FEDERAL GOVERNMENT OF ETHIOPIA ACCOUNTING Acfn 332

UNIT 5
FINANCIAL STATEMENTS
The objective of the financial statements is to provide information about the financial
position, performance and cash flows that is useful in making and evaluating decisions
about the sources, allocation and uses of financial resources and about how the
activities were financed. In addition, the financial reporting also provides users with
information about whether resources were used in accordance with the approved budget.
Transparency in government begins with full and fair disclosure of financial
information. The FGE uses the International Public Sector Accounting Standards (IPSAS)
issued by the Public Sector Section of the International Federation of Accountants as a basis
for establishing the financial statements.
The FGE accounting system can produce the following set of financial statements:
 A set of federal-level financial statements that includes:
1. Statement of Financial Position
2. Statement of Financial Performance
3. Statement of Changes in Net Assets/Equity
4. Cash Flow Statement
5. Accounting Policies and Notes to Financial Statements
6. Statement of Comparison of Budget and Actual Amounts – Domestic Revenue
7. Statement of Comparison of Budget and Actual Amounts – External Assistance
8. Statement of Comparison of Budget and Actual Amounts – Expenditure
9. Comparison of Original and Adjusted Budget and Actual Amounts
10. Statement of Expenditure by Functional Classification
 A set of countrywide financial statements that includes:
1. Summary Statement of Domestic and External Revenues
2. Summary Statement of Expenditure
In addition to the above financial statements, the accounting system also produces detailed
revenue and expenditure schedules that provide detailed information and analysis of the
summary countrywide financial statements.
The remainder of this chapter describes the format of each financial statement.

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5.1 Types of Accounts in the financial statements and notes

1. Cash and cash equivalent
Under Cash and cash equivalent section
 Domestic currency; refers to local currency held in a safe as well as in a bank
account.
 Foreign currency; is cash held in a bank account denominated in foreign currency.
 Budget support; refers to cash from a foreign source held in a bank account
available for unrestricted general budgetary support.
 Counterpart funds; refer to grants held in a bank account reserved for specific
program support.
2. Receivables
Advances or Prepayments represent amounts due from suppliers, contractors and
consultants. Others represent amounts due from peasant associations, cooperatives,
individuals, private organizations and others.
3. Accounts payables
It represent grace period payables, creditors, pension contributions payable, salary
payable and other payroll deductions. Payables within government represent amounts
due to government entities and staff. Deposits represent customs, court, hospital bid
bond, VAT and other deposits.
4. Tax Revenues
Tax revenues are legally mandated payments to government. Tax revenues represent
taxes on income, profits and capital gains, value added tax and sales turnover tax on
domestically manufactured goods and services, excise tax and foreign trade taxes which
include excise tax, value added tax, customs and export duties. The breakdown of tax
revenues by revenue item is provided in the statement of comparison of budget and
actual amounts – domestic revenue.
5. Non Tax Revenues
Non-tax revenues represent administrative fees and charges, sales of goods and services
and miscellaneous revenues. The breakdown of non tax revenues by revenue item is
provided in the statement of comparison of budget and actual amounts – domestic

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revenue.
6. Subsidies
Subsidy revenue represents treasury funds received by regions from the federal
government to execute their recurrent and capital budgets and
Subsidy expense represents treasury funds transferred by the federal government to
regions to execute their recurrent and capital budgets.
7. Municipality Revenues
Municipality revenue represents different types of municipal taxes, municipal rents and
service charges and sale of goods and municipal services.
8. Other Revenues
Other revenue represents government investment income including dividend income,
and residual surplus. The breakdown of other revenues by revenue item is provided in
the statement of comparison of budget and actual amounts – domestic revenue.
9. Personnel Services
Personnel services represent government pension contributions made to pension funds
and salaries, wages, allowances/benefits paid to permanent, contracted, externally
contracted and casual staff. The breakdown of personnel services by expense item is
provided in the statement of comparison of budget and actual amounts – expenditure.
10. Goods and Services
Goods and services represent expenditure incurred on goods and supplies, traveling,
maintenance and repairs, training, stocks of emergency and strategic goods and
contracted services. The breakdown of goods and services by expense item is provided
in the statement of comparison of budget and actual amounts – expenditure.
11. Fixed Assets and Construction
Fixed assets and construction represent expenditure incurred in the acquisition of fixed
assets and the pre-construction and construction of buildings and infrastructure. The
breakdown of fixed assets by expense item is provided in the statement of comparison
of budget and actual amounts – expenditure.
12. Other Expenses
Other expenses include contingency and miscellaneous payments, compensation to
individuals and institutions, government investments, grants to institutions, and
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contributions to international organizations. The breakdown of other expenses by

