PGC816 PUBLIC SECTOR ACCOUNTING (MSC CLASS)

IPSAS 1 Presentation of Financial Statements

INTRODUCTION

IPSAS are a set of accounting standards issued by the IPSAS Board to

improve the quality of general purpose financial reporting by public
sector entities, UN System organization, government and other non-profit
organizations.

INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARD IPSAS 1

PRESENTATION OF FINANCIAL STATEMENTS The standards, which have

been set in bold italic type, should be read in the context of the
commentary paragraphs in this Standard, which are in plain type, and in
the context of the “Preface to International Public Sector Accounting
Standards.” International Public Sector Accounting Standards are not
intended to apply to immaterial items.

OBJECTIVE

The objective of this Standard is to prescribe the manner in which

general purpose financial statements should be presented in order to
ensure comparability both with the entity’s own financial statements of
previous periods and with the financial statements of other entities. To
achieve this objective, this Standard sets out overall considerations for
the presentation of financial statements, guidance for their structure,
and minimum requirements for the content of financial statements
prepared under the accrual basis of accounting. The recognition,

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measurement and disclosure of specific transactions and other events are
dealt with in other International Public Sector Accounting Standards.

SCOPE 1. This Standard should be applied in the presentation of all

general purpose financial statements prepared and presented under the
accrual basis of accounting in accordance with International Public Sector
Accounting Standards.

2. General purpose financial statements are those intended to meet the

needs of users who are not in a position to demand reports tailored to
meet their specific information needs. Users of general purpose financial
statements include taxpayers and ratepayers, members of the legislature,
creditors, suppliers, the media, and employees. General purpose
financial statements include those that are presented separately or
within another public document such as an annual report. This Standard
does not apply to condensed interim financial information.

3. This Standard applies equally to the financial statements of an

individual entity and to consolidated financial statements for an
economic entity, such as whole-of-government financial statements. 4.
This Standard applies to all public sector entities other than Government
Business Enterprises.

5. Government Business Enterprises (GBEs) are required to comply with

International Accounting Standards (IASs) issued by the International
Accounting Standards Committee. The Public Sector Committee’s
Guideline No. 1 Financial Reporting by Government Business Enterprises.

DEFINITIONS: The following terms are used in this Standard with the
meanings specified: Accounting policies are the specific principles, bases,

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conventions, rules and practices adopted by an entity in preparing and
presenting financial statements. Accrual basis means a basis of
accounting under which transactions and other events are recognized
when they occur (and not only when cash or its equivalent is received or
paid). Therefore, the transactions and events are recorded in the
accounting records and recognized in the financial statements of the
periods to which they relate. The elements recognized under accrual
accounting are assets, liabilities, net assets/equity, revenue and
expenses. Assets are resources controlled by an entity as a result of past
events and from which future economic benefits or service potential are
expected to flow to the entity. Associate is an entity in which the
investor has significant influence and which is neither a controlled entity
nor a joint venture of the investor. Borrowing costs are interest and other
expenses incurred by an entity in connection with the borrowing of funds.
Cash comprises cash on hand and demand deposits. Cash equivalents are
short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of
changes in value. Cash flows are inflows and outflows of cash and cash
equivalents. Consolidated financial statements are the financial
statements of an economic entity presented as those of a single entity.
Contributions from owners means future economic benefits or service
potential that has been contributed to the entity by parties external to
the entity, other than those that result in liabilities of the entity, that
establish a financial interest in the net assets/equity of the entity, which:
(a) conveys entitlement both to distributions of future economic benefits
or service potential by the entity during its life, such distributions being

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at the discretion of the owners or their representatives, and to
distributions of any excess of assets over liabilities in the event of the
entity being wound up; and/or (b) can be sold, exchanged, transferred or
redeemed.

RESPONSIBILITY FOR FINANCIAL STATEMENTS

17. The responsibility for the preparation and presentation of financial

statements varies within and across jurisdictions. In addition, a
jurisdiction may draw a distinction between who is responsible for
preparing the financial statements and who is responsible for approving
or presenting the financial statements. Examples of people or positions
who may be responsible for the preparation of the financial statements of
individual entities (such as government departments or their equivalent)
include the individual who heads the entity (the permanent head or chief
executive) and the head of the central finance agency (or the senior
finance official, such as the controller or accountant-general).

