Ipsas training part ii differences btn ipsas and ifrs

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  • Statement of financial performance may also be referred as a statement of revenues and expenses, an income statement, an operating statement, or profit and loss statement. Notes may include items referred as schedules in some jurisdictions
  • IAS 1 prohibits an entity from presenting any item of income or expense asextraordinary items, either on the face of the income statement or in the notes.The IASB concluded that items treated as extraordinary result from thenormal business risks faced by an entity, and do not warrant presentation in aseparate component of the income statement. The nature or function of atransaction or other event, rather than its frequency, should determine itspresentation within the income statementIPSAS 1 (2000) defined extraordinary items as “revenue or expenses that arise from events ortransactions that are clearly distinct from the ordinary activities of the entity, are not expected torecur frequently or regularly and are outside the control or influence of the entity.” IAS 8 defined“extraordinary items” as “income or expenses that arise from events or transactions that are clearlydistinct from the ordinary activities of the enterprise and therefore are not expected to recurfrequently or regularly.”
  • Entities are encouraged to report cash flows from operating activities usingthe direct method. The direct method provides information that (a) may beuseful in estimating future cash flows, and (b) not available under theindirect method. Under the direct method, information about major classesof gross cash receipts and gross cash payments may be obtained either:
  • When an entity changes an accounting policy upon initialapplication of an IPSAS that does not include specific transitionalprovisions applying to that change, or changes an accounting policyvoluntarily, it shall apply the change retrospectively.
  • When an entity changes an accounting policy upon initialapplication of an IPSAS that does not include specific transitionalprovisions applying to that change, or changes an accounting policyvoluntarily, it shall apply the change retrospectively.
  • Exchange differences arising (a) on the settlement of monetary items, or(b) on translating monetary items at rates different from those at whichthey were translated on initial recognition during the period or inprevious financial statements, shall be recognized in surplus or deficit inthe period in which they arise, except as described in paragraph 37.When a gain or loss on a nonmonetary item is recognized directly in netassets/equity, any exchange component of that gain or loss shall berecognized directly in net assets/equity. Conversely, when a gain or losson a nonmonetary item is recognized in surplus or deficit, any exchangecomponent of that gain or loss shall be recognized in surplus or deficit.
  • IPSAS 8 includes a transitional provision that permits entities that adoptproportionate consolidation treatment to not eliminate all balances andtransactions between venturers, their controlled entities, and entities thatthey jointly control for reporting periods beginning on a date withinthree years following the date of adopting accrual accounting for the firsttime in accordance with IPSASs. IAS 31 does not contain transitionalprovisions.
  • A special, nonrecurring charge taken to write down an asset with an overstatedbook value. Generally an asset is considered to be value-impaired when its book valueexceeds the future net cash flows expected to be received from its use. An impairment write-downreduces an overstated book value to fair valueIdentifying an Asset That May Be ImpairedAt each balance sheet date, review all assets to look for any indication that an asset may be impaired (its carrying amount may be in excess of the greater of its net selling price and its value in use). IAS 36 has a list of external and internal indicators of impairment. If there is an indication that an asset may be impaired, then you must calculate the asset's recoverable amount. [IAS 36.9]The recoverable amounts of the following types of intangible assets should be measured annually whether or not there is any indication that it may be impaired. In some cases, the most recent detailed calculation of recoverable amount made in a preceding period may be used in the impairment test for that asset in the current period: [IAS 36.10]an intangible asset with an indefinite useful life an intangible asset not yet available for use goodwill acquired in a business combinationIndications of Impairment [IAS 36.12]External sources:market value declines negative changes in technology, markets, economy, or laws increases in market interest rates company stock price is below book value Internal sources: obsolescence or physical damage asset is part of a restructuring or held for disposal worse economic performance than expectedThese lists are not intended to be exhaustive. [IAS 36.13] Further, an indication that an asset may be impaired may indicate that the asset's useful life, depreciation method, or residual value may need to be reviewed and adjusted. [IAS 36.17]Recognition of an Impairment LossAn impairment loss should be recognised whenever recoverable amount is below carrying amount. [IAS 36.59] The impairment loss is an