Module Four

IPSAS Principles and Standards

Institutional Framework for Setting Standards

The Standards: IFRS and IPSAS

The IPSAS Standards

Issues Peculiar to the Public Sector on Standards

Issues towards Accrual Accounting

International Federation of Accountants (IFAC):

IFAC is the global organisation for the accountancy profession dedicated to

serving the public interest by strengthening the profession and
contributing to the development of strong international economies.
Founded in 1977, IFAC It is comprised of 173 members and associates in
129 countries and jurisdictions (including Nigeria).
The mission of IFAC is to serve the public interest by:
Contributing to the development, adoption and implementation of highquality international standards and guidance;
Contributing to the development of strong professional accountants;
Promoting the value of professional accountants worldwide;

Speaking out on accounting public interest issues.

3

IPSASB:
The IPSAS Board is the independent standard-setting organ of IFAC responsible for
developing accounting standards for public sector entities.
The Objective of the IPSASB is serve the public interest by
Developing high quality public sector financial reporting standards
For use by public sector entities and by
Facilitating the convergence of international and national standards
ensuring consistent and comparable financial information across jurisdiction.

IPSASB strongly encourages governments and national standard-setters to engage in the

development of its Standards by commenting on the proposals set out in its Exposure
Drafts and Consultation Papers.
The IPSASB issues IPSASs dealing with financial reporting under the cash basis of
accounting and the accrual basis of accounting.
IPSASB encourages the adoption of IPSASs and the harmonisation of national
requirements with IPSASs.
4

Nominating Committee

Organisat
ion
Structure

Nominates Members

IFAC Board

Appoints members
IPSASB
Observers
Permanent Support
IPSASB

Standard
Setting
Process

Observe
Task-based groups/
Task forces

Consultative group
Prepare and Issues

Prepare

IPSASs

Exposure Draft

Publication of IPSASB
IPSASs Accrual (32)/Cash Accounting (1)
Exposure Drafts (EDs) and Consultation papers (CPs) as
part of IPSASBs due process
Studies, Research/Special Reports and other occasional
papers
All agendas, agenda papers, responses to CPs and EDs
as well as summarized minutes to the meetings
(generally 4 times per year) are available at the IPSASB
website

IPSAB addresses financial reporting issues in

the public sector in two ways
Developing standards that are converged with IFRS
and adapting them to the public sector context
Developing public sector specific IPSAS which have no
equivalent in IFRS
Issues that have not been comprehensively or appropriately
dealt with or for which there are no related IFRS

Develops a process for reviewing and modifying

international accounting standards Board
Strategic objective was to converge IPSAS to IFRS

A stronger focus on public sector specific issues is expected by IPSAPS.

A key project is the development of the conceptual framework for financial
reporting by public sector entities which is applicable to the preparation of
general purpose financial reports of public sector entities
This is because:
Many of the IPSAS are based on IFRS to the extent that they are relevant
to the public sector
It is now time to develop a framework to make explicit the concept that
underpin financial reporting in the public sector
The framework itself is not a standard but intended to assist the IPSASB in
developing or new or revised pronouncements and to assist preparers of
GPFRs applying IPSASs
A guide Transition to the Accrual Basis of Accounting: Guidance for Public
Sector Entities was issued in 2011 to assist the public sector

International Accounting Standards

Set of accounting roles developed/ evolved set of
accounting standards which have been developed and
evolved to guide the accounting functions of organizations
and countries across the world
IAS focus on the: recognition; measurement, presentation &
disclosure requirements of items in the GPFS

The International Federation of Accountants (IFAC) has the

overall responsibility for setting these standards

International Financial Reporting

Standards (IFRS)

International Public Sector Accounting

Standards (IPSAS)

set of international accounting standards

stating how particular types of
transactions and other events should be
reported in financial statements of
private organisations

IPSASs are a set of international

accounting standards for public sector
organisations and governments across
the world.

