IPSAS Explained
Description
IPSAS Explained provides a concise summary of the International Public Sector Accounting Standards for practitioners needing to maintain compliance with ever-changing practices. Comprehensively updated to align with newly-accepted standards in key subject areas and including the latest iteration of the framework and improvement projects, this guide distills each standard into a useful and accessible format. Coverage of each IPSAS includes a brief overview of the basic principles behind it, as well as charts, graphs and tables that provide information at a glance.
Updated material includes discussion of the new IPSASB governance structure, including the Public Interest Committee and Consultative Advisory Group, as well as information on the current Exposure Drafts and the changes forthcoming from the Improvements Project. New sections on First-Time Adoption of Accrual Basis IPSAS, new consolidation standards and Service Performance Reporting bring practitioners completely up to date to help ensure full compliance.
* Locate relevant IPSAS quickly and easily
* Get up to date on newly adopted standards
* Deepen conceptual understanding with graphical representations
* Understand the operations of the IPSASB, as well as new and ongoing projects
The International Public Sector Accounting Standards Board is engaged in the ongoing process of bringing public sector accounting in line with the IPSAS, which largely align with the IFRS model: where an IFRS exists, it is either adopted directly or adjusted to be suitable for the public sector; where no relevant IFRS exists, the IPSASB issues an IPSAS. IPSAS Explained condenses and clarifies each IPSAS, providing context, background and practical guidance to help practitioners find the answers they need to comply.
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Thomas Müller-Marqués Berger (Stuttgart, Germany) is a partner at Ernst & Young GmbH and serves as the firm's Global Leader of International Public Sector Accounting.
Thomas was a member of the International Public Sector Accounting Standards Board (IPSASB) from January 2009 to December 2014. In January 2016 he became the Inaugural Chair of the IPSASB's Consultative Advisory Group (CAG) and in that role actively participates in IPSASB meetings. In June 2017, he was elected as CAG Chair for a term of three years.
Since January 2011 he has served as Chair of the Public Sector Group of Accountancy Europe (former Fédération des Experts Comptables Européen (FEE)). In that capacity, he is a standing observer of the Eurostat EPSAS Working Group and contributes to the work of the EPSAS Cells.
Content
I. Introduction: General information about IPSASs and the IPSASB 1
1 The International Public Sector Accounting Standards Board 1
1.1 General information 1
1.2 Structure and organization of IPSASB 2
1.3 Objectives of the IPSASB 4
1.4 Governance and oversight of the IPSASB 5
1.5 Members of the IPSASB 7
1.6 The strategy and work plan of the IPSASB 8
2 International accounting standards for the public sector 10
2.1 Overview of international accounting standards for the public sector 10
2.2 History of the International Public Sector Accounting Standards 14
2.3 Applicability of the International Public Sector Accounting Standards 15
2.4 General purpose financial statements 16
2.5 Authority of the International Public Sector Accounting Standards 17
2.6 IPSASs for accrual basis of accounting and cash basis of accounting 19
2.7 Background to the application of international accounting standards for the public sector 19
2.8 Provisions for the transition from the cash basis to the accrual basis of accounting 21
2.9 Procedures for developing accounting standards 22
2.10 Process for reviewing and modifying IASB documents 24
2.11 Process for considering GFS reporting guidelines during development of IPSASs 25
2.12 Current projects of the IPSASB 25
3 IPSASB's Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities 28
3.1 Background 28
3.2 Key characteristics of the public sector 30
3.3 Role and authority of the Framework 30
3.4 Objectives and users of general purpose financial reporting 31
3.5 Qualitative characteristics 32
3.6 Reporting entity 33
3.7 Elements in the financial statements 34
3.8 Recognition in financial statements 36
3.9 Measurement of assets and liabilities in financial statements 37
3.10 Presentation in GPFRs 44
II. Costs versus benefits of implementing accrual accounting in the public sector 47
1 Cost-benefit assessments for implementation 47
2 Summary of expected benefits and positive impacts of implementing IPSASs 48
3 Expected costs of implementing IPSASs 51
4 Expected challenges of IPSAS implementation 53
III. International developments in public sector accounting 57
1 Africa 57
1.1 Current situation in Africa 57
1.2 Reform movements underway in Africa 59
1.3 Outlook 64
2 Europe 65
2.1 Current situation in Europe 65
2.2 Reform movements underway in Europe 68
2.3 Current status of the EPSAS project 70
2.4 EPSAS framework and governance 72
3 Latin America and the Caribbean 75
3.1 Current situation in Latin America and the Caribbean 75
3.2 Reform movements underway in LAC 76
3.3 Outlook 82
IV. Overview of accrual basis IPSASs 85
IPSAS 1: Presentation of Financial Statements 85
IPSAS 2: Cash Flow Statement 92
IPSAS 3: Accounting Policies, Changes in Accounting Estimates and Errors 97
IPSAS 4: The Effects of Changes in Foreign Exchange Rates 102
IPSAS 5: Borrowing Costs 105
IPSAS 6: Consolidated and Separate Financial Statements 108
IPSAS 7: Investments in Associates 114
IPSAS 8: Interests in Joint Ventures 118
IPSAS 9: Revenue from Exchange Transactions 122
