Accrual ipsas

Why IPSAS
2







Service Potential - absence of a profit driver for many public services where public policy
objectives result in services being provided at no charge/ at loss, Capacity of an asset to
provide goods & services as per desired objective without generating cash inflow
Recognition of revenue from Government Grants/ non-exchange transactions
Presentation and disclosures: The nature of government activities and the broader concept
of accountability for outcomes demands a greater emphasis on information
accountability for all resources the entity controls and the deployment of those resources,
assess the financial position, financial performance, and cash flows



make decisions about providing resources to, or doing business with, the entity



accounting for all assets and liabilities support results-based management.



credible, independent accounting standards on a full accrual basis.



IPSAS is based on accrual based accounting, while IMF’s Government Finance Statistics(GFS),
a standard for Government Budgeting is cash based



Cash IPSAS: part 1 mandatory, part 2 voluntary disclosure aligned with accrual IPSAS



financial statements under detail guideline provided in each standard
IPSAS IN YOUR POCKET, 2013 EDITION, BY DELOITTE

Prospective Outcome
3









Long Term Yield: Consequence of financial decisions known many year
into future
Decisions made in one period for services in future –planned programs
Future service recipients and tax payers
Anticipated future service delivery activities and objectives, their likely
impact on the future resource needs of the entity and the likely sources
of funding for such resources
Service Delivery Achievements


Quantitative measures of the outputs and outcomes







Information about the cost, volume, and frequency of service delivery
Relationship of services provided to the resource base
Quality of particular services provided
The outcome of certain programs

measures how much an item contributes to or detracts from entity’s ability to
deliver the desired goods & service

Nations following IPSAS
4


Bangladesh



IPSAS based financial statements for core ministries at first stage




Cash basis IPSAS
Specialized Organizations at second stage

India



accrual IPSAS for those transactions recorded on other than the cash basis



National and State Govts have accepted in principle to adopt IPSAS




limited adoption of cash-basis IPSAS for cash transactions

Committee for local Government is studying the possibility

Australia


Adopted accrual accounting standards from IFRS, suited for public sector and with additional
disclosures



Consistent with IPSAS



France- Accrual based accounting consistent with IPSAS



Germany-Cash based, no plan to adopt IPSAS



Malaysia


Cash basis IPSAS



Accrual basis from 2015


5


Israel






Japan




Govt. of Japan & Municipal of Tokyo follow full accrual based accounting in line with
IPSAS

Netherland







Government Ministries & Non-Commercial Statutory Corporations follow IPSAS
Significant part of data of financial statement presented following IGAS and IPSAS
Statement of Assets not reflect all the assets of the state

Experimented accrual based accounting
Adopted cash based accounting supplementary statement on commitments
Studied experience of other nations on accrual accounting
Accrual accounting by agencies, quangos, business like entities of government

New Zealand



Follows NZ IFRS, with ‘Public Benefit Entity’ Amendment similar to IPSAS
Considering two sets of standards, 1) for Profit & 2) for public benefit, later to follows
IPSAS


6



South Africa






Sri Lanka






Modified Cash Basis Accounting by Government Depts
GRAP based on IPSAS by Public & Trading entities
IFRS by public/ widely held entities
State accounts cash based IPSAS
Additional disclosure Statements on accrual basis
ICASl preparing Sri Lankan version of accrual based IPSAS

UK




Central Govt and Entities follow IFRS
IPSAS forms second level of standards, where IFRS/ IAs does not cover
public sector context
Local government bodies follow IPSAS


IPSAS vs IFRS
7











Income Tax not for Govt. entity, in case liable to taxIAS 12 of IFRS
Consolidations and Interests in associates & joint
ventures IFRS 10,11&12, IPSAS( IAS 27,28 & 31)manner in which the control is determined
Financial Instruments Classification- IFRS 9, IPSAS ( IAS
39)
Budget vs Actual-Performance measurement in IPSAS,
not in IFRS
Private sector Concepts- Share based payments and
Earnings per Share not in IPSAS

A SNAPSHOT OF GAAP DIFFERENCES BETWEEN IPSAS AND IFRS, 2013, BY ERNST AND YOUNG

IPSAS vs IFRS
8
Sl
No

Sl
No

A

Presentation of Accounts

IPS
AS

IFR
S

Differenc
es

Financial Statement
1

Financial Statement

√

√

Modert

2

Cash Flow Statement

√

√

Minor

3

Accounting Policies, Changes in Accounting Estimates and Errors

√

√

Minor

4

Presentation of Budget Information in Financial Statement

√

x

No Eqvt

5

Non-current Assets held for Sale or Discontinued Operations

x

√

No Eqvt

6

Accounting of Retirement Benefit Plan

x

√

No Eqvt

7

Interim Financial Reporting

x

√

No Eqvt

8

Effects of Changes in Forex Rate

√

√

Modert

B

Revenue and Exchanges
1

Revenue

√

√

Modert

2

Construction Contracts

√

√

Minor

3

Revenue from non-Exchange Transactions (Taxes, Transfers, Government Grants)

