PUBLIC SECTOR

IPSAS 1—PRESENTATION OF FINANCIAL STATEMENTS

Acknowledgment
This International Public Sector Accounting Standard (IPSAS) is drawn primarily
from International Accounting Standard (IAS) 1 (Revised 2003), “Presentation of
Financial Statements,” published by the International Accounting Standards Board
(IASB). Extracts from IAS 1 are reproduced in this publication of the International
Public Sector Accounting Standards Board (IPSASB) of the International
Federation of Accountants (IFAC) with the permission of the International
Accounting Standards Committee Foundation (IASCF).
The approved text of the International Financial Reporting Standards (IFRSs) is
that published by the IASB in the English language, and copies may be obtained
directly from IASB Publications Department, 30 Cannon Street, London EC4M
6XH, United Kingdom.
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IFRSs, IASs, Exposure Drafts, and other publications of the IASB are copyright of
the IASCF.
“IFRS,” “IAS,” “IASB,” “IASCF,” “International Accounting Standards,” and
“International Financial Reporting Standards” are trademarks of the IASCF and
should not be used without the approval of the IASCF.

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IPSAS 1—PRESENTATION OF
FINANCIAL STATEMENTS
CONTENTS
Paragraph
Introduction .............................................................................................. IN1–IN23
Objective .................................................................................................. 1
Scope ........................................................................................................ 2–6
Definitions ............................................................................................... 7–14
Economic Entity ............................................................................... 8–10
Future Economic Benefits or Service Potential ................................ 11
Government Business Enterprises .................................................... 12
Materiality ........................................................................................ 13
Net Assets/Equity ............................................................................. 14
Purpose of Financial Statements .............................................................. 15–18
Responsibility for Financial Statements ................................................... 19–20
Components of Financial Statements ....................................................... 21–26
Overall Considerations ............................................................................. 27–58
Fair Presentation and Compliance with IPSASs ............................... 27–37
Going Concern .................................................................................. 38–41
Consistency of Presentation .............................................................. 42–44
Materiality and Aggregation ............................................................. 45–47
Offsetting .......................................................................................... 48–52
Comparative Information .................................................................. 53–58
Structure and Content .............................................................................. 59–150
Introduction ...................................................................................... 59–60
Identification of the Financial Statements ........................................ 61–65
Reporting Period ............................................................................... 66–68
Timeliness ......................................................................................... 69
Statement of Financial Position ........................................................ 70–98

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Current/Non-current Distinction ................................................ 70–75
Current Assets ........................................................................... 76–79
Current Liabilities ...................................................................... 80–87
Information to be Presented on the Face of the Statement of
Financial Position ............................................................... 88–92
Information to be Presented either on the Face of the Statement
of Financial Position or in the Notes .................................. 93–98
Statement of Financial Performance ................................................. 99–117
Surplus or Deficit for the Period ................................................ 99–101
Information to be Presented on the Face of the Statement of
Financial Performance ........................................................ 102–105
Information to be Presented either on the Face of the Statement
of Financial Performance or in the Notes ........................... 106–117
Statement of Changes in Net Assets/Equity ..................................... 118–125
Cash Flow Statement ........................................................................ 126
Notes ................................................................................................. 127–150
Structure .................................................................................... 127–131
Disclosure of Accounting Policies ............................................ 132–139
Key Sources of Estimation Uncertainty .................................... 140–148
Capital ........................................................................................ 148A–148C
Puttable Instruments Classified as Net Assets/Equity ................ 148D
Other Disclosures ...................................................................... 149–150
Transitional Provisions ............................................................................ 151–152
Effective Date .......................................................................................... 153–154
Withdrawal of IPSAS 1 (2000) ................................................................ 155
Appendix A: Qualitative Characteristics of Financial Reporting
Appendix B: Amendments to Other IPSASs
Basis for Conclusions
Implementation Guidance
Comparison with IAS 1

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 PRESENTATION OF FINANCIAL STATEMENTS

International Public Sector Accounting Standard 1, “Presentation of Financial

Statements,” is set out in paragraphs 1−155. All the paragraphs have equal
authority. IPSAS 1 should be read in the context of its objective, the Basis for
Conclusions, and the “Preface to International Public Sector Accounting
Standards.” IPSAS 3, “Accounting Policies, Changes in Accounting Estimates and
Errors,” provides a basis for selecting and applying accounting policies in the
absence of explicit guidance.

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Introduction
IN1. IPSAS 1, “Presentation of Financial Statements,” replaces IPSAS 1,
“Presentation of Financial Statements” (issued May 2000), and should be
applied for annual reporting periods beginning on or after January 1, 2008.
Earlier application is encouraged.

Reasons for Revising IPSAS 1

IN2. The IPSASB developed this revised IPSAS 1 as a response to the IASB’s
project on Improvements to IASs and its own policy to converge public sector
accounting standards with private sector standards to the extent appropriate.
IN3. In developing this revised IPSAS 1, the IPSASB adopted the policy of
amending the IPSAS for those changes made to the former IAS 1,
“Presentation of Financial Statements” made as a consequence of the IASB’s
improvements project, except where the original IPSAS had varied from the
provisions of IAS 1 for a public sector specific reason; such variances are
retained in this IPSAS 1 and are noted in the Comparison with IAS 1. Any
changes to IAS 1 made subsequent to the IASB’s improvements project have
not been incorporated into IPSAS 1.

Changes from Previous Requirements

IN4. The main changes from the previous version of IPSAS 1 are described below.

Scope
IN5. The Standard does not include requirements relating to the selection and
application of accounting policies. These requirements are now included in
IPSAS 3, “Accounting Policies, Changes in Accounting Estimates and
Errors.”
IN6. The Standard includes presentation requirements for surplus or deficit for the
period, these requirements were previously contained in IPSAS 3.

Definitions
IN7. The Standard:
• Defines two new terms: impracticable and notes;
• Changes the name of the term materiality to material and amends the
definition;
• Removes the following unnecessary definitions: associates, borrowing
costs, cash, cash equivalents, cash flows, consolidated financial
statements, control, controlled entity, controlling entity, equity method,
exchange difference, fair value, financial assets, foreign currency,
foreign operation, minority interest, and qualifying assets. These terms

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are defined in other IPSASs and are reproduced in the “Glossary of

Defined Terms”; and
• Removes the following terms, which no longer exist: extraordinary items,
fundamental errors, net surplus/deficit, ordinary activities, reporting
currency and surplus/deficit from ordinary activities. These definitions
have also been eliminated in relevant IPSASs, e.g., IPSAS 3, “Accounting
Policies, Changes in Accounting Estimates and Errors” and IPSAS 4, “The
Effects of Changes in Foreign Exchange Rates.”
IN8. The Standard includes the interpretation of the term materiality and the notion
of characteristics of users. Previously, IPSAS 1 did not contain this
commentary.

Fair Presentation and Departure from IPSASs

IN9. The Standard clarifies that fair presentation requires the faithful representation
of the effects of transactions, other events and conditions in accordance with
the definitions and recognition criteria for assets, liabilities, revenue and
expenses set out in the IPSASs. Previously, IPSAS 1 did not contain the
guidance on the meaning of fair presentation.
IN10. The Standard requires that in the extremely rare circumstances in which
management concludes that compliance with a requirement in an IPSAS
would be so misleading that it would conflict with the objective of financial
statements set out in IPSAS 1, departure from the requirement is required
unless departure is prohibited by the relevant regulatory framework. In either
case, the entity is required to make specified disclosures. The superseded
IPSAS 1 did not set up the criterion for departure from IPSASs and did not
distinguish the circumstances in which the regulatory framework permits or
prohibits the departure from IPSASs.
IN11. The Standard does not include requirements related to the selection and
application of accounting policies. IPSAS 3 contains such requirements. The
superseded IPSAS 1 included requirements related to the selection and
application of accounting policies.

Classification of Assets and Liabilities

IN12. The Standard requires that an entity uses the order of liquidity to present
assets and liabilities only when a liquidity presentation provides information
that is reliable and more relevant than a current/non-current presentation. The
superseded IPSAS 1 did not contain such limitation.
IN13. The Standard requires that a liability held primarily for the purpose of being
traded be classified as current. The superseded IPSAS 1 did not specify this
criterion for liabilities classified as current.

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IN14. The Standard requires that a financial liability that is due within twelve months
after the reporting date, or for which the entity does not have an unconditional
right to defer its settlement for at least twelve months after the reporting date, is
classified as a current liability. This classification is required even if an agreement
to refinance, or to reschedule payments, on a long-term basis is completed after
the reporting date and before the financial statements are authorized for issue. The
superseded IPSAS 1 required such liabilities to be classified as non-current.
IN15. The Standard clarifies that a liability is classified as non-current when the entity
has, under the terms of an existing loan facility, the discretion to refinance or roll
over its obligations for at least twelve months after the reporting date.
IN16. The Standard requires that when a long-term financial liability is payable on
demand because the entity has breached a condition of its loan agreement on
or before the reporting date, the liability is classified as current at the
reporting date even if, after the reporting date and before the financial
statements are authorized for issue, the lender has agreed not to demand
payment as a consequence of the breach. The previous version of IPSAS 1
required such liabilities to be classified as non-current.
IN17. The Standard clarifies that the liability is classified as non-current if the lender
agreed by the reporting date to provide a period of grace ending at least
twelve months after the reporting date, within which the entity can rectify the
breach and during which the lender cannot demand immediate repayment.

Presentation and Disclosure

Statement of Financial Performance
IN18. The Standard sets out the presentation requirements for surplus or deficit for
the period. These requirements were previously included in IPSAS 3.
IN19. The Standard does not require the presentation of the following line items
from the face of the statement of financial performance:
• Surplus or deficit from operating activities;
• Surplus or deficit from ordinary activities; and
• Extraordinary items.
The superseded IPSAS 1 required the presentation of these items.
IN20. The Standard requires the separate presentation, on the face of the statement
of financial performance, of the entity’s surplus or deficit for the period
allocated between: “surplus or deficit attributable to owners of the controlling
entity;” and “surplus or deficit attributable to minority interest.” The
superseded IPSAS 1 did not contain these presentation requirements.

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Statement of Changes in Net Assets/Equity

IN21. The Standard requires the presentation, on the face of the statement of
changes in net assets/equity, of the entity’s total amount of revenue and
expense for the period (including amounts recognized directly in net
assets/equity), showing separately the amounts attributable to minority
interest and owners of the controlling entity. The superseded IPSAS 1 did not
require presentation of these items.

Notes
IN22. The Standard requires that an entity shall disclose the judgments, apart from
those involving estimations, management has made in the process of applying
the entity’s accounting policies that have the most significant effect on the
amounts recognized in the financial statements (e.g., management’s judgment
in determining whether assets are investment properties). The superseded
IPSAS 1 did not contain these disclosure requirements.
IN23. The Standard requires that an entity disclose the key assumptions concerning
the future and other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year. The
superseded IPSAS 1 did not contain these disclosure requirements.

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Objective
1. The objective of this Standard is to prescribe the manner in which general
purpose financial statements should be presented to ensure comparability
both with the entity’s 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, measurement, and disclosure of specific
transactions and other events are dealt with in other IPSASs.

