NAME: PRUDENCE MBINGU SEMBUASTUDENT NUMBER: 657092COURSE: FIN4120 ” PENSIONS AND INSURANCEINSTRUCTOR: JOHN KURIASEMESTER: SUMMER 2019TASK: INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS)DUE DATE: 18/07/2019CONTENTS1.0 INTRODUCTION 3OVERVIEW OF IPSAS 3ENTITIES THAT APPLY IPSAS 10CHALLENGES FACED IN IMPLEMENTATION OF IPSAS IN THE PUBLIC SECTOR 11EXAMPLE OF A STATEMENT OF FINANCIAL PERFOMANCE 12STATEMENT OF RECEIPTS AND PAYMENTS 12REFERENCES……………………………………………………………………………………….15 INTRODUCTIONInternational Public Sector Accounting Standards (IPSAS) are issued by the International Public Sector Accounting Standards Board (IPSASB) which is supported by the International Federation of Accountants (IFAC).
The International Public Sector Accounting Standards Board works to improve public sector financial reporting worldwide through the development of IPSAS, international accrual-based accounting standards, for use by governments and other public sector entities around the world. From 2015, IPSASBs strategy is to increase public financial knowledge and and management universally through adoption of accrual based accounting International Public sector accounting standards through:1. Developing high-quality public sector financial reporting standards2. Developing other publications for the public sector; and3. Raising awareness of the IPSASs and the benefits of their adoption.
IPSAS have been implemented in Kenya since 1st July 2014.Prior to that, the government was relying on Public Finance MANAGEMENT Act, 2012.OVERVIEW OF IPSASThere are 42 Standards that guide reporting in the public sector.1. Presentation of Financial Statements:This standard specifies that financial statements should include, Statement of Profit and Loss and other comprehensive income Statement of financial position Statement of Cash flows and Statement of Net Assets Publicly available comparison of budget and actual amounts Notes to the accounts. This standard is based on IAS 1.
2. Cash flow StatementThis should be prepared and presented as part of the financial statements.3. Accounting policies, changes in accounting estimates and errorsThe standard includes selection of accounting standards for presentation of financial statements according to IPSAS 1. The policies need not be applied where the effect is immaterial.4. The effects of changes in foreign exchange ratesThe Standard requires that when a foreign investment forms part of a reporting entity’s net investment, exchange differences arising on this are recognized initially in a separate component of net assets/equity in the financial statements that include the foreign operation and the reporting entity. 5. Borrowing CostsThis standard is based on IAS 23 and specifies that Borrowing costs should be recognized as an expense in the period in which they are incurred.6. Consolidated and Separate Financial statements.The Standard requires an entity to consider the existence and effect of potential voting rights currently exercisable or convertible when assessing whether it has the power to govern the financial and operating policies of another entity7. Investments in AssociatesThis guides the investments that take the form of shares and not veture capital or unit trusts.8. Interests in Joint VenturesThis guides accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, revenue and expenses in the financial statements of ventures and investors, regardless of the structures or forms under which the joint venture activities in occurrence.9. Revenue from Exchange TransactionsExchange transactions are transactions in which one entity receives assets or services, or has liabilities extinguished, and directly gives approximately equal value in exchange. Revenue includes only the gross inflows of economic benefits or service potential received and receivable by the entity on its own account.10. Financial Reporting in Hyper Inflationary EconomiesWhen reporting in such an environment, the figures should be adjusted by the inflation rate since money loses its value with inflation. The adjustment is based on estimation.11. Construction ContractsThis standard regulates the revenue and costs that arise from construction contracts.12. InventoriesThe objective of this standard is outline the accounting for inventories. An 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 guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. 13. LeasesThis standard provides the lessees and lessors with the appropriate accounting policies and disclosures to apply in relation to finance and operating leases.14. Events after the reporting Date It states when an entity should adjust its financial statements for subsequent events and the disclosures to be made for the same.15. Financial Instruments: Disclosure and PresentationThis standard specifies the disclosures to be made on the financial statements. These include: Interests in Associates and Joint ventures.16. Investment PropertyThis standard specifies the treatment of assets held by public interest companies for capital appreciation.17. Property, Plant and Equipment This standard prescribes the accounting treatment for property, plant and equipment so that users of financial statements can understand the information about an entity’s investment its property, plant and equipment and any changes associated with this.18. Segment ReportingThis standard enhances the transparency of financial reporting by disclosing the associated segments.19. Provisions, Contingent liabilities and contingent AssetsThe aim of this standard is to identify the circumstances in which provisions should be recognized, how they should be measured and the disclosures that should be made about them. The standard also requires that certain information be disclosed about contingent liabilities and contingent assets in the notes to the financial statements to enable users to understand their nature, timing and amount.20. Related Party DisclosuresThe standard states how the public interest entities are to account for other with significant interest in the entity.21. Impairment of non-cash generating assetsThis standard outlines the recognition of impairment losses on assets that are not held to generate income.22. Disclosure of Information about the government General Sector.This is to give sector specific requirements for which the entity operates in.23. Revenue from non-exchange transactionsThese are transactions where one of the parties receives something of value without necessarily giving something of matching value.24. Presentation of Budget Information in Financial Statements 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 for them to be publicly accountable.25. Employee BenefitsThis outlines that what employees are paid in exchange for their services should be exposed as it is a liability.26. Impairment of Cash Generating AssetsThis standard outlines how to account for impairment of assets held to generate incomes.27. AgriculturePrescribes