Public Sector Accounting and Finance · November 2025

(a) Tadepe State Government Journal entries to record the loss of fund DR CR N’ million N’ million Non-personal advances 30 Ministry of Health 21 Other charges 9 Being fraudulent payment/overpayment made and discovered within the current financial year

(b) Tadepe State Government Statement of financial performance for the year ended December 31, 2024 Code Details N’ million N’ million Revenue 20010 Statutory allocation from Federal Government 148,500.00 20020 Share of state internally generated revenue 24,690.00 20030 Licences and fees (Wk 1) 450.00 20040 Profit on sale of land 9.00 20050 Rates (Wk 1) 555.00 20060 Rent on local government property (Wk 1) 516.00 20070 Share of value added tax 72.00 20080 Other grants 1,680.00 20090 Miscellaneous receipts 183.00 Capital grant from Federal Government 450.00 Total revenue 177,105.00 Expenditure 30040 Personnel emoluments (Wk 2) 55,299.00 30050 Ministry of Finance (Wk 2) 39,265.50 30060 Ministry of Education 132.00 30030 Consolidated revenue fund charges 318.00 30080 Agriculture and water resources 126.00 30020 Office of the Secretary to the Government 99.00 30070 Primary health care department (Wk 2) 135.00 30090 Ministry of Works and Housing (Wk 2) 6,090.00 30100 Ministry of Commerce and Industry 114.00 30130 Other charges (Wk 2) 15.00 30120 Miscellaneous 654.00 30110 Ministry of Local Government and Chieftaincy 42.00 Depreciation (Wk 3)

- Motor vehicles 3,015.00 - Building 900.00 - Furniture 150.00 - Equipment 1,140.75 - Plant and machinery 2,250.00 175 Office stationery (Wk 4) 67.50 Total expenditure 109,812.75 Surplus for the year 67,292.25 Accumulated net surplus/ (deficit) b/f (1,491.00) Accumulated net surplus/ (deficit) c/f 65,801.25

(c) Tadepe State Government Statement of financial position as at December 31, 2024 Cost/ valuation Accum. Dep/Amort Carrying amount Non-current assets N’ million N’ million N’ million Property, plant and equipment:(Wk 5) Motor vehicles 15,075.00 6,015.00 9060.00 Land and building (land is N 15billion) 60,000.00 6,900.00 53,100.00 Land for primary health centers 786.00 786.00 Furniture 1,500.00 258.00 1,242.00 Equipment 7,605.00 1,215.75 6,389.25 Plant and machinery 15,000.00 3,750.00 11,250.00 Total 99,966.00 18,138.75 81,827.25 Current assets Receivables: Rates 405.00 Licenses and fees 240.00 Rent of state government property 186.00 Non-personal advance 30.00 Inventories-Office stationeries 19.50 Investment in land 75.00 Cash and cash equivalents (Wk 6) 73,194.00 Total current assets 74,149.50 Total assets 155,976.75 Net assets/ equity Reserves 90,000.00 Net surplus 65,801.25 Total net assets/equity 155,801.25 Current liabilities Accrued expenses: Consultancy 45.00 Utility bill 18.00 Salaries and wages 69.00 Repairs and maintenance 27.00 Insurance 16.50 Total current liabilities 175.50 Total equity and liabilities 155,976.75 176

