S.S. Afemikhe Consulting

INTRODUCTION TO INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSASs) AND CONCEPTUAL FRAMEWORK FOR GENERAL PURPOSE FINANACIAL REPORTING FOR PUBLIC ENTITIES

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TABLE OF CONTENTS

1) DEFINITIONS OF PUBLIC SECTOR AND PSA2) MAIN PURPOSE OF PSA3) INTRODUCTION TO IPSASs4) IPSASs SUMMARY5) CONCEPTUAL FRAMEWORK FOR GPFR6) ACCRUAL BASIS OF ACCOUNTING7) SPECIAL PURPOSE FINANCIAL REPORTS8) GENERAL PURPOSE FINANCIAL REPORTS9) OBJECTIVE OF FINANCIAL REPORTS10) USERS OF GPFR11) FINANCIAL POSITION, FINANCIAL PERFORMANCE AND CASH FLOW12) QUALITATIVE CHARACTERISTICS13) CONSTRAINTS ON INFORMATION INCLUDED IN FINANCIAL REPORTS14) REPORTING ENTITY15) KEY CHARATERISTICS OF REPORTING ENTITY

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Definitions.

• Public Sector

All organisations which are not privately owned and operated, but which are established, run and financed by the Government on behalf of the public.

•Public Sector Accounting

This is the process of recording, communication, summarising, analysing and interpreting Government financial statement.

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Effective Date of Transition

In view of the importance of IPSAS to the economy and the need to align with global best practices.

• Nigeria adopted IPSAS cash basis of accounting with effect from January 2014.

• The effective date of transition to IPSAS accrual basis is January 2016.

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Main purpose of PSA

a) Ascertaining the legitimacy of transaction and their compliance with the established norms, regulations and statute.

b) Providing evidence of stewardshipc) Assisting planning and controle) Assisting objective and timely reportingf) Providing basis for decision makingg) Enhancing the appraisal of the efficiency of Managementh) Highlight various sources of revenue and expenditure to be incurredi) Identifying the sources of funding capital project.j) Ensuring that cost are matched by at least equivalent benefit incurred

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INTRODUCTION TO IPSASs

• The International Public Sector Accounting Standards Board (IPSASB) develops accounting standards for public sector entities referred to as International Public Sector Accounting Standards (IPSASs). • The IPSASB recognizes the significant benefits of achieving

consistent and comparable financial information across jurisdictions and it believes that the IPSASs will play a key role in enabling these benefits to be realized.• The IPSASB issues IPSASs dealing with financial reporting under the

cash basis of accounting and the accrual basis of accounting.

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INTRODUCTION TO IPSASs(CONT’D)

• The accrual IPSASs are based on the International Financial Reporting Standards (IFRSs) issued by the IASB where the requirements of those Standards are applicable to the public sector. • The adoption of IPSASs by governments will improve both the quality

and comparability of financial information reported by public sector entities around the world. • The IPSASB recognizes the right of governments and national standard

setters to establish accounting standards and guidelines for financial reporting in their jurisdictions. The IPSASB encourages the adoption of IPSASs and the harmonization of national requirements with IPSASs.

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IPSASs Summary

• IPSAS 1 Presentation of Financial Statements IAS 1

• IPSAS 2 Cash Flow Statements IAS 7

• IPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors IAS 8

• 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

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IPSASs Summary (CONT’D) • 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 Reporting Date IAS 10

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IPSASs Summary (CONT’D) • IPSAS 15 Financial Instruments: Disclosure & Presentation - superseded by IPSAS 28

and IPSAS 30

• 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 Impairment of Non-Cash-Generating Assets IAS 36 • IPSAS 22 Disclosure of Financial Information About the General Government Sector N/A • IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers) N/A

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IPSASs Summary (CONT’D) • IPSAS 24 Presentation of Budget Information in Financial Statements N/A

• 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 & Measurement IFRS 7, IAS 39

• IPSAS 30 Financial Instruments: Disclosures IFRS 7

• IPSAS 31 Intangible Assets IAS 38

• IPSAS 32 Service Concession Arrangements IFRS 12

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THE CONCREPORTING BY PUBLIC SECTOR ENTITESEPTUAL FRAMEWORK FOR GENERAL

PURPOSE FINANCIAL

• DEFINITON OF FRAMEWORK – The basic structure of something : a set of ideas or facts that provide support for something.

• CONCEPTUAL FRAMEWORK - Is an analytical tool with several variations and contexts. It is used to make conceptual distinctions and organize ideas.

• It describes the objective of, and the concepts for general purpose for something.

• It is a theoretical structure of assumptions, principles, and rules that holds together the ideas comprising a broad concept

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The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities.

It establishes and makes explicit the concepts that are to be applied in

developing International Public Sector Accounting Standards (IPSASs) and

Recommended Practice Guidelines (RPGs) applicable to the preparation

and presentation of general purpose financial reports (GPFRs) of public.

.

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Why IPSASs are Developed • IPSASs are developed to apply across countries and jurisdictions

with different political systems, different forms of government and different institutional and administrative arrangements for the delivery of services to constituents. • The International Public Sector Accounting Standards Board

(IPSASB) recognizes the diversity of forms of government, social and cultural traditions, and service delivery mechanisms that exist in the many jurisdictions that may adopt IPSASs. • In developing this Conceptual Framework, the IPSASB has

attempted to respond to and embrace that diversity.

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Accrual Basis of Accounting

• The Conceptual Framework deals with concepts that apply to general purpose financial reporting (financial reporting) under the accrual basis of accounting.• Under the accrual basis of accounting, transactions and other

events are recognized in financial statements 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.

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Special Purpose Financial Reports

Standard setters often describe as “special purpose financial reports” those financial reports prepared to respond to the requirements of users that have the authority to require the preparation of financial reports that disclose the information they need for their particular purposes.

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General Purpose Financial Reports

• The Conceptual Framework acknowledges that, to respond to user’s information needs, GPFRs may include information that enhances, complements, and supplements the financial statements. • Therefore, the Conceptual Framework reflects a scope for

financial reporting that is more comprehensive than that encompassed by financial statements.

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Objectives of Financial Reporting

1. The objectives of financial reporting by public sector entities are to provide information about the entity that is useful to users of GPFRs for accountability purposes and for decision-making purposes (hereafter referred to as “useful for accountability and decision-making purposes”).

2. Financial reporting is not an end in itself. Its purpose is to provide information useful to users of GPFRs. The objectives of financial reporting are therefore determined by reference to the users of GPFRs, and their information needs.

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Users of General Purpose Financial Reports

i) Governments ii) Other public sector entities iii) Taxpayersiv) Donors v) Lenders

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Financial Position, Financial Performance and

Cash FlowsInformation about the financial position of a government or other public sector entity will enable users to identify the resources of the entity and claims to those resources at the reporting date. This will provide information useful as input to assessments of such matters as:

1. The extent to which management has discharged its responsibilities for safekeeping and managing the resources of the entity;

2. The extent to which resources are available to support future service delivery activities, and changes during the reporting period in the amount and composition of those resources and claims to those resources; and

3. The amounts and timing of future cash flows necessary to service and repay existing claims to the entity’s resources.

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Financial Statements and Information that Enhances, Complements and Supplements the Financial Statements

• The scope of financial reporting establishes the boundary around the transactions, other events and activities that may be reported in GPFRs.• To respond to the information needs of users, the Conceptual

Framework reflects a scope for financial reporting that is more comprehensive than that encompassed by financial statements. • It provides for the presentation within GPFRs of additional

information that enhances, complements, and supplements those statements.

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Qualitative Characteristics

The qualitative characteristics of information included in GPFRs of public sector entities are:

A) Relevance

B) Faithful representation

C) Comparability

D) Verifiability

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Qualitative Characteristics• Relevance: Financial and non-financial information is relevant if it is

capable of making a difference in achieving the objectives of financial reporting. •Faithful Representation: To be useful in financial reporting, information must be a faithful representation of the economic and other phenomena that it purports to represent. • Comparability: Comparability is the quality of information that enables

users to identify similarities in, and differences between, two sets of phenomena.• Verifiability: Verifiability is the quality of information that helps assure

users that information in GPFRs faithfully represents the economic and other phenomena that it purports to represent.

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Constraints on Information Included in General Purpose Financial Reports

• Information is material if its omission or misstatement could influence the discharge of accountability by the entity, or the decisions that users make on the basis of the entity’s GPFRs prepared for that reporting period. • Materiality depends on both the nature and amount of the

item judged in the particular circumstances of each entity.

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Cost-Benefit

• Financial reporting imposes costs. The benefits of financial reporting should justify those costs.

• It is often not possible to identify and/or quantify all the costs and all the benefits of information included in GPFRs.

• The costs of providing information include the costs of collecting and processing the information, the costs of verifying it and/or presenting the assumptions and methodologies that support it, and the costs of disseminating it.

• Omission of useful information imposes costs, including the costs that users incur to obtain needed information from other sources and the costs that result from making decisions using incomplete data provided by GPFRs.

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Reporting Entity

• A public sector reporting entity is a government or other public sector organization, program or identifiable area of activity (hereafter referred to as an entity or public sector entity) that prepares GPFRs.• A public sector reporting entity may comprise two or more

separate entities that present GPFRs as if they are a single entity—such a reporting entity is referred to as a group reporting entity

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Key Characteristics of a Reporting Entity

1. It is an entity that raises resources from, or on behalf of, constituents and/or uses resources to undertake activities for the benefit of, or on behalf of, those constituents; and

2. There are service recipients or resource providers dependent on GPFRs of the entity for information for accountability or decision-making purposes.

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