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Global govt accounting standards By CA Rajkumar S Adukia, mumbai B. Com. , FCA, Global govt accounting standards By CA Rajkumar S Adukia, mumbai B. Com. , FCA, ACS, ACMA, MBA, LLB Chairman committee on govt accounting ICAI 098200 61049 [email protected] in 1

Session Agenda l l Session approach – dialogue and NOT monologue Quick Overview of Session Agenda l l Session approach – dialogue and NOT monologue Quick Overview of basic concepts Accounting Standards for local bodies Q & A 2

E JESSICA COX “He is able , who thinks he is able. ”-Buddha 3 E JESSICA COX “He is able , who thinks he is able. ”-Buddha 3

Book keeping and accounting l Book keeping is simply recording the transactions l Accounting Book keeping and accounting l Book keeping is simply recording the transactions l Accounting includes book keeping and goes to advance level of making financial statements and other management information systems 4

What is Accounting? It is the systematic l recording, l reporting, and l analysis What is Accounting? It is the systematic l recording, l reporting, and l analysis of financial transactions of an entity. Accounting allows an enterprise to analyze the financial performance of the enterprise, and look at statistics such as net profit/objectives achieved. 5

Accounting Standards l l Accounting Standards aim at standardizing different accounting policies and practices. Accounting Standards l l Accounting Standards aim at standardizing different accounting policies and practices. eg packing & forwarding exp, depreciation etc. GAAP is a term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as Accounting Standards.

Accounting Standards l Country based GAAPs • Commercial GAAPs - AS issued by ICAI Accounting Standards l Country based GAAPs • Commercial GAAPs - AS issued by ICAI • Non Commercial GAAPs - ASLB, IPSAS, GASAB l International GAAP

Various Indian Accounting Standards l l l Accounting Standards issued by ICAI Companies (Accounting Various Indian Accounting Standards l l l Accounting Standards issued by ICAI Companies (Accounting Standard) Rules, 2006 Accounting Standards for Local Bodies issued by ICAI Standards issued under Sec 145 of the Income Tax Act 1961 GASAB standards

GASAB www. gasab. gov. in l l l (CAG) constituted the Government Accounting Standards GASAB www. gasab. gov. in l l l (CAG) constituted the Government Accounting Standards Advisory Board (GASAB) in 2002 for central and state govt. The standards being developed to make existing cash system of accounting more transparent are called Indian Government Accounting Standards (IGAS). The standards being developed for accrual system of accounting in the Government are called Indian Government Financial Reporting Standards (IGFRS). 9

GASAB Standards l l IGAS Notified by Government of India • • • Guarantees GASAB Standards l l IGAS Notified by Government of India • • • Guarantees given by Governments: Disclosure Requirements (IGAS 1) Accounting and Classification of Grants-in-aid (IGAS 2) Loans and Advances made by Governments (IGAS 3) IGAS under Consideration • Foreign Currency transactions and loss or gain by Exchange Rate variations (IGAS 7) • Public Debt and Other Liabilities of Governments: Disclosure Requirements (IGAS 10) 10

GASAB Standards l Indian Government Financial Reporting Standards - Under Consideration of Ministry of GASAB Standards l Indian Government Financial Reporting Standards - Under Consideration of Ministry of Finance, Government of India • • IGFRS 2: Property, Plant & Equipment IGFRS 3: Revenue From Government Exchange Transactions IGFRS 4: Inventories IGFRS 5: Contingent Liabilities (other than guarantees) and Contingent Assets: Disclosure Requirements 11

GASAB Standards l Accrual Exposure Drafts • • (AED) 1 (Presentation of Financial Statements) GASAB Standards l Accrual Exposure Drafts • • (AED) 1 (Presentation of Financial Statements) (AED) 6 (Accounting Policies, Changes in Accounting Estimates and Errors) Exposure Draft (ED) 4 (General Purpose Financial Statements of Government) GASAB issues Exposure Draft-9: Government Investments in Equity 12

Private Sector Accounting & Government Accounting l Private sector accounting mainly focuses on profit/loss Private Sector Accounting & Government Accounting l Private sector accounting mainly focuses on profit/loss & it is from shareholder’s perspective l Govt accounting is for • • • Proprietary accounting accountability purposes Decision-making purposes 13

Uniqueness of Government Accounting l l Fund Accounting- consolidated fund Not for Profit Motive Uniqueness of Government Accounting l l Fund Accounting- consolidated fund Not for Profit Motive Constitutional Requirements Diversified list of activities • Government • Business or Proprietary • Fiduciary 14

Government Reporting – Aims at l l Public Accountability Operating Results and their Evaluation Government Reporting – Aims at l l Public Accountability Operating Results and their Evaluation Range of Services Capacity to meet Governmental Obligations 15

What are Local Bodies? l l l Panchayati Raj Institutions (PRIs) Urban Local Bodies What are Local Bodies? l l l Panchayati Raj Institutions (PRIs) Urban Local Bodies (ULBs) The term ‘Local Body’ may be defined as a local self-government at the third tier of governance in an administrative and geographical vicinity, e. g. , a municipal corporation, a municipality or a panchayat 16

Significance of Local Bodies l The 73 rd and 74 th Constitutional Amendment Acts Significance of Local Bodies l The 73 rd and 74 th Constitutional Amendment Acts envisage a key role for the • Panchayati Raj Institutions (PRIs) and • the Urban Local Bodies (ULBs) in respect of various functions such as education, health, rural housing and drinking water. 17

Urban Reforms Incentive Fund (URIF) l l 28 States/Union Territories agreed to adopt the Urban Reforms Incentive Fund (URIF) l l 28 States/Union Territories agreed to adopt the double entry system of accounting. Through the National Urban Renewal - Government requires Local Self Governments to adopt modern, accrualbased double entry system of accounting. 18

Method of accounting l l Cash system of accounting Accrual method of accounting Eg Method of accounting l l Cash system of accounting Accrual method of accounting Eg rent paid 36 lakhs for 36 months on 1 st july 2013 cash method whole 36 lakhs is expenditure In accrual method only 9 lakhs is expenditure 24 lakhs is assets. 19

Method of accounting - contd l l l Interest recd on 30 th may Method of accounting - contd l l l Interest recd on 30 th may 2013 loan given for 1 st april 2014 to 31 st march 2015 50 lakhs Cash system whole amt will be recorded as income in current accounting period In accrual method it is recorded as liability 20

Types of accounting l Single entry method l Double entry method 21 Types of accounting l Single entry method l Double entry method 21

Single entry method l l l l Collection of information Receipts Payments Receivables Payables Single entry method l l l l Collection of information Receipts Payments Receivables Payables Assets liabilities 22

Golden Rules in Double entry Accounting l l Luca pacioli italian mathematician 1494 To Golden Rules in Double entry Accounting l l Luca pacioli italian mathematician 1494 To identify the effect of a transaction on a account there are rules: • For Personal Account: • Debit: the receiver • Credit: the giver -For Real Account: • Debit: what comes in • Credit: what goes out -For Nominal Account: • Debit: all expenses and losse • Credit: all incomes and gains

Double entry method-types l Cash system of accounting l Double entry method 24 Double entry method-types l Cash system of accounting l Double entry method 24

Few concepts l l l l GAAP – generally accepted accounting principles Elements of Few concepts l l l l GAAP – generally accepted accounting principles Elements of financial statements A. Assets, B. liabilities, C. fund or capital, D. income & E. expenses 25

Framework for preparation of financial statements l l l The elements of financial statements Framework for preparation of financial statements l l l The elements of financial statements Financial position – assets, liabilities and fund Performance – income, expense Income – Revenue and gains Revenue - sales, fees, interest, dividends, royalties and rent Gains – disposal of non current assets, revaluation of marketable securities, unrealised gains

Assets l An asset is a resource controlled by the entity as a result Assets l An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Liability l A present obligation of the entity arising from past events, the settlement Liability l A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

Income • Income is increases in economic benefits during the accounting period in the Income • Income is increases in economic benefits during the accounting period in the form of inflows or enhancement of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants.

