COURSE CODE: ACC224

COURSE TITLE: PUBLIC SECTOR ACCOUNTING

 WEEK ONE

INTRODUCTION TO PUBLIC SECTOR ACCOUNTING

INTERNATIONAL PUBLIC SECTOR ACCOUNTING

STANDARDS (IPSAS)

Lecturer: Dr Nwobu O.
 LEARNING OBJECTIVES
At the end of this lecture, students should be able to:
i.Explain the meaning of government;
ii.Define public sector accounting;
iii.Explain the nature and objectives of government
accounting;
iv.State the users of government accounting
information;
v.Make comparisons between public and private
sector accounting; and
vi.Explain the purpose of financial statements.
 Meaning of Government
The government of a nation refers to organizations
that are established to use and monitor the nation’s
resources in a manner that promotes the welfare of
the citizens and overall progress of the nation.
DIVISION OF GOVERNMENT ACCOUNTING
I. The Federal Government Ministries and
Department
II. The State Government Ministries and Department
III. The Local Government
 Definition of Public Sector Accounting
(PSA)

PSA or government accounting can be defined as a

process of recording, analysing, classifying,
summarising, communicating, and interpreting
government financial statement in aggregate and in
details. It comprises all level of transactions involving
the receipt, custody and disbursement of government
funds and assets (Institute of Chartered Accountants
of Nigeria, 2015).
 Nature of government accounting
Government accounting refers to all organizations
which are created, administered and financed by
government and a nation’s resources.
 Objectives of government accounting
Objectives of government accounting include:
i.To fulfil legal requirement, and the compliance of
transactions with established rules and regulations;
ii.To perform the stewardship function where
government employees and political office holders
explain how they used a nation’s resources and
property;
iii.To enable Government to plan future spending,
and programmes of the Nation;
 Objectives of government accounting
More objectives of government accounting include:
iv. To provide a process of controlling the use of
the financial and other resources;
v. To provide the means by which actual
performance of government may be
compared with the target set by them in
terms of revenue and expenditure; and
vi. To evaluate the economy, efficiency and
effectiveness with which governance
objectives are carried out.
 OBJECTIVES OF GOVERNMENT
ACCOUNTING
Other objectives of government accounting are:
i. To provide objective and timely communication of
financial position of a nation;
ii. To provide a basis for decision making by
government employees and political appointees in
the position of authority in a nation;
iii. To provide a basis for the appraisal of the
efficiency of government; and
iv. To provide a highlight of government revenue and
expenditure.
PURPOSE OF GOVERNMENT ACCOUNTING

