Appendix 6. GFS and International Public Sector Accounting Standards
- Sage De Clerck, and Tobias Wickens
- Published Date:
- March 2015
This appendix provides a generalized description of the relationship between the government finance statistics reporting guidelines and the International Public Sector Accounting Standards.
A6.1 This Manual recognizes the close relationship between guidelines for reporting GFS and accruals-based public sector accounting standards. Many of the accounting rules, concepts, and procedures used in macroeconomic statistics are based on those used in public sector accounting. International developments in statistical methodology and accounting standards for the public sector have been coordinated over recent years, to improve government reporting and fiscal transparency. A government’s preparation of fiscal statistics that meet the guidelines set out in this Manual is facilitated by application of high-quality accrual accounting standards, such as International Public Sector Accounting Standards (IPSASs). This is because a comprehensive accruals accounting system greatly improves the source data necessary for compilation of GFS. Governments should be aware of the scope that exists for them to design their Chart of Accounts so that data capture works efficiently for the dual purpose of generating GFS and accounting information.
A6.2 The Task Force on Harmonization of Public Sector Accounting, created in 2003, was the first formal initiative at the international level with the objective to harmonize statistical guidelines and accounting standards. The Task Force’s major outputs were: (i) guidance in the area of public sector statistics that informed the update of the 2008 SNA, and (ii) a research report that systematically documented similarities and differences between the two reporting systems. International organizations and the International Public Sector Accounting Standards Board (IPSASB) continue efforts to align guidelines as far as possible, while identifying and reconciling unavoidable differences that may continue to exist.
A6.3 Because both IPSASs and statistical reporting guidelines are dynamic and change over time, this appendix focuses only on the basic principles that explain why the two reporting frameworks differ. Detailed information on specific differences can be found on the IPSASB’s website and through reference to individual IPSASs and detailed chapters of the GFSM 2014.
A6.4 This appendix focuses specifically on the links between GFS and IPSASs, because IPSASs are international standards and recognized as best practice for public sector financial reporting. IPSASs form a comprehensive set of full accruals accounting standards. Public sector accounting standards developed in many national jurisdictions are based on IPSASs. This means that comparison with IPSASs provides a clear, comprehensive basis for a GFS reporting guidelines comparison with accounting standards, while leaving scope for those who apply other, non-IPSAS-based, full accruals accounting standards to adjust this overview for their own national differences.
Comparison of IPSASs and GFS Reporting Guidelines
A6.5 There is considerable overlap between IPSASs and GFS reporting guidelines. This section provides a generalized description of the relationship between IPSASs and the GFS reporting guidelines, focusing on the conceptual differences that explain why the two reporting frameworks differ in certain areas. It provides a summary of how to reconcile these two very similar yet—in important ways—different sets of information. If suitable adjustments are made to address the differences described here, IPSAS-based financial reporting information can be used as a high-quality source for the data necessary for GFS reports. Independent audit of IPSAS-based financial reports enhances their reliability for GFS purposes.
A6.6 The description in this appendix is the same as the one included in Section 2 of the IPSASB Consultation Paper, IPSASs and Government Finance Statistics Reporting Guidelines.1 Readers are referred to the GFSM 2014 or the latest edition of the Handbook of International Public Sector Accounting Pronouncements for more detailed explanations of the applicable reporting guidelines and standards.
A6.7 The information provided here is at a high level, and focuses on identification of differences between the two frameworks. It is not designed to provide detailed current information about either IPSASs or GFS reporting guidelines. Detailed information on specific topics can be found through reference to individual IPSASs, the 2008 SNA, the ESA 2010, and the GFSM 2014. Both IPSASs and GFS reporting guidelines are dynamic and change over time. IPSASs, for example, have annual improvements, which typically impact on a number of different standards. The IPSASB’s Conceptual Framework Project may also result in changes to IPSASs. For the most current IPSASs and detailed information on them, it is important to refer to the Standards themselves.
A6.8 Differences between IPSASs and GFS reporting guidelines are of two main types: (i) underlying conceptual differences, and (ii) presentation and terminology differences.
