MODULE 8 - ananelearning.org Public Sector Accounting Standards (IPSAS) are high quality ... Comparison with corresponding IAS (if applicable). Features of IPSAS:

MODULE 8

INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS)

OUTLINES • Introduction to IPSAS.

• Structure/Organization of IPSAS.

• Financial Reporting Council, Nigeria (IPSAS Content).

• Principles/Concept/Policies.

• Analysis of IPSAS Issued (IPSAS 1 –

IPSAS 38).

• Presentation of Financial Statements

IAS 1.

• Income Statement.

OUTLINES • Introduction to IPSAS.

• Structure/Organization of IPSAS.

• Financial Reporting Council, Nigeria (IPSAS Content).

• Principles/Concept/Policies.

• Analysis of IPSAS Issued (IPSAS 1 –

IPSAS 38).

• Presentation of Financial Statements

IAS 1.

• Income Statement.

Introduction to IPSAS.

Globalization of financial transactions requires a unified global accounting, reporting and disclosure of uniform standards. As a result of increasing volume of cross border capital flows and the growing number of foreign direct investments era, the need for the harmonization of different practices in accounting and the acceptance of worldwide standards has arisen. This has led to adoption of the International Public Sector Accounting Standards (IPSAS) in countries across the globe.

The transition from what it used to be in various countries to the adoption of accounting standards that requires qualitative, transparent and comparable information is a step in the right direction and a welcome development by investors, creditors, financial analysts, and other users of financial statements. The absence of a common set of accounting and financial reporting standards makes it difficult to compare financial information prepared by entities located in different parts of the world.

The Adoption of International Public Sector Accounting Standards (IPSAS) would change the way and manner in which financial statements are prepared, reported or presented.

Introduction to IPSAS. cont,

Meaning of IPSAS International Public Sector Accounting Standards (IPSAS) are high quality

global financial reporting standards for application by public sector entities other than Government Business Enterprises (GBEs).

IPSASs set out;

i. Recognition

ii. Measurement

iii. Presentation and disclosure requirements.

IPSASs deals with transactions and events in general purpose financial statements. The standards are designed to apply to general purpose financial statements for all public entities.

Several IPSAS on the accrual basis are based on IFRSs but adapted to the public sector context where appropriate.

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

Structure/Organization IPSAS. IPSASs follow a standardized structure as stipulated below: i. Introduction ii. Objective (of the specific IPSAS) iii. Scope iv. Definitions v. Accounting policies (main part of IPSAS) vi. Transitional provisions vii. Effective date viii. Appendices (Implementation/Application Guidance) ix. Basis for conclusions x. Comparison with corresponding IAS (if applicable).

Features of IPSAS: There are 31 standards on the accrual basis of accounting and one standard on the cash

basis of accounting. When the accrual basis of accounting underlies the preparation of the financial

statements, the financial statements will include: The statement of financial position (IPSAS 1) The statement of financial performance (IPSAS 1) The cash flow statement (IPSAS 2), The statement of changes in net assets/equity (IPSAS 1), The notes to the financial statements, or annex (IPSAS 1),

When the cash basis of accounting underlies the preparation of the financial statements, the primary financial statement is

The statement of cash receipts and payments.

Financial Reporting Council, Nigeria (IPSAS

Content)

Principles / Concepts / Policies. Accounting Principles are the rules and the Policies are an organization‘s way

of adhering to the rules.

Concepts have been defined as broad basic assumptions which underlie the preparation of financial statements of an enterprise. Public Sector Accounting is an integral but separate branch of Financial Accounting, sharing in common many concepts and principles applicable in the private sector. These concepts include:

• Consistency

• Materiality

• Periodicity

• Duality

• Entity

• Historical cost

• Going concern

Accounting principles are lenient at times, so the policies of an organization can be very important. Looking into a specific organization‘s accounting policies can signal whether management is conservative or aggressive when reporting earnings.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).

IPSAS 1- Presentation Of Financial Statements.

Objective

The objective of this standard is to prescribe the manner in which general purpose financial statements should be presented in order to ensure comparability both with the entity‘s own financial statements of previous periods and with the financial statements of other entities.

Scope

1. This standard should be applied in the presentation of all general purpose financial statements prepared and presented under the accrual basis of accounting in accordance with IPSASs.

2. General purpose financial statements are those intended to meet the needs of users who are not in a position to demand reports tailored to meet their specific information needs.

3. This standard applies equally to the financial statements of an individual entity and to consolidated financial statements for an economic entity, such as whole-of-government financial statements.

4. This standard applies to all public sector entities other than Government Business Enterprises.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,

Some basic terms and their meaning:

• Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

• Borrowing costs are interest and other expenses incurred by an entity in connection with the borrowing of funds.

• Cash comprises cash on hand and demand deposits.

• Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

• Cash flows are inflows and outflows of cash and cash equivalents.

Composition of Financial Statements

A complete set of financial statements includes the following composition:

a) Statement of financial position;

b) Statement of financial performance;

c) Statement of changes in net assets/equity;

d) Cash flow statement; and

e) Accounting policies and notes to the financial statements.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,

IPSAS 2- Cash Flow Statements

Objective

The objective of this standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a cash flow statement which classifies cash flows during the period from operating, investing and financing activities.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should prepare a cash flow statement in accordance with the requirements of this standard and should present it as an integral part of its financial statements for each period for which financial statements are presented.

2. Information about cash flows may be useful to users of an entity‘s financial statements in assessing the entity‘s cash flows, assessing the entity‘s compliance with legislation and regulations (including authorized budgets where appropriate) and for making decisions about whether to provide resources to, or enter into transactions with an entity.


Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont, Historical cash flow information is often used as an indicator of the amount, timing and

certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows.

Meaning of some basic terms:


• Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

• Cash flows are inflows and outflows of cash and cash equivalents.

• Cost method is a method of accounting whereby the investment is recorded at cost. The statement of financial performance reflects revenue from the investment only to the extent that the investor receives distributions from accumulated net surpluses of the investee arising subsequent to the date of acquisition.

Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents.

• Operating activities are the amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity are funded:

(a) By way of taxes (directly and indirectly); or (b) From the recipients of goods and services provided by the entity.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,,

IPSAS 3- Net Surplus Or Deficit For The Period, Fundamental Errors And Changes In Accounting Policies.

Objective

The objective of this standard is to prescribe the classification, disclosure and accounting treatment of certain items in the financial statements so that all entities prepare and present these items on a consistent basis. This enhances comparability both with the entity‘s financial statements of previous periods and with the financial statements of other entities.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this standard in presenting surplus or deficit from ordinary activities and extraordinary items in the statement of financial performance and in accounting for changes in accounting estimates, fundamental errors and changes in accounting policies.

2. This standards deals with, among other things, the disclosure of certain items of net surplus or deficit for the period.

3. The tax effects of extraordinary items, fundamental errors and changes in accounting policies are not considered in this standard as they are not relevant for many public sector entities.





• Fundamental errors are errors discovered in the current period that are of such significance that the financial statements of one or more prior periods can no longer be considered to have been reliable at the date of their issue.

• Government Business Enterprise means an entity that has all the following characteristics: Is an entity with the power to contract in its own name. Has been assigned the financial and operational authority to carry on a business. Sells goods and services, in the normal course of its business, to other entities at a profit or full cost recovery, Is not reliant on continuing government funding to be a going concern (other than purchases of outputs at arm‘s length) and is controlled by a public sector entity.

Net surplus/deficit comprises the following components:

(a) Surplus or deficit from ordinary activities; is the residual amount that remains after expenses arising from ordinary activities have been deducted from revenue arising from ordinary activities. And,

(b) Extraordinary items: the nature and the amount of each extraordinary item should be separately disclosed.


IPSAS 4- The Effects Of Changes In Foreign Exchange Rates

Objective

i. The objective of this standard is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency.

ii. The principal issues are which exchange rates(s) to use and how to report the effects of changes in exchange rates in the financial statements.

Scope

1. An entity that prepares and presents financial statements under the accrual basis of accounting shall apply this standard:

a. In accounting for transactions and balances in foreign currencies, except for those derivative transactions and balances that are within the scope of the relevant international or national accounting standards dealing with the recognition and measurement of financial instruments;

b. In translating the financial performance and financial position of foreign positions that are included in the financial statements of the entity by consolidation, proportionate consolidation or by the equity method;

c. In translating an entity‘s financial performance and financial position into a presentation currency.

