The Impact and Effects of Financial Reporting in the Public Accounting Econometric Analysis Model: Revenue and Expenditures for Period 2007-2017

Introduction

The primary legislation in Kosovo's jurisdiction that regulates financial management and reporting in relation to the Kosovo budget is the law on public financial management and accountability, together with the administrative financial guidelines or Financial Rules that are subsequently issued. The financial administrative Instruction No. 2005/15 is of special importance, which states that the financial statements will be prepared in accordance with international accounting standards for the public sector for reporting based on the cash basis. The financial statements are those statements that aims to meet the needs of general purpose users who are not in the position to require special reports for their particular needs. General purpose financial statements include those disclosed separately or within another public document such as an annual report or a prospectus. This Standard does not apply to the structure and content of the abbreviated financial statements prepared in accordance with IAS¹. The financial statements are a structured presentation of the financial position and financial performance of an entity. The objective of the financial statements for general purposes is to provide information about the financial position, financial performance and cash flow of an entity that is useful to a wide range of users in making economic decisions. The financial statements also show the management results related to the management of the resources entrusted to them. To achieve this objective, the financial statements provide information about these entities: assets, obligations, net equity, income and expense, including gains and losses, other changes in equity, and cash flows.

Purpose of Research

The purpose of this research is to look at the impact and effects of financial reporting in public accounting. The other purpose of this research, are financial reforms and the relationship between variables during period 2007-2017 .Which have been years and financial items with the most significant financial effect, based on the annual financial reports and financial statements based on cash (receipts and payments). Based on these purposes, will analyzing the raised hypotheses, and it will be provide recommendations for the coming years.

Methodology

The empirical study or the model of econometric analysis is realized in public accounting, concretely in the revenues and public expenditures for the period 2007-2017 based on the annual financial statements, to see how financial reforms have affected the country's economic development from year to year. The data from the annual financial statements are processed through econometric and statistical models with SPSS and R program. The test and methods that are used are (annual financial statements correlation, multiple R, F, anova, degree of freedom, intercept, least squares regression equation predicted values, regression statistics for variables square, residuals output, trend analysis and growth rates of receipts in cash, trend analysis and growth rates of payments in cash, periods 2007-2017 etc.).

The Hypotheses

The Main Hypothesis:

H0: There is an important relationship between financial reporting and public accounting (revenues -receipts and expenditures - payments)?

Auxiliary Hypotheses:

H0₁: There is significant relationship between taxes, self-incomes, grants and other revenues to growth general incomes?

H0₂: There is significant relationship between operations, transfers, capital expenditures and other payments to growth general expenditures and economic development?

Literature Review

Financial Reporting and Public Accounting Theories

Financial reporting and public accounting is intended to manage and protect public money and to hold responsibility and accountability. Modern leadership for financial reporting in relative and absolute aspect. More money requires more financial accounting to improve economic development.² Accounting principles allow a budget organization, whether state or private, to recognize revenue only on the basis of negotiated and conditional services. The government offers general goods and services, which are funded through taxes. Public services are consumed collectively and non-payers cannot be excluded by requiring them to pay taxes. These features spoil the relationship between revenue recognition and service delivery, making it impossible to match revenue and expenses.³ International Public Sector Accounting Standards (IPSAS) are used by public institutions around the world to compile financial statements. These standards are based on the International Financial Reporting Standards (IFRS) approved by the International Accounting Standards Board (IASB).⁴ Between IPSAS and International Financial Reporting Standards (IFRS), there is a close connection to the fact that IPSAS standards are based primarily on IFRS principles in order to ensure comparability between private and public sector reporting, when similar transactions are accounted.⁵ Accounting and financial reporting standards should be relevant to users of public sector financial statements. The financial statements prepared in accordance with IPSAS should adequately present the financial performance, financial position and cash flows of an institution to enable the users of financial statements to report accurately and timely.⁶ The adoption of the IPSAS opens the way for the full disclosure of financial information that serves the needs of different users.⁷ Public accounting with particular emphasis, public spending to be implemented with administrative honesty and fiscal responsibility. Thus, the fiscal responsibility act should be improved so that public spending is not only transparent but also efficient and effective.⁸

Financial Statements for State of the Kosovo -According to International Public Sector Accounting Standards, Based on Cash Money

Basis of Preparation

The financial statements have been prepared in accordance with LPFMA no. 03 / L-048, as amended by Law 03 / L-221, Law 04 / L-116, Law 04 / L / 194, Law 05 / L-063 and Law no. 05 / L-007 as IPSAS based on cash.⁹ Financial Reporting according the accounting principles based on the cash. The notes to the financial statements form an integral part of the meaning of the statements and should be read together and in relation to the statements.¹⁰

