Topic: International public sector accounting standards

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  • 20 Marks

PSAF – Nov 2016 – L2 – Q1a – Preparation and presentation of financial statements for central government

Prepare the Statement of Financial Performance and the Statement of Financial Position for the Consolidated Fund as of 31 December 2014 under accrual basis, in compliance with IPSAS.

Below is the Trial Balance of the Consolidated Fund for the year ended 31 December 2014.

Additional Information:
i) It is the policy of Controller and Accountant General to adopt the accrual basis of preparing the public accounts of the Consolidated Fund for the first time in compliance with the Financial Administration Regulation 2004 and the International Public Sector Accounting Standards (IPSAS). The effective date is 31 December 2014.
ii) The current Chart of Accounts based on the GFS 2001 is used in the classification of revenues and expenditures.
iii) Consumption of fixed capital charged on cost for the year has been computed as GH¢156,000,000.
iv) Direct tax revenues due to government but were not received at 31 December 2014 amounted to GH¢49,000,000.
v) An established post salary in arrears as a result of salary increment in the fourth quarter of 2014 was GH¢56,000,000 and goods and services outstanding at the end of the year amounted to GH¢12,000,000.
vi) The grant shown in the trial balance as expenditure represents a statutory transfer to the District Assembly Common Fund (DACF). Any arrears in the DACF should be treated as payable. The current rate of transfer is 7.5% on the amount received.
vii) Public debt interest of GH¢14,000,000 was due to creditors but was not paid as at 31 December 2014.

Required:
a) Prepare in a form suitable for publication and in accordance with the relevant Financial Laws and IPSAS:
i) Statement of Financial Performance of the Consolidated Fund for the year ended 31 December 2014.
ii) Statement of Financial Position of the Consolidated Fund as at 31 December 2014.
(Show all workings clearly)

b) Disclose any TWO significant accounting policies as part of the notes to your accounts, as much as the information provided will permit.

i) Statement of Financial Performance of the Consolidated Fund
for the year ended 31 December, 2014

ii) Statement of Financial Position as at 31 December 2014

ii) Statement of Financial Position as at 31 December 2014

(b)
Notes on Accounting Policy include:
i) Basis of Accounting
The accounts are prepared on accrual basis for the first time.
ii) Consumption of Fixed Capital/depreciation policy
Depreciation is charged on non-financial assets acquired during the year.
Infrastructure is depreciated at 5% per annum on cost and other PPEs are
depreciated at 10% per annum on cost.
iii) Accounts are prepared in compliance with the IPSAS and the Financial
Laws of the country.

EXAMINER’S COMMENTS
This was generally fairly well answered by most candidates. Some candidates
however performed very poorly in answering the question, showing that they were
ill-prepared for the examination.

 

 

 

  • 2 Marks

PSAF – Nov 2016 – L2 – Q1b – International Public Sector Accounting Standard

Identify and disclose two significant accounting policies for the Consolidated Fund using the accrual basis for the first time.

Disclose any TWO significant accounting policies as part of the notes to your accounts, as much as the information provided will permit.

Notes on Accounting Policy include:

i) Basis of Accounting
The accounts are prepared on an accrual basis for the first time.

ii) Consumption of Fixed Capital/Depreciation Policy
Depreciation is charged on non-financial assets acquired during the year. Infrastructure is depreciated at 5% per annum on cost, and other PPEs (Property, Plant, and Equipment) are depreciated at 10% per annum on cost.

iii) Accounts are prepared in compliance with the IPSAS and the Financial Laws of the country.

  • 10 Marks

PSAF – May 2021 – L2 – Q1b – International public sector accounting standards

Explain the objectives of measurement in financial reporting under IPSAS and describe four measurement bases for assets in line with the IPSAS Conceptual Framework.

Implementation of the International Public Sector Accounting Standards (IPSAS) is a priority of Government in 2021, and the Controller and Accountant General is doing everything possible to ensure effective implementation. One major concern of the implementors is the measurement of public assets, as these assets are numerous, varied, and acquired in different ways. Nevertheless, assets need to be measured and recognised in accordance with IPSAS.

