ASSESSMENT OF ACCOUNTING PRACTICE OF GOVERNMENTAL

INSTITUTION IN CASE OF DIRE DAWA WATER SUPPLY AND

SEWAGE AUTHORITY

A RESEARCH PAPER SUBMITTED TO DEPARTMENT OF ACCOUNTING, RIFT

VALLEY UNIVERSITY, DIRE DAWA CAMPUS, IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR BA DEGREE IN ACCOUNTING

NAME ID NO
1. BONTU MOHAMMED 0233/18
2. ABRAHIM AHMED 0155/18
3. ADNAN ABDULAZIZ 3180/18
4. ABDUDELAM MOHAMMED 0148/18
5. EKRAM ABDI 0258/18

ADVISOR: DURESA A.

JANUARY, 2022

DDIRE DAWA, ETHIOPIA

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 ACKNOWLEGEMENT

First of all great thank given to glorious almightily ALLAH in every aspects of our life. Next,
we would like to express our heartfelt gratitude to my advisor instructor. Also immensely
happy to express our sincere appreciation to dear advisor Mr. Duresa A. for her valuable guides
and helps. Third we would like to express our deepest gratitude to our family supported
financially and morally. Fourth we would like to tanks to employers of Dire Dawa water and
sewage authority finance office, fifth our heartfelt thanks to given to our classmates. Finally,
our heartfelt thanks given to all of the accounting and finance teachers, who were given
valuable knowledge to us.

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 ABSTRACT

This study was aimed to asses accounting and reporting practice in the case of Dire Dawa
water and sewage authority. The main objective of the study is to assess accounting practice
of the organization. To achieve this objective, both primary and secondary data source were
used. Primary data were obtained by using self-administered questionnaires. Whereas
secondary data were obtained from different manuals, financial reports, company records.
The researcher used purposive sampling of non-probability technique in order to select staff
of the organization that is directly responsible for the practice of accounting and reporting
of the organization. The researcher used descriptive method of data analysis. The collected
data were analyzed, processed and interpreted by using tales and percentages. Finally the
study found that Dire Dawa water and sewage authority employees or members have a clear
understanding accounting practice and financial reports covering all funds and financial
transactions and has a better record keeping systems.

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Table of Contents
ABSTRACT ................................................................................................................................................. 2
LISTS OF FIGURE .................................................................................................................................... 5
CHAPTER ONE ........................................................................................................................................ 1
1. INTRODUCTION .................................................................................................................................. 1
1.1. Background of the study.................................................................................................................. 1
1.2. Statement of the problem ................................................................................................................ 2
1.3. Objectives of the study .................................................................................................................... 3
1.3.1. General objective of the study .................................................................................................. 3
1.3.2. Specific objectives of the study ................................................................................................ 4
1.4. Significance of the study ................................................................................................................. 4
1.5. Scope and limitation of the study .................................................................................................... 4
1.5.1. Scope of the study .................................................................................................................... 4
1.5.2. Limitation of the study ............................................................................................................. 4
1.6. Organization of the study ................................................................................................................ 5
CHAPTER TWO........................................................................................................................................ 6
2. REVIEW OF LITERATURE ................................................................................................................. 6
2.1 Definition of Accounting Practice .................................................................................................... 6
2.2Financial Reporting For Government ................................................................................................ 8
2.3 Comprehensive Annual Financial Report ........................................................................................ 9
2.3.1 Basic Principles of Governmental Accounting and Financial Reporting ................................ 10
2.4 Accounting Reporting Capabilities ................................................................................................ 10
2.6 Types of Accounting Practices ....................................................................................................... 12
2.6.1 Purchasing system ................................................................................................................... 12
2.6.2. Payroll system. ....................................................................................................................... 14
2.7 General ledger ................................................................................................................................ 15
2.8. Accounting system and reporting in government organizations ................................................... 15
2.8.1 Basic accounting concepts ....................................................................................................... 15
2.8.2 Book keeping method:- ........................................................................................................... 16
2.8.3 FGE Accounting System ......................................................................................................... 16
2.9 Limitations of accounting procedures Practices ............................................................................. 17

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CHAPTER THREE .................................................................................................................................. 18
3. RESEARCH METHODOLOGY ......................................................................................................... 18
3.1. Research Design ............................................................................................................................ 18
3.2. Research Approach........................................................................................................................ 18
3.3. Data Type and Data Source ........................................................................................................... 18
3.4 Method of data collection ............................................................................................................... 19
3.5. Sampling Technique and Sample size ........................................................................................... 19
3.5.1. Sample Size ............................................................................................................................ 19
3.5.2. Sampling Technique ................................................................................................................... 19
3.6. Method of data analysis and interpreting ...................................................................................... 19
CHAPTER FOUR .................................................................................................................................... 20
4. DATA PRESENTATION, ANALYSIS AND FINDING ................................................................... 20
4.1. Introduction ....................................................................................................................................... 20
4.2. Demographic characteristics of Respondents ................................................................................ 20
4.3. General question related accounting practice ................................................................................ 22
4.3. Accuracy of record keeping (Book keeping) ................................................................................. 24
4.4. Financial statement in Dire Dawa water and sewage authority..................................................... 25
4.5. Financial reporting of Dire Dawa water and sewage authority. .................................................... 26
4.6. Budgeting system in Dire Dawa water and sewage authority. ...................................................... 26
4.7 Recording of fixed asset ................................................................................................................. 27
4.8. Internal control system of Dire Dawa water and sewage authority. .............................................. 28
4.9 Accounting manuals and consistency with FASB standard. .......................................................... 29
CHAPTER FIVE ...................................................................................................................................... 30
5. CONCLUSION AND RECOMMENDATION ................................................................................... 30
5.1. Conclusion ..................................................................................................................................... 30
5.2 Recommendation ............................................................................................................................ 32
REFERENCE ........................................................................................................................................... 33

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LISTS OF FIGURE

Table4.2. Demographic characteristics of Respondents ..........Error! Bookmark not defined.

