Ensuring Effectiveness of Government Accounting
Accrual Accounting Program
The federal government’s transition to accrual accounting improves effectiveness of financial planning and ensures the implementation of the UAE federal accounting according to the international best practices. This programme is part of the MoF’s directives to manage and develop the financial resources of the federal government efficiently and innovatively. It will make MoF one of the leading ministries regionally and globally in the management of public financial affairs, in compliance with requirements of the International Monetary Fund (IMF) and international competitiveness standards.
The Ministry of Finance (MoF) has launched a comprehensive and integrated programme that would shift the federal government’s accounting framework based on a modified cash basis to an accrual accounting framework. This new approach represents a milestone in the history of the UAE federal government, as it enables MoF to achieve its strategic objectives, particularly the optimisation of financial planning and the implementation of the federal budget in accordance with the international best practices.
Legal Legislation to Implement Accrual Accounting
The accrual accounting programme is based on Federal Decree Law No (26) of 2019, which states that this programme shall be applied in a phased manner. The federal entities were divided into groups to facilitate the implementation of the accrual accounting, and the opening balances of the federal entities were prepared and successfully uploaded to the system. As of January 1st, 2021, federal entities started applying accrual accounting to carry out all transactions and monthly closings.
The Ministry of Finance has implemented the accrual accounting programme based on Cabinet Resolution No (35/3/6) of 2013, Resolution No (2/2) of 2017 regarding the adoption of the Manual of Federal Government Accrual Accounting Standards, and Cabinet Resolution No (21/3F) of 2021 on the transition of the federal government from the cash basis to the accrual basis of accounting.
The Ministry of Finance set the federal standards on the accrual basis of accounting, which were approved by the UAE Cabinet by virtue of Resolution No (2/2) of 2017. The federal standards on the accrual basis of accounting were then updated under Cabinet Resolution No (21/3F) of 2021.
Benefits of Accrual Basis of Accounting
Performance
Improving assessment of government performance in terms of achievements and the cost and effectiveness of the service provided.
Rationalisation
Providing a clear understanding of the government's success in managing its resources and rationalising its expenditures.
Analysis
Providing a record of financial statements for a number of years, allowing comparison and analysis over the years.
Resources
Providing a better, more effective comparison among the different resource usage options
Cash Flow
Assisting in assessing the performance of federal government ministries and entities in terms of their financial position and cash flows.
Accuracy
Enhancing the capacity of providing more accurate and integrated accounting records.
The UAE is the First Arab Country to Apply Accrual Accounting
Based on Cabinet Resolution No (21/3 F) of 2021 regarding the implementation of accrual accounting in the federal government, and the adoption of the Manual of Federal Government Accrual Accounting Standards to be implemented in federal entities for the year 2021, all federal entities have implemented the accrual basis of accounting; thus, making the UAE the first Arab country to adopt the accrual accounting. The accrual basis of accounting is a tangible indicator of the UAE government’s position as one of the world’s leading governments in applying the best management methodologies and public accounting standards.
Stages of the Federal Government’s Transition to Accrual Basis of Accounting
Axes of Implementing the Accrual Basis of Accounting
Implementation and Follow-up of Accounting Standards
The proper implementation of accounting standards and financial procedures, based on the international public sector accounting standards, have been considered of paramount importance. The continuous follow-up and review of the new standards put the MoF at the forefront in terms of technical developments in this field.
Theoretical and Practical Training
Efficient management of the project is considered one of the most important pillars of its success. A detailed work plan was developed to manage the pilot transition, which specified the transition activities, tasks and duties of the team, determined the responsibilities and ensured the follow-up of the transition by the competent entities.
Project Management
The proper implementation of accounting standards and financial procedures, based on the international public sector accounting standards, have been considered of paramount importance. The continuous follow-up and review of the new standards put the MoF at the forefront in terms of technical developments in this field.
Benefits of Accrual Basis of Accounting
01
Following up on all federal entities to ensure the submission of financial statements in accordance with the accrual accounting standards of the federal government for the first time
02
Keeping pace with the latest accounting standards and implementation of major transitional phase activities (including expanding the scope of financial statements consolidation and evaluation of federal government properties) to ensure quality and compliance with international standards
03
Using accrual accounting financial reports to enhance the effectiveness and efficiency of resource utilisation at the federal government level, and to support the decision-making process
04
Preparing the semi-annual financial statements of the ministries and federal entities, in addition to the consolidated financial statements of the federal government according to the accrual accounting
05
Launching the system for the consolidation of financial statements and using it to prepare the consolidated financial statements of the UAE for the year ending on December 31st, 2022
Achievements
Adopting the manual related to inventory checking and assessing fixed assets in federal entities.
Inventory checking of fixed assets in accordance with the approved model stipulated in the manual.
Preparing the fixed assets register based on inventory data and assessment, and the calculation of consumption expenditure.
Understanding and collecting appropriate information for the revenue and expense items transition.
Reviewing the unified structure of federal government accounts.
Preparing a detailed work plan for the transition of ministries and federal entities to the accrual basis of accounting.
Applying accrual accounting standards, policies and procedures in the federal government.
Supporting federal authorities in preparing the opening balances and uploading them to the financial system.
Completing the preparation of financial system for the transition to accrual accounting, so as to register all transactions and balances.
Coordinating with various departments (such as the Budget and Operations Department) to update laws and circulars and organise workshops.
Providing continuous support to federal entities via the “Talbia” system (center of excellence) and following up on monthly closings.
Studying the basis for determining the scope of consolidating financial statements, and developing the enablers to implement the accrual accounting process.
Organising workshops on accounting policies, and how to use the financial system and carry out closings through accrual accounting.
Approving Financial Circular No (9) of 2021 regarding the instructions for preparing the draft final account of federal entities for the year ending on December 31, 2021; and organising related workshops.
Preparing consolidated financial statements of the federal government in accordance with the accrual accounting standards.
Working on updating the system for the consolidation of financial statements, and conducting the necessary tests.