√

√

Signifnt

4

Income Tax

x

√

No Eqvt

IPSAS vs IFRS
9
Sl

Sl

B


IPSA
S

IFR
S

Diff

Revenue and Exchanges
5

Leases

√

√

Modert

6

Burrowing Costs

√

√

Signifnt

C

Non-Financial Assets
1

Inventories

√

√

Modert

2

Investment Property

√

√

Modert

3

Property, Plant & Equipment

√

√

Modert

4

Intangible Assets

√

√

Modert

5

Agriculture

√

√

Modert

6

Impairment of Cash Generating Assets

√

√

Modert

7

Impairment of Non-Cash Generating Assets

√

x

No Eqvt

8

Exploration & Evaluation of Mineral Resources

x

√

No Eqvt

D

Non-Financial Liabilities
1

Employee Benefits

√

√

Signifnt

2

Provisions, Contigent Liabilities & Contigent Assets

√

√

Modert

IPSAS vs IFRS
10
Sl
No

Sl
No

E


IPS
AS

IFR
S

Differenc
es

Group Accounting
1

Consolidated & Group Accounting Statements

√

√

Signifnt

2

Investments in Associates

√

√

Modert

3

Interest in Joint Ventures

√

√

Signifnt

4

Disclosure of Interests in Joint Ventures

√

√

Signifnt

5

Business Combinations

x

√

No Eqvt

F

Financial Instruments
1

Presentation

√

√

Modert

2

Recognition & Measurement

√

√

Signifnt

3

Disclosure

√

√

Modert

4

Share Based Payment

x

√

No Eqvt

5

Insurance Contracts

x

√

No Eqvt

x

√

Signifnt

G

Fair Value Measurement
1

Fair Value Measurement

IPSAS vs IFRS
11
Sl
No

Sl
No

H


IPS
AS

IFR
S

Differenc
es

Disclosure-only Standards
1

Segment Reporting

√

√

Signifnt

2

Related Party Disclosures

√

√

Signifnt

3

Financial Information about General Government Sector

√

x

No Eqvt

4

Earnings per Share

x

√

No Eqvt

I

Adjustments to Financial Statements
1

Events after the Reporting Date

√

√

Minor

2

Financial Reporting in Hyper Inflationary Economies

√

√

Minor

A SNAPSHOT OF GAAP DIFFERENCES BETWEEN IPSAS AND IFRS, 2013, BY ERNST AND YOUNG

Accrual IPSAS
13


IPSAS 1: Presentation of Financial Statement



IPSAS 18: Segment Reporting



IPSAS 2: Cash Flow Statement



IPSAS19: Provisions Contingent Liabilities & Assets



IPSAS 3: Accounting Policies, Changes in
Accounting Estimates & Errors




IPSAS 20: Related Party disclosures
IPSAS 21: Impairment of Non-Cash Generating Asset



IPSAS 4: Changes in Forex Rate



IPSAS 5: Borrowing Cost



IPSAS 6: Consolidated and separate FS



IPSAS 7: Investments in Associates



IPSAS 8: Interest in Joint Venture



IPSAS 24: Presentation of Budget information in FS



IPSAS 9: Revenue from Exchange Transactions



IPSAS 25: Employee Benefits

IPSAS 10: Financial Reporting in Hyperinflationary
Economies



IPSAS 26: Impairment of Cash Generating Asset



IPSAS 27: Agriculture







IPSAS 22: Disclosure of Financial Information About
the General Government Sector
IPSAS 23: Revenue from Non-Exchange
Transactions(Tax & Transfer)



IPSAS 11: Construction Contract



IPSAS 28: Financial Instrument Presentation



IPSAS 12: Inventories



IPSAS 29: FI: Recognition & Measurement



IPSAS 13: Leases



IPSAS 30: Financial Instrument Disclosure



IPSAS 14: Events after the Reporting Date



IPSAS 31: Intangible Asset



IPSAS 16: Investment Property



IPSAS 32: Service Concession Arrangements: Grantor



IPSAS 17: Property, plant & Equipment

IPSAS 1: Presentation of Financial
Statements
15





Fundamental principles underlying preparation of financial
statements, going Concern assumption, consistency in presentation
and classification, accrual basis of accounting, aggregation &
materiality
Complete set of financial statement include








Statement of financial position
Statement of financial performance
Statement of changes in net assets/ equities- changes in all assets/
equity
Statement of cash flow
Budget publicly available & comparison of budget and actual/ accrual
Note comprising significant accounting policies & other explanatory
notes
Entity whose accounting wholly comply with IPSAS, shall give unreserved
note in this regard


IPSAS 1(Presentation of financial)
contd.
16



Complete set of financial statement include
Assets & liabilities, revenue & expenses shall not be offset,
unless permitted in another IPSAS
 Comparative prior-period information shall be presented; In
case of change in classification, comparative prior period
reclassification shall be done, reasons of reclassification
disclosed
 Annual year end date change, if any be disclosed,
comparative prior period figures given
 Current (within 12 months from reporting date)/ non-current
(beyond 12 months) distinction for assets to be recovered
and liabilities to be settled is normally required



IPSAS 1(Presentation of Financial)
contd.
17







IPSAS 1 specifies minimum line items to be presented, includes
guidance for identifying additional line items, headings, and
subtotals
Analysis of expenses by nature or function, if function-classification
of expenses by nature shall be provided additionally
specifies minimum disclosure requirements for the notes








Accounting policies followed
Mgt decision on accounting policies that has significant impact on
amounts recognition
Key assumptions and estimation uncertainty that carry significant risk to
cause material adjustment of carrying value of assets/ liabilities in next
financial year
Domicile, legal form of the entity, reference to relevant legislation,
hierarchy of controlling entities
Description of the nature of the entity’s operations


IPSAS 2: Cash Flow Statement
18


Objective:



Items on which cash was expended during the reporting period, future cash requirements



Cash balance as at the reporting date



Provides information that enables users to evaluate the changes in net assets/equity of an entity, its
financial structure (including its liquidity and solvency), and its ability to affect the amounts and timing
of cash flows



Sustainability of the entity’s activities, ability to fund changes in the scope and nature of its activities



Decision-making, accountability, compliance with legislation and regulations (including authorized
budgets where appropriate)



Comparability of the reporting of operating performance by different entities



Historical cash flow information is often used as an indicator of the amount, timing, and certainty of
future cash flows




Sources of cash inflow, ability to generate cash flows in the future

Making decisions about whether to provide resources to, or enter into transactions with, an entity

Cash equivalents are short term investments (<3 months from acquisition), readily convertible to known
amount of cash and having least risk of change in value, but exclude equity investments



Bank overdrafts that are repayable on demand is part of an entity’s cash management



Cash flows exclude movements between items that constitute cash or cash equivalents

IPSAS 2: Contd
19


Operating: (receipt/ payment of taxes/royalties/ other revenue, supply/ sale/ receipt/purchase of goods and services
by the entity, grants or transfers and other appropriations paid/receipt through budget approval of central government/
other public sector entities, payment to employee, receipts and payments from contracts held for trading purposes,
receipts or payments from discontinuing operations, receipts or payments in relation to litigation settlements, from Property,
Plant, and Equipment, rents and subsequent sales of such assets, but gain or loss from sale of plant is investing)






Indicate ability to maintain its operating capability, repay obligations, pay a dividend, and make new investments,
without recourse to external sources of financing

If cash flow is not classified into current activities, capital works, and contributed capital, it is accounted as cash flows
from operations, disclosed in the notes to the financial statements

