PROVISIONS OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING 

STANDARDS (IPSAS)

Introduction

IPSASs set out the objectives and operating procedures of the International Public Sector Accounting 

Standards Board (IPSASB) and explains the scope and authority of the IPSASs.

The mission of the International federation of Accountants (IFAC), as set out in its constitution, is “to 

serve the public interest, strengthen the accountancy profession worldwide and contribute to the 

development of strong international economies by establishing and promoting adherence to high 

quality professional standards, furthering the international convergence of such standards, and 

speaking out on public interest issues where the profession’s expertise is most relevant.” In pursuing 

this mission, IFAC established the IPSASB.

The IPSASB (formerly Public Sector Committee (PSC) is a Board of IFAC formed to develop and 

issue under its own authority. International Public Sector Accounting Standards (IPSASs). IPSASs’ 

are high quality global financial reporting standards for application by public sector entities other than 

Government Business Enterprises (GBEs).

The IPSASB’s Consultative Group is appointed by the IPSASB. The Consultative Group is a non-voting group. It provides a means by which the IPSASB can consult with and seek advice as 

necessary from a broad constituent group. The Consultative Group is chaired by the Chair of the 

IPSASB. The Consultative Group by public sector entities other than Government Business 

Enterprises (GBEs).

The IPSASBs’ Consultative Group is appointed by the IPSASB. The Consultative Group is a non-voting group. It provides a means by which the IPSASB can consult with and seek advice as 

necessary from a broad constituent group. The IPSASB can consult with and seek advice as necessary 

from a broad constituent group. The Consultative Group is chaired by the Chair of the IPSASB. The 

Consultative Group is primarily an electronic forum.

Objective of the IPSASB

The objectives of the IPSASB are to serve the public interest by developing high quality public sector 

financial reporting standards and by facilitating the convergence of international and national 

standards, thereby enhancing the quality and uniformity of financial reporting throughout the world. 

The IPSASB achieves its objectives by:

1. Issuing International Public Sector Accounting Standards (IPSASBs);

2. Promoting their acceptance and the international convergence to these standards; and

3. Publishing other documents which provide guidance on issues and experiences in financial 

reporting in the public sector.

Scope and Authority of IPSASs

1. The IPSASB develops IPSASs which apply to the accrual basis of accounting and IPSASs which 

apply to the cash basis of accounting

2. IPSASs set out recognition, measurement, presentation and disclosure requirements dealing with 

transactions and events in general purpose financial statements.

3. The IPSASs are designed to apply to the general purpose financial statements for all public sector 

entities. Public sector entities include national governments, regional governments (for example, 

state, provincial, territorial), local governments (for example, city, town) and their component 

entities (for example, departments, agencies, boards, commissions), unless otherwise stated.

4. IPSASs are not meant to apply immaterial items.

5. The IPSASB has adopted the policy that all paragraphs in IPSASs shall have equal authority, and 

that the authority of a particular provision shall be determined by the language used.

General purpose Financial Standards

Financial statements issued for users that are unable to demand financial information to meet their 

specific information needs are general purpose financial statements. Examples of such users are 

citizens, voters, their representatives and other members of the public. The term “financial statements’ 

used in this preface and the standards covers al statements and explanatory material which is 

identified part of the general purpose financial statements.

When the accrual basis of accounting underlies the preparation of the financial statements, the 

financial statements will include the statement of financial position, the statement of financial 

performance, the cash flow statement and the statement of changes in net assets/equity. 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.

In addition to preparing general purpose financial statements, an entity may prepare financial 

statements for other parties (such as governing bodies, the legislature and other parties who perform 

an oversight function) who can demand financial statements tailored to meet their specific information 

needs. Such statements are referred to as special purpose financial statements. The IPSASB 

encourages the use of IPSASs in the preparation of special purpose financial statements where 

appropriate.

IPSASs for the Accrual and Cash bases

The IPSASB develops accrual IPSASs that:

Are converged with IFRSs issued by IASB by adapting them to a public sector context when 

appropriate, in undertaking that process, the IPSASB attempts, wherever possible, to maintain the 

accounting treatment and original text of the IFRSs unless there is a significant public sector issue 

which warrants a departure; and Deals with public sector financial reporting by IASB attempts, 

wherever possible, to maintain the appropriate. In undertaking that process, the IPSASB attempts, 

wherever possible, to maintain the accounting treatment and original text of the IFRSs unless there is 

a significant public sector issue which warrants a departure; and Deals with public sector financial 

reporting issues that are either not comprehensively dealt with in existing IFRSs or for which IFRSs 

are based on IFRSs, the IASB’s “Framework for the reparation and presentation of Financial 

Statements” is a relevant reference for users of IPSASs. The IPSASB has also issued comprehensive 

cash Basis IPSAS that includes mandatory and encouraged disclosures sections.

Due process for the development of IPSASs

The IPSASB adopts a due process for the development of IPSASs that provides the opportunity for 

comment by interested parties including IFAC members’ bodies, auditors, prepares (including finance 

ministries), standard setters, and individuals. The IPSASB also consults with its Consultative Group 

on major projects, technical issues, and work program priorities.