Accounting Policies

The basis of accounting and reporting in the Government of the Republic of the Kosovo according the LPFMA is the cash basis. On this basis, the information presented in these financial statements presents cash receipts and payments and the cash flow movement.¹¹ Money management is organized in form of single account of Treasury. The single account of Treasury is a system of banking account which is used to collect incomes and realization of expenses, which are supervised by single institution–Treasury Department.¹² Receptions (incomes) are acknowledged only when are under Government control. This means money which is transferred into Treasury account at CBK¹³, money which stands by on commercial banks to be transferred to Treasury account in CBK and collected money from an official of budgetary organization standing by to be transferred to Treasury account in CBK.¹⁴ Payments (expenses) are acknowledged when are paid by single account of Treasury and expenses of tiny money are acknowledged when justifying account of tiny money¹⁵ Transactions between budgetary organizations so called “Inter-parliamentary transactions” aren’t consolidated into these financial clearances, aiming to save information consistence reported by individual financial clearances of budgetary organizations.¹⁶The expenses are categorized according to economic classification which reflects Financial Government Statistics of IMF, which are modified version of SQF, based on cash money of 1986 including elements of SQF 2001.¹⁷ Accounting policies are applied continuously during whole period.¹⁸

Reporting Subject

The financial statements present the financial activity of the Government of the Republic of Kosovo as specified in Law no.03/L-048, as amended by Law 03/L-221, Law 04/L-116, Law 04/L/194, Law 05/L-063 and Law no. 05/L-007, which includes all budget organizations that consolidated and reported from treasury at the level of the general government.¹⁹

Payments Made by Third Parties

Payments made by third parties are not considered receipts or payments in cash, but are benefits of the Government. These payments are disclosed in the payments by third parties section of the consolidated statement of cash receipts and payments.²⁰

Money Cash

Cash is comprised of funds held at the Central Bank of Kosovo, commercial banks, and as the coffers of budgetary organizations and money cash equivalents.²¹

Reimbursement of Expenditures (Payments) from Previous Year

Payments returned to BRK from previous years in the current year are evidenced as revenue.²²

Reporting Currency

The reporting currency is Euro (€) and while the state debt is disclosed in SDR.²³

Reporting Amount

Reporting amounts are per units `000 (thousand) Euro (€).²⁴

Date of Authorization

The authorization is valid on date of signing of statement about Financial Report by Minister of Finance and Treasury Director.²⁵

Identification of Financial Statements

The financial statements should be clearly identified and distinguished from other information in the same published document. The IFRS-s apply only to the financial statements, and not to any other information presented in the annual report or other document. It is therefore important that users can distinguish the information prepared using IFRSs from other information that may be useful to users.²⁶

International Accounting Standard

Public Incomes

During preparation and presentation of financial statements, incomes is determined as an increase in the economic benefits during the accounting period in the form of inflows or increases in assets or decreases in liabilities that result in an increase in net equity, other than those related to contributions from participants in net equity.²⁷

Public Expenditures

Public spending indicates amounts spent for different purposes by public authorities as state and local governments as capital goods, consumption goods and personnel expenditure etc.²⁸

Econometric Analysis Model: Revenue and Expenditures for Period 2007-2017

In this scientific paper, becomes combination of statistical analysis, tests and econometric models in financial statements based in money cash for the period 2007-2017. Based on the hypotheses raised will be used tests and analyzes through the SPSS and R program.

Y = β01 + Β₁X₁ + Β₂X₂ +……….. Β _P X _P +Ҽ ………………….. (I)

TRevCach = β0 + β1TAX + β2SINC +β3GRA +β4CAP.AD + β5OR +Ҽ …………………..(II)

Where:

• TrevCash - Total revenue (receipts) in cash

• Tax - Taxes

• Sinc – Self-incomes

• Gra - Grants and assistances

• Cap.ad- Capital admissions

• Or - Other reception

• Ҽ – Error term

N= N/1+N (Ҽ)² ………………….. (III)

Where:

• n- Sample size (period 2007-2017) , n=.091

• N- Financial reporting in public accounting (revenue-receipts)

• Ҽ – Error limit (0.05 on the basis of 95% confidence level).

