1 Introduction to IPSAS accruals

accounting

Learning objectives
In this workbook, we will cover aim A of the Cert IPSAS syllabus. Our
learning objectives are therefore to:

A1)Describe the role of the IPSASB in the development and publication of

IPSAS and other documents:

Terms of reference and objectives of IPSASB

Linkage between IAS/IFRS and IPSAS

IPSASB programme of development activities

Exposure drafts and consultations

A2)Describe the requirements of:

TheIPSASB Conceptual Framework for General Purpose Financial

Reporting by Public Sector Entities (chapters 1− 4 only)

Abbreviations used in this workbook

CP Consultation paper
ED Exposure draft
GBE Government business enterprise
GFS Government finance statistics
GGS General government sector
GPFR General purpose financial reports
IAS International Accounting Standards
IASB International Accounting Standards Board
IFAC International Federation of Accountants
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
IPSAS International Public Sector Accounting Standards
IPSASB International Public Sector Accounting Standards Board
PSC Public sector combination / IFAC Public Sector Committee
(depending on the context)
RPG Recommended Practice Guidelines
VFM Value for Money

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 The financial reporting context

1.1 The financial reporting context

1.1.1 Key characteristics of the public sector with

potential implications for financial reporting
Prior to the publication of the Conceptual Framework in October 2014,
IPSASB issued an exposure draft in April 2011 seeking views on the IPSASB’s
conclusions about the key characteristics of the public sector that might have
implications for financial reporting.

The IPSASB used the comments to inform the development of the Conceptual
Framework, and the Preface to the Conceptual Framework includes a number
of characteristics of the public sector.

Before we look in detail at the role of accounting standards in financial

reporting by the public sector, we will look at the characteristics of the public
sector as listed in the exposure draft.

The volume and significance of non-exchange transactions

Under non-exchange transactions, an entity receives value from another
entity without directly receiving equal value in exchange, for example, taxes
collected and government grants received. This is different to exchange
transactions (such as the sale of goods or services to customers), where an
entity receives assets or services or has liabilities extinguished and directly
gives approximately equally value in exchange.

Because the primary objective of public sector entities is to provide services,

not generate profits, their success can only be partly evaluated by examination
of their financial performance and position and therefore public sector users
of financial reports generally have broader information needs than users of
private sector entity reports. Public sector users will require information to
answer questions such as:

• Has the entity provided its services in an efficient and effective manner?

• How did the entity finance its activities and meet its cash requirements?

• Were revenues from current-year taxation and the entity’s other resources
sufficient to cover the cost of current-year services, or was part of the
burden of paying for current services shifted to future-year taxpayers?

The importance of the budget

Most governments and other public sector entities prepare annual financial
budgets covering areas such as revenue and capital spending. Entities may
also develop budgets covering longer time scales. These budget documents
are often widely distributed and published. In the private sector commercial
confidentiality means that budgets will very rarely be made publicly available.

In many jurisdictions the budget has a special legal significance and,

historically, has been more important than the financial statements for

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 The financial reporting context

communicating with citizens. A government’s overall budget is usually the

basis for setting taxation levels, part of the process for obtaining legislative
approval for spending and the mechanism for demonstrating compliance with
legal requirements.

Due to a budget’s significance, information that helps users assess actual

spending against budget estimates and the resulting budgetary surplus or
deficit for the reporting period, compared with that budgeted, is important in
determining how well a public sector entity has met its financial objectives.

The nature of property, plant and equipment

In the private sector the primary reason for holding property, plant, and
equipment and other assets is to generate cash flows that contribute to the
profits of the entity, either directly or in combination with other assets.

In the public sector, the primary reason for holding property, plant, and
equipment and other assets is to provide goods and services to citizens and
other eligible individuals and groups, rather than to generate positive cash
flows. Certain assets will generate cash flows, but in most cases cash inflow
generation will not be the primary objective of holding them.

For example, most tenants of social housing units will pay rents and this may
be an important inflow on which future maintenance and refurbishment of
the homes depends, but the primary purpose of social housing is to provide
accommodation to those who cannot afford private sector rents/purchases.

Due to the nature of the services they provide, a significant proportion of

assets used by public sector entities are specialised in nature, for example
roads and military assets. There may be a very limited market for such assets
and, even then, they may need considerable adaptation in order to be used
by other operators. This characteristic, while not unique to the public sector,
is more pervasive in the public sector and has potential implications for
measurement. For example, measuring social housing properties at their
current open market value is unlikely to give a reliable picture of their value to
the organisation for providing social housing services.

Responsibility for local and national heritage

Governments and other public sector entities may have extensive responsibilities
for the national and local heritage. Such responsibilities include the protection
or preservation of national art treasures, historical buildings, and other
artefacts that contribute to the historical and cultural character of the nation
or region.

Governments generally also have responsibilities for the preservation of

national parks and other areas of natural significance and native flora and
fauna.

There is a strong intergenerational aspect to these responsibilities. Such

buildings, art works and natural areas are part of a nation’s endowment
and, therefore, many consider that they need to be maintained for future
generations.

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 The financial reporting context

There are issues concerning whether such items meet the definition of
an asset, the recognition criteria for assets and, if so, the appropriate
measurement basis.

The longevity of the public sector

The nature and extent of activities undertaken by the public sector, and the
legal formation of public sector entities, generally means that these entities
continue to exist for a very long time.

Political power may change regularly but national governments usually remain
in existence.

Going concern has generally been less relevant in the public sector than
in the private sector because of the general longevity of governments, the
long-term character of many public sector programmes and the very broad
tax-raising powers of national governments. If sub-national entities get into
financial difficulties, their main service delivery commitments may continue to
be funded or transferred to restructured successor entities, rather than lapsing
completely.

The regulatory role of government

Many governments have powers to regulate entities operating in certain
sectors of the economy, either directly or through specifically created
agencies. The existence of such regulatory responsibilities needs to be
considered in the determination of the reporting entity and the scope of
financial reporting in the public sector.

Ownership or control rights to natural resources and

phenomena
Governments often have the rights to natural resources such as mineral
reserves, water, fishing grounds and forests, which allow them to grant
licences or obtain royalties and taxes. They also have rights over phenomena
such as the electromagnetic spectrum.

It may not be clear whether such rights give rise to assets, and, if so, whether
such assets meet the criteria for recognition in financial statements.

Statistical bases of accounting

The purpose of reporting under statistical bases of accounting is to provide
aggregated information for macro-economic analysis and modelling purposes.
Such information is primarily for decision-making purposes, including
economic analysis and comparability between jurisdictions. In the public
sector the Government Finance Statistics Manual (GFSM), issued by the
International Monetary Fund, provides the specialised macroeconomic
statistical system designed to support fiscal analysis.

Reporting on the statistical bases of accounting is therefore highly important in

the public sector.

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 The financial reporting context

There has been considerable convergence between statistical and IPSAS-compliant

reporting bases in recent years, although the different objectives of the
two systems and the focus on different reporting entities means that full
convergence may not be feasible. In developing concepts for the public sector
the requirements of statistical accounting need to be considered, for example,
in developing definitions of elements.

