CHAPTER THREE
INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS
[IPSAS]
The IPSASB develops IPSASs for financial statements
prepared on the accrual basis of accounting as well
as for financial statements prepared on the cash
basis of accounting.
IPSASs govern the recognition, measurement,
presentation and disclosure requirements in relation
to transactions and events in general purpose
financial statements (GPFR). Such financial
statements are characterized by the fact that they
are issued for users who are unable to demand
financial information to meet their specific
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Scope of the international public sector
accounting standards
IPSASs are currently intended for application
for general purpose financial statements of all
public sector entities.
Public sector entities generally include national
and regional governments (e.g., state,
provincial, territorial governments), local
authorities (e.g., towns and cities) as well as
related governmental entities (e.g., agencies,
boards, commissions and enterprises). As
already mentioned, IPSASs do not apply to
Government Business Enterprises.
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Objectives of the IPSASB
The objective of the IPSASB is to serve the public interest
by developing high-quality accounting standards for the
public sector and by facilitating the convergence of
international and national standards, thereby enhancing
the quality and standardization of financial reporting
around the world.
The IPSASB achieves these goals by:
Publishing International Public Sector Accounting Standards (IPSASs)
Promoting their acceptance and compliance on an international
scale with these standards
Publishing other documents that contain guidance on issues and
experience with financial reporting in the public sector
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Summary statement of principles
In many cases the International
Financial Reporting Standards (IFRSs)
are used as a starting point for
developing new IPSASs.
The table below provides an
overview of the international
accounting standards for the public
sector (as of 1 January 2012) and
the underlying IFRSs:
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Summary statement of principles Cont…
IPSAS TITLE CORRESPONDING IFRS
IPSAS 1 Presentation of Financial Statements IAS 1
IPSAS 2 Cash Flow Statements IAS 7
IPSAS 3 Accounting Policies, Changes in Accounting Estimates and IAS 8
Errors
IPSAS 4 The Effects of Changes in Foreign Exchange Rates IAS 21
IPSAS 5 Borrowing Costs IAS 23
IPSAS 6 Consolidated and Separate Financial Statements IAS 27
IPSAS 7 Investments in Associates IAS 28
IPSAS 8 Interests in Joint Ventures IAS 31
IPSAS 9 Revenue from Exchange Transactions IAS 18
IPSAS 10 Financial Reporting in Hyperinflationary Economies IAS 29
IPSAS 11 Construction Contracts IAS 11
IPSAS 12 Inventories IAS 2
IPSAS 13 Leases IAS 17
IPSAS 14 Events After the Reporting Date IAS 10
IPSAS 15 Financial Instruments: Disclosure and Presentation IAS 32
IPSAS 16 Investment Property IAS 40
IPSAS 17 Property, Plant and Equipment IAS 16
IPSAS 18 Segment Reporting IAS 14
IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets IAS 37
IPSAS 20 Related Party Disclosures IAS 24
IPSAS 21
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T.H No directly corresponding
5
IFRS
Summary statement of principles Cont…
IPSAS 22 Disclosure of Financial Information about the No corresponding IFRS
General Government Sector
IPSAS 23 Revenue from Non-Exchange Transactions (Taxes No corresponding IFRS
and Transfers)
IPSAS 24 Presentation of Budget Information in Financial No corresponding IFRS
Statements
IPSAS 25 Employee Benefits IAS 19
IPSAS 26 Impairment of Cash-Generating Assets IAS 36
IPSAS 27 Agriculture IAS 41
IPSAS 28 Financial Instruments: Presentation IAS 32
IPSAS 29 Financial Instruments: Recognition and IAS 39
Measurement
IPSAS 30 Financial Instruments: Disclosures IFRS 7
IPSAS 31 Intangible Assets IAS 38
IPSAS 32 Presentation of Financial Statements Mirror to SIC 12
Cash Cash Flow Statements No corresponding IFRS No corresponding IFRS
Basis
IPSAS
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Impairment of non-cash-generating assets
(IPSAS 21)
The objective of IPSAS 21 is to prescribe the procedures
that an entity applies to determine whether a non-cash-
generating asset is impaired and to ensure that
impairment losses are recognized. The standard also
specifies when an entity would reverse an impairment
loss and prescribes disclosures.
Cash-generating assets are assets held with the primary
objective of generating a commercial return.
Non-cash-generating assets are assets not held with the
primary objective of generating a commercial return.
Depreciation (amortization) is the systematic allocation
of the depreciable amount of an asset over its useful life.
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Cont..
IPSAS 21.14 states that impairment is a loss in the
future economic benefits or service potential of an
asset, over and above the systematic recognition of the
loss of the asset’s future economic benefits or service
potential through depreciation.
An impairment loss of a non-cash-generating asset is
the amount by which the carrying amount of an asset
exceeds its recoverable amount.
Recoverable service amount is the higher of a non-cash-
generating asset’s fair value less costs to sell and its
value in use. Value in use of a non-cash-generating asset
is the present value of the asset’s remaining service
potential.
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Cont…
IPSAS 21 does not apply to:
Inventories (cf. IPSAS 12, Inventories)
Assets arising from construction contracts (cf. IPSAS 11,
Construction Contracts)
Financial assets that are included in the scope of IPSAS 29, Financial
Instruments: Recognition and Measurement”
Investment property that is measured using the fair value model (cf.
IPSAS 16, Investment Property)
Non-cash-generating property, plant and equipment that is
measured at revalued amounts (cf. IPSAS 17, Property, Plant and
Equipment)
Non-cash-generating intangible assets that are measured at
revalued amounts (see IPSAS 31, Intangible Assets); and
Other assets in respect of which accounting requirements
for impairment are included in another IPSAS
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Impairment testing
IPSAS 21.26 states that an entity must assess at each
reporting date whether there is any indication that an
asset may be impaired. If any such indication exists, the
entity must estimate the recoverable service amount of
the asset.
IPSAS 21.27 describes some indications that show
whether an asset is impaired.
A distinction is made between internal and external
sources of information. If any one of those indications is
present, an entity is required to make a formal estimate
of the recoverable service amount
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Impairment testing Cont…
The present value of the remaining service potential of
a non-cash-generating asset is determined using one
of following three approaches, depending on the data
available and the nature of the impairment.
► Depreciated replacement cost approach the
depreciated replacement cost is measured as the
reproduction or replacement cost of the asset, which
ever is lower, less accumulated depreciation calculated
on the basis of such cost, to reflect the already
consumed or expired service potential of the asset.
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Cont…
► Restoration cost approach: The present value of the
remaining service potential of the asset is determined by
subtracting the estimated restoration cost of the asset
from the current cost of replacing the remaining service
potential of the asset before impairment. The latter cost is
usually determined as the depreciated reproduction or
replacement cost of the asset, whichever is lower.
► Service units approach: The present value of the
remaining service potential of the asset is determined by
reducing the current cost of the remaining service
potential of the asset before impairment to conform to
the reduced number of service units expected from the
asset in its impaired state. T.H
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Disclosure of Information about the General
Government Sector (IPSAS 22)
The objective of this standard is to prescribe
disclosure requirements for governments which
elect to present information about the general
government sector (GGS) in their consolidated
financial statements.
The disclosure of appropriate information about
the GGS can enhance the transparency of
financial reports, and provide for a better
understanding of the relationship between the
market and non-market activities of the public
sector and between financial statements and
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Cont’d….
Under statistical bases of financial reporting the public sector
comprises the general government sector (GGS), the public
financial corporations sector (PFCS) and public non-financial
corporations sector (PNFCS).
The general government sector encompasses the central
operations of government and typically includes all those resident
non-market non-profit entities that have their operations funded
primarily by the government and government entities.
The general government sector does not include public financial
corporations or public non-financial corporations.
The public non-financial corporations sector includes for example
publicly owned utilities.
IPSAS 22 only applies for governments that prepare and present
consolidated financial statements under the accrual basis of
accounting
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and elect to disclose
T.H
financial information about the
14
general government sector.
Cont…
Disclosures in the notes
Disclosures made in respect of the general government sector must
include at least the following:
Assets by major class, showing separately the investment in other
sectors
Liabilities by major class
Net assets/equity
Total revaluation increments and decrements and other items of
revenue and expense recognized directly in net assets/equity
Revenue by major class
Expenses by major class
Surplus or deficit
Cash flows from operating activities by major class
Cash flows from investing activities
Cash flows from financing activities
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Revenue from Non-Exchange Transactions (Taxes and
Transfers) (IPSAS 23)
The objective of IPSAS 23 is to prescribe requirements
for the financial reporting of revenue arising from non-
exchange transactions, other than non-exchange
transactions that give rise to an entity combination.
The standard deals with issues that need to be
considered in recognizing and measuring revenue from
non-exchange transactions including the identification
of contributions from owners.
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Cont…
Exchange transactions are transactions in which one
entity receives assets or services, or has liabilities
extinguished, and directly gives approximately equal
value (primarily in the form of cash, goods, services, or
use of assets) to another entity in exchange.
Non-exchange transactions are transactions that are
not exchange transactions.
In a non-exchange transaction, an entity either
receives value from another entity without directly
giving approximately equal value in exchange, or
gives value to another entity without directly
receiving approximately equal value in exchange.
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Accounting for taxes
According to IPSAS 23.71, taxation revenue is
determined at a gross amount. It is not reduced for
expenses paid through the tax system. It cannot be
reduced by other types of expenses (e.g., subsidies
to health insurance premiums) that are paid in a
simplified manner through the tax system, for
example by offsetting against the tax liability.
In fact, the (collected) taxation revenue must be
increased by expenses paid through the tax system
for the presentation in the financial statements (cf.
IPSAS 23.71).
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Accounting for transfers
An entity must recognize an asset in
respect of transfers when the transferred
resources meet the definition of an asset
and satisfy the criteria for recognition as
an asset.
Transferred assets are also measured at
fair value at the date of acquisition.
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Cont…
The following transfer revenue is accounted for as
follows:
1) Fines Fees, fines and penalties as determined by a court or other
law enforcement body give rise to receivables.
2) Bequests a bequest is a transfer made according to the provisions
of a deceased person’s will. According to IPSAS 23.90, the past event
giving rise to the control of resources embodying future economic
benefits or service potential for a bequest occurs when the entity
has an enforceable claim.
3) Gifts and donations, including goods in-kind Gifts and donations
are voluntary transfers of assets including cash or other monetary
assets, goods in-kind and services in-kind that one entity makes to
another, normally free from stipulations.
4) Services in-kind Services in-kind provided by individuals to public
sector entities in a non-exchange transaction can be recognized as an
asset in surplus or deficit.
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Presentation of Budget Information in Financial
Statements (IPSAS 24
IPSAS 24 requires a comparison of budget amounts and
the actual amounts arising from execution of the budget to
be included in the financial statements of entities which are
required to, or elect to, make publicly available their
approved budget(s) and for which they are, therefore, held
publicly accountable.
IPSAS 24 defines the original budget as the initial approved
budget for the budget period.
Approved budget means the expenditure authority derived
from laws, appropriation bills, government ordinances and
other decisions related to the anticipated revenue or
receipts for the budgetary period.
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Cont…
Final budget is the original budget
adjusted for all reserves, carry over
amounts, transfers, allocations,
supplemental appropriations, and other
authorized legislative, or similar authority,
changes applicable to the budget period.
IPSAS 24 applies to public sector entities
that are required or elect to make publicly
available their approved budget(s).
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Disclosure requirements
Pursuant to IPSAS 24.29, an entity must
present an explanation of whether changes
between the original and final budget are a
consequence of reallocations within the
budget, or of other factors.
This can be disclosed in the notes to the
financial statements or in a report issued
before, at the same time as, or in conjunction
with the financial statements.
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Note disclosures of budgetary basis, period and
scope
An entity must explain in the notes to the
financial statements the budgetary basis and
classification basis adopted in the approved
budget.
An entity must also disclose in the notes to
the financial statements the period of the
approved budget and the entities included in
the approved budget.
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Principle 13: Interim and Annual Financial Reports
Appropriate interim financial statements and reports of
financial position, operating results, and other pertinent
information should be prepared to facilitate management
control of financial operations, legislative oversight, and where
necessary or desired for external reporting purposes.
A comprehensive annual financial report [CAFR] should be
prepared and published, covering all activities of the primary
government (including its blended component units) and
providing an overview of all discretely presented component
units of the reporting entity, including introductory section,
management`s discussion and analysis (MD&A), basic financial
statements, required supplementary information other than
MD&A, combining and individual fund statements, schedules,
narrative explanations, and statistical
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sections etc. 25
Reconciliation
Where the financial statements and budget are not
prepared on a comparable basis, the actual amounts
presented on a comparable basis to the budget must be
reconciled to the amounts presented in the financial
statements. Differences must be explained.
Reconciliation must be made for the following items:
a) If the accrual basis is adopted for the budget, total
revenues, total expenses and net cash flows from
operating activities, investing activities and financing
activities; or
b) If a basis other than the accrual basis is adopted for
the budget, net cash flows from operating activities,
investing activities and financing activities.
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End Chapter
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