Financial Statements of Receipts Based in Money Cash

Tab.1. Statement of cash receipts³⁴

Based on table no.1. Financial statements of receipts in money cash for the period 2007-2017. In this table we can see all the variables of the receipts. These variables are divided in dependent variables or total receipts, and independent variables that effect the dependent variable, such as: taxes, self-incomes, grants and assistances, capital admissions (receipts), other reception. During the 10-year period, we see that the largest receipts are: from taxes in 2015 (1,553,270), from self-income in 2016 (136,962), from grants and assistance in 2017 (220,246), capital admissions (receipts), other, borrowing in 2007 (255,484), from other reception in 2009 (249,637). The highest total receipts are in 2017 (1,923,361), while with the lowest values are in 2008 (989,126).³⁵

Graf.1. Statement of cash receipts for all variables³⁶

Linear Regression for Variable X1- Tax

Tab.2. Least regression predicted³⁷

Tab.3.Regression Statistics for tax³⁸

Table no.3. Regression statistics for tax. In this table we can see that the t-test (9.79) is a significant variable, which means that taxes have an important role and represent a relevant influence within the overall public revenue. R.Sq is 0.91 or 91% is statistically acceptable. So, taxes have impact on revenue growth of about 91%.³⁹

Graf.2.Linerar regression for Tax⁴⁰

Linear Regression for Variable X2- Self Income

Tab.4. Regression Statistics for self-incomes⁴¹

Table no.4. Regression statistics for self-incomes. In this table we can see that the t-test (4.407) is a significant variable, which means that self- incomes have an important role and represent a relevant influence within the overall public revenue. R.Sq is 0.68 or 68 % is statistically acceptable. So, self – incomes have impact on revenue growth of about 68%.⁴²

Graf.3.Linear regression for Self-incomes⁴³

Linear Regression for Variable X3- Grants and Assistances

Tab.5. Regression Statistics for grants and assistances⁴⁴

Table no.5. Regression statistics for grants and assistances. In this table we can see that the t-test (3.151) is a significant variable, which means that grants and assistances have an important role and represent a relevant influence within the overall public revenue. R.Sq is 0.52 or 52 % is statistically acceptable. So, grants and assistances have impact on revenue growth of about 52%.⁴⁵

Graf.4.Linear regression for grants and assistances⁴⁶

Linear Regression for Variable X4-Capital Admissions (Receipts), Other, Borrowing

Tab.6. Regression Statistics for Capital admissions (receipts), Other, Borrowing⁴⁷

Table no.6. Regression statistics for capital admissions, other, borrowing. In this table we can see that the t-test (0.002) is not an important variable, which means that capital admissions, borrowing do not play an important role in increasing revenue.⁴⁸

Graf.5.Linear regression for Capital admissions (receipts), Other, Borrowing⁴⁹

Linear Regression for Variable X5-Other Receipts

Tab.7. Regression Statistics for other receipts⁵⁰

Table no.7. Regression statistics for other receipts. In this table we can see that the t is a significant variable, but not very important R.Sq is 0.31 or 31 % is statistically acceptable but not very important. So, other receipts have impact on revenue growth of about 31%.⁵¹

Graf.6.Linear regression for other receipts ⁵²

Financial Statements of Payments Based in Money Cash

Y = β01 + Β₁X₁ + Β₂X₂ +……….. Β _P X _P +Ҽ ………………….. (I)

TPaymCach = β0 + β1OPE + β2TRANS +β3CAPEX +β4CAP.AD + β5OP +Ҽ ………………….. (II)

Where:

• TPaymCash - Total payment (expenditures) in cash

• Ope - Operations

• Trans – Transfers

• Capex - Capital expenses

• Cap.ad- Capital admissions

• Op - Other payments

• Ҽ – Error term

N= N/1+N (Ҽ)² …………………..(III)

Where:

• n- Sample size (period 2007-2017), n=.087.

• N- Financial reporting in public accounting (expenditures-payments)

• Ҽ – Error limit (0.05 on the basis of 95% confidence level).

Tab. 8. Statement of payments in cash⁵⁷

Based on the table no.8.Financial cash payments financial statements for the period 2007-2017. In this table, we can see all payments variables. These variables are divided into: variables dependent or total payments and independent variables such as: operations, transfers, capital expenditures, other payments. During the period of 10 years, the largest payments were made: from operations 2017 (779,068), from transfers 2017 (508,316), from capital expenditures 2012 (554,813), from other payments 2009 (145,301). The highest payments from their total are in 2017 (1,836,804), while the lowest payments are in 2007 (801,950).⁵⁸

Graf.7. Statement of payments in cash for all variables⁵⁹

Linear Regression for Variable X1-Operations

Tab.9. Regression Statistics for operations⁶⁰

Table 9. Regression statistics for operations. In this table we can see that t-test (10.751) is an important variable, which means that payments from operations have an important role in public expenditures. R.Sq. 0.92 or 92% is statistically acceptable. So, payments from operations have an impact on public expenditures about 92%. The Government realizes all payments when performing services at the operations variable.⁶¹