expense in the income statement (unless it relates to a revalued asset where the value changes are recognised directly in equity). [IAS 36.60] Adjust depreciation for future periods. [IAS 36.63Reversal of an Impairment LossSame approach as for the identification of impaired assets: assess at each balance sheet date whether there is an indication that an impairment loss may have decreased. If so, calculate recoverable amount. [IAS 36.110] No reversal for unwinding of discount. [IAS 36.116] The increased carrying amount due to reversal should not be more than what the depreciated historical cost would have been if the impairment had not been recognised. [IAS 36.117] Reversal of an impairment loss is recognised as income in the income statement. [IAS 36.119] Adjust depreciation for future periods. [IAS 36.121] Reversal of an impairment loss for goodwill is prohibited. [IAS 36.124]DisclosureDisclosure by class of assets: [IAS 36.126]impairment losses recognised in profit or loss impairment losses reversed in profit or loss which line item(s) of the statement of comprehensive income impairment losses on revalued assets recognised in other comprehensive income impairment losses on revalued assets reversed in other comprehensive income
  • Impairments occur when a company's assets lose value. If the actual fair market value of an asset decreases less than the book value of an asset, then the asset is impaired. The fair market value is the value of the asset in a transaction between unrelated parties. The book value of the asset is the amount the asset is worth on the company's financial statements. Impairments take the difference between the book value and fair market value and report the difference as an impairment lossSubtract the fair market value of the asset from the book value of the asset. If the amount is positive, then there is no impairment loss.Determine if you are going to hold on and use the asset or if you are going to dispose of the asset.Subtract the future value or present value of any future net cash flows from the book value of the asset to find impairment loss if you are going to hold onto the asset. For this type of asset, you will then write the asset down to the fair market value. Continue to depreciate the asset using the new book value; you cannot restore any of the value in the asset you wrote down.Subtract the future value or present value of any future net cash flows from the book value of the asset, then add back the cost to dispose of the asset if you are going to get rid of it. This is the total impairment loss for an asset you are disposing of. With these assets, you need to write down the asset to fair market value, you can no longer depreciate the asset. If the asset regains value above the current book value, you are able to restore the value you wrote down.


  • 1. INTERNATIONAL PUBLIC SECTORACCOUNTING STANDARDSPart II –Key SummariesDifferences between IFRSand IPSASwww.elsamconsult.comSako Mayrick -EMAC 1
  • 2. KEY IPSAS• IPSAS 1/ IAS 1 – Presentation of Financial Statements• IPSAS 2/IAS 7 - Cash Flow Statements• IPSAS 3/IAS 3 - Accounting Policies, Changes in Accounting Estimates and Errors• IPSAS 4/IAS 21 – The Effects of Changes in Foreign Exchange Rates• IPSAS 5/IAS 23 – Borrowing Costs• IPSAS 6/IAS 27 – Consolidated and Separate Financial Statements• IPSAS 7/IAS 28 – Investments in Associates• IPSAS 8/IAS 31 – Interest in Joint Ventures• IPSAS 9/IAS 18 – Revenue from Exchange Transactions• IPSAS 10/IAS 29 – Financial Reporting in Hyperinflationary Economies• IPSAS 11/IAS 11 - Construction Contracts• IPSAS 12/IAS 2 – Inventories• IPSAS 13/IAS 17 – Leases• IPSAS 14/IAS 10 – Events After the Reporting Date• IPSAS 15/ - Financial Instruments Disclosure and Presentation, superseded by IPSAS28 IPSAS 30• IPSAS 16 /IAS 40 – Investment Property• IPSAS 17 /IAS 16 - Property, Plant and EquipmentSako Mayrick 2
  • 3. KEY IPSAS• IPSAS 17 /IAS 16 - Property, Plant and Equipment• IPSAS 18/IAS 14 – Segment Reporting• IPSAS 19 / IAS 37 – Provisions, Contingent Liabilities and Contingent Assets• IPSAS 20/ IAS 24 – Related Party Disclosures• IPSAS 21 / IAS 36 – Impairment of Non – Cash – Generating Assets• IPSAS 22 / IAS NA - Disclosure of Financial Information about the GeneralGovernment Sector• IPSAS 23/IAS NA - Revenue from Non – Exchange Transactions (Taxes and Transfers)• IPSAS 24 / IAS NA - Presentation of Budget Information in Financial Statements• IPSAS 25 / IAS 19 - Employee Benefits• IPSAS 26/ IAS 36 - Impairment of Cash Generating Assets• IPSAS 27/IAS 41 – Agriculture• IPSAS 28/ IAS 32 – Financial Instruments: Presentation• IPSAS 29/ IAS 39 – Financial Instruments: Recognition and Measurement• IPSAS 30 / IFRS 7 – Financial Instruments : Disclosures• IPSAS 31/ IAS 38 -- Intangible Assets• IPSAS 32 /IFRIC 12 – Service Concession Arrangement: GrantorSako Mayrick 3
  • 4. IPSAS 1PRESENTATION OF FINANCIAL STATEMENTS• Shows the presentation of accrual based FS• Fundamental principles in preparation of FS– Going Concern Assumption– Consistency in presentation and classification– Accrual basis of accounting– Aggregation– MaterialitySako Mayrick 4
  • 5. IPSAS 1PRESENTATION OF FINANCIAL STATEMENTS• Complete set of FS in Tanzania comprises of:a. Three itemsb. Four itemsc. Six itemsd. Seven itemse. None of the aboveSako Mayrick 5
