Danielle Jeffries IPSAS/IFRS Presentation to Delegates of the Nigerian Government's Petroleum Products Pricing Regulatory Agency

“Accountants are the linguists of business transactions.”

-Danielle O. Jeffries

“We are the translators;

We are the truth tellers.”

-Danielle O. Jeffries

IAASB(International

Assurance and

Audit Standards

Board)

IFAC(International

Federation of

Accountants)

IPSAS (International Public

Sector Accounting

Standards

Institute of

Chartered

Accountants of

Nigeria

International Federation of Accountants

(IFAC) is the global organization for the

accountancy profession. IFAC has 173

members and associates in 129 countries

and jurisdictions, representing more than

2.5 million accountants employed in public

practice, industry and commerce,

government, and academe. The

organization, through its independent

standard-setting boards, establishes

international standards on ethics, auditing

and assurance, accounting education, and

public sector accounting. It also issues

guidance to encourage high quality

performance by professional accountants in

business. Founded in 1977, IFAC

celebrated its 30th anniversary in 2007.

Nigeria’s Implementation Dates

Cash Basis IPSAS – January 2014

Accrual Basis IPSAS – January 2016

Membership in IFAC is open to

professional accountancy organizations

that have an interest in the international

accountancy profession and meet the

criteria set out in the IFAC Bylaws.

Members and associates are required to

support IFAC's mission and programs,

participate in the IFAC Member Body

Compliance Program, and make financial

contributions as required by the IFAC

Constitution.

A REGULATORY BODY.

I have no use for bodyguards,

but I have very specific use for

two highly trained certified public

accountants.

- Elvis Presley

IFAC’s vision is that the global

accountancy profession be

recognized as a valued leader in

the development of strong and

sustainable organizations,

financial markets and

economies.

IFAC’s mission is to serve the public

interest by:

Contributing to the development,

adoption and implementation of high-

quality international standards and

guidance

Contributing to the development of

strong professional accountancy

organizations and accounting firms,

and to high-quality practices by

professional accountants

Promoting the value of professional

accountants worldwide

Speaking out on public interest

issues where the accountancy

profession’s expertise is most relevant

IFAC’s mission is to serve the public interest by:

Contributing to the development, adoption and

implementation of high-quality international standards and

guidance

Contributing to the development of strong professional

accountancy organizations and accounting firms, and to

high-quality practices by professional accountants

Promoting the value of professional accountants worldwide

Speaking out on public interest issues where the

accountancy profession’s expertise is most relevant

IFAC’s values are integrity, expertise and transparency.

These values are the guiding principles that IFAC as an

organization through its Council, Board, boards and

committees, volunteers, and staff seeks to exemplify.

“An urgent focus on improved public sector financial reporting

Problems with public sector fiscal management and reporting are not confined to a small handful of

European countries, but are widespread. There is a real danger of the current sovereign debt crisis,

coupled with the fiscal challenges of aging populations, deepening into a global fiscal crisis. It is therefore

more urgent than ever that IFAC act in concert with other key financial and economic institutions to bring

about a radical transformation in public financial management. A key element of this transformation is that

governments must provide clear, comparable, and comprehensive information regarding the financial

consequences of their economic, political and social decisions. As noted in IFAC’s submission to the

G-20 in April 2012, this would include:

High-quality and timely accrual-based financial reporting

Audited financial statements released within six months of year end

Budgeting, appropriation, and reporting on the same accrual basis

Full transparency in fiscal positions ahead of general elections, ensuring that voters are fully

informed, and

Limitations on deficit spending, or at least full transparency around the resources for deficit

spending and explanations of how, over an economic cycle, fiscal balance will be restored.

Much of this information can be provided through high-quality, robust and effective accrual-based

financial reporting systems based on International Public Sector Accounting Standards (IPSASs).

IFAC will work in partnership with governments and others to support enhanced transparency and

accountability in public sector accounting. In particular, the IPSASB will aim to lead the change for long-

term reform in this area. The IPSASB will continue to work with the IASB to strengthen cooperation in

developing public and private sector accounting standards.”

