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FINANCIAL STATEMENTS IN THE PUBLIC SECTOR

a. Statement of Financial Performance

b. Statement of Financial Position
c. Statement of Cash flow
3. The International Public Sector Accounting Standards (IPSASs)

The IPSASs are as follows

IPSAS 1 - Presentation of Financial Statements

IPSAS 2 - Cash Flow Statements
IPSAS 3 - Accounting Policies, Changes in Accounting Estimates and Errors
IPSAS 4 - The Effects of Changes in Foreign Exchange Rates
IPSAS 5 - Borrowing Costs
IPSAS 6 - Consolidated and Separate Financial Statements
IPSAS 7 - Investments in Associates
IPSAS 8 - Interests in Joint Ventures
IPSAS 9 - Revenue from Exchange Transactions
IPSAS 10 - Financial Reporting in Hyperinflationary Economies
IPSAS 11 - Construction Contracts
IPSAS 12 - Inventories
IPSAS 13 – Leases

IPSAS 14 - Events after the Reporting Date

IPSAS 15 - Financial Instruments: Disclosure and Presentation

IPSAS 16 - Investment Property
IPSAS 17 - Property, Plant, and Equipment
IPSAS 18 - Segment Reporting
IPSAS 19 - Provisions, Contingent Liabilities and Contingent Assets
IPSAS 20 - Related Party Disclosures
IPSAS 21 - Impairment of Non-Cash-Generating Assets
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
IPSAS 25 - Employee Benefits

NOTE: It must be noted that, these IPSASs have almost the same effects as what is known in Financial
Accounting, Financial Reporting and Corporate Reporting (thus Private sector accounting ) as the
International Accounting Standards(IASs) and International Financial Reporting Standards (IFRSs).
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3.1. IPSAS 1 - Presentation of Financial Statements

Scope:

This standard applies to the presentation of all general purpose financial statements prepared and
presented under the accrual basis of accounting in accordance with the IPSASs.

3.1.1. Objectives of General Purpose Financial Statements (GPFS)

To provide information used for decision – making, and to demonstrate the accountability of the public
entities for the resources entrusted to it by:

 Providing information about the sources, allocation and uses of financial resources.
 Providing information about how the entities financed its activities and met its requirement.
 Providing information about how the evaluating of the entity’s ability to finance its activities and
meet its liabilities and commitment.
 Providing information about the financial conditions of the entity and changes in it.
 Providing information for the evaluation of the overall performance of an entity.

3.1.2. Components of Financial Statements

 Statement of Financial Performance (Statement of Profit or Loss)

 Statement of Financial Position (Balance Sheet)
 Statement of Changes in Equity
 Cash flow statement
 Statement of Comparison of Budget and Actual Amounts
 Accounting Policies and Notes to Financial Statements.

Note: You can refer to IAS 1 – Presentation of Financial Statements

3.1.3. Qualitative Characteristics of Financial Statements

These are the set of attributes that make the information in the financial statement useful to users. The
four principal qualitative characteristics are

Presentation Content

Understandability Relevance

Comparability Reliability
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The Framework considers the materiality of a transaction as a threshold (cut-off point) quality. Financial
information is said to be material if its omission or misstatement can influence the economic decisions
of users taken on the basis of the financial statements. Therefore all the four qualitative characteristics
above are subject to materiality. This means that any information that is not material may not be
relevant or reliable and may not affect understandability or comparability.

a. RELEVANCE

Financial information is relevant if it has the ability to influence the economic decisions of users. It must
have predictive or confirmatory value. Predictive value assists users to evaluate past, present or future
events. Confirmatory value helps users to confirm or correct past evaluations. Note that by highlighting
unusual transactions in the accounts predictability is enhanced.

Relevance of information is affected by

its nature materiality

Nature alone may be sufficient to Information is material if its omission or

determine relevance. misstatement could influence the
economic decisions of users taken on the
basis of the financial statements.

Depends on size of item or error judged

in the
particular circumstances of its omission
or
misstatement

a threshold or cut-off point rather than

being a primary qualitative characteristic.

b. RELIABILITY
Reliable information is one that is free from material error and bias. The following qualities make
information reliable:

a) Faithful representation: information must represent faithfully the effects of transactions and
other events that it purports to represent. This is only possible if a transaction is accounted for
according to its economic substance and not its mere legal form. For example, this is why
internally generated goodwill is not recognised in the accounts. It is also applied in lease
agreements.
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b) Completeness: Financial information will be reliable if it is complete, subject to the constraint of

materiality and cost.

c) Neutrality: This means that any judgments exercised in the preparation of financial statements
must be free from bias. That is, the judgment exercise should not influence the user to make a
decision in order to achieve a predetermined outcome. Neutrality is needed in areas such as
valuation of inventory, provisions, etc.

d) Prudence: This demands the exercise of caution in estimating the outcome of uncertain events.
This forbids the accountant to anticipate profit but requires him to make provision for all
foreseeable losses.

c. COMPARABILITY

Financial statements should be comparable with the financial statements of other companies and with
the financial statements of the same company for earlier periods. This is achieved through consistency
of treatments and disclosure of accounting policies.

d. UNDERSTANDABILITY

Users must be able to understand financial statements. Therefore, in preparing the financial statements,
a reasonable knowledge of business and accounting by users is assumed. Understandability depends on
users’ ability as well as the aggregation and classification made.