1.1.2 Overview
As we can see from the IPSASB’s discussion of the key characteristics
of the public sector, the publication of financial information must be a key
mechanism by which governments and public sector bodies can demonstrate
their accountability to taxpayers and other stakeholders, and report on the
effective delivery of services and other government activity.

Over time, different practices have evolved to meet the requirements of

different national economic, financial, regulatory and legal systems. Some
financial reporting frameworks have been developed directly for the public
sector environment, while others have been developed by reference to
approaches developed for private sector companies.

International standards have been developed for both private sector companies
and public sector bodies. International Financial Reporting Standards
(IFRS1) have been adopted for private sector reporting in many countries
(including the UK), and there are plans for adoption or convergence of
local standards in many others. Public sector bodies in countries such as
Australia have already moved to IFRS based reporting, and it is currently
being implemented in other countries such as the United Kingdom 2. In
other countries (e.g. Switzerland and Israel), International Public Sector
Accounting Standards (IPSAS) have been or are being adopted directly.

1.1.3 From national accounting to international harmonisation

Accounting standards are effectively the ‘user manual’ which, taken together
with related legal and regulatory requirements, allow a public sector reporting
entity to translate its financial performance into a set of coherent and succinct
financial statements. The end result is designed to be a set of financial
statements that delivers accountability to voters, taxpayers and other
stakeholders, and which can inform voting, funding and operating decisions.

Government bodies across the world prepare financial statements with

very similar objectives in mind. However the ‘user manual’ in each national
jurisdiction may vary to take account of the local environment in which entities
operate. Consequently, the same transaction may be accounted for in a
number of different ways depending on which version of the ‘user manual’ is

1
The term IFRS is generally used to denote both International Accounting Standards, issued by the
IASB’s predecessor, as well as International Financial Reporting Standards.
2
The financial reporting regimes for central government, local government and the NHS are all based
on IFRS but other sectors such as the charity and education sectors remain based on UK GAAP.

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 The financial reporting context

used − the one for the UK, for the US, for Australia or for Japan, for example.
Such significant differences reduce the comparability and usefulness of
financial statements.
Exercise 1.1: Variations in national practice
Why do you think that these variations in national practices might arise:

within the business (private) sector?

within the public sector?

While national variations in accounting practices have endured for many

years, more recently there has been pressure to harmonise financial reporting
practice and regulation on a global basis in order to reduce inconsistencies.

Exercise 1.2: Moving towards harmonisation

Why do you think that this move towards harmonisation has occurred:

within the business (private) sector?

within the public sector?

The adoption of international standards has been greater in the business

sector, and there are now over 100 countries that require the use of IFRS for
the preparation of financial statements of some, or all businesses listed in
capital markets. There are at least another 20 countries that permit the use of
IFRS and there are a number of important other countries who are pursuing a
formal policy of convergence with IFRS.

1.1.4 The development of IPSAS and their relationship

with IFRS
Key milestones in the development of public sector financial reporting based
on IFRS with additional standards on public sector specific issues are set out
below:

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 The financial reporting context

Date Milestone Details

1977 IFAC formed The International Federation of
Accountants (IFAC) was founded
on October 7, 1977 in Munich,
Germany at the 11th World Congress
of Accountants. The organisation’s
headquarters have been based in
New York City since its founding. See
http://www.ifac.org
1986 IFAC Public Sector The IFAC Public Sector Committee
Committee founded (PSC) has a general remit dealing with
issues relevant to accountants working
in or with the public sector.
1996 IPSAS project initiated The project to develop IPSAS was
initiated by the IFAC PSC.
2003 IFAC PSC superseded IFAC PSC was reconstituted as the
by IPSASB International Public Sector Accounting
Standards Board, recognising its
primary standard setting role and
providing clear guidance on the due
process to be used in standard setting.
2004 First wholly public The Board issued IPSAS 21 on
sector specific IPSAS Impairment of Non-Cash Generating
issued Assets, a standard addressing only
matters specific to non-profit entities.
Subsequent standards IPSAS 22, 23
and 24 all address public sector specific
issues relating to government statistics,
tax revenues, and budget information.
2008 Public Sector The IPSASB agreed in principle to
Conceptual Framework develop a conceptual framework
project for public sector financial reporting,
having regard to analogous work being
carried out by the IASB in updating its
framework.
2009 Substantially converged Project aimed to produce a suite of
and updated IPSAS substantially ‘converged’ IPSAS on
project and the Rules all IFRS standards with significant
of the Road read-across to the public sector, aiming
to have standards in place on 31
December 2009 which corresponded
to relevant IFRS developed as at 31
December 2008.3

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 The financial reporting context

‘Rules of the Road’ − Standards will be

produced using:

• terminology and examples more

suited to the public sector context
than IFRS;

• adopting IFRS requirements where

applicable, including additional
explanation where required; and

• providing public sector specific

guidance where the private sector
approach was inappropriate or
there were other good public sector
reasons.4

Exercise 1.3: IPSAS and IFRS

‘IPSAS are developed before IFRS’

Explain whether the statement above is true or false.

1.1.5 Why harmonise public sector accounting standards?

As discussed in Section 1.1.3 above, government bodies across the world
prepare financial statements with similar objectives in mind. However, financial
reporting also has to consider the national jurisdiction within which the bodies
operate. This may lead to differences in the way in which the same financial
transaction would be reported if it took place in, for example, the UK, as
against the US, Australia or Japan. These differences reduce the comparability
and usefulness of financial statements.

National variations in accounting practices have endured for many years and
it is important that this continues. The standards have been written to be
jurisdiction neutral so that key national variations can continue. However, there
has been pressure to harmonise financial reporting practice and regulation
on a global basis in order to reduce inconsistencies and therefore allow the
concepts that underpin accounting practices to be comparable.

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 The financial reporting context

Exercise 1.4: Why harmonise public sector accounting

standards?

Why do we need consistent public sector accounting standards across

the world? See if you can think of 5 reasons.

In the introduction to its Handbook of International Public Sector Accounting

Pronouncements, the IPSASB outlines the advantages of having consistent
accounting standards across the world, stating that:

‘The IPSASB recognises the significant benefits of achieving consistent

and comparable financial information across jurisdictions and it believes
that the IPSASs will play a key role in enabling these benefits to be
realised. The IPSASB strongly encourages governments and national
standard-setters to engage in the development of its Standards by
commenting on the proposals set out in its Exposure Drafts and
Consultation Papers.5 ’

1.1.6 Approaches to adopting IPSAS

There are two types of IPSAS: Cash basis and accruals basis.

Cash basis
The cash basis IPSAS allow for transparent financial reporting of cash receipts,
payments and balances, under the cash basis of accounting. Whilst the
IPSASB hopes that all government entities will eventually be able to adopt
a full accruals based accounting system, following the requirements of the
cash basis IPSAS will nevertheless enhance transparent and comprehensive
financial reporting. The standard includes guidance on the transition process
from cash to accruals basis.

There is currently only one cash basis IPSAS, and this is dealt with separately
in Workbook 8.