IFAC’s 2013 – 2016 Strategic Plan

First Time Adoption

The IPSASB has identified a project on First-time

adoption of IPSASs as a high priority towards the

implementation of IPSASs. The absence of a standard

focusing on the first-time adoption is viewed as a gap

in the body of IPSASs.

The project proposes to develop an IPSAS that will

provide guidance for entities adopting IPSASs for

financial reporting for the first time.

-International Public Sector Accounting Standards Board

IPSASB

The Conceptual Framework for General Purpose Financial Reporting by Public

Sector Entities - Phase I

“IPSASs are developed to apply across countries and jurisdictions with different political

systems, different forms of government and different institutional and administrative

arrangements for the delivery of services to constituents. The International Public Sector

Accounting Standards Board (IPSASB) recognizes the diversity of forms of government, social

and cultural traditions, and service delivery mechanisms that exist in the many jurisdictions

that may adopt IPSASs. In developing this Conceptual Framework, the IPSASB has attempted

to respond to and embrace that diversity.”

The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities

IPSASB Final Pronouncement January 11, 2013

The Conceptual Framework for General Purpose

Financial Reporting by Public Sector Entities

The Accrual Basis of Accounting

“The Conceptual Framework deals with concepts that apply to general purpose financial

reporting (financial reporting) under the accrual basis of accounting.

Under the accrual basis of accounting, transactions and other events are recognized in

financial statements when they occur (and not only when cash or its equivalent is received or

paid). Therefore, the transactions and events are recorded in the accounting records and

recognized in the financial statements of the periods to which they relate.

Financial statements prepared under the accrual basis of accounting inform users of those

statements of past transactions involving the payment and receipt of cash during the reporting

period, obligations to pay cash or sacrifice other resources of the entity in the future, the

resources of the entity at the reporting date and changes in those obligations and resources

during the reporting period. Therefore, they provide information about past transactions and

other events that is more useful to users for accountability purposes and as input for decision

making than is information provided by the cash basis or other bases of accounting or financial

reporting.”



Accrual Based Accounting and the Matching Principle

Accrual based accounting is rooted in the “matching principle.”

Revenue is recognized during the period in which it is earned

and expenses are recognized during the period in which they are

incurred.

Example:

On January 1st, Petroleum Agency enters into a sales contract to

deliver 50 million barrels of oil to Customer B over a 5 month

period at 10 million barrels per month commencing February 1st.

The sales price per barrel is $100. Payment of $5,000,000,000

for the entire oil contract is made on January 1st. What is the

accrual entry for this transaction?


Cash $5,000,000,000

Unearned Oil Revenue $5,000,000,000

Journal entry to record the January 1st cash received as a result of

the oil contract entered into with Customer B and the related

unearned revenue.

Unearned revenue is a balance sheet account which carries a credit

balance. It indicates payment in advance for goods or services owed

to customers. It reduces equity and is referred to as a “contra asset”

account.


On February 1st, the first 10,000,000 barrels of oil is delivered to

Customer B.


Oil Revenue $1,000,000,000

To recognize revenue earned on February 1st and to reduce the contra asset

(liability) unearned oil revenue by the same amount.

Note: At February 1st, the balance in unearned oil revenue is now

$4,000,000,000.


On March 1st, the second 10,000,000 barrels of oil is delivered to

Customer B.


Oil Revenue $1,000,000,000

To recognize revenue earned on March 1st and to reduce the contra asset


Note: At March 1st, the balance in unearned oil revenue is now

$3,000,000,000.


Customer B asks Petroleum Agency to deliver the remaining 30,000,000

barrels of oil on April 1st. Petroleum Agency wants to keep the customer

happy and has the capacity to complete the order. On April 1st

30,000,000 barrels of oil is delivered to Customer B.


Oil Revenue $3,000,000,000

To recognize revenue earned on April 1st and to reduce the contra asset


Note: At April 1st, the balance in unearned oil revenue is now $0 because

Petroleum Agency has earned the entire $5,000,000,000 upon delivery of the

last 30,000,000 barrels of oil in fulfillment of this contract.

Note: Unearned revenue is also called deferred revenue.

Objectives of General Purpose Financial Reporting

• The objectives of financial reporting by public sector entities are to

provide information about the entity that is useful to users of GPFRs for

accountability purposes and for decision-making purposes.

• Financial reporting is not an end in itself. Its purpose is to provide

information useful to users of GPFRs. The objectives of financial

reporting are therefore determined by reference to the users of GPFRs,

and their information needs.



Users of General Purpose Financial Reports (GPFRs)

Governments and other public sector entities raise resources from taxpayers, donors,

lenders and other resource providers for use in the provision of services to citizens and

other service recipients. These entities are accountable for their management and use of

resources to those that provide them with resources, and to those that depend on them to use

those resources to deliver necessary services. Those that provide the resources and receive,

or expect to receive, the services also require information as input for decision-making

purposes.

The legislature (or similar body) are also primary users of GPFRs, and make extensive and

ongoing use of GPFRs when acting in their capacity as representatives of the interests of

service recipients and resource providers.

Therefore, for the purposes of the Conceptual Framework, the primary users of GPFRs are

service recipients and their representatives and resource providers and their

representatives).



Users of General Purpose Financial Reports (GPFRs)

Organizations that have the authority to require the preparation of financial reports

tailored to meet their own specific information needs may also use the information

provided by GPFRs for their own purposes―for example, regulatory and oversight bodies,

audit institutions, subcommittees of the legislature or other governing body, central agencies

and budget controllers, entity management, rating agencies and, in some cases, lending

institutions and providers of development and other assistance.

While these other parties may find the information provided by GPFRs useful, they are

not the primary users of GPFRs. Therefore, GPFRs are not developed to specifically

respond to their particular information needs.



Information Provided by General Purpose Financial Reports

Financial Position, Financial Performance and Cash Flows

Information about the financial position of a government or other public sector entity will

enable users to identify the resources of the entity and claims to those resources at the

reporting date. This will provide information useful as input to assessments of such matters

as:

• The extent to which management has discharged its responsibilities for safekeeping

and managing the resources of the entity;

• The extent to which resources are available to support future service delivery

activities, and changes during the reporting period in the amount and composition of

those resources and claims to those resources; and

• The amounts and timing of future cash flows necessary to service and repay

existing claims to the entity’s resources.





Information about the financial performance of a government or other public sector entity

will help form assessments of matters such as whether the entity has acquired resources

economically, and used them efficiently and effectively to achieve its service delivery

objectives.





Information about the cash flows of a government or other public sector entity contributes

to assessments of financial performance and the entity’s liquidity and solvency. It indicates

how the entity raised and used cash during the period, including its borrowing and

repayment of borrowing and its acquisition and sale of, for example, property, plant, and

equipment. It also identifies the cash received from, for example, taxes and investments

and the cash transfers made to, and received from, other governments, government

agencies or international organizations. Information about cash flows can also support

assessments of the entity’s compliance with spending mandates expressed in cash flow

terms, and inform assessments of the likely amounts and sources of cash inflows needed

in future periods to support service delivery objectives.



Budget Information and Compliance with Legislation or Other

Authority Governing the Raising and Use of Resources

Typically, a government or other public sector entity prepares, approves and makes

publicly available an annual budget. The approved budget provides interested parties with

financial information about the entity’s operational plans for the forthcoming period, its

capital needs and, often, its service delivery objectives and expectations. It is used to

justify the raising of resources from taxpayers and other resource providers, and

establishes the authority for expenditure of resources.



Explanatory Information/Notes to the Financial Statements

Information about the major factors underlying the financial and service delivery

performance of the entity during the reporting period and the assumptions that underpin

expectations about, and factors that are likely to influence, the entity’s future performance

may be presented in GPFRs in notes to the financial statements or in separate reports.