Expenses Decreases in economic benefits during the accounting period in the form of outflows Expenses Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

Elements of Financial Position l Fund or Equity is the residual interest in the Elements of Financial Position l Fund or Equity is the residual interest in the assets of the entity after deducting all the liabilities l There is no standard on fund or equity

l l l Financial statements- 1. balance sheet, 2. income & expenditure account or l l l Financial statements- 1. balance sheet, 2. income & expenditure account or profit and loss account 3. cash flow statement 4. notes to accounts 32

What is IPSAS l International Public Sector Accounting Standards are independently-developed financial reporting standards What is IPSAS l International Public Sector Accounting Standards are independently-developed financial reporting standards widely considered best practice for public sector organizations • They are used by over 50 governments and other organisations like NATO, UN, OECD etc. • They impose clarity and transparency • They are based on full accrual accounting • Their adoption was mandated by the UN General Assembly in 2006, to replace the current United Nations System Accounting Standards (UNSAS) 33

Benefits of adopting IPSAS? • Better accountability and transparency in financial and donor reporting; Benefits of adopting IPSAS? • Better accountability and transparency in financial and donor reporting; hence greater credibility • Support for results-based management • Better prediction of future asset and cash-flow needs • Improved skills among finance staff • Greater comparability with financial statements of governments • Simplified purchase order management 34

Some IPSAS key concepts Substance over form l Accounting policies should reflect the economic Some IPSAS key concepts Substance over form l Accounting policies should reflect the economic substance of events and transactions and not merely their legal form – the definition of accounting policies requires the exercise of judgment l Examples: • From a risk and rewards perspective leasing an asset may in substance be equivalent to owning it • Control (and the obligation of consolidating another entity) refers to an entity’s power to govern the financial and operating policies of another entity and does not necessarily require an entity to hold a majority shareholding or other equity interest in the other entity. 35

Some IPSAS key concepts Carrying value l Carrying value = the amount for which Some IPSAS key concepts Carrying value l Carrying value = the amount for which an asset or a liability are recognised in the financial statements l Implies an initial measurement (e. g. the cost of acquisition of an asset) then subsequent measurements (e. g. the recognition of the value consumption of an asset through depreciation) Fair value = the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction • Several standards require that assets or liabilities be measured at their fair value (rather than at historical cost or cost of acquisition): e. g. items of property, plant and equipment gifted; financial assets held for trading 36

ACCRUAL METHOD List of IPSAS TOTAL 31 l l l l l IPSAS 1– ACCRUAL METHOD List of IPSAS TOTAL 31 l l l l l IPSAS 1– Presentation of Financial Statements IPSAS 2 - Cash Flow Statements IPSAS 3 - Accounting Policies, Changes in Accounting Estimates and Errors IPSAS 4– The Effects of Changes in Foreign Exchange Rates IPSAS 5 – Borrowing Costs IPSAS 6 – Consolidated and Separate Financial Statements IPSAS 7– Investments in Associates IPSAS 8 – Interest in Joint Ventures IPSAS 9 – Revenue from Exchange Transactions 37

l l l l IPSAS 10– Financial Reporting in Hyperinflationary Economies IPSAS 11 - l l l l IPSAS 10– Financial Reporting in Hyperinflationary Economies IPSAS 11 - Construction Contracts IPSAS 12 – Inventories IPSAS 13 – Leases IPSAS 14 – Events After the Reporting Date IPSAS 15 - DELETED- NEW 28 & 30 IPSAS 16 – Investment Property IPSAS 17 - Property, Plant and Equipment 38

List of IPSAS l l l l IPSAS 18– Segment Reporting IPSAS 19 – List of IPSAS l l l l IPSAS 18– Segment Reporting IPSAS 19 – Provisions, Contingent Liabilities and Contingent Assets IPSAS 20 – Related Party Disclosures IPSAS 21 – Impairment of Non – Cash – Generating Assets IPSAS 22 - Disclosure of Financial Information about the General Government Sector IPSAS 23 - Revenue from Non – Exchange Transactions (Taxes and Transfers) IPSAS 24 - Presentation of Budget Information in Financial Statements IPSAS 25 - Employee Benefits : 39

l l l l IPSAS 26 - Impairment of Cash Generating Assets IPSAS 27 l l l l IPSAS 26 - Impairment of Cash Generating Assets IPSAS 27 – Agriculture IPSAS 28– Financial Instruments: Presentation IPSAS 29 – Financial Instruments: Recognition and Measurement IPSAS 30 – Financial Instruments : Disclosures IPSAS 31 -- Intangible Assets IPSAS 32 – Service Concession Arrangement 40

CASH METHOD l l THERE ARE THREE UNNUMBERED STANDARD WHICH COVERS ACCOUNTING OF ALL CASH METHOD l l THERE ARE THREE UNNUMBERED STANDARD WHICH COVERS ACCOUNTING OF ALL TRANSACTIONS 1. introduction to ipsas under cash basis of accounting 2. financial reporting under cash basis of accounting 3. cash basis system – encouraged additional disclosures 41

There is no concept of accrual l Prepaid l advance l 42 There is no concept of accrual l Prepaid l advance l 42

Quick method of understanding standards l l l l Group the standards as per Quick method of understanding standards l l l l Group the standards as per elements of FS Assets Liabilities Expenses Income Disclosure On any transaction if there is no standard framework will apply 43

Presentation Standards l l IPSAS 1 – Presentation of Financial Statements IPSAS 2 – Presentation Standards l l IPSAS 1 – Presentation of Financial Statements IPSAS 2 – Cash Flow Statements IPSAS 10 – Financial Reporting in Hyperinflationary Economies IPSAS 24—Presentation of Budget Information in Financial Statements 44

Disclosure Standards l l l IPSAS 3—Accounting Policies, Changes in Accounting Estimates and Errors Disclosure Standards l l l IPSAS 3—Accounting Policies, Changes in Accounting Estimates and Errors IPSAS 14 – Events After the Reporting Date IPSAS 18 – Segment Reporting IPSAS 20 – Related Party Disclosures IPSAS 22—Disclosure of Information about the General Government Sector 45

Standards Dealing with Assets l l l l IPSAS 12 - Inventories IPSAS 13 Standards Dealing with Assets l l l l IPSAS 12 - Inventories IPSAS 13 - Leases IPSAS 16 - Investment Property IPSAS 17 - Property, Plant and Equipment IPSAS 21—Impairment of Non-Cash. Generating Assets IPSAS 26—Impairment of Cash-Generating Assets IPSAS 27—Agriculture IPSAS 31—Intangible Assets 46

IPSAS - Standards Dealing with Liabilities l IPSAS 19—Provisions, Contingent Liabilities and Contingent Assets IPSAS - Standards Dealing with Liabilities l IPSAS 19—Provisions, Contingent Liabilities and Contingent Assets 47

IPSAS - Standards dealing with Financial Instruments l l l IPSAS 28—Financial Instruments: Presentation IPSAS - Standards dealing with Financial Instruments l l l IPSAS 28—Financial Instruments: Presentation IPSAS 29—Financial Instruments: Recognition and Measurement IPSAS 30—Financial Instruments: Disclosures 48

Standards Dealing with Revenue and Expenses l l l l IPSAS 4—The Effects of Standards Dealing with Revenue and Expenses l l l l IPSAS 4—The Effects of Changes in Foreign Exchange Rates IPSAS 5—Borrowing Costs IPSAS 9 – Revenue from exchange transactions IPSAS 23 - Revenue from non-exchange transactions IPSAS 11 – Construction Contracts IPSAS 25—Employee Benefits IPSAS 32 – Service Concession Arrangements: Grantor 49

Standards Dealing with Group Accounting l l l IPSAS 6 – Consolidated Financial Statements Standards Dealing with Group Accounting l l l IPSAS 6 – Consolidated Financial Statements IPSAS 7 Accounting for Interests in Associates IPSAS 8 Accounting for Interests in Joint Ventures 50

IPSAS 1 PRESENTATION OF FINANCIAL STATEMENTS(FS) l l 1. 2. 3. 4. 5. Shows IPSAS 1 PRESENTATION OF FINANCIAL STATEMENTS(FS) l l 1. 2. 3. 4. 5. Shows the presentation of accrual based FS Fundamental principles in preparation of FS Going Concern Assumption Consistency in presentation and classification Accrual basis of accounting Aggregation Materiality. 51

IPSAS 1 PRESENTATION OF FINANCIAL STATEMENTS(FS) l 1. 2. 3. 4. 5. 6. Complete IPSAS 1 PRESENTATION OF FINANCIAL STATEMENTS(FS) l 1. 2. 3. 4. 5. 6. Complete set of FS comprises Statement of financial position Statement of financial performance Statement of changes in net asset/equity Statement of Cash flow Directors Report A comparison of budget and accrual amounts 52

IPSAS 1 PRESENTATION OF FINANCIAL STATEMENTS(FS) 1. l l l Notes (summary of significant IPSAS 1 PRESENTATION OF FINANCIAL STATEMENTS(FS) 1. l l l Notes (summary of significant policies and other explanatory notes) An entity should make an explicit and unreserved statement of compliance to IPSAS in notes FS do not comply to IPSAS unless it complies with all the requirements of IPSAs. No offsetting of Assets and liabilities Revenue and expenses Unless permitted or required by IPSAS. 53

IPSAS 2 CASH FLOW STATEMENTS l 1. 2. 3. l a) b) l Major IPSAS 2 CASH FLOW STATEMENTS l 1. 2. 3. l a) b) l Major classification in the CFS Operating Activities (using direct (recommended) or indirect method) Investing Activities Financing Activities. Cash equivalents includes Short term investment (less than three months from the date of acquisition) Readily convertible to known amounts cash Exclude equity investments. 54