Conceptual Differences between IPSASs and GFS Reporting Guidelines
A6.9 The conceptual differences between IPSASs and GFS reporting guidelines are discussed under the following headings:
Recognition criteria for some assets, liabilities, revenue, and expense
Valuation (measurement) differences for certain types of assets and liabilities
Revaluations and other volume changes.
A6.10Box A6.1 compares IPSASs and GFS reporting guidelines in these areas.
A6.11 GFS reporting guidelines and IPSASs have different objectives for the two sets of financial information produced. GFS reports are used to: (i) analyze fiscal policy options, make policy, and evaluate the impact of fiscal policies, (ii) determine the impact on the economy, and (iii) compare outcomes nationally and internationally. The focus is on evaluating the impact of the general government and public sector on the economy, and the influence of government on other sectors of the economy. The GFS reporting framework was developed specifically for public sector input to other macroeconomic accounts, although a range of countries adopt GFS reporting for their fiscal reporting, and for measuring compliance with fiscal rules. By contrast, IPSAS-based financial statements are used to: (i) evaluate financial performance and position, (ii) hold management accountable, and (iii) inform decision-making.
A6.12 Although the two sets of financial information necessary to meet these different objectives have many similarities, the different objectives do result in some fundamental differences in how and what information is reported. For example, in GFS reports, one distinction for transactions in financial assets and liabilities is whether the counterparty of the transactions is a resident or nonresident. In contrast, IPSAS-based financial statements report these transactions according to whether they are current or noncurrent assets or liabilities, with classification also in terms of their maturities and supplementary information provided on risks.
A6.13 One of the fundamental differences between GFS reporting guidelines and IPSASs relates to the definition of the reporting entity and the process of consolidation (collectively often referred to as “identification of the reporting entity boundary”). Under GFS reporting guidelines, as described in Chapter 2 of the GFSM 2014 and in Chapter 4 of the 2008 SNA, institutional units are aggregated and consolidated into statistical sectors and subsectors. The focus of statistical reporting is primarily on consolidated sectors and subsectors. Although it is theoretically possible to create GFS reports for individual institutional units, separate statistical reports for individual units are usually not disseminated. Each individual entity in the economy is analyzed with respect to its ability to hold assets and liabilities and exercise full economic ownership over them, to determine if it can be considered an institutional unit.
Box A6.1Summary Comparison of GFS and IPSASs
There is considerable commonality between IPSAS and GFS reporting guidelines. There are also some important conceptual differences within each area. Presentation and terminology differences are described in paragraph A6.34.
|Government Finance Statistics||IPSASs|
|Evaluate economic impact: Government finance statistics are used to (i) analyze and evaluate the outcomes of fiscal policy decisions, (ii) determine the impact on the economy, and (iii) compare national and international outcomes. The GFS reporting framework was developed specifically for public sector input to other macroeconomic datasets.||Evaluate financial performance and position: General purpose financial statements are used to (i) evaluate financial performance and financial position, (ii) hold management accountable, and (iii) inform decisionmaking by users of the general purpose financial statements.|
|Institutional units and sectors: The statistical reporting unit is an institutional unit, defined as an entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in economic activities in its own name. The reporting entity may be an institutional unit, but the primary focus is on a group of institutional units (consolidated sector or subsector). Control and the nature of economic activities determine consolidation and the scope of the reporting entity. The general government sector does not include institutional units primarily engaged in market activities.||Economic entity and consolidation: The reporting unit for financial statements is an economic entity, defined as a group of entities that includes one or more controlled entities. Control is the main criterion that determines consolidation. The whole of the government reporting entity, at the highest level of consolidation, may include, in addition to government departments, subnational bodies such as state governments, and government-owned businesses that primarily engage in market activities.|
|The key difference relates to some liabilities.|
|Economic events recognized: GFS recognize economic events on the accrual basis of recording when economic value is created, transformed, exchanged, transferred, or extinguished. To maintain symmetry for both parties to the transaction, some provisions recognized in IPSAS reporting may not be recognized under GFS reporting. While not recognized, those provisions may instead be disclosed as GFS memorandum items, as is the case, for example, with exposures to explicit one-off guarantees and provisions for doubtful debts.||Past events with probable outflows recognized: IPSASs recognize liabilities, including provisions, when a past economic event has taken place; the amount can be reliably estimated; and future outflows are probable.|
These factors allow, in certain cases, recognition of items that do not involve a counterparty recognizing a symmetrical amount. For example, so long as criteria are met, IPSASs require recognition of restructuring provisions.