Such information will assist users to better understand and place in context the financial

and non-financial information included in GPFRs, and enhance the role of GPFRs in

providing information useful for accountability and decision-making purposes.

Typically, a government or other public sector entity prepares, approves and makes

publicly available an annual budget. The approved budget provides interested parties with

financial information about the entity’s operational plans for the forthcoming period, its

capital needs and, often, its service delivery objectives and expectations. It is used to

justify the raising of resources from taxpayers and other resource providers, and

establishes the authority for expenditure of resources.



Qualitative Characteristics of Financial Reporting

• Relevance

• Faithful Representation

• Understandability

• Timeliness

• Comparability

• Verifiability



Pervasive Constraints on Information Included in the GPFRs

• Materiality

• Cost Benefit

• Achieving an appropriate balance between the qualitative characteristics

What are some examples of pervasive constraints?

– Information is material if its omission or misstatement could influence the

discharge of accountability by the entity, or the decisions that users make on the

basis of the entity’s GPFRs prepared for that reporting period. Materiality

depends on both the nature and amount of the item judged in the particular

circumstances of each entity.

– Financial reporting imposes costs. The benefits of financial reporting should

justify those costs. The costs of providing information include the costs of

collecting and processing the information, the costs of verifying it and/or

presenting the assumptions and methodologies that support it, and the costs of

disseminating it.



Cash vs. Accrual Accounting

Cash Basis Accrual Basis

Expenses and revenues are recognized and recorded when

they are paid and received respectively. This results in

transparency of financial reporting of cash receipts, payments

and balances, under the cash basis of accounting.

Revenue and expenses are recorded when they are earned

and incurred respectively. This places emphasis on revenue,

expenses, assets, liability and equity, instead of primarily

cash flow.

Financials statement under the cash basis of accounting is:

• The statement of cash receipts and payments.

Financial statements presented under the accrual basis of

accounting are:

• The statement of financial position

• The statement of financial performance

• The cash flow statement

• The statement of changes in equity/net assets

Cash received is treated as revenue for the period in which it

is collected.

Processes must be in place to record and allocate collections

and revenue activity in the appropriate general ledger

accounts ie., cash, revenue, unearned (or deferred) revenue,

accounts receivable, bad debt expense, allowance for bad

debts, etc.

The financial data accumulated for purposes of financial

reporting does not provide the decision makers (financial

statement users) with the necessary tools required for an

optimal decision-making process.

The financial information provided to users facilitates a more

optimal decision-making process. For example: (1) the cost of

capital assets is spread over the useful life of these assets,

(2) accrual accounting facilitates a more effective and reliable

assessment of the health of the government’s finances.

Operational requirements are relatively simple. Operational requirements are relatively complex.

Cash vs. Accrual Accounting

Cash Basis Accrual Basis

Fewer estimates are involved. Accrual accounting requires sophisticated professional judgments

regarding physical assets, long term social programs, receivables,

debt, etc. Also, accrual accounting generally requires more

complex IT systems than cash basis accounting.

Cash basis of accounting is relatively simple. The accrual basis is more complex than traditional cash basis

accounting. The matching concept applies requiring revenues and

expenses be recognized in the period in which are earned or

incurred.

Links to the traditional budget and revenue systems are relatively

strong.

Links to the traditional budget and revenue systems are relatively

weak.

Record only transactions that result in cash receipts and cash

payments.

Record estimates and non-cash transactions as well.

Record only transactions that occur within the accounting period. Record the estimated future effects of current transactions and

policy changes.

Audit and control is relatively simple. Audit and control is relatively demanding.

IPSAS 10

Financial Reporting in Hyperinflationary Economies

Ties Back Into

Qualitative Characteristics of Financial Reporting:

Relevance, Faithful Representation, Understandability,

Timeliness, Comparability, Verifiability

Highest Monthly Inflation Rates in History

Country Currency name

Month with

highest inflation

rate

Daily inflation rateTime required for

prices to double

Hungary Hungarian Pengo July 1946 207.19% 15 hours

Zimbabwe Zimbabwe Dollar November 2008 98.01% 24.7 hours

Yugoslavia Yugoslav Dinar January 1994 64.63% 1.4 days

Republika SrpskaRepublika Srpska

DinarJanuary 1994 64.3% 1.4 days

GermanyGerman

PapiermarkOctober 1923 20.87% 3.7 days

Greece Greek drachma October 1944 17.84% 4.3 days

Wikipedia

http://en.wikipedia.org/wiki/German_Papiermark

IPSAS 10


Objective

The objective of this Standard is to prescribe the accounting treatment in the consolidated

and individual financial statements of an entity whose functional currency is the currency of

a hyperinflationary economy.

Handbook of International Public Sector Accounting Pronouncements

2013 Edition

IPSAS 10


Elements of the IPSAS 10 Scope

• An entity that prepares and presents financial statements under the accrual basis of

accounting shall apply this Standard to the primary financial statements, including the

consolidated financial statements, of any entity whose functional currency is the

currency of a hyperinflationary economy.

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

Enterprises.

• 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.


2013 Edition

IPSAS 10


Elements of the IPSAS 10 Scope

• This Standard does not establish an absolute rate at which hyperinflation is deemed to arise. It is a

matter of judgment when restatement of financial statements in accordance with this Standard

becomes necessary. Hyperinflation is indicated by characteristics of the economic environment of a

country which include, but are not limited to, the following:

The general population prefers to keep its wealth in non-monetary assets or in a relatively

stable foreign currency. Amounts of local currency held are immediately invested to

maintain purchasing power.

The general population regards monetary amounts, not in terms of the local currency, but in

terms of a relatively stable foreign currency. Prices may be quoted in that currency.

Sales and purchases on credit take place at prices that compensate for the expected loss

of purchasing power during the credit period, even if the period is short.

Interest rates, wages, and prices are linked to a price index.

The cumulative inflation rate over three years is approaching, or exceeds, 100%.


2013 Edition

IPSAS 10


The Restatement of Financial Statements

• Prices change over time as the result of various specific or general political, economic,

and social forces. Specific forces such as changes in supply and demand and

technological changes may cause individual prices to increase or decrease

significantly and independently of each other. In addition, general forces may result in

changes in the general level of prices, and therefore in the general purchasing power

of money.

• In a hyperinflationary economy, financial statements are useful only if they are

expressed in terms of the measuring unit current at the reporting date. As a

result, this Standard applies to the primary financial statements of entities reporting in

the currency of a hyperinflationary economy. Presentation of the information required

by this Standard as a supplement to unrestated financial statements is not permitted.

Furthermore, separate presentation of the financial statements before restatement is

discouraged.


2013 Edition

IPSAS 10


The Restatement of Financial Statements

• The restatement of financial statements in accordance with this Standard requires the

application of certain procedures as well as judgment. The consistent application of

these procedures and judgments from period to period is more important than the

precise accuracy of the resulting amounts, included in the restated financial

statements.


2013 Edition

Disclosure Requirements:

IPSAS 20 – Related Party Disclosures

IPSAS 20 “speaks to” transparency.

Objective

The objective of this Standard is to require 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 (a) identifying which parties control or significantly influence the reporting entity,

and (b) determining what information should be disclosed about transactions with those

parties.


2013 Edition



Scope

1. An entity that prepares and presents financial statements under the accrual basis of

accounting shall 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 Government Business

Enterprises.

Handbook of International Public Sector Accounting Pronouncements; 2013 Edition



Definitions

1. 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.

2. 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.

3. 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.




Definitions

4. Related party means parties are considered to be related if one party has the ability to (a)

control the other party, or (b) 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.

5. 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.

6. 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.




Definitions

4. Significant influence (for the purpose of this Standard) is the power to participate in the

financial and operating policy decisions of an entity, but not control those policies.




A Few Key Concepts



In considering each possible related party relationship, attention is directed to the substance of

the relationship, and not merely the legal form.

