Management & Professional Development Department

PRINCIPLES OF ACCOUNTING
IN NEW ACCOUNTING MODEL
23rd December, 2015

LEGACY SYSTEM OF ACCOUNTING

LEGACY ACCOUNTING SYSTEM

The legacy accounting system was introduced under
the Government of India Act, 1935.
The accounting system was adopted by the
Government of Pakistan and all Provincial
Governments
The said system was based on the principle of single
entry system of accounts
The accounting system was based on cash basis i.e.
it recognized and recorded the entry of cash received
and disbursed
Receivables / payables (liabilities) were not recorded
in accounts

LEGACY ACCOUNTING SYSTEM

The accounting system was based on accounting
chart, under which the expenditure was represented
by the numeric numbers and receipts were also
represented by the numeric numbers but written in
roman language
Detailed expenditure was recorded as;
Pay of Officers
Pay of other staff
Allowances and
TA
POL and
Other contingent expend

LEGACY ACCOUNTING SYSTEM

The accounting system was not reviewed / revised
vis--vis International Standards till 1980
During 1981 the chart was replaced with chart of
classification comprising two elements vis; Function
and Object, as the previous chart was not
compactible with computerized environment
The new chart of classification too could not
produced results as per international standards
Considering the room for improvement and dire
needs, during early ninety's the Federal Government,
with the technical assistance of the World Bank,
launched a project known as Project to Improve
Financial Reporting & Auditing (PIFRA)

LEGACY ACCOUNTING SYSTEM

The Project hired international accounting firms as
consultants to review the existing system of
accounting and to suggest improvements / changes
where necessary
The Consultants proposed entirely a new system of
accounting and consequently budgeting, known as
New Accounting Model (NAM)
The NAM was reviewed by a committee of experts,
comprising members from each province and federal
government
As a pilot the NAM was introduced in Abbotabad
district during FY 2003-04 and in KP, AGPR during
FY 2005-06. it was introduced in Punjab and other
provinces during FY 2005-06

NEW ACCOUNTING MODEL

IMPLEMENTATION OF NAM
Article 170 of the Constitution empowers the Auditor
General of Pakistan to prescribe the form and manner
for keeping the accounts of the Federation, Provinces
and District Governments. Accordingly, New
Accounting Model (NAM) has been prescribed and
implemented with the approval of the President of
Pakistan
As the accounts follow the budgetary allocations,
therefore, from the FY 2005-06 the Punjab adopted the
NAM for Budget, both for the Provincial and District
Governments

NEW ACCOUNTING MODEL

OBJECTIVES:
The NAM envisages to ensure good governance and
accountability through;
Accuracy
Completeness

Reliability, and

Timelines
in Governments financial reports at Federal, Provincial,
District and Sub-district levels. The information generated
in computerized environment under NAM would provide
direct support to Public Financial Management,
Accountability and Legislation oversight

NEW ACCOUNTING MODEL

SALIENT FEATURES

Modified Cash Basis of Accounting

Double Entry Book Keeping

Commitment Accounting

Fixed Assets Accounting

Assets Register

New Chart of Accounts

Modified Cash Basis of Accounting

Receipts will continued to be recorded on cash basis
Payments will also be recorded on Cash Basis,
however, certain payments will be recorded on
commitment basis
Commitment is defined as an obligation to make
future payments, and are recorded when an entity
issues a legally binding purchase order or enters into
contract for provision of goods and services.
Commitments are booked against funds available in
relevant object. The recording of commitments is
termed as modified basis of accounting
Commitments shall have a threshold value in terms
of Rupee or percentage of allocation before these are
recognized

Modified Cash Basis of Accounting

COMMITMENT ACCOUNTING
Commitments honoured during a financial year shall
stand finalized
Outstanding commitments at the end of a financial
year shall lapse but after due scrutiny by AD / AG
and FD, valid commitments would be reinstated
through budgetary allocations during the next
financial year.
Commitment accounting provide financial managers
with a tool to measure and forecast spending
performance against budgetary allocations & avoid
overbooking of expenditure in a particular period.

