Workbook 1 (July 2022)

Diploma in International Public
Sector Accounting Standards
The financial reporting context

for public sector entities
Workbook 1
The financial reporting context for
1 public sector entities
Learning objectives
In this workbook, we will cover aim A of the Dip 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
Recommended Practice Guidelines
Exposure drafts and consultations
IPSASB studies
A2) Describe the requirements of:
The IPSASB Conceptual Framework for General Purpose Financial

Reporting by Public Service Entities
The Preface to IPSAS
Abbreviations used in this workbook
CP Consultation paper
ED Exposure draft
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
1.1 The financial reporting context

1.1.1 Key characteristics of the public sector
with potential implications for financial
reporting
Later in this workbook, we will discuss the development, by the International
Public Sector Accounting Standards Board (IPSASB), of a conceptual
framework for General Purpose Financial Reports. 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 approved 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.
1
In many jurisdictions, the budget has a special legal significance and,

historically, has been more important than the financial statements for
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 public sector programs and 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 control 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 nature of and purpose of assets and liabilities in the

public sector
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 for their service potential, that 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
2
current open market value is unlikely to give a reliable picture of their value to
the organisation for providing social housing services.
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.
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.
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.
The regulatory role of public sector entities

Many governments and other public sector entities 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.
Statistical bases of accounting
Most governments produce two types of financial information: (a) Government

Financial Statistics (GFS) on the General Government Sector (GGS); and (b)
general purpose financial statements (financial statements) for accountability
and decision making at an entity level (including the whole of government
reporting entity).
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 (IMF), provides the specialised macroeconomic
statistical system designed to support fiscal analysis.
The overarching standards are set out in the System of National Accounts
(SNA). This includes a detailed description of the national economy and its
components including the GGS. These standards are then implemented at
national or regional level, for example in the European Union through the
European System of Accounts (ESA).
3
Reporting on the statistical bases of accounting is therefore highly important

in the public sector.
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 and the United Kingdom have moved to IFRS
based reporting2. In other countries (e.g. Peru, Kazakhstan and Nigeria),
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 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.
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
Research published by IFAC and CIPFA: International Public Sector Financial Accountability Index Status Report November
2018 http://www.ifac.org/system/files/uploads/IFAC/IFAC-CIPFA-Public-Sector-Index-2018-Status.pdf
4
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 144 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 12 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.
5
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:
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.
6
Substantially Project aimed to produce a suite

2009
converged and of substantially ‘converged’
updated IPSAS project IPSAS on all IFRS standards with
and the Rules significant read-across to the
of the Road public sector, aiming to have
standards in place on 31
December 2009 which
corresponded to relevant IFRS
developed as at 31 December
2008.3
‘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
Process for This policy paper sets out the
2014 Considering GFS process the IPSASB follows
Reporting Guidelines
when developing a new IPSAS to
during Development of
IPSASs consider differences with GFS
guidelines and what action, if
any, is appropriate to address
these differences
Conceptual
Framework for The Public Sector Conceptual
General Purpose Framework project that began in
Financial Reporting by 2008 completed in 2014 with the
Public Sector Entities publication of the Conceptual
Framework.
The Conceptual Framework provides
the conceptual underpinning for all
new IPSAS. Alignment with both IFRS
and GFS, in line with the above
policies, is taken into account where
relevant.
3
http://www.ifac.org/system/files/uploads/IFAC/IFAC-CIPFA-Public-Sector-Index-2018-Status.pdf
7
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.
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
8
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.
One of the impediments to implementing the requirements of the cash basis

IPSAS was the requirement to produce consolidated financial statements for
all controlled entities. Consolidating government business entities with
ministries and departments could be very time consuming and many
governments consider that the benefits of reporting this do not meet the
significant costs needed to compete this. Therefore, when the IPSASB
issued the revised Cash Basis IPSAS in 2017, consolidation was moved to
Part II (encouraged additional disclosures) and is no longer a mandatory
requirement.
There is currently only one cash basis IPSAS, and this is dealt with separately
in workbook 10.
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
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.
According to 2018 IFAC CIPFA International Public Sector Financial