IPSAS 2 CASH FLOW STATEMENTS l l l The use of direct method requires IPSAS 2 CASH FLOW STATEMENTS l l l The use of direct method requires entities to provide a reconciliation of the surplus/deficit from ordinary activities with the net cash flows from operating activities CF from interest and dividends received and paid shall be disclosed separately and classified either operating, investing or financing activities CF from taxes on net surplus are classified as operating unless they can be specifically identified within the F or I activities. Exchange rate foreign denominated currency translation shall be the rate in effect at the date of cash flows Cash flows from acquisition and disposal of controlled entities and other operating units shall be presented separately and classified as investing activities with separate disclosure. 55

IPSAS 3 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING POLICIES AND ERRORS l l a) b) IPSAS 3 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING POLICIES AND ERRORS l l a) b) l l These are authoritative policy statements In absence of IPSAS, the use of judgment in developing and applying accounting policy for Relevant information for decision making needs of users Reliable, in that the financial statements Represents faithfully the financial position, financial performance and cash flows of an entity Reflect economic substance of the transactions, other events and conditions and note merely the legal form 56

IPSAS 3 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING POLICIES AND ERRORS l l l Are IPSAS 3 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING POLICIES AND ERRORS l l l Are neutral Are prudent and ; complete in all material aspects. In absence of IPSAS management may consider most recent pronouncements of other standard setting bodies, and acceptable public and private sector practices. Consistency application of accounting policy, change only when it is required by IPSAS All material prior period errors shall be corrected retrospectively in the first set of financial statements authorized for issue after their discovery, by restating comparative prior period amounts, or if the error occur before the earliest period presented, by restating the opening SFP 57

IPSAS 4 THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES: l l l - IPSAS 4 THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES: l l l - - Covers Foreign currency transactions and Foreign operations The reporting entity’s functional currency should be properly identified based on primary economic environment. Translation should be done foreign currency items into functional currency Initial recognition and measurement record the spot exchange rate Subsequent reporting dates Monetary items use the closing rate 58

a. b. l l Non monetary items use the transaction date exchange rates that a. b. l l Non monetary items use the transaction date exchange rates that are carried at historical costs Non monetary items that are carried at fair value use the valuation date exchange rates Exchange differences arising from settlement and translation of monetary items at a different rate should be included in surplus or deficit, Exception: for consolidated financial statement with foreign operation, the differences will be recognized in the surplus or deficit on disposal of net investment. 59

IPSAS 5 BORROWING COSTS l - - a) The costs includes Interests, amortization of IPSAS 5 BORROWING COSTS l - - a) The costs includes Interests, amortization of discounts or premiums on borrowing and amortization of ancillary costs incurred in the arrangement of borrowings Accounting treatment Expense model – charge all the borrowing costs to expenses in the period incurred Capitalization model – capitalize borrowing costs which are directly attributable to the acquisition or construction of a qualifying asset It should be probable that the costs will result in future economic benefit or service potential to the entity and costs can be measured reliably 60

a) b) c) d) The model should be applied consistently to all borrowing costs a) b) c) d) The model should be applied consistently to all borrowing costs that are directly attributable to acquisition, construction or production of all qualifying assets of the entity. Investment income from temporary investment should be deducted from the actual borrowing costs Qualifying asset is an asset which requires a substantial period of time to make it ready for its intended use or sale. Examples include office buildings, hospitals, infrastructure assets such as roads, bridges and power generation facilities and some inventories Capitalization rate (Weighted average of borrowing costs ) should be used if funds are borrowed generally and used for the purpose of obtaining qualifying assets 61

IPSAS 6 CONSOLIDATED AND SEPARATE FS l - - Consolidated FS must include all IPSAS 6 CONSOLIDATED AND SEPARATE FS l - - Consolidated FS must include all controlled entities except If the control is temporary because the controlled entity is acquired and held exclusively with a view to its subsequent disposal within 12 from acquisition Management is actively seeking a buyer Controlled entity is an entity controlled by another entity, known as controlling entity even if the activities are dissimilar. 62

l l Control is the power to govern the operating and financial policies Balances, l l Control is the power to govern the operating and financial policies Balances, transactions, revenue and expenses between entities within the economic entity are eliminated in full Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances Same reporting date within three months maximum range 63

IPSAS 6 CONSOLIDATED AND SEPARATE FS l l l - - NCI is reported IPSAS 6 CONSOLIDATED AND SEPARATE FS l l l - - NCI is reported in net asset/equity in Consolidated SFP, separately from the controlling entity’s net assets/equity and is not deducted in measuring the economic entity’s revenue or expense Surplus or deficit of the economic entity is allocated between minority and majority interest on the face of the statement of financial performance. In the controlling entity’s separate financial statements: account for all its investments in controlling entities, associates and joint ventures either using the equity method, at cost or as financial instrument. Under the equity method, subsidiaries ’ net assets (A-L) collapse into one line usually called ‘ investment ’. Equity method is often called “ one line consolidation ” 64

Whole of Government Accounts (WGA) – The UK l l l A consolidated set Whole of Government Accounts (WGA) – The UK l l l A consolidated set of financial statements for the UK public sector. Consolidates the audited accounts of over 1, 500 organisations across the public sector In particular, the account includes: • • A consolidated Statement of Revenue and Expenditure; A consolidated Statement of Financial Position, showing public sector assets and liabilities; A consolidated Cash Flow Statement; and A Statement on Internal Control. 65

IPSAS 7 INVESTMENT IN ASSOCIATES l o o l Caters for all investment where IPSAS 7 INVESTMENT IN ASSOCIATES l o o l Caters for all investment where investor has significant influence Exception Venture capital organizations Mutual fund or unit trust or similar entity, such as investment linked insurance fund that is measured at fair value The investment shall be classified as held for sell if its is acquired exclusively with a view to its disposal within twelve months from acquisition and that management is actively seeking a buyer and accounted differently 66

IPSAS 7 INVESTMENT IN ASSOCIATES l - - l Equity method is used for IPSAS 7 INVESTMENT IN ASSOCIATES l - - l Equity method is used for all investments in associates over which the entity has significant influence ( Rebuttable presumption of significant influence if it is more than 20% of voting power ) The investment is initially recorded at costs and subsequently adjusted by the investor’s share of the investee’s post acquisition change in net assets/equity. Investors’ statement of financial performance reflects its share in the investee’s post-acquisition suplus or deficit Investor’s FS shall be prepared using uniform accounting policies for like transactions and events in similar circumstances 67

IPSAS 8 INTEREST IN JOINT VENTURES JV is a binding arrangement whereby two or IPSAS 8 INTEREST IN JOINT VENTURES JV is a binding arrangement whereby two or more parties are committed to undertake an activity that is subject to joint control l Applicable to all investments which investor has joint control Exception a. Venture capital organization b. Mutual fund, trust or similar entity, such as an investment-linked insurance fund that is insured at fair value c. It can be jointly controlled operations, jointly controlled assets and jointly controlled entities. Each has different accounting treatments. l 68

IPSAS 8 INTEREST IN JOINT VENTURES l q l Ø Ø Jointly controlled operations IPSAS 8 INTEREST IN JOINT VENTURES l q l Ø Ø Jointly controlled operations Venturer recognize the assets it controls and expenses and liabilities it incurs, and its share of revenue earned, in both its separate and consolidated FS Jointly controlled assets Venturer recognize in its FS its share of jointly controlled assets any liabilities that it has incurred and its share of any liabilities incurred jointly with other venturer , revenue earned from the sale or use of its share of output of the joint venture, its share of expenses incurred by joint venture and expenses incurred directly in respect of its interest in the joint venture. Jointly controlled entities It permits two accounting policies Proportionate consolidated: under this method, the venture's SFP includes its share of the assets that it controls jointly and its share of liabilities for which it is jointly responsible. Its SFP includes its share of revenue and expenses of the jointly controlled entity Equity method as described in IPSAS 7 69

IPSAS 9 REVENUE FROM EXCHANGE TRANSACTIONS l Ø Ø Ø l The exchange transactions IPSAS 9 REVENUE FROM EXCHANGE TRANSACTIONS l Ø Ø Ø l The exchange transactions includes the following events Rendering of services Sale of goods; and The use of other entity assets yielding interest, royalties or dividends Revenue shall be measured at fair value of the consideration received or receivable. 70

IPSAS 9 REVENUE FROM EXCHANGE TRANSACTIONS l Ø ü Ø Recognition Sale of goods IPSAS 9 REVENUE FROM EXCHANGE TRANSACTIONS l Ø ü Ø Recognition Sale of goods When significant risks and rewards have been transferred to purchaser, loss of effective control by the seller, amount of revenue can be reliably measured; it is likely that the economic benefits or services potential associated with the transaction will flow to the entity, and the costs incurred or to be incurred can be measured reliably 71

