AFE BABALOLA UNIVERSITY, ADO-EKITI, EKITI STATE

IPSAS SUMMARY ASSIGNMENT FOR GROUP 1

SUBMITTED BY
ADEBOWALE OLAJIDE JULIUS: 22/PGC/SMS02/027

OBAMOYEGUN OLUWAPONMILE JOSEPH: 22/PGC/SMS02/024

AKINADEWO JEREMIAH OREOLUWA: 22/PGC/SMS02/025

ADEOSUN OLUWASEUN TITI: 22/PGC/SMS02/022

COURSE CODE: ACC 909

COURSE TITLE: PUBLIC SECTOR

LECTURER: DR. I. S., Akinadewo

 IPSAS 1: PRESENTATION OF FINANCIAL STATEMENT
Effective date
Annual periods beginning on or after January 1, 2008.
Objective
To establish the manner of reporting for general purpose financial statement using accrual
basis accounting and the guideline for their structure. Financial statements generally are to be
prepared annually. A disclosure is required if the reporting year-end changes, that is, when they
are presented for a period other than one year, disclosure thereof is required.
Summary
IPSAS 1 establishes the fundamental principles that underlies the preparation of financial
statements which includes going-concern assumption, consistency of presentation and
classification, accrual basis of accounting, and aggregation and materiality. It establishes a
complete set of financial statement to include:
 Statement of financial position;
 Statement of financial performance;
 Statement of changes in net assets/equity;
 Cash flow statement;
 When the entity makes it approved budget publicly available, a comparison of budget and
accrual amounts;
 Notes comprising a summary of significant accounting policies and other explanatory
notes.
Offsetting
The offset of asset, liabilities, revenue and expenses are not allowed except permitted or
required by another IPSAS
Comparative Prior-Period Information
This shall be presented for all amounts shown in the financial statements and notes.
Comparative information shall be included when it is relevant to an understanding of the current
period’s financial statements. In the case presentation or classification is amended, comparative
amounts shall be reclassified, and the nature, amount of, and reason for any reclassification shall
be disclosed.
IPSAS 1 specifies minimum line items to be presented on the face of the statement of
financial position, statement of financial performance, and statement of changes in net
assets/equity, and includes guidance for identifying additional line items, headings, and
subtotals. The analysis of expenses in the statement of financial performance may be given by
nature or by function. If presented by function, classification of expenses by nature shall be
provided additionally.
For the notes, IPSAS 1 specifies the minimum disclosure requirements to include: the
accounting policies followed; the judgments that management has made in the process of
applying the entity’s accounting policies that have the most significant effect on the amounts
recognized in the financial statements; the key assumptions concerning the future, and other key
sources of estimation uncertainty, that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year; the domicile and
legal form of the entity; description of the nature of the entity’s operations; reference to the
relevant legislation; and the name of the controlling entity and the ultimate controlling entity of
the economic entity.
 IPSAS 2: CASH FLOW STATEMENT
Effective Date
Periods beginning on or after July 1, 2001.
Objective
This standard establish the requirement for the presentation of information about historical
changes in a public sector entity’s cash and cash equivalents by means of a cash flow statement.
Summary
A cash flow statement must analyse changes in cash and cash equivalents during a
period, classified by operating, investing, and financing activities. Cash equivalents include
investments that are short term (less than three months from the date of acquisition), readily
convertible to known amounts of cash, and subject to an insignificant risk of changes in value.
Generally, they exclude equity investments.
Operating Activities
Cash flows this activities are reported using either the direct or the indirect method. The direct
method is however recommended. The requirements are:
 Public sector entities reporting cash flows from operating activities using the direct
method are encouraged to provide a reconciliation of the surplus/deficit from ordinary
activities with the net cash flow from operating activities. Cash flows from interest and
dividends received and paid shall each be disclosed separately and classified as either
operating, investing, or financing activities. Cash flows arising from taxes on net surplus
are classified as operating unless they can be specifically identified with financing or
investing activities.
 The exchange rate used for translation of cash flows arising from transactions
denominated in a foreign currency shall be the rate in effect at the date of the cash flows.
 Aggregate cash flows related to acquisitions and disposals of controlled entities and
other operating units shall be presented separately and classified as investing activities,
with specified additional disclosures.
 Investing and financing transactions that do not require the use of cash shall be excluded
from the cash flow statement, but they shall be separately disclosed.
Illustrative cash flow statements are included in appendices to IPSAS 2.
 IPSAS 3: ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATE AND
ERROR
Effective Date
Annual periods beginning on or after January 1, 2008.
Objective
To prescribe the criteria for selecting and changing accounting policies, together with the
accounting treatment and disclosure of changes in accounting policies, changes in accounting
estimates, and corrections of errors.
Summary
In the absence of an IPSAS that specifically applies to a transaction, other event or
condition, management shall use judgment in developing and applying an accounting policy that
results in information that is: relevant to the decision-making needs of users; reliable; represent
faithfully the financial position, financial performance, and cash flows of the entity; reflect the
economic substance of transactions, other events and conditions, and not merely the legal form;
are neutral, i.e., free from bias, prudent and complete in all material aspects.
Guidance for Choosing Accounting Policy
IPSAS 3 prescribes that in the absence of a directly applicable IPSAS, the requirements
and guidance of IPSAS in dealing with similar and related issue should be consulted; including
the definitions, recognition, and measurement criteria for assets, liabilities, revenue, and
expenses as described in other IPSASs. Management may also consider the most recent
pronouncements of other standard-setting bodies and accepted public and private sector
practices.
Other requirements specified by IPSAS 3 are:
 Apply accounting policies consistently to similar transactions;
 Make a change in accounting policy only if it is required by an IPSAS, or it results in
reliable and more relevant information;
 If a change in accounting policy is required by an IPSAS, follow that pronouncement’s
transition requirements. If none are specified, or if the change is voluntary, apply the new
accounting policy retrospectively by restating prior periods. If restatement is
impracticable, include the cumulative effect of the change in net assets/equity. If the
cumulative effect cannot be determined, apply the new policy prospectively;
 Changes in accounting estimates (for example, change in useful life of an asset) are
accounted for in the current period, or the current and future periods (no restatement);
  In the situation a distinction between a change in accounting policy and a change in
accounting estimate is unclear, the change is treated as a change in an accounting
estimate;
 All material prior-period errors shall be corrected retrospectively in the first set of
financial statements authorized for issue after their discovery, by restating comparative
prior-period amounts or, if the error occurred before the earliest period presented, by
restating the opening statement of financial position.

