Financial Management Authority
Accounting Setup
Accounting Setup
A cost object is used to keep track of operations, activities or projects within an organisation.
A cost object can refer to, for example:
a division
a department
a project
a specific part of the organisation’s operations
Cost object numbers only contain digits. The first five digits are the same as the organisation number of the relevant organisation.
Types of cost objects
Cost objects are divided into four types:
balance sheet cost object
budget cost object
parent cost object
posting cost object
Creating a cost object
The Financial Management Authority usually creates cost objects.
Before a cost object is created, a budget cost object must already exist.
When creating a cost object, it is also important to check whether it needs to be connected to other accounting settings. These connections can affect bookkeeping, for example value-added tax handling.
Dimensions are used to provide a more detailed breakdown of an institution’s accounting records. Dimensions can be used to manage, for example:
individual projects
policy areas
other parts of the organisation’s operations
Dimensions must be created separately for each institution. The Financial Management Authority is responsible for creating dimensions for institutions.
The structure of dimensions should be carefully planned before they are created.
Letters can be used in dimensions, but this is not recommended.
The following must not be used:
Icelandic special characters
full stops
commas
semicolons
hyphens
other special characters
Dimension 1 is used to provide a more detailed breakdown of an institution’s accounting records. Dimension 1 can be used for more detailed classifications, for example to separate book purchases by:
book categories
foreign books
domestic books
Dimension 1 applies across accounting entities within an institution. It is therefore not linked to a specific entity or accounting type.
Dimension 1 for Bank Accounts
Transactions relating to institutional bank accounts must be recorded using Dimension 1.
Dimension 1 for bank accounts begins with a lowercase b followed by the bank account number.Example:
If the bank account number is 758, Dimension 1 is recorded as b758.
The Financial Management Authority creates Dimension 1 for institutions.
Dimension 2 is mainly used to manage projects that apply across multiple accounting entities within an institution.
Dimension 2 is not linked to a specific entity or accounting type.
It can be used for projects involving several departments or accounting entities. This makes it possible to track project costs while also recording costs against the relevant departments or entities.
The Financial Management Authority creates Dimension 2 for institutions.
Dimension 3 is used to manage costs relating to events that affect multiple government bodies, institutions, and ministries. The dimension is intended for events that have a significant impact on society and are unlikely to occur again in the same way.
Events covered by Dimension 3
Dimension 3 is used for:
natural disasters, such as earthquakes, volcanic eruptions, landslides and floods
man-made disasters, such as terrorist attacks and cyberattacks
epidemics and diseases
referendum
Structure of Dimension 3
Dimension 3 consists of 5 digits:
1 digit for the event type
2 digits for the year
2 digits for the sequence number
Examples:
12301 – Earthquakes in Grindavík
42301 – Water pipeline to Vestmannaeyjar
32001 – COVID-19
52601 - A referendum
Posting codes are used to identify and classify specific accounting transactions and budget authorisations. They are usually linked to a particular account type or transaction category.
Posting codes are used for, among other things:
tax-related and reportable payments
special VAT transactions
loan transactions
investment contributions (type 2320)
investments
share capital and foundation contributions
budget authorisations
Posting Codes
Code | Description |
|---|---|
91 | General Ledger (GL), automated entries |
92 | General Ledger (GL), automated entries |
95 | General Ledger (GL), manual entries |
96 | General Ledger (GL), manual entries |
98 | General Ledger (GL), automated entries for VAT on digital services |
0 | General, not reportable |
1 | Reportable payments to individuals other than payroll and contractor payments subject to withholding tax |
2 | Reportable contractor payments |
22 | Reportable contractor payments for work in progress |
3 | Employee pension contribution |
4 | Contribution to a private pension fund |
6 | Salaries and other payments subject to withholding tax but processed outside payroll withholding |
7 | Withholding tax deducted from salaries |
8 | Location allowance |
9 | Not reportable |
Identification Number Requirement
When a posting code is used for a reportable payment, the national identification number (ID number) of the person being reported must be included with the accounting entry.