Very few government organisations have so far implemented the requirements

of the cash basis IPSAS on the grounds that its key requirement is to produce
consolidated financial statements for all controlled entities. Consolidating
government business entities with ministries and departments would be very

5
Source: Introduction to the Handbook of International Public Sector Accounting Pronouncements,
2012 Edition, Volume 1. Available here)

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 The financial reporting context

time consuming and many governments consider that the benefits of reporting
this do not meet the significant costs needed to compete this.

Accruals basis
The accruals-based IPSAS focus on revenue, cost, assets, liability and equity,
instead of cash flow only, and most are based on an equivalent IFRS.

About 30 countries are adopting the accruals basis IPSAS, including France,
South Africa, Switzerland, Russia, Israel, Slovakia and Brazil. Some are
adopting IPSAS directly (for example Switzerland and Slovakia) whilst others
are adopting IPSAS through their own national standards (for example South
Africa and Brazil).

Various supranational organisations have also adopted IPSAS, including the

entire UN system, the OECD, NATO and the EU.

In addition, sub-national governments are adopting IPSAS when the

decentralized structure allows them to do so independently of national
legislation − for example the Prefecture of Tokyo in Japan and the State of
Hesse in Germany.

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 The financial reporting context

1.2 IPSASB’s Terms of Reference

The IPSASB’s Terms of Reference6 is a document which sets out the purpose
of the IPSASB and outlines its working procedures.

1.2.1 Purpose and objective of the IPSASB

Role within IFAC
The mission of the International Federation of Accountants (IFAC) is as follows:

‘IFAC’s mission is to serve the public interest by: contributing to the

development of high-quality standards and guidance; facilitating the
adoption and implementation of high-quality standards and guidance;
contributing to the development of strong professional accountancy
organisations and accounting firms and to high-quality practices by
professional accountants, and promoting the value of professional
accountants worldwide; and speaking out on public interest issues.’
In pursuing this mission, the IFAC Board has established several boards, one
of which is the International Public Sector Accounting Standards Board
(IPSASB).

The IFAC Board has determined that designation of the IPSASB as the
responsible body for the development of public sector accounting standards,
under its own authority and within its stated terms of reference, best serves
the public interest in achieving this aspect of its mission.

The IPSASB functions as an independent standard-setting body under the

auspices of IFAC. It achieves its objectives by:

• Establishing high-quality standards for use by public sector entities’;

• Promoting their acceptance, and the international convergence to, IPSASs;

• Providing comprehensive information for public sector financial management

and decision making; and

• Providing guidance on issues and experiences in financial reporting in the

public sector.

Key definitions Public sector The term ‘public sector’ refers to national
governments, regional (e.g. state, provincial, territorial) governments, local
(e.g., city, town) governments and related governmental entities (e.g.,
agencies, boards, commissions and enterprises).

General purpose financial reports General purpose financial reports are

financial reports intended to meet the information needs of users who are
unable to require the preparation of financial reports tailored to meet their
specific information needs.

6
International Public Sector Accounting Standards Board Terms of Reference (Effective 1 January
2012). Available here

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 IPSASB’s Terms of Reference

Objective
According to the Terms of Reference, the IPSASB’s objective is to serve
the public interest by developing high-quality accounting standards and
other publications for use by public sector entities around the world in the
preparation of general purpose financial reports.

This is intended to enhance the quality and transparency of public sector

financial reporting by providing better information for public sector financial
management and decision making. In pursuit of this objective, the IPSASB
supports the convergence of international and national public sector
accounting standards and the convergence of accounting and statistical bases
of financial reporting where appropriate; and also promotes the acceptance of
its standards and other publications.7

1.2.2 IPSASB Pronouncements

In order to fulfil its objective, the IPSASB develops and issues the following:

• International Public Sector Accounting Standards (IPSAS): Standards to

be applied in the preparation of general purpose financial reports of public
sector entities.

• Recommended Practice Guidelines (RPG): Provide guidance that

represents good practice that public sector entities are encouraged to
follow.

• Studies to provide advice on financial reporting issues in the public sector.

They are based on the study of best practice and most effective methods
for dealing with the issues being addressed.

• Other papers and research reports to provide information that contributes

to the body of knowledge about public sector financial reporting issues
and developments. They are aimed at providing new information or fresh
insights and generally result from research activities such as: literature
searches; questionnaire surveys; interviews; experiment; case studies; and
analysis.

1.2.3 Membership
The members of the IPSASB are appointed by the Board of IFAC. The IPSASB
comprises 18 members, 15 of whom are nominated by the member bodies of
IFAC and three of whom are appointed as public members. Each member has
one vote.

The IFAC Nominating Committee seeks to ensure that IPSASB members

possess appropriate technical expertise, knowledge of institutional arrangements

7
International Public Sector Accounting Standards Board Terms of Reference (Effective 1 January
2012). Available here

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 IPSASB’s Terms of Reference

encompassed by its constituency, technical proficiencies of users, preparers

and auditors, and a broad geographical spread.

Approximately 50% of the IPSASB’s funding comes from IFAC, with the
remaining 50% from various voluntary contributions from governments and
observers.

1.2.4 IPSASB working procedures

Observers
The IPSASB may appoint, as observers, representatives of appropriate
organisations that have a strong interest in financial reporting in the public
sector, provide on-going input to the work of the IPSASB and have an interest
in endorsing and supporting IPSAS.

There are currently 10 international organisations with formal observer status

including the International Monetary Fund (IMF), World Bank, and European
Union (EU).

The IPSASB Chair

The Chair is selected by the Nominating Committee and recommended to the
IFAC Board for its approval.

Terms of office
The standard term for IPSASB members is three years, with approximately
one-third of the membership rotating each year. A member may serve up to
two consecutive terms, for an aggregate term of six years.

Meeting procedures
Each IPSASB meeting requires the presence, in person or by simultaneous
telecommunications link, of at least twelve appointed members.

The affirmative vote of at least twelve of those present at a meeting in person

or by simultaneous telecommunications link is required to approve or withdraw
Consultation Papers, exposure drafts, IPSAS, and RPGs.

Other
The IPSASB reports annually on its work programme, activities and progress
made in achieving its objectives during the year. This information is normally
included as part of the IFAC annual report.

1.2.5 How the IPSASB sets standards: Due process

The IPSASB is responsible for producing IPSAS and has a transparent,
structured process to follow when doing so.

When producing standards, the IPSASB first considers whether the equivalent
IFRS is suitable for the needs of the public sector or requires modification to

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 IPSASB’s Terms of Reference

be applicable. We will look further at this process in the next section of this
workbook, as it is laid down in detail in the IPSASB’s 2008 publication Process
for Reviewing and Modifying IASB Documents.

The IIPSASB issues exposure drafts of all proposed IPSAS and RPG for public
comment. In some cases, the IPSASB may also issue a Consultation Paper
prior to the development of an exposure draft. This provides an opportunity for
those affected by IPSASB pronouncements to provide input and present their
views before the pronouncements are finalized and approved. The IPSASB
considers all comments received on Consultation Papers and exposure drafts
in developing an IPSAS or RPG.

Exercise 1.5: Consultation

Consultation with interested parties is a vital part of the standard setting

process. Make a list of who you think may be consulted before finalising a
completed IPSAS.