IPSAS 10: Financial Reporting in Hyperinflationary Economies 127
IPSAS 11: Construction Contracts 129
IPSAS 12: Inventories 133
IPSAS 13: Leases 138
IPSAS 14: Events after the Reporting Date 144
IPSAS 15: Financial Instruments: Disclosure and Presentation 148
IPSAS 16: Investment Property 149
IPSAS 17: Property, Plant and Equipment 155
IPSAS 18: Segment Reporting 163
IPSAS 19: Provisions, Contingent Liabilities and Contingent Assets 166
IPSAS 20: Related Party Disclosures 172
IPSAS 21: Impairment of Non-Cash-Generating Assets 175
IPSAS 22: Disclosure of Information about the General Government Sector 180
IPSAS 23: Revenue from Non-Exchange Transactions (Taxes and Transfers) 183
IPSAS 24: Presentation of Budget Information in Financial Statements 190
IPSAS 25: Employee Benefits 195
IPSAS 26: Impairment of Cash-Generating Assets 205
IPSAS 27: Agriculture 211
IPSAS 28: Financial Instruments: Presentation 216
IPSAS 29: Financial Instruments: Recognition and Measurement 219
IPSAS 30: Financial Instruments: Disclosures 225
IPSAS 31: Intangible Assets 229
IPSAS 32: Service Concession Arrangements: Grantor 236
IPSAS 33: First-time Adoption of Accrual Basis International Public Sector Accounting Standards (IPSASs) 246
IPSAS 34: Separate Financial Statements 253
IPSAS 35: Consolidated Financial Statements 257
IPSAS 36: Investments in Associates and Joint Ventures 263
IPSAS 37: Joint Arrangements 268
IPSAS 38: Disclosure of Interests in Other Entities 272
IPSAS 39: Employee Benefits 283
IPSAS 40: Public Sector Combinations 287
Cash Basis IPSAS: Financial Reporting Under the Cash Basis of Accounting 294
V. Recommended Practice Guidelines (RPGs) 301
RPG 1: Long-Term Sustainability of an Entity's Finances301
RPG 2: Financial Statement Discussion and Analysis 306
RPG 3: Reporting Service Performance Information 310
VI. Exposure Drafts and Consultation Papers 315
1 Exposure Drafts 315
1.1 ED 61, Amendments to Financial Reporting under the Cash Basis of Accounting (the Cash Basis IPSAS) 315
1.2 ED 62, Financial Instruments 317
2 Consultation Papers 319
2.1 Recognition and Measurement of Social Benefits 319
2.2 Public Sector Specific Financial Instruments 324
2.3 Heritage 326
2.4 Accounting for Revenue and Non-Exchange Expenses 328
Further reading 340
I. Introduction: General information about IPSASs and the IPSASB
1 The International Public Sector Accounting Standards Board
1.1 General information
The International Public Sector Accounting Standards Board (IPSASB) is the only global accounting standard setter for the public sector. The structures and processes that support the IPSASB's operations are facilitated and supported by the International Federation of Accountants (IFAC).
International Public Sector Accounting Standards, or IPSASs for short, govern the accounting by public sector entities. IPSASs are developed by the International Public Sector Accounting Standards Board (IPSASB). The IPSASB communicates in its pronouncement "The Applicability of IPSAS" (published in April 2016) as well as in the revised "Preface to International Public Sector Accounting Standards" which types of public sector entities it considers when developing an IPSAS or a Recommended Practice Guideline (RPG). The IPSASB is an independent board founded on the basis of the former Public Sector Committee (PSC) by the International Federation of Accountants (IFAC) to develop and publish the IPSASs.
The IFAC is a global organization for the accountancy profession. IFAC is comprised of over 175 members and associates in over 130 countries and jurisdictions, representing almost 3 million accountants in public practice, education, government service, industry, and commerce. It was founded in 1977 and is domiciled in New York. IFAC facilitates the work of the IPSASB, and the other independent standard-setting boards, both by contributions to the IPSASB's budget and by providing support in areas such as finance, human resources, and intellectual capital.
According to the bylaws of the International Federation of Accountants, its mission is as follows: "to serve the public interest by contributing to the development, adoption and implementation of high-quality international standards and guidance; contributing to the development of strong professional accountancy organizations and accounting firms, and to high-quality practices by professional accountants; promoting the value of professional accountants worldwide; and speaking out on public interest issues where the accountancy profession's expertise is most relevant."
The IFAC did not have this in mind when it established the PSC in 1986 as a standing technical committee. The PSC initially focused on preparing and publishing studies and research reports on (international) public sector accounting. In 2004, the PSC was renamed IPSASB. In November 2011, the Terms of Reference (ToR) of the IPSASB were extended. Henceforth, the IPSASB's purpose is not only to set standards for general purpose financial statements (GPFSs), but also to take care of general purpose financial reports (GPFRs). GPFRs refer to all financial reports which are intended to meet the information needs of users who are unable to request the preparation of financial reports tailored to meet their specific information needs. The IPSASB now develops and issues, in the public interest and under its own authority, high-quality accounting standards and other publications for use by public sector entities around the world in the preparation of GPFRs. Since 2015, the adherence to public interest is monitored by the Public Interest Committee (PIC), which has been supported by the Consultative Advisory Group (CAG) since January 2016.