Accountability Index (2018) 78 countries are adopting the accruals basis
IPSAS. South Africa, Switzerland, Nigeria, Panama, 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.
−
5
Source: Introduction to the Handbook of International Public Sector Accounting Pronouncements, 2012
Edition, Volume 1. .
9
IPSASB’s Termsof Reference
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
• 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
10
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.
Other papers and research reports to provide information that contributes

to the body of knowledge about public sector financial reporting issues and
developments.
1.2.3 Membership
The members of the IPSASB, including the Chair and Deputy Chair, are
appointed by the IFAC Board on the recommendation of the IFAC Nominating
Committee, with consideration of advice from the Public Interest Committee
(PIC). The IPSASB comprises 18 members, of whom no less than three shall
be 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 encompassed by its constituency, technical proficiencies of
users, preparers and auditors, and a broad geographical spread.
Most of the IPSASB’s funding comes from IFAC (approximately 85%-90%

excluding services in kind3), with the balance from various voluntary
contributions from governments and observers.
7
International Public Sector Accounting Standards Board Terms of Reference (Effective 1 January 2012). Available here
3
see the IFAC financial statements, segment reporting note (page 27)
https://www.ifac.org/system/files/publications/files/IFAC-2018-Financial-Statements.pdf
11
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
Commission (EC).
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.
Consultative Advisory Group (CAG)

The objective of the IPSASB Consultative Advisory Group (CAG) is to provide
input to and assist the IPSASB through consultation with the CAG member
organizations and their representatives at the CAG meetings.
The CAG provides advice on the IPSASB’s agenda and work program,
including project priorities and timetables, technical advice on projects and
advice on other matters of relevance to the activities of the IPSASB.
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. In addition, there have also been
biennial reports.
12
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 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 IPSASB also identifies any differences with GFS and considers whether it
is appropriate to address these as part of a project to develop a new or revised
standard. This process is set out in the policy paper, Process for Considering
GFS Reporting Guidelines during Development of IPSASs 4.
The IPSASB 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
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.
4
https://www.ifac.org/system/files/publications/files/IPSASB-GFS-Policy-Paper.pdf
13
Linkage of IPSAS to IFRS
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:
• using terminology and examples more suited to the public sector context
than IFRS
• adopting IFRS requirements where applicable, including additional

explanation where required
• 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.
14
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:
• 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
• 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.
15
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
• 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.

16
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.
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.
For your Dip IPSAS exam, 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 Specific Financial Instruments
2. Leases
3. Revenue
4. Non-exchange expenses
5. Public Sector Measurement
6. Infrastructure Assets
7. Heritage Assets
8. Natural Resources
9. Limited cope review of Conceptual Framework
10. Improvements
11. Mid-term work plan consultation
You will not be expected to know the details of each of these (other than the
conceptual framework) but 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.
17
The IPSASB Conceptual Framework for General Purpose Financial Reports
1.5 The Preface to IPSAS

The Preface to IPSAS (IPSASB, 2016, which is the last time the preface was
revised) 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 IPSASB develops IPSAS which apply to the accrual basis of accounting
(i.e. IPSAS 1−41) 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
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.
18
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.
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 10 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 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.
19
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.
The following sections provide a brief summary of the most important

elements of the preface and each of the chapters.
20
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 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.
21
• Applicability. The Conceptual Framework applies to financial reporting
by public sector entities. 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 providers 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.
22
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
◦ 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
achieve its service delivery objectives. We will look at these statements in
detail in later workbooks.
23
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
with legislation and regulation may be material because of its nature,
irrespective of any amounts involved.
24
• 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
• 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), 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 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.
25
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.
6.4 Chapters 5 and 6: Elements and Recognition

