1. INTERNATIONAL PUBLIC SECTOR
ACCOUNTING STANDARDS
TRAINING NOTES FOR
SHIFTING FROM IFRS TO THE
ACCRUAL BASED IPSAS
Part 1 ..By Sako Mayrick – EMAC
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2. International Standards
• Governments have diverse financial reporting
practices
– Difficult on making international comparison
• At central government two main accounting systems
• Micro Level – Government Accounting
– Individual governments organizations draw up budgets and financial
reports for managing organizations
• Macro Level – National Accounting
– National accounts, statistical, macroeconomic financial data of the
national economy
• Public Sector Accounting Standard complements
INTOSAI Standards
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3. International Accounting Standards
• Developed by International Federation of Accountants
(IFAC) through Public Sector Committee (PSC) now known
as International Public Sector Standards Board ( IPSASB)
• IFAC develops International Public Sector Accounting
Standards (IPSAS) that are based on International
Accounting Standards (IAS).
• IPSAS are authoritative requirements established by IPSASB
– Help to improve quality of financial reporting in the public
sector around the world.
• IPSAS only pertain to financial accounts
• IPSASB is more broad and intends to address
– Budgeting
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4. International Standards
Basis of Accounting
• International Organization of Supreme Audit Institutions
(INTOSAI) Accounting Standards Framework has four
financial reporting systems
– Fully Cash Accounting
• Records transactions when funds are paid out of an appropriation
authority or when funds are received
– Modified Cash Accounting
• Recognizes transactions of cash basis during the year and the setup of
unpaid accounts and/or receivables at year’s end
– Modified Accrual Accounting
• Records expenditure when resources are received and revenues when
they are measurable and available within the accounting period or
shortly afterward
– Full Accrual Accounting
• Recognizes expenses as incurred, records revenues as earned, and
capitalizes fixed assets
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5. Cash Vs Accrual
• Represents two end on a spectrum of possible
accounting and financial reporting bases
• INTOSAI requires the performance reports and
departmental reports should be based on full accrual.
• The general purpose financial statements should be
based on either full accrual or modified accrual
depending on a particular government’s circumstances.
• The INTOSAI Accounting Standards and IPSAS are largely
comparable; both are based on the IAS
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6. Need for IPSAS
• Stands for International Public Sector Accounting
Standards
• Accounting standards are rules and disclosure
requirements for the preparation and presentation
of financial statements
• Given the increasing importance of international
harmonization of financial reporting, it seems
reasonable to expect that the role of the IPSAS will
gain significance in budgeting and financial reporting
in the public sector
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7. BUDGETING AND FINANCIAL
REPORTING
• Budgets are future oriented financial plans for
allocating resources among alternative uses
• Financial reports retrospectively describe the results
of an organization's financial transactions and events
in terms of its financial position and performance.
• In the private sector, budgets are targets rather than
plans, while budgets reflect what the organization
hopes to achieve rather than what it actually brings
about.
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8. Budgets and Financial Reporting
• Companies and other private organizations
are not obliged to draw up a budget even they
usually do. However, they rarely publish their
budgets
• For governments, it is not only mandatory to
draw the budgets but also to publish them
• Governments must allocate resources both
within the public sector and between the
public sector and the rest of the economy.
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9. Accrual Based budgets
• Types of appropriations system
– Cash based appropriations gives the government rights to make cash payments over a
limited period of time
– Commitment based appropriations gives the government authority to make commitments
and make cash payments according to these commitments without predetermined time
limits
• Accrual based appropriations gives the government rights to make cash
payments over a limited period of time.
• Commitment based appropriations giver the government authority to make
commitments and make cash payments according to the these commitments
without predetermined time limit.
• Accrual based appropriations cover the full costs of the operations of the
government and increases in liabilities or decreases in assets. This kind of
appropriations requires special mechanism of controlling cash.
– The accrual accounting does not abolish the cash based appropriations.
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10. Accrual based critics
• An accrual budgeting system cannot be the system for
a government the two reasons
– Budgetary laws often requires the legislature to authorize
the cash payments
– Accrual system is tailored to income formation: It match
revenue and costs. In public sector, however, it is
impossible to match tax revenues with production costs.
– It implies that the governments have to value their assets
at market value and include them in their balance sheets.
– Local authorities, for example will have to value their
roads, bridges, tunnels at market value, even though
market values for these assets do not exist. Making an
inventory of these assets as well as the valuation is a costly
process.
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11. Accrual basis - issues
• There is a wide spectrum of possible accounting bases ranging from
cash to full accrual.
• Cash based accounting measures the flow of cash resources and
recognizes transactions and events only when cash is received or
paid.
• Accrual accounting recognizes stocks and flows. Stocks refer to the
holding of assets and liabilities. Assets can be financial ( such as
cash), physical (such as property), or intangible ( such as copyrights).
• The difference between the total assets and total value of liabilities
is the net worth
• Flow reflect the creation, transformation, exchange, or transfer of
economic value and , thus, either an increase or decrease in net -
worth. Revenues increase net-worth whereas expenses decreases
net-worth.
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12. Accrual basis - issues
• In practice, most countries’ system are mixture of both extremes.
Insofar as accrual accounting system are used, they differ across
countries.
• A cash based system recognizes investment at the date of spending
whereas an accrual based system spreads the costs of investment
over time ( in the form of depreciation of assets)
• The fact that a growing part of public sector applied a
cash/commitment system. And the central government applied two
different accounting system was confusing and therefore, it has
been criticized.
• The IPSAS requires items to be valued at historic cost ( the cost as at
the date an item is acquired). However, where an asset is acquired
at no or nominal cost, the IPSAS determine its cost as its fair value (
the amount for which an asset could be exchanged or a liability
settled) Sako Mayrick 12

13. Goals of shifting to IPSAS
• Complementing performance management
• Facilitating better financial management;
• Improving understanding of program costs;
• Expanding and improving information for
resource allocation;
• Improving financial reporting;
• Facilitating improved asset and cash
management.
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14. Main statements
• Operating statement reflecting revenues and
expenses;
• A statement of assets and liabilities of the
entity;
• A cash flow statement related to operating,
investment, and financing activities
• A statement presenting additional information
of a disaggregated basis
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15. Variation in implementation
• Some countries have designed and implemented the
accrual system.
– Some countries have valued assets at their historic costs
– Some countries have valued them at historic cost less
accumulated depreciation
– Other countries have revalued their fixed assets periodically.
• The other category apply a charge for the use of
capital, whereas other countries do NOT apply any capital
charge
• The last category account differently for the consumption
of fixed assets by applying a liner depreciation method or
a free one.
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16. ACCOUNTING BASICS
• What is accounting?
– A system of recording and summarizing business
and financial transactions, and
– Analyzing, verifying, and reporting the results
BUSINESS AND FINANCIAL TRANSACTIONS
(ECONOMIC EVENT)
RECORD THAT EVENT
(RECOGNITION AND MEASUREMENT)
REPORT THE EVENT
(DISCLOSURE)
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17. OUTLINE OF IPSAS
OBJECTIVE
SCOPE
DEFINITIONS
RECOGNITION
MEASUREMENT
DERECOGNITION
PRESENTATION AND DISCLOSURE
BUSINESS AND
FINANCIAL
TRANSACTIONS
(ECONOMIC EVENT)
RECORD THAT
EVENT
(RECOGNITION AND
MEASUREMENT)
REPORT THAT EVENT
(DISCLOSURE)
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18. BASIS OF IPSAS
• Frameworks for IPSAS
• Key IPSAS
• Practice Statement
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19. IPSAS OUTLINE
• Qualitative characteristics of financial
information
– Fundamental
• Relevant
• Faithfull representation
– Enhancing
• Comparability
• Verifiability
• Timelines
• Understandability
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20. Structure of IPSAS
Rules/application guidance
Principles
Concepts
Rules (Exceptions) Rules (interpretation)
Application guidance to give effect to the principle
IPSAS
Framework
IPSAS
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21. GENERAL IMPLICATION OF IPSAS
ADOPTION
• Currently the organization is using IFRSs;
– Does not take into account all elements of IPSAS
basis
– It shifts from being a Government Business
Enterprise
– Difficult for comparison purposes
• The entire government (s) are adopting accrual based
IPSAS
– Prevent consolidation
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22. Are we GBE?