Table 4.3. General question related accounting practice .........Error! Bookmark not defined.

Table 4.3. Accuracy of record keeping (Book keeping) ..........Error! Bookmark not defined.

Table 4.4. Financial statement in Dire Dawa water and sewage authority.Error! Bookmark
not defined.

Table 4.5. Financial reporting of Dire Dawa water and sewage authority.Error! Bookmark
not defined.

Table 4.6. Budgeting system in Dire Dawa water and sewage authority.Error! Bookmark
not defined.

Table 4.7 Recording of fixed asset ..........................................Error! Bookmark not defined.

Table 4.8. Internal control system of Dire Dawa water and sewage authority. ............... Error!
Bookmark not defined.

Table 4.9 Accounting manuals and consistency with FASB standard.Error! Bookmark not
defined.

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 CHAPTER ONE

1. INTRODUCTION
1.1. Background of the study

Accounting is the process of analyzing, recording, summarizing, evaluating and interpreting

organizations financial activities and stated, and communicating the result to the users.
Financial activities of a business entity are gathered and recorded for the purpose of financial
reporting. A firm's accounting practice refers to the method by which its accounting policies are
implemented and adhered to on a routine basis, typically by an accountant and/or auditor or a
team of accounting professionals. An accounting practice is intended to enforce a firm's
accounting guidelines and policies. It exists as the daily recording of financial data that is
important to the evaluation and monitoring of the firm's economic activities. Accounting
practice refers to the normal, practical application of accounting and/or auditing policies that
occurs within a business (Nor, 1989).

Accounting frameworks such as International Financial Reporting Standards allow the

preparers of financial statements to use accounting policies that most appropriately reflect the
circumstances of their entities. Whereas a degree of flexibility is important in order to present
reliable information of a particular entity, the use of diverse set of accounting policies amongst
different entities impairs the level of comparability between financial statements. The use of
different accounting frameworks by entities operating in different geographic areas also
presents similar problems when comparing their financial statements. The problem is being
overcome by the growing use of IFRS and the convergence process between leading
accounting bodies to arrive at a single set of global standards (Strom, 1977).

Accounting requires the use of estimates in the preparation of financial statements where
precise amounts cannot be established. Estimates are inherently subjective and therefore lack
precision as they involve the use of management's foresight in determining values included in
the financial statements. Where estimates are not based on objective and verifiable information,
they can reduce the reliability of accounting information. The use of professional judgment by

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the preparers of financial statements is important in applying accounting policies in a manner
that is consistent with the economic reality of an entity's transactions (Arsen, 2001).

The significance of financial reporting standards in an audit of historical financial information,

the significance of financial reporting standards cannot be over-emphasized. The opinion
ultimately provided at the end of the engagement will state whether, in the auditor’s opinion,
the financial statements are fairly presented (or show a true and fair view). A fundamental issue
that must be considered in order to reach this opinion is whether the financial statements have
been prepared in compliance with the relevant financial reporting framework. Clearly, the
auditor must fully understand the relevant financial reporting standards to be able to reach an
opinion as to whether they have been complied with (Ibd, n.d).

Key prerequisite for meaningful financial statements is that they be comparable to those for
other companies, especially firms within the same industry. To meet that requirement,
statements are prepared in accordance with Governmental Accounting Standard Board which
encompasses the conventions, rules and procedures, necessary to define accepted accounting
practice at a particular time. Over time, standards are eliminated and amended as business
conditions change and new research performed (Nor Walk, 1989).

1.2. Statement of the problem

Accounting frameworks such as International Financial Reporting Standards allow the

preparers of financial statements to use accounting policies that most appropriately reflect the
circumstances of their entities. Whereas a degree of flexibility is important in order to present
reliable information of a particular entity, the use of diverse set of accounting policies amongst
different entities impairs the level of comparability between financial statements (Larson ,
2000).

The use of different accounting frameworks by entities operating in different geographic areas
also presents similar problems when comparing their financial statements. The problem is
being overcome by the growing use of International Financial Reporting Standards and the
convergence process between leading accounting bodies to arrive at a single set of global
standards (Freeman, 1998).

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Different prior studies are done on accounting practice and its problem for instances a study of
Mikiyas (2015) focused on accounting practice of and its problem in manufacturing
organization and his finding shows that factors that affecting accounting practices in
manufacturing organization includes knowledge of employees and standard are not easily
understandable. Since more previous study focused private business create opportunity to
conduct study on this area. Whether Dire Dawa water supply and sewage authority has
accounting practice, have a formal way of record keeping and fair presentation of financial
affairs based on the accounting theory practices set form for not profit governmental
organizations. Most organizations face different problems in implementing and applying the
theories and practices of appropriate accounting and financial reporting systems, some of them
could be:-The variation between budgeted and actual and their consequence in the accounting
and reporting practice; Inconsistency in implementing and applying the principles set by
Financial Accounting Standard Board in relation to not for profit governmental organizations
Accounting. Therefore study initiated to assess the accounting practice of water supply and
sewage authority in case of dire Dawa.

Having these possible problems in our mind, the study attempted to answer the following basic
questions:-

1. Does the organization use an accounting manual?

2. Does the report of the organization include all financial reports?
3. Is the accounting and reporting practice of the organization is reliability, relevance and time
lines of the report?
4. What are the problems of accounting and reporting practice of the organization?

1.3. Objectives of the study

1.3.1. General objective of the study

The general objective of the study is to assess the accounting practice of water supply and
sewage authority in dire Dawa.

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1.3.2. Specific objectives of the study

1. To evaluate whether the organization has accounting manual or not

2. To examine whether the report includes all financial reports.
3. To assess the reliability, relevance and time lines of the report.
4. To assess the problems of accounting and reporting practice of the organization.

1.4. Significance of the study

The research will be beneficiary to the management of Dire Dawa water supply and sewage
authority and other local not for profit governmental entities in many aspects, it enables to the
management of an organization to realize of practicing and reporting for the decision making. It
also enables the accountant to realize the significance of adhering to accounting principles and
standard in expedition to prepare reliable financial statement. Moreover, it also uses to guide
for the other similar institution to develop the accounting and reporting system. Study also
creates awareness for participants and finally this study would benefit to the researchers who
are interested to conduct their study on the same area as a source.

1.5. Scope and limitation of the study

1.5.1. Scope of the study

The scope of the study is conceptually limited to assessment of the accounting and reporting
practice of water supply and sewage authority in Dire Dawa. Specifically it focused the
evaluation of accounting practice record keeping, reporting mechanism and internal control
system at water supply and sewage authority. The study aims to show the accounting and
reporting treatment on the water supply and sewage authority in Dire Dawa even if accounting
practice is conducted in every organization.

1.5.2. Limitation of the study

In case of our study to organize and analyze the study the researchers had faced a lot of
problems that enable us to search and prepare our study widely. Some of these are: - Shortage
of time, lack of enough data or information, lack of experience, and shortage of finance.

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1.6. Organization of the study

The major section of this research has been organized as follows. The first chapter consists of
the introduction parts that include background, statement of the problem, research question, and
objectives of the study significance of the study, scope of the study, limitation of the study and
also organization of the paper. The second chapter consists of review of the theoretical and
empirical related literatures. The third chapter describes the methodology of the study. The
fourth chapter will be consists of all the results and discussions. Finally, in the fifth chapter
conclusion and recommendation in the study area are discussed.

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 CHAPTER TWO

2. REVIEW OF LITERATURE

2.1 Definition of Accounting Practice

Pandey (1983) accounting practice is the financial score of an enterprise. They contain which
is needed by both investor and management. Financial information is required to predict,
compare and evaluate the firms’ profitability. It is also required to aid in economic decision
making, investment and financial decision making. It point out the problem faced by an
enterprise. It also brings to notice of the firm opportunity that are likely to arise. It indicates
possible action when needed.

However Shirin (2001) writes that accounting practice lack standardization. Standardization of
accounting practice would foster the internationalization of the accounting profession
accountancy firm to operate with in different countries. It would add mobility of staff.

Conradiya (2001) governmental accounting is an umbrella term refers to various accounting

system used by various public sector entities. In United States for instance, there are two level
of government which follow different accounting standard set forth by independent, private
sector board at federal level, Federal Accounting Standard Advisory Board (FASAB) sets forth
accounting standard to follow. Similarly, there is Governmental Accounting Standard Board
(GASB) for state and local level government.

Governmental accounting refers to field of accounting that specifically finds application in

public sector or government. Special field of accounting exist because

 The objective to which ak2ccounting to differ significantly from that for which generally
accepted accounting has been develop for private sector (business) and usage of their
result of accounting process of government differ significantly from the use thereof in
private sector

 An exception exist on the above mentioned difference in the case of public utility (for
example electric service) that may be intended to produce a net income or profit, but a
significant debate exists over whether there should be such an exception nationalization

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 includes among others , the argument that entities should be either private or public and
the objective of public entities should differ significantly from that of private sector in
other word is generation and reticulation with objective of not generating profit

Horngranel (1973) states that accounting practice are the major quantitative information system
in almost every organization. They should provide information for the broad purpose, internal
reporting to manager for use in making routine decisions. Formulating major plan and polices
and external reporting to stick holder, government and other outside party for use in investment
decision, income tax collection and variety of other application.

Many organizations develop practices primarily to satisfy legal requirement imposed by

external party. These practices often neglect the need of national users.

While Glautier and under down (1997), state that accounting practices have been used for
thousands of years. As business grew, accounting practices were invented by people to keep
track of costs and profitability. Modern accounting measures communicate financial
information about an entity. This information is used to plan, control, evaluate and make
decisions about a business. The process begins with book-keeping, with record transactions
such as checks and invoices, and summarizes these transactions in financial statements.

The form of accounting information reputed to decision makers depends on accounting

practices adopted. These practices are imposed by accounting policy makers who, having
knowledge of accounting theories, have the responsibility of responding to the needs of users of
accounting information. However, it is evident that deficiencies in accounting theory, policy
making, accounting practice and the use of accounting information, impair the usefulness of an
accounting information service (Glautierand U, 1997).

Financial managers use the financial statements to raise and spend cash and make intelligent
financial decisions. Accounting Theory may be defined as logical reasoning in the form of a set
of broad principles that; provide a general framework of reference by which accounting
practice can be evaluated, and guide the development of new accounting practices and
procedures.

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The form of accounting information reputed to decision makers depends on accounting
practices adopted. These practices are imposed by accounting policy makers who, having
knowledge of accounting theories, have the responsibility of responding to the needs of users of
accounting information. However, it is evident that deficiencies in accounting theory, policy
making, accounting practice and the use of accounting information, impair the usefulness of an
accounting information service (Glautierand U, 1997).