Substance over form is an accounting principle used "to ensure that financial statements give

a complete, relevant, and accurate picture of transactions and events". If an entity practices

the 'substance over form' concept, then the financial statements will show the overall financial

reality of the entity (economic substance), rather than the legal form of transactions (form). In

accounting for business transactions and other events, the measurement and reporting is for

the economic impact of an event, instead of its legal form. Substance over form is critical for

reliable financial reporting.

Handbook of International Public Sector Accounting Pronouncements-2013 Edition; Wikipedia



EXAMPLES OF SUBSTANCE OVER FORM

• A lease might not transfer ownership of the leased property to the lessee. In some

circumstances, the lessee might nevertheless be required to record the leased item as an

asset if the lessee intends to use the asset for a major portion of its useful life, or where

the present value of the future lease payments is nearly equal to the fair value of the

asset. Although the lessee is not the owner, the lessee may be required to record the

asset as being owned by the lessee based on the underlying economic reality.

• Another example is the situation where a company short of cash sells its machinery to the

bank and then leases the same property from the bank. This arrangement is called “sale

and leaseback". Although the legal ownership has been transferred to the bank, the

underlying economic reality for the company remains the same. Under the substance-

over-form principle, the sale and subsequent leaseback are considered one transaction.

• Similarly, if two companies swap their inventories, then they will not be allowed to record

sales because in substance no sales have occurred, even if they have entered into valid

enforceable contracts.

Wikipedia



Materiality

IPSAS 1 requires the separate disclosure of material items. The materiality of an item is

determined with reference to the nature or size of that item. When assessing the materiality of

related party transactions, the nature of the relationship between the reporting entity and the

related party, and the nature of the transaction, may mean that a transaction is material

regardless of its size.




Disclosure of Control

Related party relationships where control exists shall be disclosed, irrespective of

whether there have been transactions between the related parties.




Disclosure of Related Party Transactions

In respect to transactions between related parties, other than transactions that would occur

within a normal supplier or client/recipient relationship on terms and conditions no more or less

favorable than those which it is reasonable to expect the entity would have adopted if dealing

with that individual or entity at arm’s length in the same circumstances, the reporting entity shall

disclose:

a) The nature of the related party relationships;

b) The types of transactions that have occurred; and

c) The elements of the transactions necessary to clarify the significance of these

transactions to its operations and sufficient to enable the financial statements to

provide relevant and reliable information for decision making and accountability

purposes.




Examples of situations where related party transactions may lead to

disclosures by a reporting entity:

(a) Rendering or receiving of services;

Example: One of the businesses top customers is closely related to the CEO.

(b) Purchases or transfers/sales of property and other assets;

Example: A piece of real estate owned by the organization is sold to a related

party below market.

(c) Transfer of research and development;

Example: Research and development rights are transferred to the CEO’s

daughter. Not an arms length transaction and needs to be scrutinized and

documented in the financials.



Examples of situations where related party transactions may lead to

disclosures by a reporting entity:

(d) Finance (including loans, capital contributions, grants whether in cash or in kind,

and other financial support, including cost-sharing arrangements)

Example: A board member loans the organization money and is repaid.


IPSAS 30 – Financial Instruments: Disclosures

Objective

1. The objective of this Standard is to require 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; and

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.

2. The principles in this Standard complement the principles for recognizing, measuring, and

presenting financial assets and financial liabilities in IPSAS 28, Financial Instruments:

Presentation and IPSAS 29, Financial Instruments: Recognition and Measurement.




Definitions

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

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the

other party by failing to discharge an obligation.

Currency risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in foreign exchange rates.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates.

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated

with financial liabilities that are settled by delivering cash or another financial asset.




Definitions

Loans payable are financial liabilities, other than short-term trade payables on normal credit

terms.

Market risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market prices.

A financial asset is past due when a counterparty has failed to make a payment when

contractually due.




Nature and Extent of Risks Arising from Financial Instruments

An entity shall disclose information that enables users of its financial statements to evaluate the

nature and extent of risks arising from financial instruments to which the entity is exposed at the

end of the reporting period.