The International Accounting Standards

Board (IASB) is IFAC organ responsible
for setting the IFRS

The IPSASs are set by the

International Public Sector Accounting
Standards Board (IPSASB)
IPSAS are derived from IFRSs

International Public Sector Accounting Standards (IPSAS) are a set of

accounting standards issued by the IPSAS Board for use by public sector
entities around the world in the preparation of financial statements.
- These standards are based on International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB)

Objective
To improve the quality of general
purpose financial reporting by public
sector entities, leading to better
informed assessments of the resource
allocation decisions made by
governments, thereby increasing
transparency and accountability

10

Scope

For application by national, state and

local governments as well as related
governmental entities (MDAs)
IPSAS are widely used by
intergovernmental organisations

 IPSASs represent the set of accounting standards set to govern accounting

functions for public sector organisations- with focus on organisations with

purely social service delivery (i.e. excluding GBEs).
A Government Business Enterprise (GBE) is an entity that has all of the
following characteristics:

1. It is an entity with the power to contract in its own name;

2. It has been assigned the financial and operational authority to carry on a
business;
3. It sells goods and services, in the normal cause of its business, to other
entities at profit or full cost recovery;
4. It is no reliant on continuing government funding to be a going concern;
5. It is controlled by a public sector entity

11

IPSASs are designed to apply to the general purpose financial statements of all
public sector entities

Public sector entities include Federal, States and local governments, and their
component entities such as departments, agencies, boards, commissions et
cetera. It is important to note that IPSAS do not apply to Government Business
Enterprises (GBE which is covered under IFRS)

IPSAS are developed and set out to recognised, measure, present and disclose
requirements dealing with transactions and events in general purpose financial
statements

 There are two sets of IPSASs

Cash basis of accounting
Accruals basis of accounting The adoption of IPSAS by governments will
improve both quality and comparability of financial information reported by

their departments and agencies. The IPSASB encourages the adoption of

IPSASs

and

advocates

for

the

harmonization

of

national

reporting

requirements with IPSASs.

By adopting IPSASs therefore, the government will have undertaken to benchmark

its financial reporting against the global practices

The following process is followed in setting an

IPSAS Standard
An IASB Standard
IPSASB Standard Setting process which considers specific
public sector requirements through sector focused
research
Due process through public consultation
Issue of IPSAS

S/No

IPSAS
Standard
s

Focus

Based On

Summary

1.

IPSAS 1

Presentation of
Financial
Statements

IAS 1

Sets out the manner in which GPFS shall be prepared .

A complete set of financial statements comprises:
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.

2.

IPSAS 2

Cash Flow
Statement

IAS 7

Requires the presentation of information about historical changes

in a public sector entitys cash and cash equivalent using a cash
flow statement.
The standard describes how to classify cash flows during the
period to: operating, investing and financing activities.

3.

IPSAS 3

Accounting
Policies,
Changes in
Accounting
Estimates and
Errors

IAS 8

Effects of
Changes in
Foreign
Exchange Rates

IAS 21

4.
15

IPSAS 4

Prescribes 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.
Prescribes the accounting treatment for an entitys foreign
currency transactions and foreign operations.
The standard defines the functional currency and prescribes how
to convert from foreign to functional currency.

S/N
o

IPSAS
Standards

Focus

Based On

Summary

5.

IPSAS 5

Borrowing
Cost

IAS 23

Prescribes the accounting treatment for borrowing costs.

Borrowing costs include interest, amortization of discounts or
premiums on, and amortization of ancillary costs incurred in the
arrangement of borrowings

6.

IPSAS 6

Consolidated
and Separate
Financial
Statements

IAS 27

Identifies the requirements for preparing and presenting

consolidated financial statements for an economic entity under
the accrual basis of accounting.
Also addresses how to account for investments in controlled
entities, jointly controlled entities and associates in separate
financial statements.

7.

