Acknowledgement

Here we would like to express our gratitude and appreciation to our Public Sector Accounting
lecturer, Dr Zubir Azhar Sen for providing us guidance, encouragement and priceless comments
on our project paper. Without his guidance and advices on our paper project, some of our
mistakes or careless will probably be ignored and we may make the mistakes again. Hence, it is
his guidance and encouragement that allow us to finish off this project paper successfully.

Next, we would also like to express our appreciation to our friends who taught us, guided
me and encouraged us in this project journey. Each other’s best knowledge, constant guidance
and sincere encouragement had led us complete this project paper successfully.

Lastly, we would like to thank our family, all our friends and also our fellow course
mates for their constant support mentally or literally in assisting us to complete this paper
project. We are very grateful and we appreciate your suggestion and guidance.
Introduction

Financial reporting is prepared with objectives of helping users of financial statements in making
informed decisions and of improving the organization’s performance by demonstrating
accountability, openness and transparency. Users seek reliable financial information which can
be obtained from financial reporting. The way in which public sector entities account for their
stewardship of public moneys and other assets is also described through financial reporting. Both
financial position and financial performance of the government are shown in financial reporting,
also known as the ‘official report of the government’. The government is responsible for
reflecting high accountability in the financial reporting of the public sector.

The financial statements provide users with information about an entity’s resources and
obligations at the reporting date and the flow of resources between reporting dates. Hence,
financial statements present fairly the financial position, financial performance, and cash flows
of an entity so that the presented information is useful for users in making assessments of an
entity’s ability to continue to provide goods and services at a given level, and the level of
resources that may need to be provided to the entity in the future. Fair presentations require
faithful representations of the MPSAS 1 – Presentations of Financial Statements, effects of
transactions, other events, and conditions in accordance with the definitions and recognition
criteria for assets, liabilities revenue, and expenses set out in MPSAS. The application of
MPSASs, with additional disclosures when necessary, is presumed to result in financial
statements that achieve a fair presentation. The components of the financial statements in the
Malaysian public sector include Statement of Financial Status, Statement of Cash Receipts and
Payments, Statement of Financial Performance, Statement of Memorandum Accounts and Notes
to the Financial Statements.

The basis for the presentation of the financial statements in the public sector is grounded
in the cash accounting principles which are adopted by the federal government. Such adoption
requires that only investments being held for specific revenues and trust purposes are disclosed
in the statement of financial position. Basically, statement of cash receipts and payments consists
of two major categories which are revenue and expenditure. Statement of financial performance
shows the surplus or deficit for the financial period. Statement of memorandum accounts shows
the assets and liabilities of the federal/state government that are not disclosed in the statement of
financial position. Notes to the financial statements include information about the basis of
preparation of the financial reporting and the specific accounting policies used.

The main political divisions in Malaysia consist of 13 states, Perlis, Kedah, Kelantan,
Terengganu, Pulau Pinang, Perak, Selangor, Melaka, Pahang, Negeri Sembilan, Johor, Sabah and
Sarawak, and 3 federal territories, Wilayah Persekutuan Kuala Lumpur, Wilayah Persekutuan
Labuan and Wilayah Persekutuan Putrajaya. The main political divisions in Malaysia are the
states and federal territories. They have their own government for each state, selected by the
people five years once by assembly election. This particular government, headed by a chief
minister, has administrative authority over all matters, including state spending, which can be
legislated under the constitution by the state legislature.

Public spending refers to funds spent on the purchase of goods and the procurement of
services by the public sector, such as education, health, social security and safety. In national
income accounting, it is known as government final consumption expenditure when the
government acquires goods and services for current use to specifically address the individual or
mutual needs and requirements of the society. It is categorized as government spending when the
government acquires goods and resources for potential use. This covers public consumption and
public spending and charges for transactions composed of transfers of revenue.

Providing goods and services that are not offered by the private sector, such as security,
highways and bridges, merit goods, such as hospitals and schools, and welfare subsidies and
programmes, including unemployment and disability benefits, are the goals of government
spending. Improvements on the supply side of the macro economy, such as investment on
schooling and training to develop labour productivity, should be accomplished. To have sector
subsidies that may require financial assistance either for their service or for their growth. The
private sector is not in a position to fulfil these financial needs and, thus, the public sector plays a
vital role in supplying the required funding. Transport infrastructure projects, for example, do not
draw private financing until expenditure for the sector is funded by the government. To aid with
wage reduction and social security promotion.

In this report, we will be analyzing the financial statements of Penang state. The
analyzation includes year 2017, 2018 and 2019. We have analyzed the development and
operating expenditure. The spending used to promote economic development and social welfare
in the country is usually government expenditure. The Malaysian government invests its taxes
earned from residents based on the planning and spending of Malaysia. The basic allocation is
split into operating expenditure and expenditure on development. We have also discussed the
economic growth in Penang State. In the final part, the economic challenges related to current
issues.