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TOPIC 2
GOVERNMENT STRUCTURE ANDTHE LAW FRAMEWORK IN PUBLIC
SECTOR ACCOUNTING
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TOPIC OUTLINES
Introduction Definition of Terminology Structure and administration of Malaysian Government
Federal State Local
The roles and powers of YDP Agung, Ruler Council, Executive, Legislative and Judiciary Law framework and accounting standards Legal provision
Federal Constitution, 1957 Financial Procedure Act, 1957 Treasury Instructions Local Government Act, 1976 Statutory Bodies Act 1980 Audit Act 1957 and others
Accounting Standard pronouncement Government Accounting Standard
MASB IAS IFAC GASB ISA and others
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Introduction
Malaysian is a country that practiceddemocracy system and federalism concept
Government of the people, by the peopleand for the people
Headed by the YDPA with limited ruling poweras the legislative implement the executivepower lead by prime minister
Concept of separation of power which areruling by Executive, Legislative and judiciary.
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Definition of Terminology
Legal Provisions Refers to the any laws that passed by the legislative authority Including Constitution and Act, enactment, ordinance
Regulations Any rules that approved by the administrative/ministries
Including TI, TC, etc. Standards
Any rules that proposed and approved by the regulated professional bodies Including accounting standard (FRS, MASB, FRS), auditing standard, etc.
Statutory Bodiesany organization bodies with any names that are form under Federal Law
requirements and also the organizations that form Public Authorities orGovernment Agencies excluding the public authorities or organization thatare registered under Company Act 1965 (Section 2, SBA, 1980).
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Definition of Terminology .. cont Federalism
Refers to two level of government administration that isfederal/central government and state government and in each musthave separate power and freedom to manage its own level without
interference. Separation of power
Refers to the power of YDPA as a head of the country will exercise by the three bodies namely legislative, executives and judiciary.
Local GovernmentRefers to any organization that Formed under Local Govt. Act 1976
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Structure and administration ofMalaysian Government
Federal Government
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LEGISLATION EXECUTIVE JUDICIARY
COMMISSION AUDITORGENERAL
PARLIAMENT CABINET
HOUSE OFREPRESENTATIVES
SENAT E MINISTRIES COURT
JUDGES
YDPA
RULERSCOUNCIL
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Power of FG Federal list covers the areas of:
External affairs, Defense Internal security Civil and criminal law Citizenship Finance Commerce and industries Shipping Communication Health and labour
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Structure and administration ofMalaysian Government
State government
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LEGISLATIVE EXECUTIVE High Court
COMMISSION
DUN EXCO
Ruler/Sultan
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Power of SG
States List covers areas of: Land Agriculture Forestry Local government Muslim law Several others
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Structure and administration ofMalaysian Government
Local Government Consist of City Hall, City Council, Municipal Council
and District Council CITY HALL
Directly under the Federal
City Council State Administrative Centre
>100,000 Population >RM80 Million yearly yield Have financial institutions
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Local Government ..cont
Municipal Council Town Centre >100,000 population
>RM20 Million yearly yield Administration centre
District Council Rural based
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Local Government ..cont Activities and Function Main activities of LG
Cleanliness Health development control and development
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The roles and powers of main
institution YDP Agung Constitution (Article 20(2), the executive powers
of YDPA has power in: Appointment of PM Not to consent to the dissolution of Parliament Request for a meeting of the Rulers Council
Roles and privileges The supreme head of state Acts on the advice of Parliament and PM except as
above by his won discretion
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Power of YDP Agung .. cont Given the right to appoint senators on the advice
of PM All Acts passed by two main houses of Parliament
will be examined before made into law Act as head of Judicial Authority and has right to
appoint Chief Justice, Federal and High Court judges as per Federal Constitution and advised ofPM
Given privilege of pardoning wrongdoers and civiloffence committed in Federal Territories andoverride sentences passed out by Military Court
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Power of YDP Agung .. cont Any proceeding against YDPA be brought to a special court under Sec. 182(2) FC. The highest commander of armed forces in the country Head of religion in the states which do not have Sultan Has the power to override and pardon offences any sentences passed out by
Syariah Court Highest honour and privilege of giving awards, order of politeness and others Any proceeding against YDPA be brought to a special court under Sec. 182(2) FC. The highest commander of armed forces in the country Head of religion in the states which do not have Sultan Has the power to override and pardon offences any sentences passed out by
Syariah Court Highest honour and privilege of giving awards, order of politeness and others
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The roles and powers of maininstitution
Ruler Council Setup with the formation of the Federaion of Malaya in
1948 Based on the Malay struggle against the Malayan
Union Main objective is the development of the country and
the people and protect the interest and status of rulers Represent by Rulers/Sultan of the nine states and Yang
DiPertua Negeri(Gavenor) of Malacca, Penang, Sabahand Sarawak
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The roles and powers of maininstitution
Role of Council of Rulers Tied to interests of the Malay Rulers and religion Administrative affairs of the country Article 38[2] FC stated:
Selection of YDPA and his DeputyApprove of disapprove any law and gives advice on whateverappointment that requires approval or consultations of the Councilunder FC
Appoints members of the Special Court Section 1 Article 182Grants pardon and postpones sentences under Section 12 Article 42Consider matters relating to national policies eg: amendments to theimmigration policy etc.