Investing: Asset in the statement of financial position, that would result in future service delivery




Acquire/dispose equity or debt instruments of other entities and interests in joint ventures



Payment/ receipt of cash advances and loans (not made by a public financial institution)



Payment/ receipt for futures contracts, forward contracts, option contracts, and swap contracts




Acquire/ construct/ dispose property, plant, and equipment, intangibles, and other long-term assets, capitalized
development costs

Not cash equivalents or held for trading

Financing: debentures, loans, notes, bonds, mortgages, and other short or long-term borrowings




Lease payment affecting liability position

single transaction of cash flow may be a combination of operating and financing, cash repayment of a loan includes both interest and capital
VOLUME I, HANDBOOK OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING PRONOUNCEMENTS 2013 EDITION, BY IPSASB

IPSAS 2: Contd
20


Reporting Cash Flows from Operating Activities





Direct method: major classes of gross cash receipts and payments are disclosed
Indirect method, whereby deferrals or accruals (operating), surplus or deficit (non cash), revenue or expense (from
investing or financing cash flows) are adjusted

Direct Method: taking cash receipts from sales, adding interest and dividends, and deducting cash payments
for purchases, operating expenses, interest and income taxes



Cash payment for purchases=cost of goods sold + increase (or - decrease) in inventory + decrease (or - increase)
in accounts payable



Cash payments for operating expenses = operating expenses + increase (or - decrease) in prepaid expenses +
decrease (or - increase) in accrued liabilities



Cash Interest Payment = interest expense + decrease (or - increase) in interest payable + increase in amortization
of bond premium (or - discount)




Cash Receipt from Sale + Decrease (or – Increase) in Accounts Receivable

Cash payments for income taxes = income taxes + decrease (or - increase) in income taxes payable

Indirect Method: Net income from income statement is adjusted by
 Start with net income.
 Add back non-cash expenses (Such as depreciation and amortization)
 Adjust for gains and losses on sales on assets (Add back losses/Subtract out gains)
 Account for changes in all non-cash current assets
 Account for changes in all current assets and liabilities except notes payable and dividends payable

IPSAS 2: Contd
18

Direct Method





Cash Collection
 Sales=500000
 Decrease in Accounts Receivable=5000
Total Cash Received=505000
Cash Outflow
 Purchase






















Cost of Goods Sold=(400000)
Increase in Accounts Payable=2000
Increase in inventory=(5000)





SG&A=(30000)
Decrease in prepaid expenses=500

Interest=(5000)
Increase in Accrued Interest Receivable= (500)

Total Interest Expenses=(5500)
Total Expenses=(438000)
Net Cash Flow from Operating=67000

Net Income= 50000
Adjustments




Expenses on Operations=(29500)
Interest Expense






Total Purchase Cost=(403000)
Operations




Indirect Method



Depreciation/Amortization=6000
Increase in deferred taxes=500
Decrease in Account Receivable=500
Increase in Accounts Payable=500
Increase in Inventories=(5000)
Increase
in
Accrued
Interest
Receivable= (500)
Decrease in Accrued Interest Payable
= (500)
Gain on Sale of Property= (500)



Total Adjustment= 1000



Net Cash Flow from Operating=51000

IPSAS 2: Contd
22



Cash Flow from Investing






Cash Flow from Financing









Sale of Bond=5000
Stock Repurchase=(10000)
Dividend issue=(5000)
Issue of preferred shares=20000
Net Cash Flow from Financing=10000

Tax on net Surplus




Sale of Land= 50000
Purchase of Plant & Equipment=(60000)
Net Cash Flow from Investing=(10000)

Govt. entities not liable to tax; in case taxed, will be shown under
operating, unless specific tax element can be linked to a transaction
under investing or financing

Cash receipts and payments are presented separately
major class wise on gross basis

IPSAS 2: Contd
20


Cash Flow on Net Basis




Cash receipts and payments for items in which the turnover is quick, the amounts are
large, and the maturities are short
 Trading Investment/ short term borrowings



Receipts and payments for the acceptance and repayment of deposits with a fixed
maturity date;



Placement of deposits with, and withdrawal of deposits from, other financial institutions;
and





Cash collected on behalf of customers, taxpayers, or beneficiaries and payments made
to another
 Funds held for customers by an investment or trust entity

Cash advances and loans made to customers and the repayment of those advances and
loans

Foreign Currency Cash Flows


Transactions in a foreign currency or of a foreign controlled entity shall be recorded in
functional currency applying exchange rate of the date of cash flow

IPSAS 2: Contd
21


Investments in Controlled Entities, Associates and Joint Ventures






Investment in an associate or a controlled entity accounted for by use of the equity or
cost method, an investor restricts its reporting in the cash flow statement to the cash flows
between itself and the investee
Interest in a jointly controlled entity includes in its consolidated cash flow statement its
proportionate share

Acquisitions and Disposals of Controlled Entities and Other Operating Units


Aggregate cash flows related to acquisitions and disposals of controlled entities and other
operating units shall be presented separately and classified as investing, cash flow effects of
disposals are not deducted from those acquisitions



Total purchase or disposal consideration



Portion of the purchase or disposal consideration discharged by means of cash and cash
equivalents



Amount of cash and cash equivalents in the controlled entity or operating unit acquired or disposed
of



Amount of the assets and liabilities, other than cash or cash equivalents, if recognized by the
controlled entity or operating unit acquired or disposed of, summarized by each major category

IPSAS 2: Contd
25


Noncash Transactions


Investing and financing activity, affect the capital and asset structure of an entity, that do
not require cash shall be separately disclosed





Components of Cash and Cash Equivalents






Conversion of debt to equity
Acquisition of assets through the exchange of assets, the assumption of directly related liabilities, or
by means of a finance lease

Reconciliation of the amounts in its cash flow statement with the equivalent items reported in
the statement of financial position
Entity discloses the policy that it adopts in determining the composition of cash and cash
equivalents
Effect of any change in the policy for determining components of cash and cash equivalents

Other Disclosures




Significant cash and cash equivalent balances not available for use by the economic entity,
with comments of management
Undrawn borrowing facilities, indicating any restrictions on the use of these facilities
Restricted Cash Balances