2. This standard does not apply t0 hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation.


3. International or national accounting standards dealing with the recognition and measurement of financial instruments apply to many foreign currency derivatives and, accordingly, these are excluded from the scope of this standard.

4. This standard applies to the presentation of an entity‘s financial statements in a foreign currency and sets out requirements for the resulting financial statements to be described as complying with IPSASs.

5. This standard does not apply to the presentation in a cash flow statement of cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation.

6. The ―Preface to IPSAS‖ issued by the International Public Sector Accounting Sector Board explains that Government Business Enterprises (GBEs) apply IFRSs which are issued by the International Accounting Standards Board (IASB).

7. This standard does not apply to the presentation in a cash flow statement of cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation (IPSAS 2, ‗Cash Flow Statement‘).



• Closing rate is the spot exchange rate at the reporting date.

• Exchange difference is the difference resulting from translating a given number of units of one currency into another currency at different exchange rates.

• Exchange rate is the ratio of exchange for two currencies.

• Foreign currency is a currency other than the functional currency of the entity.

• Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

• Net investment in a foreign operation is the amount of the reporting entity‘s interest in the net assets/equity of that operation.

• Presentation currency is the currency in which the financial statements are presented. Spot exchange rate is the exchange rate for immediate delivery.

• A foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

• Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognized in surplus or deficit in the period in which they arise, except as described in paragraph 37.


IPSAS 5- Borrowing Costs Objective This Standard generally requires the immediate expensing of borrowing costs.

However, the Standard permits, as an allowed alternative treatment, the capitalization of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset.

This Standard should be applied in accounting for borrowing costs. Scope 1. This standard applies to all public sector entities other than Government

Business Enterprises. 2. This standard does not deal with the actual or imputed cost of net

assets/equity. Where jurisdictions apply a capital charge to individual entities, judgment will need to be exercised to determine whether the charge meets the definition of borrowing costs or whether it should be treated as an actual or imputed cost of net assets/equity.

3. Government Business Enterprises are required to comply with International Accounting Standards issued by the International Accounting Standards Committee. The Public Sector Committee‘s Guideline No.1, ‗Financial Reporting by GBEs‘ notes that IASs are relevant to all business enterprises, regardless of whether they are in the private or public sector. Accordingly, Guideline No.1 recommends that GBEs should present financial statements that conform, in all material respects to IASs.




• Assets are resources controlled by an entity as a result of past events and from which future economic benefits or service potential are expected to flow to the entity.

• Borrowing costs are interest and other expenses incurred by an entity in connection with the borrowing of funds.


• Contributions from owners means future economic benefits or service

• Liabilities are present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits or service potential.

• Qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.


IPSAS 6- Consolidated Financial Statements And Accounting For Controlled Entities

Objective

The objective of IPSAS 6 is setting standards to be applied in the preparation and presentation of consolidated financial statements.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in the preparation and presentation of consolidated financial statements for an economic entity.

2. This standard establishes requirements for the preparation and presentation of consolidated financial statements and for accounting for controlled entities in a controlling entity‘s separate financial statements. Although GBEs are not required to comply with this standard in their own financial statements, the provisions of this Standard will apply where a public sector entity that is not a GBE has one or more controlled entities that are GBEs. In these circumstances, this standard should be applied in consolidating GBEs into the financial statements of the economic entity, and in accounting for investments in GBEs in the controlling entity‘s separate financial statements.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,,


• Consolidated financial statements are the financial statements of an economic entity presented as those of a single entity.

• Controlled entity is an entity that is under the control of another entity (known as the controlling entity).

• Controlling entity is an entity that has one or more controlled entities.

• Joint control is the agreed sharing of control over an activity by a binding arrangement.

• Significant influence (for the purpose of this Standard) is the power to participate in the financial and operating policy decisions of the investee, but is not control over those policies.

• Accounting Policies are the specific principles, basis, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

• Associate is an entity in which the investor has significant influence and which is neither a controlled entity nor a joint venture of the investor.

• Economic entity means a group of entities comprising a controlling entity and one or more controlled entities.


IPSAS 7- Accounting For Investments In Associates Objective

An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in accounting by an investor for investments in associates where the investment in the associate leads to the holding of an ownership interest in the form of a shareholding or other formal equity structure.

Scope

1. This standard provides the basis for accounting for ownership interests in associates. That is, the investment in the other entity confers on the investor the risks and rewards incidental to an ownership interest. The standard applies only to investments in the formal equity structure (or its equivalent) of an investee. A formal equity structure means share capital or an equivalent form of unitized capital, such as units in a property trust, but may also include other equity structures in which the investor‘s interest can be measured reliably. Where the equity structure is poorly defined, it may not be possible to obtain a reliable measure of the ownership interest.

2. Some contributions made by the public sector entities may be referred to as an ‗investment‘ but may not give rise to an ownership interest. Whilst such contributions are non-reciprocal in nature, they allow the public sector entity to participate in the operation of the entity.




• Associate is an entity in which the investor has significant influence and which is neither a controlled entity nor a joint venture of the investor.

• Consolidated financial statements are the financial statements of an economic entity presented as those of a single entity.

• Cost method is a method of accounting whereby the investment is recorded at cost. The statement of financial performance reflects revenue from the investment only to the extent that the investor receives distributions from accumulated net surpluses of the investee arising subsequent to the date of acquisition.

• Equity method is a method of accounting whereby the investment is initially recorded at cost and adjusted thereafter for the post-acquisition change in the investor‘s share of net assets/equity of the investee. The statement of financial performance reflects the investor‘s share of the results of operations of the investee.

• Significant influence (for the purpose of this Standard) is the power to participate in the financial and operating policy decisions of the investee, but is not control over those policies.

• Net assets/equity is the residual measure in the statement of financial position (assets less liabilities).

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 8- Financial Reporting Of Interests In Joint Ventures

Objective

An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, revenue and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place.

Scope

1. This standard provides the basis for accounting for interests in joint ventures.


3. GBEs are required to comply with IASs issued by the International Accounting Standards Committee. The Public Sector Committee‘s Guideline No.1 ―Financial Reporting by Government Business Enterprises‖ notes that IASs are relevant to all business enterprises, regardless of whether they are in the private or public sector. Accordingly, Guideline No.1 recommends that GBEs should present financial statements that conform in all material respects to IASs.



• Economic entity means a group of entities comprising a controlling entity and one or more controlled entities.

• Investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture.

• Joint control is the agreed sharing of control over an activity by a binding arrangement.

• Joint venture is a binding arrangement whereby two or more parties are committed to undertake an activity which is subject to joint control.

• Proportionate consolidation is a method of accounting and reporting whereby a venturer‘s share of each of the assets, liabilities, revenue and expenses of a jointly controlled entity is combined on a line-by-line basis with similar items in the venturer‘s financial statements or reported as separate line items in the venturer‘s financial statements.

• Significant influence (for the purpose of this Standard) is the power to participate in the financial and operating policy decisions of an activity but is not control or joint control over those policies.

• Venturer is a party to a joint venture and has joint control over that joint venture


IPSAS 9- Revenue From Exchange Transactions

Objective

This Standard is to prescribe the accounting treatment of revenue arising from exchange transactions and events. The primary issue in accounting for revenue is determining when to recognize revenue. Revenue is recognized when it is probable that future economic benefits or service potential will flow to the entity and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognized. It also provides practical guidance on the application of these criteria.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in accounting for revenue arising from the following exchange transactions and events;

• The rendering of services,

• The sale of goods and

• The use by others of entity assets yielding interest, royalties and dividends.

2. This standard applies to all public sector entities other than GBEs.

3. This standard does not deal with revenue arising from non-exchange transactions.



• Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm‘s length transaction.

• Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets/equity, other than increases relating to contributions from owners.

Revenue includes only the gross inflows of economic benefits or service potential received and receivable by the entity on its own account. Amounts collected as agent of the government or another government organization or on behalf of other third parties, for example the collection of telephone and electricity payments by the post office on behalf of entities providing such services, are not economic benefits or service potential which flow to the entity and do not result in increases in assets or decreases in liabilities.