  • 6. IPSAS 1PRESENTATION OF FINANCIAL STATEMENTS• Complete set of FS comprises of:a. Three itemsb. Four itemsc. Six itemsd. Seven itemse. None of the aboveSako Mayrick 6
  • 7. IPSAS 1PRESENTATION OF FINANCIAL STATEMENTS• Complete set of FS comprises– Statement of financial position– Statement of financial performance– Statement of changes in net asset/equity– Statement of Cash flow– Directors Report– A comparison of budget and actual amounts– Notes (summary of significant policies and otherexplanatory notes)Sako Mayrick 7
  • 8. IPSAS 1PRESENTATION OF FINANCIAL STATEMENTS• Explicit statement– An entity should make an explicit and unreservedstatement of compliance to IPSAS in notes– FS do not comply to IPSAS unless it complies withall the requirements of IPSAs.– No offsetting of• Assets and liabilities• Revenue and expenses Unless permitted orrequired by IPSASSako Mayrick 8
  • 9. IPSAS 1GENERAL ISSUES• Comparative prior information should be presented forall amount shown in the FS and notes– In case presentation or classification is amended, comparativeamounts should reclassified, and the nature, amount of, andreason for any reclassification shall be disclosed– FS are generally prepared annually. Contrary a disclosure isrequired– Distinction between CA/NCA to the CL/NCL should be madeclear• The current and non-current is measured in 12 months period fromreporting date (either settlement or recovery)– The analysis of expenses in the SFP may be by• Nature or by functionSako Mayrick 9
  • 10. IPSAS 1PRESENTATIONOF BUDGET INFO• It is for users in public sector to monitorappropriations or budget authorization• Uses of resources in accordance with adoptedbudget• Use of columnar format with separatecolumns for budget amounts and actualamounts and variance• Disclosure of budgeted amounts that has beenexceed with details of the reasons thereof.Sako Mayrick 10
  • 11. IPSAS 1MINIMUM DISCLOSURE REQUIREMENTS IN NOTES• Accounting policies• The judgments that management has made in the processof applying the entity’s accounting policies that have themost significant effect on the amounts recognized in the FS• Key assumptions concerning the future, and other keysources of estimation uncertainty, that have a significantrisk of causing material adjustment to the carrying amountsof assets and liabilities within the next FY• The domicile and legal form of the entity• A description of the nature of entity’s operations• Reference to relevant legislation• The name of controlling entity and ultimate controllingentity of the economic entity• Sample FS on the Appendix to IPSAS 1Sako Mayrick 11
  • 12. IPSAS 1Other Issues• Going concern• Consistency of presentation• Materiality and Aggregation• No offsetting unless permitted by IPSAS– Revenue from exchange transaction– Gain or loss from disposal of NCA• Comparative information– When the presentation of items is amended, comparative amounts shall be re-classified unless reclassificationis impracticable.• Structure and content– Identification of financial statements separate from annual report– Each component of FS shall be identified clearly and prominently– Name of entity, economic entity, presentation currency, level of rounding• Reporting period; changes may be for realignment to budget• Timelines; FS should be issued within six months of reporting date• Directors Report is implied under Par. 149-150 of IPSAS 1• Prohibition of Extraordinary Items• Classification of expenses by function and by natureSako Mayrick 12
  • 13. How IPSAS differs from IAS 1• Different terminology– Statement of financial performance vs statement of CI– Net asset or equity while IAS 1 uses equity– Use of the term income is not in IPSAS 1 it uses revenue– IAS 1 defines IFRS to include IFRSs, IASs and SIC/IFRICinterpretations but IPSA 1 does not define IPSAS– IPSAS 1 does not explicitly preclude the presentation of itemsof revenue and expense as extraordinary items either on thefact of the SFP or in the notes. IAS 1 prohibits any items ofincome and expense to be presented as extraordinary itemseither on fact of the income statement or notes.– IPSA 1 contains transition provision allowing non disclosureof items that have been excluded from the FS due to theapplication of transition provision in another IPSAS which isnot the case in the IAS 1– Economic entity Vs Group of entitiesSako Mayrick 13
  • 14. Does xxx comply with IPSAS 1?• See the worked example 1Sako Mayrick 14
  • 15. IPSAS 2CASH FLOW STATEMENTS• Major classification in the CFS– Operating Activities (using direct (recommended) or indirect method)– Investing Activities– Financing Activities• Cash equivalents includes– Short term investment (less than three months from the date of acquisition) Readilyconvertible to known amounts cash– Exclude equity investments• The use of direct method requires entities to provide a reconciliation of the surplus/deficitfrom ordinary activities with the net cash flows from operating activities• CF from interest and dividends received and paid shall be disclosed separately andclassified either operating, investing or financing activities• CF from taxes on net surplus are classified as operating unless they can be specificallyidentified within the F or I activities.• Exchange rate for foreign denominated currency translation shall be the rate in effect atthe date of cash flows• Cash flows from acquisition and disposal of controlled entities and other operating unitsshall be presented separately and classified as investing activities with separate disclosure.• Illustration of CFS is shown on appendices to IPSAS 2 ( SEE ALSO TRAINING NOTES 2)Sako Mayrick 15