Workings Wk 1: Analysis of receipts transferred to statement of performance (SFP) Details Licences and fees Rates Rent of government property N’ million N’ million N’ million Cashbook 390 450 480 Receivables b/f (180) (300) (150) 210 150 330 Receivables c/f 240 405 186 Transfer to SFP 450 555 516 Wk 2: Analysis of expenses charged to SFP Details Works and housing Health Finance Personnel Other charges N’ million N’ million N’ million N’ million N’ million Cashbook 6,438 261 39,300 55,230 33 Motor vehicles (75) Cost of land (300) Cost of medical equipment (105) Office stationeries ______ _____ (75) ______ ____ Net payment 6,063 156 39,225 55,230 33 Accruals b/f Consultancy (45) Utility ____ ___ ____ _____ (27) 6,063 156 39,180 55,230 6 Prepayment b/f Insurance 24 Accruals c/f Consultancy 45 Utility 18 Repairs and maintenance 27 Salaries and wages 69 Insurance ____ ___ 16.5 ____ ____ 6,090 156 39,265.50 55,299 24 Duplication/falsification ____ (21) ____ ____ (9) Balance charged to SFP 6,090 135 39,265.50 55,299 15 177 Wk 3: Calculation of depreciation charged to SFP Details Plant and machinery N’ million N’ million N’ million N’ million N’ million Cost as at 1/1/24 15,000 45,000 1,500 7,500 15,000 Additions 75 ___ ___ 105 _____ Cost as at 31/12/24 15,075 45,000 1,500 7,605 15,000 Depreciation rates 20% 2% 10% 15% 15% Charged to SFP 3,015 900 150 1,140.75 2,250 Wk 4: Office stationery charged to SFP Details N’ million Bal as at 1/1/24 12 Additions 75 87 Bal as at 31/12/24 (19.5) Amount charge to SFP 67.5 Wk 5: Property, plant and equipment schedule Details Motor vehicles Building Furniture Equipment Motor Plant and vehicles Building Furniture Equipment machinery N’ million N’ million N’ million N’ million N’ million Cost as at 1/1/24 15,000 45,000 1,500 7,500 15,000 Additions 75 ___ _____ 105 ____ Cost as at 31/12/18 15,075 45,000 1,500 7,605 15,000 Depreciation rate per annum 20% 2% 10% 15% 15% Acc. Dep. as at 1/1/24 3,000 6,000 108 75 1,500 Depreciation charged 3,015 900 150 1,140.75 2,250 Acc. Dep. as at 31/12/24 6,015 6,900 258 1,215.75 3,750 Carrying amount 9,060 38,100 1,242 6,389.25 11,250 178 Wk 6: Cashbook for the year ended December 31, 2024 Details N’ million N’ million Balance b/f 48 Receipts Statutory allocation from Federal Government 148,500 Share of state internally generated revenue 24690 Licences and fees 390 Sale of land 234 Rates 450 Rent of government property 480 Share of value added tax 72 Other grants 1,680 Miscellaneous receipts 183 Total receipts 176,727 Payments Personnel emolument 55,230 Ministry of Finance 39,300 Ministry of Education 132 Consolidated revenue fund charges 318 Agriculture and water resources 126 Office of the Secretary 99 Ministry of Health 261 Ministry of Works and Housing 6,438 Ministry of Commerce and Industry 114 Other charges 33 Miscellaneous 654 Capital expenditure 786 Ministry of Local Government and Chieftaincy Affairs 42 Total payments 103,533 Balance c/f 73,194

Examiner’s report The question is in three parts. Part (a) of the question tests candidates’ knowledge on the preparation of journal entries to record loss of government fund. Parts (b) and (c) require the candidates to prepare statements of financial performance and position. All the candidates attempted the question and their performance was below average The common pitfalls were the inability of the candidates to prepare journal entries to record loss of government fund. Candidates are advised to have adequate knowledge of the relevant provisions of the syllabus and to make use of the Pathfinder and the Study Text of the Institute for better performance in the Institute’s future examinations. 179

Marking guide Marks Marks (a) Journal entries Title ¼ Entries ¾ Narration 1 2

(b) Statement of financial performance Title ¼ Correct calculation of total revenue 2¾ Correct calculation of total expenditure 4¾ Correct calculation of net surplus for the year ½ Accumulated net surplus/ (deficit) b/f ¼ Correct calculation of surplus carried forward ½

Workings Correct calculation of income to be recognised during the year. ¾ Correct calculation of expenses to be charged during the year. 2½ Correct calculation of depreciation charges for the year . 1¼ Calculation of office stationeries to be charged during the year ½ 14

(c) Statement of financial position Title ¼ Correct calculation of total non-current assets 5 Correct calculation of total current assets 2 Correct calculation of total assets ¼ Correct calculation of total current liabilities/ total liabilities. 1½ Correct calculation of reserves and net surplus ½ Correct calculation of total assets and equity ½

Workings Property, plant and equipment schedule Correct calculation of cost at the end of the year. 1¼ Correct calculation of accumulated depreciation at the year end. 1¼ Adjusted cashbook Recognition of balance b/f ¼ Correct calculation of total receipts ½ Correct calculation of total payments ½ Correct calculation of closing balance ¼ 14 Total 30 180

(a) To further promote accountability in public sector finance management in Nigeria the following strategies are canvassed:

(i) Accountability need to be integrated with all aspects of public sector finance management in order to preserve the public trust in government and its officials. All persons in positions of public leadership must demonstrate moral leadership and leadership by example. Anybody who has responsibility to manage any aspect of the public’s business has to show accountable leadership.

