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Ghana Quality Authority (GQA) is an autonomous agency of government responsible for

ensuring high quality standards of foods, drugs and other consumables in the country. The

governing council of GQA, in its recent meeting, has considered its financial statements for

approval for publication. Unfortunately, the financial statements were torn to pieces by the

board members for the reasons that it lacks quality and cannot fly in the face of the International

Public Sector Accounting Standards (IPSAS). The Council Chairman was surprised that the

financial statements are not accompanied by detail notes to the accounts. Looking at the face

of the financial statements, I can say that it is not prepared on accrual basis, the Chairman

stresses. The Board anonymously rejected the financial statements and instructed the Director

of Finance to resubmit proper financial statements within two weeks, else he will be shown the

door.

The Board takes the view that the financial statement is not reflective of the transactions and

events that occurred during the year. For example, it was found that the internally generated

funds (IGFs) of Authority reported was too low, GH 15,000,000 but the Director of Finance

defends IGFs are disclosed only when cash is received and it is low because revenue from

testing are mostly received in arrears. The compensation for employees shown in the financial

statement is only GH20,000,000, which is not reflective of the rising employee pays due to

promotions and new recruitment. Goods and Services was GH8,000,000 and this is also found

to be under disclosed as several bills were outstanding at the end of that year. Surprisingly, all

the capital expenditures for the year have been expensed in the year therefore resulting in a

huge operational deficit. The assets acquired during the year amounted to GH35,000,000 and

average useful life of the assets acquired during the year was 5 years. The GoG subvention

received for the year amounted to GH29,000,000 and this was duly disclosed. The budget

statement of the year showed the following variances:

GH000

Compensation for employees (10,000)

Goods and Services (2,710)

Capital expenditure 15,000

IGF (2,000)

GOG subvention (9,000)

The Director of Finance, after the meeting, retrieved the following additional information

which was not considered in the initial financial statements:

i) A pharmaceutical company, a major client of GQA, has paid quality assurance fees

of GH3,000,000 for services to be provided to them in the following year, 2021,

ii) Testing fees amounting to GH9,000,000 was conducted during the year but the

clients are yet to pay the balances.

iii) Government promises to release further GH4,000,000 before the end of the year

but could not keep the promise.5

iv) Donation of Testing Equipment by DASA to the GQA was valued at

GH1,200,000. The testing equipment has not been disclosed in the capital

expenditure of the year.

v) The salaries of 5 employees appointed on 1 November 2020 remained unpaid. The

annual pay for each employee is GH36,000,000.

vi) Salary advanced of GH800,000 was granted to employees during the year.

vii) Inventory of consumables costing GH890,000 has net replacement cost of

GH920,000 at the end of the year.

viii) Utilities consumed during the year without settling the bill amounted to

GH600,000.

Required:

a) Using an appropriate framework for assessing the quality of financial information,

discussed four (4) likely characteristics of the financial statements which caused the

Board to tear it into pieces. (8 marks)

b) The Chairman of the Board concluded that the financial statements were not prepared

on accrual basis merely based on facial observation. Discuss two (2) pointers to the

basis of accounting applied to the preparation of financial statements, without

disclosures in the notes.

(3 marks)

c) Discuss two (2) benefits of notes to financial statements to the users of the financial

statements and outline three (3) broad categories of notes to the financial statements.

(5 marks)

d) Based on the additional information provided by the Director of Finance and other

information in the case, re-prepare in compliance with the International Pubic Sector

Accounting Standards (IPSAS) and the Public Financial Management Act 2016, Act

921:

i) Statement of Financial Performance for the year ended 31 December 2020

ii) Statement of Financial Position as at 31 December 2020

iii) Cash Flow Statement for the year ended 31 December 2020

iv) Notes to the Financial Statements.

[14 marks)

(Total: 30 marks)