  • 16. IPSAS 2CASH FLOW STATEMENTSDoes xxxx comply with IPSAS 2?Sako Mayrick 16
  • 17. How does IPSAS 2 differ from IAS 7• Use of terms revenue, statement of financialperformance and net assets/equity VsIncome, Income Statement and Equity• IPSAS 2 allows either the direct and indirectmethod to be used. Where a direct methodis used disclosure of reconciliation forsurplus or deficit to operating CF is requiredin notesSako Mayrick 17
  • 18. IPSAS 3ACCOUNTING POLICIES, CHANGES IN ACCOUNTINGPOLICIES AND ERRORS• IPSAS are authoritative policy statements• In absence of IPSA, the use of judgment in developing and applying accounting policy for– Relevant information for decision making needs of users– Reliable, in that the financial statements• Represents faithfully the financial position, financial performance and cash flows of an entity• Reflect economic substance of the transactions, other events and conditions and note merely the legalform• Are neutral• Are prudent and ; complete in all material aspects– In absence of IPSAS management may consider most recent pronouncements of other standardsetting bodies, and acceptable public and private sector practices.• Consistency application of accounting policy, change only when it is required by IPSAS• All material prior period errors shall be corrected retrospectively in the first set offinancial statements authorized for issue after their discovery, by restating comparativeprior period amounts, or if the error occur before the earliest period presented, byrestating the opening SFP.• A change from one basis of accounting to another basis of accounting is a change inaccounting policy Sako Mayrick 18
  • 19. IPSAS 3• When an entity changes an accounting policy upon initial application of an IPSAS thatdoes not include specific transitional provisions applying to that change, or changes anaccounting policy voluntarily, it shall apply the change retrospectively.• when a change in accounting policy is applied retrospectively in accordance withparagraph above, the entity shall adjust the opening balance of each affected componentof net assets/equity for the earliest period presented, and the other comparativeamounts disclosed for each prior period presented as if the new accounting policy hadalways been applied• When it is impracticable to determine the period-specific effects of changing anaccounting policy on comparative information for one or more prior periods presented,the entity shall apply the new accounting policy to the carrying amounts of assets andliabilities as at the beginning of the earliest period for which retrospective application ispracticable, which may be the current period, and shall make a correspondingadjustment to the opening balance of each affected component of net assets/equity forthat period.• When an entity applies a new accounting policy retrospectively, it applies the newaccounting policy to comparative information for prior periods as far back as ispracticable.• Usually the adjustment is made to accumulated surpluses or deficits• Any other information about prior periods, such as historical summaries of financial data,is also Sako Mayrick 19
  • 20. IPSAS 3• On initial application of IPSAS which has effect oncurrent period or prior period; entity shall disclosea. Title of the standardb. Change in accounting policy and reason for decisionc. Nature of change in accounting policyd. Description of the transitional provisionse. Effects of transitional provisions on future periods ( ifapplicable)f. Amount of adjustment requiredg. FS of the subsequent periods need not to repeat thesedisclosuresSako Mayrick 20
  • 21. IPSAS 3CHANGES OF ACCOUNTING ESTIMATES• Is a result of uncertainties during reporting period• It involves judgment based on available, latestinformation e. g. Tax revenue due to government, Baddebts arising from uncollected taxes, inventoryobsolescence, fair value of financial assets and financialliabilities• Revision of an estimate does not relate to prior periodsand is not correction of an error• This is not change in accounting policy• The change shall be recognized by adjusting thecarrying amount of the related asset, liability, or netasset in the period of changeSako Mayrick 21
  • 22. IPSAS 3ERRORS• It arises in respect of the recognition,measurement, presentation or disclosure ofelements of financial statements• Entity must correct material prior perioderrors retrospectively in the first set of FSauthorized for issue by– Restating the comparative amounts for priorperiodSako Mayrick 22
  • 23. How is IPSAS 3 different from IAS 8?• Different terminologies; statement of financialperformance, accumulated surplus or deficitand net assets/equity Vs. Income statement,retained earnings and equity in IFRS• Use of term income Vs. Revenue in IPSASSako Mayrick 23