IPSAS 9 REVENUE FROM EXCHANGE TRANSACTIONS Ø ü Rendering of service Stage of completion IPSAS 9 REVENUE FROM EXCHANGE TRANSACTIONS Ø ü Rendering of service Stage of completion of transaction at the reporting date, provided outcome can be estimated reliably, if not then recognize only to the extent of expenses that are recoverable Interest (on time proportion based on effective yield on the assets), royalties (substance of relevant agreement) and dividends ( when shareholders right to receive payment is established) When it is probable that the economic benefits or services potential will flow to the entity and amount of revenue can be measured reliably 72

IPSAS 10 FR IN HYPEINFLATIONARY ECONOMIES l l l FS of an entity that IPSAS 10 FR IN HYPEINFLATIONARY ECONOMIES l l l FS of an entity that reports in the currency of a hyperinflationary economy shall be stated in terms of the measuring unit current at the reporting date. Comparative figures for prior periods shall be stated in the same measuring unit currency at reporting date Surplus or deficit on the net monetary position shall be separately disclosed in the SFP For Public Sector entities, the budgetary information shall also be restated into the same current measuring unit The economy is hyperinflationary when there is a 100% cumulative rate of inflation over 3 years 73

IPSAS 11 CONSTRUCTION CONTRACTS l Ø ü ü Ø Ø It deals with FS IPSAS 11 CONSTRUCTION CONTRACTS l Ø ü ü Ø Ø It deals with FS of the contractor Contract revenue shall comprise of Initial amount agreed in the contract; Variations in the contract work; Claims; Incentive payments; to the extent which the result of revenue can be measured reliably. Contract revenue is measured at fair value of consideration received or receivable Contract cost shall comprise of costs directly related to specific contract, and are allocated to contract on systematic and rational basis 74

IPSAS 12 INVENTORIES l v v l ü Covers Cost determination, expense recognition, write-down IPSAS 12 INVENTORIES l v v l ü Covers Cost determination, expense recognition, write-down to the NRV Guidance on the cost formula that are used to assign costs to inventories Inventories are measured at Lower of COST and NRV ( for exchange transactions) 75

IPSAS 12 INVENTORIES ü ü q q If they are acquire through a non-exchange IPSAS 12 INVENTORIES ü ü q q If they are acquire through a non-exchange transaction, the cost shall be measured at their fair value as at the date of acquisition. Lower of cost and current replacement costs if they are held for Distribution at no charge or a nominal charge; or Consumption in the production process of goods to be distributed at no charge or for nominal charge 76

IPSAS 13 LEASES l q q 1. Scope Explains appropriate accounting policies and disclosures IPSAS 13 LEASES l q q 1. Scope Explains appropriate accounting policies and disclosures to apply in relation to finance and operating leases There are two types of leases Finance lease – it transfers substantially all risks and rewards incidental to ownership of an asset. The title may or may not be eventually transferred Eg. It covers substantially all the asset’s life or present value of lease payment is substantially equal to the assets fair value 77

IPSAS 13 LEASES 1. ü l l l Operating lease: The land building element IPSAS 13 LEASES 1. ü l l l Operating lease: The land building element of the lease of land buildings are considered separately for purpose of lease classification. Finance leases – lessee’s Accounting: Assets and liabilities are recognized at lower of present value of minimum lease payments and the fair value of the assets, determined at inception of the lease. Discount rate shall be interest rate implicit in the lease or the incremental borrowing rate Depreciation policy is as for owned assets Finance lease payment – apportioned between interest and reduction in outstanding liability 78

IPSAS 14 EVENTS AFTER THE REPORTING DATE l q q 1. 2. Scope Describes IPSAS 14 EVENTS AFTER THE REPORTING DATE l q q 1. 2. Scope Describes as to when an entity shall adjust its FS for events after the reporting date Disclosure to give when the FS were authorized for issue, and about events after reporting date EARD are favorable and unfavorable events that occur between the reporting date and the date when the FS are authorized for issue. There are two types Adjusting events Non adjusting events 79

IPSAS 16 INVESTMENT PROPERTY l ü ü 1. 2. Recognition of IP Only if IPSAS 16 INVESTMENT PROPERTY l ü ü 1. 2. Recognition of IP Only if the future economic benefit or service potential associated with the investment property will flow to the entity The cost or fair value of the IP can be measured reliably Measurement Initially at cost including the transaction costs; if it has been acquired through non exchange transaction than at its fair value at the date of acquisition Afterwards use either of two models Fair value model; IP is measured at fair value and changes in FV are recognized in surplus or deficit for the period in which it arises Cost model; investment property is measured at depreciated costs less any accumulated impairment losses. FV of the investment property shall still be discolsed. 80

IPSAS 16 INVESTMENT PROPERTY l l l A chosen measurement model shall be applied IPSAS 16 INVESTMENT PROPERTY l l l A chosen measurement model shall be applied to all the entity’s investment property If an entity uses the FV model, but when a particular property is acquired, there is clear evidence that the entity will not be able to determine FV on continuing basis, the cost model is used for that property – and it shall continue to be used until disposal of that property. In that case, the residual value of the investment property shall be assumed zero Change from one model to another shall be made only if the change will result in a more appropriate presentation ( highly unlikely for change from FV to cost model) 81

IPSAS 17 PROPERTY, PLANT AND EQUIPMENT l l ü ü ü Explains principles for IPSAS 17 PROPERTY, PLANT AND EQUIPMENT l l ü ü ü Explains principles for initial recognition and subsequent accounting (Carrying Amounts and depreciation charges and impairment losses) Recognition PPE shall be recognized as assets if, it is probable that the future economic benefit or service potential associated with the item will flow to the entity, and the cost or FV of the item can be measured reliably Heritage assets are optional for IPSAS 17 also covers other assets such as Military equipment, infrastructure assets e. g. road networks, sewer systems and communication networks 82

IPSAS 17 PROPERTY, PLANT AND EQUIPMENT ü ü 1. 2. Initial recognition is done IPSAS 17 PROPERTY, PLANT AND EQUIPMENT ü ü 1. 2. Initial recognition is done at cost which includes costs necessary to get the assets ready for its intended use. For non exchange assets, its cost is its fair value as at the date of acquisition. If payment is deferred, interest shall be recognized Subsequent to acquisition, there are two accounting model for the entire class of PPE Cost model: the asset is carried at cost less depreciation and impairment losses Revaluation model: the asset is carried at revalued amount, which is fair value at revaluation date less subsequent depreciation and impairment losses 83

Revaluation Model l l Revaluations shall be carried out regularly. All items of a Revaluation Model l l Revaluations shall be carried out regularly. All items of a given class shall be revalued. Revaluation increases shall be credited directly to revaluation surplus. Increases shall be recognized as revenue in surplus or deficit to the extent that it reverses a revaluation decreases of the same class of asset previously recognized as an expense in the surplus or deficit. Decreases are debited first against the revaluation surplus related to the same class of assets, and any excess against surplus or deficit. When the asset is disposed off, the revaluation surplus is transferred directly to accumulated surpluses or deficits and is not recycled through surplus or deficit. 84

l l l Each part of PPE that is significant in relation to the l l l Each part of PPE that is significant in relation to the total cost of an item shall be depreciated separately Depreciation is charged systematically over the asset’s useful life. It must reflect the pattern in which the asset’s future economic benefits or service potential is expected to be consumed by the entity. The residual value must be reviewed at least annually and shall equal the amount the entity would receive currently if the assets were already of the age and condition expected a the end of its useful life. If operation of an item of PPE (e. g. aircraft) requires regular major inspections, when each major inspections is performed, its cost is recognized in the carrying amount of the asset as a replacement, if the recognition criteria are satisfied. Land buildings are separable assets and are accounted separately, even when they are acquired together. 85

IPSAS 18 Segment Reporting l ü ü l l Scope Explain principles for reporting IPSAS 18 Segment Reporting l ü ü l l Scope Explain principles for reporting Financial information by segments to better understand the entity’s past performance and to identify the resources allocated to support the major activities of the entity and enhance transparency of financial reporting Applicable mostly to Listed Companies, Companies in the process of listing their equity or debt securities, Banks including Cooperative banks, Financial Institutions, Insurance companies If both the consolidated FS of a government or other economic entity and the separate financial statements of the controlling entity are presented together, the segment information need to be presented only on basis of the consolidated financial statements IPSAS 18 requires entities to report on a basis appropriate for assessing the entity’s past performance in achieving its objectives and for making decisions about the future allocation of resources 86