IPSAS 7

Investments
in Associates

IAS 28

Prescribes the investors accounting for investments in

associates where the investment in the associate leads to the
holding of an ownership interest in the form of a shareholding or
other formal equity structure.

8.

IPSAS 8

Investments
in Joint
Ventures

IAS 31

Provides the accounting treatment for interests in joint ventures,

regardless of the structures or legal forms of the joint venture
activities.

9.

IPSAS 9

Revenue
from
Exchange
Transactions

IAS 18

applies to revenue arising from the following exchange

transactions and events:
The rendering of services;
The sale of goods, and
The use of others of entity assets yielding interest,
royalties and dividends.

16

S/No

IPSAS
Standards

Focus

Based On

Summary

10.

IPSAS 10

Financial
Reporting in
Hyperinflatio
nary
Economies

IAS 29

Prescribes specific standards for entities reporting in the currency of

a hyperinflationary economy, so that the financial information
(including the consolidated financial information) provided is
meaningful.
The financial statements of an entity that reports in the currency of a
hyperinflationary economy shall be stated in terms of the measuring
unit current at the reporting date.

11.

IPSAS 11

Construction
Contracts

IAS 11

This standards relates to the accounting treatment for revenue and

costs associated with construction contracts in the financial
statements of the contractor.

12.

IPSAS 12

Inventories

IAS 2

Prescribes the accounting treatment of inventories, including cost

determination and expense recognition, including any write-down to
net-realizable value. It also provides guidance on the cost formulas
that are used to assign costs to inventories.

13.

IPSAS 13

Leases

IAS 17

Relates to lessees and lessors, the appropriate accounting policies

and disclosures to apply in relation to finance and operating leases.
The standard classifies leases into: finance and operating for
accounting treatment purposes.

17

S/No

IPSAS
Standards

Focus

Based On

Summary

14.

IPSAS 14

Events After
the
Reporting
Date

IAS 10

Prescribes:
When an entity shall adjust its financial statements for events after
the reporting date.
Disclosures that an entity should give about the date when the
financial statements were authorized for issue, and about events
after the reporting date.

15.

IPSAS 16

Investment
Property

IAS 40

Relates to accounting treatment for investment property and related

disclosures
Investment property is land or buildings held (whether by the owner or
under a finance lease) to earn rentals or for capital appreciation or
both, rather than for:
use in the production or supply of goods or services or for
administrative purposes;
sale in the ordinary course of operations.

16.

IPSAS 17

Property,
Plant and
Equipment

IAS 16

Prescribes the principles for the initial recognition and subsequent

accounting (determination carrying amount and the depreciation
charges and impairment losses) for property, plant and equipment so
that users of financial statements can discern information about an
entitys investment in its property, plant and equipment and the
changes in such investment.

18

S/No

IPSAS
Standards

Focus

Based On

Summary

17.

IPSAS 18

Segment
Reporting

IAS 14

Establishes the principles for reporting financial information by

segments to better understand the entitys past performance and
to identify the resources allocated to support the major activities
of the entity, and enhance the transparency of financial reporting
and enable the entity to better discharge its accountability
obligations.

18.

IPSAS 19

Provisions,
Contingent
Liabilities
and
Contingent
Assets

IAS 37

Prescribes appropriate recognition criteria and measurement

bases for provisions, contingent liabilities and contingent assets,
and to ensure that sufficient information is disclosed in the notes
to the financial statements to enable users to understand their
nature, timing and amount.
This standard aims at ensuring that only genuine obligations are
dealt with in the financial statements.

19.

IPSAS 20

Related
Party
Disclosures

IAS 24

Ensures that financial statements disclose the existence of related

party relationships and transactions between the entity and its
related parties.
This information is required for accountability purposes and to
facilitate a better understanding of the financial position and
performance of the reporting entity.

20.

IPSAS 21

Impairment
of NonCashGenerating

IAS 36

19

ensure that non-cash-generating assets are carried at no more

than their recoverable service amount, and to prescribe how
recoverable service amount is calculated.