  • 24. IPSAS 4THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES• Covers– Foreign currency transactions and– Foreign operations• The reporting entity’s functional currency should be properlyidentified based on primary economic environment• Translation should be done for foreign currency items intofunctional currency– Initial recognition and measurement record the spot exchange rate– Subsequent reporting dates• Monetary items use the closing rate• Non monetary items use the transaction date exchange rates that are carried at historicalcosts• Non monetary items that are carried at fair value use the valuation date exchange rates– Exchange differences arising from settlement and translation of monetary items at adifferent rate should be included in surplus or deficit,• Exception: for consolidated financial statement with foreign operation, the differences willbe recognized in the surplus or deficit on disposal of net investment.Sako Mayrick 24
  • 25. IPSAS 4THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES• The results and financial position of an entity’sforeign operations for non hyperinflationaryeconomy are translated into presentation currencyby– Assets and Liabilities are translated at the closing date ofthe SFP– Revenue and Expenses of each SFP are translated at thedate of transaction– Resulting exchange difference are recognized as separatecomponent of net asset or equitySako Mayrick 25
  • 26. How does IPSAS 4 differ from IAS 21• IPSAS contains an additional transitionalarrangement allowing an entity, when firstadopting IPSASs, to deem cumulativetranslational differences existing at the date offirst adoption of accrual IPSASs to Zero as in IFRS• Different terminology e.g. revenue, economicentity, statement of financial performance andnet assets/equity in IPSAS Vs. Income, group,statement of comprehensive income and equityin IFRSSako Mayrick 26
  • 27. IPSAS 5BORROWING COSTS• The costs includes– Interests, amortization of discounts or premiums on borrowing andamortization of ancillary costs incurred in the arrangement of borrowings• Accounting treatment– Expense model – charge all the borrowing costs to expenses in the periodincurred– Capitalization model – capitalize borrowing costs which are directlyattributable to the acquisition or construction of a qualifying asset• It should be probable that the costs will result in future economic benefit or servicepotential to the entity and costs can be measured reliably• The model should be applied consistently to all borrowing costs that are directlyattributable to acquisition, construction or production of all qualifying assets of theentity. Investment income from temporary investment should be deducted from theactual borrowing costs• Qualifying asset is an asset which requires a substantial period of time to make itready for its intended use or sale. Examples include office buildings, hospitals,infrastructure assets such as roads, bridges and power generation facilities and someinventories• Capitalization rate (Weighted average of borrowing costs ) should be used if funds areborrowed generally and used for the purpose of obtaining qualifying assetsSako Mayrick 27
  • 28. IPSAS 6CONSOLIDATED AND SEPARATE FS• Consolidated FS must include all controlled entities except– If the control is temporary because the controlled entity is acquired and held exclusively with aview to its subsequent disposal within 12 from acquisition– Management is actively seeking a buyer• Controlled entity is an entity controlled by another entity, known as controlling entity even if theactivities are dissimilar.• Control is the power to govern the operating and financial policies• Balances, transactions, revenue and expenses between entities within the economic entity areeliminated in full• Consolidated financial statements shall be prepared using uniform accounting policies for liketransactions and other events in similar circumstances• Same reporting date within three months maximum range• NCI is reported in net asset/equity in Consolidated SFP, separately from the controlling entity’s netassets/equity and is not deducted in measuring the economic entity’s revenue or expense• Surplus or deficit of the economic entity is allocated between minority and majority interest on theface of the statement of financial performance.• In the controlling entity’s separate financial statements: account for all its investments in controllingentities, associates and joint ventures either using the equity method, at cost or as financialinstrument.– Under the equity method, subsidiaries‟ net assets (A-L) collapse into one line usually called„investment‟.– Equity method is often called “one line consolidation”Sako Mayrick 28
  • 29. IPSAS 7INVESTMENT IN ASSOCIATES• Caters for all investment where investor has significant influence– Exception• Venture capital organizations• Mutual fund or unit trust or similar entity, such as investment linkedinsurance fund that is measured at fair value• The investment shall be classified as held for sell if its is acquired exclusively witha view to its disposal within twelve months from acquisition and thatmanagement is actively seeking a buyer and accounted differently• Equity method is used for all investments in associates over which the entity hassignificant influence ( Rebuttable presumption of significant influence if it is morethan 20% of voting power)– The investment is initially recorded at costs and subsequently adjusted bythe investor’s share of the investee’s post acquisition change in netassets/equity.– Investors’ statement of financial performance reflects its share in theinvestee’s post-acquisition surplus or deficit• Investor’s FS shall be prepared using uniform accounting policies for liketransactions and events in similar circumstancesSako Mayrick 29
