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SPECIAL REPORT

IPSAS 33: First-Time Adoption of Accrual Basis International Public

Sector Accounting Standards (IPSASs)

IPSAS Diploma in Financial Reporting

A distance learning course from CPA Ireland

Special report - IPSAS 33: First-Time Adoption ofAccrual Basis International Public Sector Accounting

Standards (IPSASs)

These learning materials have been prepared by Wayne Bartlett

First published 2015 by Nelson Croom Ltd

N307 Westminster Business Square, 1-45 Durham Street, London SE11 5JH

www.ipsasacademy.net

Copyright ©2015 All rights reserved.

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Contents

1. Introduction ................................................................... 1

2. What is the objective of IPSAS 33? ......................................... 2

3. What are the three-year transitional exemptions allowed that

impact on the fair presentation of the financial statements? ........ 6

4. What specific exemptions are allowed relating to recognition and/or

measurement of assets and liabilities? ................................... 7

5. What is the correct date for determining the deemed cost? ........ 11

6. How does IPSAS 33 interact with other specific IPSASs? .............. 12

7. What disclosures need to be made? ...................................... 15

8. What is the effective date for IPSAS 33(Paragraph 154)? ............. 17

1. Introduction

The release of IPSAS 33 marks a potentially crucial moment in the development of IPSASs.

With many countries moving towards the full adoption of accruals-based IPSASs its

publication is very timely. This new IPSAS is likely to have a major impact.

Before the development of IPSAS 33 there was no one Standard that dealt with the issue of

first-time adoption of accrual basis IPSASs. Instead there were a number of references

spread across the individual Standards that dealt with the transition on an issue-by-issue

basis. In June 2011 the IPSAS Board (IPSASB) approved a project to develop a

comprehensive set of principles to be used by entities on the adoption of accrual basis

IPSASs for the first time. IPSAS 33 is the result of these initiatives.

The basic principles that underlie IPSAS 33 are usefully summarised at an early stage as

they underpin much of what follows. When moving to accrual basis IPSASs for the first time

a one-stage or a two-stage option is available as below:

The move to accrual basis IPSASs: the one and two stage option

ONE-STAGE OPTION: The entity moves straightaway to fully IPSAS compliant financial

statements, without utilising any exemptions allowed

TWO-STAGE OPTION: The entity adopts IPSASs and takes advantage of some or all

transitional exemptions (STAGE 1)

The entity finally moves to fully IPSAS compliant financial statements with no

remaining transitional exemptions (STAGE 2)

If the two-stage option is used then there may well be an interim period when the

financial statements are not yet fully IPSAS compliant, though this does not have to be the

case. First of all, not all the transitional exemptions affect the fair presentation of

financial statements. In recognition of this IPSAS 33 divides the transitional exemptions

into those that potentially affect fair presentation and those which do not. But even if an

item POTENTIALLY impacts on fair presentation it might not ACTUALLY do so for the

simple reason that the items involved are not in the case of individual entities for material

amounts.

This reference to materiality is a useful reminder that there are some general principles

concerning information that apply and the IPSASB, in their Basis for Conclusions for IPSAS

33, specifically refers to them. These may be found in the Conceptual Framework and in

particular a number of qualitative characteristics come into play. These are:

Relevance

Faithful representation

Understandability

Timeliness

Comparability

Verifiability

Against these are to be considered two constraints which impact on the preparation of

financial information:

Cost benefit

Materiality

There is also one important item of terminology to note. Where a first-time adopter

takes advantage of one or more of the transitional exemptions that affect fair

presentation and compliance with accrual basis IPSASs in its financial statements, they

should be referred to as ‘transitional IPSAS financial statements’.

The IPSASB also noted (see Basis for Conclusions 23) that as part of a first-time adopter’s

transition to accrual accounting, an implementation plan should be developed. This will

not only help to manage the transition properly but it will also enable stakeholders to

monitor progress towards implementation if a progress update against the implementation

plan is disclosed in the notes to the financial statements.