IPSAS 32 – Service Concession Arrangements: Grantor

A Service Concession Arrangement (SCA) in the public sector generally refers to a negotiated

contract which gives an entity the right to do business with government assets, with some

specific requirements.

Objective

The objective of this Standard is to prescribe the accounting for service concession

arrangements by the grantor, a public sector entity.




Why do Service Concession Arrangements exist?

In the public sector, SCAs typically occur between a government and a private operator. The

private operator makes a lump sum upfront payment or, for a combination of revenue sharing

and other compensation, receives the right to take operation of a capital asset (or develop a

capital asset and then operate the asset) and collect fees from third parties for a significant

period of time. In turn the operator is bound by a set of operating standards and an agreed-upon

rate schedule. Typically, the operator is responsible to return the asset at the end of the

agreement in a condition similar to that in which it was received.

An example of an SCA in the public sector includes the Indiana Toll Road being leased for 75

years for a sum of $3.8 billion.



As one would imagine, there are definite benefits to such arrangements. They allow:

• The government entity to provide specialized service to the citizens by having qualified

private operators manage the operations of the asset;

• The government to receive significant compensation that could be used for various

purposes such as debt reduction, infrastructure improvements, and enhancing reserves;

• Financial risks to be transferred to the operator.



Definitions

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

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.




Definitions

A service concession arrangement is a binding arrangement between a grantor and an

operator in which:

1) The operator uses the service concession asset to provide a public service on behalf of

the grantor for a specified period of time; and

2) The operator is compensated for its services over the period of the service concession

arrangement.




Definitions

A service concession asset is an asset used to provide public services in a service concession

arrangement that:

(a) Is provided by the operator which:

(i) The operator constructs, develops, or acquires from a third party; or

(ii) Is an existing asset of the operator; or

(b) Is provided by the grantor which:

(i) Is an existing asset of the grantor; or

(ii) Is an upgrade to an existing asset of the grantor.




Disclosure

All aspects of a service concession arrangement shall be considered in determining the

appropriate disclosures in the notes. A grantor shall disclose the following information in

respect of service concession arrangements in each reporting period:

(a) A description of the arrangement;

(b) Significant terms of the arrangement that may affect the amount, timing, and certainty of

future cash flows (e.g., the period of the concession, re-pricing dates, and the basis upon

which re-pricing or re-negotiation is determined);

(c) The nature and extent (e.g., quantity, time period, or amount, as appropriate) of:

(i) Rights to use specified assets;




Disclosure

(ii) Rights to expect the operator to provide specified services in relation to the service concession

arrangement;

(iii) Service concession assets recognized as assets during the reporting period, including existing

assets of the grantor reclassified as service concession assets;

(iv) Rights to receive specified assets at the end of the service concession arrangement;

(v) Renewal and termination options;

(vi) Other rights and obligations (e.g., major overhaul of service concession assets); and

(vii) Obligations to provide the operator with access to service concession assets or other revenue-

generating assets; and

(d) Changes in the arrangement occurring during the reporting period.



IPSAS 22 – Disclosure of Financial Information

About the General Government Sector

Objective

The objective of this Standard is to prescribe disclosure requirements for governments that

elect to present information about the general government sector (GGS) in their

consolidated financial statements. The disclosure of appropriate information about the GGS

of a government can enhance the transparency of financial reports, and provide for a better

understanding of the relationship between the market and non-market activities of the

government, and between financial statements and statistical bases of financial reporting.

Scope

A government that prepares and presents consolidated financial statements under the

accrual basis of accounting and elects to disclose financial information about the general

government sector shall do so in accordance with the requirements of this Standard.





Definitions

• The General Government Sector comprises all organizational entities of the general

government as defined in statistical bases of financial reporting.

• Government Business Enterprises (GBEs) include both trading enterprises, such as

utilities, and financial enterprises, such as financial institutions. GBEs are, in substance, no

different from entities conducting similar activities in the private sector. GBEs generally

operate to make a profit, although some may have limited community service obligations

under which they are required to provide some individuals and organizations in the

community with goods and services at either no charge or a significantly reduced charge.