Scope
2. This Standard shall be applied to all general purpose financial
statements prepared and presented under the accrual basis of
accounting in accordance with IPSASs.
3. 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
particular 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.
4. This Standard applies equally to all entities and whether or not they need to
prepare consolidated financial statements or separate financial statements, as
defined in IPSAS 6, “Consolidated and Separate Financial Statements.”
5. This Standard applies to all public sector entities other than
Government Business Enterprises.
6. The “Preface to International Public Sector Accounting Standards” issued
by the IPSASB explains that Government Business Enterprises (GBEs)
apply IFRSs issued by the IASB. GBEs are defined in paragraph 7 below.

Definitions
7. The following terms are used in this Standard with the meanings
specified:
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

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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.
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 (i) distributions of future economic
benefits or service potential by the entity during its life, such
distributions being at the discretion of the owners or their
representatives, and to (ii) 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.
Distributions to owners means future economic benefits or service
potential distributed by the entity to all or some of its owners, either
as a return on investment or as a return of investment.
Economic entity means a group of entities comprising a controlling
entity and one or more controlled entities.
Expenses are decreases in economic benefits or service potential
during the reporting period in the form of outflows or consumption
of assets or incurrences of liabilities that result in decreases in net
assets/equity, other than those relating to distributions to owners.
Government Business Enterprise means an entity that has all the
following characteristics:
(a) Is an entity with the power to contract in its own name;
(b) Has been assigned the financial and operational authority to
carry on a business;
(c) Sells goods and services, in the normal course of its business, to
other entities at a profit or full cost recovery;
(d) Is not reliant on continuing government funding to be a going
concern (other than purchases of outputs at arm’s length); and
(e) Is controlled by a public sector entity.
Impracticable Applying a requirement is impracticable when the
entity cannot apply it after making every reasonable effort to do so.

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Liabilities are present obligations of the entity arising from past
events, the settlement of which is expected to result in an outflow from
the entity of resources embodying economic benefits or service
potential.
Material Omissions or misstatements of items are material if they
could, individually or collectively, influence the decisions or
assessments of users made on the basis of the financial statements.
Materiality depends on the nature and size of the omission or
misstatement judged in the surrounding circumstances. The nature or
size of the item, or a combination of both, could be the determining
factor.
Net assets/equity is the residual interest in the assets of the entity
after deducting all its liabilities.
Notes contain information in addition to that presented in the
statement of financial position, statement of financial performance,
statement of changes in net assets/equity and cash flow statement.
Notes provide narrative descriptions or disaggregations of items
disclosed in those statements and information about items that do
not qualify for recognition in those statements.
Revenue is the gross inflow of economic benefits or service
potential during the reporting period when those inflows result in
an increase in net assets/equity, other than increases relating to
contributions from owners.
Terms defined in other IPSASs are used in this Standard with the
same meaning as in those Standards, and are reproduced in the
Glossary of Defined Terms published separately.
7A. The following terms are described in IPSAS 28, “Financial Instruments:
Presentation” and are used in this Standard with the meaning specified in
IPSAS 28:
(a) Puttable financial instrument classified as an equity instrument
(described in paragraphs 15 and 16 of IPSAS 28);
(b) An instrument that imposes on the entity an obligation to deliver to
another party a pro rata share of the net assets of the entity only on
liquidation and is classified as an equity instrument (described in
paragraphs 17 and 18 of IPSAS 28).

Economic Entity
8. The term economic entity is used in this Standard to define, for financial
reporting purposes, a group of entities comprising the controlling entity
and any controlled entities.

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9. gOther terms sometimes used to refer to an economic entity include

administrative entity, financial entity, consolidated entity, and group.
10. An economic entity may include entities with both social policy and
commercial objectives. For example, a government housing department
may be an economic entity that includes entities that provide housing for
a nominal charge, as well as entities that provide accommodation on a
commercial basis.

Future Economic Benefits or Service Potential

11. Assets provide a means for entities to achieve their objectives. Assets that
are used to deliver goods and services in accordance with an entity’s
objectives, but which do not directly generate net cash inflows, are often
described as embodying service potential. Assets that are used to generate
net cash inflows are often described as embodying future economic
benefits. To encompass all the purposes to which assets may be put, this
Standard uses the term “future economic benefits or service potential” to
describe the essential characteristic of assets.

Government Business Enterprises

12. GBEs include both trading enterprises, such as utilities, and financial
enterprises, such as financial institutions. GBEs are, in substance, no
different from entities conducting similar activities in the private sector.
GBEs generally operate to make a profit, although some may have
limited community service obligations under which they are required to
provide some individuals and organizations in the community with goods
and services at either no charge or a significantly reduced charge.
IPSAS 6 provides guidance on determining whether control exists for
financial reporting purposes, and should be referred to in determining
whether a GBE is controlled by another public sector entity.

Materiality
13. Assessing whether an omission or misstatement could influence decisions
of users, and so be material, requires consideration of the characteristics
of those users. Users are assumed to have a reasonable knowledge of the
public sector and economic activities and accounting, and a willingness to
study the information with reasonable diligence. Therefore, the
assessment needs to take into account how users with such attributes
could reasonably be expected to be influenced in making and evaluating
decisions.

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Net Assets/Equity
14. 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

15. Financial statements are a structured representation of the financial
position and financial performance of an entity. The objectives of general
purpose financial statements are to provide information about the
financial position, financial 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 decision making, and to demonstrate the
accountability of the entity for the resources entrusted to it, by:
(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.
16. 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.
17. 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;
(d) Revenue;
(e) Expenses;
(f) Other changes in net assets/equity; and
(g) Cash flows.
18. Although the information contained in financial statements can be
relevant for the purpose of meeting the objectives in paragraph 15, it is
unlikely to enable all these objectives to be met. This is likely to be
particularly so in respect of entities whose primary objective may not be
to make a profit, as managers are likely to be accountable for the
achievement of service delivery as well as financial objectives.
Supplementary information, including non-financial statements, may be
reported alongside the financial statements in order to provide a more
comprehensive picture of the entity’s activities during the period.

Responsibility for Financial Statements

19. 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).
20. 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

21. A complete set of financial statements comprises:
(a) A statement of financial position;
(b) A statement of financial performance;
(c) A statement of changes in net assets/equity;

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(d) A cash flow statement;
(e) When the entity makes publicly available its approved budget,
a comparison of budget and actual amounts either as a
separate additional financial statement or as a budget column
in the financial statements; and
(f) Notes, comprising a summary of significant accounting policies
and other explanatory notes.
22. The components listed in paragraph 21 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 statement, or a profit and loss statement. The notes may
include items referred to as schedules in some jurisdictions.
23. The financial statements provide users with information about an entity’s
resources and obligations at the reporting date and the flow of resources
between reporting dates. This information is useful for users making
assessments of an entity’s ability to continue to provide goods and
services at a given level, and the level of resources that may need to be
provided to the entity in the future so that it can continue to meet its
service delivery obligations.
24. 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. Entities that make publicly available their approved budget(s) are
required to comply with the requirements of IPSAS 24, “Presentation of
Budget Information in Financial Statements.” For other entities, 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 budget(s) for these entities may be presented in
various different ways, including:
• 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
• Disclosure 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,

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then details may be disclosed by way of footnote to the relevant

item in the financial statements.
25. 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 (a) performance indicators, (b) statements of
service performance, (c) program reviews, and (d) other reports by
management about the entity’s achievements over the reporting period.
26. 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 operations. It may also influence
decisions about resources to be allocated to the entity in the future.

Overall Considerations
Fair Presentation and Compliance with IPSASs
27. Financial statements shall present fairly the financial position,
financial performance, and cash flows of an entity. Fair presentation
requires the faithful representation of the effects of transactions,
other events, and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, revenue, and expenses set
out in IPSASs. The application of IPSASs, with additional disclosures
when necessary, is presumed to result in financial statements that
achieve a fair presentation.
28. An entity whose financial statements comply with IPSASs shall make
an explicit and unreserved statement of such compliance in the notes.
Financial statements shall not be described as complying with
IPSASs unless they comply with all the requirements of IPSASs.
29. In virtually all circumstances, a fair presentation is achieved by compliance
with applicable IPSASs. A fair presentation also requires an entity:
(a) To select and apply accounting policies in accordance with
IPSAS 3, “Accounting Policies, Changes in Accounting Estimates
and Errors.” IPSAS 3 sets out a hierarchy of authoritative guidance
that management considers, in the absence of a Standard that
specifically applies to an item.

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(b) To present information, including accounting policies, in a manner
that provides relevant, reliable, comparable, and understandable
information.
(c) To provide additional disclosures when compliance with the specific
requirements in IPSASs is insufficient to enable users to understand
the impact of particular transactions, other events, and conditions on
the entity’s financial position and financial performance.
30. Inappropriate accounting policies are not rectified either by disclosure of
the accounting policies used, or by notes or explanatory material.
31. In the extremely rare circumstances in which management concludes
that compliance with a requirement in a Standard would be so
misleading that it would conflict with the objective of financial
statements set out in this Standard, the entity shall depart from that
requirement in the manner set out in paragraph 32 if the relevant
regulatory framework requires, or otherwise does not prohibit, such a
departure.
32. When an entity departs from a requirement of a Standard in
accordance with paragraph 31, it shall disclose:
(a) That management has concluded that the financial statements
present fairly the entity’s financial position, financial
performance, and cash flows;
(b) That it has complied with applicable IPSASs, except that it has
departed from a particular requirement to achieve a fair
presentation;
(c) The title of the Standard from which the entity has departed,
the nature of the departure, including the treatment that the
Standard would require, the reason why that treatment would
be so misleading in the circumstances that it would conflict
with the objective of financial statements set out in this
Standard, and the treatment adopted; and
(d) For each period presented, the financial impact of the
departure on each item in the financial statements that would
have been reported in complying with the requirement.
33. When an entity has departed from a requirement of a Standard in a
prior period, and that departure affects the amounts recognized in
the financial statements for the current period, it shall make the
disclosures set out in paragraph 32(c) and (d).
34. Paragraph 33 applies, for example, when an entity departed in a prior
period from a requirement in a Standard for the measurement of assets or

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 PRESENTATION OF FINANCIAL STATEMENTS

liabilities, and that departure affects the measurement of changes in assets

and liabilities recognized in the current period’s financial statements.
35. In the extremely rare circumstances in which management concludes
that compliance with a requirement in a Standard would be so
misleading that it would conflict with the objective of financial
statements set out in this Standard, but the relevant regulatory
framework prohibits departure from the requirement, the entity
shall, to the maximum extent possible, reduce the perceived
misleading aspects of compliance by disclosing:
(a) The title of the Standard in question, the nature of the
requirement, and the reason why management has concluded
that complying with that requirement is so misleading in the
circumstances that it conflicts with the objective of financial
statements set out in this Standard; and
(b) For each period presented, the adjustments to each item in the
financial statements that management has concluded would be
necessary to achieve a fair presentation.
36. For the purpose of paragraphs 31−35, an item of information would
conflict with the objective of financial statements when it does not
represent faithfully the transactions, other events, and conditions that it
either purports to represent or could reasonably be expected to represent
and, consequently, it would be likely to influence decisions made by
users of financial statements. When assessing whether complying with a
specific requirement in a Standard would be so misleading that it would
conflict with the objective of financial statements set out in this Standard,
management considers:
(a) Why the objective of financial statements is not achieved in the
particular circumstances; and
(b) How the entity’s circumstances differ from those of other entities
that comply with the requirement. If other entities in similar
circumstances comply with the requirement, there is a rebuttable
presumption that the entity’s compliance with the requirement
would not be so misleading that it would conflict with the
objective of the financial statements set out in this Standard.
37. Departures from the requirements of an IPSAS in order to comply with
statutory/legislative financial reporting requirements in a particular
jurisdiction do not constitute departures that conflict with the objective of
financial statements set out in this Standard as outlined in paragraph 31.
If such departures are material, an entity cannot claim to be complying
with IPSASs.