  • 30. IPSAS 8INTEREST IN JOINT VENTURES• JV is a binding arrangement ( IAS 31 uses contractualarrangement) whereby two or more parties arecommitted to undertake an activity that is subject tojoint control• Applicable to all investments which investor has jointcontrol– Exception• Venture capital organization• Mutual fund, trust or similar entity, such as an investment-linkedinsurance fund that is insured at fair value– It can be jointly controlled operations, jointly controlledassets and jointly controlled entities. Each has differentaccounting treatments Sako Mayrick 30
  • 31. IPSAS 8INTEREST IN JOINT VENTURES• Jointly controlled operations– Venturer recognize the assets it controls and expenses and liabilities it incurs, andits share of revenue earned, in both its separate and consolidated FS• Jointly controlled assets– Venturer recognize in its FS its share of jointly controlled assets any liabilities thatit has incurred and its share of any liabilities incurred jointly with other venturer,revenue earned from the sale or use of its share of output of the joint venture, itsshare of expenses incurred by joint venture and expenses incurred directly inrespect of its interest in the joint venture.• Jointly controlled entities– It permits two accounting policies• Proportionate consolidated: under this method, the ventures SFP includes itsshare of the assets that it controls jointly and its share of liabilities for whichit is jointly responsible. Its SFP includes its share of revenue and expenses ofthe jointly controlled entity• Equity method as described in IPSAS 7Sako Mayrick 31
  • 32. IPSAS 9REVENUE FROM EXCHANGE TRANSACTIONS• The exchange transactions includes thefollowing events– Rendering of services– Sale of goods; and– The use of other entity assets yielding interest,royalties or dividends• Revenue shall be measured at fair value of theconsideration received or receivableSako Mayrick 32
  • 33. IPSAS 9REVENUE FROM EXCHANGE TRANSACTIONS• Recognition– Sale of goods• When significant risks and rewards have been transferred to purchaser, loss ofeffective control by the seller, amount of revenue can be reliably measured; itis likely that the economic benefits or services potential associated with thetransaction will flow to the entity, and the costs incurred or to be incurred canbe measured reliably– Rendering of service• Stage of completion of transaction at the reporting date, provided outcomecan be estimated reliably, if not then recognize only to the extent of expensesthat are recoverable– Interest (on time proportion based on effective yield on the assets),royalties (substance of relevant agreement) and dividends ( whenshareholders right to receive payment is established)• When it is probable that the economic benefits or services potential will flowto the entity and amount of revenue can be measured reliablySako Mayrick 33
  • 34. IPSAS 10FR IN HYPEINFLATIONARY ECONOMIES• FS of an entity that reports in the currency of a hyper-inflationary economy shall be stated in terms of themeasuring unit current at the reporting date.• Comparative figures for prior periods shall be stated inthe same measuring unit currency at reporting date• Surplus or deficit on the net monetary position shall beseparately disclosed in the SFP• For Public Sector entities, the budgetary informationshall also be restated into the same current measuringunit• The economy is hyperinflationary when there is a 100%cumulative rate of inflation over 3 yearsSako Mayrick 34
  • 35. IPSAS 11CONSTRUCTION CONTRACTS• It deals with FS of the contractor– Contract revenue shall comprise of• Initial amount agreed in the contract;• Variations in the contract work;• Claims;• Incentive payments; to the extent which the result ofrevenue can be measured reliably.– Contract revenue is measured at fair value ofconsideration received or receivable– Contract cost shall comprise of costs directly relatedto specific contract, and are allocated to contract onsystematic and rational basisSako Mayrick 35
  • 36. IPSAS 12INVENTORIES• Covers– Cost determination, expense recognition, write-down to theNRV– Guidance on the cost formula that are used to assign costs toinventories• Inventories are measured at– Lower of COST and NRV ( for exchange transactions)– If they are acquire through a non-exchange transaction, the costshall be measured at their fair value as at the date ofacquisition.– Lower of cost and current replacement costs if they are held for• Distribution at no charge or a nominal charge; or• Consumption in the production process of goods to be distributed atno charge or for nominal chargeSako Mayrick 36
  • 37. IPSAS 12INVENTORIES• The costs includes; purchase costs, conversion cost ( material, labor andoverhead) and other costs to bring the inventory into its present location andcondition, but not foreign exchange differences and selling costs• An entity shall apply the same cost formula for all inventories having similarnature and use to the entity• For interchangeable items, cost is determined either by– FIFO or Weighted average basis, LIFO is not permitted• For inventories with different nature and use, different cost formulas may bejustified• When the inventory is sold, exchanged or distributed, the carrying amountshall be recognized as an expense in the period in which the related revenueis recognized. If there is no related revenue, the expense is recognized whengoods are distributed or related services have been rendered• Write down to NRV are recognized as an expense in the period the loss or thewrite down occurs. Reversals arising from the increase in NRV are recognizedas reduction of inventory expense in the period in which they occur.Sako Mayrick 37
