IPSAS Financial Reporting Under the Cash

Basis of Accounting (Cash Basis IPSAS)

Prepared by: Michael Wells

Date: April 23-27, 2018
Addis Ababa
Aims

» Understand the objective of financial information prepared under Cash Basis IPSAS
» Understand terms used in the cash basis IPSAS
» Describe the presentation and disclosure requirements for the Statement of Cash Receipts
and Payments and associated notes:
» Structure of the statement
» Classification
» Payments on a net basis
» Notes to the statements
» Determine figures to be included in the Statement of Cash Receipts and Payments and
associated notes
» Apply the requirements of the Cash Basis IPSAS in respect of
» Consolidation
» Foreign currency
» Budget Information
» External assistance
2
Introduction
 Introduction
IPSAS cash basis objective

» Information about the cash receipts, cash payments and cash

balances of an entity is necessary for accountability purposes
and provides input useful for assessments of the ability of the
entity to generate adequate cash in the future and the likely
sources and uses of cash.
» In making and evaluating decisions about the allocation of cash
resources and the sustainability of the entity’s activities, users
require an understanding of the timing and certainty of cash
receipts and cash payments.

source: Objective of financial reporting under the IPSAS cash basis of accounting 4
Introduction
IPSAS cash basis objective (continued)
5
» The objective of Cash Basis IPSAS is to provide a basis for the provision
of general purpose financial information to users about the cash
receipts, cash payments and cash balances of an entity in a manner that
supports assessing accountability and provides inputs useful for
assessing the ability of the entity to generate future cash flows and the
likely sources and uses of such cash.
» General purpose financial information is intended to meet the needs of
users who are not in a position to demand reports tailored to meet their
specific information needs.
» Cash Basis IPSAS applies equally to individual entity and to the
consolidated general purpose financial statements.

5
Primary user as envisaged in IPSAS
test your understanding

Charity A provides free primary health care to Ethiopian citizens.

For each user below, choose one of: 1) the user is a primary user; or 2) the
user is not a primary user.
A. An Ethiopian citizen that receives services from Charity A
B. An Ethiopian citizen that does not qualify to receive services from Charity A
C. A private sector supplier deciding whether to provide credit to Charity A
D. The Ethiopian Government deciding whether to provide Charity A with a grant to
fund its further expansion
E. A Philanthropist deciding whether to provide Charity A with a grant to fund its
ongoing operations

6
Introduction
concept of a reporting entity

» 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.
» A key characteristic of a reporting entity, including a group reporting
entity, is the existence of service recipients or resource providers
who are dependent on GPFRs of that entity or group of entities for
information for accountability or decision-making purposes.
» a public sector reporting entity need not have a separate legal identity. It
could be, for example, an organization, administrative arrangement or
program without a separate legal identity.

7
 Introduction
the Standard
8
» Cash Basis IPSAS is a standalone IPSAS Standard:
Financial Reporting Under the Cash Basis of Accounting
» It prescribe how financial statements should be
presented under the cash basis accounting
» The IPSASB encourages progression from Cash Basis IPSAS
to the IPSAS accrual Standards as the basis of accounting and
reporting for entities that are not primarily profit oriented.
» Cash Basis IPSAS is not an end by itself.
» It is a means of progression to the Accrual Basis IPSAS
© Michael JC Wells 8
 Introduction
Cash Basis IPSAS: Parts
9
The standard comprises of two parts:

» Part 1: Mandatory » Part 2: Non-Mandatory

» Key definitions » Identifies additional accounting
» Presentation and disclosure policies and disclosures.
requirements » Explains alternative methods of
» Specific accounting issues presentation

© Michael JC Wells 9
 IPSAS
moving from cash basis to accrual basis accounting

» The Cash Basis IPSAS encourages an entity to voluntarily disclose

accrual based information, although its core financial statements will
nonetheless be prepared under the cash basis of accounting.
» An entity in the process of moving from cash accounting to accrual
accounting may wish to include particular accrual based disclosures
during this process.
» Having decided to adopt accrual accounting in accordance with IPSASs,
the transitional provisions would govern the length of time available to
make the transition. On the expiry of the transitional provisions, the
entity reports in full accordance with all accrual based IPSASs.

source: paragraphs 16 and 17 of the Preface to IPSAS 10

 Ethiopian GPFS framework decisions
IFRS/IPSAS implementation roadmap: 3 phase transition over 3 years 11