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Going Concern
38. When preparing financial statements, an assessment of an entity’s
ability to continue as a going concern shall be made. This assessment
shall be made by those responsible for the preparation of financial
statements. Financial statements shall be prepared on a going
concern basis unless there is an intention to liquidate the entity or to
cease operating, or if there is no realistic alternative but to do so.
When those responsible for the preparation of the financial
statements are aware, in making their assessment, of material
uncertainties related to events or conditions that may cast significant
doubt upon the entity’s ability to continue as a going concern, those
uncertainties shall be disclosed. When financial statements are not
prepared on a going concern basis, that fact shall be disclosed,
together with the basis on which the financial statements are
prepared and the reason why the entity is not regarded as a going
concern.
39. Financial statements are normally prepared on the assumption that the
entity is a going concern and will continue in operation and meet its
statutory obligations for the foreseeable future. In assessing whether the
going concern assumption is appropriate, those responsible for the
preparation of financial statements take into account all available
information about the future, which is at least, but is not limited to,
twelve months from the approval of the financial statements.
40. The degree of consideration depends on the facts in each case, and
assessments of the going concern assumption are not predicated on the
solvency test usually applied to business enterprises. There may be
circumstances where the usual going concern tests of liquidity and
solvency appear unfavorable, but other factors suggest that the entity is
nonetheless a going concern. For example:
(a) In assessing whether a government is a going concern, the power
to levy rates or taxes may enable some entities to be considered as
a going concern, even though they may operate for extended
periods with negative net assets/equity; and
(b) For an individual entity, an assessment of its statement of financial
position at the reporting date may suggest that the going concern
assumption is not appropriate. However, there may be multi-year
funding agreements or other arrangements in place that will ensure
the continued operation of the entity.
41. The determination of whether the going concern assumption is
appropriate is primarily relevant for individual entities rather than for a
government as a whole. For individual entities, in assessing whether the
going concern basis is appropriate, those responsible for the preparation
39 IPSAS 1
 PRESENTATION OF FINANCIAL STATEMENTS

of financial statements may need to consider a wide range of factors

relating to (a) current and expected performance, (b) potential and
announced restructurings of organizational units, (c) estimates of revenue
or the likelihood of continued government funding, and (d) potential
sources of replacement financing before it is appropriate to conclude that
the going concern assumption is appropriate.

Consistency of Presentation
42. The presentation and classification of items in the financial
statements shall be retained from one period to the next unless:
(a) It is apparent, following a significant change in the nature of
the entity’s operations or a review of its financial statements,
that another presentation or classification would be more
appropriate having regard to the criteria for the selection and
application of accounting policies in IPSAS 3; or
(b) An IPSAS requires a change in presentation.
43. A significant acquisition or disposal, or a review of the presentation of the
financial statements, might suggest that the financial statements need to
be presented differently. For example, an entity may dispose of a savings
bank that represents one of its most significant controlled entities and the
remaining economic entity conducts mainly administrative and policy
advice services. In this case, the presentation of the financial statements
based on the principal activities of the economic entity as a financial
institution is unlikely to be relevant for the new economic entity.
44. An entity changes the presentation of its financial statements only if the
changed presentation provides information that is reliable and is more
relevant to users of the financial statements, and the revised structure is
likely to continue, so that comparability is not impaired. When making
such changes in presentation, an entity reclassifies its comparative
information in accordance with paragraphs 55 and 56.

Materiality and Aggregation

45. Each material class of similar items shall be presented separately in
the financial statements. Items of a dissimilar nature or function shall
be presented separately, unless they are immaterial.
46. Financial statements result from processing large numbers of transactions
or other events that are aggregated into classes according to their nature
or function. The final stage in the process of aggregation and
classification is the presentation of condensed and classified data, which
form line items on the face of the statement of financial position,
statement of financial performance, statement of changes in net
assets/equity, and cash flow statement, or in the notes. If a line item is not
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PUBLIC SECTOR
individually material, it is aggregated with other items either on the face
of those statements or in the notes. An item that is not sufficiently
material to warrant separate presentation on the face of those statements
may nevertheless be sufficiently material for it to be presented separately
in the notes.
47. Applying the concept of materiality means that a specific disclosure
requirement in an IPSAS need not be satisfied if the information is not
material.

Offsetting
48. Assets and liabilities, and revenue and expenses, shall not be offset
unless required or permitted by an IPSAS.
49. It is important that assets and liabilities, and revenue and expenses, are
reported separately. Offsetting in the statement of financial performance
or the statement of financial position, except when offsetting reflects the
substance of the transaction or other event, detracts from the ability of
users both (a) to understand the transactions, other events and conditions
that have occurred, and (b) to assess the entity’s future cash flows.
Measuring assets net of valuation allowances – for example, obsolescence
allowances on inventories and doubtful debts allowances on receivables –
is not offsetting.
50. IPSAS 9, “Revenue from Exchange Transactions,” defines revenue and
requires it to be 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 that do not generate revenue
but 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 other event, by netting any revenue with
related expenses arising on the same transaction. For example:
(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; and
(b) Expenses related to a provision that is recognized in accordance
with IPSAS 19, “Provisions, Contingent Liabilities and Contingent
Assets,” and reimbursed under a contractual arrangement with a
third party (for example, a supplier’s warranty agreement) may be
netted against the related reimbursement.
51. In addition, gains and losses arising from a group of similar transactions
are reported on a net basis, for example, foreign exchange gains and

41 IPSAS 1
 PRESENTATION OF FINANCIAL STATEMENTS

losses and gains and losses arising on financial instruments held for
trading. Such gains and losses are, however, reported separately if they
are material.
52. The offsetting of cash flows is dealt with in IPSAS 2, “Cash Flow
Statements.”

Comparative Information
53. Except when an IPSAS permits or requires otherwise, comparative
information shall be disclosed in respect of the previous period for all
amounts reported in the financial statements. Comparative
information shall be included for narrative and descriptive
information when it is relevant to an understanding of the current
period’s financial statements.
54. In some cases, narrative information provided in the financial statements
for the previous period(s) continues to be relevant in the current period.
For example, details of a legal dispute, the outcome of which was
uncertain at the last reporting date and is yet to be resolved, are disclosed
in the current period. Users benefit from information (a) that the
uncertainty existed at the last reporting date, and (b) about the steps that
have been taken during the period to resolve the uncertainty.
55. When the presentation or classification of items in the financial
statements is amended, comparative amounts shall be reclassified
unless the reclassification is impracticable. When comparative
amounts are reclassified, an entity shall disclose:
(a) The nature of the reclassification;
(b) The amount of each item or class of items that is reclassified;
and
(c) The reason for the reclassification.
56. When it is impracticable to reclassify comparative amounts, an entity
shall disclose:
(a) The reason for not reclassifying the amounts; and
(b) The nature of the adjustments that would have been made if
the amounts had been reclassified.
57. Enhancing the inter-period comparability of information assists users in
making and evaluating decisions, especially by allowing the assessment
of trends in financial information for predictive purposes. In some
circumstances, it is impracticable to reclassify comparative information
for a particular prior period to achieve comparability with the current
period. For example, data may not have been collected in the prior

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PUBLIC SECTOR
period(s) in a way that allows reclassification, and it may not be
practicable to recreate the information.
58. IPSAS 3 deals with the adjustments to comparative information required
when an entity changes an accounting policy or corrects an error.

Structure and Content

Introduction
59. This Standard requires particular disclosures on the face of the statement
of financial position, statement of financial performance, and statement of
changes in net assets/equity, and requires disclosure of other line items
either on the face of those statements or in the notes. IPSAS 2 sets out
requirements for the presentation of a cash flow statement.
60. This Standard sometimes uses the term disclosure in a broad sense,
encompassing items presented on the face of the (a) statement of financial
position, (b) statement of financial performance, (c) statement of changes in
net assets/equity, and (d) cash flow statement, as well as in the notes.
Disclosures are also required by other IPSASs. Unless specified to the
contrary elsewhere in this Standard, or in another Standard, such disclosures
are made either on the face of the statement of financial position, statement of
financial performance, statement of changes in net assets/equity or cash flow
statement (whichever is relevant), or in the notes.

Identification of the Financial Statements

61. The financial statements shall be identified clearly, and distinguished
from other information in the same published document.
62. IPSASs apply only to financial statements, and not to other information
presented in an annual report or other document. Therefore, it is
important that users can distinguish information that is prepared using
IPSASs from other information that may be useful to users but is not the
subject of those requirements.
63. Each component of the financial statements shall be identified
clearly. In addition, the following information shall be displayed
prominently, and repeated when it is necessary for a proper
understanding of the information presented:
(a) The name of the reporting entity or other means of
identification, and any change in that information from the
preceding reporting date;
(b) Whether the financial statements cover the individual entity or
the economic entity;

43 IPSAS 1
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(c) The reporting date or the period covered by the financial

statements, whichever is appropriate to that component of the
financial statements;
(d) The presentation currency, as defined in IPSAS 4, “The
Effects of Changes in Foreign Exchange Rates;” and
(e) The level of rounding used in presenting amounts in the
financial statements.
64. The requirements in paragraph 63 are normally met by presenting page
headings and abbreviated column headings on each page of the financial
statements. Judgment is required in determining the best way of
presenting such information. For example, when the financial statements
are presented electronically, separate pages are not always used; the
above items are then presented frequently enough to ensure a proper
understanding of the information included in the financial statements.
65. Financial statements are often made more understandable by presenting
information in thousands or millions of units of the presentation currency.
This is acceptable as long as the level of rounding in presentation is
disclosed and material information is not omitted.

Reporting Period
66. Financial statements shall be presented at least annually. When an
entity’s reporting date changes and the annual financial statements
are presented for a period longer or shorter than one year, an entity
shall disclose, in addition to the period covered by the financial
statements:
(a) The reason for using a longer or shorter period; and
(b) The fact that comparative amounts for certain statements such
as the statement of financial performance, statement of
changes in net assets/equity, cash flow statement, and related
notes are not entirely comparable.
67. In exceptional circumstances, an entity may be required to, or decide to,
change its reporting date, for example in order to align the reporting cycle
more closely with the budgeting cycle. When this is the case, it is
important that (a) users be aware that the amounts shown for the current
period and comparative amounts are not comparable, and (b) the reason
for the change in reporting date is disclosed. A further example is where,
in making the transition from cash to accrual accounting, an entity
changes the reporting date for entities within the economic entity to
enable the preparation of consolidated financial statements.

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PUBLIC SECTOR
68. Normally, financial statements are consistently prepared covering a one-
year period. However, for practical reasons, some entities prefer to report,
for example, for a 52-week period. This Standard does not preclude this
practice, because the resulting financial statements are unlikely to be
materially different from those that would be presented for one year.

Timeliness
69. The usefulness of financial statements is impaired if they are not made
available to users within a reasonable period after the reporting date. An
entity should be in a position to issue its financial statements within six
months of the reporting date. Ongoing factors such as the complexity of
an entity’s operations are not sufficient reason for failing to report on a
timely basis. More specific deadlines are dealt with by legislation and
regulations in many jurisdictions.

Statement of Financial Position

Current/Non-current Distinction
70. An entity shall present current and non-current assets, and current and
non-current liabilities, as separate classifications on the face of its
statement of financial position in accordance with paragraphs 76−87,
except when a presentation based on liquidity provides information that
is reliable and is more relevant. When that exception applies, all assets
and liabilities shall be presented broadly in order of liquidity.
71. Whichever method of presentation is adopted, for each asset and
liability line item that combines amounts expected to be recovered or
settled (a) no more than twelve months after the reporting date, and
(b) more than twelve months after the reporting date, an entity shall
disclose the amount expected to be recovered or settled after more
than twelve months.
72. When an entity supplies goods or services within a clearly identifiable
operating cycle, separate classification of current and non-current assets
and liabilities on the face of the statement of financial position provides
useful information by distinguishing the net assets that are continuously
circulating as working capital from those used in the entity’s long-term
operations. It also highlights assets that are expected to be realized within
the current operating cycle, and liabilities that are due for settlement
within the same period.
73. For some entities, such as financial institutions, a presentation of assets
and liabilities in increasing or decreasing order of liquidity provides
information that is reliable and is more relevant than a current/non-
current presentation, because the entity does not supply goods or services
within a clearly identifiable operating cycle.

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74. In applying paragraph 70, an entity is permitted to present some of its

assets and liabilities using a current/non-current classification, and others
in order of liquidity, when this provides information that is reliable and is
more relevant. The need for a mixed basis of presentation might arise
when an entity has diverse operations.
75. Information about expected dates of realization of assets and liabilities is
useful in assessing the liquidity and solvency of an entity. IPSAS 30,
“Financial Instruments: Disclosures,” requires disclosure of the maturity
dates of financial assets and financial liabilities. Financial assets include
trade and other receivables, and financial liabilities include trade and
other payables. Information on the expected date of recovery and
settlement of non-monetary assets and liabilities such as inventories and
provisions is also useful, whether or not assets and liabilities are
classified as current or non-current.

Current Assets
76. An asset shall be classified as current when it satisfies any of the
following criteria:
(a) It is expected to be realized in, or is held for sale or
consumption in, the entity’s normal operating cycle;
(b) It is held primarily for the purpose of being traded;
(c) It is expected to be realized within twelve months after the
reporting date; or
(d) It is cash or a cash equivalent (as defined in IPSAS 2), unless it
is restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting date.
All other assets shall be classified as non-current.
77. This Standard uses the term non-current assets to include tangible,
intangible, and financial assets of a long-term nature. It does not prohibit
the use of alternative descriptions as long as the meaning is clear.
78. The operating cycle of an entity is the time taken to convert inputs or
resources into outputs. For instance, governments transfer resources to public
sector entities so that they can convert those resources into goods and
services, or outputs, to meet the government’s desired social, political, and
economic outcomes. When the entity’s normal operating cycle is not clearly
identifiable, its duration is assumed to be twelve months.
79. Current assets include assets (such as taxes receivable, user charges
receivable, fines and regulatory fees receivable, inventories and accrued
investment revenue) that are either realized, consumed or sold, as part of
the normal operating cycle even when they are not expected to be realized
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PUBLIC SECTOR
within twelve months after the reporting date. Current assets also include
assets held primarily for the purpose of trading (examples include some
financial assets classified as held for trading in accordance with
IPSAS 29, “Financial Instruments: Recognition and Measurement”) and
the current portion of non-current financial assets.

Current Liabilities
80. A liability shall be classified as current when it satisfies any of the
following criteria:
(a) It is expected to be settled in the entity’s normal operating
cycle;
(b) It is held primarily for the purpose of being traded;
(c) It is due to be settled within twelve months after the reporting
date; or
(d) The entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the
reporting date.
All other liabilities shall be classified as non-current.
81. Some current liabilities, such as government transfers payable and some
accruals for employee and other operating costs, are part of the working
capital used in the entity’s normal operating cycle. Such operating items
are classified as current liabilities even if they are due to be settled more
than twelve months after the reporting date. The same normal operating
cycle applies to the classification of an entity’s assets and liabilities.
When the entity’s normal operating cycle is not clearly identifiable, its
duration is assumed to be twelve months.
82. Other current liabilities are not settled as part of the normal operating cycle,
but are due for settlement within twelve months after the reporting date or
held primarily for the purpose of being traded. Examples are some financial
liabilities classified as held for trading in accordance with IPSAS 29, bank
overdrafts, and the current portion of non-current financial liabilities,
dividends payable, income taxes and other non-trade payables. Financial
liabilities that provide financing on a long-term basis (i.e., are not part of the
working capital used in the entity’s normal operating cycle) and are not due
for settlement within twelve months after the reporting date are non-current
liabilities, subject to paragraphs 85 and 86.
83. An entity classifies its financial liabilities as current when they are due to
be settled within twelve months after the reporting date, even if:
(a) The original term was for a period longer than twelve months; and

47 IPSAS 1
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(b) An agreement to refinance, or to reschedule payments, on a long-

term basis is completed after the reporting date and before the
financial statements are authorized for issue.
84. If an entity expects, and has the discretion, to refinance or roll over an
obligation for at least twelve months after the reporting date under an
existing loan facility, it classifies the obligation as non-current, even if it
would otherwise be due within a shorter period. However, when
refinancing or rolling over the obligation is not at the discretion of the
entity (for example, there is no agreement to refinance), the potential to
refinance is not considered and the obligation is classified as current.
85. When an entity breaches an undertaking under a long-term loan
agreement on or before the reporting date, with the effect that the liability
becomes payable on demand, the liability is classified as current, even if
the lender has agreed, after the reporting date and before the authorization
of the financial statements for issue, not to demand payment as a
consequence of the breach. The liability is classified as current because,
at the reporting date, the entity does not have an unconditional right to
defer its settlement for at least twelve months after that date.
86. However, the liability is classified as non-current if the lender agreed by
the reporting date to provide a period of grace ending at least twelve
months after the reporting date, within which the entity can rectify the
breach and during which the lender cannot demand immediate repayment.
87. In respect of loans classified as current liabilities, if the following events
occur between the reporting date and the date the financial statements are
authorized for issue, those events qualify for disclosure as non-adjusting
events in accordance with IPSAS 14, “Events after the Reporting Date:”
(a) Refinancing on a long-term basis;
(b) Rectification of a breach of a long-term loan agreement; and
(c) The receipt from the lender of a period of grace to rectify a breach
of a long-term loan agreement ending at least twelve months after
the reporting date.

Information to be Presented on the Face of the Statement of Financial Position

88. As a minimum, the face of the statement of financial position shall
include line items that present the following amounts:
(a) Property, plant and equipment;
(b) Investment property;
(c) Intangible assets;

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(d) Financial assets (excluding amounts shown under (e), (g), (h)
and (i));
(e) Investments accounted for using the equity method;
(f) Inventories;
(g) Recoverables from non-exchange transactions (taxes and
transfers);
(h) Receivables from exchange transactions;
(i) Cash and cash equivalents;
(j) Taxes and transfers payable;
(k) Payables under exchange transactions;
(l) Provisions;
(m) Financial liabilities (excluding amounts shown under (j), (k)
and (l));
(n) Minority interest, presented within net assets/equity; and
(o) Net assets/equity attributable to owners of the controlling
entity.
89. Additional line items, headings, and sub-totals shall be presented on
the face of the statement of financial position when such presentation
is relevant to an understanding of the entity’s financial position.
90. This Standard does not prescribe the order or format in which items are to be
presented. Paragraph 88 simply provides a list of items that are sufficiently
different in nature or function to warrant separate presentation on the face of
the statement of financial position. Illustrative formats are set out in
Implementation Guidance to this Standard. In addition:
(a) Line items are included when the size, nature, or function of an item
or aggregation of similar items is such that separate presentation is
relevant to an understanding of the entity’s financial position; and
(b) The descriptions used and the ordering of items or aggregation of
similar items may be amended according to the nature of the entity
and its transactions, to provide information that is relevant to an
understanding of the entity’s financial position.
91. The judgment on whether additional items are presented separately is
based on an assessment of:
(a) The nature and liquidity of assets;
(b) The function of assets within the entity; and

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 PRESENTATION OF FINANCIAL STATEMENTS

(c) The amounts, nature and timing of liabilities.

92. The use of different measurement bases for different classes of assets
suggests that their nature or function differs and, therefore, that they
should be presented as separate line items. For example, different classes
of property, plant, and equipment can be carried at cost or revalued
amounts in accordance with IPSAS 17, “Property, Plant and Equipment.”

Information to be Presented either on the Face of the Statement of Financial

Position or in the Notes
93. An entity shall disclose, either on the face of the statement of financial
position or in the notes, further subclassifications of the line items
presented, classified in a manner appropriate to the entity’s operations.
94. The detail provided in subclassifications depends on the requirements of
IPSASs and on the size, nature and function of the amounts involved. The
factors set out in paragraph 91 also are used to decide the basis of
subclassification. The disclosures vary for each item, for example:
(a) Items of property, plant and equipment are disaggregated into
classes in accordance with IPSAS 17;
(b) Receivables are disaggregated into amounts receivable from user
charges, taxes and other non-exchange revenues, receivables from
related parties, prepayments, and other amounts;
(c) Inventories are subclassified in accordance with IPSAS 12,
“Inventories,” into classifications such as merchandise, production
supplies, materials, work in progress, and finished goods;
(d) Taxes and transfers payable are disaggregated into tax refunds
payable, transfers payable, and amounts payable to other members
of the economic entity;
(e) Provisions are disaggregated into provisions for employee benefits
and other items; and
(f) Components of net assets/equity are disaggregated into contributed
capital, accumulated surpluses and deficits, and any reserves.
95. When an entity has no share capital, it shall disclose net assets/equity,
either on the face of the statement of financial position or in the
notes, showing separately:
(a) Contributed capital, being the cumulative total at the
reporting date of contributions from owners, less distributions
to owners;
(b) Accumulated surpluses or deficits;

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PUBLIC SECTOR
(c) Reserves, including a description of the nature and purpose of
each reserve within net assets/equity; and
(d) Minority interests.
95A. If an entity has reclassified:
(a) A puttable financial instrument classified as an equity
instrument; or
(b) An instrument that imposes on the entity an obligation to deliver
to another party a pro rata share of the net assets of the entity
only on liquidation and is classified as an equity instrument;
between financial liabilities and net assets/equity, it shall disclose the
amount reclassified into and out of each category (financial liabilities or
net assets/equity), and the timing and reason for that reclassification.
96. Many public sector entities will not have share capital, but the entity will
be controlled exclusively by another public sector entity. The nature of
the government’s interest in the net assets/equity of the entity is likely to
be a combination of contributed capital and the aggregate of the entity’s
accumulated surpluses or deficits and reserves that reflect the net
assets/equity attributable to the entity’s operations.
97. In some cases, there may be a minority interest in the net assets/equity of
the entity. For example, at the whole-of-government level, the economic
entity may include a GBE that has been partly privatized. Accordingly,
there may be private shareholders who have a financial interest in the net
assets/equity of the entity.
98. When an entity has share capital, in addition to the disclosures in
paragraph 95, it shall disclose the following, either on the face of the
statement of financial position or in the notes:
(a) For each class of share capital:
(i) The number of shares authorized;
(ii) The number of shares issued and fully paid, and the
number issued but not fully paid;
(iii) Par value per share, or that the shares have no par
value;
(iv) A reconciliation of the number of shares outstanding at
the beginning and at the end of the year;
(v) The rights, preferences and restrictions attaching to
that class, including restrictions on the distribution of
dividends and the repayment of capital;

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(vi) Shares in the entity held by the entity or by its controlled

entities or associates; and
(vii) Shares reserved for issue under options and contracts for
the sale of shares, including the terms and amounts; and
(b) A description of the nature and purpose of each reserve within
net assets/equity.