  • 38. IPSAS 13LEASES• Scope– Explains appropriate accounting policies and disclosures toapply in relation to finance and operating leases• There are two types of leases– Finance lease – it transfers substantially all risks andrewards incidental to ownership of an asset. The title mayor may not be eventually transferred• Eg. It covers substantially all the asset’s life or present value oflease payment is substantially equal to the assets fair value– Operating lease• The land and building element of the lease of land and buildingsare considered separately for purpose of lease classificationSako Mayrick 38
  • 39. IPSAS 13LEASES• Finance leases – lessee’s Accounting:– Assets and liabilities are recognized at lower ofpresent value of minimum lease payments andthe fair value of the assets, determined atinception of the lease. Discount rate shall beinterest rate implicit in the lease or theincremental borrowing rate– Depreciation policy is as for owned assets– Finance lease payment – apportioned betweeninterest and reduction in outstanding liabilitySako Mayrick 39
  • 40. IPSAS 13LEASES• Finance Leases - Lessor’s Accounting– An amount equal to the net investment in lease is recognized as a receivable in the SFP– Finance revenue is recognized based on a pattern reflecting a constant periodic rate of returnon the lessor’s net investment• Operating leases – lessee’s Accounting– Lease payments are recognized as an expense in the SFPerformance on the straight line basisover the lease term• Operating leases – lessor’s accounting– Assets held for operating leases shall be presented in the statement of financial positionaccording to the nature of assets– Lease revenue shall be recognized on a straight line basis over the lease term• Lessors of operating leases shall add initial direct costs incurred in negotiatingand arranging an operating lease to the carrying amount of the leased asset andrecognize them as an expense over the lease term on the same basis as thelease revenue• Sale and leaseback transaction will depend on whether these are essentiallyfinance or operating leases. Sako Mayrick 40
  • 41. IPSAS 14EVENTS AFTER THE REPORTING DATE• Scope– Describes as to when an entity shall adjust its FS for eventsafter the reporting date– Disclosure to give when the FS were authorized for issue,and about events after reporting date• EARD are favorable and unfavorable events thatoccur between the reporting date and the date whenthe FS are authorized for issue.• There are two types– Adjusting events– Non adjusting eventsSako Mayrick 41
  • 42. IPSAS 14EVENTS AFTER THE REPORTING DATE• Adjusting events are those that provide evidence of conditions that existed at the reporting date – adjust the FS toreflect those events that provide evidence of condition that existed at the reporting date e.g. settlement of courtcase after reporting date, that confirms that the entity had an obligation at reporting date)• Non-adjusting events are those that are indicative of the conditions that arose after the reporting date but do notadjust the FS to reflect the events that arose after the reporting date e.g. decline in fair value of property after yearend, which does not change the valuation of property at the reporting date)• Dividend proposed or declared after the reporting date shall not be recognized as a liability at the reporting date.Disclosure is required• An entity should not prepare its FS on the going concern basis if events after the reporting date indicate that thegoing concern assumption is not appropriate ( e.g. if there is an intention to liquidate the entity or ceaseoperations after reporting date, or that there is no realistic alternative to do so)• The entity shall disclose the date its FS were authorized for issue and who gave that authorization. If another bodyhas the power to amend the FS after issuance, the entity shall disclose the fact• If an entity obtains information after the reporting date, but before the FS are authorized for issue, aboutconditions that existed at the reporting date, the entity shall update disclosures that relate to these conditions inthe light of the new information• An entity shall disclose the following for each material category of non adjusting event after the reporting date– The nature of the event and– An estimate of its financial effect, or a statement that such an estimate cannot be madeSako Mayrick 42
  • 43. IPSAS 16INVESTMENT PROPERTY• Scope– Accounting treatment of IP and related disclosures• IP is a land or buildings held (whether by the owneror under a finance lease) to earn rentals or for capitalappreciation or both, rather than for– Use in the production or supply of goods orservices or for administrative purposes– Sale in the ordinary course of operationsSako Mayrick 43