2. What is the objective of IPSAS 33?

The objective of IPSAS 33 (see paragraph 1) is to provide guidance to a first-time adopter

that prepares and presents financial statements using accruals-based IPSASs in order to

present high quality information that:

Provides transparent reporting about a first-time adopter’s transition to accrual basis

IPSASs

Provides a suitable starting point for accounting in accordance with accrual basis

IPSASs

In situations where the benefits of providing the information are expected to exceed

the costs

Underlying this objective is the reality that the move to accruals-based accounting is not

an easy one and cannot be made overnight. Therefore there is a need to ensure that there

is a degree of pragmatism involved with the transition. This is a big move; when the UK

moved to accruals-based accounting in the public sector for the first time it was described

as the biggest move in government accounting for over 100 years. For many countries this

is likely to be a challenging change process.

However further reading of IPSAS 33 makes clear that the aim of the Standard is not to

cover the entire period during which the ‘road map’ to IPSAS implementation is being

travelled. Rather it applies to circumstances where much of the planning has already been

done and the entity (or the country) is in the final stages of moving towards full accrual

basis IPSAS compliance.

What is its scope (paragraphs 2 to 8)?

The general rule is that an entity shall apply IPSAS 33 when it prepares and presents its

annual financial statements on the adoption of, and during the transition to, accrual basis

IPSASs. It shall be applied from the date on which a first-time adopter adopts the accruals

basis IPSASs and during the period of transition. Importantly it allows such a first-time

adopter to use transitional arrangements and provisions; these have a technical impact in

that they may interfere with the ability of the entity to prepare financial statements that

give a ‘fair presentation’ of the entity’s financial performance and position.

If the entity makes use of these transitional provisions full disclosure must be provided to

make clear the extent of the provisions utilised and the progress that is being made

towards fair presentation and compliance with accruals basis IPSASs.

By the end of the transitional period the entity must comply with the recognition,

measurement, presentation and disclosure requirements in other accrual basis IPSASs. This

is a reminder that the transitional arrangements do not last forever and that the time

bought by using them must be used wisely. As is normally the case the Standard applies to

all public sector entities other than Government Business Entities (GBEs).

What is the date of adoption (paragraph 10)?

The date of adoption is the date that an entity adopts accruals basis IPSASs for the first

time. It is the start of the reporting period when an entity either presents its first accruals

basis IPSASs or its first transitional IPSAS financial statements. If the exemptions made

available in the transitional period are applied the entity cannot yet claim to have fully

adopted accruals basis IPSASs. Financial statements shall not be described as complying

with IPSASs unless they comply with all the requirements of all the applicable IPSASs.

A distinction is made here between full adoption of IPSASs and use of the transitional

provisions. It is not mandatory for an entity to use the transitional arrangements and it

may decide not to do so, in which case it could potentially become fully IPSAS compliant

at once. But this is not often the experience in practice and many transitions to accrual

basis IPSAS take place over the course of a number of years. The changes are often simply

too big for an entity to make in one move.

Reference is also made (paragraphs 12 to 14) to the previous basis of accounting. This is

the basis used prior to the adoption of accrual basis IPSASs and may be cash basis

accounting or a modified version of either cash or accrual basis.

What are the general rules about recognition and measurement (paragraphs 15 to

22)?

A first-time adopter of accrual basis IPSASs shall prepare and present an opening

statement of financial position as at the date of adoption of the IPSASs. However it may

take advantage of exemptions that are allowed in paragraphs 36 to 134 (the backbone of

IPSAS 33, which will be discussed below). If it does, then it will be required to amend its

accounting policies after the exemptions have eventually expired and the information

presented in the financial statements is finally presented on a basis that is consistent with

the full accrual basis IPSASs.

Unless the exemptions discussed below are applied, an entity must in its opening

statement of financial position:

Recognise all assets and liabilities when recognition is required by the IPSASs

Not recognise such assets and liabilities if not permitted to do so by the IPSASs

Reclassify items that were recognised in accordance with the previous basis of

accounting but for which accruals basis IPSASs requires a different approach

Apply IPSASs in measuring all recognised assets and liabilities

Any accounting estimates made should be consistent with the previous basis of accounting

unless there is objective evidence that those estimates were prepared on a basis that is

inconsistent with the requirements of the IPSASs. Other than this situation, the first-time

adopter should treat the receipt of that new information on estimates in the same way as

any received in a full accruals environment, i.e. it should consider such new information as

a non-adjusting event arising after the reporting period. Any changes arising from a change

in accounting estimate will be accounted for prospectively rather than retrospectively, as

is required by IPSAS 3.