Revenue should be measured at the fair value of the consideration received or receivable. The amount of revenue arising on a transaction is usually determined by agreement between the entity and the purchaser or user of the asset or service. It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity.

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction should be recognized by reference to the stage of completion of the transaction at the reporting date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 10- Financial Reporting In Hyperinflationary Economies Objective An entity which prepares and presents financial statements under the accrual basis

of accounting should apply this Standard to the primary financial statements, including the consolidated financial statements, of any entity that reports in the currency of a hyperinflationary economy.

This Standard applies to all public sector entities other than Government Business Enterprises.

The impact of inflation is usually recognized in borrowing costs. It is not appropriate both to restate the capital expenditure financed by borrowing and to capitalize that part of the borrowing costs that compensates for the inflation during the same period. This part of the borrowing costs is recognized as an expense in the period in which the costs are incurred.

This Standard requires that all items in the statement of financial performance are expressed in terms of the measuring unit current at the reporting date.

Scope 1. In a Hyperinflationary economy, reporting of operating results and financial

position in the local currency without restatement is not useful. Money loses purchasing power at such a rate that comparison of amounts from transactions and other events that have occurred at different times, even within the same reporting period, is misleading.

2. It is preferable that all entities that report in the currency of the same hyperinflationary economy apply this standard from the same date. Nevertheless, this standard applies to the financial statements of any entity from the beginning of the reporting period in which it identifies the existence of hyperinflation in the country in whose currency it reports.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, Meaning of some basic terms: • Carrying amount of an asset is the amount at which an asset is recognized in the

statement of financial position after deducting any accumulated depreciation and accumulated impairment losses thereon.

• Carrying amount of a liability is the amount at which a liability is recognized in the statement of financial position.

• Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable amounts of money.

The financial statements of an entity that reports in the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the reporting date. The corresponding figures for the previous period required by International Public Sector Accounting Standard (IPSAS) 1, ―Presentation of Financial Statements,‖ and any information in respect of earlier periods, should also be stated in terms of the measuring unit current at the reporting date.

The surplus or deficit on the net monetary position should be separately disclosed in the statement of financial performance. Statement of financial position amounts not already expressed in terms of the measuring unit current at the reporting date are restated by applying a general price index.

Monetary items are not restated because they are already expressed in terms of the monetary unit current at the reporting date. Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable amounts of money.

Assets and liabilities linked by agreement to changes in prices, such as index linked bonds and loans, are adjusted in accordance with the agreement in order to ascertain the amount outstanding at the reporting date. These items are carried at this adjusted amount in the restated statement of financial position.


IPSAS 11- CONSTRUCTION CONTRACTS Objective The objective of this Standard is to prescribe the accounting treatment of costs

and revenue associated with construction contracts. The Standard: Identifies the arrangements that are to be classified as construction contracts. Provides guidance on the types of construction contracts that can arise in the

public sector; and Specifies the basis for recognition and disclosure of contract expenses and, if

relevant, contract revenues. Scope 1. A contractor which prepares and presents financial statements under the

accrual basis of accounting should apply this Standard in accounting for construction contracts.

2. This Standard applies to all public sector entities other than GBEs. 3. GBEs are required to comply with IASs issued by the International Accounting

Standards Committee. The Public Sector Committee‘s Guideline No.1 ―Financial Reporting by Government Business Enterprises‖ notes that IASs are relevant to all business enterprises, regardless of whether they are in the private or public sector. Accordingly, Guideline No.1 recommends that GBEs should present financial statements that conform in all material respects to IASs.



• Construction contract is a contract, or a similar binding arrangement, specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.

• Contractor is an entity that performs construction work pursuant to a construction contract.

• Cost plus or cost based contract is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs and, in the case of a commercially-based contract, an additional percentage of these costs or a fixed fee, if any.

• Fixed price contract is a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses.

• A construction contract (the terms ―construction contract‖ and ―contract‖ are used interchangeably in the remainder of this Standard) may be negotiated for the construction of a single asset such as a bridge, building, dam, pipeline, road, ship or tunnel. A construction contract may also deal with the construction of a number of assets which are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use — examples of such contracts include those for the construction of reticulated water supply systems, refineries and other complex infrastructure assets.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 12 - Inventories Objective The objective of this Standard is to prescribe the accounting treatment for

inventories under the historical cost system. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. This standard provides practical guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.

Scope 1. An entity which prepares and presents financial statements under the accrual

basis of accounting should apply this Standard in the context of the historical cost system in accounting for inventories other than:

a. Work in progress arising under construction contracts, including directly related service contracts (see International Public Sector Accounting Standard (IPSAS) 11, ―Construction Contracts‖),

b. Financial instruments, c. Producers‘ inventories of livestock, agricultural and forest products, and

mineral ores to the extent that they are measured at net realizable value in accordance with well-established practices in certain industries, and

d. Work in progress of services to be provided for no or nominal consideration directly in return from the recipients.

2. This Standard applies to all public sector entities other than GBEs.


Meaning of some basic terms;

• Current replacement cost is the cost the entity would incur to acquire the asset on the reporting date.

• Inventories are assets:

a. In the form of materials or supplies to be consumed in the production process;

b. In the form of materials or supplies to be consumed or distributed in the rendering of services;

c. Held for sale or distribution in the ordinary course of operations; or

d. In the process of production for sale or distribution.

• Net realizable value is the estimated selling price in the ordinary course of operations less the estimated costs of completion and the estimated costs necessary to make the sale, exchange or distribution.

• Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by an entity and held for resale, or land and other property held for sale. Inventories also encompass finished goods produced, or work in progress being produced, by the entity. Inventories also include materials and supplies awaiting use in the production process and goods purchased or produced by an entity, which are for distribution to other parties for no charge or for a nominal charge; for example, educational books produced by a health authority for donation to schools.


IPSAS 13- Leases

Objective

The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures to apply in relation to finance and operating leases.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in accounting for all leases other than:

a. Lease agreements to explore for or use natural resources, such as oil, gas, timber, metals and other mineral rights and

b. Licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.

However, this Standard should not be applied to the measurement by:

i. Lessees of investment property held under finance leases, or

ii. Lessors of investment property leased out under operating leases (see International Public Sector Accounting Standard (IPSAS) 16, ―Investment Property‖).

2. This Standard applies to all public sector entities other than GBEs.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, Meaning of some basic terms: • A finance lease is a lease that transfers substantially all the risks and rewards

incident to ownership of an asset. Title may or may not eventually be transferred. • Gross investment in the lease is the aggregate of the minimum lease payments under

a finance lease from the standpoint of the lessor and any unguaranteed residual value accruing to the lessor.

• The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the aggregate present value of:

(a) The minimum lease payments; and (b) The unguaranteed residual value to be equal to the fair value of the leased asset. • A non-cancel able lease is a lease that is cancelable only: Upon the occurrence of

some remote contingency, With the permission of the lessor; If the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or Upon payment by the lessee of an additional amount such that, at inception, continuation of the lease is reasonably certain.

• A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incident to ownership.

• Lessees should recognize assets acquired under finance leases as assets and the associated lease obligations as liabilities. The assets and liabilities should be recognized at amounts equal at the inception of the lease to the fair value of the leased property or, if lower, at the present value of the minimum lease payments. In calculating the present value of the minimum lease payments the discount factor is the interest rate implicit in the lease, if this is practicable to determine; if not, the lessee‘s incremental borrowing rate should be used.


IPSAS 14 - Events After The Reporting Date

Objective

The objective of this Standard is to prescribe when an entity should adjust its financial statements for events after the reporting date and the disclosures that an entity should give about the date when the financial statements were authorized for issue and about events after the reporting date.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in the accounting for, and disclosure of, events after the reporting date.

2. This Standard applies to all public sector entities other than Government Business Enterprises.

3. GBEs are required to comply with IASs issued by the International Accounting Standards Committee. The Public Sector Committee‘s Guideline No.1 ―Financial Reporting by Government Business Enterprises‖ notes that IASs are relevant to all business enterprises, regardless of whether they are in the private or public sector. Accordingly, Guideline No.1 recommends that GBEs should present financial statements that conform in all material respects to IASs.



• Events after the reporting date are those events, both favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorized for issue. Two types of events can be identified:

(a) Those that provide evidence of conditions that existed at the reporting date (adjusting events after the reporting date); and

(b) Those that are indicative of conditions that arose after the reporting date (non-adjusting events after the reporting date).

