Contemporary Issues in Public Sector Accounting and Auditing

Simon Grima, Engin Boztepe

• Publisher: Emerald Publishing Limited
• Year: 2021
• ISBN:
  9781839095108
• Topic: Business
• Subtopic: Finance
• Index: Business

Despite their broad scope and importance, publications related to public sector accounting and auditing have a limited framework, and do not account for the significant variances in public sector accounting and auditing systems between countries and different subsectors of government. The editors of this book have filled this gap by compiling a collection that combines different aspects of public sector accounting and auditing within a single book.
Pooling together existing public sector accounting and auditing practices between countries and preparing a comparative analysis of those practices, the authors analyze the role of the public sector accounting and auditing holistically, and provide a platform to enable financially sustainable policy making and proper assessment of the relevance of accounting frameworks across the globe. The chapters chronicle the strength and weakness of public sector accounting, auditing and systems, and also critically examine the approaches, recording methods, and international regulations which determine how they operate.
Providing a comprehensive account which brings a wide range of countries to the forefront in terms of both comparability and accountability, this study shines a light on the differences in accounting systems between states, and provides timely and accurate information to equip readers to minimize those differences.

CHAPTER 1

SOME EVALUATIONS OF THE EFFECTIVENESS OF PUBLIC SECTOR ACCOUNTING SYSTEM IN TURKEY

A. Kadir Işik and Emine Seda Koç

ABSTRACT

In Turkey for a long term, the public financial management system was carried out according to the provisions of the General Accounting Laws No. 1050 since this law was in force over a long period of time. This law had not been changed for long years and it became far from the needs due to developing dynamic conditions and rapidly changing economic conditions. In addition to these factors, the emergence of economic crises, the need for reform and the country’s EU harmonization process increased the need for revision in this field. The Public Financial Management Project was signed with the Ministry of Finance and the World Bank in 1995 and the Public Financial Management system was renewed with the Public Financial Management and Control Law No. 5018 dated January 01, 2006.

Due to the reasons mentioned above, these changes in public financial management led to the use of the concept of public sector accounting instead of state accounting. Public sector accounting is defined as a financial system that provides data for the effective and efficient use of resources. In this accounting, the current accounting system needs to provide the necessary data. While obtaining financial data in an economy, it is necessary to obtain information about the economic situation of that country in a healthy and transparent manner also.

The main objective of this study is to address a number of problems related to the effectiveness of public sector accounting auditing and to propose solutions. For this purpose, the public sector accounting system in Turkey has been handled by giving basic information on this subject; problems arising in this context have been evaluated and suggestions for solutions have been proposed.

Keywords: Public sector economics; accounting; Turkey; Financial Accountability; Financial Policies; State Accounting

JEL Codes: H11; H83

1. INTRODUCTION

The concept and application of public accounting is an essential element in order to monitor the financial events of countries regularly. When the accounting is mentioned within the public sector economy, financial management and discipline, a system which is necessary for financial management and discipline and which should be implemented adequately is understood. In parallel with the development of enterprises and states in the world, accounting science has shown significant developments in itself. As a branch of accounting, it has always maintained its status that is needed in every field of life. Since the early days of human history, various methods of calculation and registration have been carried out. These operations emerge without the discrimination of individuals, businesses, and public institutions.

Government or the concept of government is the largest social organization that has been going on for centuries. Therefore, it is necessary for the government or similar organizations to record and follow up financial events regularly for effective management and efficient use of resources. For these reasons, when the concept of government exists and this organization is implemented, accounting practices will always be maintained and implemented.

The application and development of the concept of state accounting that emerged in the fifteenth century was realized through the kameral accounting system. In this kameral system, public accounting practices are largely budget-oriented and based on the collection and expenditure of revenues and expenditures.

Reliable, accurate, and exact identification and recording of financial data needed for public sector planning; monitoring; analysis; and reporting of these data and making them available to the executives by periods is an important issue. The healthiness of this system helps managers to make right decisions and paves the way for increased public welfare and efficient use of resources (Karaarslan, 2007, p. 1).

Economic developments in the world directly affect the accounting discipline, and the developments and changes in the activities of enterprises are mutually affected by these advancements. The importance of accounting in the public sector has become increasingly important in the government as it is in public sector. Namely accounting that is known as public accounting keeps records of transactions of financial institutions of public institutions and reports this to existing managers. Previously, the public institutions in Turkey used to manage cash basis accounting system and this system was very incomplete in practice. For this reason, works that are started since 1990s were moved into accruals accounting system by 2004 and many arrangements have been made with the transition to this system.

In this way, a soundly functioning structure that is compatible with accounting systems has been established, and an accounting system that enables the consolidation of accounts in the public was constituted (Özelçi, 2018, p. 1).

Public accounting contributes to the determination of the results of financial transactions, formulation of budgetary practices, and management of economic activities and allows the control of many active variables such as income, expenditure, assets, and capital in an effective and efficient manner (Çetinkaya, 2004, p. 86). In addition, it serves as a system that provides the necessary data by providing financial information and responsibility in the public sector economy and presents the financial information in a transparent manner (The Governmental Accounting System in Argentina, 2019, p. 1).

The application of public accounting system is defined as the recording and analysis of financial information about the government, classification, summarizing and all processes related to these transactions (Dean, 1996, p. 266, Transferred by Çetinkaya, 2004). At this point, the determination of the components of an accounting system is important. Accordingly first is the registration of assets that are the subject of accounting transactions. The second is the decisions taken in this process. Third is the form and method of classification used in this system. Fourth, these processes should be reported and this should be done with the coding system. The fifth is the internal control system that tests the accuracy of the information received. The last one is to clearly state the application and evaluation parameters of the accounting system (Çetinkaya, 2004, p. 86).

It is claimed that classifying assets and transactions and obtaining meaningful results from them and keeping records of transactions related to the financial policies of governments by recording them is the most important function of public accounting (Topkaya, 20016, p. 56).

When public accounting is effectively implemented, not only it shows where and in what ways public resources are spent but also allows managers, who use public funds to account for where and how they use these funds, in line with their permissions. In this way, the way for efficient and effective use of resources is paved, and State Accounting and its practices are proposed as an indispensable element of financial accountability and transparency (Baldacchino et al., 2020; Duman, 2019, p. 2).

2. MAIN FRAMEWORK AND DEVELOPMENT OF PUBLIC ACCOUNTING

Public accounting is a system that reports the results by accurately determining the revenues and expenses occurring in the fiscal year on the basis of the estimation process in order to achieve its objectives like assisting the control of the activities, their results of the government and other affiliated public institutions within the fiscal calendar year and income–expense management.

In the process of historical development of public accounting, it first emerged as a system that follows only revenues and expenses and this first system has taken its place in the literature as a classical approach. However, with the fact that the government may also have assets and various resources, receivables, debts, and the planning responsibility of these, the above definition of the actual public accounting has emerged and this system has been called as the modern approach (Giray, 1997, p. 136; Gökçen, 2003, pp. 34–35). Today, governments are also considered as advanced organisms with assets/sources and income/expenses just like individuals or businesses. Therefore, it is very important for all countries to establish a system that can monitor all these financial events.

Following up the resources and assets belonging to the general management; summarizing and reporting them in accordance with the needs of the related parties at the end of the period is another purpose of public accounting.

The determination of the costs of the services presented by the government, the establishment of a basis for efficiency analyzes; the constitution of numerical basis and data on the audits and evaluations to be performed on the success criteria of the public administrations serve as a financial instrument for management. This issue is mostly related to the modern public accounting perspective.

Another purpose of public accounting is to enable financial reports to be compared between all units within the administration by creating an accounting and reporting system that can be used by all public administrations, that is, all public institutions within the general administration (Karaarslan, 2007, p. 7).

In order to provide the necessary economic data for the public sector and other stakeholders for ensuring the planning and management of the national economy, monitoring the revenues and expenditures, which are dealt with in the budget during the fiscal year, at the beginning and at the end of the period; pursuing the resources and assets of the government units and also the budget of the management units and reporting the results of operations in accordance with needs in specific periods may be considered as other purposes of public accounting (Sermeçeli, 2010, p.5).

Public accounting also helps to make comparisons and prepare reports in a single format, by allowing for a common standard of practice in central government, local governments, and social security institutions.

These objectives can be summarized as listed below:

• Recording the financial activities of the government,

• Ensuring the transparent determination of the assets and liabilities of the government and its presentation to the relevant segments,

• Enabling the audition of performance and efficiency by comparing the activities of government and affiliated institutions with the budget implementation result,

• Providing the total cost of all the activities of the government and the services presented to public,

• Ensuring the audition of all financial events of public institutions that is carried out in accordance with the legislation in force,

• Providing the necessary data in order to determine the correct use of tax and other public revenues by taxpayers,

• Enabling the managers in public administration to make decisions easily and effectively (Atgür and Altay, 2015, p.34).

About public accounting system, classical and modern views are proposed in the literature. According to the classical view, the function of public accounting is to monitor the income–expenditure status of the state and to ensure that these income–expenses are made in accordance with the budget. From this point of view, this classical public accounting is considered as “Budget Accounting.” The scope of this approach includes only the government’s income and expenses, but the government’s debts, receivables and assets are excluded.

In the modern view, public accounting is seen as a process that can manage the society with the least amount of cost in order to enable competition and maximize productivity (Wayne, 2019, p. 1).

According to the modern view, the government that has legal entity should account for public accounting by including the government’s assets and expenses as well as its assets. In practice, public accounting is not only considered as a means of budgetary control because the government may be a debtor and a creditor depending on the activities carried out, as well as assets. For example, while the purchase of a real estate by the government is expenditure (expense) in terms of budget, the purchase of real estate in terms of th...

Table of contents

• Cover
• Title
• Chapter 1.  Some Evaluations of the Effectiveness of Public Sector Accounting System in Turkey
• Chapter 2.  Harmonization Process of Albanian National Accounting Standards and International Accounting
• Chapter 3.  Role of Public Auditors in Fraud Detection: A Critical Review
• Chapter 4.  Financial and Performance Information Presentation in Annual Report: An Investigation on the Municipalities in Turkey
• Chapter 5.  Effectiveness of Financial Auditing in the Public Health Sector: Evaluation of Turkey
• Chapter 6.  Readability Analysis of Laws Related to Public Financial Responsibility and State Budget: A Comparison of Selected Countries
• Chapter 7.  The Evolving Competencies of the Public Auditor and the Future of Public Sector Auditing
• Chapter 8.  Advantages of Tax Audit
• Chapter 9.  Overpayment and Undue Payment Operations in Public Sector Accounting and Their Accounting Process
• Chapter 10.  Modern Approaches, Recording Methods, and International Regulations on Public Accounting
• Chapter 11.  Public Sector Accounting in Turkey: Past–Present–Future
• Chapter 12.  Internal Audit in Public Banks in the Framework of International Internal Audit Standards: The Case of Turkey
• Chapter 13.  Measurement of the Effectiveness of Internal Audits in Public Sector
• Chapter 14.  A Maturity Evaluation of Governance, Risk Management and Compliance (GRC) Within the Maltese Public Sector
• Index