Required:
i) Explain the objectives of Measurement in Financial Reporting under IPSAS. (4 marks)
ii) Explain FOUR (4) Measurement Bases for assets in line with the Conceptual Framework of General Purpose Financial Report. (6 marks)

i) Measurement Objectives:
The objective of measurement is to select those measurement bases that most fairly reflect the cost of services, operational capacity, and financial capacity of the entity in a manner that is useful in holding the entity to account and for decision-making purposes. The selection of a measurement basis for assets and liabilities contributes to meeting the objectives of financial reporting in the public sector by providing information that enables users to assess:

  • The cost of services provided in the period in historical or current terms;
  • Operational capacity—the capacity of the entity to support the provision of services in future periods through physical and other resources;
  • Financial capacity—the capacity of the entity to fund its activities.

ii) Bases of Measurement of Assets:

  1. Historical Cost:
    • The consideration given to acquire or develop an asset, which is the cash or cash equivalents or the value of the other consideration given at the time of its acquisition or development.
  2. Market Value:
    • The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
  3. Replacement Cost:
    • The most economical cost required for the entity to replace the service potential of an asset at the reporting date.
  4. Net Selling Price:
    • The amount that the entity can obtain from the sale of the asset after deducting the costs of sale.
  5. Value in Use:
    • The present value to the entity of the asset’s remaining service potential or ability to generate economic benefits if it continues to be used and the net amount that the entity will receive from its disposal at the end of its useful life.
  • 10 Marks

PSAF – July 2023 – L2 – Q4b – International public sector accounting standards

Discuss the recognition of service concession assets under IPSAS 32 and determine whether a hostel facility qualifies as a service concession asset.

A public university has engaged a private estate developer to construct a hostel for its candidates under a Build-Operate-Transfer arrangement over 25 years. Under the arrangement, the university reserves the right to fully control services the operator offers and any significant residual interest. The hostel can only be used to provide accommodation for candidates of the university. The university prepares its financial statements in compliance with the International Public Sector Accounting Standards (IPSAS). The Director of Finance is uncertain whether the hostel facility is a service concession asset or not.

Required:

i) In reference to the above, explain the term “service concession asset” under IPSAS 32: Service Concession Arrangement: Grantor. (1 mark)

ii) Discuss TWO (2) conditions necessary for the recognition of a service concession asset, and indicate whether the hostel facility qualifies for recognition under IPSAS 32. (6 marks)

iii) Outline THREE (3) disclosures that the grantor should make in the notes to the financial statements in respect of concession assets. (3 marks)

i) Explanation of “Service Concession Asset” under IPSAS 32:

A service concession asset is an asset used to provide public services in a service concession arrangement, where the asset is either provided by the operator or is an existing asset of the grantor, and where the grantor controls the asset, including what services the operator must provide with the asset, to whom it must provide them, and at what price.

ii) Conditions for Recognition of a Service Concession Asset under IPSAS 32:

Under IPSAS 32, a grantor shall recognize an asset provided by the operator as a service concession asset if:

  1. Control of Services: The grantor controls or regulates what services the operator must provide with the asset, to whom they must be provided, and at what price.
  2. Control of Residual Interest: The grantor controls, through ownership, beneficial entitlement, or otherwise, any significant residual interest in the asset at the end of the term of the arrangement.

Application to the Hostel Facility: The hostel facility qualifies as a service concession asset because:

  • The university controls the services provided by the operator (accommodation for students) and the fees charged for these services.
  • The university also retains control over the residual interest in the hostel after the 25-year arrangement period.