IPSAS 4: THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

Annual periods beginning on or after January 1, 2010.To prescribe the accounting
treatment for an entity’s foreign currency transactions and foreign operations.
 First, determine the reporting entity’s functional currency — the currency of the
primary economic environment in which the entity operates.
 Next, translate all foreign currency items into the functional currency
Initial Measurement
At the date of transaction, record using the spot exchange rate for initial recognition and
measurement.
Subsequent Reporting Dates
 Use closing rate for monetary items
 Use transaction-date exchange rates for nonmonetary items carried at historical cost
 Use valuation-date exchange rates for nonmonetary items that are carried at fair value
Exchange differences arising on settlement of monetary items and on translation of
monetary items at a rate different from when initially recognized are included in surplus or
deficit, with one exception: exchange differences arising from monetary items that form part of
the reporting entity’s net investment in a foreign operation are recognized in the consolidated
financial statements that include the foreign operation in a separate component of net
assets/equity; these differences will be recognized in the surplus or deficit on disposal of the net
investment.
The results and financial position of an entity’s foreign operations whose functional currency
is not the currency of a hyperinflationary economy are translated into a different presentation
currency using the following procedures:
 Assets and liabilities for each statement of financial position presented (including
comparatives) are translated at the closing rate at the date of that statement of financial
position
 Revenue and expenses of each statement of financial performance (including
comparatives) are translated at exchange rates at the dates of the transactions.
  All resulting exchange differences are recognized as a separate component of net
assets/equity.
Special rules apply for translating into a presentation currency the financial performance and
financial position of an entity whose functional currency is hyperinflationary.