In developing its pronouncements, the IPSASB seeks input from its consultative
group and considers and makes use of pronouncements issued by:

a. The International Accounting Standards Board (IASB) to the extent they are
applicable to the public sector;

b. National standard setters, regulatory authorities and other authoritative

bodies;

c. Professional accounting bodies; and

d. Other organisations interested in financial reporting in the public sector.

The IPSASB will ensure that its pronouncements are consistent with those of
IASB to the extent those pronouncements are applicable and appropriate to
the public sector. We will consider further the relationship between IPSASB
and IASB pronouncements later in this workbook.

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 IPSASB’s Terms of Reference

1.3 Linkage of IPSAS to IFRS

1.3.1 Why do we need separate standards for the public

sector?
IFRS have been written with the needs of listed companies in mind, which
can be very complex organisations. Public and private sector organisations
have vastly different objectives, and so accounting standards aimed at
the corporate sector, with its focus on generating profits and returns for
shareholders, will often be inappropriate for the public sector. The underlying
principles are the same across all sectors, but the detailed requirements will be
different for the public sector.

1.3.2 Linkage with IFRS

The IPSASB aims to have a suite of converged IPSAS which correspond to the
relevant IFRS but:

• Uusing terminology and examples more suited to the public sector context
than IFRS;

• Adopting IFRS requirements where applicable, including additional

explanation where required; and

• Providing public sector specific guidance where the private sector

approach is inappropriate or there are other good public sector reasons.

IPSAS provide guidance to public sector organisations where the equivalent

IFRS does not comprehensively/appropriately deal with a financial reporting
issue or for which there is no related IFRS. For example, there is no IFRS
dealing with revenue from non-exchange transactions as private sector
organisations rarely deal in non-exchange transactions, hence the rationale
for issuing IPSAS 23 Revenue from Non-Exchange Transactions, which we will
look at in Workbook 5.

Where an IFRS is not relevant to the public sector, no IPSAS has been issued.
For example, there is no IPSAS equivalent of IAS 12 Income Taxes (as few
public sector organisations are liable to pay income tax).

Appendix A contains a list of each IPSAS and its equivalent IFRS, which you
may find useful if you are already familiar with the requirements of IFRS. Each
IPSAS contains, at its end, information on what differences, if any, there are
between the IPSAS and its equivalent IFRS. Even where the requirements of
the two standards are the same, there will often be differences in terminology.

1.3.3 The convergence process: Process for Reviewing

and Modifying IASB Documents
The IPSASB develops IPSAS to address public sector financial reporting
issues in two different ways:

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 Linkage of IPSAS to IFRS

• By addressing public sector financial reporting issues: (a) that have not
been comprehensively or appropriately dealt with in existing IFRS issued
by the International Accounting Standards Board (IASB), or (b) for which
there is no related IFRS; and

• By developing IPSAS that are converged with IFRS by adapting them to the
public sector context.

The IPSASB has a formal procedure that it follows when considering IASB
documents for convergence. This is set out in the IPSASB’s 2008 publication
Process for Reviewing and Modifying IASB Documents8 and is summarised in
Figure 1.

Figure 1 Process for Reviewing and Modifying IASB Documents

Source: IPSASB, 2008

8
IPSASB, 2008. Available here.

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 Linkage of IPSAS to IFRS

Step 1: Are there public sector issues that warrant a departure?

In determining whether public sector issues warrant a departure from an IASB

document, the IPSASB will consider if applying the requirements of the IASB
document would:

• Mean that the objectives of public sector financial reporting would not be
adequately met.

• Mean that the qualitative characteristics of public sector financial reporting

would not be adequately met.

• Require undue cost or effort.

If public sector issues do not warrant a departure, IPSASB style and

terminology changes will be made to the IASB document (see Step 4)

Step 2: Should a separate public sector project be initiated?

If the assessment under Step 1 leads to the conclusion that departures from
the IASB document are warranted, the IPSASB will next consider whether
to initiate a separate public sector project. If the identified public sector
issue is not dealt with at all in an IASB document, it is likely that a separate
public sector project will be initiated. For example, the IPSASB had to initiate
a project on impairments of non-cash-generating assets (culminating in
IPSAS 21, which we will look at later in this course) since the IASB document
on impairments (IAS 36) only deals with cash-generating assets.

‘If the consideration of Step 2 identifies public sector issues that

warrant a separate public sector project, a project brief would be
prepared for the IPSASB’s approval and the project would follow
the standard-setting due process.’
In other situations, the IASB document may deal with an issue but may not
address public sector circumstances, or if it does, does not do so adequately.

‘If the public sector issues can be addressed within a document

that is converged with the related IASB document, go to Step 3.’
Step 3: Modify IASB document

In Step 3, modifications are made to the relevant IASB document in order

to produce an IPSAS (for example, modifications were made to IAS 1
Presentation of Financial Statements in order to produce IPSAS 1 Presentation
of Financial Statements).

Several parameters have been set for the extent of modification on an IASB
document. For example:

• Recognition and measurement requirements may be modified if doing so

would result in the objectives or qualitative characteristics of public sector

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 Linkage of IPSAS to IFRS

financial reporting being better met, or there would be undue cost or effort
in applying the requirements.

• Deletions from, or other amendments to, an IASB document could be

replaced by an alternative that better achieves the objective of public
sector financial reporting.

• Guidance and examples may be added to provide public sector context.

Step 4: Make IPSASB style and terminology changes to IASB documents

In many cases, the style and terminology of an IPSASB document that is

converged with a related IASB document will require changes resulting from
considerations including:

• Inclusion of a boxed rubric at the front of each IPSAS, identifying the

material that constitutes the IPSAS and the documents that provide the
context in which the IPSAS should be read.

• Deletion of definitions in IASB documents that have no public sector

context.

• References to an IASB document for which an equivalent IPSAS has not

been issued will be replaced with ‘the relevant international or national
accounting standard dealing with the topic discussed’.

• Terminology changes to better reflect the public sector scope of the

documents (for example ‘business’ would be replaced with ‘entity’ or
‘operation’.)

• Each IPSAS should be accompanied by a Basis for Conclusions which

focusses on modifications to the IASB document. Note that this does not
form part of the IPSAS.

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 Linkage of IPSAS to IFRS

1.4 IPSASB activities

1.4.1 Current development activities

The IPSASB carries out a continual programme of development activities, and
you should check its website regularly to find the most up to date information
on activities.

It is important that you keep abreast of current developments. You need to

have a basic knowledge of all of the current IPSASB projects. Details are
updated regularly on the IPSASB website (http://www.ifac.org/public-sector
).

The following list is a summary of the IPSASB’s current projects:

1. Public Sector Combinations

2. The Applicability of IPSASs to Public Sector Entities

3. Public Sector Specific Financial Instruments

4. Update to IPSAS 28-30, Financial Instruments

5. Emissions Trading Schemes

6. Social Benefits

7. Review of Cash Basis IPSAS

8. Amendments to IPSAS 25, Employee Benefits

9. Governance and Consultative Advisory Group

10. Revenue

11. Non-exchange expenses

12. Improvements

13. Heritage Assets

14. Public Sector Measurement

15. Infrastructure Assets

16. IPSAS 21 and 26: Scope exclusion of Assets on Revaluation model

You are advised to regularly check the relevant web page to ensure that you
are up-to-date with the type of projects being undertaken by IPSASB.

