The public Sector

Accounting Standards

Lecture 5 Toncan T Eli

Learning 1. Explain the public sector accounting
Objectives standard

2. Outline content of public sector accounting

standard

3. Explain the importance of public sector

accounting standards
 LO1:

• Public sector accounting standards are a set of guidelines and

rules that govern how financial transactions and reporting are
conducted within governmental entities, such as local
governments, state governments, and public sector agencies.

These standards are essential for ensuring transparency,

accountability, and comparability of financial information across
different governmental bodies.
Here are some key aspects of public sector accounting standards:

1. Accrual Basis Accounting: Most public sector accounting standards

are based on accrual basis accounting, where transactions are
recorded when they occur, regardless of when the cash is
exchanged. This method provides a more accurate representation
of the financial position and performance of government entities
over time.

2. Fund Accounting: Public sector entities often use fund accounting

to track resources for specific purposes or activities. Each fund has
its own set of accounts and financial statements, allowing for better
control and reporting of restricted or designated funds.
3. Budgetary Control: Public sector accounting standards typically
incorporate budgetary control mechanisms to ensure that actual
financial activities align with approved budgets. This helps in
monitoring spending, revenue collection, and compliance with
legislative appropriations.

4. Transparency and Accountability: These standards emphasize

transparency and accountability in financial reporting. Governments
are required to disclose relevant financial information to
stakeholders, such as taxpayers, bondholders, and oversight
agencies, to enable informed decision-making and promote trust in
the use of public funds.
5. International Standards: Many countries adopt international public
sector accounting standards (IPSAS) issued by the International
Public Sector Accounting Standards Board (IPSASB). IPSASB
develops and maintains standards that are tailored to the unique
needs and characteristics of the public sector, facilitating
consistency and comparability of financial reporting globally.

6. Asset Management: Public sector accounting standards provide

guidance on the recognition, measurement, and disclosure of
assets, including infrastructure, property, plant, and equipment.
Proper management of assets ensures their efficient use and
preservation for future generations.
7. Liability Management: Governments also have various liabilities,
such as debt obligations, pensions, and environmental cleanup
costs. Public sector accounting standards outline how these
liabilities should be recognized, measured, and disclosed in financial
statements to provide a comprehensive view of the government’s
financial position.

8. Financial Reporting: Public sector entities are required to prepare

and publish financial statements in accordance with prescribed
formats and disclosures. These statements typically include the
statement of financial position, statement of financial performance,
statement of cash flows, and notes to the financial statements .
 LO2:

Content of Public
Sector Accounting
Standard
IPSAS 1 Presentation of Financial Statements

To set out the manner in which general-purpose financial

statements shall be prepared under the accrual basis of accounting,
including guidance for their structure and the minimum
requirements for content.

IPSAS 2 Cash Flow Statements

To require the presentation of information about historical changes

in a public sector entity’s cash and cash equivalents by means of a
cash flow statement that classifies cash flows during the period
according to operating, investing, and financing activities.
IPSAS 3 Accounting Policies, Changes in Accounting
Estimates and Errors

To prescribe the criteria for selecting and changing accounting

policies, together with the accounting treatment and disclosure of
changes in accounting policies, changes in accounting estimates,
and corrections of errors.
IPSAS 4 The Effects of Changes in Foreign Exchange Rates

To prescribe the accounting treatment for an entity’s foreign

currency transactions and foreign operations.
IPSAS 5 Borrowing Costs.

To prescribe the accounting treatment for borrowing costs.

IPSAS 9 Revenue from Exchange Transactions

To prescribe the accounting treatment for revenue arising from
exchange transactions and events.

IPSAS 10 Financial Reporting in Hyperinflationary Economies

To prescribe specific standards for entities reporting in the currency
of a hyperinflationary economy, so that the financial information
(including the consolidated financial information) provided is
meaningful.
IPSAS 11 Construction Contracts

To prescribe the accounting treatment for revenue and costs

associated with construction contracts in the financial statements of
the contractor

IPSAS 12 Inventories

To prescribe the accounting treatment of inventories, including cost

determination and expense recognition, including any write-down
to net realisable value. It also provides guidance on the cost
formulas that are used to assign costs to inventories.
IPSAS 13 Leases

To prescribe, for lessees and lessors, the appropriate accounting

policies and disclosures to apply in relation to finance and operating
leases.