Chapter 5 defines the elements used in general purpose financial statements
of governments and other public sector entities, and provides further
explanation about these definitions. Chapter 6 also deals with recognition.
These elements, with their respective definitions are:
1. Assets: an asset is a resource, with the ability to provide an inflow of

service potential or economic benefits that an entity presently controls, and
which arises from a past event.
2. Liabilities: a liability is a present obligation that arises from a past event

where there is little or no realistic alternative to avoid an outflow of service
potential or economic benefits from the entity.
3. Revenue: revenue is inflows during the current reporting period, which

increase the net assets of an entity other than ownership contributions and
increases in deferred inflow; and inflows during the current reporting period
that result from decreases in deferred inflows.
26
4. Expenses: expenses are outflows during the current reporting period which
decrease the net assets of an entity, other than ownership distributions and
increases in deferred outflows; and outflows during the current reporting
period that result from decreases in deferred outflows.
5. Ownership contributions: these are inflows of resources to an entity,

contributed by external parties that establish or increase an interest in the
net assets of the entity.
6. Ownership distributions: these are outflows of resources from the entity,

distributed to external parties that return or reduce an interest in the net
assets of the entity.
These definitions refer to the net financial position of an entity because the
Conceptual Framework distinguishes between the net assets or liabilities of the
entity, and its net financial position. This is to allow for the possibility that an
item that does not satisfy the definition of an element may need to be
recognized in the financial statements in order to meet the objectives of
financial reporting.
The Conceptual Framework refers to these items as “other resources” and

“other obligations”. The Conceptual Framework explains that in some cases, in
developing or revising an IPSAS, the IPSASB may determine that to achieve
the objectives of financial reporting a resource or obligation that does not satisfy
the definition of an element defined in the Conceptual Framework needs to be
recognized in the financial statements. In these cases, the IPSAS may require
or allow these resources or obligations to be recognized as other resources or
other obligations, which are items additional to the six elements defined in the
Framework.
Other resources and other obligations can only be used if specifically required
or permitted in an IPSAS. To date, no IPSAS requires or permits the use of
other resources and other obligations.
Net financial position is the difference between assets and liabilities after
adding other resources and deducting other obligations recognized in the
statement of financial position. Net financial position can be a positive or
negative residual amount.
As, to date, no other resources or other obligations have been identified, net
financial position will be synonymous with net assets or liabilities in practice.
Correct and accurate recognition of these elements is critical when determining

financial statements. Recognition involves an assessment of existence
uncertainty and measurement uncertainty.
Chapter 6 explores the concept of existence uncertainty by stating that

determining of the definition of an element is itself judgemental. Transactions
form the basis for recognition, but just because a transaction exists, does not
necessarily give rise to an element. Therefore, existence uncertainty must be
addressed by assessing the available evidence to make a neutral judgement
about whether an element exists.
The concept of measurement uncertainty is the issue of attaching a monetary

value to an item. This entails choosing an appropriate measurement basis and
determining whether the measurement is sufficiently relevant and faithfully
representative for the item to be recognised in the financial statements.
27
1.6.5 Chapter 7: Measurement of Assets and Liabilities in

Financial Statements
Chapter 7 concerns the measurement concepts that guide the IPSASB in the
selection of measurement bases for IPSASs, and by preparers of GPFS in
selecting measurement bases for assets and liabilities where there is no
requirements in IPSASs. Chapter 7 does not prescribe a single measurement
basis or a combination of bases, but instead it identifies the factors that are
relevant in selecting a measurement basis for particular assets and liabilities in
specific circumstances.
We have seen previously the importance of financial statements meeting the

needs of users and this chapter states that the selection of measurement
bases is particularly important in meeting those informational needs. This is
because it enables assessment of:
• the cost of services provided in the period
•• operational capacity: the physical and other resources available to support

the provision of services in future periods
• financial capacity: the capacity of the entity to continue to fund its activities
and meet its operational objectives in the future
Measurement bases may be compared by their general features:
1. Historical or current cost: the historical cost basis reflects the amount
incurred on acquisition of an asset, including transaction costs. Following
initial recognition, the measurement of an asset is not changed to reflect
changes in prices. For a liability, the historical cost measurement basis
reflects the amount received in the transaction under which the obligation
is assumed. By comparison, a current measurement basis reflects the
economic and financial environment prevailing at the reporting date.
2. Entry or exit perspective: an entry value for an asset reflects the consideration
payable on it acquisition. An exit value reflects the amount that will be
derived from an asset from its sale and/or its use. An entry value for a
liability relates to the transaction under which an obligation is received or
the amount that an entity would accept to assume a liability. An exit value
reflects the fulfilment of an obligation or the amount required to release an
entity from an obligation.
3. Entity or non-entity specific: the term ‘entity specific’ is used to refer to

measurement bases that reflect the economic position of the entity at the
reporting date, rather than the position on a market. A ‘non-entity specific’
value reflects a market-based price for an asset or a liability.
Chapter 7 looks at four measurement bases for assets:

