Homework answers / question archive / Critical Analysis A: Accounting Basis The International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA) in 2018 issued a report captioned “65% of Governments Globally will report on an Accrual Basis by 2023”

Critical Analysis A: Accounting Basis The International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA) in 2018 issued a report captioned “65% of Governments Globally will report on an Accrual Basis by 2023”

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Critical Analysis

A: Accounting Basis

The International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA) in 2018 issued a report captioned “65% of Governments Globally will report on an Accrual Basis by 2023”.  The essence of the report is that currently governments accounts are prepared and reported using the Cash Basis on a global scale.  Since November 2019, the Premier of the Cayman Islands mandated all Public Sector Ministries and Departments to move away from the Cash Basis of accounting, and adopt the Accrual Basis.  The implementation of the Accrual Basis is expected to be complete by December 2020.   The Ministries’ and Departments’ heads had reservations whether changing from the Cash Basis of doing accounts which they deem worked perfectly in recording and reporting financial results to the public is a sensible move.   

You are asked by the Accounting Committee of Government Assemble of the Cayman Islands under the guidance of the British Government to perform a critical analysis of Cash Accounting Basis and Accrual Accounting Basis.  Your analysis should cover the following:

• Comprehensive definitions of Accrual Accounting and Cash Accounting as defined in the

Standards                                                                                                           3 marks

• International Standard(s) governing Cash and Accrual Accounting (including first time

adoptions).                                                                                                         5 marks            

• Advantages of using Accrual Accounting and Cash Accounting                           6 marks
• Disadvantages of using both Accounting                                                             6 marks
• Conclusion & recommendation                                                                           5 marks            

Your analysis, findings and recommendation should be presented in the form of a report to the

Accounting Committee and should convince them whether the Cayman Islands should continue using the Cash Accounting Basis or change to the much talked about Accrual Basis of accounting.                   

 

B: Ministry of Local Government                                                                     (25 marks or 25%)

Patrick is a senior public servant employed to the Ministry of Local Government for over twenty-years.  Prior to this Patrick was employed to the audit firm PriceWaterhouseCoopers where he worked as a senior auditor for over 10 years. In the final quarter of 2019 while performing his duties, which includes the monitoring of budgetary allocations from the Ministry of Finance and the Consolidated Fund, Patrick becomes aware that the public’s funds are being used inappropriately, which includes: being used to pay personal expenses of other Ministers and their families from other government Ministries, and payments to phantom workers for road projects that were approved by the Ministry of Finance’s Procurement Committee in 2019.     

 

While he is not directly responsible for this aspect of the budget, he raised his concerns about the use of the funds for these questionable payments to John, the head of Department. 

 

Patrick subsequently learnt that not only is John aware of these practices, but also that he condones them (be it that he is the approval officer for all payment vouchers).  Patrick also understands that John’s brother’s name appeared as one of these phantom workers.  John is also in an intimate relationship with his secretary, who is the daughter of one of the Ministers.  HR codes of the Ministry of Local Government forbid intercompany relationships.  Not long after, Patrick is summoned to talk to John and to the Permanent Secretary of the Ministry (Peter) about the issues. 

 

In preparation for this meeting Patrick prepares a short paper that identifies his understanding of the key issues and presents this to John and Pater. Due to the politically sensitive nature of the issues, Patrick is told that the matter is not within his job description and therefore none of his concern.  

 

This advice is based on the fact that the incumbent government will not tolerate questions about how it puts its budget together but that it also faces electoral defeat if the matter were to be made ‘public’.

 

Patrick and his two superiors are acutely aware of the tensions between the department, the Minister and the government. This unease manifests itself around the advice the department provides the Minister with, and the advice that the Minister and the government want to hear in particular: After much soul searching, Patrick decides to obey his superiors by leaving the matter alone. 

 

You are required to:

 

1. Using the above case, identify and explain the ethical issues and pressures which Patrick, John and Peter are faced with.                                                                                           9 marks

 

2. If you were in Patrick’s position, state and explain different course(s) of actions which you could have taken in dealing with the ethical issues (use any legal protection(s) that may be available). 

                                                                                                                             11 marks      

 

3. Provide comprehensive explanation(s) of 5 ethical predicaments which public servants maybe exposed to at their place of work.                                                                               5 marks