»Phase 1: Significant Public Interest Entities (Financial Institutions and public

enterprises owned by Federal or Regional Governments-Adoption of IFRS)
»starting at the start of EFY 2009 (ie specifically July 8, 2016 date of transition);
»Phase 2: Other Public Interest Entities (ECX member companies and reporting
entities that meet PIE quantitative thresholds) adoption of IFRS and for Charities
and Societies adoption of IPSAS
»start adoption of the standards at the start of EFY 2010 (ie specifically: (i) July 8,
2017 is ‘date of transition of IPSAS’ if comparative figures are presented in its
First IPSAS Financial Statements at July 8, 2019; and (ii) July 8, 2018 is ‘date
of transition of IPSAS’ if comparative figures are NOT presented in its First IPSAS
Financial Statements at July 8, 2019)
»Phase 3: Small and Medium-sized Entities adoption of the IFRS for SMEs
»start adoption of the standards at the start of EFY 2011 (ie specifically July 8, 2018 date of
transition).
© Michael JC Wells 11
 IPSAS cash basis and accrual basis
implementation in Africa
12

12
Source: ACCA, IPSAS implementation: current status and challenges, October 2017
Introduction
IPSAS cash basis objective (continued)
13
» IFAC’s IPSASB envisages that IPSAS cash basis applies to all public
sector entities other than Government Business Enterprises (GBEs).
» A GBE is an entity that has all the following characteristics:
» an entity with the power to contract in its own name;
» has been assigned the financial and operational authority to carry on a business;
» 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 a going concern (other than
purchases of outputs at arm’s length); and
» is controlled by a public sector entity.

13
Cash Basis IPSAS
test your understanding

Question 1: are any of the following Government Business Enterprises? For each
entity below, choose one of: 1) Yes; or 2) No.
A. The Marriott Hotel in Addis Ababa
B. Ethiopian Airlines
C. The Ethiopian Government
D. Ethiopian Wildlife Conservation Authority (EWCA): a governmental organization under the
Ministry of Culture and Tourism given the authority to undertake conservation and sustainable
utilization of wildlife in Ethiopia.
E. Born Free Foundation Ethiopia: A UK Charity working closely with the Ethiopian Wildlife
Conservation Authority to provide assistance in many areas of wildlife protection.

Question 2: do any of the above qualify to use Cash Basis IPSAS? For each entity
above, choose one of: 1) Yes; 2) No; or 3) it depends.
14
Key definitions
 Key Definitions
16
» Cash basis: a basis of accounting that recognizes transactions and other events
only when cash (including cash equivalents) is received or paid.

» Cash Basis financial statements show:

» the sources of cash raised during the period;
» the purposes for which cash was used; and
» the cash balances at the reporting date.
» The measurement focus is balances of cash and changes in those balances.

» Non-cash balances can be disclosed.

© Michael JC Wells 16
 Key Definitions
17
» Control of cash
» Cash is controlled by the entity when it can use the cash for the
achievement of its own objectives or otherwise benefit form the
cash and exclude or regulate the access of others to that benefit.

» Cash collected by, or appropriated or granted to, an entity which the

entity can use to fund its operating objectives, acquire capital assets
or repay its debt is controlled by the entity.

» Amounts deposited in the bank account of an entity are controlled

by that entity.
© Michael JC Wells 17
Control of cash
test your understanding 1

Under the Cash Basis IPSAS, in which of the following circumstances would a municipal
charity Bring Joy for Ethiopian Kids (BJEK) have ‘control of cash’?
Situation A: BJEK has had a new school built by an international development agency on
its behalf. All cash payments were made directly by the international development agency to
the building contractors. 
Situation B: BJEK receives cash into its bank account on behalf of the Addis Ababa Health
Bureau. This cash must be transferred to the Bureau six weeks after the year-end.
Select one of:
1) Neither situation
2) Both situations A and B
3) Situation A only
4) Situation B only

18
 Control of cash
test your understanding 2
19
Under the Cash Basis IPSAS, in which of the following
S. circumstances does the Help the Elderly Charity (HTEC) have
No. ‘control of cash’? Choose 1) if HTEC has control over cash; and
choose 2) if HTEC does not have control over cash
1. HTEC has a hospital built on its behalf by an international charity. All
the payments were made directly by the international charity to the
building contractors.
2. HTEC collects grant cash on behalf of both itself and Rural Charity
(another charity that works in rural areas serving the same
objective). The grant receipts relating to Rural Charity are held in the
HTEC’s bank account at the reporting date, but the cash will be
transferred to the rural charity shortly after the reporting date.