(ii) To make democracy and democratic accountability work, there must be credible elections where the people are allowed to freely and transparently choose their political leaders.

(iii) It is essential for the judiciary to be strengthened and made truly independent. One way of achieving this is by ensuring the financial autonomy of the judiciary.

(iv) Whistle blowing should be encouraged in the public sector whereby any public official who encounter mismanagement or wrong doing in the conduct of government business may blow the whistle by taking the case to the public arena. The prospect that somebody may go public can deter some officials contemplating wrong doing.

(v) All unethical and corrupt practices should be exposed, as much as possible, while those who indulge in them should be- promptly and severely punished in accordance to the law. To this end, there should be full implementation of the Freedom of Information Act (FOIA) so as to promote openness and feedback in public governance and management.

(vi) The use of civil society groups and the mass media as means of strengthening accountability is still rather under developed in Nigeria. As such, it will advance the cause of public accountability in no small way if the development and growth of civil society organisations (CSO) are encouraged in the country.

(vii) There should be strict compliance with due process and public procurement procedure as spelt in the Public Procurement Act (2007), as doing this will help curb corrupt practices and instill financial discipline in budget implementation by the public bureaucracy. Moreover, there should also be strict adherence to the provisions of the Fiscal Responsibility Act.

(viii) The present method of secret declaration of assets by public officers leaves much to be desired. As such, there is need to institute a more open method of declaring assets, so as to afford the opportunity for patriotic citizens to 181 scrutinise and report any incorrectly declared assets to the appropriate authorities.

(ix) All public organisations should be audited regularly and the release of such audit reports should be expeditious and timely. Cases of frequent delay of audit reports do not augur well for accountability and should be avoided.

(x) To make the Public Complaints Commission (PCC) more effective, it should be constitutionally conferred with enforcement powers.

(xi) All anti-graft bodies, such as, the EFCC, ICPC, etc. should be further strengthened by way of being adequately staffed, equipped and funded to make them more effective institutional mechanisms for fighting corruption. Furthermore, other law enforcement agencies notably the police should be strengthened, so as to build their capacity to detect, investigate, prosecute and even deter or prevent corruption.

(xii) There is need for ethical reawakening through public ethical training and reorientation of public officers and members of the larger society to help them rediscover the traditional African virtues of honesty, integrity and hardwork. Since citizens can no longer afford to be passive onlookers while corrupt public officials loot the national treasury, they should endeavour to be proactive in enforcing public accountability.

(xiii) The immunity clause should be expunged from the Nigerian constitution. By so doing, political leaders who are suspected for corrupt practices can be prosecuted while in office. Furthermore, those who rig elections should be prosecuted in accordance with the law as a way of creating some deterrence. A special electoral court should be established in this regard.

(b) Code of ethics and basic postulates for the auditing standards

(i) Codes of ethics

• Integrity: Auditors have a duty to adhere to high standards of behaviour in the course of their work and in their relationships with the staff of audited entities.

• Independence, objectivity and impartiality: Personal or external interests should not impair the independence of auditors. There is a need for objectivity and impartiality in the work and the reports, which should be accurate and objective. Conclusions in opinions and reports should be based exclusively on evidence obtained and assembled in accordance with the SAI’s auditing standards.

• Professional secrecy: Auditors should not disclose information obtained in the auditing process to third parties, except for the purposes of meeting the SAI’s statutory responsibilities. 182

• Competence: Auditors must not undertake work which they are not competent to perform.

(ii) Basic postulates for the auditing standards

• The Supreme Audit Institutions (SAI), that is, the Auditor General, should consider compliance with the INTOSAI auditing standards in all matters that are deemed material. Certain standards may not be applicable to some of the work done by SAIs, including those organised as Courts of Account, nor to the non-audit work conducted by the SAI. The SAI should determine the applicable standards for such work to ensure that it is of consistently high quality.

• The SAI should apply its own judgment to the diverse situations that arise in the course of government auditing.

• With increased public consciousness, the demand for public accountability of persons or entities managing public resources has become increasingly evident so there is a need for the accountability process to be in place and operating effectively.