|Current market prices: Current market prices are used for all flows and stocks of assets/liabilities, but allowance is made for the use of alternative valuation methods where an active market does not exist.||Fair value, historic cost, and other bases: Fair value, historic cost, or other bases are used for the measurement of assets and liabilities. Similar assets and liabilities must be valued consistently and the bases disclosed. Where an entity reports an item using historic cost, IPSASs often encourage disclosure of fair value if there is a material difference between the reported cost and the item’s fair value. Often IPSASs also allow entities to choose between fair value and historic cost.|
|Revaluations and other volume changes|
|Record all revaluations and changes in volume in the Statement of Other Economic Flows: Separating all these “other economic flows” is viewed as useful for fiscal analysis, on the basis that revaluations and changes in volume do not represent fiscal policy decisions directly within the control of government. GFS distinguishes between value changes and volume changes.||Realized and unrealized gains and losses: Some gains or losses due to revaluations or changes in volume of assets are reported in the Statement of Financial Performance, while others are reported directly in the Statement of Changes in Net Assets/Equity. Some other gains and losses—for example, market value changes for property, plant, and equipment carried at historic cost—are not reported at all.|
A6.14 Those government-controlled units that are primarily engaged in nonmarket (including redistributive) activities are included within the general government sector. Although all resident government-controlled entities, including public corporations engaged in market activities, are included within the public sector, nonmarket activities determine the delineation of the general government sector, as a distinct subsector within the public sector. The general government sector does not include institutional units primarily engaged in market activities. The general government sector presents consolidated data, which means that transactions and stock positions between general government sector units are eliminated.
A6.15 In IPSASs, the “reporting entity” is a government or other public sector organization, program, or identifiable activity that prepares general purpose financial reports (GPFRs). Within a jurisdiction, reports may be prepared on either a compulsory or voluntary basis. A key characteristic of a reporting entity is that there are users who depend on GPFRs for information about the entity. A reporting entity may be a “group reporting entity.”
A6.16 A group reporting entity consists of two or more separate entities that present GPFRs as if they are a single entity. A group reporting entity is identified where one entity has the authority and capacity to direct the activities of one or more other entities so as to benefit from the activities of those entities. It may also be exposed to a financial burden or loss that may arise as a result of the activities of entities whose activities it has the authority and capacity to direct. If these conditions are met, then the entity is described as a “controlling entity,” with control defined according to the principle of exercisable power to govern the financial and operating policies of another entity so as to benefit from its activities.
A6.17 The requirement to consolidate entities differs in IPSASs and GFS. Under IPSAS 6, Consolidated and Separate Financial Statements, consolidated financial statements are the financial statements of a group of entities presented as those of a single entity. This means that a controlling entity will consolidate the financial statements of all of its controlled entities, irrespective of whether they are: (i) resident units, (ii) market/nonmarket entities, or (iii) the IPSAS equivalent of a market entity—that is, a “government business enterprise” (GBE). This contrasts with the general government sector consolidation approach, described earlier, where nonresident and resident market institutional units are included as a single line showing net investment, rather than fully consolidated into the general government sector.
A6.18 Nevertheless, IPSASs provide for the disclosure of financial information about the general government sector. IPSAS 22, Disclosure of Financial Information about the General Government Sector, specifically sets aside the application of IPSAS 6 while retaining the application of all other IPSASs. This allows—though does not require—an aggregate presentation that does not consolidate controlled interests in entities in other sectors.
A6.19 IPSASs also have a requirement (see IPSAS 18, Segment Reporting) that a reporting entity provides disaggregated financial information about each of its segments. The information provided includes segment assets, liabilities, revenue, and expense. Segments are usually defined either in terms of geographical regions or services. GFS include data on expenditure by function of government.