19
 Key Definitions
20
» Single account basis
» Where a government manages the expenditure of its individual
departments through a centralized treasury function so that individual
departments and entities do not control their own bank accounts.
» In these cases, expenditures made by individual departments will be
reported in a separate column headed ‘treasury account’ in the statement
of cash receipts and payments.
» The Cash Basis IPSAS defines the single account basis as where
‘individual departments and entities do not control their own bank
accounts. Rather, government monies are managed by a central
entity through a ‘single’ government account or series of accounts’.

© Michael JC Wells 20
Single Account Basis
test your understanding

Which of the following circumstances is an example of the ‘single account

basis’ referred to in the Cash Basis IPSAS? Select one of:
1) Hope university manages the cash inflows and outflows for all three of its campuses,
including student accommodation and catering, through a single bank account.
2) Fitsula hospital manages all of its cash inflows and outflows through the same
nominal ledger account.
3) Two NGO agencies which are controlled by the same government department share
a single bank account.
4) A government’s treasury department manages the expenditure of all individual
departments through a centralized treasury function so that individual departments
and entities do not control their own bank accounts.

21
Presentation of financial statements:
Part 1 of the Standard
(MANDATORY)
 Presentation and disclosure requirements
23
Financial statements under the cash basis consist of the
following components:
1. A statement of cash receipts and payments
2. Accounting policies and explanatory notes
3. Comparison of original budget, revised (final) budget, and
actual amounts on a comparable basis (only when the entity
makes publicly available its approved budget)

© Michael JC Wells 23
 Presentation and disclosure requirements
24
A statement of cash receipts and payments

» Recognizes all cash receipts, cash payments and cash balances

controlled by the entity.

» Separately identify payments made by third parties on behalf of the

entity (in a separate column on the face of the statement of cash
receipts and payments)

© Michael JC Wells 24
 Presentation and disclosure requirements
25
Accounting policies and explanatory notes include:
» narrative descriptions;

» detailed schedules;

» analyses of amounts; and

» other disclosures necessary to achieve a fair presentation and enhance

accountability.

© Michael JC Wells 25
 Presentation and disclosure requirements
26
A comparison of budget to actual amounts
» When an entity makes publicly available its approved budget, a comparison of original
budget, revised (final) budget and actual amounts should be prepared.

» This may be: (i) a separate additional financial statement; or (ii) if prepared on a
comparable basis, a budget column may be included in the statement of cash
receipts and payments.

» Note disclosure: an explanation of material differences between the budget for which
the entity is held publicly accountable and actual amounts, unless such explanation is
included in other public documents issued in conjunction with the financial statements,
and a cross reference to those documents is made in the notes.

© Michael JC Wells 26
 Presentation and disclosure requirements
27
» Additional statement may also be prepared which show, for example:
» Cash receipts, cash payments and cash balances for major fund categories.
» Sources and deployment of borrowings.
» Entities that report using the cash basis may also disclose information
about items that are not recognized under a cash basis of accounting. For
example:
» Receivables, payables, borrowings, and other liabilities, non-cash assets,
accruals;
» Commitments and contingent liabilities,
» Performance indicators and the achievement of service delivery objectives.
» Such information may be disclosed in the notes.
© Michael JC Wells 27
Statement of Cash Receipts and
Payments
 Presentation and disclosure requirements
Statement of Cash Receipts and Payments
29
» The statement of cash receipts and payments includes:
» Total cash receipts of the entity.
» sub-classified into separate items which reflect the entity's operations.
» Total cash payments of the entity.
» sub-classified into separate items which reflect the entity’s operations
» Beginning and closing cash balances of the entity

© Michael JC Wells 29
 Presentation and disclosure requirements
Statement of Cash Receipts and Payments
30
How will each of the following will be presented in the Statement of Cash Receipts and Payments? Choose one
of: 1) Receipt line-item; 2) Payment line-item; or 3) it depends (specify on what it depends)
A. Funding allocations
B. Wages, salaries and employee benefits
C. Proceeds from borrowing
D. Supplies and consumables
E. Rent
F. Receipts from trading activities
G. Proceeds from disposal of PPE
H. Repayment of borrowings
I. Purchase of PPE
J. Interest
© Michael JC Wells 30
Gross or net basis?
 Presentation and disclosure requirements
32
» Principle: cash receipts and payments must be presented on
gross basis
» Rules: However, the net basis is allowed if the amounts:
» arise from transactions which the entity administers on behalf of other
parties and which are recognized in the statement of cash receipts
and payments
» are for items in which the turnover is quick, the amounts are large,
and the maturities are short.