• Development of adequate information, control, evaluation and reporting systems within the government will facilitate the accountability process. The management is responsible for correctness and sufficiency of the form and content of the financial reports and other information.

• Appropriate authorities should ensure the promulgation of acceptable accounting standards for financial reporting and disclosure relevant to the needs of the government and audited entities should develop specific and measurable objectives and performance targets.

• Consistent application of acceptable accounting standards should result in the fair presentation of the financial position and the results of operations.

• The existence of an adequate system of internal control minimises the risk of errors and irregularities. It is the responsibility of the audited entity to develop adequate internal control systems to protect its resources. It is also the obligation of the audited entity to ensure that controls are in place and functioning to help ensure that applicable statutes and regulations are complied with and that probity and propriety are observed in decision-making. The auditor should submit proposals and recommendations where controls are found to be inadequate or missing. 183

• Legislative enactments would facilitate the co-operation of audited entities in maintaining and providing access to all relevant data necessary for a comprehensive assessment of the activities under audit.

• All audit activities should be within the SAI’s audit mandate.

• Legislative enactments would facilitate the co-operation of audited entities in maintaining and providing access to all relevant data necessary for a comprehensive assessment of the activities under audit.

• SAIs should work towards improving techniques for auditing the validity of performance measures.

• SAIs should avoid conflict of interest between the auditor and the audited entity.

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to discuss strategies that must be adopted to promote accountability in the public sector finance management in Nigeria. Part (b) is in two sections, section (i) requires the candidates to identify and explain the codes of ethics of International Organisation of Supreme Audit Institutions (INTOSAI), while section (ii) requires the candidates to identify basic postulates for the auditing standards of INTOSAI. Most of the candidates attempted this question and their performance was average. The commonest pitfall was the inability of the candidates to demonstrate proper understanding of the requirements of the question. Candidates are advised to make use of ICAN Pathfinders and the Study Text for better performance in the Institute’s future examinations.

Marking guide Marks Marks (a) Strategies that must be adopted to promote accountability in the public sector Any five strategies 10 (b). Code of ethics and basic postulates for the auditing standards (i). Identification of four code of ethics concerns 2 Explanation of the code of ethics identified 2 (ii). Identification of six postulates auditing standards 6 10 Total 20 184

(i) Disclosures to be made in respect of social benefits as provided by IPSAS 42- Social Benefits: An entity shall disclose information that: (i) Explains the characteristics of its social benefit schemes; and (ii) Explains the demographic, economic and other external factors that may affect its social benefit schemes. In order to meet the requirements above, an entity shall disclose: (i) Information about the characteristics of its social benefit schemes, including:

• The nature of the social benefits provided by the schemes (e.g. retirement benefits, unemployment benefits, child benefits);

• Key features of the social benefit schemes, such as a description of the legislative framework governing the schemes, a summary of the main eligibility criteria that must be satisfied to receive the social benefits and a statement about how additional information about the scheme can be obtained; and

• A description of how the schemes are funded, including whether the funding for the schemes is provided by means of a budget appropriation, a transfer from another public sector entity or by other means.

(ii) If a scheme is funded (whether in full or in part) by social contributions, the entity shall provide:

• A cross reference to the location of information about those social contributions and any dedicated assets (where this information is included in the entity’s financial statements); or

• A statement regarding the availability of information on those social contributions and any dedicated assets in another entity’s financial statements and how that information can be obtained.

• A description of the key demographic, economic and other external factors that influence the level of expenditure under the social benefit schemes. This description may be presented in aggregate, where the same demographic, economic and other external factors impact several social benefit schemes in a similar manner;

• The total expenditure on social benefits recognised in the statement of financial performance, analysed by social benefit scheme; and

• A description of any significant amendments to the social benefit schemes made during the reporting period, along with the description of the expected effect of the amendments. Amendments to a social benefit scheme include, but not limited to: ➢ Changes to the social benefits provided; and ➢ Changes to the eligibility criteria, including the individuals and/or households covered by the social benefit scheme. 185