S/No

IPSAS
Standard
s

Focus

Based On

Summary

21.

IPSAS 22

Disclosure
of
Financial
Informatio
n About
the
General
Governme
nt Sector

No
correspon
ding IFRS

Sets the disclosure requirements for governments which elect to

present information about the general government sector (GGS) in
their consolidated financial statements.
The disclosure of appropriate information about the GGS of a
government can provide a better understanding of the relationship
between the market and non-market activities of the government
and between financial statements and statistical bases of financial
reporting

22.

IPSAS 23

Revenue
from NonExchange
Transactio
ns (Taxes
and
Transfers)

No
correspon
ding IFRS

Prescribes requirements for the financial reporting of revenue

arising from non-exchange transactions, other than non-exchange
transactions that give rise to an entity combination.
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.

23.

IPSAS 24

Presentatio No
n of
Correspon
Budget
ding IFRS
Informatio
n in
Financial
Statements

Ensures that public sector entities discharge their accountability

obligations and enhance the transparency of their financial
statements by demonstrating compliance with the approved
budget for which they are held publicly accountable and, where the
budget and the financial statements are prepared on the same
basis, their financial performance in achieving the budgeted
results.

20

S/No

IPSAS
Standards

Focus

Based On

Summary

24.

IPSAS 25

Employee
Benefits

IAS 19

Prescribes the accounting and disclosure for employee

benefits.
The include: short-term benefits (wages, annual leave, sick
leave, bonuses, profit-sharing and non-monetary benefits);
pensions; post-employment life insurance and medical
benefits; termination benefits and other longterm employee
benefits (long-service leave, disability, deferred compensation,
and bonuses and longterm profit-sharing), except for share
based transactions and employee retirement benefit plans.

25.

IPSAS 26

Impairment
of CashGenerating
Assets

IAS 36

Prescribes the procedures that an entity applies to determine

whether a cash-generating asset is impaired and to ensure that
impairment losses are recognized.
This standard also specifies when an entity shall reverse an
impairment loss and prescribes disclosures.

26.

IPSAS 27

Agriculture

IAS 41

Sets the accounting treatment and disclosures for agricultural

activity.
Agricultural activity is the management by an entity of the
biological transformation of living animals or plants (biological
assets) for sale, or for distribution at no charge or for a nominal
charge or for conversion into agricultural produce or into
additional biological assets.

21

S/No

IPSAS
Standard
s

Focus

27.

IPSAS 28

Financial
Instruments:
Presentation

IAS 32

28.

IPSAS 29

Financial
Instruments:
Recognition
and
Measurement

IAS 39

29.

IPSAS 30

Financial
Instruments:
Disclosures

IFRS 7

22

Based On

Summary

This standard sets the principles for classifying and

presenting financial instruments as liabilities or net
assets/ equity, and for offsetting financial assets and
liabilities.

Establishes principles for recognizing, derecognizing and

measuring financial assets and financial liabilities.
All financial assets and financial liabilities, including all
derivatives and certain embedded derivatives, are
recognized in the statement of financial position.
Prescribes disclosures that enable financial statement
users to evaluate the significance of financial instruments
to an entity, the nature and extent of their risks, and how
the entity manages those risks.

S/No

IPSAS
Standards

Focus

Based
On

Summary

IAS 38

Sets the accounting treatment for intangible assets that

are not dealt with specifically in another IPSAS.
IPSAS 31 does not apply to intangible assets acquired in
an entity combination from a non-exchange transaction,
and to powers and rights conferred by legislation, a
constitution or by equivalent means, such as the power to
tax.

30.

IPSAS 31

Intangible
Assets

31.