expense item is provided in the statement of comparison of budget and actual amounts –
expenditure.
13. External Assistance
External assistance represents the amounts contributed by donors as grants and are
recognized as revenue on receipt of funds. The breakdown of external assistance by
donor is provided in the statement of comparison of budget and actual amounts –
external assistance.
14. External Loans
External loans represent amounts received from external lenders as loans during the
fiscal year and are recognized as revenue on receipt of funds. The breakdown of external
loans by lenders is provided in the statement of comparison of budget and actual
amounts –external loans.
15. Capital Revenues
Capital revenue represents proceeds from the privatization of state owned enterprises,
sale of fixed assets, stocks and intangible assets and amounts received from different
sources for capital purposes. The breakdown of capital revenues by item of revenue is
provided in the statement of comparison of budget and actual amounts – domestic
revenue.
16. Debt Repayments
Debt repayments to domestic and external lenders represent the principal amounts
repaid during the year and are recognized as expenditure. The breakdown of debt
repayments by internal and external debt is provided in the statement of comparison of
budget and actual amounts – expenditure.
17. Finance Costs
Finance costs represent payments of bank charges and interest on external and
domestic debt.
18. Contingent Liabilities
A list of contingent liabilities, explaining its type, nature and circumstances should be
provided together with a reliable estimate of the probable amount.

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19. Other Notes

Any other notes and disclosures that MOFED may decide to include as part of the
financial statements.
GOVERNMENT OF ETHIOPIA
Accounting Policies and Notes to Financial Statements

20. Accounting Policies

The principal accounting policies of the Government, which are set out below, have been
applied consistently throughout the period.
I. BASIS OF ACCOUNTING

The financial statements have been prepared on the historical cost basis using a
modified cash basis of accounting that recognizes the following non-cash transactions:
 Revenue is recognized when:
o Aid in kind is received.
o Payroll is processed (income tax and employee fines)
o Salary advance is made to an employee (interest on salary advances)
o Withholding tax is deducted from the amount due to a supplier
 Expenditure is recognized when:
o Payroll is processed (salary and pension expenses)
o Aid in kind is received
o Goods are received or services are rendered
o At the end of the year, a grace period payable is accounted for.
 Intergovernmental transfers are recognized without actual cash movement
 Amounts borrowed using treasury bills and direct advances from the National
Bank of Ethiopia are recognized as current liabilities
II. REVENUE

Revenues are recognized on receipt of amounts except as stated above.

III. FINANCE COSTS

Finance costs are recognized as an expense in the period in which they are paid.

GOVERNMENT OF ETHIOPIA
Accounting Policies and Notes to Financial Statements

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Accounting Policies
IV. TRANSLATION OF FOREIGN CURRENCIES

Transactions denominated in foreign currencies are translated into Ethiopian Birr at the
rates of exchange ruling at the date of the transaction.

Cash and bank balances that are denominated in foreign currencies are translated at the
rates of exchange ruling at the year end and the exchange gains/loss arising from such
translation are recognized as revenue/expenditure respectively.

V. CONSOLIDATION

The accounts of controlled entities are not consolidated– for example Ethiopian Airlines
and Ethiopian Telecommunications Corporation.

GOVERNMENT OF ETHIOPIA

Statement of Financial Position

As at 7 July 20X2
Ethiopian Birr '000
Notes 20X2 20X1
ASSETS (CURRENT)
Cash and cash equivalents 1 0 0
Receivables 2 0 0
Total Assets 0 0
LIABILITIES(CURRENT)
Current Liabilities – Payables 0 0
Total liabilities 0 0
Net Current
Assets/(Liabilities) 0 0
NET ASSETS/EQUITY
Accumulated surpluses/deficits 0 0

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GOVERNMENT OF ETHIOPIA
Statement of Financial Performance
For the year ended 7 July 20X2
Ethiopian Birr '000
Notes 20X2 20X1
OPERATING ACTIVITIES
Operating Revenue
Tax revenues 4 0 0
Non-tax revenues 5 0 0
Subsidies 6 0 0
Municipality revenues 7 0 0
Other revenue 8 0 0
Total operating revenue 0 0

Operating Expenses
Subsidies 0 0
Personnel services 9 0 0
Goods and services 10 0 0
Fixed assets and construction 11 0 0
Other expenses 12 0 0
Total operating expenses 0 0