Therefore, the hostel facility should be recognized as a service concession asset under IPSAS 32.

iii) Disclosures in the Financial Statements under IPSAS 32:

The grantor should disclose the following information in respect of service concession arrangements:

  1. Description of the Arrangement: A detailed description of the service concession arrangement, including the nature of the services provided and the terms of the arrangement.
  2. Significant Terms: Significant terms of the arrangement that may affect the amount, timing, and certainty of future cash flows, such as the duration of the concession, re-pricing dates, and the basis for re-pricing or renegotiation.
  3. Nature and Extent of Rights and Obligations: Information on the rights to use specified assets, the rights to receive specified services, and any obligations to provide the operator with access to service concession assets or other revenue-generating assets.
  • 20 Marks

PSAF – Nov 2020 – L2 – Q4 – Public Procurement | International public sector accounting standards

Explain principles of public procurement and risks associated with procurement in Ghana's public sector. Discuss service concession arrangements under IPSAS 32.

a) Using public money to procure goods, works, and services to provide public services is a frequent but complicated decision of the Head of Procurement entities. It is required that such decisions should go through due process to attain value for money for the public. The Public Procurement laws are embodiments of core principles that govern the entire process. Procurement entities are therefore entreated to promote and secure these core principles in the conduct of public procurements. Non-compliance with these principles embedded in the law increases the risk associated with public procurement.

Required:

i) Explain SIX (6) general principles of public procurement that an officer in charge of procurement of goods, services, and works should consider in line with the Public Procurement Act 2016 (Amendment) Act 914. (6 marks)

ii) Discuss FOUR (4) risks associated with public procurement in the Ghanaian Public Sector. (4 marks)

b) IPSAS 32: Service Concession Arrangements: Grantor establishes the accounting and reporting requirements for the grantor in a service concession arrangement. In these kinds of arrangements, the grantor is a public sector entity. Service Concession arrangements in the public sector are characterized by binding arrangements that involve private sector participation in the development, financing, operation, and/or maintenance of assets used to provide public services. IPSAS 32’s intention is to create symmetry with IFRIC 12: Service Concession Arrangements on relevant accounting issues (that is, liabilities, revenue, and expenses) from the grantor’s point of view.

Required:
i) State and Explain TWO (2) conditions under which a grantor can recognize a Service Concession Asset. (4 marks)

ii) Explain any THREE (3) pieces of information that the grantor shall present and disclose in its Financial Statements. (6 marks)

a) Principles of Public Procurement:

i) General Principles:

  1. Competition: Opening procurement opportunities to all potential suppliers and contractors encourages competition, ensuring value for money. Competitive tendering should be the preferred option.
  2. Accountability: The procurement entity and the head of procurement are accountable to the public for their procurement decisions and must provide explanations for their actions.
  3. Transparency: The procurement process should be transparent, from the invitation to tender to the evaluation and selection of suppliers. This transparency ensures public trust and fairness.
  4. Fairness/Non-Discrimination: All potential suppliers should be treated fairly, with no discrimination based on gender, party affiliation, ethnicity, or religion. Only price and quality should be the deciding factors.
  5. Economy: The procurement process should aim to reduce costs while achieving the desired outcomes, ensuring that public funds are used efficiently.
  6. Efficiency: The procurement process should be conducted efficiently to achieve the intended procurement objectives without unnecessary delays or costs.

(6 marks)

ii) Risks Associated with Public Procurement:

  1. Overvaluation of Procurement Contracts: There’s a high risk of contracts being overvalued for personal gain, leading to waste of public resources.
  2. Procurement of Inferior Goods and Services: There is a risk of public entities procuring substandard goods and services that do not meet the required specifications, often due to corruption or incompetence.
  3. Conflict of Interest: Heads of entities and procurement officers might award contracts to companies they have personal interests in, compromising the integrity of the procurement process.
  4. Fake Procurement: There is a risk of payments being made for goods and services that were never procured, with the proceeds being misappropriated.

(4 marks)

b) Service Concession Arrangements (IPSAS 32):

i) Conditions for Recognizing a Service Concession Asset:

  1. Control of Services: The grantor must control or regulate the services that the operator must provide with the asset, including who receives the services and the prices charged.
  2. Control of Residual Interest: The grantor must control any significant residual interest in the asset at the end of the service concession arrangement term, through ownership, beneficial entitlement, or otherwise.