  • 44. IPSAS 16INVESTMENT PROPERTY• Recognition of IP– Only if the future economic benefit or service potential associated with the investmentproperty will flow to the entity– The cost or fair value of the IP can be measured reliably• Measurement– Initially at cost including the transaction costs; if it has been acquired through nonexchange transaction than at its fair value at the date of acquisition– Afterwards use either of two models• Fair value model; IP is measured at fair value and changes in FV are recognized insurplus or deficit for the period in which it arises• Cost model; investment property is measured at depreciated costs less anyaccumulated impairment losses. FV of the investment property shall still bediscolsed.– A chosen measurement model shall be applied to all the entity’s investment property– If an entity uses the FV model, but when a particular property is acquired, there is clearevidence that the entity will not be able to determine FV on continuing basis, the costmodel is used for that property – and it shall continue to be used until disposal of thatproperty. In that case,the residual value of the investment property shall be assumedzero– Change from one model to another shall be made only if the change will result in a moreappropriate presentation ( highly unlikely for change from FV to cost model)Sako Mayrick 44
  • 45. IPSAS 17PROPERTY, PLANT AND EQUIPMENT• Scope– Explains principles for initial recognition and subsequent accounting (Carrying Amounts anddepreciation charges and impairment losses)• Recognition– PPE shall be recognized as assets if, it is probable that the future economic benefit orservice potential associated with the item will flow to the entity, and the cost or FV of theitem can be measured reliably– Heritage assets are optional for IPSAS 17– IPSAS 17 also covers other assets such as Military equipment, infrastructure assets e.g. roadnetworks, sewer systems and communication networks– Initial recognition is done at cost which includes costs necessary to get the assets ready forits intended use. For non exchange assets, its cost is its fair value as at the date ofacquisition. If payment is deferred, interest shall be recognized– Subsequent to acquisition, there are two accounting model for the entire class of PPE• Cost model: the asset is carried at cost less depreciation and impairment losses• Revaluation model: the asset is carried at revalued amount, which is fair value atrevaluation date less subsequent depreciation and impairment lossesSako Mayrick 45
  • 46. IPSAS 17PROPERTY, PLANT AND EQUIPMENT• Revaluation Model– Revaluations shall be carried out regularly. All items of a given classshall be revalued. Revaluation increases shall be credited directly torevaluation surplus.– Increases shall be recognized as revenue in surplus or deficit to theextent that it reverses a revaluation decreases of the same class ofasset previously recognized as an expense in the surplus or deficit.– Decreases are debited first against the revaluation surplus relatedto the same class of assets, and any excess against surplus ordeficit.– When the asset is disposed off, the revaluation surplus istransferred directly to accumulated surpluses or deficits and is notrecycled through surplus or deficit.Sako Mayrick 46
  • 47. IPSAS 17PROPERTY, PLANT AND EQUIPMENT• Each part of PPE that is significant in relation to the total cost of anitem shall be depreciated separately• Depreciation is charged systematically over the asset’s useful life. Itmust reflect the pattern in which the asset’s future economic benefitsor service potential is expected to be consumed by the entity.• The residual value must be reviewed must be reviewed at leastannually and shall equal the amount the entity would receivecurrently if the assets were already of the age and condition expecteda the end of its useful life.• If operation of an item of PPE (e.g. aircraft) requires regular majorinspections, when each major inspections is performed, its cost isrecognized in the carrying amount of the asset as a replacement, ifthe recognition criteria are satisfied.Sako Mayrick 47
  • 48. IPSAS 17PROPERTY, PLANT AND EQUIPMENT• Land and buildings are separable assets and are accounted separately, even when they areacquired together. Land has normally unlimited useful life, and therefore is not depreciated• To determine whether an item of PPE is impaired, the entity applies IPSAS 21 or IPSAS 26 asappropriate• All exchange of PPE shall be measured at FV, including exchanges of similar items, unlessthe exchange transaction lack commercial substance or the fair value of neither the assetreceived nor the asset given up is reliably measurable• The carrying amount of item of PPE must be derecognized– On disposal, or– When no future economic benefit or service potential is expected from its use or disposal• The gains of disposal shall be included in surplus or deficit and shall not be classified asrevenue.• IPSAS 17 contains transitional provisions allowing entities not to recognize PPE for reportingperiods beginning on the date within five years following the date of first adoption ofaccrual accounting in accordance with IPSAS• The transitional provisions allows entities to recognize the PPE at cost or fair value on firstadopting of the standardSako Mayrick 48
  • 49. DETAILED EXAMPLE• PPE (send request fromwww.elsamconsult.com)Sako Mayrick 49
  • 50. Review of xxxx Financials• Request for appendix 1 atwww.elsamconsult.comSako Mayrick 50