IPSAS 32

Service
IFRIC 12
Concessio
n
Prescribes the accounting for service concession
Arrangem
arrangement by the grantor, a public sector entity.
ent:
Grantor

32

Cash Basis
IPSAS

Cash
Basis

Prescribes the manner in which GPFS should be

presented using the cash basis of accounting

There are gaps in the IPSAS governing accrual based

recognition and measurement of financial
transactions
These are in the areas of

non exchange revenue (e.g. taxes and transfers) recognition

Accounting for social policies of government
Heritage Assets
PPPs

Governments will need to formulate their own

standards and guidelines until the finalization of
relevant standards

1) Service potential as part of the definitions and recognition criteria

IPSAS introduces the concept of service potential into the definition of assets, liabilities, revenue and
expenses Service potential is also a supplementary recognition criterion to account for items that do not
result in the inflow or outflow of economic benefits, where an item either contributes to or detract from
the entitys ability to deliver its services.
2) Exchange vs non-exchange transactions
Within the public sector non-exchange transactions are prevalent.Non-exchange transactions are those
transactions where 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.
3) Recognition of revenue from government grants
IPSAS focuses on whether there is entitlement to the revenue from government grants (even though there
may be restrictions on how the funds are spent), or an obligation to meet certain conditions, which is
recorded as liability. The distinction between restrictions and conditions is crucial in determining whether
or not to recognize revenue from a non-exchange transaction..
4) Income tax
IPSAS presumes that entities that operate within the public sector are generally exempt from income
taxes and therefore does not cater for the accounting of income taxes. In the unlikely event that an entity
reports using IPSAS but is liable for tax, reference should be made to IFRS (IAS 12 Income Taxes) for
guidance.

5) Consolidations and interests in associates and joint ventures

The main difference that arises with the introduction of IFRS 10, IFRS 11 and IFRS 12 is the manner in which control is
determined for the purpose of consolidation. Until the IPSASB finalises its project to consider these new developments in
IFRS, this could become a major source of difference between the frameworks
6) Financial instruments classification and measurement

Until IPSASB finalises its projects to consider these new developments in IFRS, this could become a major source of
difference between the two frameworks
7) Reporting of budgets vs actual
,

IPSAS requires a comparison of the actual financial performance of an entity with the approved budget of that entity, where
the budget is publicly available . There is no equivalent requirement in IFRS

8) Impairment of non-cash-generating assets

In the light of the assets recognized based purely on their service potential as opposed to economic benefits, hereas IPSAS
assumes that the majority of a public sector entitys assets are likely to be non-cash generating. IPSAS 21 Impairment of
Non-cash-generating Assets provides specific guidance on how to determine the value in use of such assets
9) Elimination of private sector specific concepts
IFRS provides principles for certain economic phenomena that are irrelevant to the operations of a public sector entity,
such as accounting for share-based payments and earnings per share disclosures. IPSAS excludes such guidance and refers
reporting entities back to IFRS if and when applicable.
10) Growing divergence in the conceptual framework of the IPSASB and IASB
The IPSASB is in the process of developing its own conceptual framework, proposing concepts that may be more suitable in
the public sector context. We may see further differences in the outlook and focus of the IPSASB and IASB in the future

Recognition and Measurements

Alignment of accrual accounting and budgeting

identification and valuation of assets and liabilities as at the date from which accrual accounting is to
commence is an essential step in the move to accrual accounting

Central versus Decentralized Financial Processes

the COA will include other accounts required for accounting and reporting purposes.

Opening balance sheet

Need for close alignment between accounts and budgets

Budget classification and the chart of accounts

Need for accounting policy recognizing specialised valuations

particular consideration of the additional complexities of an accrual framework.

Consolidation issues

Special systems and procedures may be necessary to efficiently and routinely eliminate a large volume of inter entity transactions
between the Ministry of Finance and line entities, and, more generally, between public sector entities: these transactions may
include

the provision of appropriation funding to entities,

transfers of collected revenues from entities,

financing transactions such as equity injections and loans,

and payment of ownership returns such as dividends and interest to the Ministry of Finance

Thank You