On 22 November 2011, the International Accounting Standards Board (IASB) and the IFAC announced an agreement to strengthen their cooperation in developing private and public sector accounting standards. The mutual agreement between the IASB and IFAC, in the form of a Memorandum of Understanding (MoU), reflects the IASB's and IFAC's view that "high-quality financial reporting standards contribute significantly to the effective functioning of capital markets and sound economic growth."
The agreement intends to strengthen the cooperation between the two boards, with the aim of committing to enhance initiatives of common and mutual interest. The IPSASB and IASB continue to hold regular liaison meetings, to update each Board on their respective work programs and to highlight financial reporting issues where alignment between the requirements of the IASB and the requirements of the IPSASB is necessary.
The IASB has observer status at the IPSASB meetings. The IASB also continues to provide input to specific IPSASB technical projects. In the medium to longer term, IASB and IFAC will mutually consult on projects where both parties are likely to benefit from consideration of both private sector and public sector perspectives.
1.2 Structure and organization of IPSASB
Members of the IPSASB can be nominated by any stakeholder, including IFAC member bodies and IPSASB members, IFAC's Forum of Firms, international organizations, government institutions, and the general public. The members of the IPSASB are nominated based on recommendations by the IFAC Nominating Committee. Based on these nominations, the appointments are then made by the IFAC Board, considering technical and professional criteria, as well as a geographic and gender balance.
The aim of RPGs is to provide guidance which represents good practice that public sector entities are encouraged to follow. However, entities can claim full compliance with IPSAS (standards) even if they do not follow the guidance of one or more RPGs. Studies shall provide advice on financial reporting issues in the public sector (e.g., Study 14 on "Transition to the Accrual Basis of Accounting: Guidance for Public Sector Entities"). They are based on research of best practices and most effective methods for dealing with accounting issues being addressed. In 2015 and 2016, staff of the IPSASB issued short non-authoritative papers on the treatment of Sovereign Debt Restructurings under IPSASs and on accounting aspects of the grant of a right to the operator model in IPSAS 32, Service Concession Arrangements: Grantor. Staff also issued a background paper on Emissions Trading Schemes following the decision to deactivate the project in light of IASB decisions on their related project on Pollutant Pricing Mechanisms.
The IPSASB may delegate responsibility for conducting the necessary research and drafting proposed standards and guidance to so-called Task-based Groups (TBGs), to individuals or to staff of the IPSASB. The TBGs are chaired by a member of the IPSASB. Depending on the topic, the sub-groups can also include non-members of the IPSASB or the IFAC (e.g., observers). In this case, the groups are called Task Forces (TFs). The work of the TBGs/TFs is usually focused on the creation of Consultation Papers (CPs) or Exposure Drafts (EDs), which are made available to the general public. The aim of TBGs and the TFs is to perform preparatory work for the board. Nevertheless, final responsibility for the projects lies with the IPSASB.
The publication of CPs and EDs is intended to give interested individuals, groups, public sector entities or their representatives the opportunity to submit comments (usually within a period of four to six months). This allows the groups affected by IPSASs to voice their opinion before the standards are approved and published by the IPSASB.
The observers of the IPSASB include organizations that have an interest in public sector financial reporting, such as the European Commission, Eurostat, the International Monetary Fund (IMF), the United Nations or the World Bank. Observers can ask for the right to speak, but they are not entitled to vote.
Besides financial and in-kind support from IFAC, the IPSASB also receives support (both direct financial and in-kind) from several external sources, such as the Asian Development Bank (ADB), the Chartered Professional Accountants of Canada (CPA Canada), the Accounting Standards Board of South Africa (ASB), the New Zealand External Reporting Board (XRB), the governments of Canada, New Zealand, and Switzerland as well as from the United Nations (UN) and the World Bank. Figure 1 shows the current structure and organization of the IPSASB.
Figure 1: Structure and organization of the IPSASB
Following a public consultation of the Governance Review Group, the Public Interest Committee (PIC) was created in 2015 to ensure that the public interest is served by the IPSASB in its standard-setting activities. In 2016, the IPSASB Consultative Advisory Group (CAG) was established as an integral and important part of the IPSASB's formal process of consultation. This new governance and oversight structure is explained in more detail in Chapter 1.4.
1.3 Objectives of the IPSASB
The objective of the IPSASB is to serve the public interest by setting high-quality public sector accounting standards, facilitating the adoption and implementation of these standards and enhancing the quality and consistency of practice throughout the world to strengthen the transparency and accountability of public sector finances. Public interest in the pronouncement of IPSASs may arise, for example, from a national or supranational need to harmonize financial reporting of public sector entities.
It is also in the public interest to continue developing public sector accounting by means of the IPSASB standardization projects.
The IPSASB achieves these goals...
