CHAPTER –ONE

1. Introduction

1.1BACK GROUND OF THE STUYD

Accounting plays an important role in our economic and social system, sound decisions
made by individuals, business, governments, and other entities are essential for the
efficient distribution and use of the nations scare resources. To make such decisions,
these groups must have reliable information provide d by the accounting system, the
objective of accounting, therefore, is to record, summarized, report, and interpret
economic data for use by many groups within our economic and social system, (FESS
WARREN, 1989).

Most government institution focus on rendering quality services to general public rather
than earning profit. Among these governments these colleges and universities have
different but limited resources that should realize that budgeted resources are properly
utilized purposes that meet the goals of the university.

In order to know the resources are effective utilized an institution should prepare reliable
financial reports , these reliable financial reports are the results of practicing according
and reporting system as per GAAP and conventions.

According to Douglas (1995), Governmental financial reporting should provide

information to assist user in assessing accounting and making economic. Social and
political decision, a report show the overall performance of an institution, by means of a
financial report government , donors , creditors and other stock holders communications,
with an institution so that they make their own decision, however, if financial report is
not prepared according to the principles and conventions it misleads users, more ever, it
may contribute to the universities should practice a standard accounting system in
accordance with GAAP so as to provide reliable financial report.

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1.2. BACK GROUND OF THE ORGANIZATION

Aksum is the ancient and historical town which is found in the northern Ethiopia,
northern Tigray and central zone, that is bounded in the northern by Mereb Lake in the
southern wereda adeate, in the eastern wereda Adwa and the western wereda tahiteway
machew. At attitude foundation of the town is 2001 above sea level and the air condition
of the town is Woinadega. The average rain fall is 500-600 mm with a fresh air and
annual average temperature of 27 CO.

Aksum University is located to the southern of the city. It takes around 3 kilometer from
the city and 1024 km from the capital city of Ethiopia known as Addis Ababa. Aksum
University was established in 1999 E.C.

At present, the university has five collages: namely collage of business and economics,
collage of other social science, collage of natural and computational science, collage of
engineering and technology and collage of health science.

Aksum university is, thus, now a government funded higher institution with an
international reputation for teaching and research and with collaborative understandings
with national and international sister institutions. Since its establishment, it has proved to
be one of the fast growing universities in Ethiopia the fundamental elements of the
university’s mission are teaching, research and consultancy. Thus, its ultimate goal is to
pursue standards of excellence in teaching and research for the betterment of the society.

As stated briefly above, although the history of Aksum University is full of challenges,
the achievements are remarkable. In order to continue developing, the university needs to
have a vision and strategies that are robust enough to meet and drive the change and
renewal process that the university must undergo if our country should remain responsive
to the society needs and competition.

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MISSION:

Our mission is serving the nation by providing learner-centered education, research

synergistic with national interest and productive and responsive engagement.

VISION:

“In 2015, our university will be one of the top ten higher institutions in Ethiopia”

CORE VALUE:

 Academic freedom

 Shared leadership

 Tolerance and mutual respect

 Integrity and professionalism

 Reliance on authority of reason

 Unity in diversity

 Excellence

 Student centeredness

 Collaboration

 Global perspective

 Commitment

 inclusiveness

 social responsibility and public service

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1.3. Statement of the problem

The stake holder of an organization should get reliable information about the
organization. In order to provide the users with necessary information on organization
should prepare different kinds of financial report that show the position and that the
budget are properly utilities , in position and that the budget are properly utilized , in
preparing this kind of financial statement adhering to different principles and
conventions are important .

However, midst organizations do not apply those principles and contentions as per the
requirement; they fail to prepare reliable and relevant financial statement. They fail to
prepare study is an attempt to assess the accounting and reporting practices of higher
education taking Aksum university as a case. In addition, it tries to see different
principles and contentions applied for accounting of higher education, lastly, the
financial statements that should be prepared by higher education are taken in to
account.

According to, Ato Angesom Tesfay (purchase and finance director) says that, the
accounting and reporting practices problems in Aksum University are over load
works, lake of employees and poor internal control the main problems in Aksum
University in Accounting and reporting practice.

1.4 Objectives of the study

1.4.1 General Objective

The general objective of the study is to examine and evaluate the accounting and
reporting practices of higher education and to assess the reliability periodic financial
reports that an institution pre pares.

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 1.4.2 Specific Objective

The specific objectives of the study are:-

 To assess the basic principles of governmental accounting and financial report

 To assess how assets from gifts/donations are recorded and what base of
accounting is applied

 To see whether all types’ financial statements are prepared by higher

education institutes and accumulated depreciation is recorded for plant assets.

1.5 Significance of the study

This study is expected to benefit higher education in situations, in many aspects, it

enables the management of an organization to realize potency of practicing accounting
and reporting system for decision-making. It also enables the accountant to realize the
significance of adhering to accounting principles and conventions in the quest to prepare
reliable financial statement, It could also serve as a reference regarding the accounting
and reporting practices of colleges and universities. Department of accounting could also
benefit from this.