The ISPASB’s due process for projects normally, but not necessarily, includes the following steps:

a. Study of national accounting requirements and practice and an exchange of views about the issues 

with national standard-setters;

b. Consideration of pronouncements issued by:

- The International Accounting Standards Board (IASB).

- National standard-setters, regulatory authorities and other authoritative bodies;

- Professional accounting bodies; and

- Other organizations interested in financial reporting in the public sector;

c. Formation of steering committee (SCs), project advisory panels (PAPs) or subcommittees to 

provide input to the IPSAASB on a project;

d. Publication of an exposure draft for public comment usually for at least 4 months. This provides 

an opportunity for those affected by the IPSASB’s pronouncements to present their views before 

the pronouncements are finalized and approved by the IPSASB. The Exposure Draft will include 

a basis for Conclusion;

e. Consideration of all comments received within the comment period on discussion documents and 

Exposure Drafts, and stop make modifications to proposed standards as considered appropriate in 

the light of the IPSASB’s objectives; and

f. Publication of an IPSAS which includes a basis for Conclusions that explains the steps in the 

IPSASB’s due process and how the IPSASB reached its conclusions.

Benefits of adopting IPSASs

a) Improve accountability, transparency and disclosure of government activities and resources to the 

public.

b) Will enable the government and the public at large to assess, performance of public sector 

entities, i.e. will facilitate measurement of efficiency and effectiveness of utilization of resources 

and generation of surpluses for the future use.

c) Will improve reliability of accounts and boost the confidence of external agencies such as donors 

on dependability of accounts for example in credit worthiness analysis.

d) Will enhance comparability among entities and governments.

e) With reduced misuse of public funds, increased emphasis on performance management and 

transparency, resources will be put to their intended use. Ultimately, this will yield improved 

standards of living and sustainable economic developments.

f) Improvement in consistency in preparation and reporting of financial information. This will in 

turn enable users to draw consistent conclusions given similar sets of financial statements.

g) Will improve the audit of public institutions.

Challenges in promoting the use of IPSASs

a) Sovereignty of different countries. Each government operates independently as compared to the 

private sector and therefore promoting a culture of uniformity in reporting may not be acceptable 

to all.

b) Different countries have different reporting requirements and procedures for the government 

departments. Some government departments do not prepare financial statements for the public.

c) Countries have different laws that apply in different government departments.

d) Challenges in resources systems and personnel to implement IPSASs.

e) Language barrier.

f) Lack of political goodwill.

g) Staff resistance

IPSAS 1: Presentation of Financial Statements

The standard provides that an entity shall prepare a complete set of general purpose financial 

statements (as defined above) within six months of the reporting date. Entities are also required t6o 

disclose comparative information in respect of the previous period for all amounts reported tin the 

financial statements.

In addition, an entity is required to disclose by way of notes information about the key assumptions 

concerning the future and other key sources of estimation uncertainty at the reporting date.

The terms ``income statement”, ``balance sheet” and ``equity” as used in IAS 1 - Presentation of 

Financial Statements are replaced with ``statement of financial performance”’ ``statement of financial 

position” and `` net assets/equity” respectively in IPSAS 1.

The objective of this standard is to prescribe the manner in which general purpose financial statements 

should be presented to ensure comparability both with the entity’s financial statements of previous 

periods and with the financial statements of other entities.

This Standard shall be applied to all general purpose financial statements should be presented to 

ensure comparability both with the entity’s financial statements of previous periods and with the 

financial statements of other entities.

This standard shall be applied to all general purpose financial statements prepared and presented 

under the accrual basis of accounting in accordance with IPSASs.

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 particular information needs. Users of general 

purpose financial statements include taxpayers and ratepayers, members of the legislature, creditors, 

suppliers, the media, and employees. General purpose financial statements include those that are 

presented separately or within another public document such as an annual report.

This standard applies to all public sector entities other than Government Business Enterprises (GBEs).

Definitions

Accrual basis means a basis of accounting under which transactions and other events are recognized 

when they occur (and not only when cash or its equivalent in received or paid). Therefore, the 

transactions and events are recorded in the accounting records and recognized under accrual

accounting are assets, liabilities, net assets/equity, revenue and expenses.

Economic entity/group means a group of entities comprising a controlling entity and one or more 

controlled entities.

Government Business Enterprise (GBEs) 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 o be a going concern (other than purchases of 

outputs at arm’s length), and

e) Is controlled by a public sector entity.

GBEs include trading enterprises, such as utilizes, 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 are either no charge or a significantly reduced charge.