IPSAS 3: Accounting Policies, Change in
Accounting Estimates & Errors
26





Criteria for selecting & changing accounting policies, accounting
treatment & disclosures of change in accounting policies, change in
accounting estimates & correction of errors
Hierarchy of Accounting Policies










IPSAS
IPSAS not directly applicable- guidance in IPSAS for similar issues
If above two not met, management shall choose latest pronouncement of
any standard setting body

Apply consistently to similar transactions
Change accounting policy, only if required by IPSAS or if more
reliable & relevant
Follow the transition requirements- apply retrospectively by restating
accounts as per changed standards-If restatement is impractical,
cumulative figures should be given as per new standards


IPSAS 3 (Accounting policies) contd.
27


In the absence of an IPSAS for non transaction events, developing and
applying accounting policy is a management decision, information to be
disclosed


Relevant to the decision making need of user & reliable












Represent financial position, performance & cash flow
Reflect economic substance, not merely legal compliance
Neutral, prudent and complete in all respect

Change in accounting estimates (future life of an asset)- accounting applied
from current year onwards- no restatement required
Change is accounting policy or estimate if not clear, treated as estimate
All material prior period errors shall be corrected in the first set of accounts
prepared after discovery of error
If error occurred prior to the earliest period presented- restate the opening
statement


IPSAS 4: Changes in Forex Rate
28



Translate all currency transactions to functional
(primary economic environment) currency
 On

the date of transaction using spot exchange rate for
initial recognition & measurement
 At subsequent reporting date
 Closing

rate for monetary items
 Transaction date exchange rate for non-monetary items
carried at historical cost
 Valuation date exchange rate for non-monetary items
carried at fair value


IPSAS 5: Borrowing Cost
29









Borrowing cost are interest, amortization of
discounts, premiums or ancillary costs relating to
borrowing
Capitalize burrowing cost (yield future economic
benefit) attributable to Qualifying Assets
Remaining burrowing cost –expense
If part of the burrowed fund is used for qualifying
assets, then weighted average of burrowing cost to
be capitalized

IPSAS 6: Controlled Entities
30







Parent Entity and controlled entities FS shall be
separate and consolidated
Temporary acquisition with intention of disposal/
sale within 12 months and other entities for which
parent entity is actively seeking disposal / sale
shall not be treated controlled entity- be accounted
as held for trading as per standards
Entities having dissimilar activities or under long
term fund transfer restrictions shall be treated as
controlled entities

IPSAS 6: Consolidate and Separate
31












Balances, transactions, revenue and expenses between entities within
the economic entity are eliminated in full
Uniform accounting standards for similar transactions
Reporting gap of controlled entities cannot be more than three
months
Minority interest of controlled entity in net assets/equity is reported
separately from parent entity in the consolidated statement of
financial position-Hence the same is not deducted from revenue and
expenses of economic (controlled) entity.
However, the surplus or deficit of economic entity is distributed
between major and minor interest
Parent Entities investments (either using the equity method, at cost or
as financial instrument) in controlling entities, associates and joint
ventures shall be shown in separate accounts.


IPSAS 7: Investments in Associates
32













Equity method to be followed for all investments (except venture
capital, mutual fund or unit trust or investment linked insurance those
are measured and recognized at fair value as per accounting
standards for financial instruments), where parent holds ≥ 20% of
voting power
Investment in temporary acquisition shall be dealt separately as
discussed in IPSAS 6
Initially recorded at costs and subsequently adjusted by the investor’s
share of the investee’s post acquisition change in net assets/equity
Investors’ statement of financial performance reflects its share in the
investee’s post-acquisition surplus or deficit.
Uniform accounting standards for similar transactions
Reporting gap of associates cannot be more than three months
Equity accounting to be done, even if consolidated accounts not
required, if accounting standards show that investment may be
impaired-IPSAS 21

IPSAS 8: Interests in Joint Venture
33






Applies to all investments having joint control (exception of IPSAS 7)
Investment in temporary acquisition shall be dealt separately as discussed
in IPSAS 6
Jointly controlled operations- Venturer accounts




Jointly controlled assets, Venturer accounts




Assets under its control and its liability & expenses and share of revenue,
separate and consolidated
Its share of jointly controlled assets, share of liabilities & expenses incurred
separately or jointly & share revenue, separate and consolidated

Jointly controlled entities- Two accounting Policies are permitted- Venturer
accounts in



Proportionate Consolidation its share of assets, liabilities, expenses and revenue
in jointly controlled entity
Equity Method as in IPSAS 7


IPSAS 9: Revenue from Exchange
Transactions
34



Revenue from the Exchange Transactions shall be measured at the
fair value of the consideration received or receivable & shall be
recognized in case of






Sale of goods, when control, risk and rewards transferred significantly,
cost and revenue determined reliably and economic benefit/ service
potential will flow to the seller likely
Rendering of Services, the output from the stage of completion of
transaction if can be measured reliably, or the cost incurred (to the
extent recoverable) for the stage of completion if output cant be
measured
Use by others of entity assets yielding interest, royalties or dividends,
when revenue determined reliably and economic benefit/ service
potential will flow to the seller likely

Interest on time proportionate basis, when royalties earned as per
agreement, or when sharehoder’s/ entity’s right to receive dividend is
established


IPSAS 10: Financial Reporting In
Hyperinflationary Economies
35



The FS of an entity reporting in the currency of a hyperinflationary (100%
cumulative inflation in 3 years)economy shall be stated in the rate of the
currency at the reporting date.



Comparative figures & information of past shall also be presented in the
rate at the reporting date of latest FS



The surplus/deficit on the net monetary position shall be separately
disclosed in the statement of financial performance.



The budgetary information (past & present) of public sector entities shall

also be restated into the same current measuring unit.