Moreover, it could also be used to guide for other similar institutions to develop the
accounting and reporting system. In addition, it may help other researchers who want to
conduct a research on similar topics or area.

1.6 Scope of the study

According and reporting practices in both governmental and non-governmental colleges

and universities are too vast to be converged under this particular study; therefore, this
study tries to access the accounting and reporting practices of some selected issues in one
of the governmental owned universities. That is Aksum University.

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1.7 METHODOLOGY OF THE STUDY

Research in common use refers to a researcher for knowledge. In fact, activity, there are
many motives for doing research of which one is the desire to get a degree with its
consequential benefits , of course , this is the motive of this student.

A research process consists of a number of closely related activities; these were normally
followed to come up with this report,

These are:-

I, Defining the research problem, ii) Reviewing relevance important literature iii)
Formulating hypothesis, IV) Research design v) Data collection vii) Data analysis, and
viii) Interpretation and report, these logical steps were followed during the entire study.

1.7.1 Data Type and Sources

To meet the general objective of Assessment of Accounting and reporting practices of

higher education with particular reference to Aksum University and assessing the
reliability of periodic financial reports that the governmental institution were used, both
primary as well as secondary data are used to obtain relevant information for the analysis.
Both primary data objectives of the study.

The primary data were used interview, and personal observation, where as the secondary
data, were used written documents, different books manuals.

1.7.2 Data gathering Instruments

In order to make an efficient and effective research study. It is clear that data gathering
instruments are very important to collect a good and reliable data for the study. The
researcher uses two types of data gathering instruments. The primary data were collected
through interview. The secondary data were collected from various books, internet, and
documents.

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1.8 Data organization and analysis
The collected data were edited so as to check the clarify and necessary codes would be
used so as to facilitate the analysis part. The data collected using both primary and
secondary are classified and organized for their proper use and analyzed in detail using
descriptive type of data analysis.

1.9 Organizations of the paper

This chapter consists of four chapters; the first chapters were present introduction. The
second chapter describes review of related literature. Chapter three of consists were
discussed about data analysis, interpretation of collected data. The fourth chapters
consists conclusions and recommendations.

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 CHAPTER –TWO

2. REVIEW OF LITERATURE

2.1 Definition of Accounting

According to warren (1999) accountings is the method and procedural for collecting,
classifying. Summarizing and reporting a business Financial and operating information.
In addition, it is also defined as an information system that provides report to
stockholders about economic activities and conditions of business.

The purpose accounting, according to mielg and F, mielg (1987) is to provide financial
information about an economic entity. This accounting information, which is called
financial information provided by the accounting system, is required by the activity of the
organization. Accounting information has many users including customers, employees,
share holders, creditors, suppliers, government, local community and the general public.

2.2 Basic Principles of Governmental Accounting and Financial

Reporting

Principles indicated the objective and goal of an organization. Once goal and objectives
are set than, principles describe the way in which this goal and objectives are attained.
These principles are gradually updated by GASB (General Audit Standard Board) so that
it enables the profession to attain the formulated objectives. There are twelve principles
of accounting and reporting for governmental organization. Douglas (1995) stated the
principles as follows.

2.2.1. Accounting Reporting Capabilities

The first principles about accounting and reporting capabilities of government owned
organizations. A governmental accounting system must make it possible both (a) to
present fairly and with full disclosure the financial position and result of financial
operation of the fund and accounting group of the governmental entity in conformity with

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generally accepted accounting principles (GAAP) and (b) to determine and demonstrate
compliance with financial related legal and contractual provisions.

2.2.2 Fund accounting

Governmental accounting system should be organized and operated on a fund basis. A

fund is defined as a fiscal and accounting entity with a self balancing set of accounts
which are segregated for the purpose of carrying on specific activities or attaining certain
objective in accordance with special regulations, restrictions and limitations.

2.2.3 Type of Fund

The following types of fund should be used by state and local governmental. General
founds , special revenue fund, capital project funds, debit service fund , enterprise fund,
internal service fund, fiduciary funds (expendable trust, non expendable trust , pension
trust and agency funds) , every found group is not necessarily to be available in all
government units. However, general fund that is permitted by generally accepted
accounting principles, capital project found is open when there is a construction and
purchase of several a assets.

2.2.4 Number of Funds ‘

Governmental units should establish and maintain those fund required by law and sound
financial administration. Only the minimum number of found consistent with legal and
operation requirements should be established. However, unnecessary funds result in
inflexibility undue complexity.

2.2.5. Basis of Accounting

Recognizing revenue and expenditure in the accounting system is called of accounting.

Revenue is recognized period in which in they become available and measurable under
modified basis of accounting.

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The same criteria are applied for expanse under accrual and modified accrual base.
However, for modified base of accounting the term expenditure is used rather than
expenses.

The total fund group can be classified in to three broad categories as to simplify
discussion of accounting and reporting, these categories include governmental fund
which contain general, capital project, special revenue fund and debit service fund as the
first group. The second group is proprietary that includes expendable trust funds, non
expendable trust funds, pension fund and agency fund.