A6.20 GFS reporting guidelines and IPSASs both aim to recognize economic events in the period in which they occur. Neither GFS reporting guidelines nor IPSASs allow the application of precaution or prudence to justify the reporting of provisions that anticipate future possible events. However, they differ in their recognition criteria for certain liabilities, because GFS treats uncertainty about future economic outflows differently from IPSASs. The effect of this difference is that IPSASs require more items to be recognized as liabilities than does GFS.
A6.21 In macroeconomic statistics, a liability is not recognized until a claim by the counterparty exists. Maintaining symmetry in the macroeconomic statistical system is a fundamental principle. Therefore, GFS guidance is that probable exposures such as contingencies and one-off guarantees should be disclosed in memorandum items, until such time as these are called. Some liabilities for government employee benefit payments and certain guarantee schemes are not contingencies, but instead are recognized as liabilities. IPSASs require that where there is a present obligation and an outflow will probably occur, the amount should be estimated and, if it can be reliably estimated, should be recognized as a liability in the statement of financial position (balance sheet).
A6.22 The key area of difference is that of “provisions,” which IPSASs define as liabilities of uncertain timing or amount (see IPSAS 19, Provisions, Contingent Liabilities and Contingent Assets, paragraph 18). Provisions include obligations for which there is no counterparty—for example, provisions for restructuring and environmental restoration. Provisions may also involve an estimate of economic outflow for a group of obligations (e.g., warranties), on the basis that it is probable that the entity will have to meet a claim by a proportion of the overall group.
A6.23 This difference with respect to liability recognition will have consequential differences for expense and asset recognition. For example, recognition of a provision for restructuring will, under IPSASs, require recognition of a related expense, because there is no compensating increase in asset value. Recognition of a provision for eventual site restoration during construction of a landfill will, under IPSASs, be capitalized, adding to the overall investment in the asset. Under IPSASs, it is also possible for an increase or decrease in the amount of a provision to occur due to an improved estimate. An increase could result in expense recognition, while a decrease could result in revenue recognition. GFS would not recognize either these changes in assets/liabilities or the resulting revenue/expense until a point in the process where another party can be identified as receiving value.
A6.24 GFS and IPSASs apply the same broad recognition criteria to assets, with the result that, with a few exceptions such as assets arising from oil and gas exploration, the same financial and nonfinancial assets are recognized. Revenue related to asset recognition is generally also reported at the same point. But other differences, such as asset measurement differences, can affect the asset value recognized and therefore the amount of revenue recognized. The timing of revenue recognition may differ due to differences between when GFS and IPSASs consider either that related obligations have been discharged or that related conditions have been removed.
Valuation (measurement) bases
A6.25 The valuation principles in GFS and IPSASs provide scope for the majority of assets and liabilities to be valued on the same basis—that is, at current market values, except where IPSASs require the use of historic cost or some other measurement basis. Both GFS and IPSASs allow proxies for current market value. For example, depreciated replacement cost can be used as a proxy for the current value of specialized assets, if no market price information is available.
A6.26 The general valuation principle of GFS is to use current market prices for all assets, liabilities, and related value changes—that is, for all stocks and flows. As explained in Chapter 3 of the GFSM 2014, where an active market does not exist, the GFS reporting guidelines recommend the use of nominal values for financial instruments, and an estimate of the value of other assets/liabilities. These estimates could be based on: (i) prices of similar products in similar markets, (ii) the costs of production of similar assets at the reporting date, or (iii) the discounted present value of expected future returns on the asset. (See also paragraphs 3.107–3.129 for a complete discussion of the valuation principles of GFS.)
A6.27 IPSASs allow, but generally do not require, the use of “fair value” for many, but not all, assets, liabilities, and related value changes. IPSASs define “fair value” as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction. This is similar to the basis for market price used in GFS. IPSASs also allow assets and liabilities to be valued at historic cost.