Surplus/(deficit) from operating

activities 0 0
NON OPERATING ACTIVITIES
External assistance 13 0 0
External loans 14 0 0
Capital revenue 15 0 0
Debt repayments – principal 16 (0) (0)
Finance costs 17 (0) (0)
Surplus/(deficit) from non operating activities 0 0
Surplus/(deficit) for the year 0 0

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GOVERNMENT OF ETHIOPIA
Statement of Changes in Net Assets/Equity
For the year ended 7 July 20X2
Ethiopian Birr '000
Balance at 7 July 20X1 0
Changes in accounting
policy/Fundamental errors 0
Restated balance 0
Net surplus/(deficit) for the
year 0
Balance as at 7 July 20X2 0

GOVERNMENT OF ETHIOPIA
Cash Flow Statement
For the year ended 7 July 20X2
Ethiopian Birr
'000 20X2 20X1
1 CASH FLOW FROM OPERATING ACTIVITIES
Tax revenues 0 0
Non tax revenues 0 0
Other income 0 0
Miscellaneous income 0 0
Municipality revenues 0 0
Regional subsidy 0 0
Total Receipts - A 0 0
Personnel
services 0 0
Goods and
services 0 0
Finance charges 0 0
Subsidies 0 0
Other expenses 0 0
Total Payments - B 0 0
Non Cash Movements
Increase/(Decrease) in payables 0 0
Increase/(Decrease) in receivables 0 0
Total Non Cash Movements -
C 0 0
Net Cash Flow from Operating Activities 0 0
2 CASH FLOW FROM INVESTING ACTIVITIES
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Sale of assets 0 0
Sale of equity 0 0
Repayment of borrowings to government 0 0
Privatization proceeds 0 0
Capital receipts from non government 0 0
Total Receipts (A) 0 0
Fixed Assets and Construction 0 0
Govt. lending or equity investments 0 0
Total Payments (B) 0 0
Net Cash Flow from Investing Activities 0 0

20X2 20X1
3 CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from external assistance 0 0
Proceeds from external loans 0 0
Total Receipts (A) 0 0
Debt repayments – external Total
Payments (B) 0 0
Net Cash Flow from Financing Activities 0 0
NET INCREASE/(DECREASE) IN CASH &CASH
4 EQUIVALENTS 0 0
Cash and Cash Equivalents at Beginning of
5 Year 0 0
Net Increase/(Decrease) in Cash Equivalents During
6 the Year 0 0
Cash and Cash Equivalents at End of
7 Year 0 0

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GOVERNMENT OF ETHIOPIA
Summary Statement of Domestic and External Revenues
For the year ended 7 July 20X2
ITEM OF REVENUE
Ethiopian Birr ‘000
A. ORDINARY REVENUE
Direct Tax
Indirect Tax
Taxes on Foreign Trade
Government Investment Income
Other Revenue
Total Ordinary Revenue
B. EXTERNAL ASSISTANCE
Counter Part Fund Grants
Technical Assistance
Total External Assistance
C. CAPITAL REVENUE
Domestic Sources
Counter Part Fund Credit
External Loan
Total Capital Revenue
D. DOMESTIC BORROWING
GRAND TOTAL
GOVERNMENT OF ETHIOPIA
Summary Statement of Expenditure and its Financing
For the year ended 7 July 20X2

Ethiopian Birr ‘000

1. EXPENDITURE
A. Recurrent Expenditure
Administrative and General Service
Economic Service
Social Service
Other Service
Total Recurrent Expenditure
B. Capital Expenditure
Economic Development
Social Development
General Development
Other Development
Total Capital Expenditure
C. Subsidy to Regions
Total Expenditure

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GOVERNMENT OF ETHIOPIA
Statement of Comparison of Budget and Actual Amounts - Domestic Revenue
for the year ended 7 July 20X2
Ethiopian Birr '000
20X2 20X1
Budget Actual Variance Budget Actual Variance
OPERATING REVENUE
Tax revenues
Tax on income, profit and capital gains
Value Added Tax on goods & services
Excise Tax
Sales turnover tax on goods & services
Stamp sales and duty
Customs Duty on imported goods
Excise Tax on imported goods
Value Added Tax on imported goods
Export Duties
Timber Tax
Municipality Tax revenue
Total tax revenues
Non-tax revenues
Administrative fees and charges
Sales of public goods and services
Miscellaneous revenue
Municipality revenues
Total non-tax revenues
Subsidies
External assistance
External loans
Total operating revenues

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