Purpose of Financial Statements

The objectives of general purpose financial statements are to provide information about the financial 

position, financial performance and cash flows of an entity that is useful to a wide range of users in 

making and evaluating decisions about the allocation of resources. Specifically, the objectives of 

general purpose financial reporting in the public sector should be to provide information useful for 

decision-making, and to demonstrate the accountability of the entity for the resources entrusted to it 

by:

a) Providing information about that sources, allocation and uses of financial resources;

b) Providing information about how the entity financed its activities and met its cash requirements;

c) Providing information that is useful in evaluating the entity’s ability to finance its activities and to 

meet its liabilities and commitments;

d) Providing information about the financial condition of the entity and changes in it; and 

e) Providing aggregate information useful in evaluating the entity’s performance in terms of service 

costs, efficiency and accomplishments.

General purpose financial statements can also have a predictive or prospective role, providing 

information useful in predicting the level of resources required for continued operations, the resources 

that may be generated by continued operations, and the associated risks and uncertainties. Financial 

reporting may also provide users with information:

a) Indicating whether resources were obtained and used in accordance with the legally adopted 

budget; and

b) Indicating whether resources were obtained and used in accordance with legal and contractual 

requirements, including financial limits established by appropriate legislative authorities.

To meet these objectives, the financial statements provide information about an entity’s.

(a) Assets

(b) Liabilities

(c) Net assets/equity

(d) Revenue

(e) Expenses

(f) Other changes in net assets/equity

(g) Cash flows.

Components of Financial Statements

A complete set of financial statements comprises:

a) A statement of financial position;

b) A statement of financial performance;

c) A statement of changes in net assets/equity;

d) A cash flow statements;

e) When the entity makes publicly available its approved budget, a comparison of budget and 

actual amounts either as a separate additional financial statement or as a budget column in the 

financial statements; and

f) Notes, comprising a summary of significant accounting policies and other explanatory notes.

As a minimum, the face of the statement of financial position shall include line items that 

present the following amounts:

(a) Property, plant and equipment

(b) Investment property

c. Investments accounted for using the equity method

(f) Inventories;

(g) Recoverable from non-exchange transactions 9taxes and transfers);

(h) Receivables from exchange transactions

(i) Cash and cash equivalents;

(j) Taxes and transfers payable

(k) Payables under exchange transactions;

(l)Provisions,

(m) Financial liabilities (excluding amounts shown under (j), (k) and (l); (n) Minority interest, 

presented within net assets/equity; and (o) Net assets/equity attributable to owners of the controlling 

entity.

In some cases, there may be a minority interest in the net assets/equity of the entity. For example, at 

whole-of-government level, the economic entity may include a GBE that has been partly privatized. 

Accordingly, there may be private shareholders who have a financial interest in the net assets/equity 

of the entity.

As a minimum, the face of the statement of financial performance shall include line items that 

present the following amounts for the period:

(a) Revenue; (b) Finance costs; (c) Share of the surplus or deficit of associates and joint ventures 

accounted for using the equity method; (d) Pre-tax gain or loss recognized on the disposal of assets or 

settlement of liabilities attributable to discontinuing operations; and e. surplus or deficit.

The following items shall be disclosed on the face of the statement of financial performance as 

allocations of surplus or deficit for the period:

(a) Surplus or deficit attributable to minority interest; and

(b) Surplus or deficit attributable to owners of the controlling entity.

When items of revenue and expense are material, their nature and amount shall be disclosed 

separately.

a) Write-downs of inventories to net realizable value or of property, plant and equipment to 

recoverable amount or recoverable service amount as appropriate, as well as reversals of such 

write-downs;

b) Restructurings of the activities of an entity and reveals of any provisions for the costs of 

restructuring;

c) Disposals of items of property, plant and equipment;

d) Privatizations or other disposals of investments;

e) Discontinuing operations;

f) Litigation settlements; and

g) Other reversals of provisions.

IPSAS 2: Cash Flow Statements

The standard recognizes a cash flow statement as an integral part of the financial statements. The 

standard requires entities to classify cash flows into operating, investing and financing activities using 

either the direct or indirect method for presenting operating cash flows. With regard to cash flows 

raising from transactions in a foreign currency, the standard requires such cash flows to be translated 

into the entity’s functional (local) currency using the exchange rate existing at the date of the cash 

flow. The standard further provides that an entity shall disclose by way of a note the amount of 

significant cash balances held by the entity that are not available for use by the economic entity.

Unlike IAS 7 – Cash flow statements, IPSAS 2 encourages entities to disclose a reconciliation of 

surplus of deficit to operating cash flows in the notes to the financial statements where the direct 

method is used to present cash flows from operating activities.

The cash flow statement identifies the sources of cash inflows, the items on which cash was expended 

during the reporting period, and the cash balance as at the reporting date.

Information about the cash flows of an entity is useful in providing users of financial statements with 

information for both accountability and decision making purposes.

Cash flow information allows users to ascertain how a public sector entity raised the cash it required 

to fund its activities and the manner in which that cash was used. In making and evaluating decisions 

about the allocation of resources, such as the sustainability of the entity’s activities, users require an 

understanding of the timing and certainty of cash flows. The objective of this standard is to require the 

provision of information about the historical charges 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.

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.

This standard applies to all public sector entities other than Government Business Enterprises (GBEs).