• Reporting date means the date of the last day of the reporting period to which the financial statements relate.

Adjusting Events After the Reporting Date

• An entity should adjust the amounts recognized in its financial statements to reflect adjusting events after the reporting date.

• An entity should not adjust the amounts recognized in its financial statements to reflect non-adjusting events after the reporting date.


IPSAS 15 -Financial Instruments: Disclosure And Presentation

Objective

The objective of this Standard is to enhance financial statement users‘ understanding of the significance of on-balance-sheet and off-balance-sheet financial instruments to a government‘s or other public sector entity‘s financial position, performance and cash flows. In this Standard, references to ―balance sheet‖ in the context of ―on balance- sheet‖ and ―off-balance-sheet‖ have the same meaning as ―statement of financial position.‖

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard for the presentation and disclosure of financial instruments.

2. This standard does not apply to an entity‘s net assets/equity interests in controlled entities.

3. Some economic entities in the public sector may include entities that issue insurance contracts. Those entities are within the scope of this standard.

4. This standard does not apply to financial instruments that arise from obligations from employee benefit or schemes or obligations of a government to provide social benefits to its citizens for which it receives no consideration, or consideration that is not approximately equal to the fair value of the benefits, directly in return from the recipients of those benefits such as old age pensions, unemployment benefits e. t. c.



• An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

• Financial asset is any asset that is: Cash, A contractual right to receive cash or another financial asset from another entity, A contractual right to exchange financial instruments with another entity under conditions that are potentially favourable or An equity instrument of another entity.

• Financial liability is any liability that is a contractual obligation: To deliver cash or another financial asset to another entity or to exchange financial instruments with another entity under conditions that are potentially unfavourable.

o The issuer of a financial instrument should classify the instrument, or its component parts, as a liability or as net assets/equity in accordance with the substance of the contractual arrangement on initial recognition and the definitions of a financial liability and an equity instrument.

o The issuer of a financial instrument that contains both a liability and a net assets/equity element should classify the instrument‘s component parts separately.

o Interest, dividends, losses and gains relating to a financial instrument, or a component part, classified as a financial liability should be reported in the statement of financial performance as expense or revenue. Distributions to holders of a financial instrument classified as an equity instrument should be debited by the issuer directly to net assets/equity.


IPSAS 16- Investment Property

Objective

The objective of this IPSAS is to prescribe the accounting treatment for investment property and related disclosure requirements.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in accounting for investment property.

2. This standard does not apply to:

Forests and similar regenerative natural resources; and

Mineral rights, the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources.

3. This standard deals with accounting for investment property including the measurement in a lessee‘s financial statements of investment property held under a finance lease and with the measurement in a lessor‘s financial statements of investment property leased out under an operating lease. This standard does not deal with matters covered in IPSAS 13, ‗Leases‘.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, Meaning of some basic terms:

• Carrying amount is (for the purpose of this Standard) the amount at which an asset is recognized in the statement of financial position.

• Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction.

• Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm‘s length transaction.

• Investment property is property (land or a building — or part of a building — or both) held to earn rentals or for capital appreciation or both, rather than for: Use in the production or supply of goods or services or for administrative purposes; or Sale in the ordinary course of operations.

• Owner-occupied property is property held (by the owner or by the lessee under a finance lease) for use in the production or supply of goods or services or for administrative purposes.

• Investment property should be recognized as an asset when and only when:

(a) It is probable that the future economic benefits or service potential that are associated with the investment property will flow to the entity; and

(b) The cost or fair value of the investment property can be measured reliably.

• Investment property should be measured initially at its cost (transaction costs should be included in this initial measurement).


IPSAS 17 - Property, Plant And Equipment

Objective

The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment. The principal issues in accounting for property, plant and equipment are the timing of recognition of the assets, the determination of their carrying amounts and the depreciation charges to be recognized in relation to them.

Scope

1. An entity which prepares and presents financial statements under the accrual basis of accounting should apply this Standard in accounting for property, plant and equipment, except: when a different accounting treatment has been adopted in accordance with another IPSAS; and in respect of heritage assets.

2. This standard does not apply to:

Forests and similar regenerative natural resources; and

Mineral rights, the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources.

3. This standard applies to Specialist military equipment; and Infrastructure assets.

An item of property, plant and equipment which qualifies for recognition as an asset should initially be measured at its cost.

Where an asset is acquired at no cost, or for a nominal cost, its cost is its fair value as at the date of acquisition



1. Class of property, plant and equipment means a grouping of assets of a similar nature or function in an entity‘s operations that is shown as a single item for the purpose of disclosure in the financial statements.

2. Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction.

3. Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life in the financial statements, less it‘s residual value.

4. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm‘s length transaction.

5. Property, Plant and Equipment are tangible assets that:

a. Are held by an entity for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

b. Are expected to be used during more than one reporting period.

6. Residual value is the net amount which the entity expects to obtain for an asset at the end of it‘s useful life after deducting the expected costs of disposal.

Useful life is either:

a. The period of time over which an asset is expected to be used by the entity or

b. the number of production or similar units expected to be obtained from the asset by the entity.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,, IPSAS 18 - Segment Reporting Objective The objective of this Standard is to establish principles for reporting financial

information by segments. The disclosure of this information will; a. Help users of the financial statements to better understand the entity‘s past

performance and to identify the resources allocated to support the major activities of the entity.

b. Enhance the transparency of financial reporting and enable the entity to better discharge its accountability obligations.

Scope 1. An entity which prepares and presents financial statements under the accrual basis

of accounting should apply this Standard in the presentation of segment information.

2. If both consolidated financial statements of a government or other economic entity and the separate financial statements of the parent entity are presented together, segment information need be presented only on the basis of the consolidated financial statements.

3. In some jurisdictions, the consolidated financial statements of the government or other economic entity and the separate financial statements of the controlling entity are compiled and presented together in a single report. Where this occurs, the report which contains the government‘s or other controlling entity‘s consolidated financial statements needs to present segment information only for the consolidated financial statements.

4. This standard should be applied in complete sets of published financial statements that comply with IPSAS.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, Meaning of some basic terms:

1. A segment is a distinguishable activity or group of activities of an entity for which it is appropriate to separately report financial information for the purpose of evaluating the entity‘s past performance in achieving its objectives and for making decisions about the future allocation of resources.

2. Segment revenue is revenue reported in the entity‘s statement of financial performance that is directly attributable to a segment and the relevant portion of entity revenue that can be allocated on a reasonable basis to a segment, whether from budget appropriations or similar, grants, transfers, fines, fees or sales to external customers or from transactions with other segments of the same entity.

3. Segment expense is an expense resulting from the operating activities of a segment that is directly attributable to the segment and the relevant portion of an expense that can be allocated on a reasonable basis to the segment, including expenses relating to the provision of goods and services to external parties and expenses relating to transactions with other segments of the same entity.

4. Segment liabilities are those operating liabilities that result from the operating activities of a segment and are either directly attributable to the segment or can be allocated to the segment on a reasonable basis.

5. Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 19 - Provisions, Contingent Liabilities And Contingent Assets Objective This Standard defines provisions, contingent liabilities and contingent assets identify

the circumstances in which provisions should be recognized, how they should be measured and the disclosures that should be made about them.

Scope 1. An entity which prepares and presents financial statements under the accrual basis

of accounting should apply this Standard in accounting for provisions, contingent liabilities and contingent assets, except:

a. Those provisions and contingent liabilities arising from social benefits provided by an entity for which it does not receive consideration that is approximately equal to the value of goods and services provided, directly in return from the recipients of those benefits;

b. Those resulting from financial instruments that are carried at fair value; c. Those resulting from executory contracts, other than where the contract is onerous

subject to other provisions of this paragraph; d. Those arising in insurance entities from contracts with policyholders; e. Those covered by another International Public Sector Accounting Standard; f. Those arising in relation to income taxes or income tax equivalents; and g. Those arising from employee benefits except employee termination benefits that

arise as a result of a restructuring as dealt with in this Standard. 2. This standard applies to financial instruments (including guarantees) that are not

carried at fair value.


Meaning of some basic terms.