I. Correctness of transactions and their conformity

with established rules
II. Evidence of financial accountability
III. Basis for decision-making
IV. Basis for planning
V. Basis for appraisal of the performance of
management
VI. Basis for controlling
VII.For Audit purposes
 Accounting concepts, conventions and
principles and basis of accounting
applicable to government
Accounting Concepts:
Consistency
Materiality
Periodicity
Monetary
Dual
Cost
Objectivity
 Accounting concepts, conventions and
principles and basis of accounting
applicable to government
Accounting Policy:
These are the specific accounting basis chosen by the
government as being best suited for use for a
particular business and applied consistently in the
presentation of financial statements.
 Accounting concepts, conventions and
principles and basis of accounting
applicable to government
Accounting Basis:
i. Cash basis: This basis embraces the movement of
cash as the basis of recognising income and
expenses. Income is recognised when money is
received. Expense is recognised when payment is
made.
 Accounting concepts, conventions and
principles and basis of accounting
applicable to government
ii. Accrual basis:
Accrual basis of accounting uses the notion of legal
obligation to record financial transactions. Once there
is a legally binding contract for the receipt of, or
render of service, recognition will be given to the
income or expenditure arising out of the contract.
The recognition of revenue or expenditure under this
technique does not depend on the point in time when
cash moves as either receipt or payment, as with the
cash basis.
 Accounting concepts, conventions and
principles and basis of accounting
applicable to government
The concept recognises the period when revenue is
deemed to have been earned rather than when it is
received. Revenue is earned when a benefit has been
given and the giver is entitled legally to receive
compensation for the benefit given.
Expenses on the other hand, are recognised when
incurred rather than paid. Expenses are incurred
when users of the benefits are obliged legally to pay,
in exchange.
 Accounting concepts, conventions and
principles and basis of accounting
applicable to government
iii. Commitment Basis:
The accounting technique recognises expenses as soon as
expenditure decisions are taken. As soon as a decision is
taken for the acquisition of a service or good, accounting
records for that begin and cash is set aside to pay for
such cost.
Financial transactions are therefore recorded as soon as
commitments are made. It is not when there is
movement of cash for a transaction, or when there is
documentary evidence in the form of invoice. This policy
said to be encumbrance accounting. Cash is encumbered
when it is set aside for a transaction.
 Accounting concepts, conventions and
principles and basis of accounting
applicable to government
An example is when orders are made for the
acquisition of some assets. Once the purchase order is
made, entries are expected to be made to reserve
money for the items. Though purchase order does not
bring about any legal obligation, hence no liability, an
encumbrance entry is made, reserving the necessary
amount of money for the order.
COMPARISONS BETWEEN PUBLIC AND
PRIVATE SECTORS
I. Objective of undertaking
II. Accounting basis
III. Source of revenue
IV. Accountability to stakeholders
V. Nature of accounting
VI. Legal basis
VII. Form of Equity
VIII. Presentation of financial statements
 USERS OF PUBLIC SECTOR
ACCOUNTING INFORMATION
i. Internal users of public sector accounting information
are:
a. Executives – President of the Federal Republic of
Nigeria, Governors and Chairmen of Local
Government Areas
b. The adviser to the executive (Federal Ministers, State
Commissioners)
c. Top administrators of government departments
(Director Generals, Executive Directors)
d. Managers of government units (General managers,
Chief Executive of NITEL, NPA, and others)
e. The Labour Union
 EXTERNAL USERS
The external users of government accounting
information are:
i.The National Assembly
ii.The General Public
iii.Government other than the reporting government
iv.Foreign friendly and unfriendly countries
v.Foreign financial institutions (IMF, World Bank,
African Development Bank)
vi.Foreign and local creditors
vii.Researchers and representatives of the media
 Financial statements
Financial statements represent the financial position
and financial performance of a reporting entity or
organization.
 Purpose of financial statements
The objectives or purpose of general purpose financial reporting
in the public sector are:
i.To provide information useful for decision making;
ii.To show accountability for financial and non-financial
resources to citizens of a nation;
This accountability shows:
The sources, allocation and uses of financial resources;
Financing of the activities of government;
The valuation of an entity’s ability to finance its activities and
settle liabilities;
Measurement of performance in relation to set objectives; and
Whether or not an entity has acted within the approved budget.
 Government Accounting Theory and
Processes
International Federation of Accountants (IFAC) set up a
Public Sector Committee to evolve universal and
standardised reporting formats and style, applicable in
national, regional and local governments and related
public agencies.

The committee developed International Public Sector

Accounting Standards to improve public sector financial
management, probity and accountability. The standards
advocate that the financial reports of public sector
organisations should be credible by conveying true and
fair views.
 International Public Sector Accounting
Standards (IPSASs)
The International Public Sector Accounting Standard Board
(IPSASB) is concerned with issuing standards that guarantees
that the financial reporting of public sector contains and
conveys true and fair views of the financial position of the
financial statements. It takes into account the features of the
public sector.
 International Public Sector Accounting
Standards (IPSASs)
IPSAB was formerly known as Public Sector Committee (PSC).
It is a board of the International Federation of Accountants
(IFAC). IPSASB is made up of 15 members, 13 of whom are
nominated by member bodies of IFAC, while the other two
are public members who in turn are nominated by any
individual or organization.
According to International Federation of Accountants (2011),
the objective of International Public Sector Accounting
Standards Board (IPSASB) is to enhance the quality and
transparency of public sector financial reporting by:
i.Establishing high-quality accounting standards for use by
public sector entities;
ii.Promoting the adoption and international convergence to
International Public Sector Accounting Standards;
iii.Providing comprehensive information for public sector
financial management and decision making; and
iv.Providing guidance on issues and experiences in financial
reporting in the public sector.
 MEANS THROUGH WHICH IPSAB
OBJECTIVES ARE ACHIEVED
1. Issuing International Public Sector Accounting Standards
(IPSASs) to improve financial reporting by governments
worldwide;
2. Promoting their acceptance and the international
convergence to these standards;
3. Providing useful information for public sector financial
management and decision making; and
4. Publishing other documents which provide guidance on
issues and experiences in financial reporting in the public
sector.
 IMPORTANCE OF IPSAS
According to International Federation of Accountants (2011),
IPSASs are important for the following reasons:
1.Better financial reporting;
2.Improvements in management of government resources;
3.Improvements in accountability by governments to the
people; and
4.Comprehensive view of a government’s financial position.
 THE RELEVANT STANDARDS
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 9- Revenue from exchange transactions
IPSAS 10 – Financial reporting in hyperinflationary economies
 THE RELEVANT STANDARDS
IPSAS 11 – Construction contracts
IPAS 12 – Inventories
IPSAS 13 – Leases
IPSAS 14 – Events after the reporting date
IPSAS 16 – Investment Property
IPSAS 17 – Property, Plant and Equipment
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
 THE RELEVANT STANDARDS
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 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
 THE RELEVANT STANDARDS
IPAS 31 – Intangible assets
IPSAS 32 – Service Concession Arrangements: Grantor
IPSAS 33 – First-time adoption of accrual basis IPSASs
IPSAS 34 – Separate Financial Statements
IPSAS 35 – Consolidated Financial Statements
IPSAS 36 – Investments in Associates and Joint Ventures
IPSAS 37 – Joint Arrangements
IPSAS 38 – Disclosure of Interests in Other Entities
IPSAS 39 – Employee Benefits
 THE RELEVANT STANDARDS
IPSAS 40 – Public sector combinations
IPSAS 41- Financial Instruments
IPSAS 42 – Social benefits
RPG 1 – Reporting on the Long-term sustainability of an
entity’s finances
RPG 2 – Financial statement discussion and analysis
RPG 3 – Reporting service performance information

The conceptual framework for general purpose financial

reporting by public sector entities
Financial reporting under the cash-basis of accounting
 IPSAS 1 – Presentation of financial
statements
The objective of IPSAS 1 is to set out the manner in which
general purpose financial statements shall be prepared under
the accrual basis of accounting, including guidance for their
structure and the minimum requirement for content.
 IPSAS 1 – Presentation of financial
statements
A complete set of financial statements is made up of:
i.Statement of financial position;
ii.Statement of financial performance;
iii.Statement of changes in net assets/equity;
iv.Cash flow statement;
v.When the entity makes its approved budget publicly
available, a comparison of budget and accrual amounts; and
vi.Notes, comprising a summary of significant accounting
policies and other explanatory notes.
 IPSAS 1 – Presentation of financial
statements
The notes to the financial statements shall contain:
i.Accounting policies followed;
ii.The judgments that management has made in the process
of applying the entity’s accounting policies that have the most
significant effect on the amounts recognized in the financial
statements;
iii.The key assumptions concerning the future, and other key
sources of estimation uncertainty, that have a significant risk
of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year;
IPSAS 1 – Presentation of financial
statements
iv. The domicile and legal form of the entity;
v. A description of the nature of the entity’s operations;
vi. A reference to the relevant legislation; and
vii. The name of the controlling entity and the ultimate
controlling entity of the economic entity.
 IPSAS 2 – Cash flow statements
The objective of IPSAS 2 is to present information about
historical changes in a public sector entity’s cash and cash
equivalents by means of a cash flow statement that classifies
cash flows during the period according to operating,
investing, and financing activities.
 IPSAS 2 – Cash flow statements
• Cash equivalents include investments that are short term
(less than three months from the date of acquisition),
readily convertible to known amounts of cash, and subject
to an insignificant risk of changes in value. Generally, they
exclude equity investments.
• Cash flows for operating activities are reported using
either the direct (recommended) or the indirect method.
• Public sector entities reporting cash flows from operating
activities using the direct method are encouraged to
provide a reconciliation of the surplus/deficit from
ordinary activities with the net cash flow from operating
activities.
 IPSAS 2 – Cash flow statements
• Cash flows from interest and dividends received and paid
shall each be disclosed separately and classified as either
operating, investing, or financing activities.
• Cash flows arising from taxes on net surplus are classified
as operating unless they can be specifically identified with
financing or investing activities.
 IPSAS 3 – Accounting policies, changes in
accounting estimates and errors
The objective of IPSAS 3 is to provide the criteria for selecting
and changing accounting policies, accounting treatment and
disclosure of changes in accounting policies, changes in
accounting estimates, and corrections of errors.
 IPSAS 3 – Accounting policies, changes in
accounting estimates and errors
In the absence of an IPSAS that specifically applies to a
transaction, other event or condition, management shall use
judgment in developing and applying an accounting policy
that results in information that is:
•Relevant to the decision-making needs of users
•Reliable, in that the financial statements:
• Represent faithfully the financial position, financial
performance, and cash flows of the entity
• Reflect the economic substance of transactions,
other events and conditions, and not merely the
legal form
IPSAS 3 – Accounting policies, changes in
accounting estimates and errors
• Are neutral
• Are prudent
• Are complete in all material aspects
 IPSAS 3 – Accounting policies, changes in
accounting estimates and errors
The criteria for choosing accounting policies based on IPSAS 3
are:
• IPSAS, taking into account any relevant implementation
guidance.
• In the absence of a directly applicable IPSAS, look at the
requirements and guidance in IPSAS dealing with similar and
related issues; and the definitions, recognition, and
measurement criteria for assets, liabilities, revenue, and
expenses described in other IPSASs.
• Management may also consider the most recent
pronouncements of other standard-setting bodies and
accepted public and private sector practices.
 IPSAS 3 – Accounting policies, changes in
accounting estimates and errors
Accounting policies should be consistently applied to
similar transactions.

A change in accounting policy should be made only if

it is required by an IPSAS, or it results in more reliable
and relevant information.
IPSAS 4 – The effects of changes in foreign
exchange rates
The objective of IPSAS 4 is to provide the accounting
treatment for an entity’s foreign currency
transactions and foreign operations.
IPSAS 4 – The effects of changes in foreign
exchange rates
• First, determine the reporting entity’s functional
currency — the currency of the primary economic
environment in which the entity operates.
• Next, translate all foreign currency items into the
functional currency:
IPSAS 4 – The effects of changes in foreign
exchange rates
• At the date of transaction, record using the spot
exchange rate for initial recognition and
measurement.
• At subsequent reporting dates:
i. Use closing rate for monetary items;
ii. Use transaction-date exchange rates for
nonmonetary items carried at historical cost;
and
iii. Use valuation-date exchange rates for
nonmonetary items that are carried at fair
IPSAS 4 – The effects of changes in foreign
exchange rates
The results and financial position of an entity’s foreign
operations whose functional currency is not the currency of a
hyperinflationary economy are translated into a different
presentation currency using the following procedures:
•Assets and liabilities for each statement of financial position
presented (including comparatives) are translated at the closing
rate at the date of that statement of financial position.
•Revenue and expenses of each statement of financial
performance (including comparatives) are translated at
exchange rates at the dates of the transactions.
•All resulting exchange differences are recognized as a separate
component of net assets/equity.
 IPSAS 5 – Borrowing costs
The objective of IPSAS 5 is to provide the treatment
for borrowing costs.
 IPSAS 5 – Borrowing costs
• Borrowing costs include interest, amortisation of
discounts or premiums on borrowings, and
amortisation of ancillary costs incurred in the
arrangement of borrowings.
• Two accounting treatments are allowed:
i. Expense model: Charge all borrowing costs to
expenses in the period when they are
incurred;
 IPSAS 5 – Borrowing costs
ii. Capitalisation model:
Capitalise borrowing costs which are directly
attributable to the acquisition or construction of
a qualifying asset, but only when it is probable
that these costs will result in future economic
benefits or service potential to the entity, and
the costs can be measured reliably. All other
borrowing costs that do not satisfy the
conditions for capitalisation are to be expensed
when incurred.
 IPSAS 5 – Borrowing costs
Where an entity adopts the capitalisation model, that
model shall be applied consistently to all borrowing
costs that are directly attributable to the acquisition,
construction, or production of all qualifying assets of
the entity. Investment income from temporary
investment shall be deducted from the actual
borrowing costs.
 IPSAS 5 – Borrowing costs
A 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.
 IPSAS 5 – Borrowing costs
If funds are borrowed generally and used for the
purpose of obtaining the qualifying asset, apply a
capitalisation rate (weighted-average of borrowing
costs applicable to the general outstanding
borrowings during the period) to outlays incurred
during the period, to determine the amount of
borrowing costs eligible for capitalisation.
 IPSAS 9 – Revenue from exchange
transactions
The objective of IPSAS 9 is to provide the accounting
treatment for revenue arising from exchange
transactions and events.
 IPSAS 9 – Revenue from exchange
transactions
IPSAS 9 applies to revenue arising from the following
exchange transactions and events:
i.The rendering of services
ii.The sale of goods
iii.The use of others of entity assets yielding interest,
royalties, and dividends

Revenue shall be measured at the fair value of the

consideration received or receivable.
 IPSAS 9 – Revenue from exchange
transactions
Recognition:
i.From sale of goods: When significant risks and
rewards have been transferred to purchaser, loss of
effective control by seller, amount of revenue can be
reliably measured, it is likely that the economic
benefits or service potential associated with the
transaction will flow to the entity, and the costs
incurred or to be incurred in respect of the
transaction can be measured reliably.
IPSAS 9 – Revenue from exchange
transactions
ii. From rendering of services: Reference to the
stage of completion of the transaction at the
reporting date, provided the outcome of the
transaction can be estimated reliably. If the
outcome of the transaction cannot be
estimated reliably, revenue must be
recognized only to the extent of the expenses
recognized that are recoverable.
IPSAS 9 – Revenue from exchange
transactions
iii. For interest, royalties, and dividends:
Recognized when it is probable that economic
benefits or service potential will flow to the
entity, and the amount of the revenue can be
measured reliably.
• Interest — on a time proportion basis that takes
into account the effective yield on the asset.
• Royalties — as they are earned in accordance
with the substance of the relevant agreement.
• Dividends or their equivalents — when the
shareholder’s or the entity’s right to receive
payment is established.
 IPSAS 10 – Financial reporting in
hyperinflationary economies
The objective of IPSAS 10 is to provide specific
standards for entities reporting in the currency of a
hyperinflationary economy, so that the financial
information is meaningful.
 IPSAS 10 – Financial reporting in
hyperinflationary economies
• The financial statements 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 period(s) and any
information in respect of earlier periods shall be
stated into the same measuring unit current at the
reporting date.
 IPSAS 10 – Financial reporting in
hyperinflationary economies
• The surplus or deficit on the net monetary position
shall be separately disclosed in the statement of
financial performance.
• When entities in the public sector include in their
financial statements the related budgetary
information, the budgetary information shall also
be restated into the same current measuring unit.
• Generally, an economy is hyperinflationary when
there is a 100% cumulative rate of inflation over
three years.
 REVISION QUESTIONS
1. Explain the concept of public sector accounting.
2. Discuss the objectives of government accounting.
3. How can the objectives of government accounting
be achieved?
4. Explain the two categories of users of government
accounting information.
5. Distinguish between public sector accounting and
private sector accounting with examples.
6. Discuss the objectives of the IPSASB.
 References
1. Institute of Chartered Accountants of Nigeria
(2014). Public sector accounting.
2. International Federation of Accountants (2011).
Importance of IPSAS.
3. Deloitte (2019). IPSAS in your pocket. Available at:
www.iasplus.com
QUESTIONS
THANK YOU