© Michael JC Wells 32
 Control of Cash: Test your understanding
33
For each of the following cash receipts and cash payments for Catharine Fitsula hospital, state
S. No. whether they should be shown on a gross or net basis in the hospital’s statement of cash
receipts and payments. Choose one of: 1) Gross; 2) Net; or 3) It depends
1. Cash outflow of ETB150,000 in full settlement of a negligence claim by a patient, Ten months
after this date, following a long legal battle, the hospital received ETB150,000 in insurance
money from the insurers of the doctor involved in the negligent care.

2. Cash inflows totalling ETB320,000 in relation to payments collected on behalf of the Ministry of
Health from customers for prescription drug charges. The full amount collected is paid over to
the MOH at the end of each week, as required by the hospital’s charter.

33
 Format of the statement of cash receipts and payments
34
» The format of the statement of cash receipts and payments is
accessible and understandable to users
» by providing
» line items;
» headings; and
» subtotals to ensure comprehensive and fair presentation.

© Michael JC Wells 34
 Sub-classification of cash receipts and payments
35
» The standard does not prescribe sub-classifications of total
cash receipts and payments as this is a matter of professional
judgment, based on the situation of the entity.
» Payments may be split by:
» nature (staff costs, rent); or
» function (education, healthcare).

© Michael JC Wells 35
Judgment:
Sub-classifications in the statement of cash receipts and payments

»With reference to a charity with which you are familiar,

list the sub-classifications of total cash receipts and total
cash payments that would be shown on the face of the
statement of cash receipts and payments.

36
 Sub-classification of cash receipts and payments
37
» The sub-classifications are a matter of professional judgment
but should be presented in the context of the qualitative
characteristics of financial reporting under the cash basis
of accounting.
» The qualitative characteristics are:
» Understandability
» Relevance
» Reliability
» Comparability

© Michael JC Wells 37
Payments by third party on behalf of
the entity
 Third Party Payment
39
» Third party payments are when ‘a third party: (i) directly settles the
obligations of an entity; or (ii) purchases goods and services for the
benefit of the entity’. 
» For example, the Addis Ababa Health Bureau may fund the operation of an
education project of a Health TVET college by directly paying to service
providers and transferring to the college the necessary supplies.
» Third party transactions should be shown in a separate column on the
face of the statement of cash receipts and payments.
» Disclose whether the third party is internal or external.
» An internal third party would belong to the same overall reporting group or
entity.
© Michael JC Wells 39
Third Party Payment
test your understanding

The Cash Basis IPSAS distinguishes third party payments from those
controlled by the entity.
For each of the following cash flows must Donkey Sanctuary Charity in
Ethiopia, present in its statement of cash receipts and payments, a third
party payment? Choose one of: 1) Yes; or 2) No.
A. Cash payments made to the charity by a unilateral assistance agency.
B. Cash payments made directly to a building contractor on behalf of the charity
by the International NGO which controls the charity.
C. Cash payments made directly to a pharmaceuticals supplier on behalf of the
charity by the government of a neighboring donor country.

40
Third Party Payment
test your understanding

The Cash Basis IPSAS distinguishes between internal and external

third party payments. Which of the following is an example of an
external third party payment in the statement of cash receipts and
payments of Save the Planet Charity in Ethiopia? Select one of:
A. Cash payments made to the charity by a unilateral assistance agency
which meet the definition of ‘official resources’.
B. Cash payments made directly to a building contractor on behalf of the
charity by the International NGO which controls the charity.
C. Cash payments made directly to a pharmaceuticals supplier on behalf of
the charity by the government of a neighboring donor country.
41
 Third Party Transactions:
test your understanding
42
Explain how the following third party transactions will be presented in the statement of cash
S. No. receipts and payments for each of the following entities. Choose one of:
1) Internal; 2) External; 3) Neither internal nor external; 4) It depends
A. An individual government department has its expenditure managed through a
centralized treasury function (single account). Payments are made by the
government on behalf of the department after appropriate authorization and
documentation is received by the treasury.
B. An individual government department with its own bank account, has particular
goods purchased on its behalf by another government department.

C. The government of a country has had a new motor way system constructed by an
international development agency during the year. All payments were made
directly by the agency to the building contactors.

42
Preparing the statement of cash
receipts and payments
 Statement of cash receipts and payments pro-forma
44
Statement of cash receipts and payments for Charity X for the Year Ended June 30, 201X

Receipt/Payment Payments by Third Party

controlled by the
entity
Receipts
Receipt 1..
Total Receipts
Payments
Payment 1..
Total Payments
Increase /(decrease) in cash
Cash at the beginning of the year
Cash at the end of the year 44
The statement of comparison of
budget to actual amounts
Overview 46

 When an entity’s budget is made publicly available, the standard requires this
information to be shown in financial statements. (paragraph 1.9.8).
 The budget amount should be compared to the actual amount.
 This may be as a separate financial statement or,
 if the financial statements and budget are prepared on a comparable basis, as
additional budget columns in the statement of cash receipts and payments.
 The comparison should include:
 The original and final budget amounts;
 The actual amounts on a comparative basis; and
 Note disclosure explaining any material variations between budget and actual
amounts.

46
Overview 47

» Where the financial statements and budget are not prepared on a

comparable basis, there should be a reconciliation of actual amounts of
cash receipts and payments as shown on the face of the statement of cash
receipts and payments.

» According to paragraph 1.9.19 of the Cash Basis IPSAS, ‘when the budget
and financial statements are not prepared on a comparable basis, a
separate statement of comparison of budget and actual amounts is
presented…on the budgetary basis’.

47
Key definitions 48

Budgetary basis
The accrual, cash or other basis of accounting adopted in the budget
that has been approved.
Comparable basis
The actual amounts presented on the same accounting basis, same
classification basis, for the same entities and for the same period
as the approved budget

48
Statement of comparison of budget and actual amounts: pro-forma
49
Statement of comparison of budget and actual amount for Charity X for the Year Ended June 30, 201X
Budget approved on the cash basis
Actual amounts Final Budget Original Budget Difference Actual-Final
CASH INFLOWS
Aid agreements X X X X
Grants X X X X
Proceeds-borrowing X X X X
Proceeds-disposal X X X X
Other receipts X X X X
TOTAL receipts XX XX XX XX
CASH OUTFLOWS
Women Health (X) (X) (X) (X)
Children Education (X) (X) (X) (X)
Others (X) (X) (X) (X)
TOTAL payments (XX) (XX) (XX) (XX)
Net cash flows X X X X 49
Statement of comparison of budget and actual amounts
test your understanding

A university has adopted the Cash Basis IPSAS. It prepares its statement of cash receipts and
payments to a 31 December year-end. Its approved budget is prepared to a 30 November year-end
and is published following approval by legislature.
In this situation, what would the requirements of the IPSAS be, with regard to the presentation of a
comparison of budget and actual amounts?  Select one of:
1) A comparison of budget and actual amounts should not be made due to lack of comparability.
2) The budget should be adjusted to a 31 December year-end and then a separate comparison
of budget and actual amounts prepared on this basis.
3) Additional columns for the budget figures should be added to the statement of cash receipts
and payments.
4) A separate statement of comparison of budget and actual amounts should be presented on
the budgetary basis.

50
 Judgment
classification of cash flows
51
»Explain an alternative classification basis, other than by
function, that could be used for cash outflows and what
are the main headings that would appear in the
statement using this alternative classification.

© Michael JC Wells 51
 Additional disclosure requirements
52
»Disclosures are required for the following in relation to
the comparison of budget and actual amounts
» The period of the approved budget
» The entities included in the approved budget
» An explanation of the budgetary basis and classification basis adopted
in the approved budget
» An explanation of whether changes between the original and final
budget are a consequence of: (i) reallocations within the budget; or (ii)
other factors.

© Michael JC Wells 52
Other considerations in Part 1
Other considerations in Part 1 54

» The standard covers all aspects of accounting under the cash

basis and Part 1 includes:
» general considerations for preparing the financial
statements, as well as:
» guidance on how to present and disclose transaction in
foreign currencies; and
» accounting for external assistance.

54
Reporting period 55

» The financial statements should be presented at least annually.

» When, in exceptional circumstances, an entity's reporting date
changes and the annual financial statements are presented for
a period longer or shorter than one year, the entity should
disclose: (i) the reasons for a period of that one year being
used; and (ii) that fact that comparative amounts may not be
comparable.

55
Timeliness 56

» Financial statements should be made available within a

reasonable period after the reporting date:
» the standard suggest issuing within six months of the
reporting date.
» a timeframe of no more than three months is strongly
encouraged

56
Presentation 57

» Presentation and classification of items in the financial

statements should be consistent from one period to the next
unless:
» A significant change in the nature of the operations of the entity or a
review of its financial statements presentation demonstrates that the
change will result in a more appropriate presentation of events or
transactions.
» A change in presentation is required by a future amendment of the
standard
» The financial statements should be clearly identified from other
information in the same published document
57
Presentation
test your understanding

In accordance with Cash Basis IPSAS, in which two of the following circumstances would it be
acceptable to change the presentation and classification of items in the statement of cash
receipts and payments?
i. As result of recently discovered procedural errors, an agency’s finance director and director
of IT have both been replaced and as a result, significant changes in operational
procedures have been implemented.
ii. A general hospital shuts down all of its adult wards in order to become a specialized
regional children’s hospital, resulting in a 70% reduction in revenues and expenses.
iii. A university outsources the provision of student catering to a private sector company.
Catering income previously accounted for 3% of the university’s total revenue.
iv. A municipal authority reviews its financial statements and concludes that a change will
result in a more appropriate presentation of events or transactions.
Select one of: 1) (i) and (iii); 2) (ii) and (iv); 3) (i) and (ii); or 4) (iii) and (iv).

58
 Consistency
test your understanding
59
In accordance with the Cash Basis IPSAS, in which circumstances is it
S. acceptable to change the presentation and classification of items in the
No. statement of cash receipts and payments and statement of comparison of
budget and actual amounts? For each circumstance (A to C below), choose
one of: 1) Acceptable to change; 2) Not acceptable to change; 3) It depends
A. A hospital reviews its financial statements and concludes that a change will
result in a more appropriate presentation of events or transactions.
B. A public sector reorganization results in a charity losing responsibility for
providing education and housing services in its local area, which previously
accounted for 70% of its revenue and expenses.
C. A university changes its student assessment procedures from being mainly
exam based to 50% coursework based.

59
Errors 60

» When an error arises in relation to a cash balance reported in

the financial statements, the amount of the error that relates to
prior periods should be reported by adjusting the cash at the
beginning of the period.
» Comparative information should be restated unless it is
impracticable to do so.
» Details of the error should be disclosed in the notes to the
financial statements

60
Other disclosures 61

» The date of authorization for issue and who gave that

authorization should be disclosed.
» Information about the entity should be disclosed.
» Domicile, legal form, jurisdiction, description of principal activities,
relevant governing legislation and name of controlling entity
» The following must be disclosed:
» Significant cash balances not available for use by the entity
» Significant cash balances that are subject to external restrictions
» Undrawn borrowing facilities

61
Foreign currency
Foreign currency 63

» Transactions denominated in a foreign currency need to be

recorded in the statements and reported in the domestic
currency based on the exchange rate between the two
currencies at the date of the transaction.
» Cash balances held in a foreign currency should be reported
using the closing rate (ie the spot exchange rate) at the
reporting date.

63
Foreign Currency
test your understanding 1

Under the Cash Basis IPSAS, which two of the following statements are true? 
i. Cash receipts and payments made in a foreign currency should be
reported using an average of the opening and closing exchange rates.
ii. Cash receipts and payments made in a foreign currency should be
reported using the exchange rate at the date of each transaction.
iii. Cash balances held in a foreign currency should be reported using the
closing exchange rate.
iv. Cash balances held in a foreign currency should be reported using an
average of the opening and closing exchange rates.
Select one of: 1) (i) and (iii); 2) (ii) and (iv); 3) (i) and (iv); or 4) (ii) and (iii).