IPSAS 14 Events After the Reporting Date

To prescribe:
• When an entity shall adjust its financial statements for events
after the reporting date

• Disclosures that an entity should give about the date when the
financial statements were authorized for issue, and about events
after the reporting date
IPSAS 16 Investment Property
To prescribe the accounting treatment for investment property and
related disclosures

IPSAS 17 Property, Plant and Equipment

To prescribe the principles for the initial recognition and subsequent
accounting (determination carrying amount and the depreciation
charges and impairment losses) for property, plant and equipment
so that users of financial statements can discern information about
an entity’s investment in its property, plant and equipment and the
changes in such investment.
IPSAS 18 Segment Reporting

To establish principles for reporting financial information by

segments to better understand the entity’s past performance and to
identify the resources allocated to support the major activities of the
entity, and enhance the transparency of financial reporting and
enable the entity to better discharge its accountability obligations.
IPSAS 19 Provisions, Contingent Liabilities and Contingent
Assets
To prescribe appropriate recognition criteria and measurement
bases for provisions, contingent liabilities and contingent assets,
and to ensure that sufficient information is disclosed in the notes to
the financial statements to enable users to understand their nature,
timing, and amount. IPSAS 19 thus aims to ensure that only
genuine obligations are dealt within the financial statements.
Planned future expenditure, even where authorized by
management, is excluded from recognition, as are accruals for self-
insured losses, general uncertainties, and other events that have not
yet taken place.
IPSAS 20 Related Party Disclosures

To ensure that financial statements disclose the existence of related-

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

IPSAS 21 Impairment of Non-Cash-Generating Assets

To ensure that noncash-generating assets are carried at no more
than their recoverable service amount, and to prescribe how
recoverable service amount is calculated.
IPSAS 22 Disclosure of Financial Information About the
General Government Sector

To prescribe disclosure requirements for governments which elect

to present information about the GGS in their consolidated financial
statements. The disclosure of appropriate information about the
GGS of a government can provide a better understanding of the
relationship between the market and nonmarket activities of the
government and between financial statements and statistical bases
of financial reporting.
IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and
Transfers)
To prescribe requirements for the financial reporting of revenue
arising from non-exchange transactions, other than non-exchange
transactions that give rise to an entity combination.

IPSAS 24 Presentation of Budget Information in Financial

Statements
To ensure that public sector entities discharge their accountability
obligations and enhance the transparency of their financial statements
by demonstrating compliance with the approved budget for which
they are held publicly accountable and, where the budget and the
financial statements are prepared on the same basis, their financial
performance in achieving the budgeted results.
IPSAS 25 Employee Benefits
To prescribe the accounting and disclosure for employee benefits,
including short-term benefits (wages, annual leave, sick leave,
bonuses, profit-sharing and nonmonetary benefits); pensions; post-
employment life insurance and medical benefits; termination
benefits, and other long-term employee benefits (long-service leave,
disability, deferred compensation, and bonuses and long-term
profit-sharing), except for share-based transactions and employee
retirement benefit plans
IPSAS 26 Impairment of Cash-Generating Assets

To prescribe the procedures that an entity applies to determine

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

IPSAS 27 Agriculture

To prescribe the accounting treatment and disclosures for

agricultural activity.
IPSAS 28 Financial Instruments: Presentation
To prescribe principles for classifying and presenting financial
instruments as liabilities or net assets/equity, and for offsetting financial
assets and liabilities.

IPSAS 29 Financial Instruments: Recognition and Measurement

To establish principles for recognizing, derecognizing, and measuring
financial assets and financial liabilities

IPSAS 30 Financial Instruments: Disclosures

To prescribe disclosures that enable financial statement users to evaluate
the significance of financial instruments to an entity, the nature and
extent of their risks, and how the entity manages those risks.
IPSAS 31 Intangible Assets
To prescribe the accounting treatment for intangible assets that are not
dealt with specifically in another IPSAS.

IPSAS 32 Service Concession Arrangements: Grantor

To prescribe the accounting for service concession arrangements by the
grantor, a public sector entity.

IPSAS 33 — First-time Adoption of Accrual Basis IPSASs

To provide guidance to a first-time adopter that prepares and presents
financial statements following the adoption of accrual basis IPSASs.

IPSAS 34 — Separate Financial Statements

To prescribe how to account for investments in controlled entities, joint
ventures and associates in separate financial statements
IPSAS 35 — Consolidated Financial Statements
To establish principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more
other entities

IPSAS 36 — Investments in Associates and Joint Ventures

To prescribe the accounting for investments in associates and joint
ventures and to set out the requirements for the application of the
equity method when accounting for investments in associates and
joint ventures.
IPSAS 37 — Joint Arrangements
To introduce new accounting requirements for joint arrangements,
replacing IPSAS 8 Interests in Joint Ventures. The option to apply the
proportional consolidation method when accounting for jointly
controlled entities is removed. Additionally, IPSAS 37 eliminates jointly
controlled assets to now only differentiate between joint operations and
joint ventures.