20
 The Preface to IPSAS

1.5 The Preface to IPSAS

The Preface to IPSAS (IPSASB, 2012) sets out the objectives of the IPSASB
and explains the scope and authority of the IPSAS.

1.5.1 Objective of the IPSASB

You will already know the objectives of the IPSASB as this is also covered in
the Terms of Reference that we studied in Section 1.2. As a brief reminder, the
objective of the IPSAS is to serve the public interest by developing high-quality
accounting standards and other publications for use by public sector entities
around the world in preparation of general purpose financial reports.

In fulfilling its objective, the IPSASB develops and issues the following
publications:

• IPSAS

• Recommended Practice Guidelines (RPG)

• Studies

• Other papers and research reports

1.5.2 Scope and authority of the IPSAS

Scope of the standards
The IIPSASB develops IPSAS which apply to the accrual basis of accounting
(i.e. IPSAS 1−38) and IPSAS which apply to the cash basis of accounting (i.e.
the Cash Basis IPSAS).

IPSAS set out requirements dealing with transactions and other events in
general purpose financial reports (GPFR). We learnt the definition of GPFR
earlier in this workbook; as a quick reminder:

Key definition General purpose financial reports are financial reports

intended to meet the information needs of users who are unable to require
the preparation of financial reports tailored to meet their specific information
needs.

This may seem like a confusing definition but the key is who a report is
prepared for and whether they can obtain the information that they need
through other sources.

For example, the published annual financial statements of a local authority

would usually be considered a GPFR because they will meet the information
needs of, among other users, the electorate and taxpayers. These users would
not usually be able to request information tailored to their own specific needs
but must rely on the published financial statements to assess how well the
local authority is using its resources to meet its objectives. Contrast this with
the monthly management accounts prepared for internal use − these are

21
 The Preface to IPSAS

prepared for the benefit of users such as senior managers who can, and do,
require the preparation of information specific to their needs and hence these
would not meet the definition of a general purpose financial report.

The IPSAS are designed to apply to the general purpose financial reports of all
public sector entities other than government business enterprises (GBE), who
apply IFRS.

Key definition Government Business Enterprise An entity that has all the
following characteristics:

a. The power to contract in its own name;

b. Has been assigned the financial and operational authority to carry on a

business;

c. Sells goods and services, in the normal course of its business, to other
entities at a profit or full cost recovery;

d. Is not reliant on continuing government funding to be a going concern

(other than purchases of outputs at arm’s length); and

e. Is controlled by a public sector entity.

Public sector entities include national governments, regional (e.g., state,

provincial, territorial) governments, local (e.g., city, town) governments and
related governmental entities (e.g., agencies, boards, commissions and
enterprises), unless otherwise stated. International organisations also apply
IPSAS.

IPSAS are not meant to apply to immaterial items.

All paragraphs in IPSAS shall have equal authority. IPSAS approved by the
IPSASB after January 1, 2006 include paragraphs in bold and plain type which
have equal authority. Paragraphs in bold type indicate the main principle.

Moving from the cash basis to the accrual basis

The Cash Basis IPSAS encourages an entity to voluntarily disclose accrual
based information, although its core financial statements will nonetheless
be prepared under the cash basis of accounting. An entity in the process
of moving from cash accounting to accrual accounting may wish to include
particular accrual based disclosures during this process. The Cash Basis
IPSAS is covered in detail in Workbook 8 of this course.

The IPSASB also attempts to facilitate compliance with accrual based

IPSAS through the use of transitional provisions in certain standards. Where
transitional provisions exist, they may allow an entity additional time to meet
the full requirements of a specific accrual based IPSAS or provide relief from
certain requirements when initially applying an IPSAS.

Authority of IPSAS
In the preface, the IPSASB states that it strongly encourages the adoption
of IPSAS and the harmonisation of national requirements with IPSAS. This

22
 The Preface to IPSAS

is because it believes that the adoption of IPSAS will improve the quality of
general purpose financial reporting by public sector entities.

However, the IPSASB acknowledges that within each jurisdiction, regulations

govern the issue of general purpose financial reports (e.g. statutory reporting
requirements) and hence the IPSASB does not have the power to require
compliance with IPSAS.

Language
The official text of the IPSAS and other publications is that approved by the
IPSASB in the English language. Member bodies of IFAC are authorised to
prepare, after obtaining IFAC approval, translations of such pronouncements
at their own cost, to be issued in the language of their own jurisdictions.

23
 The Preface to IPSAS

1.6 The IPSASB Conceptual Framework for

General Purpose Financial Reports

1.6.1 Introduction to the Conceptual Framework

In October 2014 the IPSASB published the “The Conceptual Framework for
General Purpose Financial Reporting by Public Sector Entities”. This document
mirrors the equivalent framework document for IFRSs issued by the IASB and
underpins the development of IPSASs.

The Conceptual Framework is applicable to the preparation and presentation

of general purpose financial reports of public sector entities. General purpose
financial reports include, but are not necessarily limited to, financial statements
and notes thereto.

The Conceptual Framework applies to financial reporting by public sector

entities (other than GBEs) that apply IPSASs. GBEs are required to apply
International Financial Reporting Standards (IFRS) which are issued by the
International Accounting Standards Board (IASB).

The Conceptual Framework has a preface and eight chapters:

1. Preface

2. Chapter 1: Role and Authority of the Conceptual Framework

3. Chapter 2: Objectives and Users of General Purpose Financial Reporting

4. Chapter 3: Qualitative Characteristics

5. Chapter 4: Reporting Entity

6. Chapter 5: Elements in Financial Statements

7. Chapter 6: Recognition in Financial Statements

8. Chapter 7: Measurement of assets and liabilities in Financial Statements

9. Chapter 8: Presentation in General Purpose Financial Reports

These chapters outline the role of the Framework in the IPSAS development
process, identify that the primary users of public sector entities’ financial
statements are service recipients and resource providers, and clarify that
the objectives of financial reporting by public sector entities are to provide
information useful to users for accountability and decision making purposes.

They identify the qualitative characteristics of, and constraints on, information
included in financial statements and the key characteristics of a public sector
reporting entity. The elements of financial statements are defined and criteria
for recognition and measurement are outlined.

Finally, guidance is given on the presentation of financial information.

24
 The IPSASB Conceptual Framework for General Purpose Financial Reports

The following sections provide a brief summary of the most important

elements of the preface and chapters 1−4 of the Conceptual Framework.
Chapters 5−8 of the Conceptual Framework is not in the Cert IPSAS syllabus.

1.6.2 Preface
The preface to the Conceptual Framework recognises that constitutional
arrangements and methods of public service operation vary across the globe
and that the primary objective of most public sector entities is to deliver
services to the public rather than to make profits and generate a return on
equity to investors. Therefore, financial reporting by public sector entities
needs to provide additional supporting information to the financial statements
to demonstrate accountability to users and to satisfy their decision-making
requirements.
The preface includes characteristics of the public sector that the IPSASB has
considered in the development of the Conceptual Framework.