Statement of Financial Performance

Surplus or Deficit for the Period
99. All items of revenue and expense recognized in a period shall be
included in surplus or deficit, unless an IPSAS requires otherwise.
100. Normally, all items of revenue and expense recognized in a period are
included in surplus or deficit. This includes the effects of changes in
accounting estimates. However, circumstances may exist when particular
items may be excluded from surplus or deficit for the current period.
IPSAS 3 deals with two such circumstances: the correction of errors and
the effect of changes in accounting policies.
101. Other IPSASs deal with items that may meet definitions of revenue or
expense set out in this Standard, but are usually excluded from surplus or
deficit. Examples include revaluation surpluses (see IPSAS 17), particular
(a) gains and losses arising on translating the financial statements of a
foreign operation (see IPSAS 4), and (b) gains or losses on remeasuring
available-for-sale financial assets (guidance on measurement of financial
assets can be found in IPSAS 29).

Information to be Presented on the Face of the Statement of Financial

Performance
102. As a minimum, the face of the statement of financial performance
shall include line items that present the following amounts for the
period:
(a) Revenue;
(b) Finance costs;
(c) Share of the surplus or deficit of associates and joint ventures
accounted for using the equity method;
(d) Pre-tax gain or loss recognized on the disposal of assets or
settlement of liabilities attributable to discontinuing
operations; and
(e) Surplus or deficit.

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103. The following items shall be disclosed on the face of the statement of
financial performance as allocations of surplus or deficit for the
period:
(a) Surplus or deficit attributable to minority interest; and
(b) Surplus or deficit attributable to owners of the controlling
entity.
104. Additional line items, headings, and subtotals shall be presented on
the face of the statement of financial performance when such
presentation is relevant to an understanding of the entity’s financial
performance.
105. Because the effects of an entity’s various activities, transactions, and
other events differ in terms of their impact on its ability to meet its
service delivery obligations, disclosing the components of financial
performance assists in an understanding of the financial performance
achieved and in making projections of future results. Additional line
items are included on the face of the statement of financial performance,
and the descriptions used and the ordering of items are amended when
this is necessary to explain the elements of performance. Factors to be
considered include materiality and the nature and function of the
components of revenue and expenses. Revenue and expense items are not
offset unless the criteria in paragraph 48 are met.

Information to be Presented either on the Face of the Statement of Financial

Performance or in the Notes
106. When items of revenue and expense are material, their nature and
amount shall be disclosed separately.
107. Circumstances that would give rise to the separate disclosure of items of
revenue and expense include:
(a) Write-downs of inventories to net realizable value or of property,
plant, and equipment to recoverable amount or recoverable service
amount as appropriate, as well as reversals of such write-downs;
(b) Restructurings of the activities of an entity and reversals of any
provisions for the costs of restructuring;
(c) Disposals of items of property, plant, and equipment;
(d) Privatizations or other disposals of investments;
(e) Discontinuing operations;
(f) Litigation settlements; and
(g) Other reversals of provisions.

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108. An entity shall present, either on the face of the statement of financial
performance or in the notes, a subclassification of total revenue,
classified in a manner appropriate to the entity’s operations.
109. An entity shall present, either on the face of the statement of financial
performance or in the notes, an analysis of expenses using a
classification based on either the nature of expenses or their function
within the entity, whichever provides information that is reliable and
more relevant.
110. Entities are encouraged to present the analysis in paragraph 109 on the
face of the statement of financial performance.
111. Expenses are subclassified to highlight the costs and cost recoveries of
particular programs, activities, or other relevant segments of the reporting
entity. This analysis is provided in one of two ways.
112. The first form of analysis is the nature of expense method. Expenses are
aggregated in the statement of financial performance according to their
nature (for example, depreciation, purchases of materials, transport costs,
employee benefits, and advertising costs), and are not reallocated among
various functions within the entity. This method may be simple to apply
because no allocations of expenses to functional classifications are
necessary. An example of a classification using the nature of expense
method is as follows:
Revenue X
Employee benefits costs X
Depreciation and amortization expense X
Other expenses X
Total expenses (X)
Surplus X

113. The second form of analysis is the function of expense method and
classifies expenses according to the program or purpose for which they
were made. This method can provide more relevant information to users
than the classification of expenses by nature, but allocating costs to
functions may require arbitrary allocations and involves considerable
judgment. An example of a classification using the function of expense
method is as follows:
Revenue X
Expenses:
Health expenses (X)

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Education expenses (X)
Other expenses (X)
Surplus X

114. The expenses associated with the main functions undertaken by the entity
are shown separately. In this example, the entity has functions relating to
the provision of health and education services. The entity would present
expense line items for each of these functions.
115. Entities classifying expenses by function shall disclose additional
information on the nature of expenses, including depreciation and
amortization expense and employee benefits expense.
116. The choice between the function of expense method and the nature of
expense method depends on historical and regulatory factors and the
nature of the entity. Both methods provide an indication of those costs
that might vary, directly or indirectly, with the outputs of the entity.
Because each method of presentation has its merits for different types of
entities, this Standard requires management to select the most relevant
and reliable presentation. However, because information on the nature of
expenses is useful in predicting future cash flows, additional disclosure is
required when the function of expense classification is used. In
paragraph 115, employee benefits has the same meaning as in IPSAS 25,
“Employee Benefits.”
117. When an entity provides a dividend or similar distribution to its
owners and has share capital, it shall disclose, either on the face of
the statement of financial performance or the statement of changes in
net assets/equity, or in the notes, the amount of dividends or similar
distributions recognized as distributions to owners during the period,
and the related amount per share.

Statement of Changes in Net Assets/Equity

118. An entity shall present a statement of changes in net assets/equity
showing on the face of the statement:
(a) Surplus or deficit for the period;
(b) Each item of revenue and expense for the period that, as
required by other Standards, is recognized directly in net
assets/equity, and the total of these items;
(c) Total revenue and expense for the period (calculated as the
sum of (a) and (b)), showing separately the total amounts
attributable to owners of the controlling entity and to minority
interest; and

55 IPSAS 1
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(d) For each component of net assets/equity separately disclosed,

the effects of changes in accounting policies and corrections of
errors recognized in accordance with IPSAS 3.
119. An entity shall also present, either on the face of the statement of
changes in net assets/equity or in the notes:
(a) The amounts of transactions with owners acting in their capacity
as owners, showing separately distributions to owners;
(b) The balance of accumulated surpluses or deficits at the beginning
of the period and at the reporting date, and the changes during
the period; and
(c) To the extent that components of net assets/equity are separately
disclosed, a reconciliation between the carrying amount of each
component of net assets/equity at the beginning and the end of the
period, separately disclosing each change.
120. Changes in an entity’s net assets/equity between two reporting dates
reflect the increase or decrease in its net assets during the period.
121. The overall change in net assets/equity during a period represents the total
amount of surplus or deficit for the period, other revenues and expenses
recognized directly as changes in net assets/equity, together with any
contributions by, and distributions to, owners in their capacity as owners.
122. Contributions by, and distributions to, owners include transfers between
two entities within an economic entity (for example, a transfer from a
government, acting in its capacity as owner, to a government
department). Contributions by owners, in their capacity as owners, to
controlled entities are recognized as a direct adjustment to net
assets/equity only where they explicitly give rise to residual interests in
the entity in the form of rights to net assets/equity.
123. This Standard requires all items of revenue and expense recognized in a
period to be included in surplus or deficit, unless another IPSAS requires
otherwise. Other IPSASs require some items (such as revaluation
increases and decreases, particular foreign exchange differences) to be
recognized directly as changes in net assets/equity. Because it is
important to consider all items of revenue and expense in assessing
changes in an entity’s financial position between two reporting dates, this
Standard requires the presentation of a statement of changes in net
assets/equity that highlights an entity’s total revenue and expenses,
including those that are recognized directly in net assets/equity.
124. IPSAS 3 requires retrospective adjustments to reflect changes in
accounting policies, to the extent practicable, except when the transitional
provisions in another IPSAS require otherwise. IPSAS 3 also requires

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that restatements to correct errors are made retrospectively, to the extent
practicable. Retrospective adjustments and retrospective restatements are
made to the balance of accumulated surpluses or deficits, except when an
IPSAS requires retrospective adjustment of another component of net
assets/equity. Paragraph 118(d) requires disclosure in the statement of
changes in net assets/equity of the total adjustment to each component of
net assets/equity separately disclosed resulting, separately, from changes
in accounting policies and from corrections of errors. These adjustments
are disclosed for each prior period and the beginning of the period.
125. The requirements in paragraphs 118 and 119 may be met by using a
columnar format that reconciles the opening and closing balances of each
element within net assets/equity. An alternative is to present only the
items set out in paragraph 118 in the statement of changes in net
assets/equity. Under this approach, the items described in paragraph 119
are shown in the notes.

Cash Flow Statement

126. Cash flow information provides users of financial statements with a basis
to assess (a) the ability of the entity to generate cash and cash equivalents,
and (b) the needs of the entity to utilize those cash flows. IPSAS 2 sets
out requirements for the presentation of the cash flow statement and
related disclosures.

Notes
Structure
127. The notes shall:
(a) Present information about the basis of preparation of the
financial statements and the specific accounting policies used, in
accordance with paragraphs 132−139;
(b) Disclose the information required by IPSASs that is not presented
on the face of the statement of financial position, statement of
financial performance, statement of changes in net assets/equity,
or cash flow statement; and
(c) Provide additional information that is not presented on the face of
the statement of financial position, statement of financial
performance, statement of changes in net assets/equity, or cash
flow statement, but that is relevant to an understanding of any of
them.
128. Notes shall, as far as practicable, be presented in a systematic manner.
Each item on the face of the statement of financial position, statement of
financial performance, statement of changes in net assets/equity, and

57 IPSAS 1
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cash flow statement shall be cross-referenced to any related information

in the notes.
129. Notes are normally presented in the following order, which assists users
in understanding the financial statements and comparing them with
financial statements of other entities:
(a) A statement of compliance with IPSASs (see paragraph 28);
(b) A summary of significant accounting policies applied (see
paragraph 132);
(c) Supporting information for items presented on the face of the
statement of financial position, statement of financial performance,
statement of changes in net assets/equity, or cash flow statement,
in the order in which each statement and each line item is
presented; and
(d) Other disclosures, including:
(i) Contingent liabilities (see IPSAS 19), and unrecognized
contractual commitments; and
(ii) Non-financial disclosures, e.g., the entity’s financial risk
management objectives and policies (see IPSAS 30).
130. In some circumstances, it may be necessary or desirable to vary the
ordering of specific items within the notes. For example, information on
changes in fair value recognized in surplus or deficit may be combined
with information on maturities of financial instruments, although the
former disclosures relate to the statement of financial performance and
the latter relate to the statement of financial position. Nevertheless, a
systematic structure for the notes is retained as far as practicable.
131. Notes providing information about the basis of preparation of the
financial statements and specific accounting policies may be presented as
a separate component of the financial statements.

Disclosure of Accounting Policies

132. An entity shall disclose in the summary of significant accounting
policies:
(a) The measurement basis (or bases) used in preparing the
financial statements;
(b) The extent to which the entity has applied any transitional
provisions in any IPSAS; and
(c) The other accounting policies used that are relevant to an
understanding of the financial statements.

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133. It is important for users to be informed of the measurement basis or bases
used in the financial statements (for example, historical cost, current cost,
net realizable value, fair value, recoverable amount, or recoverable
service amount), because the basis on which the financial statements are
prepared significantly affects their analysis. When more than one
measurement basis is used in the financial statements, for example when
particular classes of assets are revalued, it is sufficient to provide an
indication of the categories of assets and liabilities to which each
measurement basis is applied.
134. In deciding whether a particular accounting policy should be disclosed,
management considers whether disclosure would assist users in
understanding how transactions, other events, and conditions are reflected
in the reported financial performance and financial position. Disclosure of
particular accounting policies is especially useful to users when those
policies are selected from alternatives allowed in IPSASs. An example is
disclosure of whether a venturer recognizes its interest in a jointly
controlled entity using proportionate consolidation or the equity method
(see IPSAS 8, “Interests in Joint Ventures.”) Some IPSASs specifically
require disclosure of particular accounting policies, including choices
made by management between different policies allowed in those
Standards. For example, IPSAS 17 requires disclosure of the
measurement bases used for classes of property, plant, and equipment.
IPSAS 5, “Borrowing Costs,” requires disclosure of whether borrowing
costs are recognized immediately as an expense, or capitalized as part of
the cost of qualifying assets.
135. Each entity considers the nature of its operations and the policies that the
users of its financial statements would expect to be disclosed for that type
of entity. For example, public sector entities would be expected to
disclose an accounting policy for recognition of taxes, donations, and
other forms of non-exchange revenue. When an entity has significant
foreign operations or transactions in foreign currencies, disclosure of
accounting policies for the recognition of foreign exchange gains and
losses would be expected. When entity combinations have occurred, the
policies used for measuring goodwill and minority interest are disclosed.
136. An accounting policy may be significant because of the nature of the
entity’s operation, even if amounts for current and prior periods are not
material. It is also appropriate to disclose each significant accounting
policy that is not specifically required by IPSASs, but is selected and
applied in accordance with IPSAS 3.
137. An entity shall disclose, in the summary of significant accounting
policies or other notes, the judgments, apart from those involving
estimations (see paragraph 140), management has made in the
process of applying the entity’s accounting policies that have the
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most significant effect on the amounts recognized in the financial

statements.
138. In the process of applying the entity’s accounting policies, management
makes various judgments, apart from those involving estimations, that
can significantly affect the amounts recognized in the financial
statements. For example, management makes judgments in determining:
• Whether assets are investment properties;
• Whether agreements for the provision of goods and/or services that
involve the use of dedicated assets are leases;
• Whether, in substance, particular sales of goods are financing
arrangements and therefore do not give rise to revenue; and
• Whether the substance of the relationship between the reporting
entity and other entities indicates that these other entities are
controlled by the reporting entity.
139. Some of the disclosures made in accordance with paragraph 137 are
required by other IPSASs. For example, IPSAS 6 requires an entity to
disclose the reasons why the entity’s ownership interest does not
constitute control, in respect of an investee that is not a controlled entity,
even though more than half of its voting or potential voting power is
owned directly or indirectly through controlled entities. IPSAS 16,
“Investment Property,” requires disclosure of the criteria developed by
the entity to distinguish investment property from owner-occupied
property, and from property held for sale in the ordinary course of
business, when classification of the property is difficult.

Key Sources of Estimation Uncertainty

140. An entity shall disclose in the notes information about (a) the key
assumptions concerning the future, and (b) other key sources of
estimation uncertainty at the reporting date, that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year. In respect of those
assets and liabilities, the notes shall include details of:
(a) Their nature; and
(b) Their carrying amount as at the reporting date.
141. Determining the carrying amounts of some assets and liabilities requires
estimation of the effects of uncertain future events on those assets and
liabilities at the reporting date. For example, in the absence of recently
observed market prices used to measure the following assets and liabilities,
future-oriented estimates are necessary to measure (a) the recoverable amount
of certain classes of property, plant, and equipment, (b) the effect of

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technological obsolescence on inventories, and (c) provisions subject to the
future outcome of litigation in progress. These estimates involve assumptions
about such items as the risk adjustment to cash flows or discount rates used
and future changes in prices affecting other costs.
142. The key assumptions and other key sources of estimation uncertainty
disclosed in accordance with paragraph 140 relate to the estimates that
require management’s most difficult, subjective, or complex judgments.
As the number of variables and assumptions affecting the possible future
resolution of the uncertainties increases, those judgments become more
subjective and complex, and the potential for a consequential material
adjustment to the carrying amounts of assets and liabilities normally
increases accordingly.
143. The disclosures in paragraph 140 are not required for assets and liabilities
with a significant risk that their carrying amounts might change
materially within the next financial year if, at the reporting date, they are
measured at fair value based on recently observed market prices (their
fair values might change materially within the next financial year, but
these changes would not arise from assumptions or other sources of
estimation uncertainty at the reporting date).
144. The disclosures in paragraph 140 are presented in a manner that helps
users of financial statements to understand the judgments management
makes about the future and about other key sources of estimation
uncertainty. The nature and extent of the information provided vary
according to the nature of the assumption and other circumstances.
Examples of the types of disclosures made are:
(a) The nature of the assumption or other estimation uncertainty;
(b) The sensitivity of carrying amounts to the methods, assumptions, and
estimates underlying their calculation, including the reasons for the
sensitivity;
(c) The expected resolution of an uncertainty and the range of reasonably
possible outcomes within the next financial year in respect of the
carrying amounts of the assets and liabilities affected; and
(d) An explanation of changes made to past assumptions concerning
those assets and liabilities, if the uncertainty remains unresolved.
145. It is not necessary to disclose budget information or forecasts in making
the disclosures in paragraph 140.
146. When it is impracticable to disclose the extent of the possible effects of a
key assumption or another key source of estimation uncertainty at the
reporting date, the entity discloses that it is reasonably possible, based on
existing knowledge, that outcomes within the next financial year that are

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different from assumptions could require a material adjustment to the

carrying amount of the asset or liability affected. In all cases, the entity
discloses the nature and carrying amount of the specific asset or liability
(or class of assets or liabilities) affected by the assumption.
147. The disclosures in paragraph 137 of particular judgments management made
in the process of applying the entity’s accounting policies do not relate to the
disclosures of key sources of estimation uncertainty in paragraph 140.
148. The disclosure of some of the key assumptions that would otherwise be
required in accordance with paragraph 140 is required by other IPSASs.
For example, IPSAS 19 requires disclosure, in specified circumstances, of
major assumptions concerning future events affecting classes of
provisions. IPSAS 30 requires disclosure of significant assumptions
applied in estimating fair values of financial assets and financial liabilities
that are carried at fair value. IPSAS 17 requires disclosure of significant
assumptions applied in estimating fair values of revalued items of
property, plant and equipment.

Capital
148A. An entity shall disclose information that enables users of its financial
statements to evaluate the entity’s objectives, policies, and processes
for managing capital.
148B. To comply with paragraph 148A the entity discloses the following:
(a) Qualitative information about its objectives, policies, and
processes for managing capital, including (but not limited to):
(i) A description of what it manages as capital;
(ii) When an entity is subject to externally imposed capital
requirements, the nature of those requirements and how
those requirements are incorporated into the management of
capital; and
(iii) How it is meeting its objectives for managing capital.
(b) Summary quantitative data about what it manages as capital. Some
entities regard some financial liabilities (e.g., some forms of
subordinated debt) as part of capital. Other entities regard capital
as excluding some components of equity (e.g., components arising
from cash flow hedges).
(c) Any changes in (a) and (b) from the previous period.
(d) Whether during the period it complied with any externally
imposed capital requirements to which it is subject.

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(e) When the entity has not complied with such externally imposed
capital requirements, the consequences of such non-compliance.
These disclosures shall be based on the information provided internally to
the entity’s key management personnel.
148C. An entity may manage capital in a number of ways and be subject to a
number of different capital requirements. For example, a conglomerate
may include entities that undertake insurance activities and banking
activities, and those entities may also operate in several jurisdictions.
When an aggregate disclosure of capital requirements and how capital is
managed would provide useful information or distorts a financial
statement user’s understanding of an entity’s capital resources, the entity
shall disclose separate information for each capital requirement to which
the entity is subject.

Puttable Financial Instruments Classified as Net Assets/Equity

148D. For puttable financial instruments classified as equity instruments,
an entity shall disclose (to the extent not disclosed elsewhere):
(a) Summary quantitative data about the amount classified as net
assets/equity;
(b) Its objectives, policies and processes for managing its
obligation to repurchase or redeem the instruments when
required to do so by the instrument holders, including any
changes from the previous period;
(c) The expected cash outflow on redemption or repurchase of that
class of financial instruments; and
(d) Information about how the expected cash outflow on redemption
or repurchase was determined.

Other Disclosures
149. An entity shall disclose in the notes:
(a) The amount of dividends, or similar distributions, proposed or
declared before the financial statements were authorized for
issue, but not recognized as a distribution to owners during the
period, and the related amount per share; and
(b) The amount of any cumulative preference dividends, or similar
distributions, not recognized.
150. An entity shall disclose the following, if not disclosed elsewhere in
information published with the financial statements:

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(a) The domicile and legal form of the entity, and the jurisdiction
within which it operates;
(b) A description of the nature of the entity’s operations and
principal activities;
(c) A reference to the relevant legislation governing the entity’s
operations;
(d) The name of the controlling entity and the ultimate controlling
entity of the economic entity (where applicable); and
(e) If it is a limited life entity, information regarding the length of
its life.

Transitional Provisions
151. All provisions of this Standard shall be applied from the date of first
adoption of this Standard, except in relation to items that have not
been recognized as a result of transitional provisions under another
IPSAS. The disclosure provisions of this Standard would not be
required to apply to such items until the transitional provision in the
other IPSAS expires. Comparative information is not required in
respect of the financial statements to which accrual accounting is first
adopted in accordance with IPSASs.
152. Notwithstanding the existence of transitional provisions under another
IPSAS, entities that are in the process of adopting the accrual basis of
accounting for financial reporting purposes are encouraged to comply in
full with the provisions of that other Standard as soon as possible.

Effective Date
153. An entity shall apply this Standard for annual financial statements
covering periods beginning on or after January 1, 2008. Earlier
application is encouraged. If an entity applies this Standard for a
period beginning before January 1, 2008, it shall disclose that fact.
153A. Paragraphs 79 and 82 were amended by “Improvements to IPSASs”
issued in January 2010. An entity shall apply those amendments for
annual financial statements covering periods beginning on or after
January 1, 2011. Earlier application is encouraged. If an entity
applies the amendments for a period beginning before January 1,
2011, it shall disclose that fact.
153B. IPSAS 28 amended paragraph 150 and inserted paragraphs 7A, 95A,
and 148D. An entity shall apply the amendments for annual financial
statements covering periods beginning on or after January 1, 2013. If an
entity applies IPSAS 28 for a period beginning before January 1, 2013,
the amendments shall also be applied for that earlier period.
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153C. IPSAS 30 amended paragraphs 75, 129, and 148 and inserted
paragraphs 148A–148C. An entity shall apply the amendments for
annual financial statements covering periods beginning on or after
January 1, 2013. If an entity applies IPSAS 30 for a period beginning
before January 1, 2013, the amendments shall also be applied for that
earlier period.
154. When an entity adopts the accrual basis of accounting as defined by
IPSASs for financial reporting purposes subsequent to this effective date,
this Standard applies to the entity’s annual financial statements covering
periods beginning on or after the date of adoption.

Withdrawal of IPSAS 1 (2000)

155. This Standard supersedes IPSAS 1, “Presentation of Financial Statements,”
issued in 2000.

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Appendix A

Qualitative Characteristics of Financial Reporting

This Appendix is an integral part of IPSAS 1.
Paragraph 29 of this Standard requires an entity to present information, including
accounting policies, in a manner that meets a number of qualitative characteristics.
This guidance summarizes the qualitative characteristics of financial reporting.
Qualitative characteristics are the attributes that make the information provided in
financial statements useful to users. The four principal qualitative characteristics are
understandability, relevance, reliability, and comparability.

Understandability
Information is understandable when users might reasonably be expected to
comprehend its meaning. For this purpose, users are assumed to have a reasonable
knowledge of the entity’s activities and the environment in which it operates, and to
be willing to study the information.
Information about complex matters should not be excluded from the financial statements
merely on the grounds that it may be too difficult for certain users to understand.

Relevance
Information is relevant to users if it can be used to assist in evaluating past, present,
or future events or in confirming, or correcting, past evaluations. In order to be
relevant, information must also be timely.

Materiality
The relevance of information is affected by its nature and materiality.
Information is material if its omission or misstatement could influence the decisions
of users or assessments made on the basis of the financial statements. Materiality
depends on the nature or size of the item or error, judged in the particular
circumstances of its omission or misstatement. Thus, materiality provides a threshold
or cut-off point rather than being a primary qualitative characteristic that information
must have if it is to be useful.

Reliability
Reliable information is free from material error and bias, and can be depended on by
users to represent faithfully that which it purports to represent or could reasonably be
expected to represent.

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Faithful Representation
For information to represent faithfully transactions and other events, it should be
presented in accordance with the substance of the transactions and other events, and
not merely their legal form.

Substance Over Form

If information is to represent faithfully the transactions and other events that it
purports to represent, it is necessary that they be accounted for and presented in
accordance with their substance and economic reality, and not merely their legal
form. The substance of transactions or other events is not always consistent with
their legal form.

Neutrality
Information is neutral if it is free from bias. Financial statements are not neutral if
the information they contain has been selected or presented in a manner designed to
influence the making of a decision or judgment in order to achieve a predetermined
result or outcome.

Prudence
Prudence is the inclusion of a degree of caution in the exercise of the judgments
needed in making the estimates required under conditions of uncertainty, such that
assets or revenue are not overstated and liabilities or expenses are not understated.
However, the exercise of prudence does not allow, for example, (a) the creation of
hidden reserves or excessive provisions, (b) the deliberate understatement of assets
or revenue, or (c) the deliberate overstatement of liabilities or expenses, because the
financial statements would not be neutral and, therefore, not have the quality of
reliability.

Completeness
The information in financial statements should be complete within the bounds of
materiality and cost.

Comparability
Information in financial statements is comparable when users are able to identify
similarities and differences between that information and information in other
reports.
Comparability applies to the:
(a) Comparison of financial statements of different entities; and
(b) Comparison of the financial statements of the same entity over periods of
time.

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An important implication of the characteristic of comparability is that users need to

be informed of the policies employed in the preparation of financial statements,
changes to those policies, and the effects of those changes.
Because users wish to compare the performance of an entity over time, it is
important that financial statements show corresponding information for preceding
periods.

Constraints on Relevant and Reliable Information

Timeliness
If there is an undue delay in the reporting of information, it may lose its relevance.
To provide information on a timely basis, it may often be necessary to report before
all aspects of a transaction are known, thus impairing reliability. Conversely, if
reporting is delayed until all aspects are known, the information may be highly
reliable but of little use to users who have had to make decisions in the interim. In
achieving a balance between relevance and reliability, the overriding consideration is
how best to satisfy the decision-making needs of users.

Balance between Benefit and Cost

The balance between benefit and cost is a pervasive constraint. The benefits derived
from information should exceed the cost of providing it. The evaluation of benefits
and costs is, however, substantially a matter of judgment. Furthermore, the costs do
not always fall on those users who enjoy the benefits. Benefits may also be enjoyed
by users other than those for whom the information was prepared. For these reasons,
it is difficult to apply a benefit-cost test in any particular case. Nevertheless, standard
setters, as well as those responsible for the preparation of financial statements and
users of financial statements, should be aware of this constraint.

Balance between Qualitative Characteristics

In practice a balancing, or trade-off, between qualitative characteristics is often
necessary. Generally, the aim is to achieve an appropriate balance among the
characteristics in order to meet the objectives of financial statements. The relative
importance of the characteristics in different cases is a matter of professional
judgment.

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Appendix B

Amendments to Other IPSASs

In IPSASs applicable at January 1, 2008:
(a) References to “net surplus” or “net deficit” are amended to “surplus” or “deficit”;
and
(b) References to “notes to the financial statements” are amended to “notes.”

69 IPSAS 1 APPENDIX B
 PRESENTATION OF FINANCIAL STATEMENTS

Basis for Conclusions

This Basis for Conclusions accompanies, but is not part of, IPSAS 1.
Revision of IPSAS 1 as a result of the IASB’s General Improvements Project
2003
Background
BC1. The IPSASB’s IFRS convergence program is an important element in the
IPSASB’s work program. The IPSASB policy is to converge the accrual basis
IPSASs with IFRSs issued by the IASB where appropriate for public sector
entities.
BC2. Accrual basis IPSASs that are converged with IFRSs maintain the
requirements, structure, and text of the IFRSs, unless there is a public sector-
specific reason for a departure. Departure from the equivalent IFRS occurs
when requirements or terminology in the IFRS are not appropriate for the
public sector, or when inclusion of additional commentary or examples is
necessary to illustrate certain requirements in the public sector context.
Differences between IPSASs and their equivalent IFRSs are identified in the
“Comparison with IFRS” included in each IPSAS.
BC3. In May 2002, the IASB issued an exposure draft of proposed amendments to
13 IASs1 as part of its General Improvements Project. The objectives of the
IASB’s General Improvements Project were to “reduce or eliminate
alternatives, redundancies and conflicts within the Standards, to deal with
some convergence issues and to make other improvements.” The final IASs
were issued in December 2003.
BC4. IPSAS 1, issued in January 2000, was based on IAS 1 (revised 1997), which
was reissued in December 2003. In late 2003, the IPSASB’s predecessor, the
Public Sector Committee (PSC),2 actioned an IPSAS improvements project to
converge, where appropriate, IPSASs with the improved IASs issued in
December 2003.
BC5. The IPSASB reviewed the improved IAS 1 and generally concurred with the
IASB’s reasons for revising the IAS and with the amendments made. (The
IASB’s Basis for Conclusions is not reproduced here. Subscribers to the
IASB’s Comprehensive Subscription Service can view the Basis for
Conclusions on the IASB’s website at www.iasb.org). In those cases where

1
IASs were issued by the IASB’s predecessor, the IASC. The Standards issued by the IASB are
entitled International Financial Reporting Standards (IFRSs). The IASB has defined IFRSs to consist
of IFRSs, IASs, and Interpretations of the Standards. In some cases, the IASB has amended, rather
than replaced, the IASs, in which case the old IAS number remains.
2
The PSC became the IPSASB when the IFAC Board changed the PSC’s mandate to become an
independent standard-setting board in November 2004.

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the IPSAS departs from its related IAS, the Basis for Conclusions explains the
public sector-specific reasons for the departure.
BC6. IAS 1 has been further amended as a consequence of IFRSs issued after
December 2003. IPSAS 1 does not include the consequential amendments
arising from IFRSs issued after December 2003. This is because the IPSASB
has not yet reviewed and formed a view on the applicability of the
requirements in those IFRSs to public sector entities.

Income
BC7. IAS 1 uses the term income, which is not used in IPSAS 1. IPSAS 1 uses
revenue, which corresponds to income in the IASs/IFRSs. The term income is
broader than revenue, encompassing gains in addition to revenue. The IPSASs
do not include a definition of income, and introducing such a definition was
not part of the improvements project and was not included in ED 26.

Extraordinary Items
BC8. IAS 1 prohibits an entity from presenting any item of income or expense as
extraordinary items, either on the face of the income statement or in the notes.
The IASB concluded that items treated as extraordinary result from the
normal business risks faced by an entity, and do not warrant presentation in a
separate component of the income statement. The nature or function of a
transaction or other event, rather than its frequency, should determine its
presentation within the income statement.
BC9. The definition of extraordinary items in IPSAS 1 (2000) differed from the
definition included in the previous (1993) version of IAS 8, “Net Profit or
Loss for the Period, Fundamental Errors and Changes in Accounting
Policies.”3 This difference reflected the public sector view of what constituted
an extraordinary item for public sector entities.
BC10. This Standard does not explicitly preclude the presentation of items of
revenue and expense as extraordinary items, either on the face of the
statement of financial performance or in the notes. IAS 1 prohibits any items
of income and expense to be presented as extraordinary items, either on the
face of the income statement or in the notes. The IPSASB is of the view that
IPSASs should not prohibit entities from disclosing extraordinary items in the
notes to, or on the face of, the statement of financial performance. This is
because they believe that the disclosure of information about extraordinary

3
IPSAS 1 (2000) defined extraordinary items as “revenue or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the entity, are not expected to
recur frequently or regularly and are outside the control or influence of the entity.” IAS 8 defined
“extraordinary items” as “income or expenses that arise from events or transactions that are clearly
distinct from the ordinary activities of the enterprise and therefore are not expected to recur
frequently or regularly.”

71 IPSAS 1 BASIS FOR CONCLUSIONS

 PRESENTATION OF FINANCIAL STATEMENTS

items may be consistent with the objectives and qualitative characteristics of

financial reporting. However, other members are of the view that there is not a
public sector-specific reason to depart from the requirements of IAS 1 in
respect of this matter. They also noted that IPSAS 1 does not preclude the
separate presentation of items that are distinct from the ordinary activities of a
government, either on the face of the financial statements or in the notes, as
long as these items are material. They are not convinced that there is a public
sector-specific reason to depart from the IASB’s prohibition on presenting
“extraordinary items” in the financial statements.
Revision of IPSAS 1 as a result of the IASB’s Improvements to IFRSs issued in
2008
BC11. The IPSASB reviewed the revisions to IAS 1 included in the “Improvements
to IFRSs” issued by the IASB in May 2008 and generally concurred with the
IASB’s reasons for revising the standard. The IPSASB concluded that there
was no public sector specific reason for not adopting the amendments.

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Implementation Guidance
This guidance accompanies, but is not part of, IPSAS 1.
Illustrative Financial Statement Structure
IG1. This Standard sets out the components of financial statements and minimum
requirements for disclosure on the face of the statement of financial position
and the statement of financial performance, as well as for the presentation of
changes in net assets/equity. It also describes further items that may be
presented either on the face of the relevant financial statement or in the notes.
This guidance provides simple examples of the ways in which the
requirements of the Standard for the presentation of the statement of financial
position, statement of financial performance, and statement of changes in net
assets/equity might be met. The order of presentation and the descriptions
used for line items should be changed when necessary in order to achieve a
fair presentation in each entity’s particular circumstances. For example, line
items of a public sector entity such as a defense department are likely to be
significantly different from those for a central bank.
IG2. The illustrative statement of financial position shows one way in which a
statement of financial position distinguishing between current and non-current
items may be presented. Other formats may be equally appropriate, provided
the distinction is clear.
IG3. The financial statements have been prepared for a national government and
the statement of financial performance (by function) illustrates the functions
of government classifications used in the Government Finance Statistics.
These functional classifications are unlikely to apply to all public sector
entities. Refer to this Standard for an example of more generic functional
classifications for other public sector entities.
IG4. The examples are not intended to illustrate all aspects of IPSASs. Nor do they
comprise a complete set of financial statements, which would also include a
cash flow statement, a summary of significant accounting policies, and other
explanatory notes.

Public Sector Entity—Statement of Accounting Policies (Extract)

Reporting Entity
These financial statements are for a public sector entity (national government of
Country A). The financial statements encompass the reporting entity as specified in
the relevant legislation (Public Finance Act 20XX). This comprises:
• Central government ministries; and
• Government Business Enterprises.

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 PRESENTATION OF FINANCIAL STATEMENTS

Basis of Preparation
The financial statements comply with International Public Sector Accounting
Standards for the accrual basis of accounting. The measurement base applied is
historical cost adjusted for revaluations of assets.
The financial statements have been prepared on a going concern basis, and the
accounting policies have been applied consistently throughout the period.

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Public Sector Entity—Statement of Financial Position
As at December 31, 20X2
(in thousands of currency units)
20X2 20X1
ASSETS
Current assets
Cash and cash equivalents X X
Receivables X X
Inventories X X
Prepayments X X
Other current assets X X
X X
Non-current assets
Receivables X X
Investments in associates X X
Other financial assets X X
Infrastructure, plant and equipment X X
Land and buildings X X
Intangible assets X X
Other non-financial assets X X
X X
Total assets X X
LIABILITIES
Current liabilities
Payables X X
Short-term borrowings X X
Current portion of long-term borrowings X X
Short-term provisions X X
Employee benefits X X
Superannuation X X
X X
Non-current liabilities
Payables X X
Long-term borrowings X X
Long-term provisions X X
Employee benefits X X
Superannuation X X
X X
Total liabilities X X

Net assets X X

NET ASSETS/EQUITY
Capital contributed by
Other government entities X X
Reserves X X
Accumulated surpluses/(deficits) X X

Minority interest X X
Total net assets/equity X X

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 PRESENTATION OF FINANCIAL STATEMENTS

Public Sector Entity—Statement of Financial Performance for the Year Ended

December 31, 20X2
(Illustrating the Classification of Expenses by Function)
(in thousands of currency units)
20X2 20X1
Revenue
Taxes X X
Fees, fines, penalties, and licenses X X
Revenue from exchange transactions X X
Transfers from other government entities X X
Other revenue X X
Total revenue X X

Expenses
General public services (X) (X)
Defense (X) (X)
Public order and safety (X) (X)
Education (X) (X)
Health (X) (X)
Social protection (X) (X)
Housing and community amenities (X) (X)
Recreational, cultural, and religion (X) (X)
Economic affairs (X) (X)
Environmental protection (X) (X)
Other expenses (X) (X)
Finance costs (X) (X)
Total expenses (X) (X)

Share of surplus of associates* X X

Surplus/(deficit) for the period X X

Attributable to:
Owners of the controlling entity X X
Minority interests X X
X X

* This means the share of associates’ surplus attributable to owners of the associates, i.e., it is after tax
and minority interests in the associates.

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Public Sector Entity—Statement of Financial Performance for the Year Ended
December 31, 20X2
(Illustrating the Classification of Expenses by Nature)
(in thousands of currency units)
20X2 20X1
Revenue
Taxes X X
Fees, fines, penalties, and licenses X X
Revenue from exchange transactions X X
Transfers from other government entities X X
Other revenue X X
Total Revenue X X

Expenses
Wages, salaries, and employee benefits (X) (X)
Grants and other transfer payments (X) (X)
Supplies and consumables used (X) (X)
Depreciation and amortization expense (X) (X)
Impairment of property, plant, and equipment* (X) (X)
Other expenses (X) (X)
Finance costs (X) (X)
Total Expenses (X) (X)

Share of surplus of associates X X

Surplus/(deficit) for the period X X

Attributable to:
Owners of the controlling entity X X
Minority interest X X
X X

* In a statement of financial performance in which expenses are classified by nature, an impairment of

property, plant, and equipment is shown as a separate line item. By contrast, if expenses are
classified by function, the impairment is included in the function(s) to which it relates.

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 PRESENTATION OF FINANCIAL STATEMENTS

Public Sector Entity—Statement of Changes in Net Assets/Equity for the Year Ended December 31, 20X1

(in thousands of currency units) Attributable to owners of the controlling entity

Accumulated Total net
Contributed Other Translation Surpluses/ Minority assets/
Capital Reserves4 Reserve (Deficits) Total interest equity
Balance at December 31, 20X0 X X (X) X X X X
Changes in accounting policy (X) (X) (X) (X)
Restated balance X X (X) X X X X
Changes in net assets/equity for
20X1
Gain on property revaluation X X X X
Loss on revaluation of investments (X) (X) (X) (X)
Exchange differences on translating (X) (X) (X) (X)
foreign operations
Net revenue recognized directly in net X (X) X X X
assets/equity
Surplus for the period X X X X
Total recognized revenue and X (X) X X X X
expense for the period

4
Other reserves are analyzed into their components, if material.

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 PRESENTATION OF FINANCIAL STATEMENTS

(in thousands of currency units) Attributable to owners of the controlling entity

Accumulated Total net
Contributed Other Translation Surpluses/ Minority assets/
Capital Reserves4 Reserve (Deficits) Total interest equity
Balance at December 31, 20X1 X X (X) X X X X
carried forward
Balance at December 31, 20X1 X X X) X X X X
brought forward
Changes in net assets/equity for
20X2
Loss on property revaluation (X) (X) (X) (X)
Gain on revaluation of investments X X X X
Exchange differences on translating (X) (X) (X) (X)
foreign operations
Net revenue recognized directly in net (X) (X) (X) (X) (X)
assets/equity
Deficit for the period (X) (X) (X) (X)
Total recognized revenue and (X) (X) (X) (X) (X) (X)
expense for the period
Balance at December 31, 20X2 X X (X) X X X X

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Comparison with IAS 1

IPSAS 1 is drawn primarily from IAS 1 (2003) and includes amendments made to
IAS 1 as part of the “Improvements to IFRSs” issued in May 2008. At the time of
issuing this Standard, the IPSASB has not considered the applicability of IFRS 5,
“Non-current Assets Held for Sale and Discontinued Operations,” to public sector
entities; therefore IPSAS 1 does not reflect amendments made to IAS 1 consequent
upon the issuing of IFRS 5. The main differences between IPSAS 1 and IAS 1 are
as follows:
• Commentary additional to that in IAS 1 has been included in IPSAS 1 to
clarify the applicability of the Standard to accounting by public sector
entities, e.g., discussion on the application of the going concern concept has
been expanded.
• IAS 1 allows the presentation of either a statement showing all changes in
net assets/equity, or a statement showing changes in net assets/equity, other
than those arising from capital transactions with owners and distributions to
owners in their capacity as owners. IPSAS 1 requires the presentation of a
statement showing all changes in net assets/equity.
• IPSAS 1 uses different terminology, in certain instances, from IAS 1. The
most significant examples are the use of the terms “statement of financial
performance,” and “net assets/equity” in IPSAS 1. The equivalent terms in
IAS 1 are “income statement,” and “equity”.
• IPSAS 1 does not use the term “income,” which in IAS 1 has a broader
meaning than the term “revenue.”
• IAS 1 defines “International Financial Reporting Standards (IFRSs)” to
include IFRSs, IASs, and SIC/IFRIC Interpretations. IPSAS 1 does not
define “International Public Sector Accounting Standards.”
• IPSAS 1 contains a different set of definitions of technical terms from IAS 1
(paragraph 7).
• IPSAS 1 contains commentary on the responsibility for the preparation of
financial statements. IAS 1 does not include the same commentary
(paragraphs 19−20).
• IPSAS 1 uses the phrase “the objective of financial statements set out in this
Standard” to replace the equivalent phrase “the objective of financial
statement set out in the Framework” in IAS 1. This is because an equivalent
Framework in IPSASs does not exist.
• IPSAS 1 contains commentary on timeliness of financial statements,
because of the lack of an equivalent Framework in IPSASs (paragraph 69).
• IPSAS 1 does not explicitly preclude the presentation of items of revenue
and expense as extraordinary items, either on the face of the statement of

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PUBLIC SECTOR
financial performance or in the notes. IAS 1 prohibits any items of income
and expense to be presented as extraordinary items either on the face of the
income statement or in the notes.
• IPSAS 1 contains a transitional provision allowing the non-disclosure of
items that have been excluded from the financial statements due to the
application of a transitional provision in another IPSAS (paragraph 151).
• IPSAS 1 contains an authoritative summary of qualitative characteristics
(based on the IASB framework) in Appendix A.

81 IPSAS 1 COMPARISON WITH IAS 1