IPSAS 18 Segment Reporting l l Gvt departments and agencies are usually managed and IPSAS 18 Segment Reporting l l Gvt departments and agencies are usually managed and report internally along service lines because this reflects the way in which major output are identified, their achievements monitored and their resources need identified and budgeted. Segments will usually be based on the major goods and services the entity provides, the programs it operates and activities it undertakes Assets that are jointly used by two or more segments must be allocated to segment if, and only if, their related revenues and expenses are also allocated to those segments. If segment is identified as a segment for the first time , prior period segment data that is presented for comparative purposes shall be restated to reflect the newly reported segment as a separate segment. 87

IPSAS 19 PROVISIONS, CONTIGENT LIABILITIES AND CONTIGENT ASSETS: l l l ü ü ü IPSAS 19 PROVISIONS, CONTIGENT LIABILITIES AND CONTIGENT ASSETS: l l l ü ü ü Scope Explain appropriate recognition criteria and measurement bases for provisions, contingent liabilities and contingent assets and to ensure that sufficient information is disclosed in notes to the FS Recognition is only when A past event has created a present legal or constructive obligation An outflow of resources embodying economic benefits or services potential required to settle the obligation is probable The amount of the obligation can be estimated reliably 88

l l Provision is the best estimate of settlement amount of expenditure required to l l Provision is the best estimate of settlement amount of expenditure required to settle the obligation at reporting date It requires review of provisions at each reporting date to adjust for changes to reflect the current best estimate The provision shall be reversed if it is no longer probable that the outflow of resources embodying economic benefits or service potential is required to settle the obligation Examples include; onerous contracts, restructuring provisions, warranties, refunds and site restoration

Contingent liability arises when: - There is a possible obligation to be confirmed by Contingent liability arises when: - There is a possible obligation to be confirmed by a future event that is outside the control of the entity - A present obligation may, but probably will not, require an outflow of resources embodying economic benefit or service potential - A sufficiently reliable estimate of the amount of a present obligation cannot be made l 90

IPSAS 19 PROVISIONS, CONTIGENT LIABILITIES AND CONTIGENT ASSETS l l l Contingent liabilities require IPSAS 19 PROVISIONS, CONTIGENT LIABILITIES AND CONTIGENT ASSETS l l l Contingent liabilities require disclosure only ( not recognition) if the possibility of outflow is remote then no disclosure. Contingent assets arises when the inflow of economic benefits or service potential is probable, but not virtually certain, and occurrence depends on an event outside the control of the entity. Contingent assets requires disclosure only (not recognition). If the realization of revenue is virtually certain, the related asset is not contingent asset and recognition of assets and related revenue is appropriate 91

 IPSAS 20 RELATED PARTY DISCLOSURE Scope - To ensure that the FS disclose IPSAS 20 RELATED PARTY DISCLOSURE Scope - To ensure that the FS disclose the existence of related party relationships and transactions between the entity and its related parties. l Related parties are parties that control or have significant influence over the reporting entity (including controlling entities, owners and their families, major investors, and key management personnel) and parties that are controlled or significantly influenced by the reporting entity (including controlled entities, joint ventures, associates, and postemployment benefit plans). If the reporting entity and another entity are subject to common control, these entities are also considered related parties. l IPSAS require disclosure of - Relationship involving control, even when there have been no transaction between; - Related party transactions; and - Management compensation (include analysis by type of compensation) l

 IPSAS 20 RELATED PARTY DISCLOSURE For related party transactions; the disclosure of nature IPSAS 20 RELATED PARTY DISCLOSURE For related party transactions; the disclosure of nature of relationship, types of transactions that have occurred and elements of transactions to clarify the significance of the transactions to its operations l Examples of related party transactions that may require disclosure by reporting entity. - Purchase or transfers /sales of goods (finished and unfinished); - Purchases or transfers/sales of property and other assets Rendering or receiving of services; Agency arrangements; Leases; - Transfers of research and development Transfers under license agreement; Provision of guarantees and collateral l 93

 IPSAS 21 IMPAIRMENT OF NON CASH GENERATING ASSETS l Scope - To ensure IPSAS 21 IMPAIRMENT OF NON CASH GENERATING ASSETS l Scope - To ensure that non-cash generating assets - are carried at no more than their recoverable service amount. Applies to all NCGA except assets arising from construction contracts, inventories and financial assets, investment properties, Non cash generating property, Plant and equipment and those covered by other IPSAS

 IPSAS 21 IMPAIRMENT OF NON CASH GENERATING ASSETS l l Public sector entities IPSAS 21 IMPAIRMENT OF NON CASH GENERATING ASSETS l l Public sector entities that hold cash generating assets shall apply IPSAS 26 for such assets Impairment loss of a NCGA is the amount by which the carrying amount of an assets exceeds its recoverable service amount If an impaired asset is recognized the depreciation or amortization charge of the asset shall be adjusted in future periods to allocate the assets carrying amount less residual (value if any) in a systematic basis Recoverable service amount is the higher of non-cash generating asset’s fair value less costs to sell and its value in use

IPSAS 21 IMPAIRMENT OF NON CASH GENERATING ASSETS l l l Value in use IPSAS 21 IMPAIRMENT OF NON CASH GENERATING ASSETS l l l Value in use of NCGA is the PV of the asset’s remaining potential use. The PV of remaining service potential is determined using three main approaches ( down here) The entity must test for indication of assets impairment at each reporting period. If impairment is indicated, the entity shall estimate recoverable service amount. Reversal of prior years impairment losses allowed in certain instances 96

IPSAS 22 DISCLOSURE OF INFORMATION ABOUT THE GENERAL GOVERNMENT SECTOR l l It prescribe IPSAS 22 DISCLOSURE OF INFORMATION ABOUT THE GENERAL GOVERNMENT SECTOR l l It prescribe the disclosure requirements for government which elect to present information about GGS in their consolidated FS The disclosure of information about general government sector of the government can provide a better understanding of the relationship between the market and non market activities of the government and between FS and statistical bases of financial reporting

The financial information about the GGS shall be disclosed in conformity with the accounting The financial information about the GGS shall be disclosed in conformity with the accounting policies adopted for preparing and presenting consolidated financial statements of the government. -Exceptions • GGS shall not apply the requirements of IPSA 6, “consolidated and separate FS” in respect of entities in the public financial corporations and public non financial corporations sectors. • The GGS shall recognize its investment in the public financial corporations and public non financial corporation sectors as an asset a and shall account for that asset at carrying amount of the net asset of its investees l 98

 IPSAS 22 DISCLOSURE OF INFORMATION ABOUT THE GENERAL GOVERNMENT SECTOR l The required IPSAS 22 DISCLOSURE OF INFORMATION ABOUT THE GENERAL GOVERNMENT SECTOR l The required disclosures of the general government sector includes • Assets by major class, showing separately the investment in other sectors; • liabilities by major class; net asset/equity; • total revaluation increments and decrements and other items of revenue or expense recognized in net asset or equity, • revenue by major class, • expenses by major class, • surplus or deficit, • cash flows from operating activities by major class, cash flows from investing activities and cash flows from financing activities

 IPSAS 22 DISCLOSURE OF INFORMATION ABOUT THE GENERAL GOVERNMENT SECTOR l l l IPSAS 22 DISCLOSURE OF INFORMATION ABOUT THE GENERAL GOVERNMENT SECTOR l l l The manner of presentation of GGS shall be no more prominent than the government’s FS prepared in accordance with IPSAS Disclosure of significant controlled entities that are included in the general government sector and any changes in those entities from prior period must be made, together with explanations of the reasons why such entity that was included is no longer includes The general government sector disclosures shall be reconciled to the consolidated FS of the government showing separately the amount of adjustment required to each equivalent item in those FS

IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) l l Exchange transactions IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) l l Exchange transactions are transaction in which one entity receives assets or services, or has liabilities extinguished, and directly gives approximately equal value ( primary in the form of cash, goods services or use of assets) to another entity in exchange. NET are transactions that are not exchange transaction. An entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange Transfers are inflows of future economic benefits or service potential from non-exchange transactions, other than taxes. Stipulations on transferred assets are terms in laws or regulation, or a binding arrangement, imposed upon the use of a transferred asset by entities external to the reporting entity

 IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) Conditions on transferred IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) Conditions on transferred assets are stipulations that specify that the future economic benefits or service potential embodied in the asset is required to be consumed by the recipient as specified or future economic benefits or service potential must be returned to the transferor. l Restrictions on transferred assets are stipulations that limit or direct the purposes for which a transferred asset may be used, but do not specify that future economic benefits or service potential is required to be returned to the transferor if not deployed as specified l An inflow of resources from a non-exchange transaction, other than services in-kind, that meets the definition of an asset shall be recognized as an asset when, and only when the following recognition criteria are met: -It is probable that the future economic benefits or service potential associated with the asset will flow to the entity; and - The fair value of the asset can be measured reliably. l

 IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) l l l IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) l l l Conditions on a transferred asset give rise to a present obligation on initial recognition that will be recognized when the recognition criteria of a liability are met. The amount recognized as a liability shall be the best estimate of the amount required to settle the present obligation at the reporting date. An entity shall recognize an asset in respect of taxes when the taxable event occurs and the asset recognition criteria are met. Taxation revenue shall be determined at a gross amount. It shall not be reduced for expenses paid through the tax system (e. g. amounts that are available to beneficiaries regardless of whether or not they pay taxes). Taxation revenue shall not be grossed up for the amount of tax expenditures (e. g. preferential provisions of the tax law that provide certain taxpayers with concessions that are not available to others).

IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) An entity recognizes an IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) An entity recognizes an asset in respect of transfers when the transferred resources meet the definition of an asset and satisfy the criteria for recognition as an asset. However, an entity may, but is not required to , recognize services in-kind as revenue and as an asset. l An entity shall disclose either on the face of, or in the notes to, the general purpose financial statements: - The amount of revenue from non-exchange transactions recognized during the period by major classes showing separately taxes and transfers. -The amount of receivables recognized in respect of non-exchange revenue. -The amount of liabilities recognized in respect of transferred assets subject to conditions. -The amount of assets recognized that are subject to restrictions and the nature of those restrictions. -The existence and amounts of any advance receipts in respect of nonexchange transactions. The amount of any liabilities forgiven. l

IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) An entity shall disclose IPSAS 23 REVENUE FROM NON EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS) An entity shall disclose in the notes to the general purpose financial statements: -The accounting policies adopted for the recognition of revenue from non-exchange transactions. -For major classes of revenue from non-exchange transactions, the basis on which the fair value of inflowing resources was measured. -For major classes of taxation revenue which the entity cannot measure reliably during the period in which the taxable event occurs, information about the nature of the tax. -The nature and type of major classes of bequests, gifts, donations showing separately major classes of goods in-kind received. l

IPSAS 24 PRESENTATION OF BUDGET INFORMATION IN FS l l l The information is IPSAS 24 PRESENTATION OF BUDGET INFORMATION IN FS l l l The information is important for accountability purposes to demonstrate compliance with the approved budget for which they are held publicly accountable IPSAS 24 applies to public sector entities, other than Government Business Enterprises, that are required or elect to make publicly available their approved budget. Original budget is the initial approved budget for the budget period. Approved budget means the expenditure authority derived from laws, appropriation bills, government ordinances, and other decisions related to the anticipated revenue or receipts for the budgetary period.

l l Final budget is the original budget adjusted for all reserves, carry over l l Final budget is the original budget adjusted for all reserves, carry over amounts, transfers, allocations, supplemental appropriations, and other authorized legislative, or similar authority, changes applicable to the budget period. An entity shall present a comparison of budget and actual amounts as additional budget columns in the primary financial statements only where the financial statements and the budget are prepared on a comparable basis. 107

IPSAS 24 PRESENTATION OF BUDGET INFORMATION IN FS An entity shall present a comparison IPSAS 24 PRESENTATION OF BUDGET INFORMATION IN FS An entity shall present a comparison of the budget amounts either as a separate additional financial statement or as additional budget columns in the financial statements currently presented in accordance with IPSAS. The comparison of budget and actual amounts shall present separately for each level of legislative oversight : - The original and final budget amounts ; - The actual amounts on a comparable basis; and -By way of note disclosure, an explanation of material differences between the budget and actual amounts, unless such explanation is included in other public documents issued in conjunction with the financial statements and a cross reference to those documents is made in the notes. l

An entity shall present an explanation of whether changes between the original and final An entity shall present an explanation of whether changes between the original and final budget are a consequence of reallocations within the budget, or of other factors: - By way of note disclosure in the financial statements; or - In a report issued before, at the same time as, or in conjunction with the financial statements, and shall include a cross reference to the report in the notes to the financial statements. l 109

IPSAS 24 PRESENTATION OF BUDGET INFORMATION IN FS l l All comparisons of budget IPSAS 24 PRESENTATION OF BUDGET INFORMATION IN FS l l All comparisons of budget and actual amounts shall be presented on a comparable basis to the budget. An entity shall explain in notes to the financial statements the budgetary basis and classification basis adopted in the approved budget, the period of the approved budget, and the entities included in the approved budget. An entity shall identify in notes to the financial statements the entities included in the approved budget .

l The actual amounts presented on a comparable basis to the budget shall, where l The actual amounts presented on a comparable basis to the budget shall, where the financial statements and the budget are not prepared on a comparable basis, be reconciled to the following actual amounts presented in the financial statements, identifying separately any basis, timing and entity differences: - If the accrual basis is adopted for the budget, total revenues, total expenses and net cash flows from operating activities, investing activities and financing activities; or - If a basis other than the accrual basis is adopted for the budget, net cash flows from operating activities, investing activities and financing activities. The reconciliation shall be disclosed on the face of the statement of comparison of budget and actual amounts or in the notes to the financial statements 111

IPSAS 25 EMPLOYEES BENEFITS It prescribes the accounting and disclosure for employee benefits, including IPSAS 25 EMPLOYEES BENEFITS It prescribes the accounting and disclosure for employee benefits, including short-term benefits (wages, annual leave, sick leave, bonuses, profit-sharing and non-monetary benefits); pensions; post-employment life insurance and medical benefits; termination benefits and other long- term employee benefits (long-service leave, disability, deferred compensation, and bonuses and longterm profit-sharing), except for share based transactions and employee retirement benefit plans l The standard requires an entity to recognize: - A liability when an employee has provided service in exchange for employee benefits to be paid in the future; and - An expense when the entity consumes the economic benefits or service potential arising from service provided by an employee in exchange for employee benefits. Underlying principle: the cost of providing employee benefits shall be recognized in the period in which the benefit is earned by the employee, rather than when it is paid or payable l

IPSAS 25 EMPLOYEES BENEFITS l l l Current service cost is the increase in IPSAS 25 EMPLOYEES BENEFITS l l l Current service cost is the increase in the present value of the defined benefit obligation resulting from employee service in the current period. Defined benefit plans are post-employment benefit plans other than defined contribution plans. Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

IPSAS 25 EMPLOYEES BENEFITS l l l Short-term employee benefits (payable within 12 months) IPSAS 25 EMPLOYEES BENEFITS l l l Short-term employee benefits (payable within 12 months) shall be recognized as an expense in the period in which the employee renders the service. An entity shall measure the expected cost of accumulating compensated absences as the additional amount that the entity expects to pay as a result of the unused entitlement that has accumulated at the reporting date. Bonus payments and profit-sharing payments are to be recognized only when the entity has a legal or constructive obligation to pay them and the obligation can be reliably estimated 114

IPSAS 25 EMPLOYEES BENEFITS Post-employment benefit plans (such as pensions and post-employment medical care) IPSAS 25 EMPLOYEES BENEFITS Post-employment benefit plans (such as pensions and post-employment medical care) are categorized as either defined contribution plans or defined benefit plans. l Under defined contribution plans, expenses are recognized in the period the contribution is payable. Accrued expenses, after deducting any contribution already paid, are recognized as a liability l Under defined benefit plans, a liability is recognized in the statement of financial position equal to the net total of: l

IPSAS 25 EMPLOYEES BENEFITS - the present value of the defined benefit obligation (the IPSAS 25 EMPLOYEES BENEFITS - the present value of the defined benefit obligation (the present value of expected future payments required to settle the obligation resulting from employee service in the current and prior periods); - plus any deferred actuarial gains minus any deferred actuarial losses minus any deferred past service costs; and - minus the fair value of any plan assets at the reporting date. l Actuarial gains and losses may be (a) recognized immediately in surplus or deficit, (b) deferred up to recognized immediately directly in net assets/equity (in the statement of changes in net assets/equity). 116

IPSAS 25 EMPLOYEES BENEFITS l l An entity shall recognize gains or losses on IPSAS 25 EMPLOYEES BENEFITS l l An entity shall recognize gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. Before determining the effect of a curtailment or settlement, an entity shall remeasure the obligation using current actuarial assumptions. Plan assets include assets held by a long-term employee benefit fund and qualifying insurance policies. For group plans, the net cost is recognized in the separate financial statements of the entity that is legally the sponsoring employer unless a contractual agreement or stated policy for allocating the cost exists.

l l Long-term employee benefits shall be recognized and measured the same way as l l Long-term employee benefits shall be recognized and measured the same way as post-employment benefits under a defined benefit plan. However, unlike defined benefit plans, actuarial gains or losses and past service costs must always be recognized immediately in earnings. Termination benefits shall be recognized as a liability and an expense when the entity is demonstrably committed to terminate the employment of one or more employees before the normal retirement date or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. 118

IPSAS 25 EMPLOYEES BENEFITS l An entity may pay insurance premiums to fund a IPSAS 25 EMPLOYEES BENEFITS l An entity may pay insurance premiums to fund a post-employment benefit plan. The entity shall treat such a plan as a defined contribution plan unless the entity will have (either directly or indirectly through the plan) a legal or constructive obligation to either: - Pay the employee benefits directly when they fall due; or - Pay further amounts if the insurer does not pay all future employee benefits relating to employee service in the current and prior periods. If the entity retains such a legal or constructive obligation, the entity shall treat the plan as a defined benefit plan.