(4 marks)

ii) Information to be Disclosed in Financial Statements:

  1. Description of the Arrangement: A comprehensive description of the service concession arrangement, including significant terms that may affect future cash flows, should be disclosed.
  2. Nature and Extent of Rights and Obligations: This includes the rights to use specified assets, receive specified services, or receive specified assets at the end of the arrangement, as well as any obligations to provide the operator with access to assets or revenue-generating opportunities.
  3. Changes in the Arrangement: Any changes in the service concession arrangement during the reporting period should be disclosed, including the impact on the financial position and performance of the grantor.
  • 10 Marks

PSAF – Nov 2019 – L2 – Q1c – International public sector accounting standards

Discuss the objective of measurement for asset recognition and suggest appropriate measurement bases for specific assets.

Measurement of assets for recognition in the financial statements is a critical consideration in financial reporting and has been problematic in the public sector given the nature of assets involved. A public sector organization is currently in transition from cash basis accounting to accrual basis accounting which requires measurement and recognition of all assets in the general-purpose financial reports. Of much concern to the entity is how to select the appropriate measurement basis for the assets of the entity listed below to ensure that the objectives of financial reporting are achieved:

  • Human resource software developed by the entity
  • Stock of books in the library
  • Vehicles donated to the entity

You have been consulted on the issues raised above to help the entity choose appropriate measurement for the recognition of the above-listed assets.

Required:
In line with the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities issued by International Public Sector Accounting Standards Board (IPSASB):

i) Discuss the objective for the measurement of assets in financial statements that should guide the choice of measurement bases for asset recognition. (4 marks)

ii) Suggest an appropriate measurement basis for each of the assets indicated above, and discuss how your selected measurement basis meets the objectives of measurement in each case. (6 marks)

(i) According to the Conceptual Framework, the objective of measurement is to select those measurement bases that most fairly reflect the cost of services, operational capacity, and financial capacity of the entity in a manner that is useful in holding the entity to account and for decision-making purposes.

This implies that the choice of measurement basis should ensure that the basis provides useful information that enables the users to assess the cost of services provided, the operational capacity of the entity, and the capacity of the entity to fund its activities.

(Award 3 marks when all the key terms are indicated in the candidate’s explanation) (1 mark for the Implication)

(ii) The selection of the measurement bases is guided by the extent to which the basis fairly reflects information on the cost of service, operational capacity, and financial capacity of the entity.

  • Human resource software package developed by the entity.
    This is an intangible asset developed by the entity. The most appropriate measurement basis is historical cost since the cost of developing the software package can be determined reliably. Historical cost is the consideration given to acquire or develop an asset, which is the cash or cash equivalents or the value of the other consideration given, at the time of its acquisition or development. In the instant case, historical cost is the most appropriate measurement basis because it fairly reflects the:
    ✓ Cost of service through the amount of the resources expended to acquire or develop assets consumed in the provision of services.
    ✓ Operational capacity through information on the resources available to provide services in future periods based on their acquisition cost.
    ✓ Financial capacity by providing information on the amount of assets that may be used as effective security against borrowing.
  • Stock books in the library
    For this asset, current value measurement basis is most appropriate to reflect the economic environment prevailing at the reporting date. Specifically, replacement cost is the measurement basis that fairly reflects the cost of service, operational capacity, and financial capacity of the library books. Replacement cost is the most economic cost required for the entity to replace the service potential of an asset at the reporting date. The use of replacement cost for the stock of the library books provides information that fairly reflects the:
    ✓ Cost of service to be equivalent to the amount of sacrifice of service potential incurred by that use.
    ✓ Operational capacity by the resources available to provide services in future periods, as it focuses on the current value of the assets and its service potential to the entity.
    Note: that financial capacity is not reflected by replacement cost basis as it does not provide information on the amounts that would be received on the sale of the asset.
  • Vehicle donated to the entity
    Since the vehicle was donated to the entity, it lacks purchase cost. The appropriate measurement basis is the market value. Market value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. The vehicle is traded in the open, active, and orderly markets so obtaining the market value is practicable. Market value of the vehicle fairly reflects the:
    ✓ Cost of service by allocating the cost of assets to reflect their consumption in the current reporting period based on current market values of the vehicles.
    ✓ Operational capacity by providing information on the market value of assets held to provide services in future periods.
    ✓ Financial capacity by providing information on the amount that would be received on the sale of the assets.