What about fair presentation and compliance with IPSASs (paragraphs 27 to 32)?

The exemptions that are discussed in more detail below fall into two broad categories;

those which affect fair presentation and those which do not. The concept of ‘fair

presentation’ is one that is fundamental to the IPSAS regime. The general rule is that a

first-time adopter’s financial statements should fairly present the financial position,

financial performance and cash flows of the 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, revenues and expenses

enshrined in the IPSASs in general.

Adoption of the exemptions allowed in some of the subsequent paragraphs (36 to 62

specifically) will potentially affect the fair presentation of the financial statements and

also the first-time adopter’s ability to claim full compliance with the IPSASs regime. The

entity’s financial statements should make clear that they are fully compliant with accrual

basis IPSASs only if this is actually the case. Using the allowed exemptions will often mean

that the entity is not yet fully compliant.

Paragraphs 36 to 62 allow relief from the recognition, measurement, presentation and/or

disclosure requirements of the IPSASs on the date of the adoption of the IPSASs and during

the period of transition. The first-time adopter may elect to adopt these exemptions but

should be aware that doing so may affect the fair presentation basis and, consequently,

the entity’s ability to assert its compliance with full accrual basis IPSASs.

However, IPSAS 33 emphasises that non-adoption of certain aspects of the full IPSAS

regime by using the exemptions does not inevitably mean that the requirements of fair

presentation are not met; for example because the figures involved may not be material.

What are the exemptions that potentially affect fair presentation and compliance

with accrual basis IPSASs during the period of transition (paragraphs 33 to 62)

Adoption of the exemptions specifically allowed in paragraphs 36 to 62 will potentially

affect the fair presentation of a first-time adopter’s financial statements and its ability to

assert full compliance with accrual basis IPSASs during the transitional period. Even

allowing for these exemptions an entity is encouraged to comply in full with all the

requirements of the applicable IPSASs as quickly as possible. Whilst this makes sense in a

technical sense, pragmatically it is likely that many first-time adopters will need to take

full advantage of the exemptions allowed.

3. What are the three-year transitional exemptions allowed that impact on the fair presentation of the financial statements?

The basic rule to follow here is that any exemption allowed is limited to three years

from the date of adoption by IPSAS 33.

Paragraphs 36 to 62 lay out the exemptions that may be utilised which potentially impact

on the fair presentation of the financial statements. In all cases the exemption period is

for three years following the date of adoption of IPSASs. The date of adoption of IPSASs is

the date that an entity adopts accrual basis IPSASs for the first time; more specifically it is

the start of the reporting period in which the entity adopts accrual basis IPSASs and for

which the entity presents its first transitional IPSAS financial statements or its first IPSAS

financial statements.

An example of the date of adoption;

If an entity makes a decision to adopt accrual basis IPSASs as its basis for financial

reporting for the period ended 31 December 2017, then the date of adoption will be

the start of that reporting period, namely 1 January 2017, at which point an opening

statement of financial position is required.

How do the ‘three-year rules’ differ from previous IPSAS guidelines?

The three-year timescales are an important development from previous IPSASs. For

example, IPSAS 17 previously allowed a five-year transition period for the full

implementation of accrual basis accounting for Property, Plant and Equipment. This is no

longer the case. This has now been superseded by the shorter three-year transitional

period. Effectively the transitional periods in place have now been standardised and here

we should reinforce an important general rule to be applied:

Why the shortening of transitional periods compared to some former IPSAS rules?

Three years might not seem a very long time but the Basis for Conclusions to this Standard

(BC43) makes the crucial point that the first-time adopter should not just rely on the relief

periods in IPSAS 33 to get ready for the transition to IPSAS. Rather, the entity should have

been preparing for the transition in advance of formal adoption. One of the main reasons

for reducing the transitional period for assets dealt with by IPSAS 17 previously from five

years to three is to encourage entities to ensure that they plan properly for the transition

and in advance of formal adoption. This applies in other cases too; similarly the

transitional exemptions that used to be included in IPSAS 23 for non-exchange transactions

for five years have also now been reduced to three.

IPSAS 33 does not see itself as a road map for all the transition to accruals accounting

but only the final stages of the process (BC45). It is also suggested that entities that

want more information on how to plan for transition prior to formal adoption of IPSAS 33

may like to refer to the guidance issued by the IPSASB in Study 14, Transition to the

Accrual Basis of Accounting: Guidance for Governments and Government Entities.