If posting code 0 or 9 is used, no identification number is required.
Code | Description |
|---|---|
16 | Opening balance from previous year |
17 | New loans |
18 | Loan repayments |
19 | Revaluation |
Note:
Only the Financial Management Authority may use posting code 16
Posting code 19 is only used by the Treasury
Transactions may only be posted to type 2320 if a posting code and operating unit reference are included.
Code | Description |
|---|---|
15 | Adjusted balance from previous year |
16 | Transferred balance from previous year |
17 | Annual investment authorisation |
18 | Allocation of investment authorisation |
20 | Capital gain on sale |
21 | Investment gifts and donations |
Expense Accounts (5xxxx)
For predefined expense accounts that transfer balances to work in progress (account types 18011 and 18012):
Use posting code 22 when costs relate to work in progress.
An automated process transfers the balance and records it using posting code 23
Asset Accounts (18xxx)
For asset accounts in the range 181-189, posting code 0 is generally used.
If a transaction should not be transferred to the fixed asset system (FA), use posting code 9.
Code | Description |
|---|---|
16 | Opening balance from previous year |
17 | Purchases |
18 | Sales |
19 | Other changes, such as dividends and exchange rate differences |
Budget authorisation posting codes indicate the source or reason for the authorisation.
Budget Acts and Supplementary Budget Acts
Code | Description |
|---|---|
A1 | Budget Act |
A2 | Supplementary Budget Act |
A3 | Supplementary Budget Act 2 |
A4 | Supplementary Budget Act 3 |
A5 | Supplementary Budget Act 4 and 5 |
Code | Description |
|---|---|
AA | Transfer due to salary, exchange rate and price compensation |
AB | Transfer from the general contingency reserve |
AC | Transfer under an authorisation provision |
AD | Investments and depreciation |
AE | Authorisations for accelerated projects |
AF | Transfer from the Government's contingency allocation |
AH | Transfer between budget items |
AJ | Transfer within a budget item |
AL | Transfer between accounting periods |
AR | Carried forward from previous year |
AS | Adjustment relating to previous year |
Additional Information
Codes A1-A5 are used for budget authorisations approved by Parliament through the Budget Act or Supplementary Budget Acts.
Codes AA-AJ, except AD, are used for transfers of budget authorisations carried out by ministries.
Code AD is used for depreciation expenses and the allocation of investment authorisations.
Code AL is used when budget authorisations are distributed across accounting periods in accordance with the operating plan.
A budget number is an identifier for a government institution or project. The number is used to classify the state’s revenue and expenditure and to show where public funds are allocated.
Budget numbers consist of five digits. The first two digits refer to the ministry. The last three digits refer to the institution or project.
Example:
01-271 is the budget number for the Government Legal Service.
01 refers to the Prime Minister’s Office.
271 refers to the Government Legal Service.
Purpose of a budget number
A budget number helps to:
• keep track of budget authorisations
• classify revenue and expenditure
• monitor how public funds are used
• clarify responsibility for the operation of institutions and projects
Ministries are responsible for ensuring that expenditure on projects and institutions does not exceed budget authorisations. The heads of institutions are responsible for the operation of their institutions to the relevant ministry.
The financial management system manages the accounting of the Treasury and government institutions. The system is used for:
preparing the State Accounts
providing financial information on government finances
recording assets
The asset register system is part of the financial management system. It manages fixed assets owned by government institutions. What does financial management show? Financial management can include information on:
income
expenses
assets
liabilities
savings
investments
Account codes in the Orri financial system are based on the central government chart of accounts. The chart of accounts is standardised across government institutions and is used to classify revenue, expenses, assets and liabilities.
The chart of accounts makes it easier to analyse and compare financial information, for example between years, projects, departments and institutions, as well as for central government as a whole.
The Accounting Division of the Financial Management Authority has sole authority to create new account codes and make changes to the central government chart of accounts.