1. Historical cost, defined as: the consideration given to acquire or develop an asset, which
is the cash or cash equivalents or the value of the other consideration given, at the time of
its acquisition or development.
2. Market value, defined as: the amount for which an asset could be exchanged between
knowledgeable, willing parties in an arm’s length transaction. Market values might derive
from open, active and orderly markets or from inactive markets; different values might be
obtained from these different markets.
28
3. Replacement cost, defined as: the most economic cost required for the entity to replace
the service potential of an asset (including the amount that the entity will receive from its
disposal at the end of its useful life) at the reporting date.
4. Net selling price, defined as: the amount that the entity can obtain from the sale of the
asset after deducting the costs of sale.
5. Value in use, defined as: the present value to the entity of the asset’s remaining service
potential or ability to generate economic benefits if it continues to be used, and of the net
amount that the entity will receive from its disposal at the end of its useful life.
It also looks at five measurement bases for liabilities:
1. Historical cost, defined as: the consideration received to assume an obligation, which is
the cash or cash equivalents, or the value of other consideration received at the time the
liability is incurred.
2. Cost of fulfilment, defined as: the costs that the entity will incur in fulfilling the obligations
represented by the liability, assuming that it does so in the least costly manner.
3. Market value, defined as: the amount for which a liability could be settled between
knowledgeable, willing parties in an arm’s length transaction. As with assets, markets may
be open, active and orderly or inactive.
4. Cost of release refers to the amount of an immediate exit from the obligation. Cost of
release is the amount that either the creditor will accept in settlement of its claim, or a third
party would charge to accept the transfer of the liability from the obligor. Where there is
more than one way of securing release from the liability, the cost of release is that of the
lowest amount.
5. Assumption price is the term used in the context of liabilities to refer to the same concept
as the replacement cost of assets. Assumption price is the amount which the entity would
rationally be willing to accept in exchange for assuming an existing liability.
Exercise 1.7: Current cost as a measurement base

Current cost measurement uses costs at current prices. What do you think
the advantages and disadvantages of using this base are?
29
1.6.6 Chapter 8: Presentation in General

Purpose Financial Reports
Chapter 8 tackles the issue that, for public sector entities, the objectives
of financial reporting need to address financial, non-financial, past and
prospective information. GPFRs are therefore more comprehensive that private
sector general purpose financial statements.
Presentation of information is critical and consideration needs to be given to
both the display of information and the disclosure of information.
Displayed information is defined as the communication of key messages in a
GPFR. Displayed information must be kept to a concise, understandable level
so that users can focus on the key messages presented and not be distracted
by an excess of detail that could otherwise obscure those messages.
Displayed information is presented prominently, using appropriate presentation
techniques such as clear labelling, borders, tables or graphs.
Disclosed information makes displayed information more useful by providing
detail that will help users to understand the displayed information, including:
• the basis for the displayed information, such as applicable policies or
methodologies
• disaggregations of displayed information
• items that share many but not all of the aspects of displayed information
(for example disclosures on items that meet some, but not all, of the
characteristics of an element definition).
Chapter 8 also details the issues about information selection, information

location and information organisation.
30
1.7 Recommended Practice Guidelines
1.7.1 Introduction to Recommended Practice Guidelines

Recommended Practice Guidelines provide guidance that represents good
practice that public sector entities are encouraged to follow. RPGs provide
guidance on the broader aspects of financial reporting that are outside the
financial statements. Two RPGs were issued in 2013 and a further one in 2015.
These are outlined below.
RPG 1: Reporting on the Long-Term Sustainability of Public

Finances
The rationale behind the project is that whilst financial statements are at the
core of financial reporting, they do not provide information on: (a) inflows for
expected resources that will be realised in the future but are not recognised as
assets at the reporting date; or (b) future obligations that are not recognised
as liabilities at the reporting date. Information on the long-term sustainability of
an entity’s finances can therefore complement information in the financial
statements and help meet the objectives of financial reporting.
RPG 1 provides straightforward guidance on presenting information about

the capacity of an entity to provide social benefits at existing levels, to
maintain existing taxation revenues and to meet its financial commitments, and
provides information on the impact of current policies and decisions made at
the reporting date on future inflows and outflows and supplements information
in the general purpose financial statements. The aim of such reporting is to
provide an indication of the projected long-term sustainability of an entity’s
finances over a specified time horizon in accordance with stated assumptions.
The core information presented will include projections of future inflows