Benefits of cash flow information

a) Information about the cash flows of an entity is useful in assisting users to predict the future cash 

requirements of the entity, its ability to generate cash flows in the future and to fund changes in 

the scope and nature of its activities. A cash flow statement also provides a means by which an 

entity can discharge its accountability for cash inflows and cash outflows during the reporting 

period.

b) A cash flow statement, when used in conjunction with other financial statements, provides 

information that enables users to evaluate the changes in net assets/equity of an entity, its 

financial structure (including its liquidity and solvency) and its ability to affect the amounts and 

timing of cash flows in order to adapt to changing circumstances and opportunities.

c) It also enhances the comparability of the reporting of operating performance by different entities 

because it eliminates the effects of using different accounting treatments for the same transactions 

and other events.

d) 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.

Definitions

Cash comprises cash on hand and demand deposits including bank overdrafts which are repayable on 

demand.

Cash equivalents are short-term, highly liquid investments that are readily convertible to know 

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.

Investing activities are the acquisition and disposal of long-term assets and other investments not 

included in cash equivalents.

Operating activities are the activities of the entity that are not investing or financing activities.

Financing activities are activities that result in changes in the size and composition of the contributed 

capital and borrowings of the entity.

Presentation of a cash Flow Statement

The cash flow statement should report cash flows during the period classified by operating, investing 

and financing activities.

Operating Activities

Cash flows from operating activities are primarily derived from the principal cash-generating 

activities of the entity. Examples of cash flows from operating activities are:

a) Cash receipts from taxes, levies and fines;

b) Cash receipts from charges for goods and services provided by the entity;

c) Cash receipts from grants or transfers and other appropriations or other budget authority made by 

central government or other public sector entities;

d) Cash receipts from royalties, fees, commissions and other revenue;

e) Cash payments from other public sector entities to finance their operations (not including loans);

f) Cash payments to suppliers for goods and services;

g) Cash payments to and on behalf of employees;

h) Cash receipts and cash payments of an insurance entity for premiums and claims, annuities and 

other policy benefits;

i) Cash payments of local property taxes or income taxes (where appropriate) in relation to 

operating activities;

j) Cash receipts and payments from contracts held for dealing or trading purposes;

k) Cash receipts or payments from discontinuing operations; and

l) Cash receipts or payments in relation to litigation settlements.

Investing Activities

The separate disclosure of cash flows arising from investing activities is important because the cash 

flows represent the extent to which cash outflows have been made for resources which are intended to 

contribute to the entity’s future service delivery. Examples of cash flows arising from investing 

activities are:

a) Cash payments to acquire property, plant and equipment, intangibles and other long-term assets. 

These payments include those relating to capitalized development costs and self-constructed 

property, plant and equipment;

b) Cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;

c) Cash payments to acquire equity or debt instruments of other entities and interests in joint 

ventures (other than payments for those instruments considered to be cash equivalents or those 

held for dealing or trading purposes);

d) Cash receipts from sales of equity or debt instruments of other entities and interests in joint 

ventures (other than receipts for those instruments considered to be cash equivalents and those 

held for dealing or trading purposes);

e) Cash advances and loans made to other parties (other than advances and loans made by a public 

financial institutions);

f) Cash receipts from the repayment of advances and loans made to other parties other than 

advances and loans of a public financial institution);

g) Cash payments for futures contracts, forward contracts, option contracts and swap contracts 

except when the contracts are held for dealing or trading purposes, or the payments are classified 

as financing activities; and

h) Cash receipts from futures contracts, forward contracts, option contracts and swap contracts 

except when the contracts are held for dealing or trading purposes or the receipts are classified as 

financing activities.

Financing Activities

The separate disclosure of cash flows arising from financing activities is important because it is useful 

in predicting claims on future cash flows by providers of capital to the entity. Examples of cash flows 

arising from financing activities are:

a) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or longterm borrowings;

b) Cash repayments of amounts borrowed; and

c) Cash payments by lessee for the reduction of the outstanding liability relating to a finance lease.

Reporting Cash Flows from Operating Activities 

An entity should report cash flows from operation activities using either;

1) The direct method, whereby major classes of gross cash receipts and gross cash payments are 

disclosed; or

2) The indirect method, whereby net surplus or deficit is adjusted for the effects of transactions of a 

noncash nature, any deferrals or accruals of past or future operating cash receipts or payments, 

and items of revenue or expense associated with investing or financing cash flows.

IPSAS 3: Accounting Policies, Changes in Accounting Estimates and Errors

This IPSAS requires entities to select and apply its accounting policy, the standard requires the 

change to be applied retrospectively in the financial statements, adjusting the opening balance of each 

affected component of net assets/equity for the earliest prior period presented.

Where a change in accounting estimate gives rise to changes in the value of assets and liabilities, or 

relates to an item of net asset/equity, it shall be recognized by adjusting the carrying amount of the 

related assets, liabilities 0 net asset/equity.