(b) Kando State Government Preparation of journal entries for three IDP camps Details DR N’000 CR N’000 2023 Social benefits expenses 23,500 Payables 23,500 To recognise social benefits (bedding materials) as well as liability Social benefits expenses 16,200 Payables 16,200 To recognise social benefits (salaries of IDP personnel) as well as liability Assets (Inventory of food items) 6,500 Donation 6,500 To recognise inventory (food items) received from Red Cross Society Social benefits expenses 12,500 Payables 12,500 To recognise social benefits (sanitation materials) as well as liability Assets (food items) 20,500 Donation 20,500 To recognise inventory (food items) received from UNDP 2024 Payables 23,500 Bank 23,500 Being payment of liability (bedding materials) Payables 16,200 Bank 16,200 Being payment of liability (salaries of personnel) Social benefit expenses 6,500 Inventory 6,500 Being delivery of inventory of food items from Red Cross Society to IDPs Payables 12,500 Bank 12,500 Being payment of liability (sanitation materials) Social benefit expenses 20,500 Inventory 20,500 Being delivery of inventory of food items form UNDP to IDPs 186

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to identify the disclosures to be made by an entity in respect of social benefits as provided by IPSAS 42 - Social Benefits, while part (b) of the question requires the candidates to record cost estimates and donations that were made to some Internally Displaced Persons (IDP), using journal entries. Majority of the candidates attempted the question, but their performance was below average. The commonest pitfall was the inability of the candidates to properly identify the disclosures to be made by an entity in respect of social benefits as provided by IPSAS 42 - Social Benefits. Candidates are advised to read widely and ensure they have adequate knowledge of the relevant sections of the syllabus. They should also make use of the Pathfinder and the Study Text of the Institute and other relevant learning materials on this aspect of the syllabus for better performance in future examinations.

Marking guide Marks Marks (a) Disclosures to be made as provided by IPSAS 42- Social Benefits Identification of ten disclosures 10

(b) Preparation of journal entries for three IDP camps Correct journal entries 5 10 correct narrations 5 10 Total 20

(a) Uses of budget Budgets are used for the following:

(i) Planning: Budgets are plans in which monetary values are assigned to what are to be achieved in a determinable future time, for example, a year.

(ii) Communication: Budgets assist in communicating horizontally and vertically. When budgets are being prepared, individuals, groups, communities and associations will inform government about their areas of interests. This is upward communication. When the budget is approved, government communicates the details to members of the public and publishes it in selected newspapers. This is an example of downward communication. 187

(iii) Motivation: Government motivates its staff through promotions and improved conditions of service, for assisting in the full and successful implementation of the budget.

(iv) Standard for measurement of performance: Since a budget is a target, it is a measure of performance. What is achieved is recorded and compared with the target. The process of implementation draws management attention to problematic areas.

(v) Evaluation of economic and social policy: Budgets are used to solve social problems of inflation and unemployment.

(vi) Cost reduction technique project appraisal: Evaluation of operations and procedures may result in cost savings.

(b) Okoko State Government Farm Project Cash budget for January to March 2026 January February March Receipts N’000 N’000 N’000 Bal B/F 13,000 55,500 (7,000) Sales –November 2025 50,000 - - Sales –December 2025 150,000 100,000 - Sales – January 2026 200,000 120,000 80,000 Sales – February 2026 - 210,000 126,000 Sales –March 2026 - - 225,000 Monthly allocation 100,000 100,000 100,000 (A) Total receipts 513,000 585,500 524,000 Payments Purchases- December 2025 70,000 - - Purchases- January 2026 200,000 50,000 Purchases- February 2026 - 280,000 70,000 Purchases- March 2026 - - 320,000 Overheads 187,500 262,500 300,000 (B) Total payments 457,500 592,500 690,000 (C) (Total receipts – Total payments) 55,500 (7,000) (166,000)

Examiner’s report The question is in two parts. Part (a) of the question requires candidates to identify and explain uses of budget in the public sector, while part (b) of the question deals with the preparation of state government cash budget. Most of the candidates attempted the question and performance was above average. 188 The common pitfalls were the inability of some candidates to identify and explain the uses of budget in the public sector. Candidates are advised to read widely and ensure that they have adequate knowledge of relevant regulations relating to public sector accounting for better performance in the Institute’s future examinations.

Marking guide Marks Marks a. Uses of budget Identification of five uses of budget 5 Explanation of uses of budget identified 5 10

b. Preparation of cash budget Title 1 Calculation of total receipts 4½ Calculation of total payments 3 Surplus (Total receipts – Total payments) 1½ 10 Total 20

(a) Key aspects of environmental sustainability include:

(i) Conserving natural resources: This involves using resources like water, forests and minerals at a rate that allows for replenishment and avoids depletion.