These characteristics are:

• Non-exchange transactions − where an entity receives value from another

party without giving approximately equal value in exchange.

• Approved budgets − there is often a constitutional requirement to prepare

and make publicly available a budget approved by the legislature.

• Nature and longevity of public sector programs − many public sector

programs are long term and require funding from future taxation and
contributions.

• Nature and purpose of assets and liabilities − in the public sector the
primary reason for holding assets is for their service potential rather than
for their ability to generate cash flows.
• Regulatory role of public sector entities− many governments and public
sector entities have regulatory powers to safeguard public interest, either
directly or through specifically created agencies.

• Relationship to statistical reporting − with regards to financial information

many governments produce both general purpose financial reports and
government finance statistics. Whilst there is some overlap between
the two reporting frameworks, IPSAS and government finance statistics
reporting guidelines have different objectives and this may lead to the
different treatment of some transactions and events.

1.6.3 Conceptual Framework: Chapters 1−4

Chapter 1: Role and Authority of the Conceptual Framework
• Role: The role of the Conceptual Framework is to establish the concepts
that underpin general purpose financial reporting by public sector entities
(excluding GBEs) that adopt the accrual basis of accounting.

• Authority: The Conceptual Framework does not establish authoritative

requirements for financial reporting by public sector entities and nor does

25
 The IPSASB Conceptual Framework for General Purpose Financial Reports

is override the requirements of IPSAS but it can provide guidance in dealing

with issues not dealt with in IPSAS.

• General Purpose Financial Reports: GPFR are an essential component of

transparent financial reporting by public sector entities. GPFR are intended
to meet the needs of users who are unable to require the preparation of
financial reports tailored to meet their specific needs. The scope of financial
reporting establishes the boundary around the transactions and other
events reported in the general purpose financial reports. It is determined
by the information needs of the primary users of the GPFR.

• Applicability: The Conceptual Framework applies to financial reporting

by public sector entities other than GBE. Therefore, it applies to GPFR
of national, state/provincial and local governments. It also applies to a
wide range of other public sector entities including government ministries,
departments, programmes, boards, commissions, agencies, public sector
social security funds, trusts, and statutory authorities and international
governmental organisations that are public sector entities.

Chapter 2: Objectives and Users of General Purpose

Financial Reports

• The objectives of financial reporting by public sector entities are to

provide information about the entity that is useful to the users of GPFR for
accountability purposes and for decision-making purposes.

• Users: GPFR of public sector entities are developed primarily to respond

to the information needs of service recipients and resource providers
who do not possess the authority to require a public sector entity to
disclose the information they need for accountability and decision-making
purposes. The legislature (or similar body) and members of parliament (or a
similar representative body) are also primary users of GPFR when acting
in their capacity as representatives of the interests of service recipients
and resource providers. Therefore, for the purposes of this Conceptual
Framework, the primary users of GPFR are service recipients and their
representatives and resource providers9 and their representatives.

However, GPFR may also provide information that is useful to other parties
for other purposes, including government statisticians, analysts, the media,
financial advisors and public interest and lobby groups. Users groups and
their information needs

• Users groups and their information needs: We have seen how the
Conceptual Framework is intended to help define the information needs
of the GPFR’s users. Users are categorised into two main groups: service
recipients and their representatives and resource providers and their
representatives.

9
Resource providers include “involuntary resource providers” such as taxpayers, and “voluntary
resource providers” such as lenders, donors, suppliers, fee-for-service consumers and employees.

26
 The IPSASB Conceptual Framework for General Purpose Financial Reports

Exercise 1.6: The objectives of financial reporting in the

public sector
For financial performance to be reported in a meaningful way, financial
reports must be relevant to their users. In order to define what makes a
financial report meaningful we must first know who the likely users of the
accounts are and what their needs are.

Describe the principal uses made of a set of public sector financial

reports.

Explain who the potential ‘users’ of a set of public sector financial

reports are, and what information they are looking for.

For a sector of your choice, discuss whether the financial reports

published meet the needs of the users of those reports.

• Accountability and decision making. GPFR must also consider the

information needs of resource providers and their representatives. This
group will require information to decide if the entity:

◦ Is achieving the objectives established as the justification for the

resources raised during the reporting period;

◦ Funded current operations from funds raised in the current period from
taxpayers or from borrowings or other sources; and

◦ Is likely to need additional (or fewer) resources in the future, and the
likely sources of those resources.

• Information needs. Within the resource providers and their representatives

group, lenders and creditors will require information to help assess
the liquidity of the entity and to confirm that the amount and timing of
repayment will be as agreed.

Donors will require information to help decide if the entity is using

resources economically, efficiently, effectively and as intended. They will
also need information about the entity’s anticipated future service delivery
activities and resource needs.

• Information provided by General Purpose Financial Reports. GPFR

provide information on the financial performance, financial position and
cash flows of a government or other public sector entity. This information
will inform assessments of matters such as whether the entity has acquired
resources economically, and used them efficiently and effectively to

27
 The IPSASB Conceptual Framework for General Purpose Financial Reports

achieve its service delivery objectives. We will look at these statements in

detail in later workbooks.

Chapter 3: Qualitative Characteristics

The qualitative characteristics of information included in GPFR of public
sector entities are relevance, faithful representation, understandability,
timeliness, comparability, and verifiability.

• Relevance: Financial and non-financial information is relevant if it is

capable of making a difference in achieving the objectives of financial
reporting.

• Faithful representation: To be useful in financial reporting, information

must be a faithful representation of the economic and other phenomena
that it purports to represent. Faithful representation is attained when the
depiction of the phenomenon is complete, neutral, and free from material
error.

• Understandability: GPFR of public sector entities should present

information in a manner that responds to the needs and knowledge base of
users. Explanations of financial and non-financial information and narrative
reporting of achievements and expectations should be written in plain
language, and presented in a manner that is readily understandable by
users.

• Timeliness means having information available for users before it loses its
capacity to be useful for accountability and decision-making purposes.

• Comparability is the quality of information that enables users to identify

similarities in, and differences between, two sets of phenomena. The
usefulness of financial information is enhanced if it can be compared with,
for example, the budget for the reporting period, similar information about
the same entity for another period/point in time or about another entity.

• Verifiability is the quality of information that helps assure users that

information in GPFR faithfully represents the phenomena that it purports
to represent.

Materiality, cost −
benefit, and achieving an appropriate balance between the
qualitative characteristics are pervasive constraints on information included
in GPFR.

• Information is material if its omission or misstatement could influence the

discharge of accountability by the entity, or the decisions that users make
on the basis of the entity’s general purpose financial reports prepared for
that reporting period.

Materiality cannot be defined as a specific figure. Assessments of

materiality will be made in the context of the legislative, institutional and
operating environment within which the entity operates. It is not only
the amount but also the nature of the item which must be looked at. For
example, disclosure of information about compliance or non-compliance

28
 The IPSASB Conceptual Framework for General Purpose Financial Reports

with legislation and regulation may be material because of its nature,

irrespective of any amounts involved.