Further, the standard stipulates that an entity shall correct material prior period errors retrospectively 

in the first set of financial statements authorized for issue after their discovery by restating the 

comparative amounts for prior period(s) in which the error occurred.

IPSAS 4: The Effects of Changes in Foreign Exchange Rates.

The main provisions of the standard are that, at each reporting date:

- Foreign currency monetary items (such as current assets, current liabilities and long term loans) 

shall be translated using the closing rate, which is the spot exchange rate on the reporting date.

- Non-monetary items (such as property, plant and equipment) that are measured in terms of 

historical cost in a foreign currency shall be translated using the exchange rate at the date of 

transaction. Where such assets are measured at fair value, they should be translated using the 

exchange rate at the date of transaction. Where such assets are measured at fair value, they 

should be translated suing the exchanged rate at the date when the fair value was determined.

- Exchange differences arising on translation of monetary items shall be recognized in the surplus 

or deficit for the period, while those exchange differences relating to non-monetary assets may be 

recognized either in the surplus/deficit or in the net asset/equity.

Unlike IAS 21 – The effects of changes in foreign exchange rates, IPSAS 4 contains an additional 

transitional provision allowing an entity, when first adopting IPSASs, to deem cumulative translation 

differences existing at the date of fist adoption of accrual IPSASs as zero.

IPSAS 5: Borrowing costs

The standard defines borrowing costs as ``interest and other expenses incurred by an entity in 

connection with the borrowing of funds”, The standard recognizes two alternative accounting 

treatments of borrowing costs, as follows:

i. Alternative one: Borrowing costs shall be recognized as an expense in the period in which 

they are incurred.

ii. Alternative Two: Borrowing costs shall be recognized as an expense in the period in which 

they are incurred,, except to the extent that they are capitalized. Borrowing costs that are 

directly attributable to the acquisition, construction or production of anon-current asset shall 

be capitalized as part of the cost of the asset.

IPSAS 6: Consolidated and Separate Financial Statements

The standard defines control as ``the power to govern the financial operating polices of another entity 

so as to benefit from its activities”. Where control exists, the standard requires a controlling entity to 

prepare consolidated accounts in line with the provisions of the standard, unless control is temporary.

The standard provides the following guidelines for the consolidated process:

i. The financial statements of the controlling entity and its controlled entities are combined on a 

line by line basis by adding together like items of assets, liabilities, revenues and expenses. 

Balances, transactions, revenues and expenses between entities within the economic entity 

shall be eliminated in full.

ii. The carrying amount of the controlling entity’s investments in each controlled entity and the 

controlling entity’s share of the net assets/equity of each controlled entity are eliminated.

iii. Minority interests in the surplus/deficit and net assets/ equity of the controlled entities are 

calculated and separately shown on the face of the financial statements.

IPSAS 7: Investments in Associates

An associate is defined by the standard as ``an entity, including an unincorporated entity such as a 

partnership, over which the investor has significant influence and that is neither a controlled entity nor 

an interest in a joint venture”. Significant influence is further defines as ``the power to participate in 

the financial operating policy decisions of the investee but is not control or joint control over those 

policies.

The standard requires associates to be accounted for using the equity method. Under this method:

i. The investment in the associate is initially recognized at cost and the carrying amount is 

increased or decreased to recognize the investor’s share of surplus or deficit of the investee after 

the date of acquisition.

ii. Distribution received from the investee reduce the carrying amount of the investment.

IPSAS7 applies to all investments in associates where the investor holds an ownership interest in the 

form of shareholding or other formal equity structures. In contrast, IAS 28 – Investments in 

Associates does not contain similar ownership interest requirements.

IPSAS 8: Interests in Joint Ventures

The standard defines a joint venture as `` a binding arrangement whereby two or more parties are 

committed to undertake an activity that is subject to joint control”.

The standard identifies the following forms of joint ventures:

i. Jointly controlled operations: This involves the use of the assets and other resources of the 

venturers rather than the establishment of a corporation, partnership or other entity. Each 

venture uses its own expenses and liabilities.

In respect of such operations, a venture shall recognize in its financial statements;

- The assets that it controls and the liabilities that it incurs; and

- The expenses that it incurs and its share of the revenue that is earned from the sale of 

 provision of goods 0 services by the joint venture.

ii. Jointly controlled assets: This involves the joint control, and often the joint ownership by, 

the venturers of one or more assets contributed to, or acquired for the purpose of the joint 

venture and dedicated to the purpose of the joint venture.

The standard requires that, in respect of its interest in jointly controlled assets, a venture shall 

recognize in its financial statements:

- Its share of the jointly controlled assets;

- Any liabilities that it has incurred;

- Its share of any liabilities incurred jointly with the other venturers;

- Any revenue from the sale or use of its share of the output of the joint venture, 

together with its share of any expenses incurred by the joint venture;

- Any expenses that it has incurred in respect of its interest in the joint venture.

iii. Jointly controlled entities: This involves the establishment of a corporation, partnership or 

other entity in which each venture has an interest.