Handbook of International Public Sector Accounting Pronouncements ;2013 Edition




Disclosures

Disclosures made in respect of the GGS shall include at least the following:

a. Assets by major class, showing separately the investment in other sectors;

b. Liabilities by major class;

c. Net assets/equity;

d. Total revaluation increments and decrements and other items of revenue and expense recognized directly in

net assets/equity;

e. Revenue by major class;

f. Expenses by major class;

g. Surplus or deficit;

h. Cash flows from operating activities by major class;

i. Cash flows from investing activities; and

j. Cash flows from financing activities.

The manner of presentation of the GGS disclosures shall be no more prominent than the government’s financial

statements prepared in accordance with IPSASs.

Handbook of International Public Sector Accounting Pronouncements ;2013 Edition

Mapping of IPSAS to IFRSIPSAS 1 Presentation of Financial Statements IAS 1 Presentation of Financial Statements

IPSAS 2 Cash Flow Statements IAS 7 Cash Flow Statements

IPSAS 3 Accounting Policies, Changes in Accounting

Estimates and Errors

IAS 8 Accounting Policies, Changes In

Accounting Estimates And Errors

IPSAS 4 The Effects of Changes in Foreign Exchange

Rates

IAS 21 The Effects Of Changes In Foreign

Exchange Rates

IPSAS 5 Borrowing Costs IAS 23 Borrowing Costs

IPSAS 6 Consolidated and Separate Financial

Statements

IAS 27 Consolidate & Separate Financial

Statements

IPSAS 7 Investments in Associates IAS 28 Investments In Associates

IPSAS 8 Interests in Joint Ventures IAS 31 Interests in Joint Ventures

IPSAS 9 Revenue from Exchange Transactions IAS 18 Revenue

IPSAS 10 Financial Reporting in Hyperinflationary

Economies

IAS 29 Financial Reporting in Hyperinflationary

Economies

IPSAS 11 Construction Contracts IAS 11 Construction Contracts

Mapping of IPSAS to IFRSIPSAS 12 Inventories IAS 2 Inventories

IPSAS 13 Leases IAS17 Leases

IPSAS 14 Events after the Reporting Date IAS 10 Events after the Reporting Date

IPSAS 15 Financial Instruments: Disclosure and

Presentation (Superseded)

IAS 32 Financial Instruments: Disclosure and Presentation

IPSAS 16 Investment Property IAS 40 Investment Property

IPSAS 17 Property, Plant, and Equipment IAS 16 Property, Plant, and Equipment

IPSAS 18 Segment Reporting IAS 14 Segment Reporting

IPSAS 19 Provisions, Contingent Liabilities and

Contingent Assets

IAS 37 Provisions, Contingent Liabilities and Contingent

Assets

IPSAS 20 Related Party Disclosures IAS 24 Related Party Disclosure

IPSAS 21 Impairment of Non-Cash-Generating

Assets

IAS 36 Impairment of Assets

IPSAS 25 Employee Benefits IAS 19 Employee Benefits

Mapping of IPSAS to IFRSIPSAS 26 Impairment of Cash-Generating Assets IAS 36 Impairment of Assets

IPSAS 27 Agriculture IAS 41 Agriculture

IPSAS 28 Financial Instruments: Presentation IAS 32 Financial Instruments: Presentation

IPSAS 29 Financial Instruments: Recognition and

measurement

IAS 39 Financial Instruments: Recognition and

measurement

IPSAS 30 Financial Instruments: Disclosures IFRS 7 Financial Instruments: Disclosures

IPSAS 31 Intangible Assets IAS 38 Intangible Assets

Danielle O. Jeffries, CPA

[email protected]

Economy & Finance

Danielle Jeffries IPSAS/IFRS Presentation to Delegates of the Nigerian Government's Petroleum Products Pricing Regulatory Agency