2.2Financial Reporting For Government

Shirin (2001) financial reporting play major role in fulfilling government duty to be publicly
accounted in democratic society. Public accountability is based on the belief the tax payer has
right to know, a right to receive openly declared facts that may lead to public debate the citizen
and their elected representative, use of financial reporting by citizens and legislative and
oversight officials is pervasive.

Financial reports of state and local government according to the government standard board,
are used primarily to

 Compare actual financial results with legally adopted budget.

 Assist in determining compliance with financial related law, rules and regulations.
 Assist financial condition and result of operation.
 Assists and e valuated efficiency and effectiveness.

A government accounting system must make it possible both to present fairly and with full
disclose the financial position and result of financial operation on fund and account group of
government unit in conformity with GAAP and to determine and demonstrate compliance with
finance related legal and contractual provisions (Glauter,1997).

Adherence to GAAP is essential to ensure a reasonable degree of comparability among the

general purpose financial reports of states local government. American institute of certified
public accountant (AICPA) recognize the GASP as designed body to establish accounting
principle for state and local government under the AICPA (Jhony B, 1993).

In some states , however, law require the state government and local government within the
state to follow practice such as cash base accounting, not consistent with GAAP. In those cases

8
financial stamens and reports prepared in compliance with state law are considered special
reports or supplement schedule (Kamal, 1997).

2.3 Comprehensive Annual Financial Report

Introductory materials includes such obvious, but sometimes forgotten items as a title page,
content page, letter of transmittal and other materials deemed appropriate by management.

The letter of transmittal may literally that a letter from the chief finance officer addressed to the
chief executive and governing body of governmental unit or it may narrating over the signature
of the chief executive, either event, the latter of narrative material should cite legal and policy
requirement for the report and discuses briefly the important aspects of the financial condition
and finance operation of the reporting entity as a whole and the proper annual report and
changes expected during the coming year should be brought to the attention of reader of the
report (Emile, 1995).

Financial section of comprehensive annual financial report should include

1. An auditor report
2. General purpose financial statement
3. Combining individual fund and account group statement and schedules

Law relating to audit of governmental unit very markedly from state to state, in some all state
agencies all government unit created pursuant to the state law are required to be audited by an
audit agency of the state government. In other local government unit are audited by state audit
agency and some by individual certified public accountant, in any (Shirin, 2001).

The financial section should contain sufficient information to disclose fully and present fairly
the financial position and result of financial operation of governmental unit are contained detail
by law of higher jurisdiction and by the action of legislative branch of governmental unit itself.
In addition agreement with creditor other provide constraints over financial activities and
introduce financial reporting requirement an order to make expect you as a practice owner to
maintain proper accounting record and there are financial penalties if such record are not kept
and regularly updated(Hall M, 2009).

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In order to make it possible to determine and demonstrate compliance with law.Regulation and
agreement. The five combined statements that comprise that must be included section of CAFR
are,

1. Combined balance sheet – all found types and account group.

2. Combined statement or revenue, expenditure and change in fund balance.
3. Combined statement of revenue, expenditure and change in fund balance, budget and
actual, general and special revenue fund types and similar fund types for which annual
budget have been legally adopted.
4. Combined statement of revenue, expense and change retained earning or (equity) all
property fund types.
5. Combined statement of change in financial position all proprietor fund types.

2.3.1 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).

2.4 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 generally accepted
accounting principles (GAAP) and (b) to determine and demonstrate compliance with financial
related legal and contractual provisions(Douglas, 1995).

2.5 Overview 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

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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.

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.

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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 and
payables.

2.6 Types of Accounting Practices

The accounting practice is an information system that enables us to make some important
deduction. It has sub- systems (Glautier U, 1997), the main ones being:

2.6.1 Purchasing system

This relates to the procurement of raw materials or merchandize inventories. It is carried out
by the purchasing department. Each request is made on a requisition form stating the nature
and the quantity required which is signed by an authorized person. The purchasing
department selects a suitable supplier and sends a purchase order form setting out the
description, quantity and required delivery date of the goods, together with instructions as
regards dispatch and invoicing. The purchase order will refer to the quoted price of the
goods according to the supplier’s catalogue or other statements of the supplier price,
although those quoted in advertisements are not binding on suppliers. In effect, the purchase
order form is an offer to purchase and when accepted by the supplier constitutes a legal
contract between buyer and seller. Copies of the purchase order are distributed to the several
departments concerned, namely the receiving department which needs to know the details
and the date of receipt of the goods, the stock control department to advise of the pending
arrival of goods and to serve as a check on the receiving department, the accounts
department for checking that the price quoted compared with the list, and the ordering
department, to confirm that the order has been placed

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Kakande (2003) remarks that the purchasing system involves ordering, receiving and
payment for goods and services required by the organization. It consists of the following
stages. Identification of the need for the acquisition of goods and services.

Placement of an order - Requisition notes for purchases should be authorized by a

responsible official in the user department. All orders should be recorded on official
documents showing suppliers names, quantities ordered and the price.
Receipt of the goods and services -There should be a separate department or personnel to
deal with receipt of all goods. All goods should be checked for quantity and quality and
goods received notes should be raised for all the goods accepted (GRN); and GRN’s should
be sequentiallypre-numbered.
Financing and returns - The invoices should be signed and approved for payment by a
responsible official independent of the ordering and receipt of goods. All invoices should
then be entered in the purchases day book and posted to the purchases ledger. A record of
goods returned should be kept and checked to the credited notes received from suppliers.
Disbursement of cash- Cheques should be prepared with supporting documentation by a
responsible official independent of the purchases department. Cheques should be signed by
more than one person. Cheques should then be entered in the cash book.