The standard provides two alternatives for accounting for jointly controlled entities; the 

proportionate consolidation method and the equity method. Under the proportionate 

consolidation method;

- The statement of financial position of the venture includes its share of the assets that it 

controls jointly and its share of the liabilities for which it is jointly responsible; and

- The statement of financial performance of the venture includes its share of the revenue 

and expenses of the jointly controlled entity.

The equity method is as described in IPSAS7: Investments in Associates.

IPSAS 9: Revenue from Exchange Transactions

The objective of this standard is to prescribe the accounting treatment of revenue rising from 

exchange transactions and events. Exchange transactions are those transactions in which one entity 

receives assets or services and directly gives approximately equal value to another party (primarily in 

form of cash, goods or services).

The basic provision of the standard is that revenue should be measured at the fair value of the 

consideration received. With regard to revenue arising from interest, royalties and dividends, the 

standard provides that:-

- Interest should be recognized on a time proportion basis that takes into account the effective yield 

on the asset.

- Royalties should be recognized as they are earned in accordance with the substance of the 

relevant agreement.

- Dividends or their equivalents should be recognized when the shareholders’ or the entity’s right to 

receive payment is established.

Objective

The objective of 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.

Scope

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:

a) The rendering of services;

b) The sale of goods; and

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

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

Government Business Enterprises (GBEs) are required to comply with International Accounting 

Standards (lASs) issued by the International Accounting Standards Committee. 

Public sector entities may derive revenues from exchange or non-exchange transactions. An exchange 

transaction is one in which the entity receives assets or services, or has liabilities extinguished, and 

directly gives approximately equal value (primarily in the form of goods, services or use of assets) to 

the other party in exchange. Examples of exchange transactions include:

- The purchase or sale of goods or services; or

- The lease of property, plant and equipment; at market rates.

In distinguishing between exchange and non-exchange revenues, substance rather than the form of the 

transaction should be considered. Examples of non-exchange transactions include revenue from the 

use of sovereign powers (for example, direct and indirect taxes, duties, and fines), grants and 

donations.

The rendering of services typically involves the performance by the entity of an agreed task over an 

agreed period of time. The services may be rendered within a single period or over more than one 

period. Examples of services rendered by public sector entities for which revenue is typically received 

in exchange may include the provision of housing, management of water facilities, management of 

toll roads, and management of transfer payments.

Goods include goods produced by the entity for the purpose of sale, such as publications, and goods 

purchased for resale, such as merchandise or land and other property held for resale.

Revenue

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.

Measurement of Revenue

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.

Identification of the Transaction

The recognition criteria in this Standard are usually applied separately to each transaction.

Rendering of Services

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:

a) The amount of revenue can be measured reliably;

b) It is probable that the economic benefits or service potential associated with the transaction will 

flow to the entity;

c) The stage of completion of the transaction at the reporting date can be measured reliably; and

d) The costs incurred for the transaction and the costs to complete the transaction can be measured 

reliably.

The recognition of revenue by reference to the stage of completion of a transaction is often referred to 

as the percentage of completion method. Under this method, revenue is recognized in the reporting 

periods in which the services are rendered. For example, an entity providing property valuation 

services would recognize revenue as the individual valuations are completed. The recognition of 

revenue on this basis provides useful information on the extent of service activity and performance 

during a period. 

Revenue is recognized only when it is probable that the economic benefits or service potential 

associated with the transaction will flow to the entity. However, when an uncertainty arises about the 

collectability of an amount already included in revenue, the uncollectable amount, or the amount in 

respect of which recovery has ceased to be probable, is recognized as an expense, rather than as an 

adjustment of the amount of revenue originally recognized.

The stage of completion of a transaction may be determined by a variety of methods. An entity uses 

the method that measures reliably the services performed. Depending on the nature of the transaction, 

the methods may include:

a) Surveys of work performed;

b) Services performed to date as a percentage of total services to be performed; or

c) The proportion that costs incurred to date bear to the estimated total costs of the transaction. Only 

costs that reflect services performed to date are included in costs incurred to date. Only costs that 

reflect services performed or to be performed are included in the estimated total costs of the 

transaction.

Progress payments and advances received from customers often do not reflect the services performed.

NOTE: 

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, 

revenue should be recognized only to the extent of the expenses recognized are recoverable.

During the early stages of a transaction, it is often the case that the outcome of the transaction cannot 

be estimated reliably. Nevertheless, it may be probable that the entity will recover the transaction 

costs incurred. Therefore, revenue is recognized only to the extent of costs incurred that are expected 

to be recoverable. As the outcome of the transaction cannot be estimated reliably, no surplus is 

recognized.

When the outcome of a transaction cannot be estimated reliably and it is not probable that the costs 

incurred will be recovered, revenue is not recognized and the costs incurred are recognized as an 

expense.

Sale of Goods

Revenue from the sale of goods should be recognized when all the following conditions have been 

satisfied:

a) The entity has transferred to the purchaser the significant risks and rewards of ownership of the 

goods;

b) The entity retains neither continuing managerial involvement to the degree usually associated with 

ownership nor effective control over the goods sold;

c) The amount of revenue can be measured reliably;

d) It is probable that the economic benefits or service potential associated with the transaction will 

flow to the entity: and

e) The costs incurred or to be incurred in respect of the transaction can be measured reliably

The assessment of when an entity has transferred the significant risks and rewards of ownership tothe 

purchaser requires an examination of the circumstances of the transaction. In most cases, the transfer 

of the risks and rewards of ownership coincides with the transfer of the legal title or the passing of 

possession to the purchaser. This is the case for most sales. However, in certain other cases, the 

transfer of risks and rewards of ownership occurs at a different time from the transfer of legal title or 

the passing of possession.

If the entity retains significant risks of ownership, the transaction is not a sale and revenue is not 

recognized. An entity may retain a significant risk of ownership in a number of ways. Examples of 

situations in which the entity may retain the significant risks and rewards of ownership are:

a) When the entity retains an obligation for unsatisfactory performance not covered by normal 

warranty provisions;

b) When the receipt of the revenue from a particular sale is contingent on the derivation of revenue by 

the purchaser from its sale of the goods (for example, where, a government publishing operation 

distributes educational material to schools on a sale or return basis);

c) When the goods are shipped subject to installation and the installation is a significant part of the 

contract which has not yet been completed by the entity; and

d) When the purchaser has the right to rescind the purchase for a reason specified in the sales conduct 

and me entity is uncertain about the probability of return.

If an entity retains only an insignificant risk of ownership, the transaction is a sale and revenue is 

recognized. For example, a seller may retain the legal title to the goods solely to protect the 

collectability of the amount due. In such a case, if the entity has transferred the significant risks and 

rewards of ownership, the transaction is a sale and revenue is recognized. Another example of an 

entity retaining only an insignificant risk of ownership may be a sale when a refund is offered if the 

purchaser is not satisfied. Revenue in such cases is recognized at the time of sale provided the seller 

can reliably estimate future returns and recognizes a liability for returns based on previous experience 

and other relevant factors.

Interest, Royalties and Dividends

Revenue arising from the use by others of entity assets yielding interest, royalties and dividends 

should be recognized when:

a) It is probable that the economic benefits or service potential associated with the transaction will 

flow to the entity; and

b) The amount of the revenue can be measured reliably.

Revenue should be recognized using the following accounting treatments:

a) Interest should be recognized on a time proportion basis that takes into account tire effective yield 

on the asset;

b) Royalties should be recognized as they are earned in accordance with the substance of the relevant 

agreement; and

c) Dividends or their equivalents should be recognized when the shareholder's or the entity's right to 

receive payment is established.

The effective yield on an asset is the rate of interest required to discount the stream of future cash 

receipts expected over the life of the asset to equate to the initial carrying amount of the asset. Interest 

revenue includes the amount of amortization of any discount, premium or other difference between 

the initial carrying amount of a debt security and its amount at maturity.

Royalties, such as petroleum royalties, accrue in accordance with the terms of the relevant agreement 

and are usually recognized on that basis unless, having regard to the substance of the agreement, it is 

more appropriate to recognize revenue on some other systematic and rational basis.

Disclosure

An entity should disclose:

a) The accounting policies adopted for the recognition of revenue including the methods adopted to 

determine the stage of completion of transactions involving the rendering of services;

b) The amount of each significant category of revenue recognized during the period including revenue 

arising from:

The rendering of services:

- The sale of goods:

- Interest;

- Royalties; and

- Dividends or their equivalents; and

(c)The amount of revenue arising from exchanges of goods or services included in each significant 

category of revenue.

IPSAS 10: Financial Reporting in Hyperinflationary Economies

According to the standard, items in the statement of financial position, except monetary items, should 

be restated at the reporting date by applying a general price index. Monetary items are money held 

and assets and liabilities to be received 0 paid in determinable amounts of money.

Further, all items in the statement of financial performance are required to be expressed in terms of 

the measuring unit current at the reporting date. This is by applying a general price index from the 

dates when the items of revenue and expenses were initially recoded. The surplus or deficit on the net 

monetary position is included in the statement of financial performance.

IPSAS 11: Construction Contracts

The objective of this standard is to prescribe the accounting treatment of costs and revenue associated 

with construction contracts.

The standard requires that when the outcome of a construction contract can be estimated reliably, 

contract revenue and contract costs should be recognized as revenue and expenses respectively by 

reference to the stage of completion at the reporting date. An expected loss on the contract should be 

recognized in full immediately.

When the outcome of a construction contract cannot be estimated reliably, revenue should be 

recognized only to the extent of contract costs incurred that it is probable will be recoverable. 

Contract costs should be recognized as an expense in the period in which they are incurred.

Unlike IAS 11 – Construction Contracts, IPSAS 11 includes cost based and non-commercial 

contracts within the scope of the Standard. In addition, IPSAS 11 makes it clear that the requirement 

to recognize an expected deficit on a contract immediately it becomes probable applies only to 

contracts in which it is intended, an inception, that contract costs are to be fully recovered from the 

parties to the contract.

