Chapter Three

International Public Sector

Accounting Standards [IPSAS]
 Cont….
3.1 Scope of the Standards
The IPSASs are designed to apply to public sector entities that meet all the
following criteria:
➢Are responsible for the delivery of services to benefit the public and/ or to
redistribute income and wealth;

➢Mainly finance their activities, directly or indirectly, by means of taxes and/or

transfers from other levels of government, social contributions, debt or fees; and

➢Do not have a primary objective to make profits.

 Authority of the International Public Sector Accounting Standards

❑Regulations may govern the issue of general purpose financial reports by public
sector entities. These regulations may be in the form of :
✓Statutory reporting requirements.
✓Financial reporting directives and instructions,
✓ and/or accounting standards promulgated by governments, regulatory bodies
✓ and/or professional accounting bodies concerned.
❑The IPSASB believes that the adoption of IPSASs, together with disclosure of
compliance with them, will lead to a significant improvement in the quality of
general purpose financial reporting by public sector entities.
✓It increasing transparency and accountability.
 Cont….
❑The IPSASB strongly encourages the adoption of IPSASs and the harmonization
of national requirements with IPSASs.

❑ The IPSASB acknowledges the right of governments and national standard-

setters to establish accounting standards and guidelines for financial reporting .
 Impairment of Non-Cash-Generating Assets [IPSAS 21]

Objective : To ensure that non-cash-generating assets are carried at no more than

their recoverable service amount, and to prescribe how recoverable service
amount is calculated.
❑to determine impaired and to ensure that impairment losses are recognized.

❑ It specifies when an entity would reverse an impairment loss, and prescribes

disclosures.
 Cont….
❑Cash-generating assets are assets held with the primary objective of generating
a commercial return.

❑ An asset generates a commercial return when it is deployed in a manner

consistent with that adopted by a profit-oriented entity.

❑Holding an asset to generate a commercial return indicates that an entity intends

to generate positive cash inflows from the asset and earn a commercial return
that reflects the risk involved in holding the asset.
 Cont….
❑Public sector entities may hold some assets with the primary objective of
generating a commercial return, although the majority of assets are not held for
that purpose.
✓For example, a hospital may a building for fee-paying patients.

❑Cash-generating assets of a public sector entity may operate independently of the

non-cash- generating assets of the entity.
✓For example, the deeds office may earn land registration fees independently
from the department of land affairs.
 Cont….
❑Depreciation: Depreciation and amortization are the systematic allocation of the
depreciable amount of an asset over its useful life. For intangible asset, the term
amortization is generally used instead of depreciation.

❑Impairment: a loss in the future economic benefits or service potential of an

asset, over and above the systematic recognition of the loss of the asset’s future
economic benefits or service potential through depreciation (amortization).
 Cont….
➢Impairment exists when an asset's fair value is less than its carrying value on the
balance sheet.

➢If impairment is confirmed as a result of testing, an impairment loss should be

recorded.

➢An impairment loss records an expense in the current period that appears on the
income statement and simultaneously reduces the value of the impaired asset on
the balance sheet.
 Disclosure of Financial Information about the General Government
Sector [IPSAS 22]
Objective: to disclosure requirements for governments that elect to present
information about the general government sector (GGS) in their consolidated
financial statements.

➢The disclosure of appropriate information about the GGS of a government can

enhance the transparency of financial reports, and provide for a better
understanding of the relationship between the market and non-market activities
of the government, and between financial statements and statistical bases of
financial reporting.
 Scope [IPSAS 22]

❑A government that prepares and presents consolidated financial statements

under the accrual basis of accounting and elects to disclose financial information
about the general government sector.

❑Governments raise funds from taxes, transfers, and a range of nonmarket and
market activities to fund their service delivery activities. They operate through a
variety of entities to provide goods and services to their constituents.
 Scope [IPSAS 22]
❑Financial statements for a government prepared in accordance with IPSASs
provide an overview of

(a) the assets controlled and liabilities incurred by the government,

(b) the cost of services provided by the government, and

(c) the taxation and other revenues generated to fund the provision of those
services.
 Disclosures
• Disclosures made in respect of the GGS shall include at least the following:

• Assets by major class, showing separately the investment in other sectors;

• Liabilities by major class;

• Net assets/equity;

• Total revaluation increments and decrements and other items of revenue and
expense recognized directly in net assets/equity;

• Revenue by major class;

 Cont……
• Expenses by major class;

• Surplus or deficit;

• Cash flows from operating activities by major class;

• Cash flows from investing activities; and

• Cash flows from financing activities.

 Revenue from Non-Exchange Transactions (Taxes and Transfers)
[IPSAS 23]
Objective:
➢To prescribe requirements for the financial reporting of revenue arising from
non-exchange transactions, other than non-exchange transactions that give rise
to a public sector combination.

➢This Standard deals with issues that need to be considered in recognizing and
measuring revenue from non-exchange transactions, including the identification
of contributions from owners.
 Scope [IPSAS 23]:
➢An entity that prepares and presents financial statements under the accrual basis
of accounting shall apply this Standard in accounting for revenue from non-
exchange transactions.

➢This Standard does not apply to a public sector combination that is a non-
exchange transaction.

➢This Standard addresses revenue arising from non-exchange transactions.

