Appendix I. Current List of Ipsas Standards
Since 1997, the IPSAS Board has developed and issued 38 accrual standards, and a cash basis standard for countries moving toward full accrual accounting.
Appendix II. Accrual Basis for Fiscal Statistics
Trends in adoption of accrual accounting differ for financial accounts (or financial statements) and fiscal statistics. Indeed, while a significant number of countries have started reporting their statistics on an accrual basis (see Figure A. 1), less have followed a similar trend for their financial accounts. Indeed, fiscal statistics and fiscal statements are usually produced by different departments or offices within or outside of the ministry of finance (many countries have established independent statistical agencies). Fiscal statistics may be produced on an accrual basis despite financial accounts being on a cash basis, through making ad-hoc adjustments to cash data. Consequently, a country may produce different fiscal reports, with different basis of accounting.
However, an underlying accrual based accounting system is important for ensuring the comprehensiveness and accuracy of accrual based fiscal statistics.55 Countries that will implement a transition to accrual accounting based on the phasing described above are therefore encouraged to reflect the accrual elements reported in their financial statements in their fiscal statistics. The tables below show how the accrual stocks and flows reported in the financial statements under the three phases described in this TNM can help populate accrual based fiscal statistics in compliance with GFSM 2014.
Cavanagh and Fernandez Benito, 2015, Public Accounting and Fiscal Credibility, in Carlos Pimenta and Mario Pessoa (eds), Public Financial Management in Latin America, the Key to Efficiency and Transparency (Washington)
Danny S.L. Chow, et al., 2007, Developing Whole of Government Accounting in the UK, in Financial Accountability and Management, Volume 23.
European Commission, 2013, Report from the Commission to the Council and the European Parliament: Towards Implementing Harmonized Public Sector Accounting Standards in Member States—The Suitability of IPSAS for the Member States, Brussels, March 6, COM (2013) 114.
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)| false European Commission, 2013, Report from the Commission to the Council and the European Parliament: Towards Implementing Harmonized Public Sector Accounting Standards in Member States—The Suitability of IPSAS for the Member States, Brussels, March 6, COM ( 2013) 114.
International Federation of Accountants, 2011, Study 14, Transition to the Accrual Basis of accounting: Guidance for Public Sector Entities.
Moretti D., 2016, Accruals Practices and Reform Experiences in OECD Countries: Results of OECD 2016 Accruals Survey, Journal of Budgeting, Organization for Economic Cooperation and Development, Paris.
Price Waterhouse Coopers, 2014, Collection of information related to the potential impact, including costs, of implementing accrual accounting in the public sector and technical analysis of the suitability of individual IPSAS Standards 2013/S 107-182395.
The authors would also like to thank Richard Allen, Marco Cangiano, Ian Carruthers (IPSASB), James L. Chan, Kaitlyn Douglass, Manal Fouad, Torben Hansen, Richard Hughes, Tim Irwin, Mario Pessoa, Sandeep Saxena, Johann Seiwald, Holger Van Eden, and Ken Warren for their comments and advice. The appendix on Accrual Basis for Fiscal Statistics was produced with the assistance of Miguel Alves, Senior Economist in the Statistics Department and Fiscal Affairs Department. Delphine Moretti is a former IMF staff and now works at the OECD and Joe Cavanagh is a member of the IMF’s roster of fiscal experts.
The definition of control will vary depending on the accounting framework considered, but can be summarized as the ability to determine or govern the financial and operational policies of an entity. In addition, consolidation of entities under government control is not stricto sensu an innovation to be associated with accrual accounting, as consolidation is an important feature of fiscal statistics. It is to be noted that statistical standards have different consolidation concepts.
IPSAS uses the term “government business enterprise” rather than “public corporation”, although the definitions are broadly similar. Under IPSAS, government business enterprises should follow commercial accounting standards, although their financial results may need to be restated in IPSAS terms so as to permit their consolidation in a Whole of Government account.
A generalized description of the relationship between the government finance statistics reporting guidelines and the International Public Sector Accounting Standards can be found in Appendix 6 of the IMF’s GFS Manual 2014.
In most countries, the SAI will be responsible for certifying the final accounts prepared on an accrual basis. In this context, most SAI will have to broaden the scope of their audit, from “compliance audit” (based largely on the legality of transactions) to “financial audit” (which extends to whether the accounts give a true and fair view). This will require the SAI to adopt international audit standards (the International Standards of Supreme Audit Institutions, ISSAI, are issued by the International Organization of Supreme Audit Institutions, (INTOSAI); for more information: www.issai.org.), and train the auditors in new auditing techniques (such as the risk-based audit approach).
The IPSAS Board is proposing to make amendments to the Cash Basis IPSAS to overcome obstacles to its adoption that result from the current requirements for the preparation of consolidated financial statements and disclosures of information about external assistance and third party payments.