IPSAS 11: Construction Contract
36












Contract revenue is the agreed amount in the contract and likely & measurable
revenue from variation in contract work, claims and incentive payments.
Measured at Fair Value
Cost directly attributable to the customer as per contract shall be accounted
Percent Completion Method Accounting: Outcome of construction contract
(Revenue and Cost) shall be estimated by reference to the stage of completion
of contract activity at the reporting date
Cost incurred (to the extent recoverable) for the stage of completion will be
recognized as Revenue, if output cant be measured. The contract cost shall be
shown as expense
If the revenue as per contract is fixed, can not be increased, it is likely that cost
may increase revenue- Expected deficit to be recognized as soon as anticipated


IPSAS 12: Inventories
37















Objective: Cost determination, formula as cost determination guide, expense recognition, write
down to net realizable value
Cost-purchase value, conversion cost (material, labor & overhead) & other cost to bring
inventory to present location and shape
Not foreign exchange differences and selling costs
Carrying cost of inventory is shown as expense in the period corresponding revenue is
recognised. If no related revenue, carrying cost is shown as expense, when goods distributed
or services rendered
Same formulae for similar items and use irrespective of geography
Inventories which are acquired through non exchange transaction shall be measured at the fair
value (specific costs are attributed to specific item) as at the date of acquisition.
Lower of cost and current replacement cost if they are kept for distribution / consumed in
production of goods for distribution at no charges or nominal charges.
Cost of interchangeable items is determined on either FIFO or weighted average basis.
Write-downs to net realizable value are recognized as an expense whereas increase in net
realizable value are recognized as a reduction of the inventory expense


IPSAS 13: Leases
38










Finance lease: Transfers all of the asset life and PV of lease payment =
asset’s fair value, Transfers all risk and rewards incidental to ownership of
asset. The title may or may not be eventually transferred
Lessee recognizes asset and liability at the lower of the present value of
minimum lease payments and the fair value of the asset, determined at the
inception, depreciates lease payment as in case of own assets, lease
payment apportioned between interest and reduction of liability
Lessor recognizes as receivable at an amount equal to the net investment in
the lease, revenue at a periodic return on net investment
Operating lease: All other leases
Lessee places lease payments as expense on a straight-line over lease term
Lessor places assets held for leases in FS, adds initial expenses to assets,
accounts revenue on straight-line over lease term


IPSAS 14: Events After the Reporting
Date
39


Events that occur between the reporting date and date for issue of FS:



Adjustment, if retrospective effect, e.g. Court Order
Nonadjustment, e.g. a decline in the fair value of property after year end
reporting









Shall disclose the nature of event, financial effect, statement if financial effect can not
be quantified

Dividends declared after the reporting date-no change on reporting date
Going Concern assumption has changes after reporting date, FS shall be
prepared on the changed basis
Disclose the date and authorization of the same on FS, amending authority
of FS
If entity obtains/gets information about the condition at reporting date,
between reporting ate and FS date, it will update disclosures


IPSAS 16: Investment Property
40




Defn : Land & Building that earns rent/ capital appreciation, not used in production/ supply,
other business operation or a trading commodity in firm’s business
Recognitions of IP






If cost/fair value of the IP can be measured reliably & future economic benefits and service potential
will flow to the entity
Not property occupied by owner/developed as future IP
Initially at acquisition cost that includes transaction cost, non-exchange transactions at fair value of
acquisition

Subsequent Accounting Models


After recognition, entity can choose fair value or cost model








fair value: changes in FV are recognized in surplus or deficit in each period
Cost: depreciated costs less any accumulated impairment losses, FV of the investment property shall also be
disclosed .

Entity using FV model, will use cost model till the end when fair value can’t be determined on a
continuing basis to a newly acquired IP, residuary value treated zero
Entity can change from one model to another, if results in more appropriate representation
Property interest held as operating lease, can qualify as IP, if fair value is used- lesee to
account this as finance lease


IPSAS 17: Property, Plant and
Equipment
41






Land (no depreciation) and buildings are accounted separately
Includes special military equipment, infrastructure assets (road, networks, sewer
system and communication network)
Recognition: Same as IPSAS 16,






Subsequent Accounting Models:






If payment is deferred, interest shall be recognized
Derecognized on disposal or loss of future economic benefit or service potential
Heritage Assets: may/ may not recognize; standards prescribed for Heritage Assets
Cost Model: The asset is carried at cost, less accumulated depreciation and impairment
losses
Revaluation Model: The asset is carried at revalued amount, which is fair value at
revaluation date, less subsequent depreciation and impairment losses.
Increase or decrease shall be offset within a class of property

Each part ( having significant cost) of
separately and systematically.

an item of property are depreciated


IPSAS 17 (Property) contd.
42











The annual residual value should match the receiving amount at the
end of asset’s life.
Items requiring regular inspection will be assessed and difference
shall be accounted for in change in accounting estimate under IPSAS
3, cost incurred for the inspection is placed in carrying amount of the
asset.
Exchange to be measured at fair value, not in non-commercial
exchange, not when fair value of both items of exchange not
determinable
Gain or loss from disposal shall be set off within the class of
property
IPSAS 17 contains transitional provisions allowing not to recognize
PPE for reporting periods beginning on a date within five years
following the date of first adoption of accrual accounting in
accordance with IPSAS.

IPSAS 18: Segment Reporting
43




Objective: segment analysis of present vs past and resource planning for future
Service & Geographic Segment based on organization & internal reporting
structure











Service (within one department from lower office to higher), Geography (all dept offices
in one region/ district reporting to apex government entity of the region
Segments - Entity providing major goods and services, operating programs, or
undertaking activities

Applicable for accrual basis of accounting
In case of controlled and controlling entity, segment information presented on
consolidated basis, follows policies of consolidated FS
Assets must be allotted to the segment (when jointly used by two or more segments)
if, related revenues and expenses are also allocated to segments
when a new segment is identified, prior segment data shall be restated
No quantitative threshold, primary & secondary (limited disclosure) segment


IPSAS 19: Provisions
44


Objective: disclosed in notes to enable user to understand nature, timing and
quantum and ensure that only genuine obligations are dealt in FS




Recognitions:











Examples of provisions include onerous contracts, restructuring provisions, warranties,
refunds and site restoration
Past event with present legal or constructive obligation.
Outflow of resources, with economic benefits/service potential, required to settle the
obligation is probable.
The amount of the obligation can be estimated reliably.