2.2.6 Fixed assets

Financial assets and liabilities are reported on a balance sheet because they are funds that
have primary focus on financial resources. Fixed assets that are included under capital are
not financial liabilities. Funds that have an aim of capital maintenance indicate all assets
and liabilities the fund.

2.2.7 Recording of fixed assets

Fixed asset should be accounted for at cost or if the cost is not patriotically determined, at
estimated cost. Donate fixed asset should be recorded at their estimated fair value at the
time received.

2.2.8 Depreciation

Depreciation of general fixed assets should not be recorded in the account of government
funds. Accumulate depreciation may be recorded in general fixed assets account group.
Depreciation of fixed assets account for in a proprietary fund should be recorded in
account of fund.

2.2.9 Budgetary accounting

An account budget should be adopted by every unit. The accounting system should
provide the basis for appropriate budget control. Budgetary comparisons should be

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included in the aspirate financial statements and schedules for governmental funds for
which an annual budget has been adopted.

2.2.10 Financial report

Appropriate in term financial statements and reports of financial position , operating

results and other pertinent information should be prepared to facilitate management
control of financial operations, legislative over sight and whether necessary or designed
for external reporting purposes. A comprehensive annual financial report covering all
funds and account groups should be prepared and published. General purpose financial
statements may be issued sparely from comprehensive annual financial reports. Such
statements should include the basic financial statements and notes to the financial
statements that are essential to fair presentation of financial position and operating
results.

2.2.11 Classification

A). Inter fund transfers and proceeds f general long- term debt issue should be classified
separately from fund ravens and expenditures or expense.

B). Governmental found revenue should be classified by fund, function or program,

organization unit, activity, characteristics, and principle of classes of objectives.

C). Proprietary fund revenue and expense could be classified essentially in the same
manner as those of similar business organization, or activities.

2.2.12 Terminology

A common terminology and classification should be use constituently through at the

budget, the accounts, and the financial reports of each fund.

2.3 Special Accounting Convention for college and universities

Colleges and universities use certain accounting practices that cannot be described
strictly as accrual accounting.

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2.3.1 Revenue and expenditure recognition

Douglas (1995) explained the resources and expenditures are recognized only in current
fund. Earnings from other non-current funds are debited or credited to fund balance.

2.3.2 Valuation and recording of fixed assets

Fixed assets of colleges and universities should be recorded at cost. If not , it should be
recorded by fair valuation of assets. Assets that are under construction can be debited in
construction in progress until that is completed.

Construction in progress ------------------------------------xxx

Cash---------------------------------------------------------- xxx

Debits that are issued for constriction purpose should be transferred to the net investment
in plant account.

2.3.3 Depreciation of fixed assets

Patricia (1995) stated that depreciation is not accounted for governmental owned colleges
and universities. However, it may sometimes be calculated and used for managerial
decisions. This kind of depreciation is not reported on the financial statements.

2.4 Definition, Goal, uses and objectives of Financial report

When all transactions are recorded and put in a summarized from, financial report is
prepared for the users. According to warren (1999), the accountings report that gives this
information is called financial statement. Financial report is a report that provides the
financial position of an entity. It may be annual or interim report. Annual report is a main
communication and accountability methods by which agencies reporter on the status of
their service delivery and degree of their compliance with different legislative and
government policy requirement. Any report should be consistent and to understand.

Governments financial reporting should provide information to assist user in assessing

accountability, it should enablelities to be publicly responsible or accountable, and it

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should enable the users of financial report to see the accountability of the institutions. It
should also help users in evaluating the operating result of government entity at the end
of every yea. Moreover, financial reporting should help users in looking at the level of
the service that can be provided by the government entity.

2.5 University financial statements

According to Lynn and Freeman (1983) there are three financial statements that are
recommended for higher education. These are i) balance sheet; ii) statements of charge in
fund balance and, iii) statements of current funds revenue. Expenditure and other charges.

2.5.1 Balance Sheet

According to warren (1999) balance sheet report the amount of assets, liabilities and
owner’s equity periodically. The assets part of the balance sheet present in the order that
is converted to cash or used in operation.

2.5.2 Statement of Charge in the balance sheet

Hay and Wilson (1995) revealed that statement of charge in fund balance shows on a
change in fund balance account of all except Agency, Revenues are reported on
unrestricted current funds and expenditure is reported on both un restricted current funds.

2.5. 3 Statement of current funds, revenue expenditure and other

charges

According to Hay and Wilson (1995), this statement shows the revenue of current funds,
expenditure and mandatory transfer, other transfer and others. It summarizes the net
increase in fund balance.

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2.6. Accounting system and reporting in government organizations

2.6.1 Basic accounting concepts

Chart of Accounting:-

The federal Government of Ethiopia (FGE) manual (2002) indicates that has of account is
system of coding used by financial management to identify and classify financial entities
and events. The current chart of accounts of FGE has detailed code as temporary
accounts which begin each year with Zero balance it also has permanent account whose
balance at the end of the year becomes the beginning if the next year balance, Revenue
and expenditure are temporary account. However, asset, liability and equity are
permanent accounts.