A6.28 Under IPSASs, financial liabilities (with some exceptions) and financial assets that are (i) held-to-maturity investments, (ii) loans and receivables, or (iii) investments in equity instruments that cannot be measured at fair value because fair value cannot be determined reliably are measured at either cost or amortized cost, usually minus impairment losses (see IPSAS 29, Financial Instruments: Recognition and Measurement). Other marketable financial instruments are measured at fair value. Employee-related liabilities and long-term provisions other than financial instruments are measured at net present value, which may approximate market price. Property, plant, and equipment (PP&E) and intangible assets can be valued either at fair value or at depreciated historic cost. Inventory is valued at cost, with a requirement to reduce to net realizable value, if the inventory’s net realizable value falls below cost. IPSASs allow investment properties to be measured at fair value, except for those for which a fair value is not reliably determinable on a continuing basis (see IPSAS 16, Investment Property, paragraph 62). Biological assets are valued at fair value minus costs to sell, provided that fair value can be reliably measured.
A6.29 Where an item is reported at its historic cost, IPSASs often encourage or require disclosure of fair value, if there is a material difference between the item’s historic cost and its fair value. For example, this is the case for property, plant, and equipment, intangible assets, and investment properties. In these three cases, the use of historic cost is optional under IPSASs. This means that governments can choose to value such assets at fair value. If an entity chooses fair value, then an initial valuation is made at cost, followed by subsequent measurements at fair value. Fair value measurement is not necessarily done annually. Interim measurements will be at the fair value determined at the most recent revaluation minus accumulated depreciation or amortization. While the choice of fair value should, theoretically, align IPSAS measurement with GFS measurement, other factors can, in practice, result in differences. Statisticians’ measurement practices can involve sampling, indexing to inflation, and other estimation techniques that can generate different values from those produced by financial accountants.
A6.30 IPSASs require disclosure of the valuation basis for assets and liabilities. This means that IPSAS information makes clear whether a current market price has been used to value assets and liabilities. If historic cost has been used to value assets or liabilities, then the IPSAS source data will need to be adjusted from historic cost to current market price before it can be used for GFS. The adjustment will be straightforward where IPSASs already require disclosure of a market price valuation, which may be the case for some types of assets and liabilities where fair value is materially different from cost.
Treatment of revaluations and other volume changes
A6.31 GFS differentiates between transactions (economic flows by mutual agreement) and other economic flows. GFS records all holding gains and losses (revaluations) and other changes in the volume of assets and liabilities in the Statement of Other Economic Flows, which separates them from transactions. This distinction is useful for fiscal analysis. Other economic flows represent economic value gained or lost due to events that are not directly under the control of the government.
A6.32 IPSASs require the majority of changes in value to be recorded in the Statement of Financial Performance. Gains and losses recorded in the Statement of Financial Performance are then included in the total net amount that flows from the Statement of Financial Performance into the Statement of Changes in Net Assets/Equity. As a result, the Statement of Changes in Net Assets/Equity reports the total impact of all recognized value changes. Some unrealized gains and losses are not allowed to be recorded in the Statement of Financial Performance and must, instead, be recorded directly in the Statement of Changes in Net Assets/Equity. The main items are foreign exchange gains and losses related to foreign subsidiaries, and revaluations of property, plant, and equipment.
A6.33 Traditionally, the distinction between realized and unrealized gains/losses was viewed as the main difference between items recorded in the Statement of Financial Performance versus those excluded from this statement and, instead, recorded only in the Statement of Changes in Net Assets/Equity. The Statement of Financial Performance was viewed as showing realized gains/losses, while the Statement of Changes in Net Assets/Equity showed unrealized gains/losses. However, IPSASs now require many unrealized value changes to be included in the Statement of Financial Performance. For example, value changes due to unrealized revaluations of employee liabilities and impairments are included in the Statement of Financial Performance. The two main exceptions recorded in the Statement of Changes in Net Assets/Equity (foreign exchange fluctuations and revaluations of property, plant, and equipment, and intangible assets) are both unrealized, but they are also viewed as potentially obscuring an entity’s financial performance, partly because they are viewed as outside of management’s control, and partly because gains in one year may be reversed in subsequent years.