On first adopting this IPSAS, an entity shall determine its initial liability for defined On first adopting this IPSAS, an entity shall determine its initial liability for defined benefit plans at that date as: - The present value of the obligations at the date of adoption. - Minus the fair value, at the date of adoption, of plan assets out of which the obligations are to be settled directly. - Minus any past service cost that shall be recognized in later periods. l The entity shall not split the cumulative actuarial gains and losses l Some exemptions are applicable regarding the disclosures when applying this IPSAS for the first time. l 120

IPSAS 26 IMPAIRMENT OF CASH GENERATING ASSETS l l It prescribe the procedures that IPSAS 26 IMPAIRMENT OF CASH GENERATING ASSETS l l It prescribe the procedures that an entity applies to determine whether a cash-generating asset is impaired and to ensure that impairment losses are recognized IPSAS 26 applies to the accounting for the impairment of all cashgenerating assets except inventories (IPSAS 12), assets arising from construction contracts (IPSAS 11), financial assets that are within the scope of IPSAS 29, investment property measured at fair value (IPSAS 16), cashgenerating property, plant and equipment that is measured at revalued amounts (IPSAS 17), deferred tax assets, assets arising from employee benefits (IPSAS 25), intangible assets that are regularly revalued to fair value, goodwill, biological assets related to agricultural activity measured at fair value less estimated point-of-sale costs, deferred acquisition costs and intangible assets, arising from an insurer’s contractual rights under insurance contracts, non-current assets classified as held for sale and discontinued operations, and other cash-generating assets in respect of which accounting requirements for impairment are included in another IPSAS. 121

IPSAS 27 AGRICULTURE l It prescribes the accounting treatment and disclosures for agricultural activity IPSAS 27 AGRICULTURE l It prescribes the accounting treatment and disclosures for agricultural activity 122

IPSAS 28 FINANCIAL INSTRUMENTS PRESENTATION l It prescribe principles for classifying and presenting financial IPSAS 28 FINANCIAL INSTRUMENTS PRESENTATION l It prescribe principles for classifying and presenting financial instruments as liabilities or net assets/equity, and for offsetting financial assets and liabilities. 123

IPSAS 29 FINANCIAL INSTRUMENTS RECOGNITION AND MEASUREMENT l It establish principles for recognizing, derecognizing IPSAS 29 FINANCIAL INSTRUMENTS RECOGNITION AND MEASUREMENT l It establish principles for recognizing, derecognizing and measuring financial assets and financial liabilities 124

IPSAS 30 FINANCIAL INSTRUMENTS DISCLOSURES l It prescribe disclosures that enable financial statement users IPSAS 30 FINANCIAL INSTRUMENTS DISCLOSURES l It prescribe disclosures that enable financial statement users to evaluate the significance of financial instruments to an entity, the nature and extent of their risks, and how the entity manages those risk. 125

IPSAS 31 INTANGIBLE ASSETS l l l ü ü l l IPSAS 31 INTANGIBLE IPSAS 31 INTANGIBLE ASSETS l l l ü ü l l IPSAS 31 INTANGIBLE ASSETS It prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IPSAS 31 does not apply to intangible assets acquired in an entity combination from a non-exchange transaction, and to powers and rights conferred by legislation, a constitution or by equivalent means, such as the power to tax. An intangible asset, whether purchased or self-created, is recognized if : it is probable that the future economic benefits or service potential that are attributable to the asset will flow to the entity; and the cost or fair value of the asset can be measured reliably. Additional recognition criteria for internally generated intangible assets. Internally generated goodwill shall not be recognized as an asset All research costs are charged to expense when incurred 126

Barings Bank l l l Barings Bank - 1762 to 26 th February 1995 Barings Bank l l l Barings Bank - 1762 to 26 th February 1995 ING, a Dutch bank, purchased Barings Bank in 1995 for the nominal sum of £ 1 and assumed all of Barings' liabilities, forming the subsidiary ING Barings The bank lost £ 827 million ($1. 3 billion) the loss is twice the banks available trading capital It was due to speculative investing, primarily in futures contracts, at the bank's Singapore office. Nick Leeson Key Personnel in the Baring Bank (Born on 25 th. February 1967 ) (approx age 46)

IPSAS 31 INTANGIBLE ASSETS l l l Development costs are capitalized only after technical IPSAS 31 INTANGIBLE ASSETS l l l Development costs are capitalized only after technical and commercial feasibility of the resulting product or service have been established. Internally-generated brands, mastheads, publishing titles, lists of customers or users of services and items similar in substance shall not be recognized as intangible assets. If an intangible item does not meet both the definition and the recognition criteria for an intangible asset, expenditure on the item is recognized as an expense when it is incurred, except if the cost is incurred as part of an entity combination, in which case it forms part of the amount recognized as purchase premium/goodwill at the acquisition date. 128

IPSAS 31 INTANGIBLE ASSETS l l l Intangible assets with indefinite useful lives are IPSAS 31 INTANGIBLE ASSETS l l l Intangible assets with indefinite useful lives are not amortized but are tested for impairment on an annual basis. If recoverable amount of a cash-generating asset or recoverable service amount of a non-cash generating asset is lower than the carrying amount, an impairment loss is recognized. The entity also considers whether the intangible continues to have an indefinite life. Under the revaluation model, revaluations are carried out regularly. All items of a given class are revalued (unless there is no active market for a particular asset). Revaluation increases are credited directly to revaluation surplus. Revaluation decreases are charged first against the revaluation surplus related to the specific asset, and any excess against surplus or deficit. When the revalued asset is disposed of, the revaluation surplus is transferred directly to accumulated surpluses or deficit and is not reclassified to surplus or deficit. Normally , subsequent expenditure on an intangible asset after its purchase or completion is recognized as an expense. Only rarely are the asset recognition criteria met 129

IPSAS 32 Service Concession Arrangement l It prescribe the accounting for service concession arrangements IPSAS 32 Service Concession Arrangement l It prescribe the accounting for service concession arrangements by the grantor, a public sector entity 130

Source: E&Y Survey on Accounting System trends 131 Source: E&Y Survey on Accounting System trends 131

Typical Governmental Transactions l l l l l Budget Collection of Property Taxes Other Typical Governmental Transactions l l l l l Budget Collection of Property Taxes Other revenue Expenditures (for running the government) Acquisition of Inventory Disbursements Inter Fund /Intra Fund Transactions Closing Entries Fund Balances 132

133 133

134 134

Basic Unit of Accounting l Pay & Accounts Office is the basic unit of Basic Unit of Accounting l Pay & Accounts Office is the basic unit of departmentalized accounts organization l PAO compiles monthly accounts of receipts & payments 135

The Government Accounting Process in India l PAOs are the field units where the The Government Accounting Process in India l PAOs are the field units where the accounting process begins l The vouchers and the Bank scrolls form the basis for compilation of Accounts. l The Cheque Drawing DDOs send weekly list of payments along with relevant vouchers to the PAO, which are also included by him in his accounts. l Monthly accounts are prepared and submitted to the Principal Accounts Office. 136

137 137

The Government Accounting Process in India l PAO consolidates the monthly accounts received from The Government Accounting Process in India l PAO consolidates the monthly accounts received from all the PAOs and l PAO renders a consolidated Monthly Account for the entire Ministry to the Controller General of Accounts. l The PAO also prepares the monthly accounts to be rendered timely to the office of Controller General of Accounts by the prescribed date of 15 th of the following month. 138

Principal Accounts Office (PAO) l Principal Accounts Office further prepares • • • APPROPRIATION Principal Accounts Office (PAO) l Principal Accounts Office further prepares • • • APPROPRIATION ACCOUNTS and STATEMENT OF CENTRAL TRANSACTIONS and ANNUAL FINANCE ACCOUNT l Makes payments of loans and grants to State Governments through the Reserve Bank of India and l Renders advice on accounting matters to the Ministry • . 139

Finance Accounts l Present classified and consolidated accounts of transactions of the Ministry under Finance Accounts l Present classified and consolidated accounts of transactions of the Ministry under the • Consolidated Fund, • Contingency Fund and • the Public Account. 140

Appropriation Accounts l The account gives grant-wise expenditure against the corresponding provision approved by Appropriation Accounts l The account gives grant-wise expenditure against the corresponding provision approved by Parliament with explanations for variation. l Both Finance Accounts and Appropriation Accounts are submitted to the Controller General of Accounts. 141

Government Accounting Personnel l Chief Accounting Authority (CAA)– The Secretary of the Department l Government Accounting Personnel l Chief Accounting Authority (CAA)– The Secretary of the Department l Chief Controller of Accounts (CCA) and Financial Advisor (FA) assist the CAA. l Common Accounting Organization for Departments l Consists of Principal Accounting Officer, Pay & Accounts Office and Internal Audit Wing 142

