Accounting Policies and Procedures Manual

Introduction
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1.1
Purpose of the Manual
1.1.1.1 The purpose of this Manual is to set out the detailed policies and
procedures to be used in accounting for the Government of Pakistan’s
financial transactions.
1.1.1.2 Under Article 170 of the Constitution, the Auditor General can
prescribe detailed policies and procedures in respect of the following:
· all transactions of centralised accounting entities
· specific transactions of self accounting entities which operate within
overall control of the Auditor General e.g. staff related payments
· transactions adjustments of self accounting entities with the
centralised accounting entities or in between themselves
· reporting requirements of the self accounting entities.
1.1.1.3 This Manual contains the detail to accompany the overall framework
set out in the Manual of Accounting Principles (MAP).Accounting Policies and Procedures
Manual
Introduction
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1.2
Structure of the Manual
1.2.1.1 The Manual is structured according to the major financial
management activities of the Government.
1.2.1.2 The organisation of the chapters and sections within the Manual is
shown in the Table of Contents.
1.2.1.3 The first two chapters provide an introduction and an overview to
the accounting system.
1.2.1.4 The following three chapters cover the core processes of budgetary
control, expenditures and receipts.
1.2.1.5 Chapters 6 and 7 cover the supporting processes of bank
reconciliation and financial reporting.
1.2.1.6 Subsequent chapters address the policies and procedures for
supplementary processes and for other financial management activities
of the Government.Accounting Policies and Procedures Manual
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1.3
Reader Guidance
1.3.1.1 There are five levels of heading in the Manual:
· level 1 - chapter
· level 2 - section
· level 3 - sub-section
· level 4 - direction
· level 5 - bullet point
1.3.1.2 The organisation of the sections and sub-sections within each
chapter is shown in the Table of Contents at the front of each chapter.
1.3.1.3 The layout of each page within this Manual is standardised. The title
of the Manual and the name of the chapter are displayed in the top left
and right corners of each page respectively. The footer for each page
contains the issue date, page number and file reference.
1.3.1.4 The general structure of each chapter within this Manual is
standardised, dealing with the subject matter in the following sections
(where this structure is inappropriate some chapters omit certain
sections or are detailed in a different manner):
· introduction
· general policies
· accounting policies
· accounting treatment
· detailed procedures
· procedures for specific class of transactions.
1.3.1.5 A list of abbreviations and definitions of terms commonly used in this
Manual is included for reference purposes.
1.3.1.6 The Appendix includes proformas of the registers and the forms to
be used in the application of this Manual.Accounting Policies and Procedures Manual
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1.4
Authority, Applicability, Distribution and Maintenance of the Manual
1.4.1 Authority
1.4.1.1 This Manual is issued under the authority of the Auditor-General of
Pakistan, in accordance with Article 170 of the Constitution of
Pakistan, read with Pakistan (Audit and Accounts) Order 1973.
1.4.2 Effective date
1.4.2.1 The effective date for application of this Manual is the date of issue
of the Manual by the Auditor-General.
1.4.2.2 All accounting entities will have up to two financial years
(commencing from 1 July subsequent to the effective date of release)
to be in full compliance with this Manual.
1.4.3 Application
1.4.3.1 Accounting entities - An accounting entity is any unit of the
Government e.g. ministry, division and department, whose principal
source of funding is an appropriation from the Government of
Pakistan, and which is not an exempt entity (as listed in Schedule 2 of
the MAP).
1.4.3.2 There are two types of accounting entity, namely centralised
accounting entities and self accounting entities.
1.4.3.3 Centralised accounting entities- a centralised accounting entity
is any accounting entity for whom the Accountant-General has primary
responsibility for the transaction processing, recording and reporting
functions of that entity. At no stage does this arrangement absolve the
Principal Accounting Officer of his/her responsibilities for financial
management, in accordance with Paragraph 8.1 of the MAP.
1.4.3.4 Self-accounting entities - a self-accounting entity is any
accounting entity for whom the Principal Accounting Officer has
primary responsibility for the accounting and reporting functions. A list
of self-accounting entities is contained in Schedule 1 of the MAP
(current at the date of issue of this Manual).
1.4.3.5 Exempt entities - an exempt entity is any entity listed in Schedule 2
of the MAP (current at the date of issue of this Manual). These
include independent entities and commercial undertakings and entities
established under a state resolution or a notification of the Government
or under Companies Ordinance, but placed administratively under a Accounting Policies and
Procedures Manual
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Ministry or Division for the purpose of accountability (also refer to
Organisational Structure section of Chapter 2 ‘Overview’).
1.4.4 Compliance
1.4.4.1 Compliance with this Manual is mandatory for all centralised entities.
Chapter 9 ‘Self-accounting entities’ sets out more detail on the
applicability of this Manual to self-accounting entities.
1.4.4.2 Exempt entities are outside the scope of this Manual and are
therefore not required to comply.
1.4.4.3 Compliance with the directives and principles contained in this
Manual are mandatory as the principles and directives have been
issued under the Pakistan (Audit and Accounts) Order 1973.
1.4.4.4 The Pakistan (Audit and Accounts) Order 1973, provides that the
Auditor-General will be responsible for keeping the accounts of the
Federation and of each Province, other than certain specified entities.
The Order is issued subsequent to Article 170 of the Constitution of
the Islamic Republic of Pakistan which states that ‘the accounts of the
Federation and of the Provinces shall be kept in such form and in
accordance with such principles and methods as the Auditor-General
may, with the approval of the President, prescribe’.
1.4.4.5 In the event that an accounting policy or a procedure in this Manual
conflicts with other manuals or directives, other than those amending
this Manual, the accounting policy or procedure in this Manual will
prevail.
1.4.4.6 Centralised entities shall not implement accounting policies or
procedures in conflict with, or contrary to, those set out in this Manual.
The self-accounting entities may formulate detailed accounting policies
and procedures in pursuance of the MAP with the approval of the
Auditor-General.
1.4.5 Distribution, maintenance and update
1.4.5.1 The Auditor-General of Pakistan is responsible for:
· the initial issue of the Manual to all Accountant General offices,
District Account offices and the Principal Accounting Officers of
centralised and self-accounting entities
· the maintenance and update of the Manual, including distribution of
any updates or amendments to all Accountant General offices,
District Account offices and the Principal Accounting Officers of
centralised and self-accounting entities.Accounting Policies and Procedures Manual
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1.4.5.2 In each Accountant General office, District Account office and for
each centralised and self-accounting entity, the AG/DAO/ PAO is
responsible for ensuring that:
· initial copies of the Manual are distributed to all Accounts Officers
within their entity
· all subsequent updates and amendments of the Manual are
distributed to all Accounts Officers within their entity.Accounting Policies and Procedures
Manual
Overview
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2 Overview
Overview
Accounting Policies and Procedures Manual

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Table of Contents
2.1 Introduction
2.3
2.2 Organisational Structure of the Accounting System
2.4
2.2.1
Accounting entities
2.4
2.2.2
Responsibilities
2.4
2.3 The Accounting System
2.8
2.3.1
Key principles of the accounting system
2.8
2.3.2
Key accounting control objectives and respective controls
2.8
2.3.3
Key reporting control objectives and respective controls
2.11
2.4 Outline of Chapters
2.13
2.5 Abbreviations
2.15
2.6 Definitions
2.17Accounting Policies and Procedures Manual
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2.1
Introduction
2.1.1.1 This chapter sets out in overview both the organisational structure
and the system of accounting to be followed by the Federal and
Provincial Government.
2.1.1.2 This chapter also provides a brief overview of each chapter within
the Manual.Accounting Policies and Procedures Manual
Overview
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2.2
Organisational Structure of the Accounting System
2.2.1 Accounting entities
2.2.1.1 The Government of Pakistan includes both the Federal and
Provincial Governments.
2.2.1.2 There are four Provincial Governments (Balochistan, NWFP,
Punjab and Sindh) and the one Federal Government.
2.2.1.3 The Federal Government of Pakistan and the Governments of each
of the Provinces are separate accounting and reporting entities. Each
government operates separate bank accounts with the State Bank of
Pakistan.
2.2.1.4 Within the Federal and Provincial Governments there are both
centralised and self-accounting entities.
2.2.1.5 A centralised accounting entity is any accounting entity for whom
the AG/AGPR has the primary responsibility for the accounting and
reporting of that entity. The centralised accounting entity operate
through their respective single bank account called “Non-Food
Account 1” which is controlled by AG/AGPR.
2.2.1.6 A self-accounting entity is any accounting entity for whom the
Principal Accounting Officer has primary responsibility for the
accounting and reporting functions (e.g. Forest). Self-accounting
entities maintain their own accounting records and submit monthly
accounts in the prescribed form to the Accountant General’s offices
for consolidation. Self-accounting entities do not necessarily operate
through the same bank account as centralised accounting entities, such
as Railways and Food. Some operate through an assignment or
personal ledger account, while others operate the same bank account.
2.2.1.7 Additionally there are government entities which are exempt (as
listed in Manual of Accounting Principles (MAP) Schedule 2)
2.2.2 Responsibilities
2.2.2.1 The Constitution of Pakistan sets out the primary accounting
requirements of the governments and the role and responsibilities of the
Auditor-General. Refer to the MAP for more detail.
2.2.2.2 The Government’s accounting function is structured as a hierarchy
with four levels.
2.2.2.3 First of all, the Auditor-General, has overall responsibility for the
accounts of the Federal Government and the accounts of each of the Accounting Policies and
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Provincial Governments.. The Auditor-General additionally provides
the Combined Annual Accounts of the Federation and the Annual
Appropriation Accounts to the President. In the case of the Provincial
Government Appropriation Accounts are submitted to the relevant
Governor.
2.2.2.4 The relationship between the Auditor-General , having ultimate
responsibility, and the other levels is structured through a scheme of
delegation of authority and reporting lines.
2.2.2.5 Secondly, the Accountant General Pakistan Revenues and the
Accountants General are responsible for transactions at the Federal
and Provincial Government level.
2.2.2.6 The Accountant General Pakistan Revenues (AGPR) is
responsible for the centralised accounting and reporting of federal
transactions. Additionally the AGPR is responsible for the
consolidation of summarised financial information prepared by federal
self-accounting entities. The AGPR receives accounts and reports
from the DAOs, PAOs, Federal Treasuries and SBP/NBP, and
provide Annual Accounts (to the AGP) and Consolidated Monthly
Accounts (to the Federal Finance Division). There are AGPR sub
offices in each of the Provinces who also act as the DAO in respect of
Federal Government transactions relevant to the Provincial
Headquarters.
2.2.2.7 Each Accountant General (AG) is responsible for the centralised
accounting and reporting functions within their respective Province,
under the authority of the Auditor-General. Additionally the
Accountant General is responsible for the consolidation of the
summarised financial information prepared by provincial self
accounting entities. They receive accounts and reports from the DAOs
and PAOs, and provide Annual Accounts (to the AGP) and
Consolidated Monthly Accounts (to the Provincial Government,
through the Provincial Finance Department). In addition each
Accountant General also acts as the DAO in respect of the Provincial
Headquarters.
2.2.2.8 There is a Principal Accounting Officer (PAO) in each
Ministry/Division/Department. Within self-accounting entities the PAO
has been delegated the authority by the MoF for the accounting
functions and for preparing accounts for submission to the Accountant
Generals. The PAO has the authority to control the financial
management of the entity under him/her, within the limits prescribed by
the Government. They also reconcile accounts with the AG/AGPR
offices.Accounting Policies and Procedures Manual
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2.2.2.9 Thirdly, the District Account Officers are responsible for the
accounting functions of the districts. Each province is divided into
districts. NWFP also have district agencies for tribal areas, which are
separately funded by the Federal Government. The DAOs have the
authority to pre-audit bills, issue payments and record government
transactions at a district level. They receive reports from the DDOs
and bank scrolls from the SBP/NBP and prepare reports for
submission to the AG/AGPR offices. The DAO perform the above
mentioned functions for both Federal and Provincial transactions
occurring within his/her District. Separate accounting records are
maintained for Federal and Provincial transactions. In turn the DAO
reports both to the AG and AGPR sub-office.
2.2.2.10 As well as DAOs, departmental treasuries are established to
record specific accounting transactions, such as Income Tax, Sales
Tax, Customs and National Savings Treasuries.
2.2.2.11 Fourthly, the Drawing and Disbursing Officers (DDO) are
responsible for the accounting, cash and personnel functions of specific
entities within departments. Each district contains a number of entities
each having a DDO. The DDOs have the authority to submit bills for
pre-audit to the DAOs, and report to both the DAO of the district and
the PAO of his/her entity/department.
2.2.2.12 At both the Federal and Provincial level, the Government’s banker
is the State Bank of Pakistan, with National Bank of Pakistan acting as
its agent.Accounting Policies and Procedures Manual
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2.2.2.13 Overview of the accounting organisational structure.
Auditor-General
PAO
AGPR (Federal)/
AG (Provincial)
DAO
DDO
Overall responsibility for
Federal and Provincial
accounts
Responsible for
accounting and reporting
functions of Federal and
Provincial centralised
entities, and consolidation
of self-accounting entity
summarised financial
information
Responsible forfinancial
management of
department and, in a self
accounting entity, the
accounting and reporting
functions
Responsible for
accounting functions of the
districts
Responsible for
operational aspects of
entities within departments
Reporting
Line
Delegation
of authority

Accounting Policies and Procedures Manual

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2.3
The Accounting System
2.3.1 Key principles of the accounting system
2.3.1.1 The key aspects of the accounting system shall be:
· double entry bookkeeping
· modified cash basis of accounting, record accounting transactions
as per cashflow, with the following modifications:
- commitment accounting, recognise and record significant
commitments as they arise, through a purchase order or
other legally binding contract
- accounting for certain assets and liabilities,. At period end
disclosure of all material assets and liabilities, in the Annual
Accounts
- physical asset accounting, systematically recognising the
acquisition of physical assets, using asset registers in accounts
offices.
2.3.2 Key accounting control objectives and respective controls
2.3.2.1 The following key control objectives and their respective controls
are essential to the system of accounting operated at all levels in the
Federal and Provincial Government. The controls detailed are in
approximate chapter order. Some controls will meet a number of
control objectives.
2.3.2.2 Accuracy: the information in the accounts and the supporting
subsidiary records shall be accurate, representing the actual substance
of past events, without undue errors or omission. This shall include
correct and consistent classification of transactions and the recognition
of revenues and expenditures in the correct time period. This
objective shall be addressed by:
· budgetary control procedures
· a proper approval, certification and authorisation process for
payments
· review and authorisation of payroll schedules by a delegated
authority
· reconciliation of cheque/transfer advice to claim prior to signing by
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· reconciliation of tax revenue receipts to tax authority recordsAccounting Policies and
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· a regular, complete and up-to-date bank reconciliation
· procedures and control for recording inter-entity transactions
· maintenance of physical assets register
· performance of regular stocktakes
· control over maintenance of permanent accounting records
· procedures and control for making adjustments to accounting
records
· reconciliation of the general ledger to sub-ledgers, registers and
source documents
· detailed Chart of Accounts for classifying transactions
· a regular post-audit process, both internal and external
2.3.2.3 Completeness: the information in the accounts and the supporting
subsidiary records shall be a complete representation of all past
transactions that have occurred during the reporting period. This
objective shall be addressed by:
· budgetary control procedures
· recognition of significant commitments, using a commitments
register
· regular checks for transactions not brought to account, using an
outstanding claims register
· reconciliation of tax revenue receipts to tax authority records
· issue and review of sequentially numbered receipts for all revenue
· money shall in general be received by SBP/NBP
· regular, complete and up-to-date bank reconciliation
· physical assets shall be recorded in a register disclosed in a
memorandum account
· regular and systematic, review and clearance of suspense accounts
· reconciliation of general ledger to sub-ledgers, registers and source
documents
· a regular post-audit process, both internal and external
· a systematic and verifiable consolidation of accounts from
subsidiary ledgers, registers and source transactions.
2.3.2.4 Existence/Validity: all transactions accounted for must be genuine
transactions. This objective shall be addressed by:
· a proper approval, certification and authorisation process for
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· claims shall be stamped as paid on authorisation for payment
· audit trail from the payment to the source documents supporting
the claim
· review and authorisation of payroll schedules by a delegated
authority
· reconciliation of cheque/transfer advice to claim prior to signing by
the delegated authority
· no duplicate receipts provided
· regular, complete and up-to-date bank reconciliation
· performance of regular stocktakes
· maintenance of physical assets register, including procedure for
disposal and existence checks of assets
· a regular post-audit process, both internal and external.
2.3.2.5 Economy: the accounting system shall include controls to ensure
the prudent allocation of government resources. This objective shall
be addressed by:
· expenditure approval, certification and authorisation procedures
· a competitive procurement process
· central purchasing facilities
· asset management policies and procedures.
2.3.2.6 Effectiveness: the accounting system shall include controls to
ensure the effective performance of government responsibilities. This
objective shall be addressed by:
· clearly defined responsibilities, scheme of delegation and reporting
lines
· comprehensive procedure notes
· human resources program including recruitment, training and
appraisal.
2.3.2.7 Efficiency: in practice there will often be a trade off between
economy and effectiveness. The accounting system should seek to
operate as efficiently as possible by optimising the relationship between
these two variables. This objective shall be addressed by:
· pre-audit (certification) of payments.
· issue of payment through direct bank transfer
· use of imprest system for small payments
· collection of revenue through SBP/NBPAccounting Policies and Procedures Manual
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· hierarchical organisational structure in which there is a clear
scheme of authority delegation to perform the tasks
· responsibility accounting, using responsibility centres
· production of annual and monthly financial reports
· limited duplication of roles
· consolidation of accounts.
2.3.2.8 Minimise risk of fraud and corruption: the accounting system
shall include controls to minimise the risk of fraud and corruption. This
objective shall be addressed by:
· segregation of duties, so that certain accounting functions should
be performed by different officers, including:
- accounts and audit
- recording of receipts and collection of money
- approval/authorisation and issue of payment.
- recording of expenditures and issue of payment
· budgetary control procedures
· pre-audit of claims for payment
· maintenance of an authorised signatories list by the bank
· requirement of a double signatory for issue of payment
· issue of payment through direct bank transfer and cheques
· maintenance of a physical assets register
· performance of regular stocktakes
· control over maintenance of permanent accounting records
· procedures and control for making adjustments to accounting
records
· reconciliation of the general ledger to sub-ledgers, registers and
source documents
· responsibility accounting, using responsibility centres
· clearly defined responsibilities, scheme of delegation and reporting
lines
· a regular post-audit process, both internal and external
2.3.3 Key reporting control objectives and respective controls
2.3.3.1 Sufficient: the accounting system must produce sufficient
information for the adequate control of the government’s finances.
This objective shall be addressed by:Accounting Policies and Procedures Manual
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· preparation of monthly and annual accounts
· availability of an audit trail through sub-ledgers, registers and
source documents to substantiate the financial reports
· preparation of additional operational inform