Account codes
Select the account code that best describes the nature of the transaction and the revenue, expense, asset or liability being recorded.
Please note:
transactions cannot be posted to main categories, subcategories or three-digit categories
balance sheet transactions must use account codes beginning with 1, 2 or 3
the use of an account code may depend on other information in the accounting entry, such as the account assignment, posting code, identification number or dimensions
specific rules may apply to individual account codes.
If you cannot find a suitable account code or believe a new account code is required, contact the Accounting Division of the Financial Management Authority.
The chart of accounts has a hierarchical structure:
the first digit identifies the main category
the first two digits identify the subcategory
the first three digits identify a category
transactions are generally posted to four- or five-digit account codes.
Main categories, subcategories and three-digit categories are used for headings and aggregation. Transactions cannot be posted directly to them.
Main categories
The main categories are:
1 Assets
2 Liabilities
3 Equity
4 Revenue
5 Expenses
6 Treasury contribution
9 Allocation of equity.
Assets
Assets are divided into the following subcategories:
Code | Account |
|---|---|
11 | Cash and bank accounts |
12 | Short-term receivables |
13 | Current account with the Treasury |
14 | Inventories |
16 | Long-term receivables |
17 | Shares and capital contributions |
Liabilities
Liabilities are divided into:
Code | Account |
|---|---|
22 | Short-term liabilities |
26 | Long-term liabilities |
27 | Other long-term obligations |
Equity
Equity is divided into:
Code | Account |
|---|---|
31 | Asset revaluation accounts |
32 | Liability revaluation accounts |
39 | Capital |
Balance sheet transactions are generally posted to four-digit account codes beginning with 1, 2 or 3. Exceptions include certain accounts relating to taxes, grants, the current account with the Treasury and some specialised current accounts.
Revenue is divided into the following subcategories:
Code | Account |
|---|---|
40 | Millireikningar skatttekna |
41 | Skatttekjur |
43 | Fjárframlög |
44 | Aðrar rekstrartekjur ríkissjóðs |
45 | Seld þjónusta |
46 | Sale of services |
47 | Contributions and other revenue |
48 | Sale of assets |
49 | Gains on financial assets |
Subcategories 40, 41, 43, 48 and 49 are used exclusively by the Treasury where applicable.
Government institutions generally record revenue using five-digit account codes. Exceptions may apply to institutions with earmarked revenue or revenue classified as other central government operating revenue.
Expenses are divided into the following subcategories:
Code | Account |
|---|---|
51 | Payroll expenses and staff costs |
52 | General purchases of goods |
53 | Specific purchases of goods |
54 | Purchased services I |
55 | Purchased services II |
56 | Goods for inventory and resale |
57 | Finance costs, compensation, insurance and public charges |
58 | Acquisition of assets |
59 | Transfers |
Expenses are generally recorded using five-digit account codes, while payroll expenses are recorded using four-digit account codes.
Expense codes other than payroll codes generally end in 0 as the fifth digit, although there are some exceptions. Codes in category 542 and subcategories 57 and 59 end in 2 as the fifth digit.
In addition:
67 Treasury contribution is recorded only by the Financial Management Authority
99 Allocation of equity is the offsetting entry for the income statement and is recorded only by the Financial Management Authority.
Each subcategory contains three-digit categories that provide a more detailed breakdown.
Three-digit categories are used for headings and aggregation. Transactions cannot be posted to them.
Account codes and other information in Orri
An account code is one part of an accounting entry in the Orri financial system. The use of a particular account code may depend on other information included in the entry, such as:
account assignment
posting code
identification number
dimensions
Balance sheet transactions must use balance sheet account codes beginning with 1, 2 or 3.
Posting codes
Posting codes are used to identify and define particular accounting transactions. They may relate to:
tax-reportable payments
VAT
loans
investments
shares
budget authorisations
Specific rules may apply to the posting code, account assignment or links to other parts of Orri. Always follow the rules that apply to the relevant account code.