IPSAS 38 — Disclosure of Interests in Other Entities

To require information to be disclosed in an entity’s financial statements
that will enable users of those statements to evaluate the nature of, and
risks associated with, the entity’s interests in controlled entities,
unconsolidated controlled entities, joint arrangements and associates,
and structured entities that are not consolidated, and the effects of those
interests on its financial position, financial performance and cash flows
IPSAS 39 — Employee Benefits
To prescribe the accounting and disclosure for employee benefits,
including short-term benefits (wages, annual leave, sick leave,
bonuses, profit-sharing and nonmonetary benefits); pensions; post-
employment life insurance and medical benefits; termination
benefits, and other long-term employee benefits (long-service leave,
disability, deferred compensation, and bonuses and long-term
profit-sharing), except for share-based transactions and employee
retirement benefit plans.

IPSAS 40 — Public Sector Combinations

To establish requirements for classifying, recognizing and
measuring public sector combinations
IPSAS 41 — Financial Instruments
Sets out requirements for recognition and measurement of financial
instruments, including impairment, derecognition and general
hedge accounting.

PSAS 42 — Social Benefits

To help users of the financial statements and general purpose
financial reports assess the nature of social benefits provided by the
entity, the features of the operation of social benefit schemes; and
the impact of social benefits on the entity’s financial performance,
financial position and cash flows.
 LO3:

The importance of Public Sector

Accounting Standard
Public sector accounting standards play a crucial role in ensuring
transparency, accountability, and effective financial management
within governmental entities. Here are several reasons why these
standards are important:

1. Transparency: Public sector accounting standards require

governments to disclose financial information in a clear,
consistent, and understandable manner. This transparency
enables stakeholders, including taxpayers, citizens, investors,
and oversight agencies, to access reliable information about
the government's financial position, performance, and use of
public funds.
2. Accountability: By adhering to accounting standards,
governments are held accountable for their financial decisions and
actions. Standards help identify who is responsible for managing
public resources and ensure that these resources are used
efficiently, effectively, and in accordance with legal and regulatory
requirements.
3. Decision-making: Reliable financial information provided through
public sector accounting standards facilitates informed decision-
making by policymakers, government officials, and other
stakeholders. It helps them assess the financial health of
governmental entities, evaluate the impact of policy decisions,
and allocate resources to priority areas based on evidence and
financial constraints.
4. Budgeting and Planning: Accounting standards support
the budgeting process by providing guidance on how to
prepare, present, and monitor budgets effectively. By
aligning budgetary control mechanisms with accounting
principles, governments can better manage revenues,
expenditures, and cash flows to achieve their strategic
objectives and fiscal sustainability.
5. Credibility and Trust: Adherence to accounting standards
enhances the credibility and trustworthiness of governmental
financial reports. When stakeholders have confidence in the
accuracy, completeness, and reliability of financial information,
they are more likely to trust the government's stewardship of
public funds and support its initiatives.

6. Comparability: Standardized accounting practices enable

comparability of financial information across different
governmental entities, jurisdictions, and time periods. This
comparability facilitates benchmarking, trend analysis, and
performance evaluation, helping identify areas for improvement
and best practices in financial management.
7. Compliance and Regulation: Public sector accounting standards
provide a framework for compliance with legal and regulatory
requirements related to financial reporting and management.
Governments must adhere to these standards to fulfill their
obligations to stakeholders, regulatory authorities, and funding
agencies.
8. Efficiency and Effectiveness: By promoting sound financial
management practices, accounting standards help governments
operate more efficiently and effectively. They encourage the
adoption of best practices in budgeting, accounting, internal
controls, and risk management, leading to better use of resources
and improved service delivery to citizens.
9. International Comparisons: Many countries adopt
international public sector accounting standards (IPSAS) to
facilitate international comparisons of governmental financial
performance and practices. Consistency in reporting
standards enhances the credibility of cross-border financial
analysis, promotes collaboration among countries, and
supports international development initiatives.
Overall, public sector accounting standards are essential for
promoting good governance, enhancing public trust, and
achieving financial sustainability in governmental entities. They
provide a framework for transparency, accountability, and
responsible financial management, ultimately contributing to the
effective functioning of democratic societies and the well-being
of citizens.
 End

Thank you

Toncan T Eli
[email protected]
https://www.sinu.edu.sb