• Financial reporting imposes costs. The benefits of financial reporting

should justify those costs. Assessing whether the benefits of providing
information justify the related costs is often a matter of judgment, because
it is often not possible to identify and/or quantify all the costs or benefits of
information included in GPFR.

• In some cases, a balancing or trade-off between qualitative characteristics

may be necessary to achieve the objectives of financial reporting. The
relative importance of the qualitative characteristics in each situation is
a matter of professional judgment. The aim is to achieve an appropriate
balance among the characteristics in order to meet the objectives of
financial reporting.

Chapter 4: Reporting Entity

Key definitions Public sector reporting entity A public sector reporting
entity is a government or other public sector organisation, programme or
identifiable activity that prepares general purpose financial reports.

Public sector group reporting entity A public sector group reporting entity
comprises two or more separate entities that present GPFR as if they are a
single entity.

This chapter gives guidance as to what a public sector reporting entity is for
GPFR purposes. GPFR are prepared to report information useful to users for
accountability and decision-making purposes. As we have seen the primary
users of GPFR are service recipients and their representatives and resource
providers and their representatives. Therefore a public sector reporting
entity exists where there are service recipients or resource providers who
are dependent on GPFR for information about the activities of particular
governmental organisations, programmes or other identifiable activities for
accountability or decision-making purposes.

Factors likely to signal the existence of users of GPFR include the responsibility
or capacity to:

• raise or deploy public monies;

• acquire or manage public assets;

• incur liabilities; or

• undertake activities to achieve service delivery objectives.

We can see that identifying reporting entities is therefore not as simple

as identifying organisations with a separate legal identity. Whilst many
public sector entities do have separate legal identities ( for example public
corporations which are GBEs and are therefore not covered by IPSASs), many
public sector organisations, programmes and activities may also raise and
deploy monies, acquire and manage public assets, incur liabilities etc. without
having a separate legal identity. Service recipients and resource providers

29
 The IPSASB Conceptual Framework for General Purpose Financial Reports

may depend on the GPFR for decision making purposes and hence a public
sector organisation, programme or activity can be a reporting entity
without having a separate legal entity. For example, a homeless shelter
run by a government department may not have its own legal identity, but if
it receives donations from individuals and charities then it will have resource
providers who wish to see how their money has been spent, and hence it will
be a reporting entity and have to prepare GPFR.

Usually legislation, regulation or other authority will require a public sector

organisation/activity to prepare GPFR but in some cases GPFR may be
prepared on a voluntary basis.

For accountability and decision-making purposes, service recipients and

resource providers will often require information a group of entities. This could
include:

• a group of separate entities that make up the government as a whole, or;

• a group of separate entities that comprise a government ministry or

otherwise work together to deliver a particular government program.

Therefore, a key characteristic of a group reporting entity is the existence

of service recipients and resource providers who are dependent on GPFR
prepared in respect of the group for the information they need for accountability
and decision-making purposes.

The underlying principle in relation to preparing GPFR for groups is that

information needs to be disclosed about the resources, obligations and service
delivery or other activities that a government as a whole (or other public sector
entity) has the authority and capacity to direct. This includes those it can direct
through other entities. Such information is necessary for accountability and
decision-making purposes when the results of such direction can generate
benefits for the government (or other public sector entity) or expose it to a
financial burden or loss.

Members of a reporting group are identified if a body has the authority and
capacity to direct the activities of another entity. The body may not use that
authority but the authority exists. This may be defined in legislation, formal
contract, majority shareholding, or other equity interest that confers rights to
directing the financing and operating policies of the entity.

When GPFR for a group reporting entity are prepared, they will present
information about, for example, all the resources of the entities that make
up that group, claims to those resources, and other aspects of the financial
position, performance and achievements of those entities as if they are a
single entity.

30
 Summary

1.7 Summary
In this workbook, we have covered the whole of aim A of the Cert IPSAS
syllabus, i.e.:

A1) Describe the role of the IPSASB in the development and publication of
IPSAS and other documents:

• Terms of reference and objectives of IPSASB

• Linkage between IAS/IFRS and IPSAS

• IPSASB programme of development activities

• Exposure drafts and consultations

A2) Describe the requirements of:

• The IPSASB Conceptual Framework for General Purpose Financial

Reporting by Public Sector Entities (Chapters 1−4 only)

A lot of information has been presented here: far too much for you to learn
on your first read-through, so ensure that you return to this workbook several
times in preparation for your exam. Read through the information, make notes
and then attempt the questions which follow.

Additional exercises
Exercise 1.7: What is a conceptual framework?
Discuss what a conceptual framework is and explain why it is necessary in
financial accounting.

Exercise 1.8: The main users of Government GPFRs

Consider who are the main users of Government GPFRs and explain how
a Japanese investment bank might be a user of GPFRs for a Russian
municipal.

31
 Summary

If you feel ready you may now wish to attempt Self-assessment Questions
for Workbook 1.

32
 Appendix A: IPSAS and equivalent IAS/IFRS

Appendix A: IPSAS and equivalent IAS/IFRS

If you are already familiar with the requirements of IAS/IFRS, you may find the
following list helpful in order to see which IAS/IFRS each IPSAS is based on.
Note that there are varying degrees of differences between an IPSAS and its
equivalent IAS/IFRS − check the final section of each IPSAS, where you will
find a list of differences between the IPSAS and the IAS/IFRS.

IPSAS Based on:

IPSAS 1 Presentation of Financial Statements IAS 1
IPSAS 2 Cash Flow Statements IAS 7
IPSAS 3 Accounting Policies, Changes in Accounting IAS 8
Estimates and Errors
IPSAS 4 The Effects of Changes in Foreign Exchange Rates IAS 21
IPSAS 5 Borrowing Costs IAS 23
IPSAS 9 Revenue from Exchange Transactions IAS 18
IPSAS 10 Financial Reporting in Hyperinflationary Economies IAS 29
IPSAS 11 Construction Contracts IAS 11
IPSAS 12 Inventories IAS 2
IPSAS 13 Leases IAS 17
IPSAS 14 Events After the Reporting Date IAS 10
IPSAS 16 Investment Property IAS 40
IPSAS 17 Property, Plant and Equipment IAS 16
IPSAS 18 Segment Reporting IAS 14
IPSAS 19 Provisions, Contingent Liabilities and Contingent IAS 37
Assets
IPSAS 20 Related Party Disclosures IAS 24
IPSAS 21 Impairment of Non-Cash-Generating Assets IAS 36
IPSAS 22 Disclosure of Financial Information About the General N/A
Government Sector
IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and N/A
Transfers)
IPSAS 24 Presentation of Budget Information in Financial N/A
Statements
IPSAS 25 Employee Benefits IAS 19
IPSAS 26 Impairment of Cash-Generating Assets IAS 36
IPSAS 27 Agriculture IAS 41
IPSAS 28 Financial Instruments: Presentation IAS 32
IPSAS 29 Financial Instruments: Recognition and Measurement IAS 39
IPSAS 30 Financial Instruments: Disclosures IFRS 7

33
 Appendix A: IPSAS and equivalent IAS/IFRS

IPSAS 31 Intangible Assets IAS 38

IPSAS 32 Service Concession Arrangements: Grantor IFRIC* 12
IPSAS 33 First-time Adoption of Accrual Basis IPSASs IFRS 1
IPSAS 34 Separate Financial Statements IAS 27
IPSAS 35 Consolidated Financial Statements IAS 27
IPSAS 36 Investments in Associates and Joint Ventures IAS 28/31
IPSAS 37 Joint Arrangements IAS 28/31
IPSAS 38 Disclosure of Interests in Other Entities IAS
27/28/31

* International Financial Reporting Interpretation Committee

34
 Appendix A: IPSAS and equivalent IAS/IFRS

Answer

Exercise 1.1

a. within the business sector?