Recognized provision is the best estimate of settlement amount of the expenditure
required to settle the obligation at reporting date.
Requires review of provisions at each reporting date to adjust for changes to
reflect the current best estimate, if no longer required, provision shall be reversed
Provisions shall be utilized for the purpose it is reserved
If there is an onerous contract, present obligation (net of recoveries) be recognised
as provision


IPSAS 19: Contingent Liabilities and
Contingent Assets
45



Contingent liability disclosure when:
possible obligation to be confirmed by a future event
that is outside the control of the entity

A present obligation may, but probably will not, require
an outflow of resources embodying economic benefit or
service potential

No reliable estimate of present obligation




Contingent Assets disclosure when:
Inflow of economic benefit/ service potential is possible,
but not certain
 If certain, it is no more contingent asset, it will be
recognised as asset



IPSAS 20: Related Party Disclosure
46



Disclose relationship and transaction
Relationships involving control, even if no transactions
 Related party transactions & clarify significance thereof
 Management compensation & analysis thereof




Related parties of reporting entity are controlling
entities, owners and their families, major investors, and
key management personnel or controlled or influenced
by the reporting entity, joint ventures, associates, and
post employment beneficiaries or entities subject to
common control

IPSAS 20: Related Party Disclosure
Contd.
47



Examples
Purchase or transfers /sales of goods (finished and
unfinished)
 Purchases or transfers/sales of property and other assets
 Rendering or receiving of services
 Agency arrangements
 Leases
 Transfers of research and development
 Transfers under license agreement
 Provision of guarantees and collateral



IPSAS 21: Impairment of Non-Cash
Generating Assets
48









Applies to non-cash-generating (NCG) assets, except such assets from construction
contracts(IPSAS 11), inventories (IPSAS 12), investment property at fair value (IPSAS
16), PPE measured at revalued amounts (IPSAS 17), financial assets (IPSAS 29) and
assets included in another IPSAS. (Note: IPSAS 26 covers cash-generating assets)
Impairment loss, difference of carrying & recoverable service amount- recognised
Depreciation (amortisation) charge for the asset shall be adjusted in future, on a
systematic basis when impairment loss is recognized.
Recoverable service amount is the higher of a non-cash-generating asset’s fair
value, less costs to sell and its value in use (present value of the asset’s remaining
service potential)
Estimation of value in use depends on availability of data & nature of impairment






Depreciated replacement cost approach
Restoration cost
Service unit

Assets to be reviewed at each reporting date for impairment, reversal be
recognized


IPSAS 22: Disclosure Of Financial Information About The
General Government Sector
49




Ralationship between market and nonmarket activities of the government and FS
and statistical bases of financial reporting.
Conformity with policy for consolidated financial statement, with exception





disclosures of the general government sector includes








not apply “consolidated and separate FS”(IPSAS 6) in respect of entities in the public
financial and non-financial corporations.
Entity’s investment in public financial and non financial corporation will be recognized as
an asset and accounted it at the carrying value
Assets & Liabilities, Revenue & Expenses by major class; investment in other sectors
separately
Net assets/equity, revaluation increments and decrements and other items of revenue and
expense recognized directly in net assets/equity
Surplus or deficit
Cash flows from operating by major class, investing and financing activities.

Explanation for removal of significant controlled entities from GGS wrt past reports
Disclosure shall be reconciled to the consolidated FS of the government showing
separately the amount of the adjustment to each equivalent item in those FS


IPSAS 23: Revenue from non-Exchange
Transactions (Tax & Transfer)
50









Except non-Exchange transactions (NET) giving rise to entity combination
In non-exchange transaction, one entity either receives or gives value without directly giving or receiving
approximately equal value in exchange from another entity.
Transfers (not tax) are inflows of future economic benefits or service potential from non-exchange transactions.
Hence, transferor imposes binding terms upon the entities
Future economic benefits or service potential may be consumed by entity, used for specific target group or
returned to transferor as per T&C, don’t specify return to transferor if not deployed as per T&C
Inflow of resources from NET shall be recognized as an asset when






May recognize service in kind as revenue and assets
Present obligation arising from NET shall be recognised as liability










It’s future economic benefits/service potentials are expected to be flown to the entity
Fair value of assets can be measured reliably.

Outflow of resources embodying future economic benefits/service potentials are expected
fair value of liability can be measured reliably.

Inflow of resources from NET assets shall be recognized as revenue, and the same recognized as liabilities
If entity satisfies present obligation recognized as a liability, in respect of an inflow of resources from NET assets,
the liability will be reduced and the same amount will be recognised as revenue, similarly increase in net assets
shall be recognised as revenue by same amount
Conditions on a transferred asset give rise to a present obligation on initial recognition that will be recognized
when the recognition criteria of a liability are met
liability recognized is equal to present obligation at the reporting date

IPSAS 23 (Revenue) contd.
51



Recognize as asset, when the taxable event occurs and the asset
recognition criteria are met





Entity shall disclose on GPFS or in its note, recognised






Gross amount (not reduced by expenses of the tax administration
machinery)
Not be grossed up, if certain taxpayers get concession provisions, while
others don’t
Revenue & Receivables by major class, tax and transfers separate
Assets & liabilities with T&C
Liabilities forgiven and Advance Received

Entity shall disclose on note of GPFS


Accounting policy for recognition of NET, major classes of Revenue from
NET, Tax Revenue, gifts, goods in kind received


IPSAS 24: Presentation of Budget
Information in FS
52












Objective: Transparency and Accountability in FS & compliance with the
approved budget
Applies to PSEs, other than Government business Enterprises(GBEs), whose
budget are available publicly
Original budget: initial approved expenditure, appropriation bills, govt
ordinance, anticipated revenue or receipt for the budget period
Final budget: original budget + adjustment for all reserves, carry over
amounts, transfers, allocations, supplemental appropriations, and other
authorized legislative, or similar authority, changes
Comparison of the budget amount is either presented as a separate
additional FS or as additional budget columns in the FS. The comparison is
presented at different aggregation
level for different level of
legislative/executive oversight
Original, final budget and actual (performance), if FS & Budget are
prepared on comparable basis


IPSAS 24 (Presentation of Budget)
Contd.
53


Note disclosure, unless it is included in other public documents issued with the FS & a
cross reference to those documents is made in the notes to FS, explain






If FS and Budget are not on comparable basis, actual amounts presented on a
comparable basis to the budget shall be reconciled to the following actual amounts
presented in the FS, identifying difference on basis, timing, and entity:





material differences between the budget & actual amounts
If changes between original and final budget are due to re-appropriations, or other
factors
budgetary basis and classification basis, the period, and the entities included

If the accrual basis is adopted for the budget, total revenues, total expenses and net
cash flows from operating activities, investing activities, and financing activities
If a basis other than the accrual basis is adopted for the budget, net cash flows from
operating activities, investing activities, and financing activities

The reconciliation shall be disclosed on the face of the statement of comparison of
budget and actual amounts or in the notes to the FS.