IPSAs 12: Inventories

The standard prescribes the accounting treatment for inventories, which are defined as assets held 

either; in the form of materials for production, in the process of production or as finished goods meant 

for sale.

The standard provides that inventories shall be measured at the lower of cost and net realizable value. 

Where inventories are acquired through a non-exchange transaction, their cost shall be measured at 

their fair value as at the date of acquisition. Where held for distribution at no charge, inventories shall 

be measured at the lower of cost and current replacement cost (that is the cost the entity would incur 

to acquire the asset on the reporting date).

IPSAS 12 goes beyond the provisions of IAS2 – Inventories y stating that, for inventories acquired 

though a non-exchange transaction for their cost is their fair value as at the date of acquisition.

IPSAS 13: Leases

The objective of this standard, a lease is classified as a finance lease if it transfers substantially all the 

risks and rewards incidental to ownership, otherwise it is classified as a finance lease.

Accounting for Finance Leases:

1. Book of the lessee

At commencement of the lease; the lessee shall recognize the lease asset and the associated lease 

liability in the statement of financial position.

- The asset and liability shall be recognized at amounts equal to the fair value of the leased 

property, or, if lower, the present value of the minimum lease payments.

- The discount rate should be the interest rate implicit in the lease, if not determinable, the 

incremental borrowing rate.

2. Books of the lessor

Lessors are required to recognize lease payments receivable under a finance lease as assets in 

their statements financial position. They shall present such assets as a receivable at an amount 

equal to the net investment in the lease.

Accounting for Operating Leases:

1. Books of lessee

Lease payments under an operating lease are required to be recognized as an expense on a straight 

line basis over the lease term. The leased asset will not be recognized in the lessee’s books.

2. Books of the lessor

Lessors are required to reflect the leased assets in their statement of financial position. Lease 

revenue from operating leases shall be recognized as revenue on a straight line basis over the 

lease term.

The standard has also included provisions relating to sale and leaseback transactions in the books 

of both lessors and lessees.

IPSAS 14: Events after the reporting date

The standard prescribes when an entity should adjust its financial statements for events after the 

reporting date together with the appropriate disclosures. An entity is required to adjust the amount 

recognized in its financial statements to reflect adjusting events after the reporting date.

The following examples are cited in the standard as examples of adjusting events:

i. Settlement after the reporting date of a court case.

ii. The receipt of information after the reporting date indicating that an asset was impaired at 

the reporting date.

iii. Determination after reporting date of the cost of assets purchased before the reporting date.

iv. Discovery of fraud or errors that show that the financial statements were incorrect.

IPSAS 15: Financial Instruments – Disclosure and Presentation

The objective of this standard is to enhance the understanding by users of financial statements of the 

significance of financial instruments to a government’s or other public sector entity’s financial 

position, performance and cash flows.

Financial instruments in this context include both primary instruments such as receivables, payables 

and equity securities, and derivative instruments such as financial options, futures and forward 

contracts.

In brief, the standard requires that:

- The issuer of a financial instrument should classify the instrument as a liability or a net 

asset/equity in accordance with the substance of the contractual arrangement.

- Interest, dividends, losses and gains relating to a financial instrument 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.

- Disclosure should be made on the entity’s exposure to interest rate risk, credit risk and other 

forms of risk. In addition, disclosure is required on the fair value of the financial instruments as at 

the reporting date.

IPSAS 16: Investment Property

The objective of this standard is to prescribe the accounting treatment for investment property and 

related disclosure requirements. In the context of the standard, investment property is property (land 

or buildings) held to earn rentals or for capital appreciation and does not include property held for use 

in production, administration or for sale in the ordinary course of business.

The standard requires an investment property to be measured initially at cost. Where acquired 

through a non-exchange transaction, its cost shall be measured at its fair values at the date of 

acquisition.

After the initial recognition, an entity may choose to value the investment property using the fair 

value model or the cost model. An entity using the fair value model shall ensure that the value of 

investment property shall reflect market conditions at each reporting date.

Unlike IAS 40 – Investment Property, IPSAS 16 also provides that, where an asset is acquired for no 

cost or for a nominal cost, its cost is its value as at the date of acquisition.

IPSAS 17: Property, Plant and Equipment

This standard is drawn primarily from IAS 16 – Property, Plant and Equipment for the public sector 

entities may include infrastructure assets.

Infrastructure assets usually display some or all of the following characteristics:

- They are part of a system or network

- They are specialized in nature and do not have alternative use.

- They are immovable

- They may be subject to constraints on disposal.

Property, plant and equipment are initially measured at cost or where acquired in a non-exchange 

transaction, at fair value. Subsequently, an entity may choose either the cost model 0 the revaluation 

model.

The main difference between the fair value model in IPSAS 16 and the revaluation model in IPSAS 

17 is that in the former, fair value has to be determined annually while in the latter, this need not be 

the case. However, under IPSAS 17, revaluations shall be made with suffi