Chief Controller of Accounts (CCA) l CCA is assisted by • 1 Controller of Chief Controller of Accounts (CCA) l CCA is assisted by • 1 Controller of Accounts • 1 Deputy Controller of Accounts • 1 Assistant Controller of Accounts • Certain number of Pay & Accounts Officers 143

Controller General of Accounts l Principal Accounts Adviser to the Government of India l Controller General of Accounts l Principal Accounts Adviser to the Government of India l Is responsible for establishing and maintaining a technically sound management accounting system l Prepares a critical analysis of expenditures, revenues, borrowings and the deficit for the Finance Minister every month l Prepares annual Appropriation Accounts and Union Finance Accounts for presentation to the Parliament. 144

Indian Civil Accounts Service (ICAS) l l Indian Civil Accounts Organisation performs a key Indian Civil Accounts Service (ICAS) l l Indian Civil Accounts Organisation performs a key role in delivery of financial management services for the Government of India. Provides • • • payment services, supports the tax collection system, performs government wide accounting, financial reporting functions, preparation of budget estimates and carries out Internal Audit in civil ministries of the Union Government. 145

Government Accounting Includes l Accounting for • Constitutional Bodies • Statutory Bodies • Autonomous Government Accounting Includes l Accounting for • Constitutional Bodies • Statutory Bodies • Autonomous Bodies • Public Sector Undertakings 146

Classification of Government Transactions l Based on • Government Accounting Rules 1990 • List Classification of Government Transactions l Based on • Government Accounting Rules 1990 • List of Major & Minor Heads of Account for Union & States 147

CONSOLIDATED FUND OF INDIA l l l All revenues received by the Government by CONSOLIDATED FUND OF INDIA l l l All revenues received by the Government by way of taxes like • • Income Tax, Central Excise, Customs and other receipts flowing to the Government in connection with the conduct of Government business All loans raised by the Government by issue of • • • Public notifications, treasury bills (internal debt) and loans obtained from foreign governments and international institutions (external debt) are credited into this fund. All expenditure of the government is incurred from this fund and no amount can be withdrawn from the Fund without authorization from the Parliament. 148

CONTINGENCY FUND OF INDIA l l Records the transactions connected with Contingency Fund set CONTINGENCY FUND OF INDIA l l Records the transactions connected with Contingency Fund set by the Government of India under Article 267 of the Constitution of India. The corpus of this fund is Rs. 50 crores. Advances are made for the purposes of meeting unforeseen expenditure which are resumed to the Fund to the full extent as soon as Parliament authorizes additional expenditure. This fund acts more or less like an imprest account of Government of India and is held on behalf of President by the Secretary to the Government of India, Ministry of Finance, Department of Economic Affairs. 149

PUBLIC ACCOUNT l l l Public Account constituted under Article 266 (2) of the PUBLIC ACCOUNT l l l Public Account constituted under Article 266 (2) of the Constitution, The transactions relate to debt other than those included in the Consolidated Fund of India. The transactions under Debt, Deposits and Advances in this part are those in respect of which Government incurs a liability to repay the money received or has a claim to recover the amounts paid. The transactions relating to `Remittance’ and `Suspense’ shall embrace all adjusting heads. The receipts under Public Account do not constitute normal receipts of Government. Parliamentary authorization for payments from the Public Account is therefore not required. 150

Accrual System of Accounting l A system of accounting based on the accrual principal, Accrual System of Accounting l A system of accounting based on the accrual principal, under which revenue is recognized (recorded) when earned, and expenses are recognized when incurred. l This permits accounting for sales and expenditures on credit. l The accrual method uses special accounts to temporarily record amounts owed to the business and owed by the business. 151

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Accrual System in Government Accounting in India l l l As of 2011, 48 Accrual System in Government Accounting in India l l l As of 2011, 48 urban local bodies in 17 states have switched over to accrual-based accounting. Four states — Gujarat, Karnataka, Kerala and WB (West Bengal) — have adopted accrual accounting for Panchayati Raj institution. GASAB is developing two types of Accounting Standards for the Government to address the issues related with the • • Existing cash system of accounting and Its migration to the accrual system of accounting in future. 153

Accounting Standards in India l l l Accounting Standards issued by ICAI Companies (Accounting Accounting Standards in India l l l Accounting Standards issued by ICAI Companies (Accounting Standard) Rules, 2006 Accounting Standards for Local Bodies issued by ICAI Standards issued under Sec 145 of the Income Tax Act or the Tax Accounting Standards Cost Accounting Standards Governmental Accounting Standards 154

Source: E&Y Survey on Accounting System trends 155 Source: E&Y Survey on Accounting System trends 155

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Accounting Standards Globally l l l FASB GASB AASB NASB IPSAS based standards 157 Accounting Standards Globally l l l FASB GASB AASB NASB IPSAS based standards 157

Australian Accounting Standard Board (AASB) l l l AASB is an Australian Government agency, Australian Accounting Standard Board (AASB) l l l AASB is an Australian Government agency, reporting to the Parliamentary Secretary to the Treasurer. Since 1991, all standards issued by the AASB have been labelled AASB Accounting Standards. As of date close to 41 AASB standards are operative. 158

Public Sector Accounting Board – Canada 159 Public Sector Accounting Board – Canada 159

Federal Accounting Standards Advisory Board – FASB – The United States of America l Federal Accounting Standards Advisory Board – FASB – The United States of America l l The Accounting and Auditing Policy Committee (AAPC) is a standing task force of the FASAB has issued the following as of June 30 th 2012 • • • Statements of Federal Financial Accounting Concepts 1 -7, Statements of Federal Financial Accounting Standards 1 -43, Interpretations 1 -7, 160

Governmental Accounting Standards Board (GASB) - USA l l The Governmental Accounting Standards Board Governmental Accounting Standards Board (GASB) - USA l l The Governmental Accounting Standards Board (GASB) is the independent organization that establishes and improves standards of accounting and financial reporting for U. S. state and local governments The GASB Pronouncements • • Statements of Governmental Accounting Standards 169 Concepts Statements – 1 -5 GASB Interpretations – 1 -6 GASB Technical Bulletins 99 -1 – 2008 -1 161

Indonesia -Government Accounting Standard Committee (KSAP) l So far has issued 11 statements on Indonesia -Government Accounting Standard Committee (KSAP) l So far has issued 11 statements on Government Accounting (Cash to accrual) 162

New Zealand Accounting Standard Board (NZASB) l l l From 1 July 2011, the New Zealand Accounting Standard Board (NZASB) l l l From 1 July 2011, the development, approval and promulgation of accounting standards for application in New Zealand is the responsibility of the New Zealand Accounting Standards Board (NZASB). Accounting Standards for Public Benefit Entities (PBEs) - Accounting standards and other pronouncements to be applied by public benefit entities (PBEs) preparing general purpose financial reports for periods beginning on or after 1 December 2012. Has till date issued close to 70 Standards 163

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Countries that have adopted IPSAS l l l National governments, bodies and organizations that Countries that have adopted IPSAS l l l National governments, bodies and organizations that have adopted or have plans to adopt IPSASs are: Austria Brazil Cambodia Costa Rica Kenya Peru South Africa Spain Switzerland Vietnam l l l The European Commission–for their own financial statements The North Atlantic Treaty Organization (NATO) The Organisation for Economic Co-operation and Development (OECD) The United Nations system Nominating Committee Members 167

East and Southern African Association of Accountants General (ESAAG) l In 2003 the thirteen East and Southern African Association of Accountants General (ESAAG) l In 2003 the thirteen member countries of the East and Southern African Association of Accountants General (ESAAAG) resolved to start the process of moving towards the preparation of accounts in accordance with International Public Sector Accounting Standards (IPSAS). 168

Government Accounting – Institutions/Offices l l Institute of Government Accounts and Finance (INGAF) - Government Accounting – Institutions/Offices l l Institute of Government Accounts and Finance (INGAF) - http: //www. ingaf. in/ National Institute of Financial Management (NIFM) - http: //www. nifm. ac. in/ Central Pension Accounting Office (CPAO) - http: //cpao. nic. in National Institute of Urban Affairs - http: //www. niua. org/ 169

Government Accounting Institutions/Associations International l l Association of Government Accountants - http: //www. agacgfm. Government Accounting Institutions/Associations International l l Association of Government Accountants - http: //www. agacgfm. org Government Finance Officers Associations (GFOA) - http: //www. gfoa. org/ International Government Accounting & Finance Benchmarking Association - http: //igafba. igba. org/ Caribbean Public Finance Association - http: //capfainc. org/index. php East and Southern African Association of Accountants General- http: //www. esaag. co. za/ 170

Thank You 171 Thank You 171