A snapshot of GAAP differences between IPSAS and IFRS April 2013

A snapshot of GAAP
differences between
IPSAS and IFRS
April 2013
Introduction
The ongoing sovereign debt crisis in several countries around the world has demonstrated the challenges of maintaining financial stability
for these governments. Many governments are exploring the adoption of accrual-based accounting frameworks in order to improve their
decision-making ability to prevent and respond to these issues. International Public Sector Accountancy Standards (IPSAS) is considered
the definitive set of accrual-based international accounting standards for the public sector.
There is a close relationship between IPSAS and International Financial Reporting Standards (IFRS) due to the fact that IPSAS standards
are largely based on the principles of IFRS. The rationale for drawing from IFRS is to ensure greater comparability between private and
public sector reporting when accounting for similar types of transactions. However, IFRSs are developed primarily for profit-oriented
entities, whereas IPSASs are written for public sector entities that provide services to enhance and maintain the well-being of the citizens
of a state. These differences between the two reporting frameworks stem primarily from the following three sources:
• Changes made by the IPSASB when developing an equivalent IPSAS based on an IFRS, to reflect differences between the public and
private sectors
• Differences in the range of topics covered by the two sets of standards because of differences in the prevalence of particular types of
transactions, such as non-exchange transactions
• Differences in the timing of when new or amended requirements are introduced into each set of standards
Process of setting IPSAS standards
An IASB
standard
1
IPSASB standardsetting process
which considers
public sector specific
requirements
through sectorfocused research
Due process
through public
consultation
A snapshot of GAAP differences between IPSAS and IFRS
Issue an
IPSAS
Key differences between IPSAS and IFRS
1) Service potential as part of the definitions and recognition criteria
Many of the assets and liabilities of entities within the public sector are acquired or incurred as a result of the entity’s service delivery
mandate, for example, heritage assets and parks maintained for public access. IPSAS introduces the concept of service potential1
into the definition of assets, liabilities, revenue and expenses. Service potential is also a supplementary recognition criterion to
account for items that do not result in the inflow or outflow of economic benefits, where an item either contributes to or detract from
the entity’s ability to deliver its services.
2) Exchange vs non-exchange transactions
Non-exchange transactions are those transactions where 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. Within the public sector non-exchange transactions are prevalent. IPSAS provides principles to guide the measurement
and recognition of non-exchange transactions, whereas IFRS is generally silent on the matter.
3) Recognition of revenue from government grants
IPSAS focuses on whether there is entitlement to the revenue from government grants (even though there may be restrictions on
how the funds are spent), or an obligation to meet certain conditions, which is recorded as liability. The distinction between
restrictions and conditions is crucial in determining whether or not to recognize revenue from a non-exchange transaction. As a
result, government grants are generally fully released to income earlier under IPSAS than under IFRS.
4) Income tax
IPSAS presumes that entities that operate within the public sector are generally exempt from income taxes and therefore does not
cater for the accounting of income taxes. In the unlikely event that an entity reports using IPSAS but is liable for tax, reference
should be made to IFRS (IAS 12 Income Taxes) for guidance.
5) Consolidations and interests in associates and joint ventures
With the introduction of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosures of
Interests in Other Entities, there are significant differences between IFRS and IPSAS. IPSAS is still based on IAS 27 Consolidated and
Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interest in Joint Ventures. The main difference that
arises with the introduction of IFRS 10, IFRS 11 and IFRS 12 is the manner in which control is determined for the purpose of
consolidation. Until the IPSASB finalizes its project to consider these new developments in IFRS, this could become a major source of
difference between the two frameworks.
6) Financial instruments classification and measurement
With the introduction and ongoing development of IFRS 9 Financial Instruments, the classification and measurement of financial
instruments under IFRS is changing from IAS 39. Prior to IFRS 9, the recognition and measurement of financial instruments were
similar under IFRS and IPSAS. Until the IPSASB finalizes its project to consider these new developments in IFRS, this could become a
major source of difference between the two frameworks.
7) Reporting of budgets vs actual
With the increased focus on stewardship, service delivery and budget management in the public sector, IPSAS requires a comparison
of the actual financial performance of an entity with the approved budget of that entity, where the budget is publicly available. There
is no equivalent requirement in IFRS.
1
Service potential indicates the capacity of an asset to provide goods and services in accordance with an entity’s objectives, without necessarily generating any net cash in-flows.
A snapshot of GAAP differences between IPSAS and IFRS
2
8) Impairment of non-cash-generating assets
In light of the assets recognized based purely on their service potential (as opposed to economic benefits), IPSAS also caters
specifically for impairment considerations for non-cash-generating assets. IFRS assumes that all assets will be cash-generating;
whereas IPSAS assumes that the majority of a public sector entity’s assets are likely to be non-cash generating. IPSAS 21 Impairment
of Non-cash-generating Assets provides specific guidance on how to determine the value-in-use of such assets.
9) Elimination of private sector specific concepts
IFRS provides principles for certain economic phenomena that are irrelevant to the operations of a public sector entity, such as
accounting for share-based payments and earnings per share disclosures. IPSAS excludes such guidance and refers reporting entities
back to IFRS if and when applicable.
10)Growing divergence in the conceptual framework of the IPSASB and IASB
The IPSASB is in the process of developing its own conceptual framework, proposing concepts that may be more suitable in the
public sector context. We may see further differences in the outlook and focus of the IPSASB and IASB in the future.
Similarities between IPSAS and IFRS
The table below provides an overview of IPSAS and IFRS topics. This table indicates whether the topics are addressed by the two
frameworks. Furthermore, the table provides an indication of the extent to which the principles and requirements (for the topic) are
similar between the two frameworks.
The following legend is used to indicate the degree of similarity between the two frameworks for each of the topics:
Symbol
The two frameworks have minor differences that mostly result from terminology differences and public sector specific
additional guidance.

The frameworks are moderately different in this respect and encompass differences in classification, recognition,
measurement and/or disclosure requirements.

Significant differences noted in the classification, recognition, measurement and/or disclosure requirements.


3
Meaning
No equivalent standard in the comparative framework and therefore an entity may need to refer to other frameworks or
pronouncements for guidance.
A snapshot of GAAP differences between IPSAS and IFRS
Similarities between IPSAS and IFRS continued
Topic
Adressed in
IPSAS
IFRS 2
Prior to new IFRSs
being effective 3
After new IFRSs
are effective 3
Presentation of financial statements
Presentation of financial statements
P
 
P
 
Cash flow statements
P
 
P
 


Accounting policies, changes in accounting estimates and errors
P
 
P
 


Presentation of budget information in financial statements
P
 
X
Non-current assets held for sale and discontinued operations
X
P
 


Accounting of retirement benefit plans
X
P
 


Interim financial reporting
X
P
 


The effects of changes in foreign exchange rates
P

P






Revenue and expenses

Revenue
P
 
P
 
Construction contracts
P
 
P
 
Revenue from non-exchange transactions (taxes, transfers and
government grants)
P
 
P
 4
Income taxes
X
P
 
Leases
P
 
P
 
Borrowing costs
P
 
P
 















Non-financial assets



Inventories
P
 
P
 
Investment property
P
 
P
 


Property, plant and equipment
P
 
P
 


Intangible assets
P
 
P
 


Agriculture
P
 
P
 


Impairment of cash-generating assets
P
 
P
 


Impairment of non-cash-generating assets
P
 
X
Exploration for and evaluation of mineral resources
X
P
 







Non-financial liabilities

Employee benefits
P
 
P
 

Provisions, contingent liabilities and contingent assets
P
 
P
 






his comparison takes into consideration those IFRSs and IPSASs that are effective as at 1 January 2013 and does not consider IPSAS or IFRS projects currently under
T
development. For more information on current IPSASB Projects, see our newsletter, IPSAS Outlook, available at www.ey.com/ipsas.
3
New IFRSs refers to IFRS 9 (effective 1 January 2015), IFRS 10, IFRS 11, IFRS 12 and IFRS 13 (effective 1 January 2013).
4
IFRS only considers government grants and does not address the broader range of non-exchange transactions covered in IPSAS.
2
A snapshot of GAAP differences between IPSAS and IFRS
4
Similarities between IPSAS and IFRS continued
Topic
Adressed in
IPSAS
IFRS1
Group accounting
Prior to new IFRSs
being effective 3

Consolidated and separate financial statements
P
 
P
 
Investments in associates
P
 
P
 
Interests in joint ventures
P
 
P
 
Disclosure of interests in other entities
P
 
P
 
Business combinations
X
P
 
Financial instruments
After new IFRSs
are effective 3











Financial instruments: presentation
P
P
Financial instruments: recognition and measurement
P
P
Financial instruments: disclosures
P
P
Share-based payment
X
P


Insurance contracts
X
P






Fair value measurement

Fair value measurement
X


P
Disclosure-only standards


Segment reporting
P
P


Related party disclosures
P
P



Disclosure of financial information about the general
government sector
P

X

Earnings per share
X
P

Adjustments to financial statements



Events after the reporting date
P
P
Financial reporting in hyperinflationary economies
P

P

5


A snapshot of GAAP differences between IPSAS and IFRS





Similarity between IPSAS and IFRS by topic
Based on the table above, the following graph compares the degree of differences (minor, moderate or significant) between IPSAS and
IFRS by topic, prior to and after the new IFRSs become effective.5
Degree of
difference
4
Significant
10
20
Moderate
14
5
Minor
5
5
10
15
Number of
20 topics
Prior to the new IFRSs becoming effective
After the new IFRSs become effective and before IPSASB concludes on whether to adopt the changes
The graph above shows that prior to the new IFRSs becoming effective, four out of 29 topics are significantly different between IPSAS
and IFRS. The number of topics with significant differences between the two GAAPs increases after the new IFRSs become effective.
Going forward
This publication highlights the key differences between IPSAS and IFRS, amongst the many other differences between the two
frameworks. Although the IPSASB has not yet considered many of the more recent new or amended IFRSs, as a result of its focus on
completing the conceptual framework project, it has started to look at some of the new IFRSs, for example IFRS 10, IFRS 11 and IFRS 12.
It is worth noting that the IPSASB sees, as part of its role, the need to also address issues outside the boundaries of general purpose
financial statements, including the presentation of long-term fiscal sustainability information and service performance information.
We encourage you to refer to our quarterly newsletter, IPSAS Outlook, which provides regular update on the activities and progress of the
IPSASB’s projects. This newsletter and other IPSAS-related publications are available on www.ey.com/IPSAS.
5
New IFRSs refers to IFRS 9 (effective 1 January 2015), IFRS 10, IFRS 11, IFRS 12 and IFRS 13 (effective 1 January 2013).
A snapshot of GAAP differences between IPSAS and IFRS
6
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