Such a balance sheet is not required under Cash basis IPSAS.
IPSAS 2, which stipulates the format of the cash flow statement, leaves room for interpretation as to the classification of “current” receipts and payments relating to investing and financing, such as dividends or interest received, or interest paid and other finance charges. In this Note, we follow the preferred treatment under IPSAS 2 and treat these current flows as part of operating activities, leaving investing and financing flows as those which change the stock of investment or financing. The logic is that the operating section of the cash flow statement thus more closely resembles the eventual operating statement under accruals, whilst the items under investing and financing affect only the balance sheet position.
Note that the change in the stock of debt is not explained only by cash transactions (for example, they include holding gains and losses due to currency fluctuations, and debt renegotiation and forgiveness). Therefore, including debt in the balance sheet under phase 0 implies that the balance sheet and cash flow statement will not reconcile directly: consequently, a reconciliation table needs to be disclosed in the notes to the financial statement. Countries that do not establish a balance sheet under phase 0 should at least report debt as a memorandum item until it is properly integrated into the accounts, at Phase 1.
A traditional budget presentation is to classify revenues by economic category, but expenditures by organic (i.e., organizational) category. This traditional presentation does not directly align with IPSAS 2 differentiation of operating, investing and financing flows; hence the need for a separate statement of budget performance.
Most governments operating under a cash accounting environment will also establish a statistical reporting consistent with GFSM: cash receipts are classified by nature; cash payments are classified using a functional and economic classification.
The Face value of a debt instrument is the undiscounted amount of principal to be repaid at (or before) maturity. Its nominal value at any moment in time is the amount that the debtor owes to the creditor.
Cash basis IPSAS provides more detailed guidance on how to measure and report currency effects in a cash accounting environment.
Expenditure arrears are a subset of payables that have remained unpaid beyond a specified due date for payment. In cases where no due date is specified, arrears are defined as payables that have remained unpaid after a specified number of days after the date on the invoice or contract, in accordance with a law, regulation, government payment policy, or local practice. Source: Prevention and Management of Government Expenditure Arrears, Suzanne Flynn and Mario Pessoa, Fiscal Affairs Department, IMF.
This may be difficult to achieve for countries that benefit from external assistance, for example expenses related to a project financed by a donors’ grant may be managed in separate systems, which are not monitored by the Treasury. In some cases, revenue may be recorded in a separate IT system, also. Where this is the case, procedures should be in place for ensuring that these separate IT systems are either integrated or interfaced with the main accounting system. In all cases, complete information should be communicated to the Treasury in a regular and timely manner.
The General Ledger is a central repository or database of accounting transactions which will be needed for financial reporting, and represents the backbone of an accounting system.
The double-entry book keeping system is also an error detection tool. The sum of debits and the sum of the credits must be equal in value: if the sum of debits and credits in “Cash balances” does not equal the corresponding sum of credits and debit on “Cash receipts” and “Cash payments” for all accounts, an error has occurred.
Double-entry book-keeping is a worthwhile reform from a financial integrity perspective regardless of whether a country decides to move to accruals.
From the statistical viewpoint, these transactions may be recorded differently. For example, mandatory industry contributions may be reported as taxes.
Transactions where the government receives a revenue without providing any service or good in exchange are called “non-exchange transactions” (typically, tax revenue); transactions where the government receives a revenue in exchange for a service or a good are called “exchange transactions” (for example, sale of a government’s building).
Independently from the fact that this third party has made the claim.
Statistical standards record write-offs as other economic flows.
Long term employee benefits such as pensions represent specific challenges which will be dealt with in Phase two.
IPSAS 23 deals with the receipt of such revenues, but the accounting treatment for such expenses can be imputed. A July 2015 IPSASB consultation paper “Recognition and Measurement of Social Benefits” has proposed possible accounting treatments for social benefits.
Alternatively, governments may consider preparing the new accruals statements in draft, shadow or trial run form, possibly unaudited, in parallel with the cash accounts, until full accruals reporting is possible.
See guidance in Chart of Accounts: A Critical Element of the Public Financial Management Framework, Julie Cooper and Sailendra Pattanayak, Fiscal Affairs Department, Technical Notes and Manuals, International Monetary Fund, August 2011
Social security funds, which are a special category of extra-budgetary funds, may be consolidated at the next stage of the transition to accrual accounting, as the accounting treatment of their main financial operations (operating social security schemes) entails developing some specific accounting treatments and actuarial competencies.
The draft GFSM 2014 also provides guidance in paragraphs 9.18 and 9.19.
IPSAS 1 requires a statement of changes in net assets/equity which shows movements in equity which are not recognized in the operating statement surplus or deficit. The general rule is that most changes affecting net assets should be reflected in the operating statement.
However, not all changes assets and liabilities’ values are captured in the Operating Statement. Changes such as revaluation arising from unrealized foreign exchange differences, and retrospective adjustments to reflect changes in accounting policies, will appear in the Statement of Changes in Net Assets.
That is the difference between the book value of these assets and the fair value.
Differences in pension systems and/or differences in accounting rules therefore lead to somewhat different outcomes in the financial accounts. The financial statements of the governments of Australia, Canada, New Zealand, the United Kingdom, and the United States include liabilities in relation to the pensions of government employees. In these countries as well as in most European Union countries (for example, France and Spain), the governments also provide payments to private-sector employees or to all citizens of a certain age, but these payments are not treated as creating liabilities for the government since they are viewed as ongoing social benefits. Part of the reason is that the government does not have a contractual obligation to make these payments, and it could reduce them by changing the law—though from a practical point of view the government’s room for maneuver may be very limited. Where these payments are funded by ordinary taxes, there is also a concern that to record a liability for them would not make sense unless an asset was also recorded in relation to the taxes.
In GFSM and other macroeconomic statistics, the distinction is at the instrument level, no distinction is made between investments for sale or trading and longer term investments.
Financial instruments can be either cash instruments or derivatives. Cash instruments are instruments whose value is determined directly by the markets. They can be securities, loans or deposits. Derivatives derive their value from the value and characteristics of one or more underlying entities such as an asset, index, or interest rate. They include - but are not limited to - interest rate swaps, interest rate caps and floors, and interest rate options.
For evaluating this cost, demographic and financial assumptions (such as assumptions on mortality rates, future salary levels, and discount rates) need to be established and regularly re-assessed. The fair value of any plan assets, which is deducted in determining the obligation to be recognized in the financial statements, is also to be estimated.
The concept of “non-market activity” is described in paragraph 2.65 of the Government Finance Statistics Manual (GFSM) 2014, IMF (2014).
However, not all social security schemes are managed by social security funds. For example, health or post-employment benefits specific to police or defense employees may be operated directly by the line Ministry.
See Whole of Government Accounts 2012 to 2013.
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. As of September 2015, over 200 billion SDRs had been created and allocated to members (equivalent to about US$280 billion). Countries’ holdings will comprise their allocation from the IMF net of sales and transfers of SDRs to other members.
Fair value would normally be based on market values, although the absence of a market may require other approaches, such as the market value of analogous assets, depreciated replacement cost or restoration cost.
In statistics, concept of economic ownership (as opposed to legal ownership, although in most cases they are the same) is used, this means that the economic owner is entitled to claim the benefits of ownership and accepts the associated risks.
This may be the case for some government infrastructure such as roads, prisons, or heritage assets.
A similar conceptual distinction is used in the separate standard for service concession arrangements (often referred to as PPPs).
Models for estimating the tax accrual should use the most recent available data from tax assessments and trend analyses to produce a reliable measurement of the taxable activity and the amount of tax to be collected for the period. The detailed determination as to what is sufficient to provide a reliable measurement is a matter of negotiation between the preparers of the financial reports and the auditors, with the involvement of tax forecasters so that ex ante forecasts of the debtor are not based on false assumptions about the accrual accounting methodology.
Some countries that have moved to accrual accounting have not adopted a full accrual approach for recording tax revenue.
The statistical approach is to reduce revenue rather than write down the receivable asset.
As noted in the Whole of Government Accounts, dated June 2014, that there will inevitably be differences between the forecasts and future outturns. These differences arise because of the need to make judgments on areas of uncertainty and are not indicative of deficiencies in the models. The maximum overall uncertainty is estimated and disclosed in the financial statements; it amounts to £4 million—less than 1 percent of the tax revenue reported in the operating statement.
Entities such as airlines, railways or other companies or entities owned by government may be government units themselves, if they are operating in a non-market way—entities are classified as corporations outside the general government sector only if they are market producers.
For example, the New Zealand Financial Statements show separately: core crown, crown entities, state-owned enterprises and inter segment eliminations, summed to the total crown. See: www.treasury.govt.nz/government/financialstatements
IFRSs are produced by the International Accounting Standards Board (IASB) for the private sector. IPSAS are established by the International Public Sector Accounting Standards Board (IPSASB), which is operating under the auspices of the International Federation of Accountants (IFAC). IPSAS are based where appropriate on IFRSs, with interpretation and adaptations where necessary for the public sector. Where there is no equivalent IFRS, the Board develops standards from scratch (such as, for example, the accounting treatment of tax revenue).
GFSM 2014, paragraphs 3.152-3.168. IMF (2008), Non-financial Public Sector Statistics-Consolidation, GFSM2001 Companion Material.
The European Commission has recently proposed a transition to accrual accounting for all its Members Countries, with the objective to increase the reliability of the fiscal statistics and improve regional surveillance of public finances.