Modified Cash Basis of Accounting

Double Entry Book Keeping vis--vis Single Entry
Single Entry Book
Double Entry Book
Keeping
Keeping
Single Entry System is a Under this system the
system of book-keeping recording of transactions
which does not record or having two fundamental
give effect to the two fold aspects One involving
aspect of each and every the receiving of the
transaction.
benefit and the other to
giving the benefit - in the
same set of books

Modified Cash Basis of Accounting

Double Entry Book Keeping vis--vis Single Entry
Single Entry Book
Double Entry Book
Keeping
Keeping
In this system generally Cash
Book and books to record
personal accounts are only
maintained, it is not really a
system because under this
method there may not be
recorded some of the
transactions and
partially
record some others

The accounts which receive

the benefit are debited and the
account which gives the
benefit is credited. It is the
ultimate result of this system
that every debit must have a
corresponding credit and vice
versa. On a particular day the
total of the debit entries and
the credit entries of various
accounts must be equal

FIXED ASSET ACCOUNTING

Fixed assets are physical in nature such as buildings,
plants and equipment etc., they have strategic long
term value
Control of fixed assets is an important feature of
efficient financial management. It involves accurate
reporting of;
Asset purchase
Disposal & transfers
Losses through misuse/theft
Government departments are required to maintain a
fixed asset register containing details of cost,
location, date of purchase etc.
A fixed Asset Register is maintained by the SAP/R-3

CHART OF ACCOUNTS
The Chart of Accounts provides a framework for
organizing accounting transaction and to provide a
number of views of a particular transaction.
The various views are indicated with elements
comprising of alpha and numeric characters.
The chart of accounts applies to all accounting entities
and contains following five elements
1. Entity
2. Function
3. Object
4. Fund
5. Project

ENTITY ELEMENT
The entity means the organizational structure or
unit which create the transactions.
The organizational highest level is Government &
lowest level is Drawing & Disbursing Officer (DDO)/
Collecting Officer (CO)

ENTITY ELEMENT CODES

P 50 Agriculture Deptt. 5001

Agriculture

5002

DG Agri. (Extension)

5003

DG Agri. (Field)

5004

DG Agri. (Research)

5005
P 51 CM Secretariat

5025

DG Agri. (Water
Management)
CM Secretariat

P 52 CM Inspection
Team
P 53 Colonies Deptt.

5050

CM Inspection Team

5075

Colonies Deptt.

ENTITY ELEMENT CODES

P 54 Communication
& Works Deptt.

5100

Communication &
Works

5101

Chief Architect,
Punjab

5102

Chief Engineer
Building (North)

5103

Chief Engineer
Building (South)

5104

Chief Engineer
Highways (North)

5105

Chief Engineer
Highways (South)

FUNCTION ELEMENT
The economic function, relating to the provision of
a particular service, activity or Government
program. The function code have been designed
conforming
requirements

to

IMF

public

sector

reporting

FUNCTION ELEMENT - CODES

01

General Public Service

02

Public Order and Safety Affairs

03

Defense Affairs

04

Economic Affairs

05

Environment Protection

06

Housing and Community Amenities

07

Health

08

Recreation, Culture and Religion

09

Education Affairs and Services

10

Social Protection

FUNCTION ELEMENT HIERARCHY

The Function Element is further divided into following
components;
Major Function
Minor Function
Detailed Function
Sub-Detailed Function
Programme

FUNCTION ELEMENT - EXAMPLE

An example of the Function Element is shown as under;
Major Function

01

General Public Services

Minor Function

011

Financial & Fiscal Affairs

Detail Function
0112
Sub Detail Function 011204
Financial Affairs

Financial & Fiscal Affairs

Administration of

OBJECT ELEMENT
The accounting classification, describing the item
of expenditure, receipt, asset or liability. Each
accounting classification is further sub-divided
into a hierarchy, down to the level of detailed
object head.

OBJECT ELEMENT - CODES

Expenditure
A 01 Employee Related Expenses
A 02 Project Pre-investment Analysis
A 03 Operating Expenses
A 04 Employees Retirement Benefits
A 05 Grants, Subsidies and Write off of Loans /

Advances / Others
A 06 Transfers
A 07 Interest Payment
A 08 Loans and Advances
A 09 Expenditure on Acquiring of Physical Assets

OBJECT ELEMENT - CODES

Expenditure
A 10
A 11
A 12

Principal Repayments of Loans

Investments
Civil Works

A 13
A 14

Repairs and Maintenance

Suspense and Clearing

OBJECT ELEMENT - CODES

Receipts
Tax-Receipts
B 01
B 02

Direct Taxes
Indirect Taxes

B 03

Other Indirect Taxes

Non Tax-Receipts
C 01 Income from Property and Enterprise
C 02 Receipts from Civil Administration and
Other Functions
C 03