(e.g. taxation raised) and outflows (e.g. debt repayments and social welfare
payments).
RPG 2: Financial Statement Discussion and Analysis

The objective of RPG 2 is to provide guidance for preparing and presenting
financial statement discussion and analysis. Such discussion and analysis
is designed to assist users in understanding the financial position, financial
performance and cash flows presented in the general purpose financial
statements.
The RPG sets out minimum requirements for the content and presentation of
financial statement discussion and analysis as follows:
• An overview of the entity’s operations and environment helps users to

understand the entity and how the environment in which it operates affects
its financial statements.
• Information about the entity’s objectives and strategies enables users

of the financial statements to understand the entity’s priorities and to
identify the resources that must be managed to achieve its objectives.
31
• An analysis of the entity’s financial statements including:
◦ A description of the significant events, trends, conditions, and factors

that affected the current period financial statements to enhance users’
understanding of the financial statements.
◦ Analyses of variances and trends for those financial statement items

which are important and significant to enhancing the users’
understanding of an entity’s financial position and performance and
changes in financial position and performance over a period of time.
• Information about the entity’s risks and uncertainties helps users to

evaluate the impact of risks in the current period as well as expected
outcomes.
RPG 3: Reporting Service Performance Information

The objective of RPG 3 is to provide guidance on reporting service performance
information and applies to all public sector entities other than GBEs.
Service performance information is information on the services that the entity

provided, an entity’s service performance objectives and the extent of its
achievement of those objectives. Service performance information assists
users of GPFRs to assess the entity’s service efficiency and effectiveness.
Service performance objectives may be expressed using performance

indicators. RPG 3 defines five types of performance indicator:
• Inputs − the resources used by an entity to provide outputs.
• Outputs − the services provided by an entity to recipients external to the

entity.
• Outcomes − the impacts on society, which occur as a result of, or are

reasonably attributable to, the entity’s outputs.
• Efficiency − the relationship between inputs and outputs/outcomes
• Effectiveness − the relationship between actual results and service

performance objectives.
Performance indicators may be quantitative measures, qualitative measures or

a qualitative description.
Presentation of service performance information should meet the qualitative

characteristics of financial reporting and be useful for accountability and
decision making. It should enable users to assess the extent, efficiency and
effectiveness of the entity’s service performance.
An entity may present service performance information either as part of the

GPFR that includes the financial statements or in a separately issued GPFR.
32
Summary
1.8 Summary
In this workbook, we have covered the whole of aim A of the Dip 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
• Recommended Practice Guidelines
• Exposure drafts and consultations
A2) Describe the requirements of:
• The IPSASB Conceptual Framework for General Purpose Financial

Reporting by Public Sector Entities
• The Preface to IPSAS
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, as Aim A makes up 15% of your
Dip IPSAS syllabus and hence will form the basis of several questions in your
exam.
Exercise 1.8: What is a conceptual framework?

Discuss what a conceptual framework is and explain why it is necessary in
financial accounting.
33
Summary
Exercise 1.9: The main users of Government GPFR’s

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.
34
Appendix A: IPSAS and equivalentIAS/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
− of each IPSAS, where you will find a list of
IAS/IFRS - check the final section
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 Estimates IAS 8

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 Assets IAS 37
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)
35
IPSAS 24 Presentation of Budget Information in Financial N/A

