2. Overview of IPSAS Standards

8/10/2019 2. Overview of IPSAS Standards

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IPSAS Principles and Standards

Module Four


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Institutional Framework for Setting Standards

The Standards: IFRS and IPSAS

The IPSAS Standards

Issues Peculiar to the Public Sector on Standards

Issues towards Accrual Accounting


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International Federation of Accountants (IFAC):

IFAC is the global organisation for the accountancy profession dedicaserving the public interest by strengthening the profession

contributing to the development of strong international economies.

Founded in 1977, IFAC It is comprised of 173 members and associa

129 countries and jurisdictions (including Nigeria).

The mission of IFAC is to serve the public interest by:

Contributing to the development, adoption and implementation of

quality international standards and guidance;

Contributing to the development of strong professional accountan

Promoting the value of professional accountants worldwide;

Speaking out on accounting public interest issues.


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IPSASB:

The IPSAS Board is the independent standard-setting organ of IFAC responsib

developing accounting standards for public sector entities.

The Objective of the IPSASB is serve the public interest by

Developing high quality public sector financial reporting standards

For use by public sector entities and by

Facilitating the convergence of international and national standards

ensuring consistent and comparable financial information across jurisdiction.

IPSASB strongly encourages governments and national standard-setters to engage

development of its Standards by commenting on the proposals set out in its Exp

Drafts and Consultation Papers.

The IPSASB issues IPSASs dealing with financial reporting under the cash ba

accounting and the accrual basis of accounting.

IPSASB encourages the adoption of IPSASs and the harmonisation of na

requirements with IPSASs.


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Standard

Setting

Process

Nominating Committee IFAC Board

IPSASB

Consultative group

IPSASB

Observers

IPSASs

Task-based groups/Task forces

Exposure Draft

Organisat

ion

Structure

Nominates Members

Appoints members

Observe

Prepare

Prepare and Issues

Permanent Support


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Publication of IPSASB

IPSASs Accrual (32)/Cash Accounting (1) Exposure Drafts (EDs) and Consultation papers (CPs) as

part of IPSASBs due process

Studies, Research/Special Reports and other occasionalpapers

All agendas, agenda papers, responses to CPs and EDsas well as summarized minutes to the meetings(generally 4 times per year) are available at the IPSASBwebsite

6


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IPSAB addresses financial reporting issues inthe public sector in two ways Developing standards that are converged with IFRS

and adapting them to the public sector context

Developing public sector specific IPSAS which have no

equivalent in IFRS Issues that have not been comprehensively or appropriately

dealt with or for which there are no related IFRS

Develops a process for reviewing and modifyinginternational accounting standards Board

Strategic objective was to converge IPSAS to IFRS


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A stronger focus on public sector specific issues is expected by IPSAPS.

A key project is the development of the conceptual framework for financreporting by public sector entities which is applicable to the preparation general purpose financial reports of public sector entities

This is because:

Many of the IPSAS are based on IFRS to the extent that they are relevanto the public sector

It is now time to develop a framework to make explicit the concept tha

underpin financial reporting in the public sector The framework itself is not a standard but intended to assist the IPSASB

developing or new or revised pronouncements and to assist preparers ofGPFRs applying IPSASs

A guide Transition to the Accrual Basis of Accounting: Guidance for PubSector Entities was issued in 2011 to assist the public sector


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set of international accounting standards

stating how particular types of

transactions and other events should be

reported in financial statements of

private organisations

The International Accounting Standards

Board (IASB) is IFAC organ responsible

for setting the IFRS

International Accounting Standards

IPSASs are a set of international

accounting standards for public sector

organisationsand governments across

the world.

The IPSASs are set by the

International Public Sector Accounting

Standards Board (IPSASB)

IPSAS are derived from IFRSs

Set of accounting roles developed/ evolved set of

accounting standards which have been developed and

evolved to guide the accounting functions of organizations

and countries across the world

IAS focus on the: recognition; measurement, presentation &

disclosure requirements of items in the GPFS

The International Federation of Accountants (IFAC) has the

overall responsibility for setting these standards

International Financial Reporting

Standards (IFRS)International Public Sector Accounting

Standards (IPSAS)


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International Public Sector Accounting Standards (IPSAS) are a set of

accounting standards issued by the IPSAS Board for use by public sector

entities around the world in the preparation of financial statements.

-These standards are based on International Financial Reporting Standards

(IFRS) issued by the International Accounting Standards Board (IASB)

To improve the quality of general

purpose financial reporting by public

sector entities, leading to better

informed assessments of the resource

allocation decisions made by

governments, thereby increasing

transparency and accountability

Objective

For application by national, state and

localgovernments as well as related

governmental entities (MDAs)

IPSAS are widely used by

intergovernmental organisations

Scope


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IPSASs represent the set of accounting standards set to govern accoun

functions for public sector organisations- with focus on organisations

purely social service delivery (i.e. excluding GBEs).

A Government Business Enterprise (GBE) is an entity that has all of

following characteristics:

1. It is an entity with the power to contract in its own name;

2. It has been assigned the financial and operational authority to carry

business;

3. It sells goods and services, in the normal cause of its business, to o

entities at profit or full cost recovery;

4. It is no reliant on continuing government funding to be a going concern

5. It is controlled by a public sector entity


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IPSASs are designed to apply to the general purpose financial statements o

public sector entities

Public sector entities include Federal, States and local governments, and

component entities such as departments, agencies, boards, commission

cetera. It is important to note that IPSAS do not apply to Government Busi

Enterprises GBE which is covered under IFRS)

IPSAS are developed and set out to recognised, measure, present and disc

requirements dealing with transactions and events in general purpose fina

statements


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There are two sets of IPSASs

Cash basis of accounting

Accruals basis of accounting The adoption of IPSAS by governments

improve both quality and comparability of financial information reported

their departments and agencies. The IPSASB encourages the adoption

IPSASs and advocates for the harmonization of national repor

requirements with IPSASs.

By adopting IPSASs therefore, the government will have undertaken to benchm

its financial reporting against the global practices


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The following process is followed in setting anIPSAS Standard An IASB Standard

IPSASB Standard Setting process which considers specipublic sector requirements through sector focused

research Due process through public consultation

Issue of IPSAS


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S/No IPSAS

Standard

s

Focus Based On Summary

1. IPSAS 1 Presentation of

Financial

Statements

IAS 1 Sets out the manner in which GPFS shall be prepared .

A complete set of financial statements comprises:

Statement of financial position;Statement of financial performance;

Statement of changes in net assets/equity;

Cash flow statement;

When the entity makes it approved budget publicly

a comparison of budget and accrual amounts;

Notes.

2. IPSAS 2 Cash Flow

Statement

IAS 7 Requires the presentation of information about historica

in a public sector entityscash and cash equivalent usinflow statement.

The standard describes how to classify cash flows d

period to: operating, investing and financing activities.

3. IPSAS 3 Accounting

Policies,

Changes in

Accounting

Estimates and

Errors

IAS 8

Prescribes the criteria for selecting and changing ac

policies, together with the accounting treatment and disc

changes in accounting policies, changes in accounting e

and corrections of errors.

4. IPSAS 4 Effects of

Changes in

Foreign

Exchange Rates

IAS 21 Prescribes the accounting treatment for an entitys

currency transactions and foreign operations.

The standard defines the funct ional currency and prescr

to convert from foreign to functional currency.


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S/N

oIPSAS

Standards


5. IPSAS 5 Borrowing

Cost

IAS 23 Prescribes the accounting treatment for borrowing costs.

Borrowing costs include interest, amortization of discou

premiums on, and amortization of ancillary costs incurrearrangement of borrowings

6. IPSAS 6 Consolidated

and Separate

Financial

Statements

IAS 27 Identifies the requirements for preparing and pres

consolidated financial statements for an economic entity

the accrual basis of accounting.

Also addresses how to account for investments in con

entities, jointly controlled entities and associates in se

financial statements.

7. IPSAS 7 Investmentsin Associates

IAS 28

Prescribes the investors accounting for investmeassociates where the investment in the associate leads

holding of an ownership interest in the form of a sharehol

other formal equity structure.

8. IPSAS 8 Investments

in Joint

Ventures

IAS 31 Provides the accounting treatment for interests in joint ve

regardless of the structures or legal forms of the joint v

activities.

9. IPSAS 9 Revenue

fromExchange

Transactions

IAS 18 applies to revenue arising from the following ex

transactions and events: The rendering of services;

The sale of goods, and

The use of others of entity assets yielding i

royalties and dividends.


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S/No IPSAS

Standards


10. IPSAS 10 Financial

Reporting in

Hyperinflatio

nary

Economies

IAS 29 Prescribes specific standards for entities reporting in the c

a hyperinflationary economy, so that the financial i

(including the consolidated financial information) pr

meaningful.

The financial statements of an entity that reports in the cu

hyperinflationary economy shall be stated in terms of the

unit current at the reporting date.

11. IPSAS 11 Construction

Contracts

IAS 11 This standards relates to the accounting treatment for re

costs associated with construction contracts in thestatements of the contractor.

12. IPSAS 12 Inventories IAS 2 Prescribes the accounting treatment of inventories, incl

determination and expense recognition, including any wri

net-realizable value. It also provides guidance on the cos

that are used to assign costs to inventories.

13. IPSAS 13 Leases IAS 17 Relates to lessees and lessors, the appropriate accountin

and disclosures to apply in relation to finance and operatin

The standard classifies leases into: finance and opeaccounting treatment purposes.


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S/No IPSAS

Standards


14. IPSAS 14 Events Afterthe

Reporting

Date

IAS 10

Prescribes: When an entity shall adjust its financial statements for e

the reporting date.

Disclosures that an entity should give about the date

financial statements were authorized for issue, and abo

after the reporting date.

15. IPSAS 16 Investment

Property

IAS 40 Relates to accounting treatment for investment property a

disclosures

Investment property is land or buildings held (whether by th

under a finance lease) to earn rentals or for capital appreboth, rather than for:

use in the production or supply of goods or servic

administrative purposes;

sale in the ordinary course of operations.

16. IPSAS 17 Property,

Plant and

Equipment

IAS 16 Prescribes the principles for the initial recognition and s

accounting (determination carrying amount and the de

charges and impairment losses) for property, plant and equ

that users of financial statements can discern informationentitys investment in its property, plant and equipmen

changes in such investment.


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S/No IPSAS

Standards


17. IPSAS 18 Segment

Reporting

IAS 14 Establishes the principles for reporting financial informa

segments to better understand the entityspast performa

to identify the resources allocated to support the major a

of the entity, and enhance the transparency of financial r

and enable the entity to better discharge its accou

obligations.

18. IPSAS 19 Provisions,

Contingent

Liabilities

and

ContingentAssets

IAS 37 Prescribes appropriate recognition criteria and meas

bases for provisions, contingent liabilities and contingent

and to ensure that sufficient information is disclosed in th

to the financial statements to enable users to understa

nature, timing and amount. This standard aims at ensuring that only genuine obligat

dealt with in the financial statements.

19. IPSAS 20 Related

Party

Disclosures

IAS 24 Ensures that financial statements disclose the existence o

party relationships and transactions between the entity

related parties.

This information is required for accountability purposes

facilitate a better understanding of the financial posit

performance of the reporting entity.

20. IPSAS 21 Impairment

of Non-

Cash-

Generating

IAS 36

ensure that non-cash-generating assets are carried at n

than their recoverable service amount, and to prescri

recoverable service amount is calculated.


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S/No IPSAS

Standard

s


21. IPSAS 22 Disclosure

ofFinancial

Informatio

n About

the

General

Governme

nt Sector

No

corresponding IFRS

Sets the disclosure requirements for governments which elec

present information about the general government sector (GGStheir consolidated financial statements.

The disclosure of appropriate information about the GGS o

government can provide a better understanding of the relations

between the market and non-market activities of the governm

and between financial statements and statistical bases of finan

reporting

22. IPSAS 23 Revenuefrom Non-

Exchange

Transactio

ns (Taxes

and

Transfers)

Nocorrespon

ding IFRS

Prescribes requirements for the financial reporting of revenarising from non-exchange transactions, other than non-excha

transactions that give rise to an entity combination.

In a non-exchange transaction, an entity either receives value fr

another entity without directly giving approximately equal value

exchange, or gives value to another entity without direc

receiving approximately equal value in exchange.

23. IPSAS 24 Presentatio

n of

BudgetInformatio

n in

Financial

Statements

No

Correspon

ding IFRS

Ensures that public sector entities discharge their accountab

obligations and enhance the transparency of their finan

statements by demonstrating compliance with the approbudget for which they are held publicly accountable and, where

budget and the financial statements are prepared on the sa

basis, their financial performance in achieving the budge

results.


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S/No IPSAS

Standards


24. IPSAS 25 EmployeeBenefits

IAS 19

Prescribes the accounting and disclosure for ebenefits.

The include: short-term benefits (wages, annual lea

leave, bonuses, profit-sharing and non-monetary

pensions; post-employment life insurance and

benefits; termination benefits and other longterm e

benefits (long-service leave, disability, deferred comp

and bonuses and longterm profit-sharing), except f

based transactions and employee retirement benefit pla

25. IPSAS 26 Impairmentof Cash-

Generating

Assets

IAS 36 Prescribes the procedures that an entity applies to dwhether a cash-generating asset is impaired and to en

impairment losses are recognized.

This standard also specifies when an entity shall re

impairment loss and prescribes disclosures.

26. IPSAS 27 Agriculture IAS 41 Sets the accounting treatment and disclosures for ag

activity.

Agricultural activity is the management by an entit

biological transformation of living animals or plants (bassets) for sale, or for distribution at no charge or for a

charge or for conversion into agricultural produce

additional biological assets.


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S/No IPSAS

Standards



Instruments:

Presentation

IAS 32 This standard sets the principles for classifying

presenting financial instruments as liabilities or

assets/ equity, and for offsetting financial assets

liabilities.


Instruments:

Recognition

and

Measurement

IAS 39 Establishes principles for recognizing, derecognizing

measuring financial assets and financial liabilities.

All financial assets and financial liabilities, including

derivatives and certain embedded derivatives,

recognized in the statement of financial position.


Instruments:

Disclosures

IFRS 7 Prescribes disclosures that enable financial statem

users to evaluate the significance of financial instrume

to an entity, the nature and extent of their risks, and hthe entity manages those risks.


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30. IPSAS 31 Intangible

Assets

IAS 38 Sets the accounting treatment for intangible assets that

are not dealt with specifically in another IPSAS.

IPSAS 31 does not apply to intangible assets acquired in

an entity combination from a non-exchange transaction,

and to powers and rights conferred by legislation, a

constitution or by equivalent means, such as the power totax.

31. IPSAS 32 Service

Concessio

n

Arrangem

ent:

Grantor

IFRIC 12

Prescribes the accounting for service concession

arrangement by the grantor, a public sector entity.

32 Cash BasisIPSAS CashBasis Prescribes the manner in which GPFS should be

presented using the cash basis of accounting

S/No IPSASStandards

Focus BasedOn

Summary


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There are gaps in the IPSAS governing accrual baserecognition and measurement of financialtransactions

These are in the areas of non exchange revenue (e.g. taxes and transfers) recognition

Accounting for social policies of government Heritage Assets

PPPs

Governments will need to formulate their ownstandards and guidelines until the finalization of

relevant standards


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1) Service potential as part of the definitions and recognition criteria

IPSAS introduces the concept of service potential into the definition of assets, liabilities, revenue andexpenses Service potential is also a supplementary recognition criterion to account for items that do notresult in the inflow or outflow of economic benefits, where an item either contributes to or detract from

the entitys ability to deliver its services.

2) Exchange vs non-exchange transactions

Within the public sector non-exchange transactions are prevalent.Non-exchange transactions are thosetransactions where an entity either receives value from another entity without directly givingapproximately equal value in exchange, or gives value to another entity without directly receivingapproximately equal value in exchange.

3) Recognition of revenue from government grants

IPSAS focuses on whether there is entitlement to the revenue from government grants (even though theremay be restrictions on how the funds are spent), or an obligation to meet certain conditions, which isrecorded as liability. The distinction between restrictions and conditions is crucial in determining whetheor not to recognize revenue from a non-exchange transaction..

4) Income tax

IPSAS presumes that entities that operate within the public sector are generally exempt from incometaxes and therefore does not cater for the accounting of income taxes. In the unlikely event that an entityreports using IPSAS but is liable for tax, reference should be made to IFRS (IAS 12 Income Taxes) for

guidance.


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5) Consolidations and interests in associates and joint ventures

The main difference that arises with the introduction of IFRS 10, IFRS 11 and IFRS 12 is the manner in which control isdetermined for the purpose of consolidation. Until the IPSASB finalises its project to consider these new development

IFRS, this could become a major source of difference between the frameworks6) Financial instruments classification and measurement

Until IPSASB finalises its projects to consider these new developments in IFRS, this could become a major source ofdifference between the two frameworks

7) Reporting of budgets vs actual

, IPSAS requires a comparison of the actual financial performance of an entity with the approved budget of that entity, wthe budget is publicly available . There is no equivalent requirement in IFRS

8) Impairment of non-cash-generating assets

In the light of the assets recognized based purely on their service potential as opposed to economic benefits, hereas

assumes that the majority of a public sector entitys assets are likely to be non-cash generating. IPSAS 21 ImpairmentNon-cash-generating Assets provides specific guidance on how to determine the value in use of such assets

9) Elimination of private sector specific concepts

IFRS provides principles for certain economic phenomena that are irrelevant to the operations of a public sector entitysuch as accounting for share-based payments and earnings per share disclosures. IPSAS excludes such guidance and reporting entities back to IFRS if and when applicable.

10) Growing divergence in the conceptual framework of the IPSASB and IASB

The IPSASB is in the process of developing its own conceptual framework, proposing concepts that may be more suitathe public sector context. We may see further differences in the outlook and focus of the IPSASB and IASB in the futur


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Recognition and Measurements

Need for accounting policy recognizing specialised valuations

Alignment of accrual accounting and budgeting

Need for close alignment between accounts and budgets

Budget classification and the chart of accounts

the COA will include other accounts required for accounting and reporting purposes.

Opening balance sheet

identification and valuation of assets and liabilities as at the date from which accrual accounting is commence is an essential step in the move to accrual accounting

Central versus Decentralized Financial Processes

particular consideration of the additional complexities of an accrual framework.

Consolidation issues

Special systems and procedures may be necessary to efficiently and routinely eliminate a large volume of inter entity transactbetween the Ministry of Finance and line entities, and, more generally, between public sector entities: these transactions mayinclude

the provision of appropriation funding to entities,

transfers of collected revenues from entities,

financing transactions such as equity injections and loans,

and payment of ownership returns such as dividends and interest to the Ministry of Finance


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Thank You

2. Overview of IPSAS Standards

Documents

Transcript of 2. Overview of IPSAS Standards