According to Arora (1995), orders are placed through a central procurements department.
The originating department issues a purchase order to the vendor, routine purchases go
through a specified vendor and non-routine ones go through tender procedures on receipt of
goods, the receiving department checks for quality and quantity after which a Goods
Received Note (GRN) is prepared. This provides a basis for paying the vendor. For services,
evidence must be there that services were rendered. It may take the form of acceptance
report signifying completion of services. Payment is approved in light of prices and
quantities specified on the order. A voucher is prepared and attached to all supporting
documents for example invoices, Goods Received Note and purchase order after approval of
all these documents, disbursements by cash or checks are made. The accounting practices
included in accounting for purchases cover two aspects that include:

Receipt of goods and services- Purchases received should effectively be inspected for
quality, quantity and conditions. On receipt, they should be acknowledged by GRN

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 The disbursement of company resources - All payments should be authorized and
suppliers paid the right amount at the right time.

2.6.2. Payroll system.

This relates to payment of wages and salaries, commissions, withholding tax and other
deductions. Manipu1ation of the wages record is probably one of the easiest ways of
concealing substantial misappropriation of cash and therefore the most commonly resorted to.
It is therefore imperative that wage recording and payments are dealt with by the business in a
systematic manner that adequate checks are in place. Payroll management should involve; the
maintenance of a permanent record for each employee, recording of time worked the
calculation and recording of wages and authorized deductions, disbursements to employees and
allocations in the books of account (Arora, 1995).

While Byaruhanga (2007) states that, the pay roll procedures can be generally put into the
following broad categories; engagements, promotions, transfers and discharges of employees;
time attendance and job recording, preparation of payroll and analysis of wages salaries and
payment of wages and salaries. The following duties should be segregated in a big firm payroll;
preparation, payroll authorization, payment of wages/salaries and personnel.

Byaruhanga (2007) further notes objectives of payroll system as the computation of wages and
salaries are only in respect of the firm’s employees, wages and salaries are in accordance with
the salary scales or with records of work performed in terms of time, output, commissions on
sales, the payment is calculated accurately, payment is made to the correct employees including
unclaimed wages; payroll deductions are correctly and accounted for and paid to appropriate
parties at the correct time, cash in the office and the money in the banks is safe guarded and all
payroll transactions are accurately recorded and processed in the accounting records. Thus the
above objectives are set to minimize the following risks with the payroll that could lead to
financial losses thus low profitability levels. They include ghost workers, late payment causing
staff discontent, wrong and late payments to URA and NSSF leading to fines and penalties,
unauthorized or delayed bonus and fraud.

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2.7 General ledger
It involves maintenance of journals and ledgers for recording and classifying the traditional
financial transactions. It usually extends to the preparation of the trial balance and the formal
financial statements.
Omunuk (1999) stresses that the general ledger is the main ledger of an organization. It is
supposed to contain all the ledger accounts of the organization. In case there are too many
accounts in the organization, it is only the control accounts that should appear in the general or
main ledger and others are recorded in the subsidiary ledgers. In manual accounting system, the
general ledger is a big bound book with hard covers. Each page in the book represents an
account. As observed, the general ledger is supposed to contain all accounts of that
organization.
In addition firms large enough to divide its journal into day books and cash books will probably
also need to divide its ledger. The sales ledger contains all the personal accounts of the firm’s
customers. The creditor’s ledger contains the personal accounts of the firm’s suppliers. The
main reason for dividing the ledger is that it allows several people to be engaged. In the
recording process and permits sectionalisation of the work around these groups of accounts.
However, Shirin, (2001) emphases that the nature, size, environment and information
requirements determine the number of accounting practices. Consequently a great deal of
diversity exists in the accounting practices adopted by different countries. This diversity has the
potential to distort financial communication when business is conducted beyond national
boundaries, thus limiting the success so far. There is need to increase the compatibility of
accounting practices by specifying the limits to their degree of variation. Thus efforts to
harmonize accounting practices of the nations of the world would eliminate much of the
prevailing diversity and increase the international flow of investment capital, there by
promoting world economic growth and development.
2.8. Accounting system and reporting in government organizations
2.8.1 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

15
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

2.8.2 Book keeping method:-

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.

2.8.3 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.

16
2.9 Limitations of accounting procedures Practices
Accounting procedures provide reasonable assurance with management objectives over
resource use as a system is achieved, because the effectiveness of accounting procedures!
Practices are hindered by several factors that are faced by post bank like any other organization.
Accounting practices based on segregation of duties can be avoided by collusion and
authorization. This is manifested in human errors such as errors in judgment, interpretation,
misunderstanding, carelessness, fatigue or distraction that may undermine the effectiveness of
the practices, procedures (Kamal, 1997).
During the last decade, changes in competition and production environment, changes in the
cost structures of firms(Dixon, 1998), and the rapid development in advanced information
technologies have been advocated as imposing pressures for change in accounting
practice(Xiao et. al, 1996).

More importantly, the changing circumstances in the business environment may cause
inadequacy in procedural conduct of business and there by compliance with usual procedures
becomes difficult or deteriorates with time.
Management is frequenting in positions that override controls, which it has itself set up. This
usually comes about as a result of methods and business practices that management adopts to
evaluate promote and compensate employees. If the methods and practices adopted are not
clear then the person with whom authority is vested will abuse such controls and instead use to
their best benefits

Lastly most of the procedures are directed to anticipate usual type of transactions and not the
unusual type, therefore transactions of unusual nature may not fall within the preview of
accounting procedures hence limiting their effectiveness. These limitations can only be
minimized by reviewing the effect of accounting practices on financial performance of the
organization.

Reporting and accounting information are used for planning, resources allocating and collective
decision making for managers.