Statements
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 Measurement5 IAS 39
IPSAS 30 Financial Instruments: Disclosures IFRS 7
IPSAS 31 Intangible Assets IAS 38
IPSAS 32 Service Concession Arrangements: Grantor IFRIC6 12
IPSAS 33 First-time Adoption of Accrual Basis IPSASs IFRS 1
IPSAS 34 Separate Financial Statements IAS 27
IPSAS 35 Consolidated Financial Statements IFRS 10
IPSAS 36 Investments in Associates and Joint Ventures IAS 28
IPSAS 37 Joint Arrangements IFRS 11
IPSAS 38 Disclosure of Interests in Other Entities IFRS 12
IPSAS 39 Employee Benefits IAS 19
IPSAS 40 Public Sector Combinations IFRS 3
IPSAS 41 Financial Instruments* IFRS 9
* International Financial Reporting Interpretation Committee
5
Will be withdrawn Jan 1 2022 when it is replaced by IPSAS 41
6
International Financial Reporting Interpretation Committee
36
Answer
Exercise 1.1
a. 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.
• National differences in corporate governance (the exercise of power

over and responsibility for an entity) structures and practices.
b. 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.
37
Answer
Exercise 1.2
a. This move might occur in the private sector because:
• 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. This move might occur in the public sector because:
• 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.
38
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 cooperation With the huge importance of cross border
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

professionals practices 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 private In some countries there is pressure to
sector report 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.
39
Answer
Exercise 1.5
Examples of consulted parties:
Preparers of public sector financial statements
Auditors of public sector financial statements
Users of public sector financial statements
Governments
Professional bodies including accountancy institutes
Academics
Answer
Exercise 1.6
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
40
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
lenders/suppliers: to assess ongoing viability of activities and future

policy directions
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
41
Answer
Exercise 1.7
Potential advantages of using the current cost as a measurement base:
Assets and liabilities will be reflected in current prices. This will give the
users of the financial statements a better idea of the resources needed
to replace these.
Assets that have been held for a long time can be expressed at their
current worth, aiding the assessment of whether value for money has
been delivered.
Where economic conditions reflect a significantly changing price base

(hyper-inflationary economies), current cost measurement may provide
more useful information for decision making.
Potential disadvantages include:
• The time taken to assess current value may outweigh the benefits of
the information provided.
• The current cost can be a subjective measure, unlike historical cost

which is easily determined.
42
Answer
Exercise 1.8
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 1.9
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
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?
43

Workbook 1 (July 2022)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Workbook 1 (July 2022)

Uploaded by

Copyright:

Available Formats

Diploma in International Public

Sector Accounting Standards

The financial reporting context

Terms of reference and objectives of IPSASB

Linkage between IAS/IFRS and IPSAS

Recommended Practice Guidelines

Exposure drafts and consultations

A2) Describe the requirements of:

The IPSASB Conceptual Framework for General Purpose Financial

The Preface to IPSAS

Abbreviations used in this workbook

1.1 The financial reporting context

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

The volume and significance of non-exchange transactions

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

The importance of the approved budget

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

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

The nature of public sector programs and the longevity of

Political control may change regularly but national governments usually

The nature of and purpose of assets and liabilities in the

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

The regulatory role of public sector entities

Statistical bases of accounting

Most governments produce two types of financial information: (a) Government

Reporting on the statistical bases of accounting is therefore highly important

There has been considerable convergence between statistical and IPSAS-

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

International standards have been developed for both private sector

1.1.3 From national accounting to international harmonisation

Government bodies across the world prepare financial statements with

Exercise 1.1: Variations in national practice

within the business (private) sector?

within the public sector?

While national variations in accounting practices have endured for many

Exercise 1.2: Moving towards harmonisation

within the business (private) sector?

within the public sector?

The adoption of international standards has been greater in the business

1.1.4 The development of IPSAS and their relationship

Date Milestone Details

Substantially Project aimed to produce a suite

• terminology and examples

• adopting IFRS requirements

• providing public sector specific

‘IPSAS are developed before IFRS’

Explain whether the statement above is true or false.

1.1.5 Why harmonise public sector accounting standards?

Exercise 1.4: Why harmonise public sector accounting

Why do we need consistent public sector accounting standards across

In the introduction to its Handbook of International Public Sector Accounting

‘The IPSASB recognises the significant benefits of achieving consistent and

One of the impediments to implementing the requirements of the cash basis

Very few government organisations have so far implemented the requirements

According to 2018 IFAC CIPFA International Public Sector Financial

1.2 IPSASB’s Terms of Reference

1.2.1 Purpose and objective of the IPSASB

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

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

• 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

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

Public sector The term ‘public sector’ refers to national governments,