Basic of Accounting

According to FGE manual (2002) the basis of accounting is the principles and rules
employed by accounting system to determine when and how to record transaction. The
FGE accounting system employees modified cash basis of accounting. Modified cash
base accounting. Modified cash base accounting means cash base are applied for
recognition of the following the transactions.

 Revenue and expenditure are recognized when aid in kind is received

 Expenditure is recognized when payroll is processed , at the end of the near when
grace period payable is recognized , if payment to goods or services was rendered
in advance and when cash moves from unrestricted to restricted bank account

 Inter governmental transfer

 Transaction resulting from salary with holding

Book keeping method:-

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The FGE accounting system uses double entry book keeping. According to FGE double
entry, accounting system means that both aspect of each transaction is recorded at least
with one debit and one credit.

2.6.2 FGE Accounting System

The FGE accounting system is arranged in two sub systems: - accounting for transaction
using modified cash of accounting and accounting for assets and liabilities using a cost
method of valuation. Accounting for transaction means accounting for daily economic
activities. Most transactions of FGE involve domestic currency.

Over view of accounts for transaction

Transaction must be authorized by appropriate person, captured when they occur ;

recorded in the accounting system ; summarized by accounts ; and reported to the
appropriate authority.

2.6.3 Transaction

The FGE manual as (2002) described different types of transactions same of these are
discussed below.

 Salary ; Book of public body

A public body receives the payroll from MOFED with gross salary structure on
payroll for its capital expenditure.

Table 2.1 sample regarding receiving payroll

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 Description Accounts Other Cash at
number Bank
Debit Credit Debit Credit
Salary - Xxx
Contribution - Xxx
pension
Pension - Xxx
payable
Income tax - Xxx
Salary - Xxx
payable

Table 2.2 sample on transfer pension payable to MEDFED for actual payment

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Pension - Xxx
Transfer to - Xxx
MDFRD

Table 2.3 Format on distribution of salary to employees by cash

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 Description Accounts Other Cash at
number Bank
Debit Credit Debit Credit
Salary - xxx xxx
distribution
in cash to
staff

Table 2.4 format on transfer of unpaid salary to MOFED

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Unpaid - xxx Xxx
salary
transfer to
MOFED

B). Payables

Table 2.5 sample on purchase of office supply on credit from XY2 for capital expenditure

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Office - xxx
supplies
Sundry - Xxx
Creditor

2.6 Payment to supplier of office items by cheque

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 Description Accounts Other Cash at
number Bank
Debit Credit Debit Credit
Sundry - xxx xxx
creditor xyz

C). Receivables

Table 2.7 Payment of advance for office supplies to supplies

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Advance to - Xxx Xxx
supply xyz

Aid in kind; Aid in kind is received, for example, motor vehicle at cost from
xyz under capital expenditure budget for projects in the following manner.

Table 2.8 Sample on Aid in kind Account

Description Accounts Other Cash at

number Bank
Debit Credit Debit Credit
Motor - Xxx
vehicles
Assistance - xxx
donor

2.6.4 Financial report and financial statements

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The FGE manual states that information in the form of financial report is produce to
assist management with decision making. Information in the form of financial statement
is produced for external purpose.

The FGE accounting system provides financial report in budgeted revenue and
expenditure annually. In a future financial statement, change in cash position and balance
sheet is produced.

CHAPTER THREE

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 3. DATA ANALYSIS AND INTERPRITATION

This study focuses on selected accounting and reporting practices of higher education,
with particular reference to Aksum University. The results and discussion are presented
below under appropriate headings and sub- headings.

3.1. over view of federal government of Ethiopia accounting system

The federal government of Ethiopia (FGE) accounting system used in 1994 E.C.
(2001/2002) has been in service for more than half century. The system has been revised
at various times and the revisions through time have brought major changes in recording,
summarizing and reporting of the government financial institution. The federal
government of Ethiopia accounting system achieves three goals: budget control, cash
control, and accountability. This study also partly tries to capture and discuss some of the
issues pertaining to federal government of Ethiopia accounting system as they are
adopted by the university under consideration. Aksum University uses (IBEX).
Integration budget expenditure soft ware system to help the organization employees.
Because of its timely, reliability, easy to use and to guide for their accounting records.
Ibex is modern accounting recording soft ware.

As described in the federal government of Ethiopia accounting system, budget control is

achieved by the ability of accounting system. To report expenditure consistent with
budgetary principles similarly, cash control is achieved, among many others, by applying
double entry book keeping techniques. Using of double entry book keeping system is the
most advantage then using single entry book keeping system. Because it protects
complexity of accounting recording system. In addition to this no disadvantage is there in
Aksum University. This creates a set of self-balancing account ledgers or a general
ledger, because the accounting ledgers are self-balancing, accounting records are
controlled. Thus, cash is also controlled by double-entry book keeping. To this effect,
now Aksum University is applying double-entry book keeping since from its beginning to
by doing so the university achieves one of the three: the cash control, employing a
modified cash basis of accounting is also another way of cash control.