Miscellaneous Receipts

OBJECT ELEMENT - CODES

Receipts
Capital Receipts
E 01
E 02
E 03

Recoveries of Investment
Recoveries of Loans and Advances
Debt

Assets
F 01

Cash and Bank Balances

F 02

Receivables

F 03
F 04
F 05

Physical Assets
Investments
Other Assets

OBJECT ELEMENT - CODES

Liabilities
G 01
Current Liabilities
G 02
Loans
G 03
Deferred Liabilities
G 04
Other Liabilities
G 05
Control Accounts
G 06
Trust Account-Fund
G 07
Trust Account-Post Office
G 08
Trust Account-Railways
G 09

Trust Account-T&T

G 10

Trust Account-Other

G 11

Special Deposit Investment

OBJECT ELEMENT - CODES

Liabilities
G 12

Special Deposit Fund

G 13

Special Deposit Grant

G 14

Mint Account

Equity
H 01

Equities

OBJECT ELEMENT-- EXAMPLE

Accounting Element

A Expenditure

Major Object

A01-Employee related expenses

Minor Object

A011 -Pay

Detailed Object

A01101- Basic Pay of Officers

FUND ELEMENT
The pool of money from which budgetary
allocation is made (e.g. Consolidated Fund), and
is further sub-divided into grants (in the case of
Consolidated Fund) or Public Account detailed
heads.

FUND ELEMENT
FUND
Fun d could be either consolidated or Public
Account (C & P)

SOURCE
This indicates the source of Fund from where the
expenditure is being met. This could be Capital or
Revenue, denoted by 1or 2

SUB-FUND
This indicates whether the expenditure is voted /
charged. This also indicates whether the
expenditure
is Current, Development or Capital in nature

FUND ELEMENT
C

Consolidated
Capital
Fund

Voted Current Expenditure

Voted Development Expenditure
Voted Capital Expenditure

Revenue

Charged Current Expenditure

Charged Development Expenditure
Charged Capital Expenditure

Public Account

FUND ELEMENT - COMPONENTS

The Fund Element is further divided into following
components;
Funddenoted by alpha character
Sourcedenoted by one numeric character
Sub-Funddenoted by one numeric character
Grant Nodenoted by three numeric character

SUBFUND & SUB-ELEMENT

The different SubFund / SubElements of Consolidated
Fund are as follows:

1 Voted Current Expenditure

2 Voted Development Expenditure

3 Voted Capital Expenditure

4 Charged Current Expenditure

5 Charged Development Expenditure

6 Charged Capital Expenditure

FUND ELEMENT - EXAMPLE

Fund
Source
Sub Fund
Grant Number

C - Consolidated Fund
2
Revenue, 1-Capital
1 - Voted current expenditure
018 - Agriculture

Fund No. PC 21018- Agriculture.

(PROVINCIAL)

GRANT NUMBER

It is indicated by 3 Numeric Characters for Provincial

Government and 2 Numeric characters for District
Governments

PROJECT ELEMENT
Project is indicated by 4 Numeric characters,
allotted to each Development Project. The project
element enables transactions to be aggregated
and reported at a project level. Each project will
have a unique project number

GRANT NUMBER DEVELOPMENT

REVENUE EXPENITURE
The entire provision shown on Revenue Account
is accounted, under the appropriate minor /
detailed function / objects under the Grant No.
PC22036 - Development. This grant is common
for all departments

GRANT NUMBERS FOR DEVELOPMENT

CAPITAL EXPENDITURE
Capital Account is, accommodated under the relevant
minor/detailed function under the following grants: PC 12037-Irrigation Works.
PC 12038-Agricultural Improvement and Research.
PC 12039-Industrial Development.
PC 12040-Town Development.
PC 12041-Roads and Bridges.
PC 12042-Government Buildings.
PC 12043- Loans to Municipalities.

FUNCTIONAL ARRANGEMENT
01 GENERAL PUBLIC SERVICE
011 EXECUTIVE & LEGISLATIVE ORGANS,
FINANCAL
0112 FINANCIAL AND FISCAL AFFAIRS
011205 TAX MANAGEMENT (CUSTOMS. I
TAX. EXCISE) AND TAXATION DEPARMENT
LQ4016 Superintendence

Thank You