18. The responsibility for the preparation of the consolidated financial

statements of the government as a whole usually rests jointly with the
head of the central finance agency (or the senior finance official, such as
the controller or accountant-general) and the finance minister (or
equivalent).

COMPONENTS OF FINANCIAL STATEMENTS 19. A complete set of

financial statements includes the following components: (a) statement of
financial position; (b) statement of financial performance; (c) statement
of changes in net assets/equity; (d) cash flow statement; and (e)
accounting policies and notes to the financial statements.

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20. The components listed in paragraph 19 are referred to by a variety of
names both within and across jurisdictions. The statement of financial
position may also be referred to as a balance sheet or statement of assets
and liabilities. The statement of financial performance may also be
referred to as a statement of revenues and expenses, an income
statement, an operating

IPSAS 1 — PRESENTATION OF FINANCIAL STATEMENTS

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Net Assets/Equity

12. “Net assets/equity” is the term used in this Standard to refer to the
residual measure in the statement of financial position (assets less
liabilities). Net assets/equity may be positive or negative. Other terms
may be used in place of net assets/equity, provided that their meaning is
clear.

PURPOSE OF FINANCIAL STATEMENTS

13. Financial statements are a structured representation of the financial

position of and the transactions undertaken by an entity. The objectives
of general purpose financial statements are to provide information about
the financial position, performance and cash flows of an entity that is
useful to a wide range of users in making and evaluating decisions about
the allocation of resources. Specifically, the objectives of general
purpose financial reporting in the public sector should be to provide
information useful for decisionmaking, and to demonstrate the
accountability of the entity for the resources entrusted to it by:

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(a) providing information about the sources, allocation and uses of
financial resources;

(b) providing information about how the entity financed its activities and
met its cash requirements;

(c) providing information that is useful in evaluating the entity’s ability to

finance its activities and to meet its liabilities and commitments;

(d) providing information about the financial condition of the entity and
changes in it; and

(e) providing aggregate information useful in evaluating the entity’s

performance in terms of service costs, efficiency and accomplishments.

14. General purpose financial statements can also have a predictive or

prospective role, providing information useful in predicting the level of
resources required for continued operations, the resources that may be
generated by continued operations, and the associated risks and
uncertainties. Financial reporting may also provide users with
information:

(a) indicating whether resources were obtained and used in accordance

with the legally adopted budget; and

(b) indicating whether resources were obtained and used in accordance

with legal and contractual requirements, including financial limits
established by appropriate legislative authorities.

15. To meet these objectives, the financial statements provide

information about an entity’s:

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(a) assets;

(b) liabilities;

(c) net assets/equity;

IPSAS 1 — PRESENTATION OF FINANCIAL STATEMENTS

54

(d) revenue;

(e) expenses; and

(f) cash flows.

RESPONSIBILITY FOR FINANCIAL STATEMENTS

17. The responsibility for the preparation and presentation of financial

statements varies within and across jurisdictions. In addition, a
jurisdiction may draw a distinction between who is responsible for
preparing the financial statements and who is responsible for approving
or presenting the financial statements. Examples of people or positions
who may be responsible for the preparation of the financial statements of
individual entities (such as government departments or their equivalent)
include the individual who heads the entity (the permanent head or chief
executive) and the head of the central finance agency (or the senior
finance official, such as the controller or accountant-general).

18. The responsibility for the preparation of the consolidated financial

statements of the government as a whole usually rests jointly with the
head of the central finance agency (or the senior finance official, such as

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the controller or accountant-general) and the finance minister (or
equivalent).

COMPONENTS OF FINANCIAL STATEMENTS 19.

A complete set of financial statements includes the following

components: (a) statement of financial position; (b) statement of
financial performance; (c) statement of changes in net assets/equity; (d)
cash flow statement; and (e) accounting policies and notes to the
financial statements.