(Award ½ marks for each point raised with a maximum of 4 points per each asset measurement.
½ marks * 4 * 3 = 6 marks)

  • 6 Marks

PSAF – Nov 2019 – L2 – Q1b – International public sector accounting standards

Formulate accounting policies for land, building, and inventory for public sector entities.

Formulate accounting policies on the following items relating to the financial statement of public sector entities:

i) Land and Building
ii) Inventories

(6 marks)

i) Land and Building

Accounting policy relating to Land and Building covers cost measurement and recognitions and depreciation policies.

Cost Measurement and Recognition

  • Initial recognition of land and building is at historical cost. Subsequent recognition is on carrying amount or revaluation.
  • All acquisitions of land and building, as well as improvements, will be capitalized when the criteria of recognition in accordance with the IPSAS are met.
  • Land and building should be derecognized when potential benefits cannot be expected to flow to the entity.

Depreciation/impairment

  • The depreciable/amortization amount of the building be allocated over its useful life in accordance with the depreciation method.
  • It is assumed that the residual value for all assets will be zero.
  • The calculation of depreciation/amortization will stop where an asset is disposed of, held for sale, or is fully depreciated.
  • Impairment of the building should be written off.
  • The calculations of depreciation will commence in the year the asset is put to use for its intended purpose.
  • Impairment loss shall be recognized immediately in the Covered Entity’s income statement unless the asset is carried at a revalued amount.
  • Where the impairment loss relates to a revalued asset, the impairment is first offset against its revaluation reserve balance. Any remaining impairment loss shall be recognized immediately in the Covered Entity’s Income Statement.
  • After recognizing the impairment loss, the depreciation charge shall be adjusted by taking into account the revised carrying amount, residual value, and remaining useful life.

ii) Inventory

Accounting policy for inventory is as follows.

Measurement

  • Inventory for sale shall be recognized at the lower of cost and net realizable value.
  • Inventory not for sale shall be recognized at the lower of cost and current replacement cost.
  • Inventory acquired through non-exchange transactions should be measured at fair value at the date of acquisition.

Recognition

  • Inventory sold, exchanged, or distributed shall be recognized as an expense at the carrying amount in the period in which the revenue relates, exchange, or distribution is made.
  • Write-offs in inventory should be recognized as an expense in the period it relates.
  • 6 Marks

PSAF – Nov 2017 – L2 – Q1a – International Public Sector Accounting Standards

Explain the challenges faced during the transition to accrual basis accounting in the public sector.

With the adoption of the International Public Sector Accounting Standards (IPSAS), public sector financial reports are to be prepared on an accrual basis in line with the financial laws of Ghana.

Required: Explain FOUR transitional challenges that are likely to be encountered when migrating from the current system of reporting to the accrual basis. (6 marks)

a) Challenges when adopting IPSAS which will slow the speed of the transition to accrual accounting include:

  • Set up of business process, such as CoA, IFMIS and ICT
  • Change management – whether the changes are being driven from the top down, or bottom up. For example, changes driven by the top level of government may be mandatory for all entities within that government and may have fixed time frames;
  • The current basis of accounting used by the entity, the capability of existing information systems, and the completeness and accuracy of existing information particularly in relation to assets and liabilities;
  • Misconception between Management personnel concerning the impact of change to the budgeting basis;
  • The level of political commitment to the adoption of accrual accounting and the system of government and the political environment; and
  • The capacity and skills of the staff and organizations responsible for implementation of the changes.

(1.5 marks for 4 points = 6 marks)

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