17
 CHAPTER THREE

3. RESEARCH METHODOLOGY

This chapter contains the method that the researcher used to conduct and the way how the
researcher reaches to the conclusion.

3.1. Research Design

For this study, the researcher used descriptive type of research design. Because the researcher
has no control over the variable can only report what has happened or what is happening, and
Descriptive study has been used because this type of research is commonly conducted to collect
detail description of existing phenomena with the intent of employing data to justify current
conditions and to draw conclusions from the fact discovered.

3.2. Research Approach

This study is conducted by using both qualitative and quantitative research approach. A
qualitative data is a categorical measurement expressed not in terms of number, but rather by
means of a natural language description. A quantitative data is a numerical measurement
expressed in terms of number. The qualitative research would be used to explain qualitative
data which is simple to describe and interpret in this study and quantitative research design is
used to present the quantitative data.

3.3. Data Type and Data Source

This study used primary and secondary data sources. Primary data source is the main source of
information for the accomplishment of the study, under this data source the necessary
information for the study were gathered using questionnaire and interview. Interview contains
structured questions which are intended to address objectives of the study. Moreover, the
questionnaires were included questions that can help to evaluate the assessment of accounting
and reporting practice of water and sewage authority in dire Dawa. The secondary data has
been collected from documents of the organization & reports.

18
3.4 Method of data collection

In order to get appropriate data, the study use both primary and secondary sources of data.
Primary sources of data include questionnaire and structured interview to supply firsthand
information from sample respondents based on the review of related literature important to the
subject of the study. The researchers used both closed and open-end questionnaires. The
questionnaire and structured interview prepared, distributed and collected by the researchers
from the respondents.

3.5. Sampling Technique and Sample size

3.5.1. Sample Size

In Dire Dawa water and sewage authority the study selected 10 employees who are related to
the budget and management bodies which related to the budget.

3.5.2. Sampling Technique

The sampling technique that has been used for this study is nonprobability sampling techniques
which means judgmental sampling method. This techniques of sampling is selected, because of
the researcher took respondents from the total population whose profession is the most
probably related with budgeting. When the researcher compares the selected sampling method
with others, the researcher believed this sample fit with the topic of the researchers. The
researchers choose this sampling method because it is used in the case where the specialist of
the respondents is capable of bringing near to accurate result.

3.6. Method of data analysis and interpreting

According to the researchers, the appropriate method of analysis for the study is descriptive
method. Categorization or separations of data set is also a form of analysis to make the data
easily manageable. Organizing the data has provided descriptive information that answers
questions in the problem defined. The researcher attempted to describe consistency in the
analysis of data. The research employs descriptive data analysis, such as percentage and simple
tables.

19
 CHAPTER FOUR

4. DATA PRESENTATION, ANALYSIS AND FINDING

4.1. Introduction

This part of the paper show the detailed study of the events through gathering the primary and
secondary data which are available and purposeful to our effective study of assessment of
accounting practice of Dire Dawa water and sewage authority. It is necessarily to analyses and
interprets the collected data in to meaningful ways. It has been attempted to focus on each
collection of information show a number of data to communicate them and show what Dire
Dawa water and sewage authority accounting system seems like. Both the primary and
secondary data acquired or obtained through interviews and distributed open and close-ended
questionnaires for the selected employees. From the authority employees our target population
is only financing department and which contain 10 employees sample size. Accordingly all the
selected respondents were filled out the questionnaire properly. The analysis data has been
conducted to address the main and specific objectives of the study.

4.2. Demographic characteristics of Respondents

In this part of the paper, discussion and analyses of the data gathered through questionnaires are
be made also presented in such a manner that it is possible to grasp various facts from this part
of the paper.

Table1: Respondents background

Items and alternatives Respondents

No Items alternatives Numbers

1 Sex A. Male 8 80%

B. Female 2 20%

Total 10 100%

20
2 Age A. 18-30 years 2 20%

B. 30-40 years 6 60 %

C. > 40 Years 2 20%

Total 10 100%

3 Service Years A. 1-5yrs 3 30%

B. 5-10yrs 4 40%

C. >10yrs 3 30%

Total 10 100%

Educational Level A. TVET 3 30%

B. Degree 6 60%

C. Master and above 1 10%

Total 10 100%
Source: - Questionnaires 2021

On the above table 4.1 clearly show that the majority workers of the municipality’s financing
departments are males that are 80% and the remaining 20% are female employees. It indicated
that the participation of female employees is less than males in the Dire Dawa water and
sewage authority.

When we consider the age of the municipality employees 20% of the employees are the age
between 18-30 years old, almost 60%’s are age between 30-40 years old and also 20% were
above 40 years. It indicated that the majority of the municipality employees are matured and
they have ability to do more than that of below 30 years old in the study area. The study shows
that the majority of respondent on finance area are in the productive age.

While the researchers considering the service years as the work experiences of the
employees,30% of employees have the experience of 1-5 years and other 40% employees have
5-10 years’ work experiences or giving services in the municipality, and the remaining 30%
employees have work experiences of more than 10 years. It shows that most of the finance of

21
Dire Dawa water and sewage authority employees is more work experience in the accounting
practice or system areas.

The above depicted or indicated the educational for levels of the employees of the Dire Dawa
water and sewage authority. From the total target population 30% of them are diploma holders
and the remaining 60% of them are first degree and only 10% of employee are master and
above degree holder. The first degree and above employees are operating in key accounting and
finance areas.

4.3. General question related accounting practice

The staff members have been asked whether they have a clear understanding of accounting
practice and reporting which the first question just as a brainstorming was.

