Inversión en los medios

3.2.1. Presentation compliance with Serbian PS GAAP

181. The team reviewed a sample of financial statements to assess the extent to which they complied with Serbian PS GAAP. The review process included prima facie reviews of the financial statements as well as discussions with the preparers of the financial statements. The selected sample comprised seven sets of Serbian PS GAAP financial statements as at and for the year ending 31 December 2015 representing seven types of government institutions: central government, local governments, line ministries, budget beneficiaries (DBBs and IBBs), autonomous regulatory agencies and social security funds. General conclusions in respect of compliance with Serbian PS GAAP should be regarded with a degree of caution given both the limited sample size as well as the inherent problems in examining the compliance gap. More specifically in respect of the latter, a reviewer of financial statements cannot be certain that everything that should have been disclosed was indeed disclosed. Furthermore, financial statements could reasonably be expected to have similar formats and disclosures and therefore it is reasonably easy for those preparing financial statements to make them appear good simply by conforming to a standard format without regard to the entity’s underlying financial transactions and position.

182. The review indicated a reasonable degree of compliance with the requirements of Serbian PS GAAP. The main observations regarding non-compliance with Serbian PS GAAP in respect of the reviewed financial statements included:

i. Proper classification of financial statement items. Line items in profit and loss (P&L) of three reviewed entities were not properly classified as per the Rulebook on standard classification framework and chart of accounts of the budget system. Furthermore, in one case balance sheet receivables were recorded as off-balance sheet items. Review of a limited sample of SAI audit reports revealed that classification of revenues and expenses is a relatively frequent issue in audit reports of public entities and that the prescribed format is apparently complex for the preparers of financial statements. ii. Proper reconciliation between balance sheet and cash flow. The closing and opening

balances were not reconciled in the cash flow statement of one entity. Opening and closing balances are not reconciled to the net change in cash presented in the cash flow statement and balance sheet cash position in two entities. Cross referencing of other items mostly confirmed consistency of the data within financial statements (balance of debit and credit entries, assets equals liabilities plus equity in the balance sheet, summary items corresponding to components) and with other statements (result in P&L statements equals the change in net value in the balance sheet).

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iii. Disclosure of the depreciation of assets as current expenditure. This weakness was identified in one reviewed entity. Regulation previously allowed this procedure, used by entities with own sources of revenue to utilize depreciation (as non cash expense) as the source of funding, usually for acquiring new equipment. This procedure is no longer available since the assets are depreciated over the useful economic life.

183. However, the compliance with GAAP does not necessarily imply or guarantee quality of the financial information. This is mostly related to the value of property, plant, and equipment where implementation of historical cost over the long term, with periods of considerable high inflation, distorted the book value of the assets.

3.2.2. SAI findings re compliance with Serbian PS GAAP

184. The review included eleven audit reports of budget entities issued by the SAI in relation to 2015 financial statements. The SAI is mandated by law to audit all public sector entities. Due to capacity constraints, the SAI performs certain key audits on an annual basis (audit of the government’s final account) and applies a rotation principle for the rest of potential auditees. This review included entities from the categories listed previously, ie. central government, local governments, line ministries, subordinated budget beneficiaries (DBBs and IBBs), autonomous regulatory agencies and social security funds. The most common audit findings include:

i. Fixed assets reporting. Audit reports of five entities reveal that the inventory count of fixed assets was often not properly addressed, and fixed assets values in balance sheets could not be confirmed by audit techniques. (This questions whether entities have the skills and capacity to properly perform the count and valuation of its assets).

ii. Financial reporting calendar and procedures. From the sample of selected entities, one entity did not provide the balance sheet in prescribed format by the due date. A consolidated income statement was issued based on incomplete accounting records, since the general ledger was not closed at the prescribed date. The entity could not therefore account for net income for the period. The same entity did not properly classify items in the statement on capital revenues and did not properly classify items in the cash flow statement.

iii. Third party reconciliation. Lack of reconciliation of receivables and payables with third parties is a frequent issue that the SAI has drawn attention to. As one of the main control functions in providing accurate financial statements, reconciliation should be one of the priorities of providers of financial statements.

185. Out of eleven entities subject to this review, the SAI issued unqualified opinions on seven entities while the other entities have audit opinions with qualifications on different grounds.

3.2.3. Other audit findings about the quality of financial reporting

186. The SAI conducts financial and compliance (regularity) audits. Certain findings made by the SAI are therefore not directly related to the accuracy of financial statements but focus on legal compliance, giving an insight to the quality of current and future periods’ financial statements. These findings include:

i. The issue of financial management and control was raised by the SAI in a number of examined audit reports. Departments of financial management and control are not fully

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established or organized on various levels of users of public funds, in a way that secures implementation of rules and procedures and achievement of other goals in accordance with PIFC. Accounting and information systems are not uniform or compatible in all segments which creates additional difficulty in maintaining accurate accounting records, especially in segment movement of assets, liabilities, and revenues.

ii. Internal audit departments required to be established by the Law on Budget System are often either not established or not yet fully functional in a way that allows full achievement of goals set by laws and guidelines regulating this area.

iii. Inconsistencies within the legal framework create further difficulties in properly addressing the accounting treatment of different transactions. For example, revenues from public goods, among others, are revenues from the lease of goods owned by state, province and local municipality. The Law on Budget System states that all revenues arising from lease or use of state property by state institutions, organizations and military, belong to the state. Contrarily, the Law on Public Property states that the state and province, its organizations and municipalities, can own the right of use of immovable and movable state property and as such, with the permission of the Republic Property Directorate, may also lease such property to obtain revenues. Paragraphs in the Law on Public Property relating to the lease of state property and paragraphs in the Law on Budget relating to the lease of property of state, provinces, various state and province organizations, and municipalities are not consistent.

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4.

O

PFM

187. This section describes ongoing PFM reform activities focusing on those with an impact on public sector accounting and makes various observations and recommendations.