3.1.3. Balance Between the Qualitative Characteristics

Some of the characteristics discussed above are conflicting. For example, information that is complete
may not be understandable as a result of too much detail. Also information that is prudent may not be
neutral as a result of the subjectivity involved in estimating the outcome of uncertain transactions.
Furthermore, information that is relevant must be timely so that it is not out-of-date. However, the
reliability characteristics may be affected if time is not allowed for all uncertainties to be resolved.

Note that in striking a balance between the qualitative characteristics, the overriding consideration is
how best to satisfy the economic decision-making needs of users.
Finally the benefit to be derived from the financial information should exceed the cost of providing it.
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3.1.4. Definitions

An asset is

 a resource controlled by the enterprise

 as a result of past events
 from which future economic benefits are expected to flow.

A liability is
 a present obligation of the enterprise
 arising from past events
 settlement of which is expected to result in an outflow of resources embodying economic
benefits.

Equity
 the residual interest
 in the assets of the enterprise
 after deducting all its liabilities.

Income
 increases in economic benefits during the accounting period
 in the form of inflows (or enhancements) of assets or decreases of liabilities
 that result in increases in equity
 other than those relating to contributions from equity participants.

Expenses
 decreases in economic benefits during the accounting period
 in the form of outflows (or depletions) of assets or incurrences of liabilities
 that result in decreases in equity
 other than those relating to distributions to equity participants
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3.1.5. Recognition of the Elements of Financial Statements

Certain items may meet the definition of the elements but may still not be recognised in financial
statements because they must also meet certain recognition criteria.

The framework explains recognition as “the process of incorporating in the statement of financial
position or statement of comprehensive income an item that meets the definition of an element and
satisfies the following criteria for recognition:

a. it is probable that any future economic benefits associated with the item will flow to or from
the entity; and
b. the item has a value that can be measured with reliability.

PUBLIC SECTOR ENTITY – STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED DECEMBER
31 20X2

REVENUE: 20X2 20X1

Taxes Xxx Xxx

Fees, fines, penalties & licence Xxx Xxx

Revenue from exchange Xxx Xxx

transfers

Transfer from other government Xxx Xxx

entities

Other revenue Xxx Xxx

Total revenue(a) Xxx Xxx

EXPENSES:

Wages, salaries & emoluments Xxx xxx

Grants and other transfer Xxx Xxx

payments

Supplies and consumables used Xxx Xxx

Depreciation and amortisation Xxx xxx

Impairment of PPE Xxx Xxx

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Other expenses Xxx Xxx

Finance cost Xxx Xxx

Total expenses (b) Xxx Xxx

Surplus /(deficit)(a –b) Xxx xxx

STATEMENT OF FINANCIAL POSITION

20X2 20X1

ASSETS:

Current assets:

Cash and cash equivalent Xxx Xxx

Receivables Xxx Xxx

Inventories Xxx Xxx

Prepayment of expenses Xxx xxx

Short term investments Xxx Xxx

xxx Xxx

Non- current assets:

Long term investment Xxx Xxx

Infrastructure, Plant & Xxx Xxx

Equipment

Receivables Xxx Xxx

Other financial assets Xxx Xxx

Land and Building Xxx Xxx

Intangible assets Xxx Xxx

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Other non- financial assets Xxx Xxx

xxx Xxx

Total assets (a) Xxx Xxx

Liabilities:

Current liabilities:

Payables Xxx Xxx

Short term borrowing Xxx Xxx

Provisions Xxx Xxx

Employees benefits Xxx xxx

Superannuation/retirement Xxx Xxx

payment

Xxx xxx

Non – current liabilities

Long term loan Xxx Xxx

Others Xxx Xxx

Xxx xxx

Total liability (b) Xxx xxx

Net assets (a – b) Xxx Xxx

Equity:

Capital contributed by other Xxx xxx

government entities
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Reserves Xxx xxx

Accumulated surplus/ (deficit) Xxx Xxx

Total Equity/ Net assets xxx xxx

WORKINGS

a. Direct Tax $m b. Indirect Tax $m

Tax paid by individuals Xxx General taxes on Goods Xxx
and services

Tax paid by corporates Xxx Excise Xxx

Miscellaneous taxes Xxx Customs and other input Xxx

duties

Receivables (Note) Xxx Taxes on export Xxx

Xxx Levies Xxx

Receivables (Notes) Xxx

xxx

c. Non – Tax $m d. Compensation for

Revenue Employees $m
Property Income Xxx Established post Xxx

Revenue from sale of Xxx Non – established post Xxx

Goods or services

Fines, penalties and Xxx Gratuities Xxx

forfeiture

Miscellaneous Tax Xxx Casual labour Xxx

Revenue

Xxx End of service benefits Xxx

Salary arrears (Notes) Xxx

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Xxx

e. Goods and $m f. Public debt $m

Services
Repairs and Xxx Domestic debt interest Xxx
maintenance

Administration cost Xxx External debt interest Xxx

Consultancy expenses Xxx Interest outstanding Xxx

(Notes)