• A constructive obligation is an obligation that derives from an entity‘s actions where:

a. By an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and

b. As a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

• A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

• A contingent liability is:

a. A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or

b. A present obligation that arises from past events but is not recognized because:

i. It is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; or

ii. The amount of the obligation cannot be measured with sufficient reliability.


IPSAS 20 - Related Party Disclosures

Objective

This Standard requires the disclosure of the existence of related party relationships where control exists and the disclosure of information about transactions between the entity and its related parties in certain circumstances. This information is required for accountability purposes and to facilitate a better understanding of the financial position and performance of the reporting entity. The principal issues in disclosing information about related parties are identifying which parties control or significantly influence the reporting entity and determining what information should be disclosed about transactions with those parties.

Scope

1. An entity which prepares financial statements under the accrual basis of accounting should apply this standard in disclosing information about related party relationships and certain transactions with related parties.

2. This standard applies to all public sector entities other than GBEs.



• Close members of the family of an individual are close relatives of the individual or members of the individual‘s immediate family who can be expected to influence, or be influenced by, that individual in their dealings with the entity.

• Key management personnel are: a. All directors or members of the governing body of the entity; and b. Other persons having the authority and responsibility for planning, directing

and controlling the activities of the reporting entity. • Related party — parties are considered to be related if one party has the ability to

control the other party or exercise significant influence over the other party in making financial and operating decisions or if the related party entity and another entity are subject to common control.

• Oversight means the supervision of the activities of an entity, with the authority and responsibility to control, or exercise significant influence over, the financial and operating decisions of the entity.

• Related party transaction is a transfer of resources or obligations between related parties, regardless of whether a price is charged. Related party transactions exclude transactions with any other entity that is a related party solely because of its economic dependence on the reporting entity or the government of which it forms part.

• Remuneration of key management personnel is any consideration or benefit derived directly or indirectly by key management personnel from the reporting entity for services provided in their capacity as members of the governing body or otherwise as employees of the reporting entity.


IPSAS 21 - Impairment Of Non- Cash-generating Assets

General Overview

• This Standard prescribes the procedures that an entity applies to determine whether a non-cash-generating asset is impaired and to ensure that impairment losses are recognized. The Standard also specifies when an entity would reverse an impairment loss and prescribes disclosures.

• Public sector entities that hold cash-generating assets as defined in paragraph 14 shall apply International Accounting Standard IAS 36, ―Impairment of Assets‖ to such assets. Public sector entities that hold non-cash-generating assets shall apply the requirements of this Standard to non-cash-generating assets.

The following terms are used in this Standard with the meanings specified:

• An active market is a market in which all the following conditions exist:(a) The items traded within the market are homogeneous; (b) Willing buyers and sellers can normally be found at any time; and (c) Prices are available to the public.

• Carrying amount is the amount at which an asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment losses thereon.

• Cash-generating assets are assets held to generate a commercial return.

• An impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of the loss of the asset‘s future economic benefits or service potential through depreciation.


IPSAS 22 - Disclosure Of Financial Information About The General Government Sector

General Overview

• The Standard prescribes disclosure requirements for governments which elect to present information about the general government sector (GGS) in their consolidated financial statements.

• This Standard requires that when disclosures about the GGS are made in financial statements, those disclosures are to be made in accordance with the requirements prescribed in this Standard. This will ensure that an appropriate representation of the GGS is made in the financial statements and that disclosures about the GGS satisfy the qualitative characteristics of financial information, including understandability, relevance, reliability, and comparability.

The following terms are used in this Standard with the meanings specified:

• The General Government Sector comprises all organizational entities of the general government as defined in statistical bases of financial reporting. Government Business Enterprise means an entity that has all the following characteristics:

• (a) Is an entity with the power to contract in its own name; (b) Has been assigned the financial and operational authority to carry on a business; (c) Sells goods and services, in the normal course of its business, to other entities at a profit or full cost recovery; (d) Is not reliant on continuing government funding to be a going concern (other than purchases of outputs at arm‘s length); and (e) Is controlled by a public sector entity.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 23 - Revenue From Non-exchange Transactions (Taxes And Transfers) General Overview • This Standard prescribes requirements for the financial reporting of revenue arising

from non-exchange transactions, other than non-exchange transactions that give rise to an entity combination. The Standard deals with issues that need to be considered in recognizing and measuring revenue from non-exchange transactions including the identification of contributions from owners.

The following terms are used in this Standard with the meanings specified: • Exchange transactions are transactions in which one entity receives assets or

services, or has liabilities extinguished, and directly gives approximately equal value (primarily in the form of cash, goods, services, or use of assets) to another entity in exchange.

• Expenses paid through the tax system are amounts that are available to beneficiaries regardless of whether or not they pay taxes.

• Fines are economic benefits or service potential received or receivable by public sector entities, as determined by a court or other law enforcement body, as a consequence of the breach of laws or regulations.

• Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange.

• Restrictions on transferred assets are stipulations that limit or direct the purposes for which a transferred asset may be used, but do not specify that future economic benefits or service potential is required to be returned to the transferor if not deployed as specified.


IPSAS 24 - Presentation Of Budget Information In Financial Statements

General Overview

• This Standard requires a comparison of budget amounts and the actual amounts arising from execution of the budget to be included in the financial statements of entities which are required to, or elect to, make publicly available their approved budget(s) and for which they are, therefore, held publicly accountable. The Standard also requires disclosure of an explanation of the reasons for material differences between the budget and actual amounts. Compliance with the requirements of this Standard will ensure that public sector entities discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating compliance with the approved budget(s) for which they are held publicly accountable and, where the budget(s) and the financial statements are prepared on the same basis, their financial performance in achieving the budgeted results

• An entity that prepares and presents financial statements under the accrual basis of accounting shall apply this Standard. This Standard applies to public sector entities, other than Government Business Enterprises, that are required or elect to make publicly available their approved budget(s).This Standard does not require approved budgets to be made publicly available, nor does it require that the financial statements disclose information about, or make comparisons with, approved budgets which are not made publicly available.

• In some cases, approved budgets will be compiled to encompass all the activities controlled by a public sector entity.

• Final budget is the original budget adjusted for all reserves, carry over amounts, transfers, allocations, supplemental appropriations, and other authorized legislative, or similar authority, changes applicable to the budget period.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,, IPSAS 25 - Employee Benefits General Overview • This Standard is to prescribe the accounting and disclosure for employee benefits.

The Standard requires an entity to recognize: (a) A liability when an employee has provided service in exchange for employee benefits to be paid in the future; and (b) An expense when the entity consumes the economic benefits or service potential arising from service provided by an employee in exchange for employee benefits.

• Actuarial gains and losses comprise: (a) Experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and (b) The effects of changes in actuarial assumptions.

• Assets held by a long-term employee benefit fund are assets (other than non-transferable financial instruments issued by the reporting entity) that: (a) Are held by an entity (a fund) that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and (b) Are available to be used only to pay or fund employee benefits, are not available to the reporting entity‘s own creditors (even in bankruptcy), and cannot be returned to the reporting entity, unless either:

• (i) The remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting entity; or

• (ii) The assets are returned to the reporting entity to reimburse it for employee benefits already paid.

• Post-Employment Benefits: Distinction between Defined Contribution Plans and Defined Benefit Plans

• Post-employment benefits include, for example: (a) Retirement benefits, such as pensions; and (b) Other post-employment benefits, such as post-employment life insurance and post-employment medical care.


IPSAS 26 - Impairment Of Cash-generating Asset General Overview • This Standard prescribes the procedures that an entity applies to determine whether

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

• Cash-generating assets are assets held with the primary objective of generating a commercial return. A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercial return that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. An impairment loss of a cash-generating asset is the amount by which the carrying amount of an asset exceeds its recoverable amount. Non-cash-generating assets are assets other than cash-generating assets.

• The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. Value in use of a cash-generating asset is the present value of the estimated future cash flows expected to be derived from the continuing use of an asset and from its disposal at the end of its useful life.

• An entity shall assess at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, an entity shall also test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test may be performed at any time during the reporting period, provided it is performed at the same time every year. Different intangible assets may be tested for impairment at different times.


IPSAS 27 - AGRICULTURE

General Overview

• This Standard prescribes the accounting treatment and disclosures for agricultural activity.

• An entity that prepares and presents financial statements under the accrual basis of accounting shall apply this Standard for the following when they relate to agricultural activity:

(a) Biological assets; and (b) Agricultural produce at the point of harvest

• Agricultural activity is the management by an entity of the biological transformation and harvest of biological assets for:

o Sale;

o Distribution at no charge or for a nominal charge; or

o Conversion into agricultural produce or into additional biological assets for sale or for distribution at no charge or for a nominal charge.

• Agricultural produce is the harvested product of the entity‘s biological assets.

• A biological asset is a living animal or plant.

• An entity shall disclose the aggregate gain or loss arising during the current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets.

• An entity shall disclose the methods and significant assumptions applied in determining the fair value of each group of agricultural produce at the point of harvest and each group of biological assets.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,, IPSAS 28 - Financial Instruments: Presentation General Overview • This Standard establishes principles for presenting financial instruments as liabilities

or net assets/equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends or similar distributions, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset.

• An entity that prepares and presents financial statements under the accrual basis of accounting shall apply this Standard to all types of financial instruments except:

• (a) Those interests in controlled entities, associates or joint ventures that are accounted for in accordance with IPSAS 6, ―Consolidated and Separate Financial Statements,‖ IPSAS 7, ―Investments in Associates,‖ or IPSAS 8, ―Interests in Joint Ventures.‖ However, in some cases, IPSAS 6, IPSAS 7, or IPSAS 8 permits an entity to account for an interest in a controlled entity, associate, or joint venture using IPSAS 29; in those cases, entities shall apply the requirements of this Standard. Entities shall also apply this Standard to all derivatives linked to interests in controlled entities, associates, or joint ventures.

• (b) Employers‘ rights and obligations under employee benefit plans, to which IPSAS 25, ―Employee Benefits‖ applies.

• (c) Obligations arising from insurance contracts. However, this Standard applies to: • (i) Derivatives that are embedded in insurance contracts if IPSAS 29 requires the

entity to account for them separately; and • (ii) Financial guarantee contracts, if the issuer applies IPSAS 29 in recognizing and

measuring the contracts, but shall apply the relevant international or national accounting standard dealing with insurance contracts if the issuer elects to apply that standard in recognizing and measuring them.


IPSAS 29 - Financial Instruments: Recognition And Measurement

General Overview

• This Standard establishes principles for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in IPSAS 28.

• This Standard shall be applied by all entities to all types of financial instruments, except:

a. Those interests in controlled entities, associates and joint ventures that are accounted for under IPSAS 6, ―Consolidated and Separate Financial Statements,‖ IPSAS 7, ―Investments in Associates,‖ or IPSAS 8, ―Interests in Joint Ventures.‖ However, entities shall apply this Standard to an interest in a controlled entity, associate, or joint venture that according to IPSAS 6, IPSAS 7, or IPSAS 8 is accounted for under this Standard. Entities shall also apply this Standard to derivatives on an interest in a controlled entity, associate, or joint venture unless the derivative meets the definition of an equity instrument of the entity in IPSAS 28.

b. Rights and obligations under leases to which IPSAS 13, ―Leases‖ applies.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,, IPSAS 30 - Financial Instruments: Disclosures General Overview This Standard requires entities to provide disclosures in their financial statements

that enable users to evaluate: a. The significance of financial instruments for the entity‗s financial position and

performance; b. The nature and extent of risks arising from financial instruments to which the entity

is exposed during the period and at the end of the reporting period, and how the entity manages those risks.

This Standard shall be applied by all entities to all types of financial instruments, except:

a. Those interests in controlled entities, associates, or joint ventures that are accounted for in accordance with IPSAS 6, ―Consolidated and Separate Financial Statements,‖ IPSAS 7, ―Investments in Associates,‖ or IPSAS 8, ―Interests in Joint Ventures.‖ However, in some cases, IPSAS 6, IPSAS 7, or IPSAS 8 permits an entity to account for an interest in a controlled entity, associate, or joint venture using IPSAS 29; in those cases, entities shall apply the requirements of this Standard. Entities shall also apply this Standard to all derivatives linked to interests in controlled entities, associates, or joint ventures unless the derivative meets the definition of an equity instrument in IPSAS 28.

b. Employers‘ rights and obligations arising from employee benefit plans, to which IPSAS 25, ―Employee Benefits‖ applies.

c. Rights and obligations arising under insurance contracts. However, this Standard applies to:

Derivatives that are embedded in insurance contracts if IPSAS 29 requires the entity to account for them separately; and An issuer of financial guarantee contracts if the issuer applies IPSAS 29 in recognizing and measuring the contracts, but shall apply the relevant international or national accounting standard dealing with insurance contracts if the issuer elects to apply those standards in recognizing and measuring them.


IPSAS 31 - Intangible Assets

General Overview

• This Standard prescribes the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an entity to recognize an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets, and requires specified disclosures about intangible assets.

• An entity that prepares and presents financial statements under the accrual basis of accounting shall apply this Standard in accounting for intangible assets.

• This Standard shall be applied in accounting for intangible assets, except:

a. Intangible assets that are within the scope of another Standard;

b. Financial assets, as defined in IPSAS 28, ―Financial Instruments: Presentation‖;

c. The recognition and measurement of exploration and evaluation assets (see the relevant international or national accounting standard dealing with exploration for, and evaluation of, mineral resources);

d. Expenditure on the development and extraction of minerals, oil, natural gas and similar non-regenerative resources;

e. Intangible assets acquired in a business combination (see the relevant int. or national accounting standard dealing with business combinations);

• Amortization is the systematic allocation of the depreciable amount of an i intangible asset over its useful life.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38). Cont,, IPSAS 32 - SERVICE CONCESSION ARRANGEMENTS: GRANTOR

General Overview

• This Standard is to prescribe the accounting for service concession arrangements by the grantor, a public sector entity.

• Arrangements within the scope of this Standard involve the operator providing public services related to the service concession asset on behalf of the grantor.

• Arrangements outside the scope of this Standard are those that do not involve the delivery of public services and arrangements that involve service and management components where the asset is not controlled by the grantor (e.g., outsourcing, service contracts, or privatization).

• This Standard does not specify the accounting by operators (guidance on accounting for service concession arrangements by the operator can be found in the relevant international or national accounting standard dealing with service concession arrangements).

• A binding arrangement, for the purposes of this Standard, describes contracts and other arrangements that confer similar rights and obligations on the parties to it as if they were in the form of a contract.

• A grantor, for the purposes of this Standard, is the entity that grants the right to use the service concession asset to the operator.

• An operator, for the purposes of this Standard, is the entity that uses the service concession asset to provide public services subject to the grantor‘s control of the asset.

• A service concession arrangement is a binding arrangement between a grantor and an operator.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 33 - First-time Adoption Of Accrual Basis IPSAS

General Overview

• IPSAS 33 provides guidance to a first-time adopter that prepares and presents financial statements on the adoption of accrual basis IPSASs, in order to present high quality information that relates to providing transparent reporting about a first-time adopter‘s transition to accrual basis IPSASs, providing a suitable starting point for accounting in accordance with accrual basis IPSASs irrespective of the basis of accounting the first-time adopter has used prior to the date of adoption, and where the benefits are expected to exceed the costs.

• An entity is to apply IPSAS 33 when it prepares and presents its annual financial statements on the adoption of, and during the transition to, accrual basis IPSASs.

• IPSAS 33 applies to all public sector entities other than Government Business Enterprises (GBEs).

• Deemed Cost: The amount used as a surrogate for acquisition cost or depreciated cost at a given date.

• First IPSAS Financial Statements: These are the first annual financial statements in which an entity complies with the accrual basis IPSASs and can make an explicit and unreserved statement of compliance with those IPSASs because it adopted one or more of the transitional exemptions in this IPSAS that do not affect the fair presentation of the financial statements and its ability to assert compliance with accrual basis IPSASs.

• First-time Adopters: They are entity that adopts accrual basis IPSASs for the first time and presents its first transitional IPSAS financial statements or its first IPSAS financial statements.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, • Opening Statement of Financial Position: This is a first-time adopter‘s

statement of financial position at the date of adoption of IPSASs.

• Period of Transition: is the period during which a first-time adopter applies one or more of the exemptions in this IPSAS before it complies with the accrual basis IPSASs, and before they are able to make an explicit and unreserved statement of such compliance with IPSASs.