20. The components listed in paragraph 19 are referred to by a variety of

names both within and across jurisdictions. The statement of financial
position may also be referred to as a balance sheet or statement of assets
and liabilities. The statement of financial performance may also be
referred to as a statement of revenues and expenses, an income
statement, an operating

IPSAS 1 — PRESENTATION OF FINANCIAL STATEMENTS

22. Public sector entities are typically subject to budgetary limits in the
form of appropriations or budget authorizations (or equivalent), which
may be given effect through authorizing legislation. General purpose
financial reporting by public sector entities may provide information on
whether resources were obtained and used in accordance with the legally
adopted budget. Where the financial statements and the budget are on
the same basis of accounting, this Standard encourages the inclusion in
the financial statements of a comparison with the budgeted amounts for
the reporting period. Reporting against budgets may be presented in
various different ways, including:

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(a) the use of a columnar format for the financial statements, with
separate columns for budgeted amounts and actual amounts. A column
showing any variances from the budget or appropriation may also be
presented, for completeness; and

(b) a statement by the individual(s) responsible for the preparation of the

financial statements that the budgeted amounts have not been exceeded.
If any budgeted amounts or appropriations have been exceeded, or
expenses incurred without appropriation or other form of authority, then
details may be disclosed by way of footnote to the relevant item in the
financial statements.

23. Entities are encouraged to present additional information to assist

users in assessing the performance of the entity, and its stewardship of
assets, as well as making and evaluating decisions about the allocation of
resources. This additional information may include details about the
entity’s outputs and outcomes in the form of performance indicators,
statements of service performance, program reviews and other reports by
management about the entity’s achievements over the reporting period.

24. Entities are also encouraged to disclose information about

compliance with legislative, regulatory or other externally-imposed
regulations. When information about compliance is not included in the
financial statements, it may be useful for a note to refer to any
documents that include that information. Knowledge of non-compliance
is likely to be relevant for accountability purposes and may affect a
user’s assessment of the entity’s performance and direction of future

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operations. It may also influence decisions about resources to be
allocated to the entity in the future.

IPSAS 1 — PRESENTATION OF FINANCIAL STATEMENTS

(b) gains, losses and related expenses arising from the same or similar
transactions and other events are not material. Such amounts should be
aggregated in accordance with paragraph 50.

56. It is important that both assets and liabilities, and revenue and
expenses, when material, are reported separately. Offsetting in either
the statement of financial performance or the statement of financial
position, except when offsetting reflects the substance of the transaction
or event, detracts from the ability of users to understand the transactions
undertaken and to assess the future cash flows of the entity. The
reporting of assets net of valuation allowances, for example obsolescence
allowances on inventories and doubtful debts allowances on receivables,
is not offsetting.

57. Revenue relating to exchange transactions is measured at the fair

value of consideration received or receivable, taking into account the
amount of any trade discounts and volume rebates allowed by the entity.
An entity undertakes, in the course of its ordinary activities, other
transactions which do not generate revenue but which are incidental to
the main revenue generating activities. The results of such transactions
are presented, when this presentation reflects the substance of the
transaction or event, by netting any revenue with related expenses
arising on the same transaction. For example:

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(a) gains and losses on the disposal of non-current assets, including
investments and operating assets, are reported by deducting from the
proceeds on disposal the carrying amount of the asset and related selling
expenses;

(b) expenses that are reimbursed under a contractual arrangement with a

third party (for example, a sub-letting agreement) are netted against the
related reimbursement; and

(c) extraordinary items may be presented net of related taxation and

minority interest, where appropriate, with the gross amounts shown in
the notes.

58. In addition, gains and losses arising from a group of similar

transactions are reported on a net basis, for example foreign exchange
gains and losses and gains and losses arising on financial instruments held
for trading purposes. Such gains and losses are, however, reported
separately if their size, nature or incidence is such that separate
disclosure is required by IPSAS 3.

59. The offsetting of cash flows is dealt with in International Public

Sector Accounting Standard IPSAS 2 Cash Flow Statements.

Comparative Information 60. Unless an International Public Sector

Accounting Standard permits or requires otherwise, comparative
information should be disclosed in respect of the previous period for all
numerical information in the financial statements, except in respect of
the financial statements for the reporting period to which this Standard is
first applied. Comparative information

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IPSAS 1 — PRESENTATION OF FINANCIAL STATEMENTS

should be included in narrative and descriptive information when it is

relevant to an understanding of the current period’s financial statements

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