Graf.8.Regresion statistics for operations⁶²

Linear Regression for X2-Transfers

Tab.10. Regression Statistics for transfers⁶³

Table 10. Regression statistics for transfers. In this table we can see that t-test (7.48) is an important variable, which means that payments from transfers have an important role in public expenditures. R.Sq. 0.86 or 86% is statistically acceptable. So, payments from transfers have an impact on public expenditures about 86%. The Government realizes all payments when performing services at the transfer’s variable.⁶⁴

Graf.9.Regresion statistics for operations⁶⁵

Linear Regression for X3-Capital Expenditures

Tab.11. Regression Statistics for capital expenditures⁶⁶

Table 11. Regression statistics for capital expenditures. In this table we can see that t-test (2.82) is an important variable, which means that payments from capital expenditures have an important role in public expenditures. R.Sq. 0.47 or 47% is statistically acceptable. So, payments from transfers have an impact on public expenditures about 47%. The Government realizes all payments when performing services in this variable.⁶⁷

Graf.10.Regresion statistics for transfers⁶⁸

Linear Regression for X4-for Other Payments

Tab.12. Regression Statistics for Other Payments⁶⁹

Explanation: Table 11. Regression statistics for other payments. This table is not very important. So it’s not significant.⁷⁰

Graf.11.Regression statistics for other payments ⁷¹

Trend Analysis and Growth Rates of Receipts in Cash the for Periods 2007-2017

Tab.13. Trend analysis and growth rates⁷²

Explanation: The years that have had increased in receipts (revenue) from money cash are: 2009,2012,2014,2017

Graf.12.Trend analysis and growth rates for period’s 07-17 according linear regression ⁷³

Graf.13.Percentage growth.⁷⁴

Trend Analysis and Growth Rates of the Total Payments for Periods 2007-2017

Tab.14.Trend analysis and growth rates⁷⁵

Explanation: The years that have had increased in payments (expenses) from money cash are: 2008, 2009.

Graf.14.Trend analysis and growth rates for period’s 07-17 according linear regression⁷⁶

Graf.15.Percentage growth.⁷⁷

Graf.16. Average annual growth rates for years 07-17 according logarithms regression.⁷⁸

Conclusions and Recommendations

The financial statements have been prepared in accordance with LPFMA no. 03 / L-048, as amended by Law 03 / L-221, Law 04 / L-116, Law 04 / L / 194, Law 05 / L-063 and Law no. 05 / L-007 as IPSAS based on cash. Financial Reporting according the accounting principles based on the cash.

The notes to the financial statements form an integral part of the meaning of the statements and should be read together and in relation to the statements.

The basis of accounting and reporting in the Government of the Republic of the Kosovo according the LPFMA is the cash basis. On this basis, the information presented in these financial statements presents cash receipts and payments and the cash flow movement. Money management is organized in form of single account of Treasury. The single account of Treasury is a system of banking account which is used to collect incomes and realization of expenses, which are supervised by single institution–Treasury Department.

Cash is comprised of funds held at the Central Bank of Kosovo, commercial banks, and as the coffers of budgetary organizations and money cash equivalents.

The financial statements should be clearly identified and distinguished from other information in the same published document. The IFRS-s apply only to the financial statements, and not to any other information presented in the annual report or other document. It is therefore important that users can distinguish the information prepared using IFRSs from other information that may be useful to users.

The first and the main hypothesis is verified on the basis of the analysis of the data on the annual financial reports for the period 2007-2017. There is significant relationship between revenue and public expenditures. Because without revenues cannot be realized payments, projects, financing etc.

Auxiliary hypothesis is confirmed. Taxes have correlation positive with total revenue (receipts) of about 91%. Self-incomes have an important relationship with total revenue of about 68%. Grants and assistances have significant relationship with total revenue of about 52%. Borrowing has no major connection with the general revenue. Other revenues have an important relationship with total revenue of about 31%. In this hypothesis it can be noted that taxes (TAK and customs) realize the largest percentage of total revenues for the period 2007-2017.

Auxiliary hypothesis is confirmed. Operations have correlation positive with total expenses (payments) of about 92%. Transfers have an important relationship with total expenses of about 86%. Capital expenses have significant relationship with total expenses of about 47%. Other payments has no major connection with the general payments. In this hypothesis it can be noted that operations (wages and salaries, goods and services, communal services) realize the largest percentage of total expenditures for the period 2007-2017.

This research recommends that financial reporting officers impose concrete measures, to ensure that financial reports are timely executed and made public for different users of accounting information in order to make useful economic decisions.

This research recommends funding useful projects for society without government distinctions.

This research recommends making proper planning for public spending at the country level.

This research recommends that accurate financial reporting enhances the country's welfare and economic development.

This research recommends that all financial statements be accurately analyzed and to improve the findings in the coming years.

Bibiliography