• Transitional IPSAS Financial Statements: These are the financial statements prepared in accordance with this IPSAS where a first-time adopter cannot make an explicit and unreserved statement of compliance with other IPSASs because it adopted one or more of the transitional exemptions in this IPSAS that affect the fair presentation of the financial statements and its ability to assert compliance with accrual basis IPSASs.

• The date of adoption of IPSASs is the date that an entity adopts accrual basis IPSASs for the first time. It is the start of the reporting period in which the first-time adopter adopts accrual basis IPSASs and for which it presents its first transitional IPSAS financial statements or its first IPSAS financial statements.

• A first-time adopter is encouraged, but not required, to present comparative information in its first transitional IPSAS financial statements or its first IPSAS financial statements presented in accordance with this IPSAS. When a first-time adopter presents comparative information, it shall be presented in accordance with the requirements of IPSAS 1.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 34 - Separate Financial Statements

General Overview

• The objective of IPSAS 34 is to prescribe the accounting and disclosure requirements for investments in controlled entities, joint ventures and associates when an entity prepares separate financial statements.

• Consolidated financial statements are the financial statements of an economic entity in which the assets, liabilities, net assets/equity, revenue, expenses and cash flows of the controlling entity and its controlled entities are presented as those of a single economic entity.

• Separate financial statements are those presented by an entity, in which the entity could elect, subject to the requirements in IPSAS34, to account for its investments in controlled entities, joint ventures and associates either at cost, in accordance with IPSAS 29, Financial Instruments: Recognition and Measurement or using the equity method as described in IPSAS 36, Investments in Associates and Joint Ventures.

• Separate financial statements shall be prepared in accordance with all applicable IPSASs, except when it shall account for similar investments in controlled entities, joint ventures and associates either:

• (a) At cost;

• (b) In accordance with IPSAS 29; or

• (c) Using the equity method as described in IPSAS 36.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 35 - Consolidated Financial Statements

General Overview

• The objective of this Standard is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

• This Standard applies to all public sector entities other than GBEs.

• Benefits are the advantages an entity obtains from its involvement with other entities. Benefits may be financial or non-financial. The actual impact of an entity‘s involvement with another entity can have positive or negative aspects.

• Consolidated financial statements are the financial statements of an economic entity in which the assets, liabilities, net assets/equity, revenue, expenses and cash flows of the controlling entity and its controlled entities are presented as those of a single economic entity.

• Control: An entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature or amount of those benefits through its power over the other entity.

• A non-controlling interest is the net assets/equity in a controlled entity not attributable, directly or indirectly, to a controlling entity.

• Binding arrangements can be evidenced in several ways. A binding arrangement is often, but not always, in writing, in the form of a contract or documented discussions between the parties. Statutory mechanisms such as legislative or executive authority can also create enforceable arrangements, similar to contractual arrangements, either on their own or in conjunction with contracts between the parties.

Analysis of IPSAS Issued (IPSAS 1 – IPSAS 38).Cont,, IPSAS 36 - Investments In Associates And Joint Ventures

General Overview

• The objective of this Standard is 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.

• The recognition of revenue on the basis of distributions received may not be an adequate measure of the revenue earned by an investor on an investment in an associate or a joint venture because the distributions received may bear little relation to the performance of the associate or joint venture. Because the investor has joint control of, or significant influence over, the investee, the investor has an interest in the associate‘s or joint venture‘s performance and, as a result, the return on its investment. The investor accounts for this interest by extending the scope of its financial statements to include its share of the surplus or deficit of such an investee.

• An entity with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption.

• In some circumstances, an entity has, in substance, an existing ownership interest as a result of a transaction that currently gives it access to the benefits associated with an ownership interest. In such circumstances, the proportion allocated to the entity is determined by taking into account the eventual exercise of those potential voting rights and other derivative instruments that currently give the entity access to the benefits.


IPSAS 37 - Joint Arrangements

General Overview

• The objective of this Standard is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e., joint arrangements).

• A joint arrangement is either a joint operation or a joint venture.

• An entity that is a party to an arrangement shall assess whether the binding arrangement gives all the parties, or a group of the parties, control of the arrangement collectively. All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the benefits from the arrangement.

• An entity will need to apply judgment when assessing whether all the parties, or a group of the parties, have joint control of an arrangement. An entity shall make this assessment by considering all facts and circumstances.

• A joint operator shall account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IPSASs applicable to the particular assets, liabilities, revenues and expenses.

• An entity shall apply this Standard for annual financial statements covering periods beginning on or after January 1, 2017. Earlier application is encouraged.


IPSAS 38 -Disclosure Of Interests In Other Entities

General Overview

• The objective of this Standard is to require an entity to disclose information that enables users of its financial statements to evaluate:

a) The nature of, and risks associated with, its interests in controlled entities, unconsolidated controlled entities, joint arrangements and associates, and structured entities that are not consolidated; and

b) The effects of those interests on its financial position, financial performance and cash flows.

• An interest in another entity, for the purpose of this Standard, refers to involvement by way of binding arrangements or otherwise that exposes an entity to variability of benefits from the performance of the other entity. An interest in another entity can be evidenced by, but is not limited to, the holding of equity or debt instruments as well as other forms of involvement such as the provision of funding, liquidity support, credit enhancement and guarantees. It includes the means by which an entity has control or joint control of, or significant influence over, another entity. An entity does not necessarily have an interest in another entity solely because of a typical funder/recipient or customer/supplier relationship.

Presentation Of Financial Statements IAS 1

IAS 1 sets out overall requirements for the presentation of general purpose financial statements, prescribes guidelines for their structure, and lays out the minimum requirements for their content and disclosure.

Objectives The objective of financial statements is to provide useful information when

making economic decisions. The objectives of IAS 1 are to ensure comparability of presentation of that information with the entity‘s financial statements of previous periods and with the financial statements of other entities. Financial statements are prepared on a going concern basis, unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.

An entity prepares its financial statements, except for cash flow information, under the accrual basis of accounting.

Traditionally, a complete set of financial statements consist of a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and explanatory notes (including accounting policies). However, with the recent amendment to IAS 1, some of the titles of the components of the financial statements have been changed. For instance, a balance sheet may now be referred to as a statement of financial position. Furthermore, the revised IAS 1 has also introduced a new statement, the statement of comprehensive income. This statement combines income statement items with items that would have previously been presented in the statement of recognized income. Entities are not required to use the new titles in their financial statements. The revised IAS 1 is effective for annual periods beginning on or after January 1, 2009. (Early adoption was permitted.)

Presentation Of Financial Statements IAS1.Cont, Scope

IAS 1 categorically states that an entity shall apply IAS 1 when preparing and presenting general purpose financial statements in accordance with IFRS. In other words, financial statements other than general purpose financial statements are scoped out. For instance, this standard does not apply to the structure and content of condensed interim financial statements (such financial statements are prepared in accordance with IAS 34, Interim Financial Reporting).

Furthermore, the requirements of IAS 1 apply equally to all entities, including those that present consolidated financial statements and those that present separate financial statements as defined in IAS 27, Consolidated and Separate Financial Statements. However, if entities with not-for-profit activities in the private sector or the public sector apply this standard, they may need to amend the descriptions used for particular line items in the financial statements and for the financial statements themselves. Similarly, entities such as some mutual funds, that do not have equity as defined in IAS 32, Financial Instruments: Presentation, and entities whose share capital is not equity (e.g., some cooperative entities) may need to adapt the financial statement presentation of member‘s or unit holder‘s interests.

Presentation Of Financial Statements IAS1.Cont, Key Terms (As Provided In IAS 1)

• General purpose financial statements (referred to as financial statements): Statements that are intended to meet the needs of the users who are not in a position to require an entity to prepare reports tailored to their particular information needs.

• Impracticable: When an entity cannot apply a requirement after making every reasonable effort to do so.

• International Financial Reporting Standards (IFRS): Standards and interpretations issued by the International Accounting Standards Board (IASB). IFRS also include pronouncements issued by the previous standard-setting authorities, the IASC and the SIC. They comprise:

• International Financial Reporting Standards (IFRS)

• International Accounting Standards (IAS)

• Interpretations developed by the International Financial Reporting Interpretations

Committee (IFRIC) or the former SIC

• Other comprehensive income: Items of income and expenses (including reclassification adjustments) that are not recognized in profit or loss, as required or permitted by other IFRS.

