Introduction to Understanding IPSAS 24
In the realm of public sector accounting, transparency and accountability play a crucial role in ensuring that resources are allocated and used effectively. The International Public Sector Accounting Standard (IPSAS) 24: Presentation of Budget Information in Financial Statements addresses the need for public sector entities to present budget information alongside actual financial performance. This standard enhances financial reporting by allowing stakeholders to assess whether public entities are utilizing resources in line with approved budgets.
Objective of IPSAS 24
The primary objective of IPSAS 24 is to ensure that entities provide a comparison between the budget amounts they are held publicly accountable for and the actual amounts arising from budget execution. The standard also mandates that explanations for material variances between budgeted and actual amounts be disclosed. This fosters greater accountability and transparency in public sector financial reporting.
Scope of IPSAS 24
IPSAS 24 applies to public sector entities that prepare financial statements under the accrual basis of accounting and are required or elect to make their approved budgets publicly available. However, Government Business Enterprises (GBEs) are exempt from this standard as they apply IFRS rather than IPSAS.
Key Definitions Understanding IPSAS 24
- Original Budget: The initial approved budget for the financial period.
- Final Budget: The original budget adjusted for any authorized changes such as reallocations or supplementary appropriations.
- Actual Amounts: The amounts resulting from the execution of the budget.
- Comparable Basis: Presenting actual amounts using the same accounting basis, classification, and period as the approved budget.
Presentation of Budget and Actual Amounts Understanding IPSAS 24
Entities must present a comparison of:
- Original and Final Budget Amounts.
- Actual Amounts on a Comparable Basis.
- Material Differences between Budgeted and Actual Amounts (by way of note disclosure).
This comparison can be included as a separate financial statement or as additional columns in the primary financial statements, provided that the financial statements and budget are prepared on a comparable basis.
Disclosure Requirements
Entities are required to disclose the following information:
- Budgetary Basis and Classification Basis.
- Period Covered by the Budget.
- Entities Included in the Approved Budget.
- Reconciliation of Actual Amounts on a Comparable Basis with Actual Amounts in the Financial Statements (if different bases of accounting are used).
- Explanations of Material Differences (usually where variances exceed 10% of the budgeted amounts).
Changes from Original to Final Budget
Entities must explain changes between the original and final budget, whether due to internal reallocations or external factors such as policy changes or unforeseen events (e.g., natural disasters).
Level of Aggregation Understanding IPSAS 24
The level of budget information disclosed should correspond to the level of legislative or authoritative oversight. Detailed financial information may need to be aggregated to avoid excessive complexity and to align with the approved budget structure.
Reconciliation of Budget and Financial Statement Amounts
When the budget is prepared on a different basis (e.g., cash basis) than the financial statements (e.g., accrual basis), entities must provide a reconciliation identifying:
- Basis Differences.
- Timing Differences.
- Entity Differences.
Wach IPSAS 24 on Youtube Understanding IPSAS 24
Example 1 Understanding IPSAS 24
The illustration below is for Entity XYZ. The original budget for FY 20X1/X2 was Ksh 1,150,000, which was approved by the relevant authority on 29th June 20X1. There were no subsequent revisions or additional appropriations made to the approved budget through specific approvals from the appropriate authorities.
Entity XYZ’s budget is prepared on a cash basis, whereas the financial statements are prepared on an accrual basis using a classification based on the nature of expenses in the statement of financial performance.
Required:
Prepare a statement to reconcile the actual amounts on a comparable basis included in the statement of comparison of budget and actual amounts with the actuals as per the statement of cash flows.
| 20X1-20X2 | ||
| Description | Notes | Kshs |
| Cash flows from operating activities | ||
| Receipts | ||
| Transfers from exchequers | 700,000 | |
| Rendering of services | 200,000 | |
| Total receipts | 900,000 | |
| Payments | ||
| Employee costs | 200,000 | |
| Use of goods and services | 150,000 | |
| Other Grants and Subsidies | 50,000 | |
| Social Benefits | 100,000 | |
| Total payments | 500,000 | |
| Net cash flows from/(used in) operating activities | 49 | 400,000 |
| Cash flows from investing activities | ||
| Purchase of PPE | (250,000) | |
| Net cash flows from/(used in) investing activities | (250,000) | |
| Cash flows from financing activities | ||
| Return to Exchequer | (100,000) | |
| Net cash flows from financing Activities | (100,000) | |
| Net increase/(decrease) in cash & Cash equivalents | 50,0000 | |
| Cash and cash equivalents at 1 July | 28 | 100,000 |
| Cash and cash equivalents at 30 June | 28 | 150,000 |
Statement of Cash Flows for The Year Ended June 30th 20X2
Statement of Comparison of Budget and Actual amounts for the year ended 30 June 20X2
| Description | Original budget | Adjustments | Final budget | Actual on a comparable basis | Budget utilization difference | % of utilization |
| A | B | C=a+b | E=c-d | F=d/c % | ||
| Receipts | ||||||
| Transfers from exchequer | 900,000 | (100,000) | 800,000 | 700,000 | 100,000 | 88% |
| Rendering of services | 250,000 | 0 | 250,000 | 200,000 | 75% | |
| Total receipts | 1,150,000 | (100,000) | 1,050,000 | 900,000 | 150,0000 | |
| Payments | ||||||
| Employees Costs | 300,000 | (50,000) | 250,000 | 200,000 | 50,000 | 80% |
| Use of goods and services | 200,000 | (50,000) | 150,000 | 150,000 | 0 | 100% |
| Other Grants and Subsidies | 50,000 | 50,000 | 50,000 | 0 | 100% | |
| Social Benefits | 100,000 | 100,000 | 100,000 | 0 | 100% | |
| Total recurrent expenses | 650,000 | (100,000) | 550,000 | 500,000 | ||
| Capital items | ||||||
| Acquisition of PPE | 500,000 | – | 500,000 | 300,000 | 200,000 | 60% |
| Total expenses Development | 500,000 | – | 500,000 | 300,000 | 200,000 | 60% |
| Total expenditures | 1,150,000 | 0 | 1,050,000 | 800,000 | 250,000 | |
| Surplus/ deficit | 0 | 0 | 0 | 100,000 |
Reconciliation Statement Between the Actuals in The Statement of Budget Vs Actuals & The Statement Of Cash Flows
| Operating | Investing | Financing | Total | |
| As per budget | 400,000 | (300,000) | 0 | 100,000 |
| Timing difference (Retention money of 50K) | 50,000 | 50,000 | ||
| Entity difference (Exchequer returns 100K) | (100,000) | (100,000) | ||
| Actual Amounts in the statement of cash flows | 400,000 | (250,000) | (100,000) | 50,000 |
Differences between the actual amounts identified consistent with the comparable basis and the actual amounts recognized in the financial statements are explained as:
- Retention Money is recorded as an expense in the budget immediately, while in the financial statements, it is recognized later when the cash is actually released, resulting in a timing difference.
- Return to Exchequer is not part of the XYZ budget because it falls outside the entity’s scope, but it appears in the financial statements, creating an entity difference.
- Deposits: to handle case by case
A. Retention Money (Timing Difference):
In the budget, retention money is recorded as “paid out” when the work is performed, assuming the full payment has been made.
However, in the financial statements (and cash flow), the actual cash is retained for a few months as a liability until the work is fully verified and the payment is released.
This creates a timing difference, as the budget records the expense immediately while the cash movement occurs later.
B. Return to Exchequer (Entity Difference):
The approved budget for the XYZ entity excludes transactions involving returns to the exchequer, as these funds fall outside its budget scope.
In our case, Ksh 100,000 is returned to the exchequer because unspent funds are transferred back to the National Treasury.
Since the budget does not include this transaction, but the financial statements capture it as a cash outflow, I have classified this difference as an entity difference.
Importance of Understanding IPSAS 24
By requiring the presentation of budget information alongside actual financial performance, IPSAS 24 enhances the transparency and accountability of public sector entities. This helps stakeholders evaluate whether public funds are being used in accordance with approved budgets and promotes better financial management practices.
Conclusion Understanding IPSAS 24
IPSAS 24 plays a critical role in public sector financial reporting by ensuring that budgeted resources are used as intended and that explanations are provided for significant variances. Adopting this standard strengthens the credibility of financial statements, fosters public confidence, and supports the broader goals of transparency and accountability in public financial management.
