OF ALBANIAN GOVERNMENT TRANSACTIONS ACCOUNTING ENHANCEMENT OF ALBANIAN GOVERNMENT TRANSACTIONS ACCOUNTING TREASURY OPERATIONS ACCOUNTING Financial accounting information is communicated through financial statements, which impact the level of transparency and macroeconomic analysis. TCOP Thematic Group on Public Sector Accounting & Reporting April 12-13, 2018

OF ALBANIAN GOVERNMENT TRANSACTIONS ACCOUNTING ENHANCEMENT OF ALBANIAN GOVERNMENT TRANSACTIONS ACCOUNTING Public Accounting as a measurement and communication process is “a language of government business” What benefit will accountants’ services bring to users of financial statements? What do financial accountants hope to achieve? A lack of public trust in financial reporting can undermine the economy. Provide useful information in making decisions 1 . Help to predict cash flows. 2 Tell about economic resources, claims to resources and changes in resources and claims 3

B A C K G R O U N D Albanian Public Sector Generally Accepted Accounting Principles (AGAAP) is codified in a complex, fragmented and ambiguous legal framework comprising five laws and subsidiary legislation. It consists of primarily a cash basis of accounting with elements of accruals for certain specific categories of assets and liabilities. There is a low coverage of public sector financial reporting curricula including IPSAS. This modified cash basis of accounting as well as the weak commitment controls had contributed to a significant accumulation of financial arrears that was causing considerable fiscal stress. Consolidated financial statements are not currently prepared for the government as a whole. Government has committed to transitioning to modified accrual based accounting aligned with International Public Sector Accounting Standards (IPSAS) in its Public Financial Management (PFM) Strategy, approved by the Council of Ministers and published in December 2014. MOF has the responsibility of establishing and regulating PS GAAP Public Internal Financial Control (PIFC) Board has the responsibility for their approval

MOVING TO ACCRUAL BASIS ACCOUNTING The World Bank (WB) is supporting the accounting reform efforts through the Strengthening Accountability and the Fiduciary Environment (SAFE) Trust Fund. The WB Public Sector Accounting and Financial Reporting project consists in: Assessment of the public sector accounting environment conducted from October 2016 through June 2017. Identifying differences between the AGAAP including actual practices and IPSAS. Increased convergence with IPSAS standards would highly enhance (i) Government’s effective oversight/monitoring of budget implementation and (ii) the quality of fiscal reports produced by both the MOF and the NSI through the inclusion of improved quality and more comprehensive accrual-based financial information. The financing was provided by SECO and the assessment was conducted under the PULSAR program through the SAFE trust fund.

OF ALBANIAN PUBLIC SECTOR ACCOUNTING ENHANCEMENT OF ALBANIAN PUBLIC SECTOR ACCOUNTING The objective of enhancement is strengthening both the framework and the AGAAP: Because financial accounting information is so vital to decision makers, formal reporting standards have to be established. A key factor to simplified and successful adoption of accrual based IPSAS implementation is the installation and operation of all AGFIS functionalities at all budgetary government units. Migration of the data from manual system, or systems interface from outside AGFIS (in the next slide diagram explains details). Extension of coverage with extra-budgetary units, contingencies of PPP’s and concessions projects data. Capacity development - Perform policy function for public sector financial reporting within the PFIC Harmonization/FMC Department. Conduct workshops to develop reform action. Develop/deliver training on IPSAS standard-setting process for the regulators/other stakeholders to enhance practical knowledge. Organize study visits to selected countries that apply either IPSAS or national standards based on IPSAS. Public sector accounting reform is an ambitious objective. The international experience shows that the time-period for reform is long, and it is difficult to predict with accuracy or even keep track of the incremental costs of the reform. It will not take the Albanian public sector accounting all the way through from where it is now to fully implemented IPSAS, but to start with small steps in the right direction with a focus on creating an appropriate enabling environment.

*15 institutions (Line ministries, national agencies and Tirana Municipality) are direct users of AGFIS through Gov Net *Local accounting software is also used by the institutions in parallel with AGFIS. *The remaining ministries, departments and municipalities rely on local IT systems. * The Web Portal is not yet designed.