Academic journal article Global Economic Observer

Budget Sustainability of Municipalities and Local Government Units - the Czech Republic Study

Academic journal article Global Economic Observer

Budget Sustainability of Municipalities and Local Government Units - the Czech Republic Study

Article excerpt

1. Introduction

The public sector is part of the national economy, whose main area of interest is to carry out a public service, who are funded from public funds as well as are managed and administered in public administration. Decisions within public sector are made on public option and are subject to public control1. From a material standpoint, the issue of control of public administration is more difficult than controlling the business sector of the national economy, and moreover, is subject to the principles of publicity, the principles associated with the obligation to give public entities the requesting information2. Public sector represents one of the hallmarks of public administration and its name is derived from the fact that it is implemented in the public interest3.

By the end of 2016 there is a total of 6,249 municipalities and 14 Local Government Units (LGU) in the Czech Republic. The task of each municipality is to allocate sufficient funds to finance the activities that the municipality has in its scope and activities, as well as those which are transmitted by the state4. Municipalities and LGU seek comprehensive development of its territory and ensure the needs of its citizens through public goods and services.

On July 1st 2004 came into effect law No. 420/2004 Call., on the Act on the audit of municipalities and LGU, where articles 1-9 of § 4 oblige the rule to provide (till 30th June of current year) the audit management for the past year. The audit shall be conducted in accordance with law No. 93/2009 Coll., on Auditors and the International Auditing Standards and related application clauses of the Czech Chamber of Auditors.

2. Objectives and methods

For the preparation and fair presentation of financial statements in accordance with accounting standards of the entity, there are data sources obtained from the Czech Statistical Institute and the Czech Ministry of Finance. These data were analyzed using both the absolute and relative methods of managerial accounting. Based on these data and analysis the main objective of the paper is to evaluate the main results of audit of municipalities and LGU in the Czech Republic and determine possible directions of its future reform. Part of this responsibility is designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making reasonable accounting estimates5.

3.Principles of budget survey

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks that the financial statements contain material misstatements due to fraud or error6 . When assessing these risks, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements. The aim of the assessment of internal controls is to propose appropriate auditing procedures, not to comment on the effectiveness of internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall financial statement presentation.

The auditor shall, in accordance with these regulations, to comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement7.

The role of the auditor is to issue the audit opinion on the financial statements.

Data review on the annual management of municipalities and LGU, which forms part of the final account are based on law No. 420/2004 Call, § 2, article 1-2:

a. the income and expenditure of the budget, including cash transactions relating to budget funds,

b. …

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