Presentation and Terminology Differences
A6.34 Presentation and terminology differences between IPSASs and GFS reporting guidelines also exist. As a result, the GFS and IPSAS financial statements and disclosures look different, even though the information reported is largely the same, apart from the recognition and measurement differences discussed elsewhere in this paper. This subsection describes the main presentation and terminology differences between GFS guidance and IPSAS requirements.
A6.35 The main presentation and terminology differences are as follows:
Different names for the IPSAS equivalents of the GFS statements.
The types of classification structures included in the balance sheet (statement of financial position), operating statement (statement of financial performance), and cash flow statement for the two reporting frameworks differ, which, in some cases, also necessitate differences in terminology.
GFS sets out a minimum level of detail for a comprehensive list of standard line items that all entities must report in their GFS statements, while IPSASs establish a minimum set of standard line items, while providing principles and guidance on further line items that a reporting entity may need to report.
The way in which additional information about the data is disclosed differs in the two frameworks.
The definition and/or value of key statement totals (such as total assets, net worth, total revenue, and surplus/deficit) may differ.
A6.36 Each of these main differences is discussed in paragraphs A6.37–A6.46.
Different names for statements
A6.37 The IPSAS equivalents to the GFS statements have different names (see IPSAS 1, Presentation of Financial Statements). The IPSAS equivalent to the GFS Balance Sheet is a “Statement of Financial Position,” although “Balance Sheet” and “Statement of Assets and Liabilities” are acceptable alternatives under IPSASs. The IPSAS equivalent to the GFS Statement of Operations is a “Statement of Financial Performance,” although “Income Statement,” “Statement of Revenues and Expenses,” “Operating Statement,” and “Profit and Loss Statement” are acceptable alternatives under IPSASs. The GFS Statement of Other Economic Flows is partly captured in the IPSAS “Statement of Changes in Net Assets/Equity” and partly in the IPSAS “Statement of Financial Performance.” The IPSAS equivalent to the GFS Statement of Sources and Uses of Cash is called a “Cash Flow Statement.”
A6.38 IPSAS financial statements may also include a “Comparison of Budget and Actual Amounts,” for which there is no GFS equivalent. This information must be provided by all entities that publish an approved budget (see IPSAS 1, Presentation of Financial Statements and IPSAS 24, Presentation of Budget Information in Financial Statements). It is presented either as a separate financial statement or as additional columns in the financial statements. A separate statement must be used when the budget is on a different basis from the actual reported results. For example, if the budget is prepared on a cash basis, while the results reported in financial statements are prepared on an accrual basis, the Comparison of Budget and Actual Amounts Statement is separate. If they are prepared on the same basis, the budgeted amounts can be fully integrated into the financial statements through the use of additional columns, and a separate statement is not necessary.
A6.39 The GFS reporting guidelines classify and group items in its statements differently from IPSASs. At the highest level, the terminology used for classifications is the same—for example, assets, liabilities, revenue, and expense. However, within these items there are conceptual differences and differences in the structure of subclassifications. The differences reflect the different objectives of the two information sets. For example, IPSASs require that assets and liabilities be presented as current or noncurrent, or that a liquidity structure be followed. This is important for assessing an entity’s liquidity and solvency. GFS does not make this distinction in its core statements, but allows a supplementary table on the maturity structure of government’s financial assets and liabilities to be compiled. However, GFS requires that assets be presented as financial or nonfinancial, which IPSASs do not require.
A6.40 For GFS, standardized economic and functional classifications serve the specific objectives of: (i) comparability of the accounts of various government entities and subsectors, and (ii) international comparability. These classifications are devised to evaluate the impact of the general government and public sector on the economy as a whole, and to identify government’s involvement with other sectors. For example, financial assets and liabilities are classified and presented according to whether they are domestic or foreign instruments, to allow an assessment of the government’s interaction with the rest of the world. Such a classification is important because fiscal policy decisions on domestic versus foreign instruments are based on different criteria, and also because this classification allows the derivation of a government’s impact on the balance of payments of the country. IPSASs do not require this distinction. The standardized GFS presentation also allows the calculation and comparison of analytical measures of fiscal policy, such as the primary balance, tax incidence ratio, expenditure by function, etc.