• Owners: Holders of instruments classified as equity.

• Profit or loss: The total of income less expenses, excluding the components of other comprehensive income.

• Total comprehensive income. The change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions

with owners in their capacity as owners.

Presentation Of Financial Statements IAS1.Cont, Complete Set Of Financial Statements The components of a complete set of financial statements are • A statement of financial position at the end of the period; • A statement of comprehensive income for the period (presented as either a single

statement or an income statement with a statement of recognized gains and losses); • A statement of changes in equity for the period; • A statement of cash flows for the period; • Notes, including a summary of significant accounting policies and other explanatory information; and • A statement of financial position at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements. While IAS 1 clarifies that an entity may use titles for statements, other than those

used in this standard, it stresses that an entity shall present with equal prominence all of the components of financial statements in a complete set of financial statements.

General Requirements Of IAS 1 • Financial statements shall present fairly the financial position, financial

performance, and cash flows of an entity. • An entity whose financial statements comply with IFRS shall make an explicit and unreserved statement of such compliance in the notes. • An entity cannot rectify inappropriate accounting policies either by disclosure of the

accounting policies used or by notes or explanatory material. • In the extremely rare circumstances when the entity‘s management concludes that

compliance with a requirement in an IFRS would be so misleading that it would

Presentation Of Financial Statements IAS1.Cont,

conflict with the objective of financial statements set out in the IASB‘s Framework, the entity is required to depart from that requirement, provided the regulatory framework under which the entity operates requires, or does not prohibit, such a departure. It should be noted that invoking such a true and fair override (as this is sometimes referred to) is not expected to occur often in practice.

• Going Concern: An entity normally prepares financial statements on a going concern basis. However, if management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so, it is not allowed to prepare financial statements using the going concern basis.

Identification of the Financial Statements An entity shall clearly identify the financial statements and distinguish them from

other information in the same published document. The following line items, as a minimum, are to be presented on the face of the

statement of financial position: • Assets: Property, plant and equipment; investment property; intangible assets;

financial assets; investments accounted for using the equity method; biological assets;

deferred tax assets; current tax assets; inventories; trade and other receivables; and cash and cash equivalents

• Equity: Issued capital and reserves attributable to equity holders of the parent; and Non-controlling interest

• Liabilities: Deferred tax liabilities; current tax liabilities; financial liabilities; provisions; and trade and other payables

• Assets and Liabilities Held for Sale: The total of assets classified as held for sale and assets included in disposal groups classified as held for sale; and liabilities included in disposal groups classified as held for sale in accordance with IFRS 5, Noncurrent

Presentation Of Financial Statements IAS1.Cont, How Information is Disclosed • An entity shall disclose for each class of share capital: the number of shares authorized,

issued and fully paid, and issued but not paid, par value per share, a reconciliation of the number of shares outstanding at the beginning and at the end of the period. An entity is also required to disclose the rights, preferences, and restrictions attaching to shares.

• A description of the nature and purpose of each reserve within the equity. Current/Noncurrent Distinction • Entities normally present a statement of financial position (also referred to as a balance

sheet) that separates current assets and current liabilities from noncurrent assets and noncurrent liabilities respectively.

Current Assets: An entity shall classify an asset as current when • It expects to realize the asset, or intends to sell or consume it, in its normal operating

cycle; • It holds the asset primarily for the purpose of trading; • It expects to realize the asset within 12 months after the reporting period; or • The asset is cash or a cash equivalent (as defined in IAS 7), unless the asset is restricted

from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current Liabilities: An entity shall classify a liability as current when • It expects to settle the liability in its normal operating cycle; • It holds the liability primarily for the purpose of trading; • The liability is due to be settled within 12 months after the reporting period; or • The entity does not have an unconditional right to defer settlement of the liability for at

least 12 months after the reporting period.

Presentation Of Financial Statements IAS1.Cont, Statement Of Comprehensive Income

IAS 1 offers the choice of presenting all items of income and expense recognized in the period: either in a single statement, or, in two statements, that is, a statement displaying components of profit or loss, together with, another statement beginning with profit or loss and displaying components of other comprehensive income.

The standard prescribes, as a minimum, the following line items to be presented in a statement of comprehensive income:

• Revenue, finance costs, share of profit or loss from associates and joint ventures accounted using the equity method, tax expense, amounts required to be disclosed under IFRS 5 relating to discontinued operations;

• Profit or loss for the reporting period;

• Each component of other comprehensive income classified by nature;

• Share of other comprehensive income of associates and joint ventures accounted using the equity method; and

• Total comprehensive income.

Profit or loss for the reporting period as well as total comprehensive income for the period

attributable to non-controlling interests and owners of the parent are required to be disclosed

separately.

Since the IAS 1 prescribes minimum line item disclosure, an entity is permitted to

present additional line items, headings and subtotals in the statement of

Presentation Of Financial Statements IAS1.Cont, comprehensive income

and the separate income statement (if the entity opts to present this statement). Such

additional disclosures are allowed when such presentation is relevant to an understanding of the entity‘s financial performance.

Statement of Changes in Equity: An entity is required to present a statement of changes in equity showing:

• Total comprehensive income for the period (separately disclosing amounts attributable to owners of the parent and to non-controlling interests);

• For each component of equity, the effects of retrospective application or retrospective

restatement required by IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors; and

• For each component of equity, reconciliation between the carrying amount at the beginning and the end of period, separately disclosing changes resulting from profit or loss, each item of other comprehensive income, and transactions with owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in loss of control.

Statement of Cash Flows

IAS 7, Statement of Cash Flows, deals with the requirements for the presentation of the statement of cash flows.

Profit or Loss for the Period

An entity shall recognize all items of income and expense in a period in profit or loss

unless an IFRS requires or permits otherwise. An entity shall present an analysis of expenses recognized in profit or loss using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant.

INCOME STATEMENT An income statement, also called a profit or loss statement, or statement of

income and expense is a financial statement that summarizes the results of a company‘s operations for a period. It presents a picture of a company‘s revenues, expenses, gains, losses, net income and earnings per share (EPS).

Together with balance sheet, statement of cash flows and statement of changes in shareholders equity, income statement form a complete set of financial statements. A typical income statement is in report form.

Types: there are two types of income statements:

• Single-step income statement, in which there are no sub-totals such as gross profit, operating income, earnings before taxes, etc. and Multi-step income statement, in which similar expenses are grouped together and immediate figures such as gross profit, operating income, EBIT, etc. are calculated.

• Another classification of income statement depends on whether the expenses are grouped by their nature or function. Income statement by nature classifies expenses according to their nature i.e. without allocating them to different business activities, while income statement by function classifies expenses according to the business operations that they support. For example, income statement by nature shows line items such as salaries, depreciation, rent, etc. while income statement by function allocate salaries, depreciation, rent, etc. between cost of goods sold, selling expense, general and admin expenses etc.

INCOME STATEMENT. Cont, Income Statement Format

Notes Year 1 Year 2

₦ ₦

Revenue x x x

Cost of goods x x x

Gross profit xx xx

Selling & Distribution expenses x x x

General & Admin expenses x x x

Other operating income & gains x x x

Other operating expenses & losses x x x

Operating profit/earnings before interest & Taxes (EBIT) xx xx

Interest income x x x

Interest expense x x x

Net interest income x x x

Profit from Investments under Equity Method x x x

Earnings before Taxes xx xx

Income Taxes x x x

Income from continuing operations xx xx

Income from discontinued operations x x x

Net income xx xx

INCOME STATEMENT. Cont,

Distribution of Net Income

Equity-holders of parents x x

Non-controlling interest-holders x x

EPS

Basic attributable parent x x

Diluted attributable to parent x x

Basic from continued operations attributable to parent x x

Diluted from continued operations attributable to parent x x

Review Questions Question 1

Review Questions, cont...

Question 2

References

• Adejola, P. A (2015): Cost & Management Accounting & Information Technology, Rainbow Graphics and Publishers, Abuja.

• Colin Drury (2004). Management and Cost Accounting; 4th Edition, Thompson Learning, UK

Documents

MODULE 8 - ananelearning.org Public Sector Accounting Standards (IPSAS) are high quality ... Comparison with corresponding IAS (if applicable). Features of IPSAS: