Kwame Nkrumah University of

Science & Technology, Kumasi, Ghana

Lecture Four:
OVERVIEW OF IPSAS
J.A. AGANA, PhD CA
Department of Accounting and Finance,
School of Business, KNUST
jaagana.ksb@knust.edu.gh
LECTURE OUTLINE

1) Introduction to International Public

Sector Accounting Standards (IPSAS)
2) IPSAS Implementation Issues
3) Transition to Accruals (The case of
UK Central government)

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LECTURE OUTLINE

4) Critical success factors

5) IPSAS 33: First time adoption
6) IPSAS 1:Presentation of published
financial statements

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Introduction to IPSAS
• IPSASs are high quality global financial reporting
standards for application by public sector entities
other than Government Business Enterprises
(GBEs).
• Recognition
• Measurement
• Presentation and disclosure requirements dealing
with transactions and events in general purpose
financial statement.
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Which Entities Can Adopt IPSAS?

• All public entities and NGOs other than

government business enterprise (GBE) or Public
Corporations
• Most GBEs are commercial in character and thus
have to comply with IFRS, requirements by the
Security and exchange Commission (SEC), Bank of
Ghana (BOG), etc

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IPSAS Accounting basis available for
Adoption.
• IPSASB provides countries with the option to adopt either
Cash and or Accrual basis depending on the specific needs
and systems of financial operation in place for the
government or the countries in question.

• The cash basis allows providers of external assistance,

particularly providers of development assistance to follow a
variety of accounting practices.

• Accrual accounting focuses on revenue, cost, assets, liabilities

and equity - instead of cash flows only.
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Why a different set of standards for the
Public Sector

✓ Involuntary transfer and non-exchange transactions

✓ Importance of an approved budget
✓ Nature and purpose of assets and liabilities in public
sector
✓ The nature of public sector programs and the longevity
of the public sector entities
✓ The regulatory role of public sector entities
✓ The importance of government finance statistics (GFS)
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Why IPSAS ?
✓ Public sector under increased accountability from
taxpayers, residents and the community at large

✓ Accountability and public disclosure of financial

information is becoming more and more important

✓ Need for a global set of accounting standards

available to governments and the public sector as
an internationally recognized format for financial
reporting

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Objectives of IPSAS

The IPSAS are designed to be apply to the

general-purpose financial statement of all
public sector entities.
Public sector entities include:
1) National/central governments
2) Regional governments (for example, state,
provincial, territorial)
3) Local governments (for example, MMDAs)

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The Standard Setting Body
✓ IPSASB is a Board of the international Federation
of Accountants (IFAC) and the responsible body
formed to develop and issue IPSAS under its own
authority.

✓ IPSASB develops standards which apply to the

accrual basis and to the cash basis of accounting.

✓ Functions as an independent standard-setting body

under the auspices of IFAC.

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The Standard Setting Body

✓The members of IPSASB are appointed

by the Board of IFAC.

✓IPSASB comprises 18 members plus a

limited number of observers.

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Overview of IPSAS
• To date, the IPSASB has issued about 42 accrual based
international public sector accounting standards.

• FINANCIAL REPORTING UNDER THE

CASH BASIS OF ACCOUNTING

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IPSAS based on IFRS
✓IPSAS 1 (IAS 1): Presentation of Financial Statements
✓IPSAS 2,(IAS 7): Cash Flow Statements
✓IPSAS 3 (IAS 8): 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 Financial Statements and
Accounting for Controlled Entities,
✓IPSAS 7, (IAS 28) Accounting for Investments in
Associates,
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IPSAS based on IFRS

✓ IPSAS 8, (IAS 31) Financial Reporting of Interests in Joint

Ventures,
✓ IPSAS 9, (IFRS 15) Revenue from Exchange Transactions,
✓ IPSAS 10, (IAS 29) Financial Reporting in Hyperinflationary
Economies
✓ IPSAS 11, (previously IAS 11) Construction Contracts,
✓ IPSAS 12, (IAS 2) Inventories,
✓ IPSAS 13, (IFRS 16) Leases
✓ IPSAS 14 (IAS 10): Events after the Reporting Date

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IPSAS based on IFRS

✓IPSAS 15, (IAS 32) Financial Instruments: Disclosure

and Presentation.
✓IPSAS 16, (IAS 40) Investment Property.
✓IPSAS 17, (IAS 16) Property, Plant and Equipment.
✓IPSAS 18,(IAS 14) Segment Reporting.
✓PSAS 19 (IAS 37): Provisions, Contingent Liabilities,
Contingent Assets
✓IPSAS 20, (IAS 24) Related Party Disclosures

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IPSAS based on IFRS
✓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

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IPSAS based on IFRS

✓IPSAS 32, (IFRIC 12): Service Concession

Arrangements: Grantor
✓IPSAS 33, (IFRS 1)First-time Adoption of Accrual
Basis IPSASs.
✓IPSAS 34–IAS 27 Separate financial statements .
✓IPSAS 39 (IAS 19), Employee Benefits. Replaces IPSAS
25 as off 1 January 2018.
✓IPSAS 40, (IFRS 3) Public Sector Combinations
✓ IPSAS 21: Impairment of Non-cash-generating Assets

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IPSAS not based on IFRS

✓IPSAS 22: Disclosure of Financial Information

about the General Government Sector
✓IPSAS 23: Revenue from Non-Exchange
Transactions (Taxes and Transfers)
✓IPSAS 24: Presentation of Budget Information in
Financial Statements

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Accrual based GPFS include
✓Statement of financial position
✓Statement of financial performance
✓Cash flow statement
✓Statement of changes in net assets/equity
✓A comparison of budget and actual amounts
(when the entity makes publicly available its
approved budget)
✓notes

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Key impacts of IPSASs
1. Recognition and valuation of government assets and
liabilities
2. Financial reporting dimension in public sector
accounting is strengthened
3. Assures uniformity in public sector accounting
4. Global/international development
5. Long term impact
6. Influence on behaviour of politicians, public officials,
citizens, media, taxpayers

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Key challenges to the Adoption of IPSAS
i) Implementation cost
ii)Availability of qualified accountants
iii)
Apparent complexities
iv)Readiness of government departments and
agencies
v) Resistance

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Scope of the Standards

✓ Designed to apply to GPFSs of all public sector

entities
✓ Public sector entities include national governments,
regional governments and local governments
✓ The standards do not apply to government
business entities

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Government Business Enterprise
• Sells goods and services, in the normal
course of its business, to other entities at a
profit or full cost recovery;

• Is not reliant on continuing government

funding to be going concern (other than
purchase of outputs at arm’s length); and

• Is controlled by a public sector entity

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Traditional Government Accounting
• Commitment accounting also known as
Encumbrance accounting or invoice matching

• Accrual accounting

• Cash accounting

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Transition steps to accrual IPSAS

Step 1 – current policies (cash SE)

Step 2 – cash basis IPSAS (transition step)
Step 3 – accrual accounting IPSAS 1-38 (accrual
DE)

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IPSAS Accrual and Cash Bases
Accrual IPSAS
• Are converged with IFRS but adapted to a public
sector context when appropriate.

• Deals with public sector financial reporting issues that

are either not comprehensively dealt with in existing
IFRSs or for which IFRSs have not been developed by
the IASB.

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IPSASs Cash Bases

• Cash basis IPSAS includes mandatory and encouraged

disclosures sections.

• The cash basis IPSAS encourages an entity to

voluntarily disclose accrual information.

• Currently the IPSAS contain 42 standards based on an

accrual accounting system and one standard for cash-
based accounting

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IPSAS is principle based and not rule
based
Copy Co. Ltd leased a photocopier to a local government for a period of 4
years. The key terms of the lease agreement were as follows:
1. Lease term – 4years
2. Useful life of asset – 4years
3. The price is fixed at 50pesewas per copy, with no minimum charge
4. At the end of the lease, the photocopier becomes the property of the local
government
5. Normally after 4years, the asset has no further use

Discuss the appropriate accounting treatment for the above

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The Controller General’s Department
Government accounting development
• Shift of accounting basis
Cash
Basis Accrual Basis

• Shift of accounting and reporting objectives

Monitor budget monitor financial

spending position
and resources used

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Government accounting development
• Shift of reporting requirements:

General Purpose
Report of budget
Financial Statements
spending

• Shift of government financial report preparation

consolidated whole –of
government financial
Compilation of cash flow to and
statements
from treasury reserve account

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Challenges to implementation
✓Staffing shortage

✓Lack of political support

✓Absence of public sector financial

management infrastructure

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Time and money consuming
Country Canada New Zealand South Africa

Time frame 14years 6years 13years +

Estimated Cost $635 million $319 million Unknown

Scope of reform Full accrual Full accrual Full accrual

accounting and accounting and accounting and
cash budgeting budgeting cash budgeting

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Benefits of IPSAS
Better More
Enhanced Better
measurement efficient
assets decision
of financial service
management making
performance delivery

Non-bond Resource
types Assets found no cash cost distribution

no shifting Optimising
Whole investments
of expense
picture of Depreciation
to another
liabilities impact of
period
current
decision on
the future
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Transition to Accruals (The case of UK
Central government)
✓ Public corporations – commercial accounts
✓ National service providers – accrual
✓ Local government – partial then full accrual
✓ Central government - last

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Key success features (IPSASB study 14)
1) Clear mandate
2) Political commitment
3) Commitment – central entities and key officials
4) Legislation
5) Project management structure
6) Information systems
7) Adequate resources (human and financial)

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Critical Success Factors
✓Strong political support at the highest level of
elected officials
✓Commitment to implementation from senior
appointed officials
✓Staff open to training and to move to accept an
accrual accounting perspective
✓ Recognition that reform is for enhanced financial
management not merely a book-keeping exercise

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 IPSAS 33:
First Time Adoption of IPSAS
• Applied when accrual basis is applied for the first
time

• Transitional IPSAS financial statements are the set

of financial statements prepared under the
exemptions allowed in IPSAS 33

• Compliance with selected IPSAS

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Exemptions allowed under IPSAS 33
• Opening financial statement
Where under the previous basis, assets and liabilities were not
recognised, the first-time adopter may not recognised for the first
three years the following assets under accrual basis IPSAS.
✓ Inventories
✓ Investment properties
✓ Property, Plant and Equipment
✓ Biological Assets
✓ Financial instruments
• Not require to change policy on recognition and measurement
of non-exchange revenue

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 Conceptual Framework of GPFR
• Role and authority of the conceptual framework
• Objectives and users of GPFR
• Qualitative characteristics
• Reporting entity
• Elements of financial statements
• Recognition in financial statements
• Measurement of Assets and Liabilities
• Presentation in GPFR

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 Objectives and users of GPFR
• Useful information about the entity to
users of GPFR for accountability and
decision-making purposes.

• Users: primary and other users

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 Qualitative characteristics of GPFR
• Relevance

• Faithful representation

• Understandability
• Timeliness
• Comparability
• Variability
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Constraints on Information included in
GPFR
• Materiality

• Balance between benefit and cost

• Balance between qualitative characteristics

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 Characteristics of reporting entity
• Reporting entity is a government or other public
sector organization, programme or identifiable
area of activity that prepares GPFR.
• 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.
• Service recipients or resource providers depend
GPFR

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Measurement of Assets and liabilities
The objective of measurement is to select those
measurement bases that most fairly reflect the cost of
services, operational capacity and financial capacity of
the entity in a manner that is useful in holding the
entity to account and for decision-making purposes.

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 Selecting measurement
• Financial Capacity—the capacity of the entity to
continue to fund its activities and meet its
operational objectives in the future;
• Operational Capacity—the physical and other
resources available to support the provision
of services in future periods; and
• Cost of Services provided in the period;
• Qualitative characteristics

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 Measurement bases for assets
• Historical cost

• Market value

• Replacement cost

• Net selling price

• Value in use
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Measurement bases for liabilities
• Historical cost

• Cost of fulfilment

• Market value

• Cost of release

• Assumption price
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IPSAS 1:Presentation of published
financial statements
✓Sets out the overall considerations for the
presentation of financial statements, guidance for
the structure of those statements and minimum
requirements for their content under the accrual
basis of accounting.

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Objective of IPSAS 1

• to prescribe the manner in which general

purpose financial statements should be
presented to ensure comparability both
with the entity’s financial statements of
previous periods and with the financial
statements of other entities

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SCOPE of IPSAS 1
• applied to all general-purpose financial statements
prepared and presented under the accrual basis of
accounting in accordance with IPSASs.

• does not apply to condensed interim financial

information.

• applies to all public sector entities other than

Government Business Enterprises (GBEs).

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KEY DEFINITIONS IN IPSAS 1
• General purpose financial statements are those
intended to meet the needs of users who are not in
a position to demand reports tailored to meet their
particular information needs.

• Accrual basis means a basis of accounting under

which transactions and other events are recognized
when they occur (and not only when cash or its
equivalent is received or paid).

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DEFINITIONS IN IPSAS 1
• ASSET A resource controlled by an entity as a
result of past events and from which future
economic benefits or service potential are
expected to flow to the entity

• LIABILITY A present obligation of the entity

arising from past events, the settlement of which is
expected to result in an outflow of resources
embodying economic benefits or service potential

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DEFINITIONS IN IPSAS 1
• Net assets/equity is the residual interest in the assets of the entity
after deducting all its liabilities.

• Revenue is the gross inflow of economic benefits or service

potential during the reporting period when those inflows result
in an increase in net assets/equity, other than increases relating to
contributions from owners.

• Expenses are decreases in economic benefits or service potential

during the reporting period in the form of outflows or
consumption of assets or incurrences of liabilities that result in
decreases in net assets/equity, other than those relating to
distributions to owners.

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Components of financial statements
1) A statement of financial position
2) A statement of financial performance
3) A statement of changes in net assets/equity
4) A cash flow statement
5) When the entity makes publicly available its approved
budget, a comparison of budget and actual amounts
either as a separate additional financial statement or as a
budget column in the financial statements
6) Notes, comprising a summary of significant accounting
policies and other explanatory notes

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Are there differences between IPSAS 1
and IAS 1?
• Terminology

• Additional commentary to to clarify

the applicability of the Standard to
accounting by public sector entities,
e.g., discussion on the application of
the going concern concept has been
expanded.

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Thank you

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