Conferences and Xxx xxx

services

Special services cost Xxx

External travels Xxx g. Subsidies $m

Internal travel Xxx Utilities Xxx

Rentals Xxx Consumption Xxx

Outstanding (Notes) Xxx Petroleum products Xxx

Xxx Production Xxx

Xxx

h. Grants $m

Grant paid Xxx

DACF arrears Xxx

Other grants Xxx

Xxx

i. Non – $m j. Domestic Debt $m

Financial
Assets
Motor vehicle Xxx Treasury bills Xxx
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Equipment Xxx Bonds Xxx

Aircraft Xxx Other domestic Xxx

debts/loans

Infrastructure Xxx Xxx

Xxx

Consumption of fixed Xxx

capital

Net Book Value xxx

k. External Debt $m l. Accumulated Fund $m

Bilateral and Xxx Balance c/f Xxx
Multilateral

Euro Bonds Xxx Surplus/(deficits) Xxx

Loans from other Xxx xxx

external entities

xxx

m. Payables $m
Salaries (working) Xxx

Goods and Services Xxx

(working)

Interest (working) Xxx

DACF (working) Xxx

Xxx
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3.2. IPSAS 2 : CASH FLOW STATEMENT

SCOPE:

An entity that prepares and presents financial statements under the accrual basis of accounting shall
prepare a Cash Flow statement in accordance with the requirement of this standard.

3.2.1. Usefulness of the Cash Flow Statement

 To enable the assessment of the entity’s cash flows
 To enable the assessment of the entity’s compliance with legislation and regulations.
 To enable stakeholders in making decision about whether to provide resources to, or enter into
transaction with the entity.

3.2.2. Presenting of Cash flow statement

As you already know in IAS 7 Presentation of the Cash flow statement, the statement is presented with
three sub headings known as activities. These includes; Operating activities, Investing activities and
Financing activities.

FORMAT:

Public Sector Entity – Cash Flow statement for the year ended December 31 20x2

Cash flow from operating 20X1 20X2

activities

Receipt:

Taxation Xxx Xxx

Sales of goods and services Xxx Xxx

Interest received Xxx Xxx

Other receipts Xxx Xxx

Payment:

Employee costs (Xxx) (Xxx)

Superannuation (Xxx) (Xxx)

Supplier (Xxx) (Xxx)

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Interest paid (Xxx) (Xxx)

Other payments (Xxx) (Xxx)

Net cash flows from operating (Xxx)/xxx (xxx)/xxx

activities (a)

Cash flows from investing

activities:

Purchases of Fixed assets (Xxx) (xxx)

Proceeds from the sale of fixed Xxx Xxx

asset

Proceeds from the sale of Xxx Xxx

investment properties

Purchase of foreign currency (xxx) (xxx)

securities

Other investment Xxx/(xxx) Xxx/(xxx)

Net cash flow from investing Xxx/(xxx) Xxx/(xxx)

activities (b)

Cash flow from Financing

activities:

Proceeds from borrowing Xxx Xxx

Payment of borrowing (xxx) (xxx)

Dividend payment (xxx) (xxx)

Net cash flow from financing Xxx/(xxx) Xxx/(xxx)

activities (c)

Net increase/(decrease) in cash Xxx/(xxx) Xxx/(xxx)

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and cash equivalents (a + b+ c)

Cash and cash equivalent at the Xxx/(xxx) Xxx/(xxx)

beginning of the period

Cash and cash equivalent at the Xxx/(xxx) Xxx/(xxx)

end of the period

STATEMENT
NOTES TO THE CASH FLOW

(a) Cash and cash equivalent 20X1 20X2

Cash on hand and balance with Xxx Xxx

bank

Short term investment Xxx Xxx

xxx Xxx

(b) Reconciliation of Net Cash Flows from operating Activities to surplus/ (deficit )

20X1 20X2

Surplus/ (deficit) Xxx/(xxx) Xxx/(xxx)

Non cash movement:

Depreciation Xxx Xxx

Amortisation Xxx Xxx

Increase in provision for doubtful Xxx Xxx

debt
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Increase in payables Xxx xxx

Increase in borrowing Xxx Xxx

Increase in provision for Xxx xxx

employment cost

Loss on the sale of PPE Xxx Xxx

Profit on the sale of PPE (xxx) (xxx)

Increase in current assets (xxx) (xxx)

Decrease in current assets Xxx Xxx

Net cash flow from operating Xxx xxx