6.1 What are IPSAS?

Definition: International Public Sector Accounting Standards (IPSAS) are a comprehensive set of accounting standards issued by IPSASB for use by public sector entities worldwide in preparing financial statements.

Characteristics:

• Based on IFRS but adapted for public sector
• Cover recognition, measurement, presentation, disclosure
• Two categories: Accrual IPSAS and Cash Basis IPSAS

6.2 Why IPSAS Instead of IFRS?

Key Differences Between Public and Private Sector:

Public Sector-Specific Issues Requiring Unique Standards:

1. Non-Exchange Transactions (IPSAS 23)
   • Taxes – government doesn’t provide direct goods/services in return
   • Grants and donations – received without obligation to give equal value back
   • IFRS has no equivalent (all IFRS transactions are exchanges)
2. Budget Reporting (IPSAS 24)
   • Governments operate under approved budgets
   • Budget vs actual comparison mandatory
   • IFRS doesn’t require budget reporting
3. Service Concession Arrangements (IPSAS 32)
   • Public-private partnerships (PPPs)
   • Government grants private operator right to provide public services (e.g., toll roads)
   • IPSAS addresses how government accounts for these
   • IFRS covers private operator side, not government side
4. Social Benefits (IPSAS 42)
   • Unemployment benefits, welfare payments, subsidies
   • No IFRS equivalent
5. Heritage Assets
   • Museums, historical monuments, national parks
   • IPSAS provides specific guidance
   • IFRS doesn’t address these

Example Why IFRS Wouldn’t Work:

Scenario: Nairobi County receives Ksh 1 billion grant from World Bank for water projects.

Under IFRS Logic:

• Revenue = exchange of goods/services
• Grant has no exchange element
• How to recognize? No clear guidance

Under IPSAS 23:

• Clear criteria for recognizing revenue from non-exchange transactions
• Recognize as revenue when:
  1. Entity has control of resources
  2. It’s probable future benefits will flow
  3. Fair value can be measured
  4. Conditions (if any) are met

6.3 Categories of IPSAS

Cash Basis IPSAS

One standard: “Financial Reporting Under the Cash Basis of Accounting”

Purpose: For governments not yet ready for accrual

Requirements:

• Statement of Cash Receipts and Payments
• Accounting policies
• Budget comparison
• Encouraged disclosures on assets and liabilities

Kenya’s Current Use: National and county governments (until June 2027)

Accrual IPSAS

Number: 50+ standards

Categories:

1. General Standards
   • IPSAS 1: Presentation of Financial Statements
   • IPSAS 2: Cash Flow Statements
   • IPSAS 3: Accounting Policies, Changes in Accounting Estimates and Errors
   • IPSAS 24: Presentation of Budget Information
2. Asset Standards
   • IPSAS 12: Inventories
   • 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 31: Intangible Assets
3. Liability and Provision Standards
   • IPSAS 19: Provisions, Contingent Liabilities and Contingent Assets
   • IPSAS 25: Employee Benefits
   • IPSAS 39: Employee Benefits (updated)
   • IPSAS 42: Social Benefits
4. Revenue Standards
   • IPSAS 9: Revenue from Exchange Transactions
   • IPSAS 23: Revenue from Non-Exchange Transactions
5. Special Transaction Standards
   • IPSAS 5: Borrowing Costs
   • IPSAS 7R: Investments in Associates
   • IPSAS 13: Leases
   • IPSAS 32: Service Concession Arrangements
   • IPSAS 40: Public Sector Combinations
6. First-Time Adoption
   • IPSAS 33: First-Time Adoption of Accrual Basis IPSAS