IPSAS 5: BORROWING COSTS

Periods beginning on or after July 1, 2001
To prescribe the accounting treatment for borrowing costs.
 Borrowing costs include interest, amortisation of discounts or premiums on borrowings,
and amortisation of ancillary costs incurred in the arrangement of borrowings.
 Two accounting treatments are allowed:
Expense model: Charge all borrowing costs to expenses in the period when they are incurred;
Capitalisation model: Capitalize borrowing costs which are directly attributable to the
acquisition or construction of a qualifying asset, but only when it is probable that these costs will
result in future economic benefits or service potential to the entity, and the costs can be measured
reliably. All other borrowing costs that do not satisfy the conditions for capitalization are to be
expensed when incurred.
Where an entity adopts the capitalization model, that model shall be applied consistently to
all borrowing costs that are directly attributable to the acquisition, construction, or production of
all qualifying assets of the entity. Investment income from temporary investment shall be
deducted from the actual borrowing costs.
 A qualifying asset is an asset which requires a substantial period of time to make it ready
for its intended use or sale. Examples include office buildings, hospitals, infrastructure
assets such as roads, bridges, and power-generation facilities, and some inventories.
 If funds are borrowed generally and used for the purpose of obtaining the qualifying
asset, apply a capitalization rate (weighted-average of borrowing costs applicable to the
general outstanding borrowings during the period) to outlays incurred during the period,
to determine the amount of borrowing costs eligible for capitalization.
 IPSAS 6: CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
Annual periods beginning on or after January 1, 2008. IPSASs 34-38 (Interests in Other
Entities) are effective for annual periods beginning on or after 1 January 2017, replacing IPSASs
6-8. Earlier application permitted.
To prescribe requirements for preparing and presenting consolidated financial statements for
an economic entity under the accrual basis of accounting. To prescribe how to account for
investments in controlled entities, jointly controlled entities, and associates in separate financial
statements.
 A controlled entity is an entity controlled by another entity, known as the controlling
entity. Control is the power to govern the operating and financial policies.
Consolidated financial statements are financial statements of an economic entity (controlling
entity and controlled entities combined) presented as those of a single entity.
 Consolidated financial statements shall include all controlled entities, except when there
is evidence that:
Control is intended to be temporary because the controlled entity is acquired and held
exclusively with a view to its subsequent disposal within 12 months from acquisition
Management is actively seeking a buyer
No exemption for controlled entity that operates under severe long-term funds transfer
restrictions. A controlled entity is not excluded from consolidation because its activities are
dissimilar to those of the other activities within the economic entity.
 Balances, transactions, revenue, and expenses between entities within the economic
entity are eliminated in full.
 Consolidated financial statements shall be prepared using uniform accounting policies
for like transactions and other events in similar circumstances.
 Reporting dates of controlled entities cannot be more than three months different from
reporting date of the controlling entity.
 Minority interest is reported in net assets/equity in the consolidated statement of financial
position, separately from the controlling entity’s net assets/equity, and is not deducted in
measuring the economic entity’s revenue or expense. However, surplus or deficit of the
 economic entity is allocated between minority and majority interest on the face of the
statement of financial performance.
In the controlling entity’s separate financial statements: Account for all of its investments in
controlling entities, associates, and joint ventures either using the equity method, at cost or as
financial instruments.

IPSAS 7: INVESTMENTS IN ASSOCIATES

This International Public Sector Accounting Standard (IPSAS) is drawn primarily from
International Accounting Standard (IAS) 28 (Revised 2003), Investments in Associates,
published by the International Accounting Standards Board (IASB). Extracts from IAS 28 are
reproduced in this publication of the International Public Sector Accounting Standards Board
(IPSASB) of the International Federation of Accountants (IFAC) with the permission of the
International Financial Reporting Standards (IFRS) Foundation.
Scope
This Standard provides the basis for accounting for ownership interests in associates.
That is, the investment in the other entity confers on the investor the risks and rewards incidental
to an ownership interest. This Standard applies only to investments in the formal equity structure
(or its equivalent) of an investee. A formal equity structure means share capital or an equivalent
form of unitized capital, such as units in a property trust, but may also include other equity
structures in which the investor’s interest can be measured reliably. Where the equity structure is
poorly defined, it may not be possible to obtain a reliable measure of the ownership interest.

Effective Date
An entity shall apply this Standard for annual financial statements covering periods
beginning on or after January 1, 2008. Earlier application is encouraged. If an entity applies this
Standard for a period beginning before January 1, 2008, it shall disclose that fact.

Definitions

An Associate: is an entity, including an unincorporated entity such as a partnership, over which

the investor has significant influence, and that is neither a controlled entity nor an interest in a
joint venture.

The equity method: (for this Standard) is a method of accounting whereby the investment is
initially recognized at cost, and adjusted thereafter for the post-acquisition change in the
investor’s share of net assets/equity of the investee. The surplus or deficit of the investor includes
the investor’s share of the surplus or deficit of the investee.
Significant influence: (for this Standard) is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control over those policies.
The existence of significant influence by an investor is usually evidenced in one or more of the
following ways:
 representation on the board of directors or equivalent governing body of the investee;
 Participation in policy-making processes, including participation in decisions about
dividends
or similar distributions;
 material transactions between the investor and the investee;
 interchange of managerial personnel; or
 provision of essential technical information.