• IPSASs are high quality global financial reporting
standards for application by public sector entities other
than Government Business Enterprises (GBEs)
• The IPSASs are designed to apply to the general purpose
financial statements of all public sector entities. Public
sector entities include national governments, regional
governments (for
example, state, provincial, territorial), local governments
(for example, city, town) and their component entities
(for
example, departments, agencies, boards, commissions),
unless otherwise stated.
• The Standards do not apply to GBEs. GBEs apply
International Financial Reporting Standards (IFRSs) which
are issued by the International Accounting Standards
Board (IASB).
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23. Are we GBE?
• The IPSASB develops IPSASs which apply to the
accrual basis of accounting and IPSASs which
apply to the cash basis of accounting.
• IPSASs set out recognition, measurement,
presentation and disclosure requirements
dealing with transactions and events in general
purpose financial statements.
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24. Are we GBE?
• GBEs include both trading enterprises, such as utilities, and
financial enterprises, such as financial institutions. GBEs are, in
substance, no different from entities conducting similar activities in
the private sector.
• GBEs generally operate to make a profit, although some may have
limited community service obligations under which they are required
to provide some individuals and organizations in the community with
goods and services at either no charge or a significantly reduced
charge.
• IPSAS 6 provides guidance on determining whether control exists
for financial reporting purposes, and should be referred to in
determining whether a GBE is controlled by another public sector
entity
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25. Are we GBE?
Government Business Enterprise means an entity that has
all the following characteristics:
(a) Is an entity with the power to contract in its own
name;
(b) Has been assigned the financial and operational
authority to carry on a business;
(c) Sells goods and services, in the normal course of its
business, to other entities at a profit or full cost recovery;
(d) Is not reliant on continuing government funding to be
a going concern (other than purchases of outputs at arm’s
length); and
(e) Is controlled by a public sector entity.
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26. What is our answer?
Yes
No
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27. Benefits of adopting IPSAS
• It standardize the definitions, measurement criteria and
reporting requirements towards providing more meaningful
information for decision-makers
• MTEF and reports become more meaningful as increased
transparency provided a basis for assessment of whether
resources are being used effectively and efficiently
• It supports efficient internal controls and result based
management
• Helps to benchmark with similar institutions and
forecasting future flow of resources in the organization
• Assets and liabilities that were previously un-quantified or
under-reported will now be reflected in the financial
statements
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28. Benefits of adopting IPSAS
Accrual accounting means that the Organization for the first time will recognize
past, present and future obligations of Organizational resources. There is
nothing new here. These are not new obligations but under the IFRSs they were
largely quantified, rendering them invisible and or under reported
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29. What and why IPSAS
• IPSAS are set of independently developed, high
quality, global accounting standards that requires
accounting on ‘ full accruals’ basis (i.e. all assets and
liabilities are recorded
• IPSAS are issued by international Standards Board of
the International Federation of Accountants (IFAC)
• IPSAS are tailored for the public sector and its use is
considered best practice for the public sector entities
(governments, governmental business entities, non-
governmental organizations, and international
organizations)