(ii) Protecting ecosystems: Preserving biodiversity, habitats and ecological processes to maintain healthy and resilient natural systems.

(iii) Reducing pollution: Minimising the release of harmful substances into the environment, including air and water pollution.

(iv) Combating climate change: Reducing greenhouse gas emissions, transitioning to renewable energy sources and adapting to the impacts of climate change.

(v) Promoting sustainable consumption and production: Encouraging responsible consumption patterns and production methods that minimise environmental impact.

(vi) Supporting sustainable development: Integrating environmental considerations into economic and social development planning. Examples of environmental sustainability in practice:

(i) Renewable energy: Utilising solar, wind and other renewable energy sources to reduce reliance on fossil fuels.

(ii) Sustainable agriculture: Employing agricultural practices like crop rotation, no-till farming, and integrated pest management to protect soil health and minimise pesticide use. 189

(iii) Sustainable forestry: Implementing selective logging and reforestation practices to ensure long-term forest health.

(iv) Waste reduction and recycling: Reducing waste generation through conscious consumption choices and diverting materials from landfills through recycling programmes.

(v) Water conservation: Implementing water-efficient technologies and practices to reduce water consumption and protect water resources.

(vi) Green building: Designing and constructing green buildings that minimise energy and water consumption, usage sustainable materials and promoting healthy indoor environments.

(b) Problems facing state governments in financing projects through capital market The problems include: (i) Poor accounting system on the part of the state government; (ii) Lack of qualified personnel to effectively evaluate, appraise and monitor projects; (iii) Poor performance of existing state government projects, which act as disincentive to potential investors; (iv) Inability of government to introduce and market viable projects to the investing public; (v) Lack of awareness of the potential investment by the investing public; and (vi) Preference for short-term investments by the public.

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to identify and explain the key aspects of environmental sustainability with examples, while part (b) of the question requires the candidates to identify problems facing the state government in financing projects through the capital market. Most of the candidates attempted the question and their performance was average. The common pitfalls were the inability of the candidates to identify and explain the key aspects of environmental sustainability with examples, while in part (b) some of the candidates could not identify problems facing the state government in financing projects through the capital market. Candidates are advised to make use of the Pathfinder and the Study Text of the Institute for better performance in the Institute’s future examinations. 190

Marking guide Marks Marks (a) Key aspects and examples of environmental sustainability include Identification of five key aspects 2½ Explanation of key aspects identified 2½ Identification of five examples 2½ Explanation of examples identified 2½ 10

(b) Problems facing state governments in financing projects through capital market Identification of five problems 5 Total 15

(a) Debt Sustainability Analysis (DSA) This is when government is able to service all its debts without undue stress or adjustments to its revenue and expenditure balances in the medium to long term. Debt is sustainable when government’s current and future streams of income cover expenditure. Objectives of DSA (i) To evaluate government’s ability to finance its programmes and at the same time service the ensuing debt without undue pressure on its revenue stream. (ii) To reduce chances of excessive increase of debt. (iii) To recommend for a borrowing that limits risk of debt distress. (iv) To help guide countries and donors in mobilising critical financing for low-income countries. Benefits of DSA (i) To integrate fiscal and debt issues more effectively into economic analysis. (ii) To make comparison across countries, as it raises the profile of fiscal and debt issues in low-income countries. (iii) To dissuade policy makers from pursuing policies that deliver short–term benefits at the cost of creating unsustainable debts in the future. (iv) To allow policy makers to identify the economic sectors that are responsible for excessive debt accumulation. (v) To assess the impact of and response to powerful technological and demographic changes that constrains government policies in the long-run. (vi) To quantify the fiscal impact of population aging, immigration and other long–run population changes. 191

(b) Objectives of debt conversion programme As stated in the guidelines on debt conversion programme for Nigeria, the scheme is established to:

(i) Reduce Nigeria’s external debt service, thereby reducing the stock of outstanding foreign currency-denominated debt in order to alleviate debt service burden; (ii) Improve and make economic environment attractive to foreign investors; (iii) Serve as additional incentive for repatriation of flight capital; (iv) Stimulate employment-generating investments in industries with significant dependence on local input; (v) Encourage the creation and development of export-oriented industries, thereby diversifying the export base of the Nigerian economy; and (vi) Increase access to appropriate technology, external market and other benefits associated with foreign investment.