Equity Method

An entity may own (a) share warrants, (b) share call options, (c) debt or equity
instruments that are convertible into ordinary shares, or (d) other similar instruments that have
the potential, if exercised or converted, to give the entity additional voting power or reduce
another party’s voting power over the financial and operating policies of another entity (i.e.,
potential voting rights). The existence and effect of potential voting rights that are currently
exercisable or convertible, including potential voting rights held by other entities, are considered
when assessing whether an entity has significant influence. Potential voting rights are not
currently exercisable or convertible when, for example, they cannot be exercised or converted
until a future date or until the occurrence of a future event.
Under the equity method, the investment in an associate is initially recognized at cost,
and the carrying amount is increased or decreased to recognize the investor’s share of the surplus
or deficit of the investee after the date of acquisition. The investor’s share of the surplus or
deficit of the investee is recognized in the investor’s surplus or deficit. Distributions received
from an investee reduce the carrying amount of the investment. Adjustments to the carrying
amount may also be necessary for changes in the investor’s proportionate interest in the investee
arising from changes in the investee’s equity that have not been recognized in the investee’s
surplus or deficit. Such changes include those arising from the revaluation of property, plant, and
equipment, and from foreign exchange translation differences. The investor’s share of those
changes is recognized directly in the net assets/equity of the investor.
 IPSAS 8: INTERESTS IN JOINT VENTURES
A jointly controlled entity is a joint venture that involves the establishment of a
corporation, partnership or other entity in which each venturer has an interest. The entity
operates in the same way as other entities, except that a binding arrangement between the
venturers establishes joint control over the activity of the entity.

Effective Date
When an entity adopts the accrual basis of accounting as defined by IPSASs for financial
reporting purposes after this effective date, this Standard applies to the entity’s annual financial
statements covering periods beginning on or after the date of adoption.

Scope
An entity that prepares and presents financial statements under the accrual basis of
accounting shall apply this Standard in accounting for interests in joint ventures and the reporting
of joint venture assets, liabilities, revenue and expenses in the financial statements of venturers
and investors, regardless of the structures or forms under which the joint venture activities take
place. However, it does not apply to venturers’ interests in jointly controlled entities held by:
 Venture capital organizations; or
 Mutual funds, unit trusts and similar entities including investment-linked insurance funds

The following terms are used in this Standard with the meanings specified:

The equity method: (for this Standard) is a method of accounting whereby an interest in a
jointly controlled entity is initially recorded at cost, and adjusted thereafter for the post-
acquisition change in the venturer’s share of net assets/equity of the jointly controlled entity.
The surplus or deficit of the venturer includes the venturer’s share of the surplus or deficit of the
jointly controlled entity.

Joint control: is the agreed sharing of control over an activity by a binding arrangement.

Joint venture: is a binding arrangement whereby two or more parties are committed to
undertake an activity that is subject to joint control.
Proportionate consolidation: is a method of accounting whereby a venturer’s share of each of
the assets, liabilities, revenue and expenses of a jointly controlled entity is combined line by line
with similar items in the venturer’s financial statements or reported as separate line items in the
venturer’s financial statements.

Venturer: is a party to a joint jenture and has joint control over that joint venture.

Forms of Joint Venture

Many public sector entities establish joint ventures to undertake a variety of activities.
The nature of these activities ranges from commercial undertakings to the provision of
community services at no charge. The terms of a joint venture are set out in a contract or other
binding arrangement and usually specify the initial contribution from each joint venturer the
share of revenues or other benefits (if any), and expenses of each of the joint venturers.
Joint ventures take many different forms and structures. This Standard identifies three broad
types – jointly controlled operations, jointly controlled assets, and jointly controlled entities –
that are commonly described as, and meet the definition of, joint ventures. The following
characteristics are common to all joint ventures:
 a binding arrangement binds two or more venturers; and
 the binding arrangement establishes joint control.

Jointly Controlled Operations

The operation of some joint ventures involves the use of the assets and other resources of
the venturers rather than the establishment of a corporation, partnership, other entity, or a
financial structure that is separate from the venturers themselves. Each venturer uses its property,
plant, and equipment and carries its inventories. It also incurs its expenses and liabilities and
raises its finances, which represent its obligations. The joint venture activities may be carried out
by the venturer’s employees alongside the venturer’s similar activities. The joint venture
agreement usually provides a means by which the revenue from the sale or provision of the joint
product or service and any expenses incurred in common are shared among the venturers.

Transactions between a Venturer and a Joint Venture

When a venturer purchases assets from a joint venture, the venturer shall not recognize its
share of the gains of the joint venture from the transaction until it resells the assets to an
independent party. A venturer shall recognize its share of the losses resulting from these
transactions in the same way as gains, except that losses shall be recognized immediately when
they represent a reduction in the net realizable value of current assets or an impairment loss.