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As it allows the accounting system to recognize revenue and expenditure consistent with
the budgetary process and financial law.

The modified cash basis of accounting is consistent with the budgeting process and
produces information useful for comparing budgeted and actual revenue and expenditure.

The modified cash basis accounting system requires the same temporary accounts as the
cash basis of accounting plus permanent accounts namely, cash and cash equivalents,
receivables and payables. The federal government of Ethiopia accounting system
employs a combination of temporary and permanent accounts. As per discussion with the
personnel in charge of the accounting section, the university, upon offering the concerned
employees with adequate training on the federal government of Ethiopia accounting
system by experts from the federal government, it is being applied by the university.

The federal government of Ethiopia accounting system is organized in two sub systems:
accounting for transactions using a modified cash basis of accounting, and accounting for
other assets and liabilities using a cost method of valuation. Whereas gifted or donated
assets are recognized (valued) at market price or current fair value. This is if the donated
assets are not indicated their amounts. All account units’ account for transactions,
accounting for other assets and liabilities is a goal for all accounting units. Accounting for
transactions means accounting for daily economic activities. Transactions cause increases
and decreases to revenue, receipts from external assistance, expenditures, transfers, cash
and cash equivalents, receivables, payables and letters of credit. Aksum University has to
strictly follow the federal government of Ethiopia accounting system and evaluate the
existing activities to see if they are in perfect tune with the system mentioned here above.

3.2. QUALIFICATION OF INTERVIEWED EMPLOYEES

The qualifications of accountants has its own significance in the quest to practice and
apply accounting principles and to prepare accounting reports used by the concerned
authorities for decision making and to see the performance of the institution regarding
proper budget utilization. As set ownership and others that are associated to it, in this
research, I have used interview from primary source of data, this interview were held of
finance and purchase department of Aksum University. He has MSC in accounting all the

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employees in the organization that; they are capable of processing and applying the
accounting system that the university is following. However, the fact that most of the
accountants of the organizations are matured enough to achieve the goal. Adherence
GAAP and convention results from well trained and experienced employees.
Accordingly, for Aksum University to get the desired results, continues skill upgrading
trainings including on the job training are quite important.

3.3. ACCOUNTING PRACTICES AT AKSUM UNIVERSITY

As the finance and purchase department of Aksum University responded that almost all
are participating in recording and analysis of the financial transaction that take place in
the university. This implies that the different accounting practice accomplished by most
of the accountants.

The other interview question forwarded to the respondent, was whether double entry
book keeping system is practiced in Aksum university, one major different between the
double entry and single entry book keeping system is that the former necessitates for all
the transactions to be balanced immediately as the investigator gathered, Aksum
university be finance head applying double entry book keeping system. The double entry
book keeping is a more efficient and modern system as compared to the single entry.

In addition, the results of the interview conducted with the concerned authorities shows
that previously they were applying single entry book keeping system in both recurrent
and project finance section of the university. However, the recurrent budget accounts
section entered in to double entry book keeping system beginning from the 2000 budget
year (2007/8) where as this double entry was launched in the 2001 budget year (2008/9)
in the project finance accounts section also, according to federal government of Ethiopia
manual (2002) the federal government of Ethiopia accounting system employees
modified cash basis of accounting. Here cash basis are applied except for recognition of
transactions such as that revenue and expenditure are recognized when aid in kind is
received: expenditure is recognized when payroll is processed, and when cash moves
from unrestricted to restricted bank account; and transaction resulting from salary with
holding.

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It is also observed that the voucher previously used and the present voucher show both
debit and credit sides. Even though applying double entry book keeping system is a good
practice. Adherence to acceptable principles and conventions are also important. Unless
these are put into effect in may not be possible to get the desired out comes from adopting
the double entry book keeping system, for the decision making process to be proper,
more efficient and fruitful strict adherence quite vital, this is in conformity with the
principle of accounting and reporting for governmental organizations stated by
Douglas(1995), according to him, a governmental accounting system must make it
possible to present fairly and with full disclosure the financial position and result of
financial operation of the fund and accounting group of the government entity in line with
GAAP.

3.3.1 ACCOUNTING AND FINANCIAL REPORTING PRINCIPLES

According to statement no.34 of GASB (governmental accounting standard board) there

are around 12 accounting and financial system. This principle stated under GASB is:

 accounting and reporting capabilities

 types of funds

 number of funds

 reporting capital assets

 valuation of capital asset

 depreciation of capital asset

 reporting long term liabilities

 measurement focus and basis of accounting in the basic financial

statements

 budgetary control and budgetary reporting

 transfer revenue expenditure and expense account classification

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  common terminology and classification

From the above listed GASB principles only five principles are followed by aksum
university, these principles are:

1. Types of funds

As per the interview made with financial manager, there are three types of governmental
funds applied used by Aksum University, these are

 General fund c. capital project fund

 Special revenue fund

As the information obtained from accounting records of Aksum university the above
three types of governmental funds are really applied.

General fund: that accounts for all financial resources except those required to be
accounted for in another fund such as; government treasury, other miscellaneous
revenue like rent house, i.e. from cafeteria, barberry, beauty salon, shop,
gymnasium, revenue from dairy farming.

Special revenue fund: to account for the proceeds of specific revenue sources( other
than private purpose trust or for major capital projects) that are legally restricted to
use for specified purposes.

Example of special revenue fund: donation from charities to purchase different library
books (reference).

Capital project fund: to account for financial resources to be used for the acquisition
or construction of major capital facilities (other than those financed by proprietary
fund and trust funds.

Example of capital projects are like:

 A fund obtained for the set of construction building

 A fund for stadium construction

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  A fund obtained for coble stone road

 A fund obtained for asphalt

2. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING

As the researcher interviewed with finance manager of Aksum University the

measurement focus used is a financial measurement focus. This measure is due to the
principles out lined by the federal government of Ethiopia, to the higher educational
institutions. Basis of accounting which is used by Aksum University are both cash basis
and accrual basis (modified accounting system). The accrual basis of accounting is
applied when there is a budget adopted by federal government in adherence. Example
unearned rent from café, barberry, shop, beauty salon, and diary farming. The cash basis
accounting system is used when the organization is collected its revenue in the form of
cash. Examples of cash basis are:

 Tuition from extension

 Fines from students who are students to register

 Cash from photo copy service

3. VALUATION OF CAPITAL ASSETS

Capital assets should be reported at historical cost. The cost of a capital asset should
include capitalized interest and ancillary changes necessary to place the asset in to
its intended location and condition for uses.

As the investigator gathered from the respondent capital assets are valued at their
initial costs. The donated capital assets are valued at their fair market value.

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4. Transfer revenue expenditure and expense
account classification

The investigation for gathered from the respondents of Aksum

university. The transfers of the revenue in this institution are
sharing of revenue among Aksum University and its branch which is
located in shire. The transfers of expenditure are the expenditure in
curried by Aksum University to purchase materials for shire
compass.

5. Fund Accounting System

As interviewed with finance head of Aksum University, the

investigator gathered that accounting system, are organized and
operated on a fund basis. The principles that applied by finance of
Aksum university for various fund types that are used as a needed
by federal government, for both general purpose and special
purpose funds.

3.4 Fund Groups and their recognition methods

Principles of accounting and reporting reporting in governmental

organizations state that governmental resources should be
organized and operated in a fund basis; it may result in flexibility
and undue complexity. The operation of governmental organizations
on a fund basis is also taken as one of the twelve principles stated
by Douglas (1995). This, it should be strictly followed by
government institutions like Aksum university.

As per the principles, in order to have a fund groups that account

for operation of the institution. The university should have current
fund. Classification of current fund of higher education in to

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restricted and unrestricted enables the institution to know what
amount of fund is designed for some pre-determined specific
purpose and what amount of the total resources we used without
any restriction. To know the situation of such important
categorization. Respondent were again asked whether the current
fund is classified under restricted and unrestricted fund. The
opinions of by respondents were categorized as restricted and
unrestricted fund.

According to the interview and personal observation there is

classification of restricted and unrestricted fund of current funds.

There revenue collected from extension, summer and distance

education by Aksum University is expended only for the activities
that are related to it. However, the revenue that is collected from
renting buildings for cafeteria, shop, barber, beauty saloon,
photocopy and the like is not restricted by the management of the
university. In addition, the federal government provides budget for
restricted purposes that are used for current activities of the
institution so as to meet its short –term and long term objectives.
Therefore, it is observed that the budget allocated by the
government to the institute is classified under restricted current
fund on the other hand, the revenuer that is collected from different
activates in the university is considered under unrestricted current
fund. Besides, even though there is no clear distinction as required
by GAAP, there is an activity that leads to the classification of
current budgeted activities.

The interview made with the concerned personnel reveals that the
resources of the university are classified as project finance and
recurrent budget finance. In project finance there are two major
sources of fund internal revenue collected from different activities

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and donation derived from external sources. The donation may be
allocated for restricted or unrestricted purposes. The donation that
is given for unrestricted purposes could be used for any law full
purpose as and when the university managements convinced of
committing such resources to satisfy the university needs. However,
the domination that is granted for restricted needs. However, the
donation that is granted for restricted purpose could be used only
for activities that are specified and restricted by donors.

The project financing wing of the university’s finance department is

also concerned with collection of internal revenue as mentioned
above. Revenues may include revenue from minis hops. Cafeteria,
and barberry, available in the university. The money that is
collected from these kinds of mostly it is not restricted only for
some specific purpose.

Mean while, recurrent finance is concerned with the budget that is

appropriated by government. The budget request by the university
every fiscal year contains details of expenditure object that are
required for the coming academic year. Based on this the federal
government approves budget.

The budget should be used only for the purpose indicated in the
document for budget request. But it there is deficit in one activity.
The university may request for budget transfer from one code to
another code where there is shortage of earn marked budget,
firstly, management of the university announces to the senate then
the senate sends to board and lastly board requests them MOFRD,
which has the ultimate power to approve or reject the budget
transfer request, once the budget transfer is approved than the
transferred amount is used for the newly justified purpose.

28
The results show that even though the resources of the university
are not classified as per requirements in GAAP. There is
classification of budget.

Recognition of revenuer when it is earned as well as expenditure

when it is incurred can enable the institution to adhere to principles.
Review is recognized in accounting period in which they become
available and measurable under modified universities to recognize
revenue and expenditure accounting to modified cash basis of
accounting.

3.5 Plant Assets

Some of the major issues raised during the interview where whether
there is a found balance that accounts for the acquisition of long –
term asset and treatment of accumulated depreciation in the
existing accounting system exercised by the university. As a result ,
the monk lived asset that acquired have fund balance accounts ,
however, in Aksum are not recorded , while it is very important in
the preparation of different statement are used as inputs for various
decisions by management.

It is further observed that since there is more cored of fixed assets

in the university, the accountants do not record any kind of
accumulated depreciation that is required in the principle of
accounting and reporting practices of governmental organizations.

The experience of the university is totally different from the

convention that states that depreciation of fixed assesses of any
governmental organization should be properly recorded. There is no
balance that shows the accumulated depreciation on the financial
statement of the university prepared annually. There is no balance
that sows accumulated reports to the MOFED in all the periodic

29
reports. However, treatment of accumulated depreciation is
supported by Douglas (1995) in the sense that accumulated
depreciation may be recorded in general fixed assets account
group.

An attempt was also made to see the underlying resounds for not
recording accumulated depreciation the fixed assets of the
university. Indeed recording accumulated depreciation is very
important to know the asset and capital positions of the university.
It enables decision makers to compared and know the ratio of the
total student population enrolled and research conducted versus the
net asset value of the organization.

In any government owned organizations acquisition of various kinds

of assets in the form of gift or donation is usual practice as they are
often supported by domestic and or international donors.

Accounting and reporting principles state that donated assets

should be recorded at their estimated fair value. In addition,
conventions also require universities to record any assets granted
by their fair value. Most government any assets granted by their fair
value most government organizations could record gifted assets at
its cost or they may not record at all. But recording those kinds of
assets at their estimated fair value is more preferable in order to
produce more reliable financial statements.

3.6 Reporting practices at Aksum University

In order to have comprehensive information about one organization

of financial reports is very important. Mostly government owned
organizations prepare annual; as well as interim financial reports to
be utilized for various decisions. The intern reports that are

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prepared mostly by government organization are used for internal
purpose.

However, annual reports are used for external users such as higher
governmental bodies like MOFRD.FGE, international and domestic
donor agencies.

According to the interview made the purchase and finance heads,

one of the annual financial statements that are prepared by Aksum
University is budgeted revenue and expenditure. The budget
request statements is prepared by the university and sent to
MOFED together with the above statement. Aksum University also
prepares interim or periodic financial reports. These include revenue
report, expenditure, transfer and payable report. It is them
summarized in a trial balance and attached with the above report
and sent to MOFED every quarter, letter of credit report is also
available in trial of it is nil. In many cases international and
domestic.

Donor agencies may require narrative financial reports some of

them send their own forgets for financial reports. That have to be
adopted by the university for their own purpose on until all granted
amount is settled and then audited. Based on the format the
activity that is accomplished is listed and sent to them with
adequate explanations.

As per the FGE manual every governmental organization must

prepare statement of budgeted revenue and expenditure, it is
mentioned that balance sheet and other types of financial
statements should be prepared. The statements’ prepared annually
include statement of budget revenue and expenditure and budget
request from.

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 CHAPTER –FOUR

4. CONCLUSION AND RECOMMENDATION

4.1 CONCLUSION

Based on the findings of the study, the following conclusions are

made:

 Accounting practices

 Application of double entry book keeping system

 Classification of resources in to different fund groups

 Recognition of unrestricted fund on actual base of

accounting

 Recording of gifted assets of estimated fair value

 Using I BEX soft ware system

 Recording of modified cash basis of accounting.

Financial reporting practices.

 Types of financial statement

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 4.1.1 Regarding accounting principle

Now days accounting system has become more sophisticated because

of creation of different types of book keeping system. Principle
appreciates the application of double entry book keeping system than
single entry that is very difficult to balance it. AKU also applied double
entry book keeping system that enables the University to balance the
account easily. This has to be appreciated

GAAP classifies fund groups of Universities as current fund,

which contain restricted and unrestricted sub-fund group
and non-current fund. However, the fund groups of AKU are
not classified in this way even they do not use the word
“fund”, instead they use “budget”. Its activities are
classified in to recurrent and project financing. The
recurrent finance is concerned with the budget allocated by
the government while the project finance is concerned with
internal revenue and donations.

According to different principles, the revenue and

expenditure of unrestricted current fund of universities
should be recognized when earned and expenditure when
incurred.

However, AKU does not recognize any revenue collected

from rental services (shops, cafeteria, and other buildings)
when earned. It records only when cash is collected from
them. In addition, any expenditure that is related with these
activities is not recorded when incurred. Therefore, this may
result in misstatement of financial statement.

Principle requires universities to record allowance for

uncollectible that makes the statement to be reliable.

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However, since revenue that is connected with unrestricted
activity of the University is not recorded based on accrual
base of accounting AKU does not record any kind of
allowance for uncollectible. Failing to record allowance for
uncollectible may result is over statement of balance sheet.

Accounting and reporting principles of governmental

organization requires any governmental organization to
record accumulated depreciation. In addition, convention
also confirms to the above facts. However, AKU does not
have any experience of recording accumulated depreciation
for its different types of fixed assets that are available in the
form of building, computer, furniture, etc.

Any gifted assets should be recorded at its estimated value

as per principles and convention. However any recognized
(value) at their market price or current fair value. This is if
the donated assets are not indicated their among.

4.1.2 Regarding Practices of Financial

Reports

Universities should prepare a financial statement that show

the fund balance , assets liability , expenditure and revenue,
that is , balance sheet, statement of change in fund balance
and statement of current fund revenue, expenditures and
other changes. However, MU prepares only statement that
shows budget, expenditure, and its difference. This
statement is somehow similar with statement of current
fund revenue, expenditure and other changes. But balance
sheet that contains all the necessary entries is not prepared
in the University.

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 4.2 Recommendation

Based on the discussions and conclusion presented above,

the following recommendations are given.

 Application of double entry bookkeeping system AKU has to

be encouraged further because this is the only way that
makes way that makes the University practice the most
acceptable method of accounting system. This would have
its own positive influence on availing different accurate
reports for decision making. It would also pave an easier
way for performance auditing.

 Classifying activities in to different fund group enable the

University to act easily. Therefore, it is recommended that
the University should classify each and every activity on a
fund base.

 In order to provide reliable financial statements using

accrual base of accounting for redistricted fund is important
as it records revenue when earned and expenditure when
incurred. Therefore, the University must record my activities

35
 that are related with unrestricted fund using accruals base
of accounting.

 Any revenue that may be collected in a future time should

have allowance for uncollectible as it helps to prepare
reliable financial statement. Therefore, the University has to
record allowance for uncollectible or revenue that is
collected from activities related with unrestricted current
funds so as to provide reliable balance sheet in the future.

 If accumulated depreciation is not recorded, the assets of

the University will be overstated resulting in over statement
of the financial statement. Hence, the University must
record accumulated depreciation in order to produce
reliable financial statement.

 According to GASB principle there are around twelve

principles. However, AKU applies five of the principles.
Therefore the university tries to use the remaining principles
like reporting long term liability. In order to report the
reporting the liability which exceeds only year to replay,
long term liability reporting is necessary.

 Principles require universities to prepare balance

sheet, statement of change in fund balance,
statement of current fund revenue, expenditure and
other changes. However, this statement is not
prepared in AKU. Therefore, it is advisable for the
University to prepare those statements that are
required by the principles.

36
 INTERVIEW

This interview is prepared to see whether your organization is adhering to GAAP

and the conventions that are put into effect. It is purely meant for academic exercise
and the data and information you provide will remain confidential.

1. What is the accounting base that your organization practicing now? What is the
reason for using this base of accounting?

2. what are the advantages and disadvantages of using double entry bookkeeping
system compared to the previous single entry bookkeeping?

3. Is there any concept of accrual base of accounting in your organization? If no, what
is the reason?

4. What problem, if any, hinders the application of accrual base of accounting for
unrestricted current any?

5. What are the reasons for not having the experience of recording accumulated
depreciation in your institution? What is its effect on the annual financial report?

6. Why allowance for is uncollectible not recorded?

7. Principal requires any government –owned university to record a gifted asset by its
fair value or market value .But your organization is recording the gifted asset by its
cost. What is the reason/s?

8. Do all types of financial statements required by principal are prepared in your

institution? If no, why not?

9. What do you think is the effect of not preparing balance sheet in your institution and
what about other financial statements?

37
10. Do you think the financial statement that your institution is preparing is reliable? If
no, what is/ are the reasons?

11. Do you have any thing to suggest?

Bibliography
B, mielg and f. mielg (1987). Accounting base for business decision. 7 th ed. Chogmor.
Singapore.

Douglas Patricia (1995). Governmental and non profit accounting. 2 nd Ed Harcourt

Branch College
Hay and Wilson (1995). Accounting for governmental and non profit entities. 10 th ed.
Jiwin. USA

Lynn and freeman (1983(fund accounting theory and practice. 2nd ed. Hill inc. new jersey.
USA

MOFED (2002). Accounting for modified cash basis transactions. FGE accounting
system, volume 1. Civil service reform account design team of MOFED. Addis Ababa

MOFED (2002). Manual 3 for FGE accounting system: FGE chart of accounts, volume 2.
Civil service reform account design team of MOFED. Addis Ababa

Warren, rev and fess (1999). Accounting 19th ed. south western. USA.

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