Revenue arising from exchange transactions is addressed in IPSAS 9, Revenue
from Exchange Transactions.
 Scope [IPSAS 23]
❑Revenues received by public sector entities arise from both exchange and non-
exchange transactions, the majority of revenue of governments and other public
sector entities from non-exchange transactions, such as:

✓Taxes; and

✓Transfers (whether cash or noncash), including grants, debt forgiveness, fines,

bequests, gifts, donations, goods and services in-kind, and the off-market portion
of concessionary loans received.
 Cont….
➢Non-exchange transactions are transactions that are not exchange transactions.

➢In a non-exchange transaction, an entity either receives value from another

entity without directly giving approximately equal value in exchange, or gives
value to another entity without directly receiving approximately equal value in
exchange.
 Measurement of Assets on Initial Recognition
❑An asset acquired through a non-exchange transaction shall initially be measured
at fair value as at the date of acquisition.
❑Consistent with IPSAS 12, Inventories, IPSAS 16, Investment Property, and
IPSAS 17, assets acquired through non-exchange transactions are measured at
their fair value as at the date of acquisition.
❑Transfers include grants, debt forgiveness, fines, bequests, gifts, donations, and
goods and services in-kind.
❑ All these items have the common attribute that they transfer resources from one
entity to another without providing approximately equal value in exchange, and
are not taxes as defined in this Standard.
 b Cont….
❑Transfers satisfy the definition of an asset when the entity controls the
resources as a result of a past event (the transfer), and expects to receive future
economic benefits or service potential from those resources.

❑Transfers satisfy the criteria for recognition as an asset when it is probable that
the inflow of resources will occur, and their fair value can be reliably measured.
 Presentation of Budget Information in Financial Statements [IPSAS 24]

Objective:

❑This Standard requires a comparison of budget amounts and the actual amounts
arising from execution of the budget to be included in the financial statements of
entities that are required to, or elect to, make publicly available their approved
budget(s), and for which they are, therefore, held publicly accountable.

❑It requires disclosure of an explanation of the reasons for material differences

between the budget and actual amounts.
 Cont….
➢Compliance with the requirements of this Standard will ensure that public
sector entities discharge their accountability obligations and enhance the
transparency of their financial statements by demonstrating

(a) Compliance with the approved budget(s) for which they are held publicly
accountable and

(b) Where the budget(s) and the financial statements are prepared on the same
basis, their financial performance in achieving the budgeted results.
 Cont….
Scope : An entity that prepares and presents financial statements under the accrual
basis of accounting.
➢This Standard applies to public sector entities which are required or elect to make
their approved budget(s) publicly available.
➢Approved budgets will be compiled to encompass all the activities controlled by
a public sector entity.

➢Separate approved budgets may be required to be made publicly available for

certain activities, groups of activities, or entities included in the financial
statements of a government or other public sector entity.
 Presentation of a Comparison of Budget and Actual Amounts

❑Subject to present a comparison of the budget amounts for which it is held

publicly accountable and actual amounts, either as a separate additional
financial statement or as additional budget columns in the financial statements
currently presented in accordance with IPSASs.

❑The comparison of budget and actual amounts shall present separately for each
level of legislative oversight:

✓The original and final budget amounts;

✓The actual amounts on a comparable basis; and

 Cont….
❑Presentation in the financial statements of the original and final budget amounts
and actual amounts on a comparable basis with the budget that is made publicly
available will complete.

❑Management discussion and analysis, operations review, or other public reports

that provide commentary on the performance and achievements of the entity
during the reporting period, including explanations of any material differences
from budget amounts.
 Presentation and Disclosure
❑An entity shall present a comparison of budget and actual amounts as additional
budget columns in the primary financial statements only where the financial
statements and the budget are prepared on a comparable basis.

❑Comparisons of budget and actual amounts may be presented in a separate

financial statement, (Statement of Comparison of Budget and Actual Amounts
or a similarly titled statement) included in the complete set of financial
statements as specified in IPSAS 1.
 Cont….
❑The financial statements and the budget are prepared on a comparable basis –
that is, on the same basis of accounting for the same entity and reporting period,
and adopt the same classification structure – additional columns may be added
to the existing primary financial statements presented in accordance with
IPSASs.

❑When the budget and financial statements are not prepared on a comparable
basis, a separate Statement of Comparison of Budget and Actual Amounts is
presented.
 Note Disclosures of Budgetary Basis, Period and Scope

❑An entity shall explain in notes to the financial statements the budgetary basis
and classification basis adopted in the approved budget.
❑May be differences between the accounting basis (cash, accrual, or some
modification thereof) used in preparation and presentation of the budget and the
accounting basis used in the financial statements.
❑ when the accounting system and the budget system compile information from
different perspectives – the budget may focus on cash flows, or cash flows plus
certain commitments, while the financial statements report cash flows and
accrual information.
 Cont….
Differences between the actual amounts identified consistent with the comparable
basis, and the actual amounts recognized in the financial statements, can usefully
be classified into the following:
✓when the approved budget is prepared on a basis other than the accounting basis.
For example, where the budget is prepared on the cash basis or modified cash
basis and then financial statements are prepared on the accrual basis;
✓Timing differences, which occur when the budget period differs from the
reporting period reflected in the financial statements; and
✓Entity differences, which occur when the budget omits programs or entities that
are part of the entity for which the financial statements are prepared.
✓Original budget is the initial approved budget for the budget period.
End of chapter three