A6.41 Counterparty information is collected for both GFS and IPSAS reporting. The GFS economic classification requires counterparty information for flows and stocks (balance sheet) to be reported as standard line items. These identify items for consolidation, and establish the linkages with other sectors of the economy. IPSASs generally do not require counterparty information to be reported on the face of the financial statements or their related notes. However, IPSASs do require counterparty information to be collected: (i) by a parent entity to identify intra-group transactions, so that the entity can eliminate those in preparing the consolidated financial statements, and (ii) by a subsidiary to identify transactions with the parent entity and other entities that are under common control, so that information about those transactions can be disclosed in the notes. Counterparty information can also be important for risk-related note disclosures and related party disclosures.
Minimum level of detail
A6.42 GFS requires a minimum level of detail to be reported according to a comprehensive list of standard items. The level of detail is presented in standardized items to facilitate consistency over time, comparability, and consolidation of data across units and sectors. However, preparers may choose to provide additional detail.
A6.43 IPSASs also require some minimum items to be reported. However, presentation is less prescriptive compared to GFS reporting, with preparers required to make decisions about what items are shown, with reference to the purposes and understandability of statements, information relevance, and the principle that material items should be presented separately in the financial statements (see IPSAS 1). For example, preparers may choose between a presentation based on nature or function.
Disclosure of additional information
A6.44 To facilitate the correct interpretation of their GFS reports, compilers are encouraged to present information on the sources, methods, and procedures of the statistics as metadata or footnotes to statistical reports. In particular, information that may have an impact on assessing the statistics should be disclosed in the statistical reports. GFS also uses standard categories of memorandum items to report on items that are not reported in the body of the statements.
A6.45 IPSASs require that information that may have a significant impact for users be disclosed in notes to the financial statements. Notes include a summary of significant accounting policies. They also include further detailed information about individual items reported on the face of a statement—for example, (i) a breakdown of property, plant, and equipment into classes, (ii) information about items that are not recognized but nonetheless important (e.g., contingencies), and (iii) risk information related to financial instruments.
A6.46 GFS information is usually presented as a time series of data, so that comparative data for multiple years are presented at the same time. The periodicity of these data could be monthly, quarterly, or annually. IPSASs require only annual reporting, but allow more frequent reporting. Consistent GFS time series may be very long, decades for some countries. Following from this, corrections to data will be required to be made in the period in which errors occurred, irrespective of when the need for such corrections is determined. Financial statements presented according to IPSASs require comparative information for only one previous year, though the number of years involved in calculating adjustments of prior year figures for policy changes and errors is not specified.
Mapping from IPSAS financial statement aggregates to GFS aggregates
Total assets and total liabilities
A6.47 Some broad classification differences exist between the classification of assets and liabilities in GFS and IPSASs.
GFS classify assets and liabilities in terms of whether they are financial or nonfinancial. IPSASs do not require assets and liabilities to be grouped in these terms, nor do they require summary totals for financial and nonfinancial assets. However, they do require financial and nonfinancial assets and liabilities to be separately disclosed, which means that there is sufficient information in an IPSAS statement of financial position (balance sheet) to determine totals for financial and nonfinancial assets and liabilities.
GFS classify financial assets and liabilities into domestic and foreign. IPSASs do not use this classification, although some of these disclosures may be included in an entity’s risk management disclosures related to financial instruments.
GFS classify assets and liabilities according to standardized GFS characteristics and purposes, which can differ from the classifications required by IPSASs. For example, in IPSASs, the classification of property is determined by whether it is an investment property, while GFS distinguishes property according to whether it is a produced/ nonproduced asset and whether it is a dwelling, other building, other structure, or land improvement. IPSASs classify financial instruments into whether they are for trade or to be held until maturity, whether liabilities are employee liabilities, and whether provisions relating to environmental restoration all differ from the GFS classification.
A6.48 The GFS concept of net worth plus equity (also referred to as own funds) is equal to IPSASs’ net assets/equity:
In GFS, net worth for a specific period is defined as total assets minus total liabilities. The balance sheet opening net worth + operating balance + changes in all assets and liabilities due to other economic flows = balance sheet closing net worth.
According to IPSASs, net assets/equity is calculated as the opening net assets/equity + surplus/ deficit + items shown directly on changes in equity statement = closing net assets/equity. Net assets/equity is also equal to the net of all assets minus liabilities, excluding equity.
A6.49 These differences in the calculation of the net balancing item primarily result from the differences between how GFS and IPSASs allocate items to their respective statements (GFS showing other economic flows separately). In addition, it should be noted that, in the GFS net worth concept, equity is treated symmetrically as part of financial assets and liabilities—that is, equity investments within assets, and any equity of the government entity held by nongovernment units—usually rare for government entities—within liabilities. In contrast, the IPSAS net assets/equity concept includes equity that GFS treats as a liability, whereas investments in another entity’s equity are recognized as financial assets.
A6.50 In addition to these presentational differences, the values of these items can also differ due to valuation and recognition differences.
Revenue and expense
A6.51 Although the GFS and IPSAS accrual concepts of revenue and expense are different, they can be reconciled as follows:
GFS revenue + other economic inflows = IPSAS revenue + economic inflows recognized directly in Statement of Changes in Net Assets/Equity
GFS expense + other economic outflows = IPSAS expense + outflows recognized directly in Statement of Changes in Net Assets/Equity.
A6.52 IPSASs refer to materiality as a classification criterion for revenue and expense. In this context, GFS requires reporting on standard items. In addition to the economic classification (as shown), the GFSM 2014 and the SNA/ESA also have a Classification of Functions of Government (COFOG).
A6.53 Under IPSASs and GFS, cash flows resulting from acquisitions or disposals of assets are recognized in the Cash Flow Statements. However, in the accrual-based accounts, the time of recording asset revaluations and the statement in which changes in valuations are recorded may differ. Under IPSASs, assets may be recorded at historical cost or fair value, depending on their nature. Any gain or loss on disposal is a realized holding gain or loss recorded in revenue and expense at the time of disposal. As such, these gains/losses are shown as part of the surplus/ deficit that is recognized in the Statement of Financial Performance. Under GFS, assets are valued at current market prices and any holding gains or losses are recognized as they occur. These valuation changes are reflected in the Statement of Other Economic Flows. For assets disposed of at prices different from the valuation of the asset, it is deemed that such an other economic flow occurred right before disposal, so that at disposal there is no gain or loss reflected in the Statement of Operations. Therefore, the amounts of revenue/expense recognized will differ from that recorded under IPSASs.
Consumption of fixed capital (assets)
A6.54 In theory, the GFS concept of consumption of fixed capital differs from the IPSAS concept of “depreciation.” The IPSAS concept of “depreciation” involves allocating changes in an asset’s historic cost or current value to the reporting period in which the asset is used, as a measure of the asset’s consumption. The GFS concept of consumption of fixed capital is based on a current value concept—described in the 2008 SNA (paragraph 6.240) as the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence, or normal accidental damage. Consumption of fixed capital is a forward-looking measure that is determined by the benefits that institutional units expect to derive in the future from using the asset in production over the remainder of its service life. In practice, consumption of fixed capital is usually calculated according to aggregated asset groups using a model approach.
A6.55 In practice, depreciation would approximate GFS consumption of fixed capital, if similar valuation methods and service lives are assumed for assets, and IPSAS-based asset values are close to replacement values through revaluations. Where IPSAS asset values are based on historic cost values, depreciation would usually represent an underestimate of consumption of fixed capital. The difference will be large for governments that have a large stock of fixed assets, as many governments do.
A6.56 The GFS net operating balance is calculated in the same way as the IPSAS “surplus/deficit.” Both are calculated as revenue minus expense. However, the value of these two balancing items is likely to differ, because there may be differences between items included in the GFS revenue and expense and those included in IPSAS revenue and expense. This difference can be mainly attributed to the conceptual difference in the treatment of other economic flows.