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The roles and powers of maininstitution
LEGISLATIVE POWER (Art. 44 FC)
legislative power for federal govt. is under Parliamentwhich consist of YDPA and 2 council (Senate and House ofRepresentative)
legislative power for state govt. is under State LegislativeAssembly
power to make laws or to amend existing laws.
to levy taxes or to change existing taxes
to sanction expenditure of public money
to approve budget
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Legislative .. cont The Ninth Schedule of the FC stated:
Legislative power is shared between Federal and State Government Systematically distributes it in a Federal List, State List and a
Concurrent List Federal list covers the areas of:
External affairs, Defense Internal security Civil and criminal law Citizenship Finance Commerce and industries Shipping Communication Health and labour
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Legislative .. cont States List covers areas of:
Land Agriculture Forestry Local government Muslim law Several others
Concurrent List covers areas of: Governed by both Federal and State Government
Social welfare Scholarship Wildlife protection Town and country planning Any disputes, Federal law takes priority
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The roles and powers of maininstitution ..cont
Power of Executive (Art. 39-40 FC)
Power to govern the country
In Federal the power is in the hand of YDPA
In State the power is in the hand of The Ruler
Both delegate their power to cabinet/exco
Power to formulate policies Policies implemented by govt. administrative
agencies.
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The roles and powers of maininstitution .. cont
Judicial Power (Art.121-130 FC)
power to hear and determine whether a person hascommitted a crime and the appropriate sentence
interpret the legality of any legislative and executiveacts
Head of Judiciary is the Lord President of FederalCourt
the constitution gives Judicial power exclusively tofederal court, court of appeal & the 2 high court
judges.
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Law framework and accountingstandards
Government deals with a very large sum ofmoney and a complex structure of operation
They are only a steward not the owner There for, the need the system that enable
them to control, monitor, and providesinternal and external assurance to their
stakeholders. This can achieve through rules and regulation
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The Purpose of Rules and Regulationin PSFM
LEGALITY
Meets the legal requirement
CONTROL TOOLS
All resources and expenditures (money and property)
PROTECTION
Avoid from misused, fraud, waste, divertion, etc
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Needs of rules & regulation
Diverse of government objectives Large amount of annual expenditure at all
levels to ensure accountability of public money to take care of public interest
to ensure objectives are achieved
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Hierarchy ofLegal Provisions, regulations and standards
Federal Constitution, 1957 The Acts ((FPA, 1957, AA, 1957, LGA, 1976,
SBA, 1980, FRA, 1997) The Regulations (TI, TC,TCL) Accounting Standard (FRS, MASB, PPK,
ISA, IAS, GASB, IPSAS)
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Relationship between Constitution, Act andFinancial Regulation
Federal Constitution is too brief. (mandatory and haveto be complied) The other related Acts (FPA, AA, LGA, etc) are made to
give more detailed interpretation and explanation ofthe sprit of FC (mandatory and have to be complied)
Treasury Instructions gives even more detailedexplanation regarding the public finance as general(mandatory)
Treasury Circulars and Treasury Circular letters aredetail explanations regarding a certain matter for dayto day operation in a particular year ( mandatory) Federal Constitution does not dictate everything indetail. (mandatory and have to be complied)
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Legal provision
Federal Constitutions, 1957 In Malaysia the constitution is known as Federal
Constitution and becomes the basis in makingnew law.
