The other day, an info session on “Organisation of Accounting and the Main Elements of Accounting Policies of Budget Institutions” was held for employees of the accounting services of local self-government and lower-level budget fund administrators. Experts of the U-LEAD with Europe Programme, Iryna Drozd and Tetiana Larikova, answered a number of questions regarding the organisation of accounting in budget institutions.
Read the answers of experts to the two most important of them below.
1. When should a centralised accounting service be created and how could it be better organised?
According to Clause 4 of Section III of Law of Ukraine No. 996-XIV “On Accounting and Financial Reporting in Ukraine” dated 16 July 1999, the accounting for budget institutions can be organised as follows:
- Introducing the position of accountant to the staff of the institution or creating an accounting department headed by the chief accountant; or
- Management of accounting by the centralised accounting service on a contractual basis.
A centralised accounting service (CAS) should be established in compliance with Clause 2 of the Resolution of the Cabinet of Ministers of Ukraine No. 59 “Standard Provision on the Accounting Service of a Budget Institution” dated 26 January 2011.
A CAS would be expedient if the primary administrator has an extensive subordinate network of administrators of budget funds (e.g., in the field of education). This is organised contractually between the municipal centralised accounting service and administrators of budget funds that it will serve.
The pros of having a CAS keep accounting records on a contractual basis include:
- Efficiency: the CAS applies has a uniform approach and streamlines the accounting of the same processes of institutions in the same sector, such as education;
- Saving resources, when despite a shortage of qualified personnel, the centralised accounting system enables concentrating financial resources and qualified personnel in one institution, as opposed to each administrator of local budget funds establishing its own accounting department/hiring a qualified accountant;
- Reducing the risk of errors and fraud: a single CAS simplifies the processes of oversight and audit of financial activities, facilitating the identification of any potential errors and cases of fraud through greater consolidation of data and greater transparency in financial transactions.
Following an assessment of the expediency of this format of organisation of accounting, a decision can be adopted on the establishment of the CAS as a separate legal entity — a municipal financial service for the institutions subordinate to the chief administrator of the institution in a given sector.
In this case, the right of the first signature is held by the head of the institution (the school principal, the head of the pre-school education institution), and the right of the second signature in institutions whose heads have chosen the CAS for their accounting needs is contracted to the chief accountant (or deputy chief accountant) of the centralised accounting service (Order of the Ministry of Finance of Ukraine No. 23 “On Amendments to the Procedure for Opening and Closing Accounts in the National Currency in the Bodies of the State Treasury Service of Ukraine” dated 18 January 2024).
The CAS should be funded under the same code of the programme classification of expenditures (KPKV code) as the institutions that receive the CAS’s accounting services. Classification of funding for such institutions for a variety of directions is established by Order of the Ministry of Finance of Ukraine No. 793 “On Approval of the Components of the Programme Classification of Expenditures and Local Borrowings” dated 20 September 2017. For example, the KPKV code for education is 1141 (Ensuring the Activities of Other Institutions in the field of Education) and the KPKV code for culture and sports is 5063 (Ensuring the Operation of Centralised Accounting Service).
Do not combine different sectors due to the demarcation of funding allocations with the codes of local budget expenditures according to Order No. 793.
As a municipal institution, a CAS is an administrator of lower-level budget funds and exclusively provides accounting services to institutions that are in the network of this primary administrator of budget funds. It cannot provide accounting services to the primary administrator itself and cannot consolidate reporting within the network of the primary administrator or perform other functions (procurement, planning, etc.).
2. Who should approve and adopt the order approving the Regulation on the Accounting Policy of Administrators of Budget Funds?
The administrator of budget funds should independently, in compliance with the national regulations (standards) of accounting in the public sector and other laws and regulations on accounting in the public sector, establish the accounting policy, as well as any changes thereto, which must be further approved by the primary administrator of budget funds.
Administrators of lower-level budget funds must submit the regulatory document on the accounting policy for approval to the next superior administrators of budget funds along departmental lines.
For administrators of budget funds with dual subordination, it should be approved by the next superior administrator of budget funds in charge of approving the budget.
Primary administrators of budget funds independently approve the accounting policy based on the regulatory document of the administrator.
The accounting policy of the administrator of budget funds is determined in the regulatory document, which must establish methods of assessment, accounting, types and priority of segments, procedures to be applied by administrators of budget funds and for which accounting laws and regulations provide for more than one option, as well as the accounting procedure (Clause 1 of Section II of National Regulation (Standard) of Accounting in the Public Sector NP(S)BODS 101 (Submission of Financial Statements) approved by Order of the Ministry of Finance of Ukraine No. 1629 dated 24 December 2010).
The regulatory document on the accounting policy defines the principles, methods and procedures used by administrators of budget funds for accounting, preparation and submission of financial statements and for which accounting laws and regulations provide for more than one option. Do not include single-option methods of assessment, accounting and procedures in this regulatory document (Clause 3 of Section I of the Guidelines on Accounting Policy approved by Order of the Ministry of Finance of Ukraine No. 11 dated 23 January 2015).
In accordance with the Guidelines on Accounting Policy, the administrator of budget funds must define the following key elements in the regulatory document on accounting policy: value characteristics of items classified as low-value non-current material assets; amortisation rates; unit and procedure of analytical accounting of fixed assets, intangible assets, stocks; inventory disposal valuation methods; frequency of estimating the average weighted cost of a unit of stocks; the procedure for accounting and distribution of transport and procurement costs, the use of a separate subaccount or analytical account for accounting for transport and procurement costs; the scope and content of articles for calculating the production cost of goods (works, services); the scope and content of variable and fixed general production costs, the basics of their distribution; types of reporting segments and their priority; miscellaneous.
The accounting policy must take into account the sector specifics of the administrator of budget funds. The primary administrator of budget funds must use a uniform approach to the accounting policy. Thus, the primary administrator of budget funds is the one who primarily determines the key elements of the accounting policy and informs subordinate administrators of budget funds of them.
The regulatory document on the accounting policy is developed by the chief accountant of the institution, since as per Sub-Clause 7 of Clause 13 of the Standard Regulation on the Accounting Service of a Budget Institution approved by Resolution of the Cabinet of Ministers of Ukraine No. 59 dated 26 January 2011, the chief accountant submits proposals to the head of the administrator of budget funds on accounting policy elements, taking into account the specific nature of the institution’s activities and the accounting data processing technology, including systems and formats of internal (management) accounting and document management rules, as well as additional systems of accounts and registers for analytical accounting, reporting and oversight over business transactions.
The regulation on accounting policy should only be amended in exceptional cases established in National Regulation (Standard) of Accounting in the Public Sector NP(S)BODS 125 (Changes in Accounting Estimates and Correction of Errors) approved by the relevant order, namely:
- Transition to a new accounting format;
- Changing the approach to recording or valuing a business transaction or event within one accounting format;
- Changes in the requirements of the Ministry of Finance of Ukraine;
- Changes in accounting policy will ensure a more reliable recording of events (transactions) in accounting and financial reporting.
Changes must be agreed upon with the primary administrator of budget funds.
Since the order on accounting policy enters into force from the beginning of the year, i.e. from January 1, changes must be made at the end of the reporting year.