4. What specific exemptions are allowed relating to recognition and/or measurement of assets and liabilities?

A crucial element of these three-year exemptions relates to the recognition and/or

measurement of assets and/or liabilities for the first time. This can be a major

challenge, often for practical reasons because for example records are inadequate to

provide the necessary information on which to recognise them. The specific categories of

exemptions referred to under the three-year transitional rules are as follows:

Inventories (see IPSAS 12 – Inventories)

Investment property (IPSAS 16 – Investment Properties refers)

Property, Plant and Equipment (see IPSAS 17)

Defined benefit plans and other long-term employee benefits (IPSAS 25 – if the

entity utilises this exemption it must make sure that it subsequently recognises the

obligation and any related plan assets at the same time)

Biological assets and agricultural produce (IPSAS 27)

Intangible assets (IPSAS 31)

Service concession assets and related liabilities (IPSAS 32)

Financial Instruments (IPSAS 29)

There is no need to change current accounting practices until the deadline for the

transitional reliefs to expire has passed or the full move to complete accrual basis IPSAS is

made, whichever is sooner. However it is permissible to make transitional changes on a

class-by-class basis.

Another important ‘three-year exemption’ relates to the recognition and/or

measurement of non-exchange revenue (e.g. taxes). It is permissible to make

transitional changes for this on a class-by-class basis. This is allowed so that first-time

adopters can develop reliable models for recognising and measuring revenue from non-

exchange transactions over time. The Standard gives the example (in paragraph 43) of first

introducing policies for the recognition and measurement of property taxes from the date

of adoption whilst allowing a full three years for the adoption of IPSAS-compliant policies

relating to income tax; this is one way in which this ‘class by class’ approach to transition

may be used.

What other exemptions apply?

There are a number of other specific three-year exemptions discussed which potentially

have an impact on the fair presentation of the financial statements. These tend to relate

to specific IPSASs and may be looked at as follows:

IPSAS 5 – Borrowing Costs: the three-year exemption means that the entity is not required

to immediately capitalise any borrowing costs on qualifying assets.

This means that there is a link between the adoption of IPSAS 5 rules and those found in

other relevant asset-related Standards, such as IPSASs 16, 17, 27, 31 and 32. The first-time

adopter must therefore make sure that there is proper coordination between IPSAS 5

adoption and these other Standards as implementation must effectively be synchronised.

IPSAS 13 – Leases: if an entity takes advantage of the three-year exemption not to

recognise other assets it is also not required to apply the IPSAS rules relating to finance

leases. Again, the relevant other IPSASs are IPSAS 16, 17, 27, 31 and 32 and the full IPSAS

rules found in them should be implemented at the same time as the rules on finance leases

are.

IPSAS 19 – Provisions, Contingent Liabilities and Contingent Assets: there is a very

specific exemption here to the normal requirement to recognise and/or measure the

contingent liability relating to the eventual dismantling and removing or restoring a site on

which it is located. There is another general rule that goes alongside this, which is that

the entity should implement IPSAS 17 and the above element of IPSAS 19 at the same time.

An important point to note is that, with the exception of this very specific mention of

provisions relating to dismantling costs referred to above, there is no general

exemption from the requirement to account for provisions from the date of adoption

of IPSASs.

IPSAS 20 – Related Party Disclosures: There is no requirement to disclose information on

related party relationships, related party transactions and key management personnel for

reporting periods within three years of the date of adoption of accrual basis IPSASs. The

first-time adopter is nevertheless ‘encouraged’ to include whatever information is at hand

when the financial statements are prepared.

IPSAS 34, 35 and 36 – Separate Financial Statements, Consolidated Financial

Statements and Investments in Associates and Joint Ventures: Again a three-year

exemption period is allowable for the implementation of these Standards. One of the

reasons for this is that the entity may need time to review its existing relationships with

others and decide whether they are with controlled entities, associates or joint ventures –

depending on the nature of such relationships the accounting and financial reporting will

be different.

With specific regard to Consolidated Financial Statements covered by IPSAS 35 there is no

need to eliminate all balances, transactions, revenue and expenses between entities for

reporting periods beginning on a date within three years following the date of adoption of

IPSASs. Nevertheless the entity is ‘encouraged’ to eliminate these balances as quickly as

possible.

If the entity applies the equity method of accounting for dealing with any associates or

joint ventures, it is not required to eliminate its share in the surplus and deficit resulting

from transactions with those other entities for a period of three years following the date

of adoption of the IPSASs. But once more the entity is ‘encouraged’ to do so as quickly as

possible.

These frequent suggestions of ‘encouragement’ to adopt certain features of the IPSASs

regime earlier than the three-year exemption period, appears to be symptomatic of

potential tensions. On the one hand there is a need to be pragmatic and give entities an

adequate amount of time to prepare properly for what is after all a major change event.

But on the other hand non-adoption of certain elements of the new regime does have a

significant potential impact on the fair presentation of the financial statements and

therefore is in some ways an imperfect compromise.

What about exemptions that do not affect fair presentation and compliance with

accrual basis IPSASs during the period of adoption?

Paragraphs 63 to 134 present a number of considerations that do not affect fair

presentation, neither will they affect the ability of an entity to claim full compliance with

the accrual basis IPSASs. These are therefore potentially of a less significant impact that

the exemptions discussed above.

An important consideration here is that of the deemed cost which is referred to

subsequently. This is defined in paragraph 9 as a surrogate for acquisition cost or

depreciated cost at a given date.

Why the need for a deemed cost?

Because if a first-time adopter has not previously collected the information required,

recreating it can be costly and/or impractical. In such cases IPSAS 33 allows the

application of fair value as a suitable alternative as a ‘deemed cost’ (or, if you prefer,

a substitute for historic cost). However it may only be used when reliable historic cost

information is not available.

Paragraph 64 goes on to state that for a number of assets and liabilities, when reliable

cost information is not available fair value may be used as the deemed cost. The areas

specifically mentioned are:

Inventory – see IPSAS 12

Investment property if the first-time adopter opts to use the cost model as discussed

by IPSAS 16

Property, plant and equipment as per IPSAS 17

Intangible assets (excluding internally generated intangible assets) that meet the

relevant criteria for revaluation as per IPSAS 31 – though the IPSASB noted that there

will be many cases in the public sector where there is no active market in intangible

assets and use of deemed costs here may therefore be considerably restricted (see BC

87)

Financial instruments as per IPSAS 29

Service concession assets as per IPSAS 32

Note that the deemed cost cannot be used if there is an acquisition cost available for the

assets or liabilities in question. Any subsequent depreciation is based on the fair value

determined at the date of the adoption of IPSASs and starts from the date that this

deemed cost has been determined. The first-time adopter may elect to use the

revaluation amount of property, plant and equipment if it used this in its previous basis of

accounting as its deemed cost as long as it is broadly comparable to fair value or to cost.

If there is no reliable market-based evidence for inventory or investment property that is

of a specialised nature, a first-time adopter may consider alternative measurements.

These include current replacement cost for inventory and, for investment property of a

specialised nature, depreciated replacement cost.

Similar considerations apply to the measurement of assets acquired through a non-

exchange transaction. In such cases fair value may be used as a deemed cost when reliable

cost information about the asset is not available (see paragraph 71).

We then need to consider what happens when an entity measures an investment in a

controlled entity, joint venture or associate at cost in its separate financial statements. It

may in such cases elect to measure that investment at either cost or deemed cost as at

the date of adoption. The latter shall be the fair value as determined in accordance with

IPSAS 29.

These provisions collectively show the importance of understanding and applying the

concept of fair value which is one that is referred to repeatedly throughout the IPSASs

regime. Fair value is not specifically defined in IPSAS 33 but it is elsewhere in the IPSAS

regime. For example IPSAS 16 on Investment Properties defines ‘fair value’ as “the amount

for which an asset could be exchanged, or a liability settled, between knowledgeable,

willing parties in an arm’s length transaction.” Often the market value of an asset or

liability is an acceptable measurement of fair value.

5. What is the correct date for determining the deemed cost?

This date may be varied depending on whether or not the entity takes advantage of the

three-year exemptions allowed by IPSAS 33. If the entity does do so, deemed cost can be

determined at any date during this period or when the exemption expires (whichever is

earlier). If however the exemptions are not utilised then the date at which the deemed

cost shall be determined is at the beginning of the earliest period for which the first-time

adopter presents financial statements.

An example of dates and deemed costs

An entity makes a decision to adopt accrual basis IPSASs on 1st January 2016 but opts

to adopt the transitional exemptions for its property, plant and equipment. Assuming

that the full three year period is used, then the deemed cost may be calculated any

time between 1st January 2016 and 31st December 2018.

If however the entity does not intend to utilise the three-year exemption and to

prepare its first IPSASs accrual basis financial statements for the year-ended 31st

December 2016 then the deemed cost must be calculated as at 1st January 2016.

When the deemed cost is determined and an adjustment to the carrying amount of the

assets and liabilities results, then any such adjustment shall be made against the opening

accumulated surplus or deficit in the year in which the deemed cost is calculated.

6. How does IPSAS 33 interact with other specific IPSASs?

A number of other IPSAS are impacted by IPSAS 33, of which the following are examples:

Interaction with IPSAS 1, Presentation of Financial Statements: A first-time adopter is

encouraged but not required to present comparative information in its first transitional

IPSAS financial statements or its first IPSAS financial statements presented in accordance

with IPSAS 33. If such comparative information is provided then it should be presented in

accordance with IPSAS 1. Whilst the specific requirements of the financial statements to

be presented are broadly in line with what is conventionally required by IPSAS 1, there is a

slight nuance.

The transitional financial statements should be:

One statement of financial position with comparative information for the previous

period AND an opening statement of financial position as at the beginning of the

reporting period prior to the adoption of accrual basis IPSAS

One statement of financial performance with comparative information for the

preceding period

One statement of changes in net assets/equity with comparative information for the

previous period

One cash flow statement with comparative information for the previous period

A comparison of budget and actual amounts for the current year either as a separate

financial statement or by including a budget column in the financial statements if the

entity makes its budget publicly available

Related notes including comparative information and the disclosure of narrative

information about material adjustments (disclosures are considered further below)

If the first-time adopter opts not to include comparative information then obviously a

different approach is needed which may simply be summarised as all the above but

without the comparative information. Care should be taken to ensure that if the previous

basis of accounting was not IPSAS-based and this is included as comparative information,

then there shall be full disclosure of the previous basis and an explanation of the

adjustments that would be required if they had been prepared on an IPSAS basis. However

the entity is specifically not required to quantify the effect of such adjustments (see

paragraph 84).

Interaction with IPSAS 4, The Effects of Changes in Foreign Exchange Rates: On the

date that an entity adopts IPSASs for the first time, it need not comply with the

requirements for cumulative translation differences that exist at this date. If this approach

is adopted then the cumulative translation differences for all foreign operations are

deemed to be zero at this date and any gain or loss that arises on the subsequent disposal

shall exclude both translation differences that date back to before the adoption of the

IPSASs and also subsequent differences that have arisen after that date.

Interaction with IPSAS 5, Borrowing Costs: A first-time adopter is encouraged but not

required to apply the requirements of IPSAS 5 retrospectively where it adopts or changes

its accounting policy to the benchmark treatment. If the first-time adopter does choose to

use the benchmark approach then it is allowed to use any date before the adoption of the

IPSASs and apply IPSAS 5 prospectively on or after that designated date.

Interaction with IPSAS 13, Leases: The first-time adopter shall on the date of adopting

IPSASs classify all existing leases as operating or finance leases on the basis of the

circumstances existing at the inception of the lease to the extent that this is known. An

exception is when the lessor and the lessee have agreed to reclassify the lease between

the lease inception date and the date of the adoption of IPSASs in which case this revised

designation should be used.

Interaction with IPSAS 18, Segment Reporting: Just one simple reference here, namely

that an entity is not required to present segment information for reporting periods

beginning on a date within three years following the adoption of IPSASs. The Basis for

Conclusions to IPSAS 33 (see BC 98) noted that whilst segmental information might be

useful it is in practice built on other figures in the accounts and therefore until these are

IPSAS compliant the usefulness of this information is limited. It also suggested that for

users of the financial statements other information might initially have a higher priority

than that relating to segment reporting.

Interaction with IPSAS 21, Impairment of Non-Cash-Generating Assets: In most cases the

rules of IPSAS 21 on impairment shall be applied prospectively, unless the entity takes

advantage of the three-year exemptions relating to the implementation of IPSASs 16, 17,

27, 31 and 32. In these cases IPSAS 21 shall be applied when the exemption has expired or

the assets are recognised and measured in accordance with the applicable IPSASs,

whichever is the earlier.

In such cases the entity will need to on the relevant date (i.e. when the exemption period

ends or the assets are recognised in accordance with the IPSASs) assess whether or not

impairment applies to the assets in questions. If there is any impairment loss to be

recognised, it should be done in the opening accumulated surplus or deficit either when

full adoption of IPSASs takes place, or when the exemption period ends, or when the

relevant assets are recognised and/or measured (see paragraph 100).

Interaction with IPSAS 25, Employee Benefits: The general rule is that a first-time

adopter shall recognise and/or measure all employee benefits on the date of the adoption

of IPSASs except for defined benefit plans and other long-term employee benefits where it

takes advantage of the exemption allowed by paragraph 33 of IPSAS 33.

At the relevant time (again either full adoption of IPSASs or when the exemption period

expires or when the relevant liabilities are recognised and/or measured in the financial

statements – whichever is earlier) the entity must determine its initial liability for defined

benefit plans and other long-term employee benefits, using the following equation:

The present value of the obligation of the date of adoption of IPSASs (or whichever

other date is relevant e.g. the date that the exemption period ends) by using the

Projected Unit Credit Method

Minus the fair value at the relevant date (again as defined above) of the plan assets

out of which the obligations are to be settled

Minus any past service cost that shall be recognised in later periods as an expense on a

straight-line basis

Any difference between any initial liability and that included in the comparative figures

obtained from using the previous method of accounting shall be recognised in the

accumulated surplus or deficit in the period in which the items are recognised and/or

measured. The first-time adopter shall not divide any actuarial gains or losses into

recognised and unrecognised elements.

Interaction with IPSAS 26, Impairment of Cash-generating assets: the rules here (see

paragraphs 108 to 110 for further details) mirror those already discussed in relation to

IPSAS 21, Impairment of Non-Cash-generating assets above.

Interaction with IPSAS 28, Financial Instruments, Presentation: On the date that the IPSASs

are adopted, first-time adopters shall evaluate the terms of a financial instrument to see

if it contains both a liability and an asset/equity component. If the liability component is

no longer outstanding on the date of adoption the entity unsurprisingly has no need to

make this split.

Interaction with IPSAS 29, Financial Instruments: Recognition and Measurement: First-

time adopters may designate a financial asset or a financial liability as a financial asset or

liability at fair value through surplus or deficit (see paragraph 114 of IPSAS 29). Various

other rules apply to the derecognition of financial assets and liabilities (see paragraphs 115

and 116 of IPSAS 33) and hedge accounting (paragraphs 117 to 119). Similar considerations

apply to impairment of financial assets as those already considered with regard to IPSASs

21 and 26. Again an impairment assessment should be made at the relevant date, either

when full adoption of IPSASs takes place or when the exemption period relating to

financial assets expires or the requirements of IPSAS 29 are fully met, whichever is earlier.

Interaction with IPSAS 30, Financial Instruments: Disclosures: If a first-time adopter

elects to present comparative information in accordance with paragraph 78 (this is the

general rule stating that an entity is encouraged but not required to present comparative

information in its first financial statements after the adoption of IPSASs) it is not required

to include comparative information about the nature and extent of risks arising from

financial instruments in the comparator period.

Interaction with IPSAS 31, Intangible Assets: First-time adopters shall recognise and/or

measure an internally generated intangible asset if it meets the required definitions and

the recognition criteria included in IPSAS 31 even if the first-time adopter has previously

expensed such costs. However a deemed cost may not be determined for internally

generated intangible assets.

Interaction with IPSAS 37, Joint Arrangements: In cases where a first-time adopter

accounted for its investment in a joint venture under its previous basis of accounting using

proportionate consolidation, the investment in the joint venture shall be measured on the

date of adoption as the aggregate of the carrying amount of the assets and liabilities that

were previously proportionately consolidated. The opening balance of the investment

determined as a result of this is regarded as the deemed cost of the investment at initial

recognition. The asset should be tested for impairment as at the date of adoption. The

first-time adopter shall assess whether it has any legal or constructive obligations in

relation to any negative net assets that may be identified when a review of assets and

liabilities together is undertaken.

7. What disclosures need to be made?

There is a series of important disclosure paragraphs presented in paragraphs 135 to 140.

These reaffirm that a first-time adopter that takes advantage of the exemptions allowed

by IPSAS 33 may not be fully compliant with IPSAS. They must only state that they fully

comply with accrual-basis IPSASs if they actually do. In other circumstances there should

instead be a disclosure that the financial statements do not fully comply with the accrual

basis IPSASs.

In such cases when a first-time adopter takes advantage of the transitional exemptions

there should also be disclosure of:

The extent to which it has taken advantage of the transitional exemptions that affect

the fair presentation of the financial statements and the entity’s ability to assert

compliance with accrual basis IPSASs

The extent to which it has taken advantage of the transitional exemptions that do not

affect the fair presentation of the financial statements and its ability to assert

compliance with accrual basis IPSASs.

In the case of transitional exemptions and provisions of IPSAS 33 that do affect fair

presentation and the entity’s ability to assert full compliance with the IPSAS regime in

relation to assets, liabilities, revenues and expenses the financial statements shall

disclose:

Progress made towards recognising, measuring, presenting and/or disclosing assets,

liabilities, revenue and/or expenses in accordance with the requirements of specific

IPSASs

The assets, liabilities, revenue and/or expenses that have been recognised and

measured under accounting policies that are not consistent with the requirements of

the applicable IPSASs

Assets, liabilities, revenue and expenses that have not been measured, presented

and/or disclosed in the previous reporting period but which are now in this latest set of

financial statements

The nature and amount of any adjustments recognised during the reporting period

An indication of how and by when the entity intends to comply in full with the

requirements of the applicable IPSASs.

Paragraph 139 also states that where a first-time adopter is not able to present

consolidated financial statements because of its use of the transitional arrangements, the

entity shall disclose the reasons why the financial statements cannot be presented on a

consolidated basis and an indication of the date by which the entity aims to be in a

position to do so.

The aim of these disclosures collectively is to make it transparent how and by when the

transition to ‘full’ adoption and complete implementation is to be made.

It is also important to include certain reconciliations. A first-time adopter shall present in

the notes to the financial statements a reconciliation of its net assets/equity reported in

accordance with its previous basis of accounting with the opening balances of net

assets/equity at the date of adoption of IPSASs along with a reconciliation of its surplus or

deficit at the date of adoptions of IPSASs. However specific exemption to the need for this

reconciliation is given if an entity has used a cash basis of accounting previously

(paragraph 142 of IPSAS 33). The aim of these reconciliations is to give readers of the

financial statements the ability to understand the material adjustments to the opening

statement of financial position prepared on the basis of accrual basis IPSASs. This

information may be both qualitative and quantitative.

When an entity takes advantage of the transitional provisions it may not, as noted

previously, be able to claim unreserved compliance with the accrual basis IPSASs. In such

cases it should include a note in the financial statements to this effect. As an example, if

an entity elects to adopt the transitional exemption relating to Property, Plant and

Equipment it may include a statement along the following lines in the disclosure notes:

Example of ‘Basis of Preparation’ Note

The financial statements have been prepared in accordance with accrual basis

International Public Sector Accounting Standards (IPSASs). IPSAS 33 allows a first-time

adopter a period of up to three years to recognise and/or measure certain assets

and/or liabilities.

In its transition to accrual basis IPSASs, the entity took advantage of this transitional

exemption for Property, Plant and Equipment. As a result, it is unable to make an

explicit and unreserved statement of compliance with accrual basis IPSASs in preparing

its transitional IPSAS financial statements for this reporting period. The entity intends

to recognise and/or measure its Property, Plant and Equipment by 20XX.

8. What is the effective date for IPSAS 33(Paragraph 154)?

A first-time adopter shall apply this Standard if its first IPSAS financial statements are for a

period beginning on or after January 1 2017. However, earlier application is permitted.

This earlier application may well be of interest to those entities and countries that are

planning to make their first move to accruals basis IPSAS soon. However if an entity and/or

country has already started the move to the accruals basis IPSAS using existing rules from

other pre-existing IPSASs, then it may continue to rely on those specific exemptions (which

as noted earlier may differ significantly from pre-existing IPSAS rules) until those specific

exemption dates have expired.

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