There are a number of factors which apply particularly to standards

developed for the business sector:

• Differences in the way that legal systems operate;

• Different political systems, for example the degree of government

control over business;

• Different capital markets. For example the Securities and Exchange

Commission in the United States has different reporting requirements
to the London Stock Exchange;

• International variation in the type and scale of economic activity,

from agricultural to financial services and from developing
economies to industrialised economies;

• The degree of international influence and openness of an economy;

• The stability of the economy and inflation rates;

• Cultural differences;

• The influence of the accounting profession; and

• National differences in corporate governance (the exercise of power

over and responsibility for an entity) structures and practices.

b. within the public sector?

In addition factors which may affect public sector financial statements

include:

• Different public sector structures e.g. federal vs non-federal;

• Basis of accounting − cash, full accruals or part-accruals;

• Whether separate standards are developed for the government /

non-profit sector;

• The level of technical expertise and stakeholder consultation

applied to developing or adapting standards to the public sector;

• Local differences in funding and accountability reporting required

by government.

35
 Appendix A: IPSAS and equivalent IAS/IFRS

Answer

Exercise 1.2

a. within the business sector?

• Increased globalisation of trade and capital markets.

• Developments in information technology have, amongst other

things, led to easy electronic movement of funds and increased
willingness to invest across national borders.

• Existence of multi-national companies.

• The international standards also benefit developing or other

countries that do not have a national standard-setting body or do
not want to spend scarce resources to undertake the full process of
preparing accounting standards.

b. within the public sector?

• International bodies such as the World Bank and the regional

development bodies have promoted the adoption of accruals
accounting as part of their conditions of funding.

• Improved international communications increase the pressures on

governments to report on a comparable basis to each other.

• In some countries there is also pressure to report using the same

(i.e. IFRS based) standards as business.

• Another important factor is that in some countries, particularly

those where the government sector has not previously used
accruals accounting, international standards provide a ready-made
high quality basis of reporting which is likely to be considered more
credible than any standards which governments might develop for
themselves.

Answer

Exercise 1.3

False − IFRSs are produced first and then IPSASs are developed after.
These are based on the relevant IFRS but which include terminology and
examples more suited to the public sector context. Most IPSASs have
been ‘converged’ with current IFRSs (developed as at 31 December 2008)
as at 31 December 2009. IFRS issued by the IASB since this date are
currently in the process of being converged by the IPSASB.

36
 Appendix A: IPSAS and equivalent IAS/IFRS

Answer

Exercise 1.4

You may have come up with other ideas but the most commonly used
reasons are:

Comparability In an increasingly globalised world it is vital

that governments can compare financial
information across countries. This means
financial statements must be prepared using
the same reporting framework to ensure
comparability.
High quality reporting In some countries international standards
provide a ready-made high quality basis of
reporting which is likely to be considered more
credible than any standards which governments
might develop for themselves.
Cross border With the huge importance of cross border
cooperation alliances and partnerships in the world today,
having standard financial practice is perceived
to demonstrate cooperation and progress.
Movement of finance With consistent financial reporting practices
professionals across borders finance professionals can apply
their skills irrespective of the country they are in.
To a lesser extent this could be said of any users
of financial information, e.g. business analysts.
Consistent with In some countries there is pressure to report
private sector using the same standards as business to
encourage comparisons across different types
of entity whether publicly or privately funded.
Since IPSASs are aiming to be consistent with
IFRSs, applying IPSASs can contribute to this
objective.

Answer

Exercise 1.5

Examples of consulted parties:

Preparers of public sector financial statements

Auditors of public sector financial statements

37
 Appendix A: IPSAS and equivalent IAS/IFRS

Users of public sector financial statements

Governments

Professional bodies including accountancy institutes

Academics

Answer

Exercise 1.6

a. Uses of public service financial reports

Answer should list at least six uses of the financial statements,

together with a brief explanation. It should cover such areas as:

• compliance with statutory and mandatory requirements

• demonstrating stewardship of assets and resources

• demonstrate accountability, including performance evaluation;

benchmarking, and; achievement of objectives

• planning future policy and activities; e.g. data to justify future

funding bids

• viability and VFM

• public relations

• a source of facts and figures

b. Users of public sector financial reports

Answer should list at least six users of financial statements and some
of their potential needs. For example:

• funders and financial supporters: to take decisions about resources

they may chose or be required to provide in the future

• politicians: to assess policy delivery and efficiency; also to monitor

activities against objectives and budget

• the public: to gain information about how their taxes are being
spent and also to satisfy themselves that those activities are in line
with the public interest and manifesto commitments

• service users: to gauge performance and quality of service delivery

and how well service matches their requirements; to assess present
and future charging policies

• senior civil servants: to monitor performance and assist in future

planning and policy formation

38
 Appendix A: IPSAS and equivalent IAS/IFRS

lenders/suppliers: to assess ongoing viability of activities and future

employees: to satisfy themselves about future employment

prospects and future developments which will affect them

Meeting the needs of users of published financial reports

Answers will vary depending on choice of sector but should have:

referred to the financial reports produced by bodies in that sector

referred to the particular users in that sector and their specific

needs with regards to those reports

compared and analysed the gap between the two if any, and

drawn a conclusion from this analysis

Answer

Exercise 1.7

A conceptual framework is a system of objectives and principles that can

lead to consistent standards and that prescribes the nature, function,
and limits of financial accounting and financial statements. A conceptual
framework is necessary in financial accounting for the following reasons:

It will enable the IPSASB to issue more useful and consistent

standards in the future.

New issues will be more quickly resolved consistently by reference to

an existing framework of basic theory.

It will increase financial statement users’ understanding of and

confidence in financial reporting.

It will enhance comparability among financial statements.

Answer

Exercise 1.8

Users will fall into two broad groups: service users being citizens of the
country involved or companies operating in that country. The requirements
for individuals will include:

understanding how their countries resources are being used

how they can expect services to be provided in the future

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 Appendix A: IPSAS and equivalent IAS/IFRS

how stable their pension income is

levels of inflation

Companies may be more interested in taxation levels, access to skilled

workers, incentives for investment, import duties, etc.

Japanese banks are likely to be interested in Russian municipals on three

levels.

Can they provide investment advice to the City to earn commissions n

future bond issues?

Are the bonds issued a good investment for their clients?

Can they use the bonds as a backstop for currency or interest swaps?

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