64
 Foreign Currency
test your understanding 2

A central government agency follows the Cash Basis IPSAS in preparing its financial statements. Its functional
currency is ETB.
During the year ended 31 December 20x0, its payments included the following foreign currency transactions in
US$: $200,000 on 30 April and $85,000 on 30 September. The balance in its US$ bank account at the end of
the year was $52,000. 
To the nearest thousand ETBs, how will these transactions be reflected in the agency’s statement of cash
receipts and cash payments for the year? 
Note the following ETB/US$ exchange rates: 
  30 April  27 : 1 
  30 September 28 : 1
  31 December  29 : 1 
  Average for the year 28 : 1
Select one of:
a. Cash payments of ETB 7,780,000    Cash at end of year of ETB 1,456,000
b. Cash payments of ETB 7,980,000    Cash at end of year of ETB 1,508,000
c. Cash payments of ETB 7,780,000    Cash at end of year of ETB 1,508,000
d. Cash payments of ETB 7,980,000    Cash at end of year of ETB 1,456,000 65
Foreign currency
test your understanding 3 66

Orphan Rescue Charity (ORC) constructs a hospital in a drought-ridden part of

Ethiopia as part of its overseas aid commitments. The contractors who built the
hospital were paid by ORC in two stages: USD3.5 million on April 1 20x0 and USD2.2
million on 1 September 20x0.
» ORC’s financial statements are prepared in ETB under the cash basis.
» At ORC’s 31 December 20x0 year-end, it held USD1.3 million in its US bank account.
» Exchange rates for ETB/USD were as follows:
» 1 April 20x0: 27.453
» 1 September 20x0: 27.511
» 31 December 20x0: 27.354
» How will these foreign exchange amounts be reflected in ORC’s statement of total
cash receipts and payments for the year ended 31 December 20x0

66
Solution: foreign currency
test your understanding 3 67

» The USD payments to contractors will need to be included in

the statement of total cash receipts and cash payments by
translating the USD amounts in ETB at the exchange rate
prevailing at the payment dates. Thus
» 1 April : 3.5 USD x ETB 27.453 =ETB 96.0855 million
» 1 September: 2.2 USD x ETB 27.511 =ETB 60.5242 million
» The closing USD cash balance would need to be converted into
ETB as follows for inclusion in the statement using the year-end
exchange rate as follows:
» USD 1.2M x ETB 27.354 = ETB 32.8248 million

67
External assistance
External Assistance
definition 69

» External assistances are ‘all official resources which the recipient can use or otherwise
benefit from in pursuit of its objectives’ (para 1.10.1)
» Official resources ‘all loans, grants, technical assistance provided or committed under a
binding agreement by multilateral or bilateral external assistance agencies or by a government,
or agencies of a government, other than to a recipient of the same nation as the government
agency providing, or committing to provide, the assistance’.
» official resources does not include assistance from non-governmental organizations (for
example independent charities) and nor does it include assistance provided by governmental
organizations in the same nation as the recipient.
» Examples of official resources might include grants or donations by organizations such as the
United Nations, the World Bank, and regional development organizations. 
» It is important to disclose the amount of external assistance in order that users of the financial
statements can see the extent to which the operations of the reporting entity are funded from
taxes and/or internal sources, or are dependent upon external assistance.

69
Foreign exchange and external assistance 70

» ‘Cash receipts, or payments made by a third party on behalf of

the entity, arising from transactions in a foreign currency will be
recorded or reported in the entity’s reporting currency by
applying to the foreign currency amount, the exchange rate
between the reporting currency and the foreign currency at the
date of the receipt or payment. 

70
Other disclosure requirements for external assistance 71

» ‘Where external assistance is received in the form of loans or

grants these should be presented separately either on the
face of the statement or in the notes.
» Any undrawn external assistance loans and grants available
at reporting date, along with their significant terms and
conditions, should also be disclosed.

71
Consolidated statement of cash
receipts and payments
Consolidated Financial Statements 73

The statement of cash receipts and payments prepared by a controlling entity will
consolidate the cash receipts, cash payments and cash balances of all the entities it
controls.
When preparing consolidated statements the following procedures should apply:
» Cash balances and cash transactions between entities within the economic entity should
be eliminated in full;
» The difference between the reporting dates should be no more than three months. If
reporting dates are different, adjustments should be made for the effects of significant
cash transactions that have occurred between those dates and the date of the
controlling entity’s financial statements;
» Uniform accounting policies for like cash transactions should be used. If this is not
practicable, details of where different policies have been used should be disclosed.
» A controlled entity should be excluded from consolidation when it ‘operates under
severe external long-term restrictions which prevent the controlling entity from
benefitting from its activities.’ (Paragraph 1.6.6)
73
Consolidated Financial Statements
test your understanding 1

A government department has several controlled entities and prepares its financial statements in accordance
with the Cash Basis IPSAS.
Which of the following controlled entities does not have to be included in the department’s consolidated financial
statements for the year-ended 31 December 20x3?  Select one of:
1) The department controls a small company. 35% of the company’s shares are owned by a minority
interest.
2) The department controls an agency which mainly operates in a neighboring country and therefore has
a different functional currency to the department.
3) The department controls a housing association. The housing association has a different year end to the
local authority and its most recent published financial statements were for the year-ended 31 August
20x3.
4) The department controls a charity which operates in a war-torn neighboring country. Severe long term
restrictions imposed by the national government in the neighboring country prevent the department
from benefiting from the activities of the charity.

74
Consolidated Financial Statements
test your understanding 2

An NGO is preparing financial statements for the year ended 31 December 20x0 in
accordance with the Cash Basis IPSAS.
» Total receipts from trading is recorded in the NGO’s cash book is ETB700,000,
and ETB167,000 by an agency controlled by the NGO. Of the trading income
received by the NGO, ETB23,000 relates to items sold at cost price to the agency. 
» In addition to the ETB700,000 received by the NGO in 20x0, a further ETB13,000
was received shortly after the year-end from a client in payment for consultancy
services performed during the year. 
What amount is total cash receipts from trading in the consolidated statement of
cash receipts and payments for the year?  Select one of:
1) ETB844,000; 2) ETB867,000; 3) ETB857,000; or 4) ETB880,000.

75
PART 2: Cash Basis IPSAS
Standard (NON MANDATORY)
Cash Basis IPSAS Part 2 77

» Part 2 of the standard is not mandatory. It sets out encouraged additional disclosures for
reporting under the cash basis. Some examples of these disclosures are as follows:
» An assessment of the entity’s ability to continue as a going concern. 
» The nature and amount of cash flows and cash balances resulting from transactions administered by the
entity as an agent on behalf of others where those amounts are outside the control of the entity.
» An analysis of total cash payments and payments by third parties using a classification based on either
the nature of the payments or their function within the entity. 
» Proceeds from borrowings, further classified into type and source.
» Information required by IPSAS 20 Related Party Disclosures.
» Information about the assets and liabilities of the entity. 
» If an entity does not make publicly available its approved budget, a comparison with budgets.
» Information about ownership interest in controlled entities and voting power held.
» A listing and description of interests in significant joint ventures and information about the receipts and
payments relating to joint ventures.
» Where a hyperinflationary economy exists, the restatement of the financial statements and comparative
information using a general price index that reflects changes in general purchasing power.
» The purpose for which external assistance was received and the purpose for which external assistance
payments was made, including details of providers and amounts provided.
77
 Cash Basis IPSAS Part 2
78
For an organization(s) of your choice:
» List the financial statements produced by that organization. 
» Identify which are cash based and which are accruals based.
» For those that are cash based, to what extent do they comply
with Part 1 of IPSAS financial reporting under the cash basis of
accounting?
» What changes would need to be made in order to make them
comply, and what practical difficulties might these changes
cause?
© Michael JC Wells 78
IPSASB Study 14: Transition to the
Accrual Basis of Accounting:
Guidance for the Public Sector Entities
 IPSAS Study 14: Transition to the Accrual Basis of Accounting:
Guidance for Public Sector Entities
80
»IPSASB also occasionally issues studies, which provide advice on
financial reporting issues in the public sector.
» PSASB Study 14 Transition to the Accrual Basis of Accounting: Guidance for
Public Sector Entities (IPSASB, 2011)
» In the study, the IPSASB outlines the benefits of using an accruals-based
accounting system, stating that reports prepared on an accruals basis allow users
to: 
» assess the accountability for all resources the entity controls and the deployment of those
resources; 
» assess the financial position, financial performance, and cash flows of the entity; and make
decisions about providing resources to, or doing business with, the entity.
» make decisions about providing resources to, or doing business with, the entity.

© Michael JC Wells 80
For more detailed guidance on
transitioning to the IPSAS Accrual
see the material for Day 5 PM