the accounting treatment and disclosures related to agricultural activity. It deals mainly with the accounting treatment for biological assets during the period of growth, degeneration, production, and procreation, and for the initial measurement of agricultural produce at the point of harvest.28. Financial Statements: PresentationIt 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.29. Financial Instruments: Recognition and MeasurementThis standard establishes the principles for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.30. Financial Instruments: DisclosuresThe significance of financial instruments for the entity’s financial position and performance and the nature of risks associated with these instruments.31. Intangible AssetsIt 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.32. Service Concession AgreementsService concession arrangements in the public sector are characterized by binding arrangements that involve private sector participation in the development, financing, operation and/or maintenance of assets used to provide public services. This standard explains the accounting for these agreements.33. First Time Adoption of Accrual BasisThis standards prescribes accounting for entities transitioning to IPSAS. It allows first-time adopters three years to recognize specified assets and liabilities. This allows for ample time to set reliable accounting standards.34. Separate Financial StatementsFor an entity in a group, the entity has to present both the company and consolidated financial statements.35. Consolidated financial StatementsA controlling entity is required to present consolidated financial statements showing all the entities it has interest in.36. Investments in Associates and Joint VenturesUpon initial recognition, the investment in an associate or a joint venture is recognized at cost and the carrying amount is increased or decreased to recognize the investor’s share of the surplus or deficit of the investee after the date of acquisition.37. Joint ArrangementsEntities with joint control should assess the arrangement to determine the control the entity have on decision making.38. Disclosure of Interests in other EntitiesThis standard specifies the classification of various interests that an entity may have in other entities.39. Employee BenefitsThis standard is a replacement to IPSAS 25. It provides for accounting treatment of short term benefits and post-employment benefits.40. Public Sector CombinationsThis guides amalgamation of entities.41. Financial InstrumentsThis guides accounting for equity instruments, liabilities, derivatives and hedging. This includes classification and measurement for reporting purposes.42. Social BenefitsThis standard guides accounting for benefits given to employees to mitigate social risk. These should be recognized as liabilities.ENTITIES THAT APPLY IPSASPublic sector organizations may exist at any of four levels: International (multistate entities or partnerships) National (an independent state). Regional (a province/state within a national state). Local (a municipal-level body such as a city or county). At any of these levels, the public sector generally consists of at least three types of organizations. Core government consists of a governing body with a defined territorial authority. Core governments include all departments, ministries, or branches of the government that are integral parts of the structure, and are accountable to and report directly to the central authority ” the legislature, council, cabinet, or executive head.Agencies consist of public organizations that are clearly a part of the government and deliver public programs, goods, or services, but that exist as separate organizations in their own right ” possibly as legal entities ” and operate with a partial degree of operational independence. They often, but not necessarily, are headed by a board of directors, commission, or other appointed body.Public enterprises are agencies that deliver public programs, goods, or services, but operate independently of government and often have their own sources of revenue in addition to direct public funding. They also may compete in private markets and may make profits. However, in most cases the government is the major shareholder, and these enterprises partly follow the acts and regulations that govern the core government. State businesses are government owned and controlled businesses that sell goods or services for profit in the private market. Although they do not deliver what would be considered public programs, goods, or services, they might be considered part of the public sector. Public contractors are legally independent entities outside government that receive public funding ” under contract or agreement ” to deliver public programs, goods, or services as their primary business. Due primarily to their limited public control, these organizations usually would be classified as not-for-profit or private sector entities. CHALLENGES FACED IN IMPLEMENTATION OF IPSAS IN THE PUBLIC SECTOR Lack of legal frameworkA wee defined framework for the implementation of this does not exist for facilitation of the implementation of the standards. Lack of Government SupportThe government is reluctant to offer the necessary support to equip public entities with the knowledge for implementation. Systems and ProceduresFor most public entities, there are lacking accounting manuals to provide a guide on the IPSAS. Lack of qualified personnel.The government does not have qualified accountants with knowledge and skills to apply the IPSAS.EXAMPLE OF A STATEMENT OF FINANCIAL PERFOMANCESTATEMENT OF RECEIPTS AND PAYMENTS Note 2014-2015 2013-2014 Kshs KshsRECEIPTS Tax Receipts 1 Xxx xxxSocial Security Contributions 2 Xxx xxxProceeds from Domestic and Foreign Grants 3 Xxx xxxExchequer releases 4 Xxx xxxTransfers from Other Government Entities 5 Xxx xxxProceeds from Domestic Borrowings 6 Xxx xxxProceeds from Foreign Borrowings 7 Xxx xxxProceeds from Sale of Assets 8 Xxx xxxReimbursements and Refunds 9 Xxx xxxReturns of Equity Holdings 10 Xxx xxxOther Receipts 11 Xxx xxx TOTAL RECEIPTS xxx XXX PAYMENTS Compensation of Employees 12 xxx xxxUse of goods and services 13 xxx xxxSubsidies 14 xxx xxxTransfers to Other Government Units 15 xxx xxxOther grants and transfers 16 xxx xxxSocial Security Benefits 17 xxx xxxAcquisition of Assets 18 xxx xxxFinance Costs, including Loan Interest 19 xxx xxxRepayment of principal on Domestic and Foreign borrowing 20 xxx xxxOther Payments 21 xxx xxx TOTAL PAYMENTS xxx xxx SURPLUS/DEFICIT xxx xxx REFERENCES PSASB (2015). IPSAS Adoption and Implementation in Kenya. Retrieved from: (2019). Cash to Accrual and IPSAS. Retrieve from: Public Sector Standards. Retrieved from: Books Online (2019). IPSAS. Retrieved from: The public sector accounting standards board(PSASB)Retrieved from: National Treasury (2019). Retrieved from:
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