IPSAS TRAINING TO

SOUTHERN HIGHLANDS
ZONE LOCAL GOVERNMENT
AUDITORS
MBEYA
17 – 18 MAY 2018
th th
 The Resource Person
 CPA Peace Lumelezi
 MSc, ACPA, DipIPSAS, ACCA DipIFRS
 Tel. 0782014330 Email: lumelezipeace@gmail.com
 Worked with Local Government for 14 years with
7 years as District Treasurer
 Trainer in CPA Review Classes at Beta Business
Consultants
 Resource Person of the NBAA
 Trained more than 2,500 delegates since 2005 in
IPSAS, IFRS, Risk Management, Project
Management, Monitoring & Evaluation, within
Tanzania, South Africa, & Dubai
PRESENTATION OF
THE CASH FLOW
STATEMENT
 Aim of the Presentation
 Highlighting difficult areas in the presentation of
the Cash Flow Statement, such as;
1) Use of Monthly Reports
2) Classification of cash flows into Operating,
Investing and Financing Activities;
3) Items paid by third parties (eg. PE paid by the
Treasury);
4) Deposit Account;
5) Treatment of Lower Level Governments cash
flows and balances; and
6) Other Disclosures (eg. Restricted cash balances,
cash not available for use)
 Use of Monthly Reports
 LGAs prepare monthly reports which are
presented to the Finance Committee each
month and then to the Full Council on
quarterly basis;
 Preparation of these monthly statements is
based on the cash receipts and payments
during the period;
 This is basically the cash flow statement
which only needs refinements to meet the
requirements of IPSAS 2
 Use of Monthly Reports…
 On the other hand, these monthly reports are
cumulatively compared with the approved
budget and therefore they are good starting
point in the Statement of Comparison of
Budget and Actual Amounts as per IPSAS 24;
 This monthly reports as they are prepared on
a monthly basis, they have relatively fewer
transactions and thus can be more reliable
and easily verifiable
 Classification of Cash Flows
 Para 18 IPSAS 2 require the cash flow statement to
report cash flows during the period classified by
operating, investing, and financing activities.
 Financing activities are activities that result in
changes in the size and composition of the
contributed capital and borrowings of the entity.
 Investing activities are the acquisition and
disposal of long-term assets and other investments
not included in cash equivalents.
 Operating activities are the activities of the entity
that are not investing or financing activities.
 Classification of Cash Flows…
 LGAs classifies Development Grants under
Financing Activities which does not meet the
definition as given in IPSAS 2;
 In essence Development Grants are for
construction and acquisition of Non-current
assets which is among the functions of LGAs so
they can fit under Operating Activities;
 If different presentation is relevant, Para 32
IPSAS 1 allows departure from the Standards
only in extremely rare circumstances and
disclosures about the departure will be required;
Departure from the Standard
 When an entity has departed from the Standard,
the following disclosures are required;
1) That management has concluded that the F/S
present fairly the entity’s financial position,
financial performance, and cash flows;
2) That it has complied with applicable IPSASs,
except that it has departed from a particular
requirement to achieve a fair presentation;
3) The title of the Standard from which the entity
has departed, the nature of the departure,
Items Paid by Third Parties
 LGAs have significant expenditure that are
paid directly by third parties;
 As the amount is paid by other parties and is
never receipted in LGAs accounts, these
amounts do not have any impact in the
change in cash and cash equivalents during
the period;
 They should be excluded in the Cash Flow
Statement and only disclosed either in the
Statement of Financial Performance or in the
Statement of Financial Position
 Items paid by Third Parties
 The exclusion of noncash transactions from
the cash flow statement is consistent with
the objective of a cash flow statement as
these items do not involve cash flows in the
current period;
 Example of such payments include salaries
that are paid directly to employees’ accounts
and to deduction agencies by the Treasury;
 Other example is Medical supplies from MSD;
 Transferred Assets and assets acquired by
way of finance lease.
 Deposit Account
 Many LGAs financial statements disclose
existence of Deposit Account balances in the
Opening and Closing Balances;
 However, the movement in the Deposit
Account is not disclosed in the Cash Flow
Statement prepared using Direct Method;
 This indicate that the cash flow statement is
misstated;
 Deposit Account
 Para 32 of IPSAS 2 allows an entity to report
certain cash flows on a Net Basis;
 Example is cash receipts collected and
payments made on behalf of customers,
taxpayers, or beneficiaries when the cash
flows reflect the activities of the other party
rather than those of the entity;
 Deposit Account reflect activities of other
parties rather than those of respective LGAs
and thus it qualifies to be reported on a Net
Basis
 Deposit Account..
 Financial Statements of RSs report all
deposits received during the year as Other
Receipts and all deposits paid during the
year as Other Payments, this reflect the
change in Deposit Account balance;
 Therefore LGAs Deposit Account movement
have either to be reported as per RSs format
(two line items) or reported on a net basis
(single line item)
Weaknesses in Deposit Account
 CAG queries relating to Deposit Account are
prevalent which calls for immediate intervention;
 Un-refunded loans from Deposit Account in 62
LGAs TZS 5.6 billion;
 Deposit payment with no authority in 53 LGAs
TZS 5.3 billion
 Overdrawn depositors amount in 26 LGAs TZS
3.1 billion
 26 LGAs have weaknesses noted in the Deposits
Register
Accountability of Deposit Account
 There is a need to report separately Deposit
Account balances in the Statement of Financial
Position;
 Movement in the Deposit Account need to be
presented as part of the Supporting Schedules
 The Depositors balance in the liabilities side
should be equal to Deposit Cash balance
DEPOSITO OPENIN RECEIPT PAYMENT ENDING
R G S S BALANC
BALANCE E
1
.
2
.
 Treatment of Lower Level
Governments (LLGs) cash
flows and balances
 LGAs are required to report cash and cash
equivalent balances as part of the cash
balance of the respective LGA;
 Due to lack of capacity and manpower within
LGAs and Village Authorities, the
consolidation exercise is far from reach at
the moment;
 Inclusion of the end balance need to be
looked at closely
Treatment of LLGs Balances
 When an entity transfers cash to LLGs the
following entry is made;
 Dr. Transfers to LLG (Statement of F/Perf.)
Cr. Cash & Bank Balance
 Thus if the remaining cash balance in LLGs
account is to be reported as part of the cash
balance mix in the respective LGA it implies
the amount actually transferred has to be
reduced by the balance. Entry to be made;
 Dr. Cash & Bank Balance
Cr. Transfers to LLG (Statement of Fin. Perf)
Treatment of LLGs Balances…
 In subsequent years, the Transfers to LLGs
Account in the Statement of Financial
Performance and Cash Flow Statement will
be adjusted as follows;
CURRENT COMPARATIVE
YEAR
Transfers to LLG (Ledger) xxx xxx
Less: LLGs Ending Cash
Balance (xxx) (xxx)
Transfers reported in the
CFS and SFPerformance xxx xxx
 Components of Cash and Cash
Equivalents
 Para 56 – 57 IPSAS 2
 An entity shall disclose the components of cash and
cash equivalents; and
 Shall present a reconciliation of the amounts in its
cash flow statement with the equivalent items
reported in the statement of financial position.
 In view of the variety of cash management practices
and banking arrangements around the world, and in
order to comply with IPSAS 1, an entity discloses the
policy that it adopts in determining the composition
of cash and cash equivalents.
 Other Disclosures
 An entity shall disclose, together with a
commentary by management in the notes to
the financial statements, the amount of
significant cash and cash equivalent balances
held by the entity that are not available for
use by the economic entity.
 The amount of undrawn borrowing facilities
that may be available for future operating
activities
 The amount and nature of restricted cash
balances (eg. Deposit Account, Project etc).
 Reconciliation of Surplus /
deficit with Net Operating Cash
Flows
 Entities reporting cash flows from operating
activities using the direct method are also
encouraged to provide a reconciliation of the
surplus/deficit from ordinary activities with
the net cash flow from operating activities.
 This reconciliation may be provided as part
of the cash flow statement or in the notes to
the financial statements.
 Interest & Dividends
 Cash flows from interest and dividends
received and paid shall each be disclosed
separately
 Shall be classified consistently as either
operating, investing or financing
 Interest paid is disclosed irrespective
whether it has been recognized as an
expense or capitalized (IPSAS 5 / IAS 23 –
Borrowing Costs)
 Check whether LGAs have Investments in
shares and are entitled to receive dividends
Auditing of Cash Flow Figures
 The easier way to audit cash flow statement
figures is to link the figures with other figures in
the same financial statements;
 Operating Activities figures are compared with
figures in the Statement of Financial
Performance;
 Any difference has to be traced in the
Statement of Financial Position which can be a
result of accruals and other non-cash
adjustments;
Auditing of Cash Flow Figures…
 Figures in Investing Activities are compared with
PPE Schedule;
 Additions in PPE schedule will be equal to cash
used to acquire PPE in the cash flow statement
unless there are credit acquisitions and assets
acquired in non exchange transactions;
 Disposal figures can be traces in the PPE
schedule and gain or loss from disposal reported
in the Statement of Financial Performance;
 Auditing of Cash Flow Figures…
Performa Cash Differe Possible Reason
nce Flow nce
Local taxes xxxx xxxx xxxx Change in Local taxes
Receivables
Fees, Fines, Penalties xxxx xxxx xxxx Change in Fee and Fines
and Licenses Receivables
Recurrent Grants – xxxx xxxx xxxx - Payments by Third Parties;
Personal Emoluments - Amortizations;
Recurrent Grants – xxxx xxxx xxxx - Receipts in Kind eg. MSD;
Other Charges
Development Grants xxxx xxxx xxxx - Amortizations;
Other Grants from the xxxx xxxx xxxx - Receipts in Kind eg.
Government Transferred Assets;
Receipts from xxxx xxxx xxxx - Change in Receivables from
Exchange exchange transactions;
Transactions
Auditing of Cash Flow Figures…
Perfor Cash Differ Possible Reason
mance Flow ence
Employee Benefits xxxx xxxx xxxx - Payments by third parties
paid - Change in Employee Benefits
payables
- Change in Advances
Supplies and xxxx xxxx xxxx - Change in Inventories
Consumables paid - Receipts in Kind eg MSD
- Prepayments (eg imprests)
- Change in Payables
Repair and xxxx xxxx xxxx - Change in Inventories
Maintenance paid - Receipts in Kind
- Prepayments (eg imprests)
- Change in Payables
Transfers to Lower xxxx xxxx xxxx - Accrual adjustments
Level Governments
Finance Costs paid xxxx xxxx xxxx - Accrual adjustments (EIR);
- Change in Interest Payable
Other Charges xxxx xxxx xxxx - Receipts in Kind;
Auditing of Cash Flow Figures…
PPE Cash Differ Possible Reason
Flow ence
Acquisition of PPE xxxx xxxx xxxx - Change in Prepayments to
Contractors
- Credit purchases in the payables
schedule;
- Transferred Assets
- Change in Retention Money
Withheld
Proceeds from xxxx xxxx xxxx - Gain or Loss from disposal in the
Disposal Statement of Fin. Performance;
 Working for PPE Cash Flows
TZS TZS
Opening Advance to Contractors xxxx Ending Advance to Contractors xxxx
Ending Payables for PPE xxxx Opening Payables for PPE xxxx
Ending Retention to Contractors xxxx Opening Retention to Contractors xxxx
Transferred PPE (Non-cash) xxxx Additions to PPE during the Year xxxx
Cash Paid During the Year xxxx
xxxx xxxx
Direct Method – Operating Activities
CASH RECEIPTS Notes Amount
(TZS)
Local taxes
Fees, Fines, Penalties and Licenses
Recurrent Grants – Personal
Emoluments
Recurrent Grants – Other Charges
Development Grants
Other Grants from the Government
Receipts from Exchange Transactions
Interests and Dividends Received
Other Receipts from Own Revenue
Donor Funds Received
Change in Deposit Account
Direct Method – Operating Activities

CASH PAYMENTS Notes Amount

(TZS)
Employee Benefits paid
Supplies and Consumables paid
Repair and Maintenance paid
Transfers to Lower Level Governments
Finance Costs paid
Other Charges
TOTAL PAYMENTS

NET OPERATING CASH FLOWS

(RECEIPTS – PAYMENTS)
Direct Method – Investing Activities

INVESTING ACTIVITIES Notes Amount

(TZS)
Acquisition of Property, Plant & Equipment
Acquisition of Intangible Assets
Acquisition of Investments (LGLB, shares,
UTT etc)
Disposal of Non-current Assets

NET INVESTING CASH FLOWS

Direct Method – Financing Activities

FINANCING ACTIVITIES Notes Amount

(TZS)
Proceeds from Long Term Loans
Repayments of Long Term Loans

NET FINANCING CASH FLOWS

Any Comments?
Any Questions?
 