All other laws must be consistent with the
constitution The supreme source of legal and the mostimportant
All the other law and regulation must beconsistence with the FC
Provides a basic and important requirement forFG financial aspect (Part VII) (Article 96 112)
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Federal Constitutions, 1957 Main financial requirement stated in FC:
Procedure to collect revenues (Article 96) Accounting requirement (97) Financial reporting and budgeting (99) Withdrawal of the public money (98,100, 101,102, 103,
104) Auditing (105, 106,107) Responsibilities to state government (108,109, 110) Power to make borrowing (111, 112)
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FC .. cont
Summary Flow of Financial requirement in FC
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Make law to collect the Revenues (96)
Create CF To Record Revenues (97)
Proposed budget to withdrawal the money from CF (98, 100, 101,102, 103, 104)
Audit the annual financial statement (105, 106, 107)
Prepared the annual financial statement for CF (99)
Approved by the legislative and published the FS
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FC ..cont
Others requirement Grants for States (109) Federal shall make to each state a grant, capitation grant State Road Grant for maintenance of state roads Parliament may vary rate of capitation grant, but if reduce,
it should not be less than 90% of the previous years Federal shall create State Reserve Fund and make grant forState development purpose
Assignment of Taxes and Fees to the States (110) Each state will receive portion of taxes collected
within the states Each state will receive 10% of export duties of mineral
produced by states
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FPA, 1957 Specific act that interpret and explain the financial
requirement stated in FC Provides guidance for;
Control and management of public finance forMalaysia
Provides a financial and accounting procedure forcollection, custody and payment of public moniesand procedure for purchase, custody and disposalof public properties
Provides authority for the investment of moneystanding in the consolidated funds
To enforce provisions of the Federal Constitutionrelating to finance
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FPA, 1957 ..cont
Main content of FPA Interpretation of Terms (Part I: Section 3 )
- Duties of Accounting Officers (Part II: Section 4)
- Control and Management of Public Finance (Part 3:Section 6- 21)
- State Financial & Accounting procedure
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FPA, 1957 ..cont Section 3 Interpretation of Terms
Accounting officer Bank Consolidated Fund Enactment
Financial authority in relation with federal State financial authority Financial year Legislature Menteri Besar or chief Minister
Public money Public service of Federation Public stores State accounting officer
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FPA, 1957 ..cont
Control and Management of Public Finance The Federal and state keep separate ConsolidatedFunds and are managed differently
Federal Consolidated Fund is managed by the
Federal Minister of Finance At State level, it is managed by the State Financial
authority
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FPA, 1957 ..cont Consolidated Fund Account
Consolidated Revenue account to keep all money exceptloans and trusts
Consolidated Loan Account to keep all moneys receivedby way of loan
Consolidated Trust Account to keep all money receivedsubject to a trust and to be applied in accordance with theterms of the trust
Contingencies Fund-Created by Article 103 of the Federal Constitution- Money in this fund shall be applied by the Minister tomeet urgent and unforeseen need of expenditure forwhich no other provision exists-Amount used must be replaced by a supply Bill
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FPA, 1957 ..cont
Payment of Money No money shall be withdrawn from the Consolidated fundsexcept in the manner as provided by this section
By warrant approved by Minister to meet for chargedexpenditure
By warrant to meet expenditure appropriated by a Supply Act,or as authorised by Article 102 of the Federal Constitutions
Money in Trust accounts only for the purpose of trusts Minister has power to limit or suspend any expenditure
authorised Warrant issued for any year shall lapse at the close of one
calendar month following the financial year
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FPA, 1957 ..cont Estimates and Virement
The estimates are required to show clearly divisions and sub-divisions of every purpose of expenditure
The estimates should show as nearly as possible the amountexpected to be received or spent during the year
The estimates of expenditure in respect of any financial yearshall show purposes and subdivision of such expenditure
Estimates of personal emolument should show approvednumber of public offices for each purpose of expenditure No addition to public offices (position or alteration of rate of
personal emolument under any purpose of expenditure maybe made without prior approval of Treasury/Chief Minister
Virement or transfer of allocation between subheads withinthe same head is allowable but with prior approval fromTreasury/state financial Authority
Supplementary budget should be prepared after all possiblevirements have been made
Restriction no virement from personal emoluments
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FPA, 1957 ..cont Controlling Officers
Ministers of Finance or the Chief Minister may appoint aControlling officer in respect of each purpose ofexpenditure
A Controlling Officer is the chief accounting officer for eachpurpose of expenditure
He is to control the authorized estimates for that particularpurpose
Also for all public money collected, received, held ordisbursed, and all public stores received, held anddisposed
He should secure proper exercise or performance of his
duties He is also required to report to the appropriate ServiceCommission and financial authority every event of possiblesurcharge arises or occurs under his control
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FPA, 1957 ..cont Statement of Accounts
Section 9 of the Audit Act 1957 requires the financial authority ofFederal and State at the end of each financial year to prepare:- Statement of Consolidated Revenue Account showingpurposes and subdivisions of the:
amount expected to be received and spent for the yearamount actually received and spent during the year
-Statement of Consolidated Loan Account showing receiptsand expenditure of loan money Receipts and expenditure of Consolidated Trust Account Statements of accounts of funds created by Federal
Constitution not included in Consolidated Trust Account Statements of assets and liabilities of the Federal and States
showing the manner the assets are invested or held, thepurpose of the outstanding liabilities Those statements, after they have been examined and
audited by the Auditor General, should be presented to thelegislature
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Local Government Act, 1976
Act that spesifically bound all the LGs inpeninsular Malaysia only
Provides a detailed about: Sources of revenues for LG (sec. 39) Accounts and Audit (Part V; sec.53 61)
(For detailed please refer to the LG Act, 1976)
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Audit Act 1957
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Audit Act, 1957
In FC, there are 3 articles related with theaudit: Article 105 Appointment & remuneration
Article 106 Power and duties Article 107 Reports of AG (Detailed will be discuss in the audit topic)
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Statutory Bodies Act, 1980
An act that provide the requirement for preparationand submission of the statements of accounts foraudit of all the statutory bodies incorporatedpursuant to the provisions of the Federal Law.
Main content:
Interpretation (section 2) Application and construction (Part II; sec. 3-4) Audit of accounts (Part III; sec 5-6) Submission and tabling of accounts and reports (Part IV:
sec 7-8) Extension of time limit (Part V; sec 9) Miscellaneous (Part VI; sec.10- 11)
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Financial regulations
Regulations refers to any instruction/guidelines/circulars provides and approved by thedepartment
Treasury Instruction A regulation provided by the treasury for the purpose of day to
day operation Explain the procedure regarding the collecting, holds and
payment of public money and procedure for purchase, holdsand disposes of public stores
The content of TI consist of: Financial Procedure (power and authorise to made the expenditure
and procedure for virement and supplementary and excessexpenditure) Accounting procedure (collecting, holds and payment of public money
and procedure for purchase, holds and disposes of public stores) Auditing procedure (Audit, Loss and write-off)
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Financial regulations cont
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Financial regulations ..cont
Treasury Circulars Circulars provided by the treasury to deal with the
current financial requirement policy Current and detailed guideline related with the
financial aspect like budget format, financialstatement etc.
Eg. TC no. 5/2004 code of accounts TC no. 15/1994 Reporting format of
statutory bodies
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Accounting Standard
Standard published by the accounting body Normally dealt with the reporting format and
disclosure requirement Voluntary in-term of applicability, subject to
the rules and regulation Normally adopt by the government agencies
which have an autonomy power and practice
accrual basis accounting. Eg. MASB, FRS
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Accounting Standard ..cont
Adoption of AS must be not contradict withthe Rules and regulation.
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Conclusion
This topic provides detailed about: Structure, power and administrative
government system
Rules and regulation that need to be followedand complied by the government especiallywhen dealt with the public fund.
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Tutorial Questions
1. What is the autonomy power and describes the FIVE (5)areas of autonomy power enjoyed by the state governmentin Malaysia as prescribed by ninth schedule of FederalConstitution, 1957.
2. Identify five main components of the Malaysian governmentsystem and describes the power or roles each of them.
3. Describes the purposes of the treasury circulars no. 5, 2004and no. 2, 2009.
4. Q 1 & 9, Topic 2, pg. 45 and Q 1&7 Topic 3, pg. 59