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30. Modified Cash vs. Accrual Accounting
Example: Expense recognition Contracting services
Modified Cash (Current) Y1 Y2 Y3 Y4 Y5 Y6
Obligation/Expense Shs. 12,000 0.00 0.00 0.00 0.00 0.00
Accrual Basis (IPSAS) Y1 Y2 Y3 Y4 Y5 Y6
Obligation/Expense Shs. 2,000 2,000 2,000 2,000 2,000 2,000
 Economic events being recognized is the signing of contract not the performance
Period of Performance
Period of Performance
At time of signing
a contract
 Costs are matched to the period of the performance
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31. Modified Cash vs. Accrual Accounting
Liability Recognition: Employee Termination Benefits
Modified Cash (Current) Y1 Y2 Y3 Y4 Y5 Y6
Employee hired for 6 years 0.00 0.00 0.00 0.00 0.00 12,000.00
Accrual Basis (IPSAS) Y1 Y2 Y3 Y4 Y5 Y6
Employee is hired for 6 years 2,000 2,000 2,000 2,000 2,000 2,000
 Cost is recognized upon separation, not as the employee earns the benefit
Period of Performance
Period of Performance
 Costs is matched to employee services
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32. The way forward
• Conduct the GAP analysis between the IFRS standard and IPSAS
• Preparing opening statement of Financial position
• Preparing the comparative financial information for the last year
• Preparing baseline accounting policies
• Valuation of current years financial transactions for significant
changes( Recommended for valuation model or cost model)
• Proper definition of controlled entities and non controlled entities
for consolidation purposes (General review of each entity)
• Detailed schedule for employee benefits
• Schedules for first time adoption line by line
• Rehearsing on format of FS
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33. Gap Analysis
Areas with impact
IPSAS
Employee
Benefits
(termination,
annual leave)
Plant, Property
and Equipment
(Capitalization/D
epreciation)
Revenue
(Quotas/Pledge
s/specific
agreements)
Investment
(Fair Value)
Financial
Statements
(Cash flow,
disclosures,
budget reports)
Unexpended
Advances
(travel/account
able advances)
Expense
Recognition
(Obligations)
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34. KEY IPSAS
• IPSAS 1/ IAS 1 – Presentation of Financial Statements
• IPSAS 2/IAS 7 - Cash Flow Statements
• IPSAS 3/IAS 3 - Accounting Policies, Changes in Accounting Estimates and Errors
• IPSAS 4/IAS 21 – The Effects of Changes in Foreign Exchange Rates
• IPSAS 5/IAS 23 – Borrowing Costs
• IPSAS 6/IAS 27 – Consolidated and Separate Financial Statements
• IPSAS 7/IAS 28 – Investments in Associates
• IPSAS 8/IAS 31 – Interest in Joint Ventures
• IPSAS 9/IAS 18 – Revenue from Exchange Transactions
• IPSAS 10/IAS 29 – Financial Reporting in Hyperinflationary Economies
• IPSAS 11/IAS 11 - Construction Contracts
• IPSAS 12/IAS 2 – Inventories
• IPSAS 13/IAS 17 – Leases
• IPSAS 14/IAS 10 – Events After the Reporting Date
• IPSAS 15/ - Financial Instruments Disclosure and Presentation, superseded by IPSAS 28 IPSAS 30
• IPSAS 16 /IAS 40 – Investment Property
• IPSAS 17 /IAS 16 - Property, Plant and Equipment
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35. KEY IPSAS
• IPSAS 17 /IAS 16 - Property, Plant and Equipment
• IPSAS 18/IAS 14 – Segment Reporting
• IPSAS 19 / IAS 37 – Provisions, Contingent Liabilities and Contingent Assets
• IPSAS 20/ IAS 24 – Related Party Disclosures
• IPSAS 21 / IAS 36 – Impairment of Non – Cash – Generating Assets
• IPSAS 22 / IAS NA - Disclosure of Financial Information about the General
Government Sector
• IPSAS 23/IAS NA - Revenue from Non – Exchange Transactions (Taxes and Transfers)
• IPSAS 24 / IAS NA - Presentation of Budget Information in Financial Statements
• IPSAS 25 / IAS 19 - Employee Benefits
• IPSAS 26/ IAS 36 - Impairment of Cash Generating Assets
• IPSAS 27/IAS 41 – Agriculture
• IPSAS 28/ IAS 32 – Financial Instruments: Presentation
• IPSAS 29/ IAS 39 – Financial Instruments: Recognition and Measurement
• IPSAS 30 / IFRS 7 – Financial Instruments : Disclosures
• IPSAS 31/ IAS 38 -- Intangible Assets
• IPSAS 32 /IFRIC 12 – Service Concession Arrangement: Grantor
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