Disclosure
A venturer shall disclose a listing and description of interests in significant joint ventures
and the proportion of ownership interest held in jointly controlled entities. A venturer that
recognizes its interests in jointly controlled entities using the line-by-line reporting format for
proportionate consolidation or the equity method shall disclose the aggregate amounts of each of
current assets, non-current assets, current liabilities, non-current liabilities, revenue, and
expenses related to its interest in joint ventures.

IPSAS 9: REVENUE FROM EXCHANGE TRANSACTIONS

This Standard uses the term “revenue,” which encompasses both revenues and gains, in
place of the term “income.” Certain specific items to be recognized as revenues are addressed in
other standards, and are excluded from the scope of this Standard. For example, gains arising on
the sale of property, plant, and equipment are specifically addressed in standards on property,
plant, and equipment and are not covered in this Standard. The objective of this Standard is to
prescribe the accounting treatment of revenue arising from exchange transactions and events.

The primary issue in accounting for revenue is determining when to recognize revenue.
Revenue is recognized when it is probable that:
 future economic benefits or service potential will flow to the entity, and
 these benefits can be measured reliably. This Standard identifies the circumstances in
which these criteria will be met and, therefore, revenue will be recognized. It also
provides practical guidance on the application of these criteria.

Effective Date
When an entity adopts the accrual basis of accounting as defined by IPSASs for financial
reporting purposes after this effective date, this Standard applies to the entity’s annual financial
statements covering periods beginning on or after the date of adoption.

Scope
This Standard does not deal with revenue arising from non-exchange transactions. Public
sector entities may derive revenues from exchange or non-exchange transactions. An exchange
transaction is one in which the entity receives assets or services or has liabilities extinguished
and directly gives approximately equal value (primarily in the form of goods, services, or use of
assets) to the other party in exchange. Examples of exchange transactions include:
 the purchase or sale of goods or services; or
 the lease of property, plant, and equipment at market rates.

In distinguishing between exchange and non-exchange revenues, the substance rather than
the form of the transaction should be considered. Examples of non-exchange transactions include
revenue from the use of sovereign powers (for example, direct and indirect taxes, duties, and
fines), grants, and donations.

Definitions

Exchange transactions: are transactions in which one entity receives assets or services, or has
liabilities extinguished, and directly gives approximately equal value (primarily in the form of
cash, goods, services, or use of assets) to another entity in exchange.

Fair value: is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.

Non-exchange transactions: are transactions that are not exchange transactions. In a non-
exchange transaction, an entity either receives value from another entity without directly giving
approximately equal value in exchange or gives value to another entity without directly receiving
approximately equal value in exchange.

Revenue
Revenue includes only the gross inflows of economic benefits or service potential
received and receivable by the entity on its account. Amounts collected as an agent of the
government or another government organization or on behalf of other third parties.

Measurement of Revenue
The amount of revenue arising from a transaction is usually determined by an agreement
between the entity and the purchaser or user of the asset or service. It is measured at the fair
value of the consideration received, or receivable, taking into account the amount of any trade
discounts and volume rebates allowed by the entity.
IPSAS 10: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMICS
IPSAS 10 became effective from the period beginning on or after July 1 st, 2002, and it
provides a robust framework for financial reporting in hyperinflationary economies, addressing
various facets from identification and measurement to presentation and disclosure, with an
emphasis on transparency and consistency in financial reporting practices.
 IPSAS 10 lays out specific criteria for the identification of hyperinflation, notably
including the presence of cumulative inflation of approximately 100% or more over a
three-year period.
 Entities operating in hyperinflationary economies are obligated to restate their financial
statements to reflect the prevailing measuring unit at the reporting date. This adjustment
is essential to counteract the distorting effects of hyperinflation.
 The standard delineates the treatment of both monetary and non-monetary items.
Monetary items, such as cash and receivables, are measured at current cost levels, while
non-monetary items like property, plant, and equipment are valued using the general
price index.
 Comprehensive disclosure requirements are outlined, necessitating entities to disclose the
restatement of financial statements due to hyperinflation. Additional disclosures include
the rationale behind the selection of the price index, the period covered by the financial
statements, and the measurement basis applied.
 Entities are required to restate comparative information for prior periods, enabling users
to assess the impact of hyperinflation on the entity's financial position and performance
over time.
 Recognizing the complexity of hyperinflation accounting, IPSAS 10 acknowledges the
critical role of management in exercising judgment and making informed estimates. The
standard provides guidance to assist management in fulfilling these responsibilities
effectively.