IPSAS 25: Employee Benefits
54




Prescribes the accounting and disclosure for employee benefits(EB), shortterm (payable within 12 month and treated as expense) and long term
benefits (except for share based transactions and employee retirement
benefit plan)
Recognition of Employee Benefit (EB), when economic Benefit (EB) is earned
to the Entity by service of Employee





A liability when an employee to be paid in a future FY
An expense when an employee is given employee benefits in a FY
Defined Benefit Plans (DBP), a liability if to be paid in future FY
Defined Contribution plan(DCP), (e.g. contributory Pension Scheme, Medical
Insurance, post employment life insurance) expense on payment - liability for the
third party




If legal obligation to the employer to pay if the insurer does not pay, it is a DBP

Re-measure the obligation (gains/losses) using current actuarial assumptions


IPSAS 25 (Employee Benefits) contd.
55






Bonus payments and profit-sharing payments are recognized when the
entity has a legal or constructive obligation to pay, which can be reliably
estimated
Asset of long term Employee Benefit Fund & Qualifying Insurance policiesplan assets
Employer shall recognize the net cost in Group Plan in separate FS, unless
contract allocates costs otherwise





Expected cost of unused entitlement & past service cost of employee at
reporting date – liability

Termination benefits are recognized as a liability and an expense
On adopting IPSAS 25, an entity determines its initial liability for DBP




present value of the obligations including cumulative actuarial liability
minus the fair value of plan assets out of which the obligations are to be settled
directly
minus any past service cost that shall be recognized in later periods


IPSAS 26: Impairment of Cash
Generating Asset
56













Accounting for the impairment of all cash-generating assets except assets class for which accounting
requirements for impairment are given in any other IPSAS.
Impairment loss/gain (difference of carrying & recoverable amount) recognized in deficit/surplus;
(recoverable Amount-higher of fair value less cost of sale and value in use (present value of future cash flow
from use + disposal of the asset at the end))
When impairment loss exceeds the carrying amount, is recognized as a liability, if required by another
IPSAS
Assess impairment at each reporting date. If any indication, estimate recoverable amount
Impairment test of intangible assets (long life/not yet available) annually at a fixed time
Depreciation (amortisation) charge will be increased prospectively by the difference of asset’s revised
carrying amount less its residual value, on a systematic basis over its remaining useful life
If Impairment can not be estimated for an individual asset, estimate for the asset’s cash generating unit
If the cash inflows generated by an asset or cash-generating unit are affected by internal transfer pricing,
an entity shall use management’s best estimate of future prices that could be achieved in arm’s length
transactions in estimating:



The future cash inflows used to determine the asset’s or cash-generating unit’s value in use
The future cash outflows used to determine the value in use of any other assets or cash-generating units that are
affected by the internal transfer pricing


IPSAS 26: Impairment of Cash
Generating Asset
57













Accounting for the impairment of all cash-generating assets except assets class for which accounting
requirements for impairment are given in any other IPSAS.
Impairment loss/gain (difference of carrying & recoverable amount) recognized in deficit/surplus;
(recoverable Amount-higher of fair value less cost of sale and value in use (present value of future cash flow
from use + disposal of the asset at the end))
When impairment loss exceeds the carrying amount, is recognized as a liability, if required by another
IPSAS
Assess impairment at each reporting date. If any indication, estimate recoverable amount
Impairment test of intangible assets (long life/not yet available) annually at a fixed time
Depreciation (amortisation) charge will be increased prospectively by the difference of asset’s revised
carrying amount less its residual value, on a systematic basis over its remaining useful life
If Impairment can not be estimated for an individual asset, estimate for the asset’s cash generating unit
If the cash inflows generated by an asset or cash-generating unit are affected by internal transfer pricing,
an entity shall use management’s best estimate of future prices that could be achieved in arm’s length
transactions in estimating:



The future cash inflows used to determine the asset’s or cash-generating unit’s value in use
The future cash outflows used to determine the value in use of any other assets or cash-generating units that are
affected by the internal transfer pricing


IPSAS 27: Agriculture
58











Prescribes accounting treatment and disclosures for agricultural
activity/ harvest of biological assets animals/ plants for sale, or for
distribution at no charge/ a nominal charge (Non Exchange
Transaction), or for conversion into agricultural produce, or into
additional biological assets
Measured at fair value less costs to sell, unless fair value cannot be
measured reliably
Any change in the fair value of biological assets is reported in
surplus or deficit
The cost model (depreciated cost less any accumulated impairment
losses) is used for the biological asset, for which there is no active
market at the time of recognition
Fair value measurement stops at harvest. IPSAS for inventory applies
after that.


IPSAS 28: Financial Instrument:
Presentation
59









Classify & present liability, net asset/equity; offset financial assets & liabilities
Guides whether financial guarantee is a contract or not; Entity recognizes and
measures under IPSAS 29 financial guarantee contracts (both exchange and nonexchange) & insurance contracts if the financial risk is transferred
Non contractual assets & liabilities are not considered as financial instruments.
Determines whether the assets and liabilities arising from contractual non exchange
transactions are financial instruments or not (IPSAS 23 guides whether a nonexchange transaction gives rise to a liability or an equity instrument
classification of an instrument either as a liability or an equity instrument






Based on substance, not form of the instrument
Classification at the time of issue and not subsequently altered
financial liability if the issuer may be obligated to deliver cash or another financial asset
No contractual obligation to pay is an equity instrument
Interest, dividends or similar distributions, losses and gains relating to a financial instrument
are revenue or expense


IPSAS 28 (FI Presentation) contd.
60












Puttable instruments, where issuer obligated to pay cash, but
subordinate to all other classes of instruments, are classified as
equity instruments
Compound instrument, debt & equity classified at the time issue
A financial asset and a liability are offset & the net amount
reported when, an entity has legal right to set off the amounts, and
intends either to settle on a net basis or simultaneously
Cost of treasury shares is deducted from net assets/equity, and
resale of treasury shares are net assets/equity transactions.
Costs of issuing equity instruments are accounted as a deduction
from net assets/equity, net of any related income tax benefit.
Members’ shares in co-operative entities are liabilities unless the coop has the legal right not to redeem on demand.


