration Office, District Police Office and District Health Office |
| Main function | Receives budget authorization, passes it on to subordinate offices and oversees them | Carries out programs and spends the budget within the authorization it receives |
| Accounts kept | Records the budget authorized to subordinate offices and compiles the accounts they submit | Records the office’s own revenue, appropriation (expenditure), deposit (retention) and store transactions in the prescribed AGF forms |
| Reporting | Combines the monthly and annual statements of all its subordinate offices into consolidated statements for the ministry or department | Prepares monthly statements, such as the Monthly Revenue Report (AGF 109) and the Statement of Expenditure (AGF 210), and submits them to the superior office and the DTCO within 7 days of the month-end |
| Position in the hierarchy | Superior office that directs, monitors and gives instructions to the offices under it | Subordinate office that works under the direction of its central office and is accountable to it |
For example, a ministry passes budget authorization to the district offices under it and keeps central level accounts of that budget, while each district office, such as the District Administration Office, spends its share, collects revenue and keeps operating level accounts.