Table 4.2: The opinion of the respondent regarding to the accounting practice of the
organization:
No Item Response
No %
1 Accounting practice of the institution
Yes 10 100
No - -
Total 10 100
2 Financial report coverage of all funds and financial
transactions
Yes 10 100
No -
Total 10 100
Source own survey, 2021

The above table indicated that the organization has accounting practice or accounting manual to
conduct their functions and financial reports prepared by organization cover all funds and
financial transactions of given period.

22
Table 4.3: The opinion of the respondents concerning the valuation of fixed asset and
accounting method

No Item Response
No %
3 What kind of accounting system that your origination
uses
Computerized (IBEX System) 9 90%
Manual accounting - -
Mixed 1 10%
Total 10 100
4 What Types of accounting basis used to capture financial
transaction?
Cash basis 1 10%
Accrual basis 1 10%
Modified cash basis 8 80%
Modified accrual basis - -
Total 10 100
Source own survey, 2021

The above table shows that the majority of respondent response around 90% replied the
authority has been using a computerized (IBEX) system. In other words, organization also
prepares transaction and records by using the system. According to the above finding the
researchers concluded that a computerized accounting eliminates manual processing and in turn
process data quickly, often required staff to learn new skills making and most importantly.

Also the table indicated that the types of accounting basis used to capture financial transaction
is 80% replied Modified cash basis of accounting and cash and accrual basis response equally
10%. From this the study concluded that the Dire Dawa water and sewage authority used
modified cash basis of accounting system. Furthermore, advances are treated as receivables in
modified accounting until evidence of expenditure is submitted. Revenue as recognized when it
is received. Payables for goods, services, and works completed before the end of the fiscal year
are recorded as expenditure and an accrued liability known as grace period payable. None

23
current assets expenditures fixed assets) are recorded as expenditure in the year of purchase. It
is clear that the donated fixed assets of the organization valued on the basis of original cost or
the appraised value at the time received (current fair market value). Though, the entity uses
those methods, the general rule for recording of fixed assets in accounting is to record those at
cost and fixed asset donated are capitalized:
4.3. Accuracy of record keeping (Book keeping)

The staff members have been asked whether records are updated and reconciled and the
reliability of each transaction, the respondent replied as follows:

Table 4.4: The opinion of the respondent about the accuracy of record keeping:
No Item Response
No %
4 Timely reconcile and update records
Yes
No 10 100
- -
Total 10 100%
5 The reliability, valuable and clearness of
transaction.
Yes 10 100
No -
Total 10 100%
Source own survey, 2021

As it is indicated above, all respondents said that organization has accurate recording,
summarizing and evaluating process and reconciled and updated with each other. This can be
proved or done by: Checking the controlling ledger /general ledger with trail balance and
recording each transaction on the cost control sheet and reconcile with general ledger from
accounting records.

24
4.4. Financial statement in Dire Dawa water and sewage authority.

Two interrelated questions were raised regarding to financial statement preparation, reliability
and relevance of financial statement.

Table 4.5: The opinion of respondents regarding to the financial statement preparation:

No Item Response
No. %
6 Types of financial statement produced by the
entity.
Balance sheet
Revenue and expenditure statement
Others
All 10 100%
Total 10 100%
7 The reliability and relevance of financial
statement.
Yes 8 80%
No 2 20%
Total 10 100%
Source own survey, 2021

Financial statements of the organization are prepared to meet the needs of financial users
presenting the total assets, liabilities and net assets. According to the above table, as the
respondents replied Statements like income statements and balance sheets are commonly
produced to show the financial position of the entity and the changes in net assets.

Financial statements prepared by the organization are relevant and reliable to the end users.
This due to: Recording general ledger, expenditure recording format and agree with reporting
format. Financial statements are expressed in the Peachtree format and agree with report format
in general, reliable financial statements are produced for internal and external parties that are
helpful to get additional funds.

25
4.5. Financial reporting of Dire Dawa water and sewage authority.

Regarding to the financial reporting of the organization the respondent replied as follows:

Table 4.6: The opinion of the respondent regarding to financial reporting system

No Item Response
No %
8 Timely preparation and reporting of financial statements.
Yes 7 70
No 3 30
Total 10 100%
Source: Own survey, 2021
The financial reporting of Dire Dawa water and sewage authority is prepared timely
(periodically) to control financial operations. Financial statements and schedules are prepared
directly and exclusively from the accounts at the closing of each fiscal year for both internal
and external parties to get financial aid, donations and others.

4.6. Budgeting system in Dire Dawa water and sewage authority.

Regarding this specific issue the organization budgeting system, budget variations and its effect
on reporting practice have been replied as follows:

Table4.7: The opinion of the respondent regarding to the budgeting system

No Item Response
No %
9 Usage of budgets for a given period of time.
Yes 10 100
No -
Total 8 100%
10 Variations between budgeted and actual amounts.
Yes 4 40
No 6 60
Total 10 100%
Source own survey, 2021

26
The responses given indicate that the organization prepares a budgeted fund at the beginning of
fiscal period to provide service with available resources. Each level of management participates
in the preparation of budget. Lower level management prepared budget for their activities. The
middle and top level mank8agement executes the budget contacting with the former practice of
the physical period. The organization not usually faces deviations (variations) between the
budgeted and actual amount. This shows the effective and efficient utilization of the budgeted
resources and activities performed because there is no deviation. It has no effect on reporting of
the organization.

4.7 Recording of fixed asset

Regarding to the recording of fixed asset of the organization the respondent replied as follows:

Table 4.8: The opinion of the respondent regarding to recording of fixed asset

No Item Response
No %
11 Recording of fixed asset

At historical cost 10 10
At fair value - -
At market price - -
Total 10 100%
Source own, 2021

Fixed assets should be reported at historical cost. The cost of a fixed asset should include
capitalized interest and ancillary changes necessary to place the asset in to its intended location
and condition for uses. As the information gathered from the respondent fixed assets are valued
at their initial costs.

27
4.8. Internal control system of Dire Dawa water and sewage authority.

Regarding to internal controlling method and pre-numbed documents for accounting purpose
the staff members answered as follows.
Table 4.7: The opinion of the respondents regarding to the internal control system

No Item Response
No %
12 Methods of designing and implementing
control system.
Yes 10 100
No - -
Total 10 100%
1 Pre-numbered documents for accounting
purposes. 100
Yes 10 -
No -
Total 10 100%
Source: Own survey, 2021
Internal controlling mechanism of the organization provided by the respondents show that
he organization use different methods of designing and implementing controlling system
that enables the organization to protect and detect errors, frauds and corruptions. Some of
the controlling methods of the organization
 Monthly cash count
 Bank reconciliation to control cash at bank and the entity book balance
 Follow procurement procedures, use serially numbered invoices.
 Check general ledger records.
 Use pre-numbered documents for accounting.
In general, the controlling mechanisms of Dire Dawa water and sewage authority were very
strong that enables them to minimize corruption, frauds and errors.

28
4.9 Accounting manuals and consistency with FASB standard.

Two questions were replied by the respondent about the organization’s accounting manual and
consistency with FASB standard

Table 4.8The opinion of the respondents regarding to the organization accounting

manual and FASB
No Item Response
No %
14 Preparation of financial statement in accordance
with financial accounting standard board (FASB).
Yes 10 100
No - -
Total 10 100%
15 The presence of accounting manual in accounting
system.
Yes 7 70
No 3 30
Total 100%
Source: Own survey, 2021
From the tabular information provided, respondents of the organization has accounting
manual that guides procedures in recording, summarizing, evaluating and interpreting
accounting transactions as well as reporting to the end users and prepares its financial
statement according to financial accounting standard board (FASB).

29
 CHAPTER FIVE

5. CONCLUSION AND RECOMMENDATION

5.1. Conclusion

The researcher has tried to study and explain the accounting and reporting practice of Dire
Dawa water and sewage authority, so in order to generalize of the study Dire Dawa water and
sewage authority employees or members have a clear understanding accounting practice and
financial reports covering all funds and financial transactions. Dire Dawa water and sewage
authority has a better record keeping systems. Thus recording, summarizing and evaluating
process are accurate and relied with generally accepted accounting practice

Financial statements are prepared to meet financial users and financial reports are prepared
periodically because to control financial operations and to satisfy the end users those financial
statements.

Dire Dawa water and sewage authority has accounting practice or accounting manual to
conduct their functions and financial reports prepared by organization cover all funds and
financial transactions of given period.

Authority has been using a computerized (IBEX) system and to capture financial transaction
the organization is used Modified cash basis of accounting and followed equally by cash and
accrual basis of accounting.

Dire Dawa water and sewage authority all necessary Financial Statements like revenue and
expenditure statements and balance sheets are commonly produced to show the financial
position of the entity and the changes in net assets. Financial statements prepared by the
organization are relevant and reliable to the end users.

The Dire Dawa water and sewage authority prepares a budgeted fund at the beginning of fiscal
period to provide service with available resources. Each level of management participates in the
preparation of budget. Lower level management prepared budget for their activities. The
middle and top level management executes the budget contacting with the former practice of
the physical period.

30
Dire Dawa water and sewage authority not usually faces deviations (variations) between the
budgeted and actual amount. This shows the effective and efficient utilization of the budgeted
resources and activities performed because there is no deviation. It has no effect on reporting of
the organization.

Internal controlling mechanism of the organization provided by the respondents show that he
organization use different methods of designing and implementing controlling system that
enables the organization to protect and detect errors, frauds and corruptions. Some of the
controlling methods of the organization; Monthly cash count, Bank reconciliation to control
cash at bank and the entity book balance, follow procurement procedures, use serially
numbered invoices, check general ledger records, and use pre-numbered documents for
accounting. In general, the controlling mechanisms of Dire Dawa water and sewage authority
were very strong that enables them to minimize corruption, frauds and errors.

31
5.2 Recommendation

All over activities of the organization have been tasted in the examination of the accounting
and reporting practices as discussed above. The following points are important for the
improvement and wellbeing of the entity.

 Donated fixed assets are valued at their original costs but, the general rule for recording
fixed assets account is at its current fair market value or the net appraised value. Because
accounting and reporting helps to the organization to deduct depreciations that were
recorded in the memorandum forms. So, valuation of fixed assets at their current fair
market value might be considered.
 The data gathered in the examination period implies that some donors fail to keep their
promises. Dire Dawa water and sewage authority should solve those problems having
discussion, and strong relations with its donors that are government bodies so as to keep
their promises.
 Preparation of financial statements should be standardized. Dire Dawa water and sewage
authority mainly concerned with preparation of statement of revenue and expenditure and
balance sheet. But, FASB illustrates financial statement to include, statement of functional
position, a statement of activities, statement of cash flows and financial statement
disclosures.
 In general government bodies like Ministry of finance economic development (MOFED)
should encourage the institution to help the financial circulation system and reporting
practice of the organization

32
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Fess Warren, (1989), Principle Accounting 16 edition.

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Larson E.J, (200), Modern Advanced accounting 8th edition

Nor Walk; (1989) FASB statement Nk8o 116

Smith, the complete Guide to Nonprofit organizations 1st edition

Paul K(1990) Cash as a crucial resource issue no. 2902 University of Kiel
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33