IPSAS 29: FI: Recognition &
Measurements
61









It establishes principles for recognizing & measuring financial assets & liabilities.
All financial assets , liabilities and derivatives are recognised in the FS
When a financial asset or a liability is recognised initially, it is measured at its fair
value plus transaction costs directly attributable to the acquisition or issue of the
financial asset or financial liability
Normal purchases & sales of market securities are recognised either at trade date
or settlement date; it requires recognition of certain value changes between trade
and settlement dates
Difference between the fair value & concessionary value of loan is treated as:







receiver considers whether the difference shall be accounted for in accordance with IPSAS
23
Giver treats the difference as an expense at initial recognition

Financial guarantee contracts provided at lower than fair value are initially
recognised at fair value, by observation of a price in an active market, not active
market price
Financial Assets other than measured at fair value shall be subject to impairment


IPSAS 29 FI: Recognition &
Measurements contd.
62


Subsequent to initial recognition, financial asset are classified into:







Financial assets, including derivatives shall be measured at their fair values(FV),
without any deduction for transaction costs except where it can not be reliably
measured and:






Financial assets measured at fair value through surplus or deficit
Held-to-maturity (HTM) investments,
Loans & receivables
Available for sale(AFS) financial assets.

Held-to-maturity investments & Loans and receivables, measured at amortised cost using
the effective interest method

Most financial liabilities are measured at original recorded amount less principal
repayments and amortisation; derivative & held for trading (short sales) liabilities
measured at FV with value changes recognised in surplus or deficit
De-recognition of financial asset/liability (when transferred to another party) is
not permitted, if entity has retained


substantially all risks and rewards or control of an asset or part of an asset


IPSAS 29 (FI: Hedge) contd.
63



Hedge item(asset) measured under hedge accounting (offsetting the
effect of hedge instrument and hedge items in same period’s surplus
or deficit) are classified as









FV hedge
Cash flow (CF) hedge
Hedge of a net investment in a foreign entity ( similar to CF Hedge).

Hedge of foreign currency risk is accounted as FV or CF hedge
permits an entity to reclassify non derivative financial assets out of
the FV through surplus or deficit and AFS categories in limited
circumstances.
prohibits reclassification out of fair value through surplus or deficit if
an entity is unable to separately measure the embedded derivative
on reclassification.


IPSAS 30 Financial instrument:
Disclosures
64




Significance of a FI for Entity’s Financial position and performance, nature and
extend of risks associated with FI and the way to manage those risks.
Financial Instrument:








Disclosures relates to the entity’s financial position — information about financial assets
and financial liabilities by category, special disclosures when the fair value option is used,
reclassifications, derecognitions, pledges of assets, embedded derivatives, and breaches
of terms of agreements.
Disclosures relates to the entity’s performance in the period — information about
recognised revenue, expenses, gains, and losses; interest revenue and expense; fee
revenue; and impairment losses.
Special disclosures for concessionary loans.
Other disclosures — information about accounting policies, hedge accounting, and the FV
of financial asset and liability.

Nature and extent of risks from financial instruments



Qualitative disclosures about exposures to each class of risk and how those risks are
managed
Quantitative disclosures about exposures to each class of risk, separately for credit risk,
liquidity risk( maturity analysis for both derivative & non-derivative liabilities i.e. issued
financial guarantee contract), and market risk (sensitivity analysis).


IPSAS 31: Intangible Assets
65


Recognition of intangible asset (purchased/self-created)





Not recognised








Intangible Asset acquired in entity combination by non-exchange transactions, or by
legislative authorisation to tax or internally generated good, Internally generated brands,
mastheads, publishing titles, lists of customers, or users of services

Additional criteria for internally generated intangible assets
All research cost charge to expense when incurred.
Development cost are capitalized only after technical & commercial feasibility of
product and service is established.
If intangible items does not meet IA criteria, cost is expensed,




the future economic benefits/ service potential attributable to the asset will flow to the
entity.
The cost / fair value of the asset can be measured reliably.

if the cost is incurred as part of an entity combination, part of the amount is recognised as
purchase premium/goodwill

Expenditure on IA post acquisition is expensed


IPSAS 31: Intangible Assets contd.
66








IA may be accounted for using a cost model(assets are carried at cost less
any accumulated amortisation and impairment loss) /revaluation
model(rarely used; FV at reevaluation date less any subsequent
depreciation and impairment losses)
Under revaluation model, revaluation for a class of asset is done together
& yearly
Accounting for impairment under cash or non-cash generating standards
applies
Accounting classification of IA after acquisition:





Indefinite Life: expected to produce net cash inflow over unlimited period
Finite Life: A limited period of benefit to the entity.

IA with indefinite life not amortized, but tested for impairment yearly at a
fixed time


If impairment loss recognised, entity reconsiders IA’s indefinite tenure


IPSAS 32 Service Concession
Arrangements: Grantor
67




Applies to Grantor (entity) that prepares and presents FS on actual basis
A grantor recognizes a service concession asset (SCA) if:





The grantor recognizes a liability, based on the way it compensates the operator.






It controls/regulates what services operator must provide with the asset, at what price and to
whom
It controls (through ownership, beneficial entitlement or otherwise) significant residual interest in
the asset at the end of term
Financial Liability model: The grantor compensates the operator for the construction,
development, acquisition, or upgrade of a service concession asset by issuing FIs/ a series of
payments
Grant of a right to operator model: The grantor compensates the operator by granting the
operator the right to earn revenue from third-party users of the SCA or another revenuegenerating asset. Grantor accounts this liability as unearned portion of revenue arising from
exchange of assets between grantor (SCA) and operator (intangible assets)

Treatment of Revenue & Expenses:




Financial Liability Model (allocate payment according to their substance as a reduction in
liability, a finance charge and charges for service provided by the operator)
Grant of a right to the operator model (recognizes revenue and reduces the liability
according to the economic substance of the service concession arrangements.


Chidananda Jena

Email: chidananda.jena@gmail.com; Skype/ YM: chidanandajena
Phone: +88 01789 409432; +91

Accrual ipsas

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