Government Accounting and IPSAS
Accounting
Government Accounting and IPSAS
Syllabus tag: KASNEB CPA | Advanced Level | CA35S2 Advanced Public Financial Management
1. Government accounting bases
Cash basis: records transactions only when cash is received or paid. Simple to operate; does not capture assets, liabilities, or commitments. Traditional basis used by many governments, including Kenya historically.
Modified cash basis: extends cash accounting to include some accrual elements (e.g. recording accounts payable and receivable at year-end). A transitional approach.
Accrual basis: records revenue when earned and expenses when incurred, regardless of cash flows. Produces a full balance sheet showing assets, liabilities, and equity. Provides the most comprehensive picture of the government's financial position. Kenya is transitioning towards accrual-based IPSAS.
2. IPSAS — International Public Sector Accounting Standards
The IPSAS Board (IPSASB) issues standards for public sector entities. Key standards:
IPSAS 1 — Presentation of Financial Statements: the primary financial statements are the statement of financial position, statement of financial performance, statement of changes in net assets/equity, cash flow statement, and comparison of budget and actual amounts.
IPSAS 17 — Property, Plant and Equipment: public sector assets measured at cost or revalued amount, less accumulated depreciation and impairment losses. Depreciation applied over the useful life using straight-line or reducing balance method.
IPSAS 23 — Revenue from Non-Exchange Transactions: recognises revenue from taxes, grants, and donations when: the government controls a resource that embodies future economic benefits; it is probable that economic benefits will flow to the government; and the fair value can be reliably measured. No performance obligations (unlike IFRS 15).
IPSAS 25 — Employee Benefits: accounting for pensions and post-employment benefits, actuarial valuation of defined benefit pension obligations.
IPSAS 29 — Financial Instruments: recognition and measurement of financial assets and liabilities held by public sector entities.
3. Depreciation of government assets
Under IPSAS 17, public assets subject to depreciation include: buildings, plant and equipment, vehicles, and infrastructure assets. Land and heritage assets are typically not depreciated.
Annual depreciation = (Cost – Residual value) / Useful life
Net book value = Cost – Accumulated depreciation
Revaluation: if an asset class is revalued, the entire class must be revalued. Revaluation surplus goes to equity (other comprehensive income); revaluation deficit goes to the statement of financial performance unless a surplus exists for that asset.
4. Public sector vs private sector accounting
Key differences: government has no profit objective; revenue is mainly from non-exchange transactions (taxes); accountability is to the public and Parliament, not shareholders; service delivery (outputs and outcomes) is the primary measure of performance, not profit.