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to explain the term “Debt Sustainability Analysis”, its objectives and benefits, while part (b) asks the candidates to identify the objectives of debt conversion programme. Few of the candidates attempted the question and their performance was below average. The common pitfalls were the inability of some candidates to explain the term “Debt Sustainability Analysis”, its objectives and benefits. Also, some candidates could not identify the objectives of debt conversion programme. Candidates are advised to make use of the Pathfinder and the Study Text of the Institute for better performance in the future examinations.

Marking guide Marks Marks a. Debt Sustainability Analysis (DSA) Explanation of DSA 2 Identification of three objectives 3 Identification of five benefits 5 10

b. Debt conversion programme Identification of five objectives 5 Total 15 192

(a) Phases of the business cycle

(i) Expansion: The first stage in the business cycle is expansion. In this stage, there is an increase in positive economic indicators such as employment, income, output, wages, profits, demand and supply of goods and services. Debtors are generally paying their debts on time; the velocity of the money supply is high and investment is high. This process continues as long as economic conditions are favourable for expansion.

(ii) Peak: The economy then reaches a saturation point, or peak, which is the second stage of the business cycle. The maximum limit of growth is attained. The economic indicators do not grow further and are at their highest. Prices are at their peak. This stage marks the reversal point in the trend of economic growth. Consumers tend to restructure their budgets at this point.

(iii) Recession: The recession is the stage that follows the peak phase. The demand for goods and services starts declining rapidly and steadily in this phase. Producers do not notice the decrease in demand instantly and go on producing, which creates a situation of excess supply in the market. Prices tend to fall. All positive economic indicators such as income, output, wages, etc., consequently start to fall.

(iv) Depression: There is a commensurate rise in unemployment. The growth in the economy continues to decline and as this fall below the steady growth line, the stage is called a depression.

(v) Trough: In the depression stage, the economy’s growth rate becomes negative. There is further decline until the prices of factors, as well as the demand and supply of goods and services, contract to reach their lowest point. The economy eventually reaches the trough. It is the negative saturation point for an economy. There is extensive depletion of national income and expenditure.

(vi) Recovery: After the trough, the economy moves to the stage of recovery. In this phase, there is a turnaround in the economy, and it begins to recover from the negative growth rate. Demand starts to pick up due to low prices and, consequently, supply begins to increase. The population develops a positive attitude towards investment and employment and production starts increasing. Employment begins to rise and, due to accumulated cash balances with the bankers, lending also shows positive signals. In this phase, depreciated capital is replaced, leading to new investments in the production process. Recovery continues until the economy returns to steady growth levels. 193

(b) Procedure of cost effectiveness analysis in the appraisal of a public project The procedures are:

(i) Objective definition: The objective is to determine the actual target. What are the projects?

(ii) Sourcing and assessment of alternatives: After the public project has been determined, what are the cost alternatives that are available? The information in this regard must be collated.

(iii) Selection of measure to be adopted: The types of approaches which will enable management to achieve the set objectives within a reasonable period of time must be determined.

(iv) Development of cost estimates: Cost estimates should be collated, addressing the issues of what to include and how to measure them.

(v) Taken the final decision: Having ascertained the adequacy of cost effectiveness measures and relying on the information on cost estimates, the public sector organisation determines the final decision, based on the principle of least cost.

Examiner’s report The question is in two parts. Part (a) of the question requires candidates to identify and explain the phases of a typical business cycle. Part (b) of the question requires the candidates to identify the procedure of cost effectiveness analysis in the appraisal of public project. Majority of the candidates attempted the question and their performance was above average. The commonest pitfall was the inability of many candidates only to identify and explain the phases of a typical business cycle. Also, only few candidates were able to identify the procedure of cost effectiveness analysis in the appraisal of public project. Candidates are advised to make use of the Pathfinder and the Study Text of the Institute for better performance in the Institute’s future examination. 194

Marking guide Marks Marks a. Phases of the business cycle Identification of any five phases 2½ Explanation of phases identified 7½ 10

b. Procedure of cost effectiveness analysis in the appraisal of a public project Identification of procedures 5 Total 15 195 INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA